UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1998 OR Commission File Number 0-14449
BeautiControl Cosmetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2036343
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
2121 Midway, Carrollton, TX 75006
(Address of principal executive offices) (Zip Code)
972/458-0601
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.[X]
Aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of
February 4, 1999, computed by reference to the closing sale price of the
registrant's Common Stock on the NASDAQ National Market System on such
date, was approximately $44,292,619.
Number of shares of the registrant's Common Stock outstanding as of
February 4, 1999: 7,231,448.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of the registrant's definitive Proxy Statement in
connection with the 1999 Annual Meeting of Stockholders to be held
on April 6, 1999 are incorporated by reference into Part III of this
report.
PART I
Item 1. Business
General
BeautiControl Cosmetics, Inc. is a manufacturer and direct seller
of skin care, nutritional supplements, cosmetics, nail care,
toiletries, beauty supplements and related products. The Company
sells its products through independent sales persons called
"Consultants" (or "Distributors"), who purchase the products from
BeautiControl and then sell them directly to consumers in the home
or workplace. Products and image services are provided to clients
in the United States, Taiwan, Canada, Puerto Rico and other
emerging international markets.
Skin Condition Analysis utilizes the patented product "Skin
Sensors" to assist the Consultant in analyzing the customer's skin
condition. This enables the Consultant to recommend the specific
customized skin care regimen required to meet the individual needs
of each consumer.
Color analysis, an image-enhancing service, allows the matching of
color-coded cosmetics with a customer's natural coloring, helping
customers select the most flattering color choices. A computer-
assisted head-to-toe image analysis referred to as the Personal
Image Profile is used to provide women with specific
recommendations on makeup, fashion and accessory styles to create
each individual's best image.
These services, combined with products that are fragrance free,
dermatologist, sensitivity, allergy and ophthalmologist tested, and
which are also certified as non-comedogenic, constitute total
wellness offered by the Company.
The Company was organized and incorporated in 1986 under the laws
of the State of Delaware and maintains its principal executive
offices at 2121 Midway Road, Carrollton, Texas 75006.
Products
The Company's products consist of skin care products, nutritional
supplements, cosmetic makeup products, nail care products,
fragrances, beauty supplements and color and image analysis
accessories.
<PAGE>
The Company believes that skin care and cosmetic products sold at
retail may generally be grouped in three price categories: the
least expensive are generally sold in drug stores and supermarkets;
moderately priced and premium priced products are generally sold
in leading department stores and specialty shops. Although the
Company's skin care products and cosmetic makeup products are
considered by the Company to be comparable in quality and image to
premium priced products, the Company suggests that Consultants
sell the Company's products at retail prices which the Company
believes are equivalent to those moderately priced products sold in
leading department stores and specialty shops.
The Company's nutritional supplement products use formulas designed
to increase total wellness, including a line of advanced
nutritional supplements known as nutraceuticals. These products
build up the immune system using a proprietary ingredient called
Veraloe and are not found in retail outlets or drug stores.
The Company also has a health and beauty supplements line, WITHIN
BEAUTY[TM]. This product line includes hair and nail supplements,
skin condition supplements and supplements designed for the
different stages of a woman's life. The Company also provides
SlenderGenics, a weight management system, and PMS Support Complex
to its health and beauty product line. The SlenderGenics system
includes a metabolic booster supplement and appetite satisfying
wafers. PMS Support Complex contains beneficial vitamins, minerals
and herbs to help reduce the negative physical and emotional
symptoms of PMS.
During 1998, the Company presented all new skin care and glamour
product packaging. Major new product introductions include the
addition of REGENERATION[R] GOLD lip therapy to the REGENERATION
product line and Cell Block-C which provides comprehensive skin
care protection.
Marketing and Distribution
The Company's skin care, cosmetics, nutritional supplements and
related products are sold through Consultants (or Distributors) who
are independent contractors, not employees of the Company. As of
November 30, 1998, the total Consultant and Distributor count was
63,205.
Consultants may sell the Company's products one-on-one, to groups
of people or through home demonstrations called Skin Care and
Color Clinics ("Clinics"). Additionally, Consultants are
encouraged to market the products through personal consultations
and product brochure sales in order to utilize multiple selling
opportunities.
In order to provide immediate product delivery, Consultants may
maintain a small inventory of products. Consultants make their own
payment arrangements with their customers. The Company clears
credit card payments to Consultants for selected credit cards,
presently MasterCard, Visa, Novus/Discover Card and American
Express.
<PAGE>
The Company sells its products to its Consultants generally on a
payment-in-advance basis. Consultants pay for the Company's
products by wire transfer, Western Union Quick Collect, money order
or credit card, and selectively by personal check. Additionally,
the Company offers occasional product programs allowing credit
terms of approximately 45 days to approved Consultants.
Consultants are offered the Company's products at wholesale
discounts from suggested retail prices for resale to their
customers. These wholesale discounts range from 25% to 55% based
upon the timing and dollar amount of the Consultant's order. Sales
taxes are generally prepaid to the Company by Consultants for
transmittal to taxing authorities.
The Company maintains inventory which generally permits the Company
to ship goods in response to an order within 72 hours of the
Company's receipt of the order.
During 1998 in the U.S., the Company relied primarily upon United
Parcel Service and United States parcel post and mail to ship
products from its distribution facility in Farmers Branch, Texas.
The Canadian subsidiary utilizes United Parcel Service and Canada
Post. The Taiwan Branch orders are either picked up on-site or
delivered by a local service.
In the U.S. Client Connection Program, direct mailings to consumers
are made by the Company that vary five to six times a year. This
direct mailing program allows the Company to communicate directly
with the consumer and encourages the consumer to contact her
Consultant to reorder the Company's products.
Product orders from the Company can be made by mail, fax and
through on line services.
The sales efforts of Consultants are also supported through
Company-sponsored seminars and sales conferences held several times
each year in various locations.
Manufacturing
The Company's manufacturing facility is located in Carrollton,
Texas at which it manufactures or assembles the majority of
products sold.
Of the Company's sales approximately 20% was comprised of items
produced by various unaffiliated manufacturers. Such outside
manufacturers are used when the Company believes that such firms
are able to manufacture products according to Company
specifications less expensively than the Company.
<PAGE>
Materials used in the Company's skin care, cosmetic and beauty
supplements products consist chiefly of readily available
ingredients, containers and packaging materials. Such raw
materials and components used in goods manufactured and assembled
by the Company are available from a number of sources. To date,
the Company has been able to secure an adequate supply of raw
materials and components for its manufacturing facility. The
Company endeavors to maintain relationships with backup suppliers
in an effort to ensure that no interruptions in the Company's
operations are likely to occur.
The Company's manufacturing facility includes microbiology/quality
control and product development laboratories. These laboratories
are intended to facilitate and expedite quality control and to
continue the development of new products for the Company. The
Company continually engages in research and development activities
to improve its existing products and to develop new products. The
amount spent on research and development activities on the
formulation and improvement of Company products was $933,000 in
1998, $918,000 in 1997 and $851,000 in 1996. Expenditures included
in these amounts consist of the following direct costs: materials
consumed, depreciation of equipment used in development activities,
labor, and contractual services performed by outside parties for
product testing. Research and development activities are primarily
conducted on product and packaging design for the Company's skin
care, nutritional supplements, cosmetics, fragrance and beauty
supplements.
Employees
At February 1, 1999, the Company employed 364 persons in North
America and Taiwan, 38 of which were engaged in the manufacture and
assembly of the Company's products. None of the Company's employees
are represented by a union and the Company considers its employee
relations to be good. All key employees are required to enter into
an agreement with the Company whereby each employee agrees to
maintain the confidentiality of customer lists and other sensitive
information.
Trademarks and Patents
The Company has registered all its trademarks in the United States
and has registered or is in the process of registering its
principal trademarks in Canada, Taiwan, Hong Kong and many other
countries. The Company has the exclusive right to distribute the
Skin Condition Analysis product "Skin Sensors" worldwide with the
option to renew this exclusive right each year. The Company is
licensed to use the following trademarks: "Skinlogics", "Sunlogics"
and "Nailogics". The Company has a patent on the formulas for its
"REGENERATION and REGENERATION [2]", alpha-hydroxy acid based,
products.
<PAGE>
Competition
The cosmetic and nutritional supplement industries are highly
fragmented and competitive markets which are sensitive to changing
consumer preferences and demands. There are many large and well
known companies that manufacture and sell broad lines of skin care,
nutritional supplements and cosmetic products through retail
establishments. The Company competes with a number of direct sales
companies who market skin care and cosmetic products and
nutritional supplements. The Company also competes, to an extent,
with other direct sales companies in attracting new Consultants.
Many companies market products which are better known than the
Company's products and many cosmetics companies are larger and have
substantially greater resources than the Company.
The principal bases of competition in the cosmetic and nutritional
supplement businesses generally are marketing, price, quality and
newness of products. The Company has attempted to differentiate
itself and its products from the industry in general through the
use of a number of value-added services previously described and by
being technologically at the forefront of the industry. There can
be no assurance that similar marketing techniques and products will
not be adopted by competitors in the future.
Regulation
The Company is subject to regulation by the United States Food and
Drug Administration and the Bureau of Alcohol, Tobacco and Firearms
of the Treasury Department, as are other marketers and
manufacturers of cosmetic and nutritional supplement products. The
Company's advertising and sales practices are subject to the
jurisdiction of the Federal Trade Commission. In addition, the
Company is subject to numerous federal, state, and local laws
relating to marketing and to the content, labeling and packaging of
its products.
Various governmental agencies regulate direct selling activities,
and the Company has occasionally been requested to supply
information regarding its marketing plan to certain such agencies.
Also, the Company is currently an active member in certain
associations unique to the direct selling industry. These
associations require companies to abide by a specific code of
ethics established by the industry. Although the Company believes
that its method of distribution is in compliance with laws and
regulations relating to direct selling activities, there is no
assurance that legislation and regulations adopted in particular
jurisdictions in the future will not affect the Company's
operations.
In connection with its manufacturing processes, the Company is
subject to various governmental regulations governing the discharge
of materials into the environment. Compliance with these
regulations has not had, and is not anticipated to have, any
material impact upon the Company's capital expenditures, earnings
or competitive position.
<PAGE>
Recent Developments
The Company established a wholly owned subsidiary in the United
States called Eventus[TM] International, Inc. This Company will
operate in the network marketing segment of the direct selling
industry and its products will be sold through independent sales
persons ("Distributors"). Eventus International will position
itself in the nutritional supplements market and will support a
personalized, preventive approach to wellness and health care
through the use of nutritional supplements known as nutraceuticals.
Products offered will be individualized to a person's specific
cultural heritage, with additional supplements based on a person's
specific health needs. The Distributor compensation plan, which is
a unilevel and generational plan, consists of two elements which
the Company calls the Fast Track Star Bonus program and the
UniGen[TM] Compensation Plan. Together, these plans form a
compensation structure that provides immediate income
opportunities. An informal pre-launch for Eventus[TM]
International, Inc. was January 22, 1999. The Company will begin
full operations on or about April 1, 1999. Initially, the Company
will conduct business in the United States. In the future, the
Company expects to expand Eventus internationally.
Item 2. Properties.
The Company's domestic corporate headquarters is located in
Carrollton, Texas in a building owned by the Company. The
manufacturing and warehouse facility is also located in Carrollton,
Texas. The Company leases this building under a lease that expires
in 1999. The Company's distribution center is housed in a leased
building in Farmers Branch, Texas under a lease expiring in 1999.
Both leases, at the Company's option, may be extended for an
additional five years at the fair market rental rate in effect at
the time for properties of equivalent use and size in the area.
The Company also leased an additional warehouse facility in 1997
which is located in Carrollton, Texas; this lease was renewed
through September 1999. The Canadian subsidiary, located in
Burlington, Ontario leases a combined office and distribution
facility that expires in 2001. The Company's Taiwan branch has a
leased facility in Taipei, Taiwan that expires in 2000 with first
rights to renew upon expiration. The Company's Hong Kong branch
leased a facility starting in December 1999 and expiring in 2003.
Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries is a party to any pending
proceedings which in Management's opinion, would have a material
adverse effect on the results of operations or financial condition
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year covered by
this report.
<PAGE>
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters.
The Common Stock is traded in the over-the-counter market under the
symbol BUTI and is quoted on the NASDAQ National Market System.
The following table sets forth, for the periods indicated, the high
and low closing sale prices for the Company's Common Stock on the
NASDAQ National Market System.
1998 1997
High Low High Low
----- ----- ------ ------
First Quarter $8.625 $7.125 $18.750 $13.000
Second Quarter 10.250 8.125 17.125 8.875
Third Quarter 10.000 6.125 12.875 9.000
Fourth Quarter 8.000 5.375 10.000 8.000
The high and low sales prices on February 4, 1999, as quoted on the
NASDAQ National Market System were $6.125 and $6.000, respectively.
As of February 8, 1999, there were approximately 2,055 shareholders
of record of the common stock, including nonobjecting beneficial
holders whose stock is held in nominee or street name by broker.
Cash dividends were paid in each quarter of 1998 and 1997 at a rate
of $.105 per share. While it is anticipated that quarterly
dividends will continue to be declared, the final determination
will depend upon the future earnings and financial position of the
Company and such other factors as the Board of Directors may deem
appropriate.
<PAGE>
<TABLE>
Item 6 - Selected Financial Data
(In thousands, except per share data)
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
INCOME STATEMENT DATA:
Years ended November 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales $72,163 $69,421 $80,108 $74,679 $70,591
Cost of goods sold 21,633 19,005 19,830 18,920 17,298
Selling, general and
administrative
expenses 55,683 50,294 52,308 48,672 44,238
Income (loss) from
operations (5,153) 122 7,970 7,087 9,055
Other income, net 284 276 442 529 396
Income (loss) before
income taxes (4,869) 398 8,412 7,616 9,451
Income taxes (1,707) 274 3,011 2,914 3,308
Income (loss) before
cumulative effect of
change in accounting
principle (3,162) 124 5,401 4,702 6,143
Cumulative effect of
change in accounting
principle - - - - 172
Net income (loss) ($3,162) $124 $5,401 $4,702 $6,315
Net income (loss) per
common share $(0.49) $0.02 $0.93 $0.73 $0.93(2)
Net income (loss) per
common share- $(0.49) $0.02 $0.90 $0.70 $0.88(2)
assuming dilution
Dividends per share $0.42 $0.42 $0.42 $0.42 $0.315
BALANCE SHEET DATA:
Total assets $42,016 $29,356 $33,910 $29,354 $34,935
Working capital 9,656 7,391 9,436 3,350 7,147
Long term borrowings 1,221 1,200 3,900 1,400 -
Stockholders equity 22,439 17,882 19,311 17,318 23,788
CONSULTANT DATA:
Number of consultants
at fiscal year end 63,205 49,413 50,897 45,745(1) 42,108
(1) Excludes Consultants from certain test programs.
(2) Excluded a onetime addition to net income of $.02 per share
from the adoption of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which
superceded Statement of Financial Accounting Standards
No. 96.
</TABLE>
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation
BeautiControl Cosmetics, Inc. (the Company) is a manufacturer
and direct seller of skin care, nutritional supplements,
cosmetics, beauty supplements and related products. The
Company sells its products to independent Consultants (or
Distributors) who in turn sell to end consumers. Sales figures
are based on orders shipped less returns. The percentage of
the Company's total sales contributed by various product groups
for the period set forth below were as follows:
Year end November 30,
1998 1997 1996
---- ---- ----
Skin care products 47% 46% 44%
Cosmetic makeup products 33 32 31
Cosmetics, color an image
analysis accessories 13 13 13
Nutritional and Beauty 4 6 10
supplements
Fragrance, toiletry and nail 3 3 2
care products
---- ---- ----
Total sales 100% 100% 100%
1998 was an important year for the Company in the progress
achieved in business expansion to new geographic markets and
new segments of the direct selling industry. These new
directions are key steps in positioning the Company as an
international provider of both cosmetics and wellness products
for our consumers as well as innovative career and earnings
opportunities for our Consultants, Directors and Distributors.
The base U.S. business, BeautiControl Cosmetics, had improved
sales results year over year for the fourth quarter of 1998 but
experienced a decrease in annual sales. This "party plan"
business has continued to be impacted by the U.S. environment
of low employment and low inflation, which makes recruiting
difficult. In early Spring, the Company plans to introduce
innovative improvements to the earnings opportunity for this
segment of the business.
January of 1998 marked the opening of the Company's Taiwan
operations, the first Asia Pacific country in its global
expansion strategy. Operations in the Company's second Asian
market, Hong Kong, are slated to open in March, 1999. New
product lines are being introduced and new features added to
the compensation plan to ensure continued growth in recruiting
and sales for both markets.
In January, 1999 the Company is also entering into the fast
growing nutritional supplements market with the opening of a
U.S. subsidiary, Eventus International, Inc. Eventus will offer
leading products in the advanced field of nutritional
supplements known as nutraceuticals. These products build up
the immune system using a proprietary ingredient called
Veraloe[TM] and are not found in drug stores or other retail
outlets.
<PAGE>
This planned expansion continues to require significant
investments in operating expenses, inventory and capital. In
1998, our Asia and U.S. network marketing expansion and
development costs impacted before tax profits by $4.4 million.
The Company expects capital and start-up expenses in these
businesses to continue into 1999.
RESULTS OF OPERATIONS OF THE COMPANY
Fiscal 1998 compared to Fiscal 1997
Net sales for 1998 were $72,163,000 compared with $69,421,000
in 1997. This year's consolidated sales growth of 4.0% is
attributed to the added Taiwan business that opened in January
1998. Domestic sales were down 3.2% in 1998 compared with 1997.
This was due to the adverse impact on sales and recruiting
activity caused by the continuing trend of a favorable economy
of low unemployment and low inflation creating a challenging
environment for new recruits.
Gross profit margins were 70.0% in 1998 compared with 72.6% in
1997. The change in margins is primarily a result of increases
to obsolete inventory reserves. In 1998, the Company provided
for non-cash write-downs of $2,140,000 for inventory due to
excess supply of dated inventory for a product line introduced
in 1996 and write-downs related to new developments planned for
the U.S. business in early 1999 which made certain products
obsolete. Also affecting profit margins in 1998 was the spring
recruiting drive during the second quarter. The promotion
offered a reduced entry cost on low margin demonstration kits
sold to new Consultants.
Selling, general and administrative expenses as a percent of
sales increased to 77.2% in 1998 compared with 72.4% in 1997.
The increase in costs is largely due to higher commission
expense resulting from the addition of the Taiwan business.
Total Company commissions as a percent of sales were 3.2%
higher in 1998 versus 1997. Promotion costs increased $887,000
or 1.2% of net sales in 1998 compared with 1997 as a result of
the Company's aggressive spring recruiting drive which occurred
in the second quarter of 1998. Expansion and development costs
also increased this year due to the opening and continued
development of the Taiwan branch, expansion into Hong Kong and
the establishment of a new Company in the U.S., Eventus[TM]
International, Inc. Total expansion costs for 1998, affecting
selling, general and administrative, were $3,829,000 compared
with $3,056,000 in 1997.
Primarily as a result of these new expansion efforts and the
inventory write-down, net loss was ($3,162,000) or ($.49) per
common share in 1998 compared with net income of $124,000 or
$.02 per common share in 1997. The income tax benefit for 1998
was ($1,707,000) compared to a provision of $274,000 in 1997.
The effective tax rate was affected by state franchise tax
partially offset by a foreign operations net loss.
Fiscal 1997 compared to Fiscal 1996
<PAGE>
Net sales for 1997 were $69,421,000 compared with $80,108,000
in 1996. Several key factors have attributed directly to 1997's
sales performance. Most notably were those that have affected
recruiting. Year end Consultant count was 49,413 in 1997
versus 50,897 in 1996. A favorable U.S. economy of low
unemployment and low inflation has had an adverse impact on the
direct selling industry which created a challenging environment
for new recruits.
Two major successes in 1996 also impacted the year's sales
results. They include the Company's highly successful
recruiting promotion during the first half of 1996 and the
introduction of SlenderGenics Weight Management System which
generated nearly $4,000,000 in incremental sales during the
fourth quarter of 1996.
Extensions to the REGENERATION product line, REGENERATION GOLD
and REGENERATION GOLD Eye Repair caused shifts in product
categories in 1997. The skin care line increased to 46% in 1997
from 44% in 1996. The 1996 introduction of the SlenderGenics
Weight Management System shifted the health and beauty
supplements to 10% in 1996 from 4% in 1995; this category
subsequently evened out to 6% in 1997.
Gross profit margins were 72.6% in 1997 compared with 75.2% in
1996. The decrease in gross profit margins for 1997 was largely
due to absorption of factory overhead and increases in
inventory reserves. For the year, these costs were an
additional 2.4% of net sales in 1997 compared to 1996.
Selling, general and administrative expenses as a percent of
sales increased to 72.4% in 1997 from 65.3% in 1996. Overall
total spending in these costs were reduced by nearly $2,000,000
in 1997 compared to 1996. However, a decrease in sales has
caused actual cost as a percent of sales to be unfavorable.
The first two quarters of 1997 made up most of the dollar
savings in total spending for selling, general and
administrative expenses. This was primarily due to lower costs
incurred in recruiting and promotion activities. In addition,
there was a reduction from prior year promotion and training
costs associated with the successful 1996 recruiting campaign.
Selling, general and administrative spending in the third and
fourth quarters of 1997 was heavily focused on start-up and
investment spending for the Company's Taiwan branch that opened
on January 8, 1998.
Other income and expense decreased to $276,000 in 1997 compared
with $442,000 in 1996. In 1997, the Company sold its
investments resulting in a reduction in investment related
income.
As a result of the above, net income decreased to $124,000 or
$.02 per common share in 1997 compared with net income of
$5,401,000 or $.93 per common share in 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1998 was $9,656,000 compared
with $7,391,000 at November 30, 1997. Combined cash and short-
term investments increased by $8,513,000 in 1998 versus 1997.
Primary sources of cash were provided through financing
activities of both issuance of stock and an increase in
borrowings that occurred during the third quarter of 1998.
Classification of $7,779,000 to short-term borrowings from
long-term borrowings on the Company's line of credit and term
loan (discussed in more detail below) also affected changes in
working capital. This is due to the current terms of the
Company's debt. Income tax receivable increased by $1,254,000
in 1998 to $1,981,000. This was due to operating losses before
income taxes of ($4,869,000).
The Company's net inventory levels decreased by $1,180,000
during 1998 compared with 1997. This was largely due to an
increase in obsolete inventory reserves of $1,841,000. A
write-down of inventory from an excess supply of dated product
affected 1998 reserves. Also, a provision was made on unusable
inventory resulting from changes planned for the Consultant
career opportunity in 1999 for the U.S. business. During 1998
inventory levels in raw material and finished goods components
increased by $661,000 over 1997. This increase was largely due
to the addition of inventory carried for the Taiwan branch.
The Company has an unsecured line of credit of $15,000,000
primarily to be used for expansion and for operating cash when
needed for the business. The interest rate is based on a LIBOR
rate plus a spread that adjusts with the debt ratio. The
weighted average interest rates for 1998 and 1997 were 6.99%
and 6.85%, respectively. A commitment fee of .25% is paid
quarterly based on the unused portion of the line of credit.
The outstanding balance at November 30, 1998 was $7,600,000 and
was classified as short term; the outstanding balance at
November 30, 1997 was $1,200,000 and classified as long term.
The expiration date is November 30, 1999. Under this line of
credit, the Company is required to meet covenants related to
certain financial ratios on a quarterly basis and an annual
capital expenditures limitation. Also, this line of credit is
potentially secured by certain assets of the Company based on
the calculation of one of the financial ratios. Primarily as a
result of the expansion strategy currently in place and non-
cash inventory write-downs, the Company did not achieve one of
the financial covenants for the quarters ending August 31, 1998
and November 30, 1998. The Company and the lender entered
into an agreement until April 16, 1999 whereby the lender has
agreed to forbear based upon the Company's representation that
the Company is pursuing alternative arrangements. The maximum
amount of credit currently available under this line of credit
is $6,000,000 - the balance at February 24, 1999. All
borrowings under this line of credit are deemed to be at fair
value due to the short-term nature of the interest rates
charged.
<PAGE>
The Company has a secured term loan outstanding at November 30,
1998 in the amount of $1,400,000. This loan has a maximum
borrowing amount of $2,900,000. The Company borrowed
$1,500,000 in December 1998 against this term loan taking the
outstanding amount to the maximum of $2,900,000. This is a
five year loan bearing a fixed rate of interest of 7.72% with a
ten year amortization. Monthly payments are $31,125 including
principal and interest for 60 months with a balloon payment of
$2,008,000 due on December 3, 2003. This loan has two
covenants related to certain financial ratios on a quarterly
basis, of which the Company was in compliance at November 30,
1998. Certain assets of the Company secure this line of
credit. This debt is at fair value given the timing of when
this loan was secured.
As of November 30, 1998, the Company did have funds in excess
of its total borrowings including $11,497,000 in cash,
marketable securities and investments.
In 1998, the Company committed to a three year non-cancellable
capital lease for computer related hardware and software.
Assets under capital leases are capitalized using interest
rates appropriate at the inception of the lease.
Even though the Company did not repurchase any of its common
stock in 1998, it remains approved by the Board of Directors to
purchase up to 1,000,000 additional shares of its common stock.
The Company's capital expenditures for 1998 totaled $1,970,000
the majority of which was capital improvements for the new
Asian and Eventus businesses. The balance was for the base
North American business. The Company anticipates its 1999
capital purchases to be in line with 1998 as the Company
continues its Asian expansion. Capital expenditures will be
funded through normal operating cash.
Year 2000 Issues
The Company defines the Year 2000 issues as those related to
the inability of some computer hardware or software to
interpret a two-digit year expressed as "00" as the Year 2000.
When the Year 2000 begins, these computers may interpret "00"
as the Year 1900 and either stop processing date-related
computations or will process them incorrectly. All software,
computer hardware, building facilities and equipment utilized
by the Company require assessment to determine that they will
continue to operate accurately when they encounter a Year 2000
date before and after January 1, 2000.
The Company has initiated a task force committee to address
Year 2000 issues. The committee's purpose is to direct the
project for assessment, remediation and implementation of
solutions and contingency plans related to Year 2000 issues.
<PAGE>
The project plan addresses information technology systems (IT
systems) such as computer software and hardware and non-
information technology systems (Non-IT systems) such as
manufacturing and distribution equipment, utilities and
facilities. In addition, the plan addresses Year 2000 issues
relating to third parties with which the Company has a material
relationship. The Company has planned readiness prior to
January 1, 2000 due to the possibility of encountering Year
2000 date processing in 1999.
The Company has completed the assessment of IT systems and has
implemented 90% of software upgrades scheduled. The Company is
on target to reach its initiative to complete all software
related upgrades during the second quarter of 1999. The overall
project is estimated to be about 80% complete and scheduled to
be complete by October, 1999.
Estimated
%
Complete
at
Start Date End Date November
30, 1998
---------- ---------- --------
IT Systems:
Assessment of Software 04/01/1998 06/30/1998 100%
Remediation/Testing of
Software 06/01/1998 03/31/1999 90%
Assessment of Hardware 07/01/1998 08/15/1998 100%
Remediation/Testing of
Hardware 11/01/1998 03/31/1999 90%
Non-IT Systems:
Assessment 06/01/1998 06/30/1999 80%
Remediation/Testing 11/01/1998 10/30/1999 70%
The Company prepared and mailed a Year 2000 readiness survey to
numerous third party suppliers and service providers upon which
the Company relies for various goods and services. As of
November 30, 1998, the Company has received written responses
from 49% of those mailed. Of those responding, 62% stated that
they are either currently compliant or anticipate that they
will address all Year 2000 issues by December, 1998. The
committee is currently evaluating responses to schedule follow-
up correspondence and to address contingency plans for
alternate sources and suppliers.
The committee plans to prepare specific contingency plans, if
necessary, to mitigate the potential risks associated with non-
readiness of key suppliers and vendors, information technology
and non-information technology areas by June, 1999.
<PAGE>
Additionally, the Company plans to continue its current
operating policy to maintain 60 to 90 days of finished goods
on-hand of key products as well as on-hand quantities of
components. The Company as a part of its normal operating plan
contracts with a third party for backup computer hardware
service in the event of a failure or serious interruptions of
its on-site operations.
Costs for implementing the Year 2000 project are expected to be
in the range of $350,000 to $400,000 over the two year fiscal
period of 1998 and 1999 and are not expected to materially
affect results of operations or the financial position of the
Company. Expenditures relating to Year 2000 to date are
estimated to be $153,000 as of November 30, 1998, due primarily
to software remediation, and were funded through operating cash
flows. Other IT projects and initiatives have not been
adversely affected by the Company's resources allocation to the
Year 2000 project. The Company currently believes that it is
addressing Year 2000 issues on a timely and adequate basis
according to suggested methodologies and procedures. Although
the Company is addressing the Year 2000 issue and plans to
monitor its progress through completion, there can be no
assurance that total compliance internally as well as with
third party vendors and suppliers will be achieved.
Item 7A - Quantitative and Qualitative Disclosure About Market
Risk
The Company has evaluated its potential exposures to market
risks as they relate to interest rate volatility on investments
and debt and on risks related to foreign currency changes.
The Company's investments management strategy is to primarily
invest in very low risk, secure investments and, secondly, to
achieve a good return from interest income. The investment
activities of the Company are not for trading purposes but to
invest excess cash until needed for the business.
At November 30, 1998, the Company had high grade, short-term
municipal bonds that are either backed by U.S. Treasury bonds
or are insured of which $6,068,000 were short term. In
addition, the Company had $2,215,000 in bond investments that
are laddered in maturity from 13 months to 29 months. Any
risks to principal due to market interest rate changes are not
material because for bonds of short maturity, interest rate
changes have little impact on market value. For example, a one
percentage point increase in market interest rate might result
in a reduction in the value of the long-term bonds of $36,000.
<PAGE>
The Company also has $6,000,000 outstanding under a line of
credit which has an interest rate based on a LIBOR rate plus a
spread that adjusts with the debt ratio. The weighted average
interest rates for 1998 and 1997 were 6.99% and 6.85%,
respectively. If this 1998 weighted average interest rate were
to increase 10% to 7.69% for fiscal 1998 with the balance
remaining constant at $6,000,000, incremental interest expense
would reduce earnings before taxes by $42,000 in fiscal 1999.
The Company also has a five year bank loan of $2,900,000 with a
fixed interest rate and is thus not subject to interest rate
volatility.
The Company manufactures and sells inventory to its foreign
subsidiaries, currently in Canada and Taiwan. These
receivables are dollar denominated. The payables on the
subsidiary books are recorded at the functional currency of
each respective country. As fluctuations occur, the subsidiary
marks the payable to the new exchange rate required to convert
the payable into U.S. dollars with the resulting difference
recorded through income. Thus, the Company's earnings are
affected by fluctuations in the value of the foreign currencies
as compared to the U.S. dollar.
At November 30, 1998, the result of a 10% strengthening in the
aggregate value of the foreign currencies would have resulted
in an increase in gross profit of $82,600 for fiscal 1999;
comparatively, a 10% strengthening of the U.S. dollar would
result in a decrease in gross profit of $89,900 for fiscal
1999.
The Company also has receivables from its foreign subsidiaries
which are denominated in the functional currency of the
subsidiary. The amounts and short term nature of these
receivables significantly limit the exposure to changes. The
Company believes that any foreign currency risk on these items
is not material.
The Company is not currently engaged in any derivatives
activity. However, if the above currency fluctuations become
probable and material, the Company would likely take action to
mitigate its exposure to the change.
In fiscal 1997, the Company had substantially the same risks
with potential foreign currency fluctuations and interest rate
fluctuations. As in the current year, net adjustments made
related to these changes during fiscal 1997 were not material.
<PAGE>
Certain statements in this Management's Discussion and Analysis
section contain forward-looking information. These statements
are based on current expectations, and actual results could
differ materially. Important factors that could cause actual
results to differ materially from those projected in forward-
looking statements include, but are not limited to the
following: Consultants (or Distributors) sales activity
levels, recruiting of new Consultants and Distributors,
services of certain members of senior management, new product
introductions, protection of intellectual property rights and
third party infringement, changes in U.S. or international
economic conditions, results of international operations
including governmental, regulatory, political and foreign
exchange rate impacts, results of operations in new markets,
global and domestic expansion efforts, capital resources and
ability to obtain necessary financing, market risk, and risks
and costs related to the Year 2000.
<PAGE>
Item 8 - Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
BeautiControl Cosmetics, Inc.
We have audited the accompanying consolidated balance sheets of
BeautiControl Cosmetics, Inc. and Subsidiaries as of November
30, 1998 and 1997, and the related statements of income,
stockholders equity and cash flows for each of the three years
in the period ended November 30, 1998. Our audits also
included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and
schedule based on our audits. In 1998, we did not audit the
financial statements of BeautiControl Taiwan, Inc., Taiwan
Branch, a wholly-owned branch, which statements reflect total
assets constituting 6.7% at November 30, 1998 and total
revenues constituting 6.9% for the year ended November 30,
1998, of the related consolidated totals. Those statements
were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included
for BeautiControl Taiwan, Inc., Taiwan Branch for that period,
is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit 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 and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of BeautiControl Cosmetics,
Inc. and Subsidiaries at November 30, 1998, and 1997, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended November 30,
1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
December 23, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of BeautiControl Taiwan, Inc.
We have audited the balance sheets of BeautiControl Taiwan,
Inc., Taiwan Branch as of November 30, 1998 and 1997, and the
related statements of operations and changes in accumulated
deficit and of cash flows for the year ended November 30, 1998
and for the period from inception on August 15, 1997 to
November 30, 1997 as derived from the accounts and records
maintained by the Branch. The financial statements are the
responsibility of the Branch's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit 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 audited by us present
fairly, in all material respects, the financial position of
BeautiControl Taiwan, Inc., Taiwan Branch at November 30, 1998
and 1997, and the results of its operations and cash flows for
the year ended November 30, 1998 and for the period from
inception on August 15, 1997 to November 30, 1997, in
conformity with accounting principles generally accepted in the
United States of America.
PriceWaterhouseCoopers
Taipei, Taiwan, Republic of China
December 15,1998
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
YEARS ENDED NOVEMBER 30,
1998 1997 1996
<S> <C> <C> <C>
------ ------ ------
Net sales $72,163 $69,421 $80,108
Cost of goods sold 21,633 19,005 19,830
------ ------ ------
Gross profit 50,530 50,416 60,278
Selling expenses 35,793 31,755 33,948
General and administrative
expenses 19,890 18,539 18,360
------ ------ ------
55,683 50,294 52,308
------ ------ ------
Income (loss) from operations (5,153) 122 7,970
Other income
Interest income 149 146 172
Other, net 135 130 270
------ ------ ------
284 276 442
------ ------ ------
Income (loss) before income (4,869) 398 8,412
taxes
Income taxes (1,707) 274 3,011
------ ------ ------
Net income (loss) ($3,162) $124 $5,401
====== ====== ======
Net income (loss) per common
share - basic ($0.49) $0.02 $0.93
Weighted average common shares
- basic 6,395 5,906 5,830
Net income (loss) per common
share-assuming dilution ($0.49) $0.02 $0.90
Weighted average common
shares-assuming dilution 6,395 6,154 6,025
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Information)
November 30,
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $3,165 $720
Investments 6,068 -
Accounts receivable-trade
net of allowances of $759
in 1998 and $658 in 1997 738 702
Inventories 11,619 12,799
Deferred income taxes 2,229 1,530
Prepaid expenses 735 622
Income tax receivable 1,981 727
Other current assets 442 125
Total current assets 26,977 17,225
PROPERTY AND EQUIPMENT, AT COST
Land 766 766
Office building 4,301 3,957
Office furniture and equipment 9,324 8,122
Machinery and equipment 7,040 6,506
Leasehold improvements 1,535 1,367
Transportation equipment 2,718 2,641
------ ------
25,684 23,359
Less accumulated
depreciation and amortization 15,465 13,732
------ ------
Property and equipment, net 10,219 9,627
OTHER ASSETS
Cost in excess of net tangible
assets, acquired, net of
amortization of $894 in
1998 and $828 in 1997 1,757 1,823
Investments 2,264 -
Other, net of amortization of
$572 in 1998 and $557 in 1997 799 681
------ ------
Total assets $42,016 $29,356
====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Information)
NOVEMBER 30,
1998 1997
------ -------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable -trade $3,669 $3,936
Current maturities of long term debt 7,779 -
Sales tax payable 602 749
Accrued commissions and awards 2,198 1,784
Accrued compensation 374 545
Accrued property taxes 690 635
Accrued other taxes 144 462
Accrued liabilities 878 660
Deferred income 987 1,063
------ -------
Total current liabilities 17,321 9,834
DEFERRED INCOME TAXES 791 440
LONG-TERM BORROWINGS 1,221 1,200
OTHER LONG-TERM OBLIGATIONS 244 -
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS EQUITY
Preferred stock
Authorized - 1,000,000 shares
$.10 par value Issued and
outstanding - none - -
Common Stock
Authorized - 20,000,000 shares,
$.10 par value Issued - 10,928,998
in 1998 and 9,637,198 shares in 1997 1,093 964
Capital in excess of par value 23,832 13,585
Retained earnings 28,419 34,238
------ -------
53,344 48,787
Less treasury stock, at cost
(3,708,800 shares in 1998 and 1997) 30,905 30,905
------ -------
Total stockholders equity 22,439 17,882
------ -------
Total liabilities and
stockholders equity $42,016 $29,356
====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands)
Capital Unrealized
Common in Excess Losses on Retained Treasury
Stock of Par Investments Earnings Stock Total
----- ------ --- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
November 30, 1995 $948 $12,522 $(53) $33,618 $29,717 $17,318
Issuance of common
stock under stock
option plans 4 198 - - - 202
Purchase of treasury stock - - - - 1,188 1,188
Dividends - - - (2,442) - (2,442)
Net change in
unrealized losses,
net of tax of $10 - - 19 - - 19
Net income - - - 5,401 - 5,401
----- ------ --- ------ ------ ------
November 30, 1996 952 12,720 (34) 36,577 30,905 19,310
Issuance of common
stock under stock
options plans 12 753 - - - 765
Tax benefit related to
stock options - 112 - - - 112
Foreign currency
translation adjustment - - - 20 - 20
Dividends - - - (2,483) - (2,483)
Net change in unrealized
losses, net of tax - - 34 - - 34
Net income - - - 124 - 124
----- ------ --- ------ ------ ------
November 30, 1997 964 13,585 - 34,238 30,905 17,882
Issuance of common
stock under stock
option plans 9 301 - - - 310
Issuance of common stock 120 9,792 - - - 9,912
Tax benefit related to
stock options - 154 - - - 154
Foreign currency
translation adjustment - - - (13) - (13)
Dividends - - - (2,644) - (2,644)
Net loss - - - (3,162) - (3,162)
----- ------ --- ------ ------ ------
November 30, 1998 $1,093 $23,832 $- $28,419 $30,905 $22,439
===== ====== === ====== ====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEARS ENDED NOVEMBER 30,
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($3,162) $124 $5,401
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization 1,839 1,757 1,882
Deferred income tax (348) 29 (590)
Provision for losses on trade
accounts receivable 198 369 234
Provision for obsolete inventory 2,703 1,327 491
Changes in assets and liabilities:
Accounts receivable (234) 33 (980)
Inventories (1,523) 711 (6,034)
Prepaid expenses (113) (257) 404
Income tax receivable (1,254) (727) -
Other current assets (317) 190 (97)
Accounts payable (267) 1,010 152
Accrued compensation (171) (475) 446
Accrued property taxes 55 88 (62)
Accrued other taxes (318) (997) 764
Other accrued liabilities and
obligations 393 (472) 285
Deferred income (76) 713 (1,244)
Other 56 5 63
----- ----- -----
Net cash provided by (used in)
operating activities (2,539) 3,428 1,115
Cash flows from investing activities:
Proceeds from sale of investments - 2,843 1,140
Purchase of investments (8,358) - -
Purchase of property and equipment (1,970) (1,895) (1,104)
Purchase of other assets (33) (122) (193)
----- ----- -----
Net cash provided by (used in)
investing activities (10,361) 826 (157)
<PAGE>
Cash flows from financing activities:
Proceeds from issuance of common stock 10,222 764 202
Borrowings 7,800 (2,700) 2,500
Principal payments under capital
lease obligation (18) - -
Purchase of treasury stock - - (1,188)
Dividends paid (2,644) (2,483) (2,442)
----- ----- -----
Net cash provided by (used in)
financing activities 15,360 (4,419) (928)
Effect of exchange rate on cash and
cash equivalents (15) 1 (1)
----- ----- -----
Net cash increase (decrease) in cash
and cash equivalents 2,445 (164) 29
Cash and cash equivalents at beginning
of period 720 884 855
----- ----- -----
Cash and cash equivalents at end of
period $3,165 $720 $884
===== ===== =====
Supplemental cash flow information:
Income taxes ($69) $1,569 $2,402
Interest 321 298 176
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BEAUTICONTROL COSMETICS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BeautiControl Cosmetics, Inc. and Subsidiaries is a manufacturer
and direct seller of skin care, nutritional supplements,
cosmetics, nail care, toiletries, beauty supplements and related
products. The Company sells its products in North America, Taiwan
and Hong Kong through independent sales persons and other
countries through Distributors who purchase the products from the
Company and then sell them directly to consumers in the home or
workplace.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its majority-
owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
Reclassifications - Certain amounts for the prior years have been
reclassified to conform to the current year presentation.
Property and Equipment - Depreciation and amortization is
provided for property and equipment by the straight-line method
over the following estimated useful lives of the assets:
Office building.............................. 30 years
Office furniture and equipment.............. 3-5 years
Machinery and equipment.................... 5-8 years
Transportation equipment.................. 5-15 years
Property under capital leases............... 3 years
Leasehold improvements are amortized over the lives of the
respective leases or the service life of the improvements,
whichever is shorter.
Cost in Excess of Net Tangible Assets Acquired - Costs in excess
of net tangible assets acquired and other intangible assets is
being amortized on a straight-line basis over 40 years.
Long-Lived Assets - The Company reviews its long-lived assets,
including property and equipment and costs in excess of net
tangible assets, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Any impairment would be recognized in operating
results.
<PAGE>
Cash Equivalents - Investments that are short-term (generally
with original maturities of three months or less) and highly
liquid are considered to be cash equivalents.
Deferred Income Taxes - Deferred income taxes are provided under
the provisions of Financial Accounting Standards Board Statement
No. 109.
Revenue Recognition - Revenue is recognized when orders are
shipped. Included in deferred income are orders which are paid
for but not shipped and prepaid registration fees for future
meetings.
Product Returns - The Company guarantees the quality of its
merchandise and will replace the product or refund the purchase
price if products are returned by unsatisfied consumers. The
Company will repurchase at cost, less a 10% restocking fee, any
currently marketable merchandise purchased in the previous 12
months from any Consultant who chooses to leave the business.
During 1998, the amount of inventory returns for the Company was
not material. Product returns as a percent of net sales for
1998, 1997 and 1996 were 0.2%, 0.2% and 0.3%, respectively. In
1998 inventory bought back was 0.07% of net sales.
Research and Development - The Company's policy is to expense as
incurred all activities engaged in the research and development
of products. The amount spent on research and development
activities on the formulation and improvement of Company products
was $933,000 in 1998, $918,000 in 1997 and $851,000 in 1996.
Expenditures included in these amounts consist of the following
direct costs: materials consumed, depreciation of equipment used
in development activities, labor, and contractual services
performed by outside parties for product testing.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Recently Issued Accounting Statements
During 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-5, Reporting on the Cost of
Start-Up Activities. SOP 98-5 requires entities to charge to
expense start-up costs, including organizational costs, as
incurred. In addition, SOP 98-5 will require most entities upon
adoption to write-off as a cumulative change in accounting
principle any previously capitalized start-up or organization
costs. The Company will be required to adopt SOP 98-5 on
December 1, 1999. The Company's current accounting policy with
regard to reporting of start-up activities is consistent with
this statement.
<PAGE>
During 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP
98-1 requires capitalization of certain costs to purchase or
develop internal use software. The Company will be required to
adopt SOP 98-1 on December 1, 1999. The Company's current
accounting policy with regard to internal use software is
consistent with this statement.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities, which is required to be
adopted in years beginning after June 15, 1999. The statement
permits early adoption as of the beginning of any fiscal quarter
after its issuance. FAS No. 133 requires that all derivatives be
recognized on the balance sheet at fair value. Derivatives that
do not qualify as hedges must be adjusted to fair value through
income. Depending on the nature of the hedge transaction,
changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in
fair value will be recognized in current period earnings. At the
present time, the Company is not engaged in any derivative
activity and therefore there is no impact that the adoption of
FAS No. 133 would have on earnings or financial position.
<PAGE>
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments
in annual financial statements and requires that those
enterprises report selected information about operating segments
in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic
areas, and major customers. The Company will be required to
adopt SFAS 131 on December 1, 1998. Currently, the Company
anticipates that only the results of its international operations
and subsidiaries, might be required to be separately disclosed
from U.S. base operations under the reporting guidelines of SFAS
131.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes standards
for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Under existing accounting standards, other comprehensive income
shall be classified separately into foreign currency items,
minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities.
Comprehensive income is defined as the change in equity
(net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period
except those resulting from investments by owners and
distributions to owners. This statement is effective for the
Company on December 1, 1998. The Company will be required to
separately disclose the components of comprehensive income listed
above.
<PAGE>
NOTE B - NET INCOME (LOSS) PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)
Earnings per Share. This statement requires companies to present
basic earnings per share which includes the weighted average
number of common shares outstanding and, if applicable, diluted
earnings per share which includes common equivalent shares
outstanding. This replaces primary and fully diluted earnings
per share that was previously required under APB Opinion 15. The
Company adopted SFAS 128 in December 1, 1997. The following
table sets forth the computation of basic and diluted earnings
(loss) per share:
1998 1997 1996
Numerator: ---------- -------- ---------
Net income (loss) -
Numerator for basic and
diluted earnings per
share-income (loss)
available to common ($3,161,661) $123,957 $5,400,714
stockholders
Denominator:
Denominator for basic
earnings per share-
weighted-average shares 6,394,877 5,906,433 5,829,924
Effect of dilutive
securities: - 247,933 195,199
Employee stock options
Denominator for diluted
earnings per share-
adjusted weighted-average
shares and assumed 6,394,877 6,154,366 6,025,123
conversions
Basic earnings (loss) per
share $ (0.49) $ 0.02 $ 0.93
Diluted earnings (loss)
per share $ (0.49) $ 0.02 $ 0.90
NOTE C - INVESTMENTS
Investments - The Company accounts for its investments in
accordance with Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). SFAS 115 requires companies to classify
their investments as either held-to-maturity or available-for-
sale. Held-to-maturity securities represent those securities that
the Company has both the positive intent and ability to hold to
maturity and are carried at amortized cost. Available-for-sale
securities represent those securities that do not meet the
classification of held-to-maturity, are not actively traded and
are carried at fair value. Unrealized gains and losses on these
securities are excluded from earnings and are reported as a
separate component of stockholders equity, net of applicable
taxes, until realized.
<PAGE>
The market value and scheduled maturities of investments at
November 30, 1998 are as follows:
1998 Market Value
---- ----------
Available-for-sale
Due in 1 year or less:
U.S. Government
and Agencies Bonds $ 280,000
Municipal Bonds 5,788,358
Due in 1-5 years:
Municipal Bonds 2,264,381
----------
Total $8,332,739
=========
In November of 1998, the Company purchased investments in debt
securities. These investments are classified as available-for-
sale and are therefore carried at fair value. Due to the timing
of the purchase of these investments, there were no gross
unrealized gains and losses.
During the fourth quarter of 1997, the Company had sold all its
existing available-for-sale and held-to-maturity securities.
Gross realized gains and losses had been included in earnings and
all previously recorded unrealized gains and losses had been
reversed as a separate component of stockholders equity. The
gross proceeds from the sale of available-for-sale preferred
stock were $1,048,205 with a gross realized gain of $8,697. The
gross proceeds from the sale and call of held-to-maturity
municipal bonds were $1,794,340 with a gross realized gain of
$16,031. For the purpose of determining the gross realized gains
and losses, the cost of securities sold was based upon specific
identification.
NOTE D - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Inventories (in thousands) consist of the following:
November 30,
1998 1997
------ ------
Finished Goods $10,282 $9,325
Raw Materials 5,263 5,559
Reserve for Obsolescence (3,926) (2,085)
------ ------
Total $11,619 $12,799
====== ======
<PAGE>
NOTE E - INCOME TAXES
The components of deferred income taxes (in thousands) are as
follows:
November 30,
1998 1997
------ ------
Deferred tax assets:
Inventories $1,453 $970
Allowance for doubtful accounts 288 235
Accrued expenses 453 319
Foreign subsidiary net operating
loss carry forward 240 130
Other 50 8
------ ------
$2,484 $1,662
Less valuation allowance (240) (130)
------ ------
$2,244 $1,532
Deferred tax liabilities:
Property and equipment ($791) ($422)
Other (15) -
------ ------
($806) ($422)
Deferred tax assets and liabilities
are classified as follows:
Current deferred tax assets $2,229 $1,530
Noncurrent deferred tax liability (791) (440)
------ ------
$1,438 $1,090
Income tax expense (benefit)
(in thousands) is comprised
of the following:
Year Ended November 30,
1998 1997 1996
----- ----- -----
Current
Federal ($1,173) $212 $3,282
State (186) 33 319
Deferred
Federal (86) 29 (590)
State (262) - -
----- ----- -----
($1,707) $274 $3,011
Reconciliation of income taxes computed at the Federal statutory
rate and income tax expense (benefit) is as follows:
Year End November 30,
1998 1997 1996
---- ---- ----
Federal statutory rate (34.0%) 34.0% 34.0%
State (3.7) 5.5 2.5
Unbenefitted foreign losses 2.1 28.9 .7
Other .5 .5 (1.4)
---- ---- ----
Effective tax rate (35.1%) 68.9% 35.8%
<PAGE>
NOTE F - LINE OF CREDIT
The Company has an unsecured line of credit of $15,000,000
primarily to be used for expansion and for operating cash when
needed for the business. The interest rate is based on a LIBOR
rate plus a spread that adjusts with the debt ratio. The
weighted average interest rates for 1998 and 1997 were 6.99% and
6.85%, respectively. A commitment fee of .25% is paid quarterly
based on the unused portion of the line of credit. The
outstanding balance at November 30, 1998 was $7,600,000 and was
classified as short term; the outstanding balance at November 30,
1997 was $1,200,000 and classified as long term. The expiration
date is November 30, 1999. Under this line of credit, the
Company is required to meet covenants related to certain
financial ratios on a quarterly basis and an annual capital
expenditures limitation. Also, this line of credit is
potentially secured by certain assets of the Company based on the
calculation of one of the financial ratios. Primarily as a
result of the expansion strategy currently in place and non-cash
inventory write-downs, the Company did not achieve one of the
financial covenants for the quarters ending August 31, 1998 and
November 30, 1998. The Company and the lender entered into an
agreement until April 16, 1999 whereby the lender has agreed to
forbear based upon the Company's representation that the Company
is pursuing alternative arrangements. The maximum amount
of credit currently available under this line of credit is
$6,000,000 - the balance at February 24, 1999. All borrowings
under this line of credit are deemed to be at fair value due to
the short-term nature of the interest rates charged.
The Company has a secured term loan outstanding at November 30,
1998 in the amount of $1,400,000. This loan has a maximum
borrowing amount of $2,900,000. The Company borrowed $1,500,000
in December 1998 against this term loan taking the outstanding
amount to the maximum of $2,900,000. This is a five year loan
bearing a fixed rate of interest of 7.72% with a ten year
amortization. Monthly payments are $31,125 including principal
and interest for 60 months with a balloon payment of $2,008,000
due on December 3, 2003. This loan has two covenants related to
certain financial ratios on a quarterly basis, of which the
Company was in compliance at November 30, 1998. Certain assets of
the Company secure this line of credit. This debt is at fair
value given the timing of when this loan was secured.
As of November 30, 1998, the Company did have funds in excess of
its total borrowings including $11,497,000 in cash, marketable
securities and investments.
In 1998, the Company committed to a three year non-cancellable
capital lease for computer related hardware and software. Assets
under capital leases are capitalized using interest rates
appropriate at the inception of the lease.
<PAGE>
NOTE G - COMMITMENTS AND CONTINGENCIES
At November 30, 1998, the Company and subsidiaries were committed
under non-cancellable operating leases, principally for six
buildings, equipment and automobiles. U.S. building leases expire
in 1999. Two principal leases may be extended for five years at
the fair market rental rate in effect at that time. Building
leases in Taiwan, Canada and Hong Kong expire in 2000, 2001, and
2003, respectively.
Fiscal Year Capital Operating
Leases Leases
----- ------
1999 $151 $2,791
2000 151 1,975
2001 126 778
2002 447
2003 250
----- ------
Total minimum lease payments 428 6,241
Less: Amount representing estimated
taxes and maintenance costs
included in total minimum lease
payments 70
----
Net minimum lease paymentsLess: 358
Amount representing interest 22
----
Present value of net minimum
lease payments 336
Current portion 114
----
Long-term capitalized lease
obligations $222
====
Assets recorded under capital leases are included in property,
plant, and equipment, as follows (in thousands):
November 30,
1998 1997
Office furniture and equipment 354 -
Less accumulated amortization 20 -
--- ---
Net capital lease assets 334 -
=== ===
Rental expense (in thousands) is as follows:
Year Ending November 30,
1998 ...................$2,741
1997 .................. 1,918
1996 .................. 1,809
<PAGE>
In 1998, the Company committed to a three year non-cancellable
capital lease for computer related hardware and software. Assets
under capital leases are capitalized using interest rates
appropriate at the inception of the lease.
In December 1998, the Company signed a five year contract to buy
Manapol[R], a nutraceutical raw material, from Caraloe, Inc. a
consumer products subsidiary of Carrington Laboratories, Inc. of
Irving, Texas. The contract for the nutraceutical Manapol[R]
requires total minimum raw material purchase and royalty payments
of $4.5 million during the five years.
NOTE H - CAPITAL STOCK
The Company is authorized to issue 1,000,000 shares of $.10 par
value preferred stock with voting powers and other special rights
or restrictions, if any, to be determined by the Board of
Directors at the time of issuance.
The Company has 1,196,000 shares of common stock reserved for
future issuance under its stock option plans.
On August 3, 1998, the Company completed a private equity
placement where 1,200,000 shares of common stock were issued in
exchange for $9,912,000 in cash. The shares were sold to Jim
Sowell Construction Company, Inc., an affiliate of Sowell &
Company, a Dallas based firm with real estate operations and
investment holdings.
As of November 30, 1998, the Company had purchased a total of
3,708,800 shares of its common stock pursuant to a plan approved
by the Board of Directors to acquire up to 4,708,800 shares.
Four quarterly dividends were paid during 1998, 1997 and 1996.
The aggregate totals and per share amounts for each year
respectively were $2,644,000 or $.42, $2,483,000 or $.42, and
$2,442,000 or $.42.
NOTE I - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
The Company has three stock option plans covering key employees
and non-employee directors.
The 1996 Incentive Stock Option Plan permits the issuance of
incentive stock options to employees of the Company to purchase
up to 130,000 common shares of the Company. Specific terms of the
options will be determined by the Compensation Committee of the
Board of Directors; however, no options may be granted for less
than the fair market value of the common stock nor for terms
exceeding ten years. The options vest 20% each year beginning
one year after the grant date and expire ten years from the date
of grant.
<PAGE>
The 1996 Non-Qualified Stock Option Plan permits the issuance of
non-qualified stock options to key persons of the Company to
purchase up to 340,000 common shares of the Company. Pursuant to
this plan, options may be granted at prices to be determined by
the Compensation Committee of the Board of Directors of the
Company. The option period may not terminate later than ten years
from the date the option is granted; the option vesting period
begins after one year from the date of grant to any time after
five years from date of grant. The options vest 20% per year
beginning one year after the grant date and expire ten years from
the date of grant.
The 1998 Special Stock Option Plan provides for issuance of stock
options to nonemployee directors of the Company to purchase up to
59,000 common shares of the Company. The number of options to be
granted under this plan is determined by a formula specified
within the plan and the exercise price must be at least equal to
the fair market value of the common shares of the Company on the
date of grant of the option. All options will expire ten years
from the date of grant and no option is exercisable until one
year from the date of grant.
<PAGE>
The following tables summarize the related activity and status of
the Company's three stock option plans as of November 30, 1996,
1997 and 1998:
INCENTIVE PLAN
Shares Under Weighted
Option Option Price Average
(000's) Range Exercise
Price
----- ----- -----
Outstanding at
November 30, 1995 286 $3.28-$17.50 $10.72
Granted 68 $8.00-$9.50 $8.47
Exercised (41) $4.89-$8.50 $5.94
Cancelled (24) $7.50-$14.67 $11.04
Outstanding at
November 30, 1996 289 $3.28-$9.50* $8.56
Granted 5 $9.75 $9.75
Exercised (45) $3.28-$9.50 $7.84
Cancelled (23) $8.00-$9.50 $11.27
Outstanding at
November 30, 1997 22 $4.89-$9.75 $8.70
Exercisable at
November 30, 1997 132 - $8.68
Granted 55 $5.75-$8.13 $8.03
Exercised (2) $5.00 $5.00
Cancelled (12) $6.11-$9.25 $8.09
Outstanding at
November 30, 1998 267 $5.75** $5.75
Exercisable at
November 30, 1998 156 $5.75
Available to Grant at
November 30, 1998 21
Weighted Average
Remaining
Contractual Life of
Options Outstanding at
November 30, 1998 6
<PAGE>
NON-QUALIFIED PLAN
Shares Under Weighted
Option Option Price Average
(000's) Range Exercise
Price
Outstanding at
November 30, 1995 508 $3.56-$17.50 $11.02
Granted - - -
Exercised (1) $7.75-$8.50 $8.13
Cancelled (2) $7.75-$11.00 $10.00
Outstanding at
November 30, 1996 505 $3.56-$17.50* $10.64
Granted - - -
Exercised (8) $7.75-$9.25 $8.38
Cancelled (5) $7.75-$8.50 $8.21
Outstanding at
November 30, 1997 492 $3.56-$17.50 $10.70
Exercisable at
November 30, 1997 439 - $10.96
Granted 318 $5.75-$8.75 $7.35
Exercised (23) $3.56 $3.56
Cancelled (3) $8.13-$9.25 $8.61
Outstanding at
November 30, 1998 784 $5.75** $5.75
Exercisable at
November 30, 1998 550 $5.75
Available to
Grant at
November 30, 1998 24
Weighted Average
Remaining
Contractual Life of
Options Outstanding at
November 30, 1998 7
<PAGE>
SPECIAL PLAN
Shares Weighted
Under Option Price Average
Option Range Exercise
(000's) Price
Outstanding at
November 30, 1995 261 $3.28-$14.25 $7.04
Granted 15 $8.00-$9.50 $9.24
Exercised - - -
Cancelled - - -
Outstanding at
November 30, 1996 276 $3.28-$14.25 $7.18
Granted 6 $14.63 $14.63
Exercised (63) $3.28-$10.67 $5.46
Cancelled (7) $13.00-$14.25 $13.89
Outstanding at
November 30, 1997 212 $3.28-$14.63 $7.68
Exercisable at
November 30, 1997 206 - $7.47
Granted - - -
Exercised (67) $3.28 $3.28
Cancelled - - -
Outstanding at
November 30, 1998 145 $4.89-$14.63 $9.73
Exercisable at
November 30, 1998 145 $9.73
Available to
Grant at
November 30, 1998 59
Weighted Average
Remaining
Contractual Life of
Options Outstanding at 3
November 30, 1998
* In January 1996, 204,070 stock options with a price range of
$10.00 to $17.50 were repriced to the current fair market
value price of $9.25.
** In October 1998, 920,425 stock options with a price range of
$6.67 to $9.75 were repriced to the current fair market
value price of $5.75.
<PAGE>
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock Based Compensation. This statement defines
a fair value based method of accounting for an employee stock
option. On December 1,1996, the Company adopted the disclosures
provision of SFAS 123. Under this provision, the Company will
disclose pro forma net income and pro forma earnings per share
for employee stock options using a fair value based method. As
allowed by SFAS 123, the Company has also elected to follow
Accounting Principles Board Opinion No. 25 (APB 25), Accounting
for Stock Issued to Employees and related interpretations in
accounting for its employee stock option plans.
As required by SFAS 123, pro forma net income and earnings per
share impact from granted options have been determined for
disclosure purposes. The amounts reported do not necessarily
reflect the effects of this statement on future net income or
earnings per share. The fair value of employee stock options
have been estimated using the Black-Scholes option pricing model.
The following table summarizes the weighted average assumptions
used for 1998, 1997 and 1996:
1998 1997 1996
Volatility 42.1% 36.0% 29.8%
Risk Free Rate 4.7-4.9% 5.9%- 5.8%-6.2%
6.1%
Dividend Yield 7.0% 3.8% 4.4%-5.3%
Expected Life in Years 5 5 6
Weighted Average Grant Date $1.23 $3.48 $1.98
Fair Value
Net Income (loss):
As Reported ($3,162) $124 $5,401
Pro Forma ($3,659) $66 $5,174
Net Income (loss) per Common
Share:
As Reported ($.49) $.02 $.90
Pro Forma ($.57) $.01 $.86
The BeautiControl Cosmetics, Inc. 401(k) Plan allows for both the
Company and eligible employees to contribute. Eligible employees
include those over 21 years of age who have been employed with
the Company a minimum of six months. Company contributions are
voluntary and at the discretion of the Board of Directors of the
Company. The Company's contribution expense for the years ended
November 30, 1998, 1997 and 1996 was $181,000, $150,000 and
$111,000, respectively.
<PAGE>
NOTE J - RELATED PARTY TRANSACTIONS
During 1996, the Company contracted with a member of the Board of
Directors to provide consulting services to the Company. The
Company paid $82,550 under this agreement which ended in May,
1996.
NOTE K - UNAUDITED QUARTERLY OPERATING RESULTS OPERATING RESULTS
Unaudited quarterly operating results for the years ended
November 30, 1998 and 1997 (in thousands) are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------ ------ ------ ------
1998:
Net sales $16,540 $21,603 $16,611 $17,409
Gross profit 12,739 14,905 11,054 11,832
Net income (loss) 994 9 (2,498) (1,666)
Net income (loss) per
common share basic $0.17 $0.00 $(0.39) $(0.23)
Net income (loss) per
common share-assuming
dilution $0.17 $0.00 $(0.39) $(0.23)
1997:
Net sales $16,052 $19,908 $17,306 $16,155
Gross profit 12,146 14,666 12,819 10,785
Net income (loss) 979 1,061 184 (2,100)
Net income (loss) per
common share basic $0.17 $0.18 $0.03 $(0.35)
Net income (loss) per
common share-assuming
dilution $0.16 $0.17 $0.03 $(0.35)
During 1998, charges to net income in the third and fourth
quarters were predominantly caused by the timing of expenses
related to inventory write-offs and costs related to business
expansion efforts. 1997 fourth quarter losses were primarily due
to Asian expansion and start-up costs.
<PAGE>
<TABLE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED November 30, 1996, 1997, AND 1998
Balance at Additions Balance at
Beginning Charged to Costs End of
Description of Period and Expenses Deductions Period
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
deducted from accounts receivable
in the balance sheet
November 30, 1996 $ 324,497 $ 234,258 $ 70,943 $ 487,812
November 30, 1997 487,812 368,507 197,926 658,393
November 30, 1998 658,393 198,093 97,619 758,867
Reserve for inventory
obsolescence deducted from
inventories in the balance sheet
November 30, 1996 $1,639,690 $ 490,540 $863,527 $1,266,703
November 30, 1997 1,266,703 1,327,118 509,207 2,084,614
November 30, 1998 2,084,614 2,703,404 861,981 3,926,037
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not Applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information relating to the Company's directors, nominees for
directors, and executive officers set forth under the headings
"Election of Directors" and "Directors and Executive Officers" on
pages 3 through 5 of the Company's definitive Proxy Statement
filed in connection with the 1999 Annual Meeting of Stockholders
is incorporated herein by reference.
Item 11. Executive Compensation
The information relating to executive compensation set forth
under the heading "Executive Compensation" on pages 6 through 9
of the Company's definitive Proxy Statement filed in connection
with the 1999 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information concerning the security ownership of certain
beneficial owners and management set forth under the heading
"Security Ownership of Principal Stockholders and Management" on
pages 1 through 3 of the Company's definitive Proxy Statement
filed in connection with the 1999 Annual Meeting of Stockholders
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) and (2) Financial Statement and Schedules
The following consolidated financial statements of BeautiControl
Cosmetics, Inc. and Subsidiaries are filed herewith:
Consolidated Statements of Income for the years ended
November 30, 1998, 1997 and 1996.
Consolidated Balance Sheets as of November 30, 1998 and 1997.
Consolidated Statement of Changes in Stockholders Equity
for the three years ended November 30, 1998.
Consolidated Statements of Cash Flows for the years ended
November 30, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements
Report of Independent Auditors
Schedule II - Valuation and Qualifying Accounts and Reserves
for the years ended November 30, 1996, 1997 and 1998.
Except for Schedule II listed above, all schedules for which
provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under related
instructions, are not applicable or not material or the
information required therein is included elsewhere in the
financial statements
(3) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed
or incorporated by reference as a part of this report and such
Exhibit Index is hereby incorporated by reference.
(b)Reports on Form 8-K
The Company has filed no reports on Form 8-K during the fourth
quarter of the year ended November 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
February 26, 1999 BEAUTICONTROL COSMETICS, INC.
(Registrant)
By: /S/ RICHARD W. HEATH
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/S/ RICHARD W. HEATH President Chief Executive February 26, 1999
Richard W. Heath Officer and Director
/S/ JINGER L. HEATH Chairman of the Board and February 26, 1999
Jinger L. Heath Director
/S/ J. ROBERT WARD-BURNS Executive Vice-President February 26, 1999
J. Robert Ward-Burns Chief Operating Officer and Director
/S/ M. DOUGLAS TUCKER Senior Vice President-Finance February 26, 1999
M. Douglas Tucker Principal Financial and Accounting Officer
/S/ CHARLES M. DIKER Director February 26, 1999
Charles M. Diker
/S/ ROBERT S. FOLSOM Director February 26, 1999
Robert S. Folsom
/S/ JOSEPH M. HAGGAR, III Director February 26, 1999
Joseph M. Haggar, III
/S/ DENISE ILITCH, Director February 26, 1999
Denise Ilitch
/S/ A. STARKE TAYLOR, JR. Director February 26, 1999
A. Starke Taylor, Jr.
/S/ JOEL T. WILLIAMS, JR. Director February 26, 1999
Joel T. Williams, Jr.
<PAGE>
BEAUTICONTROL COSMETICS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 Restated Certificate of Incorporation
dated February 22, 1986 (Filed with
the Securities and Exchange Commission
as Exhibit 3.1 to the Company's
Registration Statement on Form S-8,
Registration No. 333-17479, and
incorporated herein by reference).
3.2 Certificate of Amendment to Restated
Certificate of Incorporation dated
April 7, 1987 (Filed with the Securities
and Exchange Commission as Exhibit 3.2
to the Company's Registration Statement
on Form S-8, Registration No. 333-17479,
and incorporated herein by reference).
3.3 Certificate of Amendment to Restated
Certificate of Incorporation dated
April 3, 1992. (Filed with the Securities
and Exchange Commission as Exhibit 3.3 to
the Company's Registration Statement on
Form S-8, Registration No. 333-17479, and
incorporated herein by reference).
3.4 By-laws of the Registrant as amended on
March 21, 1991. (Filed with the Securities
and Exchange Commission as Exhibit 3.4 to
the Company's Registration Statement on
Form S-8, Registration No. 333-17479, and
incorporated herein by reference).
4.1 Specimen stock certificate for Common
Stock of the Registrant. (Filed with
the Securities and Exchange Commission
as Exhibit 4.1 to the Company's
Registration Statement on Form S-1,
Registration No. 33-2795 and
incorporated herein by reference.)
10.1 BeautiControl Cosmetics, Inc. Incentive
Stock Option Plan as amended on
April 7, 1994. (Filed with the Securities
and Exchange Commission on September 1, 1994
with the Company's Registration Statement on
Form S-8, Registration No.33-83500 and
incorporated herein by reference.)
<PAGE>
10.2 Lease Agreement by and between
Crow-Southland Joint Venture No. 1
and BeautiControl Cosmetics, Inc.
dated May 7,1990. (Filed with the
Securities and Exchange Commission,
Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended
November 30, 1996 and incorporated
herein by reference.)
10.3 Lease Agreement by and between Crow
Deansbank No. 7 and BeautiControl
Cosmetics, Inc. dated June 6, 1996.
(Filed with the Securities and Exchange
Commission as Exhibit 10.3 to the
Company's Annual Report on Form 10-K
for the year ended November 30, 1990
and incorporated herein by reference.)
10.8 BeautiControl Cosmetics, Inc.
Non-Qualified Stock Option Plan as
amended on April 7, 1994. (Filed
with the Securities and Exchange
Commission on September 1, 1994
with the Company's Registration
Statement on Form S-8, Registration
No. 33-83500 and incorporated herein
by reference.)
10.11 BeautiControl Cosmetics, Inc. Special
Stock Option Plan as amended on
April 7, 1994. (Filed with the
Securities and Exchange Commission on
September 1, 1994 with the Company's
Registration Statement on Form S-8,
Registration No. 33-83500 and
incorporated herein by reference.)
10.14 Amendment to Lease Agreement by and
between Crow-Southland Joint Venture
No. 1 and BeautiControl Cosmetics, Inc.
dated December 17, 1991. (Filed with
the Securities and Exchange Commission
as Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the
year ended November 30, 1997 and
incorporated herein by reference.)
10.15 Amendment to Lease Agreement between
Crow-Southland No. 1 and BeautiControl
Cosmetics, Inc. dated May 7, 1990.
(Filed with the Securities and Exchange
Commission, Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year
ended November 30, 1990 and incorporated
herein by reference.)
<PAGE>
10.16 Amendment to Lease Agreement by and between
Crow Deansbank No. 7 and BeautiControl
Cosmetics, Inc. dated June 6, 1990. (Filed
with the Securities and Exchange Commission
as Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended November 30,
1990 and incorporated herein by reference.)
10.17 BeautiControl Cosmetics, Inc. 1996 Incentive
Stock Option Plan. (Filed with the Securities and
Exchange Commission on December 9, 1996 with the
Company's Registration Statement on Form S-8,
Registration No. 333-17479 and incorporated herein by
reference.)
10.18 BeautiControl Cosmetics, Inc. 1996 Non-Qualified
Stock Option Plan. (Filed with the Securities and
Exchange Commission on December 9, 1996 with the
Company's Registration Statement on Form S-8,
Registration No. 333-17479 and incorporated herein by
reference.)
10.19 Sublease agreement by and between Chadrach, Inc.
d/b/a Dallas Moving Systems and BeautiControl Cosmetics,
Inc. dated May 30, 1997.
10.20 Lease agreement by and between Te Chan Co. and
BeautiControl Taiwan, Inc. dated August 1,1997.
10.21* Lease agreement by and between Perfect WIN Properties
Limited and BeautiControl Hong Kong, Inc. dated
December 1, 1998.
10.22* Supply agreement dated December 3, 1998 by and
between Caraloe, Inc. and Eventus International, Inc.
10.23* BeautiControl Cosmetics, Inc. 1998 Special Stock
Option Plan.
21* Subsidiaries of BeautiControl Cosmetics, Inc.
23.1* Consent of Independent Auditors
23.2* Consent of Independent Auditors
27* Financial Data Schedule
* Filed herewith
EXHIBIT 10.21
BUSINESS PREMISES
Dated the 5 JAN 1999
====================================
PERFECT WIN PROPERTIES LIMITED
LEASE
====================================
Description of Business Premises
Room 4102 on 41st Floor,
The Lee Gardens,
33 Hysan Avenue
Causeway Bay,
Hong Kong
Tenant : BEAUTlCONTlROL HONG
KONG, INC.
Term : Four years seven months
Commencing : 1st December, 1998
Expiring : 30th June 2003
Monthly Rents:
(A) Basic Rent:
(i) HK$247,140.00 for the period
from 1/12/98 to 2/7/2000 and
(ii) for the remander of the term
(i.e. from 3/7/2000 to
30/6/2003), the rental
shall be reviewed at
the then prevailing
market rent and to be
agreed between both
parties.
(B) Operating Charges: HK$29,177.00
<PAGE>
[ FLOOR CHART DATA APPEARS HERE ]
41st Floor - The Lee Gardens
(for identification purpose only)
<PAGE>
THIS LEASE made this 5 JAN 1999 day of One
thousand nine hundred and BETWEEN PERFECT WIN
PROPERTIES LIMITED whose registered office is situate at
49th Floor Manulife Plaza, The Lee Gardens, 33 Hysan Avenue,
Causeway Bay, Hong Kong Hereinafter with its successors and
assigns where the context so admits called "the Landlord")
of the one part and BEAUTICONTROL HONG KONG, INC. whose
registered address is situate at 5th Floor,
673 Nathan Road, Kowloon
(hereinafter called "the Tenant") of the other part
NOW THIS DEED WITNESSETH as follows:
1. The Landlord shall let and the Tenant shall take All
That portion of the messuage and premises erected on all
those pieces or parcels of land registered in the Land
Registry as Section L of Inland Lot No. 457 and the
Remaining Portion of Inland Lot No. 457, Section DD of
Inland Lot No. 29 and the Remaining Portion of Section L
of Inland Lot No. 29, Section MM of Inland Lot No. 29
known at the date hereof as THE LEE GARDENS (hereinafter
referred to as "the Building") which said portion
consists of Room 4102 on 41st Floor, The Lee Gardens, 33
Hysan Avenue, Causeway Bay, Hong Kong as shown on the
plan annexed hereto and thereon coloured red
(hereinafter referred to as "the Premises") Together
also with the use of the entrances staircases landings
passages and common areas (so far as the same are
necessary to the enjoyment of the Premises) in common
with the Landlord and any other tenant or tenants of the
Building And together also with the use in common with
others of the lifts escalators (if any) and central air-
conditioning services whenever the same shall be
operating excepting
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<PAGE>
and reserving unto the Landlord the rights set out in
the Schedule hereto for a term of four years, seven
months commencing on the 1st day of December 1998
(hereinafter referred to as "the Term") paying therefor
unto the Landlord
(a) (i) for the period from 1st December 1998 to 2nd
July 2000, both dates inclusive (hereinafter
referred to as "the initial term") the calendar
monthly rent of HONG KONG DOLLARS TWO HUNDRED
FORTY SEVEN THOUSAND ONE HUNDRED AND FORTY ONLY
(HK$247,140.00) and
(ii) for the remainder of the Term (i.e. from 3rd
July 2000 to 30th June 2003, both dates inclusive)
(hereinafter referred to as "the review term") the
calendar monthly rent shall be revised to the then
prevailing market rent having regarding to
prevailing market rentals of similar premises in
the same locality, such rent to be mutually agreed
between the parties or failing agreement shall be
determined by a single surveyor acting as expert
and not as an arbitrator nominated by the chairman
for the time being of The Hong Kong Institute of
Surveyors on the application of either party (and
such surveyor shall receive and, if considered
desirable, hear the representations made by or on
behalf of either or both parties) and such
surveyor's decision shall be final and binding on
the parties. The surveyor shall assess the open
market rent for the Premises on the assumption
that:
(a) the Premises are available to be let by a
willing landlord to a willing tenant by one
lease without a premium from either party and
with vacant possession;
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<PAGE>
(b) that the lease by which the Premises will be
let ("hypothetical lease") contains the same
terms as this Lease except the amount of the
rent and this Clause;
(c) that the hypothetical lease is for a term
equals to the unexpired residue of the Term as
at the rent review date.
but disregarding:
(i) any effect on rent of the fact that the
Tenant, anyone deriving title under the Tenant
or their predecessors in title have been in
occupation of the Premises;
(ii) any goodwill attached to the Premises by the
carrying on at the Premises of the business of
the Tenant or anyone deriving title under the
Tenant or by the predecessors in that business;
(iii) any effect on rental value of the Premises due
to alterations or works carried out by or at
the expenses of the Tenant, anyone deriving
title under the Tenant or their predecessors in
title.
The costs involved in such determination shall be
borne by the parties in equal shares.
It is hereby further provided that if the rent
payable for the review term cannot be agreed by
the last day of the initial term, the rent shall
continue to be payable at the rate previously
payable and forthwith upon the revised rent being
ascertained the Tenant shall pay to the Landlord
any rental shortfall between the initial rent and
the revised rent.
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<PAGE>
The above rents are all exclusive of rates and
operating charges (hereinafter referred to as "the
Rent").
(b) the calendar monthly charge of HONG KONG DOLLARS
TWENIY NINE THOUSAND ONE HUNDRED AND SEVENTY SEVEN
ONLY ($29,177.00) for the provision of the
maintenance and management of the Building, including
the provision of the central air-conditioning supply
but excluding any maintenance which is the obligation
of the Tenant under this Agreement or of any other
tenant or occupier of any other part of the Building
tinder any contract between the Landlord and such
tenant or occupier (hereinafter referred to as "the
Operating Charges")
Provided that the Rent shall not be charged by the
Landlord for the purposes of fitting out for a the
period of six months from the lease commencement date.
The parties hereto agree that the Operating Charges
shall be subject to increase at any time during the
continuance of the Term hereby created upon the Landlord
giving to the Tenant not less than one (1) calendar
month's notice in writing of such increase and upon the
expiration of the said period of one month the Operating
Charges shall be increased by the amount specified in
the Landlord's notice. There shall be no restriction on
the number of occasions upon which the Landlord may call
for an increase in the Operating Charges Provided That,
notwithstanding the foregoing, the Operating Charges in
respect of the Premises shall be charged at the same
rate per square foot as the other office units ire the
Building and that the Tenant shall not be obliged to
4
<PAGE>
make payments in respect of any capital expenditure or
payments into a contingency or sinking fund.
The Tenant hereby covenants with the Landlord as
follows:
(a) To pay the Rent for the Premises and the Operating
Charges monthly in advance to the Landlord in Hong
Kong Currency on the First day of every calendar
month during the Term such payment to be effected in
such manner as shall from time to time be designated
by the Landlord. The Tenant shall pay to the Landlord
the Rent the Operating Charges and all other sums due
hereunder (if any) upon the terms at the times and in
the manner herein provided without any deduction on
account of any set-off or claim which the Tenant may
have against the Landlord or otherwise and if the
Tenant shall fail to pay any of the Rent or the
Operating Charges or such other sums due hereunder
within fifteen days from the time when the same
become due the Tenant shall pay interest thereon at
the rate of twenty per cent per annum from the date
on which the same became due (not fifteen days
thereafter) to the date of the payment thereof and
such interest shall be deemed additional rent
hereunder provided that the demand and/or receipt by
the Landlord of interest pursuant to this clause
shall be without prejudice to and shall not affect
the right of the Landlord to exercise any other right
or remedy (including the right of re-entry)
exercisable under this Lease. All such interest due
on the Rent unpaid under this Lease shall be deemed
to be part of the Rent for the Premises and shall be
recoverable by the Landlord accordingly by distraint
or otherwise.
5
<PAGE>
(b) To pay and discharge all rates building maintenance
charges (if any) taxes assessments duties charges
impositions and outgoing whatsoever now or hereafter
to be imposed or charged by the Government of the
Hong Kong Special Administrative Region the Manager
The Managing Committee of the Building and/or other
lawful authority on or in respect of the Premises or
upon the owner or occupier in respect thereof
Government rent and Property Tax and other outgoings
of a non-recurring or capital nature excepted.
(c) To pay all charges in respect of gas electric light
and power which shall be consumed or supplied on or
to the Premises and also to pay a due proportion of
the water rate charged upon the whole of the Building
such proportion to be determined by the Landlord or
the surveyor of the Landlord.
(d) (i) The Landlord may from time to time establish
such house rules (hereinafter called the "rules")
as it may deem necessary for the management and
control of the Building and may also from time to
time alter amend and/or repeal such rules and this
Lease shall be in all respects subject to such
rules which when a copy thereof has been furnished
to the Tenant shall be taken to be part hereof and
the Tenant shall obey all such rules and see that
they are faithfully observed by the visitors
guests employees arid licensees of the Tenant and
such rules shall apply to and be binding upon all
of the tenants of the Building;
the Landlord shall not be responsible or under any
liability to the Tenant for the non-observance or
violation of such rules by any other tenant of the
Building or person.
6
<PAGE>
(iii) in the case of conflict between the rules and the
other terms of this Lease, then the other terms of
this Lease shall prevail.
(e) Not to occupy or use the Premises or permit the same
or any part thereof to be occupied or used for any
purpose other than that as an office and ancillary
distribution centre only.
(f) To comply with all the requirements of the
Government of the Hong Kong Special Administrative
Region or other lawful authorities and with all laws
ordinances rules and regulations with respect to the
use and occupation of the Premises. To do everything
necessary to obtain continue and renew any licence or
registration required by any laws ordinances rules
regulations for using the Premises for the use
allowed including paying all fees. The Tenant shall
not do or permit to be done anything whereby the
policy or policies of insurance on the Premises or
the contents thereof against damage by fire or other
risks for the time being subsisting may become void
or voidable or whereby the rates of premium thereon
may be increased and shall repay to the Landlord all
sums paid by way of increased premium and all
expenses incurred by the Landlord in or about any
renewal of such policy or policies rendered necessary
by a breach of this clause and the Landlord shall
have the right to collect the same from the Tenant
when charged to the Landlord as additional rent as
referred to in Clause 2(a).
(g) Not to permit any person to remain in the Premises
overnight without prior written permission from the
Landlord. Such permission will not be given unless
the Landlord is satisfied that it is necessary to
enable the Tenant to post a watchman to look after the
7
<PAGE>
contents of the Premises. In no circumstances shall
the Premises be used as sleeping quarters or as
domestic premises within the meaning of the Landlord
and Tenant (Consolidation) Ordinance Chapter 7 or any
other enactment or modification thereof for the time
being in force.
(h) Not to do or permit to be done any act matter or
thing in contravention of the terms of the Government
Lease or Conditions under which the Landlord holds
the Premises insofar as the same relate to the use
and occupation of the Premises and the Tenant shall
indemnify the Landlord against any breach thereof.
The Tenant shall observe and shall be answerable and
responsible for ensuring that the servants employees
and licensees of the Tenant observe all the
requirements of the Ordinances (including Orders in
Council) and subsidiary legislation (including rules
regulations made thereunder) of the Government of
Hong Kong in relation to the use and occupation of
Premises.
(i) Not to assign underlet or otherwise part with the
possession of the Premises or any part thereof either
by way of sub-letting lending_sharing or other means
whereby any person or persons not a party to this
Lease obtains the use or possession of the Premises
or any part thereof irrespective of whether any
rental or other consideration is given for such use
or possession and in the event of any such ansfer
sub-letting sharing assigning or parting with the
possession of the Premises (whether for monetary
consideration or not) this Lease may at the
discretion of the Landlord be absolutely determined
inwhich event the Tenant shall forthwith surrender the
8
<PAGE>
Premises to the Landlord. The lease hereby granted
shall be personal to the Tenant named in this Lease
and without in any way limiting the generality of the
foregoing the following acts and events shall unless
previously approved in writing by the Landlord (which
approval Me Landlord may give or withhold at its
discretion without assigning any reason therefor) be
deemed to be breaches of this Clause:
(i) any take-over reconstruction amalgamation merger
voluntary liquidation or change in the person or
persons who owns / own a majority of the Tenant's
voting shares or who otherwise has or have
effective control thereof.
(ii) the giving by the Tenant of a Power of Attorney
or similar authority whereby the donee of the
Power of Attorney obtains the right to use possess
occupy or enjoy the Premises or any part thereof
or does in fact use possess occupy or enjoy the
same.
(iii) the change of the Tenant's business name
without the previous written consent of the
Landlord.
(j) To keep all the interior non-structural parts of the
Premises including the flooring and interior plaster
or other finishing material or rendering to walls
floors and ceilings and the Landlord's fixtures
therein including all doors windows electrical
installations arid wiring in good clean tenantable
substantial and proper repair and condition (fair
wear and tear, and inherent defects excepted) and
properly preserved and painted as may be appropriate
when from time to time required and to so maintain
the same at the expense of the Tenant and deliver up
the same to the Landlord at the expiration or sooner
9
<PAGE>
determination of the Term in the like condition (save
and excepted as aforesaid) replacing and reinstating
any part of the Premises damaged or destroyed by or
through or in consequence directly or indirectly of
any negligent act or omission of the Tenant. The
Tenant particularly agrees:
(i) To reimburse to the Landlord the cost of replacing
all broken and damaged windows whether the same be
broken or damaged by the negligence of the Tenant or
owing to circumstances beyond the control of the
Tenant.
(ii) To repair or replace if so required by the Hong
Kong Electric Company Limited or other Authority as
the case may be under the terms of any electricity
supply Ordinance for the time being in force or any
regulations made thereunder all the electrical wiring
installations and fittings within the Premises and
the wiring from the Tenant's meter or meters to and
within the same.
(iii) To take all reasonable precautions to protect the
interior of the Premises from damage threatened by an
approaching storm or typhoon.
(iv) To be responsible for all damage or injury o the
Premises the said fixtures fittings installations
equipment and appurtenances or to the Building its
apparatus or services which may be caused by the
carelessness omission neglect improper use or conduct
of or any cause attributable to the Tenant the
servants employees agents or invitees of the Tenant
including without in any way limiting the foregoing
damage caused by the Tenant in moving property or
equipment in or out of the Building or the Premises
10
<PAGE>
and such damage shall be repaired restored remedied
or replaced promptly on the same being sustained at
the sole cost and expense of the Tenant to the
reasonable satisfaction of the Landlord by
contractors and workmen employed or approved by the
Landlord.
(k) The Landlord shall not be in any circumstances under
any liability, whatsoever to the Tenant or to any
other person whomsoever in respect of any damage
sustained by the Tenant or such other person
aforesaid caused by the negligence of any other
tenant of the Building or caused by or through or in
any way owing to the leakage or overflow of water or
the escape of fumes smoke or fire or any other
substance or thing from any premises situate in the
Building or caused by or through or in any way owing
to any defect in or breakdown of the lifts fire
fighting and security services equipment
air-conditioning plant and other facilities of and in
the Building.
The Tenant shall fully indemnify the Landlord against
all claims demands actions and legal proceedings
whatsoever made upon the Landlord in respect of any
loss damage or injury to any person whomsoever or to
any property whatsoever caused by the act default or
negligence of the Tenant or by or through or in any
way owing to the leakage or overflow of water or the
escape of fumes smoke or fire or other substance or
thing originating from the Premises or directly or
indirectly through the defective or damaged condition
or operation of any non-structural part of the
interior of the Premises or any fixtures fittings
wiring or piping or any plant or machinery therein.
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<PAGE>
(l) The Landlord shall not in any circumstances be
liable for any injury or damage to persons or
property resulting from fire explosion falling
plaster steam gas electricity water rain or leaks
from any part of the Building or from pipes
appliances or plumbing works or from the roof street
or subsurface or from any other place or by dampness
or by any other cause of whatsoever nature nor shall
the Landlord be liable for any such damage caused by
other tenants or persons in the Building or by
Building or other operations in the neighbourhood.
(m) To be wholly responsible for any loss damage or
injury caused to any person whomsoever or to any
property whatsoever directly or indirectly through
the defective or damaged condition of any non-
structural part of the interior of the Premises or
through the operation of any fixtures fittings wiring
or piping or any plant or machinery therein and to
make good the same by payment or otherwise and to
indemnify the Landlord against all claims demands
actions and legal proceedings whatsoever made upon
the Landlord by any person in respect thereof.
(n) (i) The Tenant shall not without first obtaining
the written consent of the Landlord make or permit
to be made any alteration in or addition to
the Premises or to the water gas or steam pipes
electrical installations and wiring or plumbing or
other Landlord's fixtures or to install any plant
apparatus or machinery in the Premises or cut maim
or injure or suffer to be cut maimed or injured
any doors windows walls structural members or
other fabric thereof or except as hereinafter
authorized remove any additions improvements or
fixtures from the Premises. If any authority of the
12
<PAGE>
Government of the Hong Kong Special Administrative
Region or other lawful authorities requires or
orders the Premises be altered added to or modified
or that any fixtures or equipment which relates
to the use and occupation of the Premises be
installed or that any fixtures or equipments
installed by the Tenant be removed the Tenant shall
(i.i) give the Landlord promptly a copy of any
notification to that effect;
(i.ii) carry out the work required;
(i.iii) indemnify the Landlord against any claims
demands losses and damages arises from the breach
of such request or orders by the Tenant.
(ii) If the Tenant shall hereafter place in the Premises
any additions improvements or fixtures which can
be removed without structural alterations then the
Tenant shall have the right prior to the termination
of this Lease to remove the same at the Tenant's own
expense provided:
(ii.i) that the Tenant at the time of such removal
shall not be in default in the payment of the Rent
or in the performance of any other clause provision
or condition of this Lease;
(ii.ii) that before any such removal the Tenant shall
have given written notice to the Landlord specifying
the additions improvements or fixtures which the
Tenant proposes to remove and specifying in detail
the proposed replacements to be made by the Tenant
and shall have obtained the Landlord's written
approval of the replacement specifications and
13
<PAGE>
(ii.iii) that the Tenant shall at the Tenant's own
expense prior to the termination of this Lease
replace all Landlord's provisions
removed with others of a kind and quality
customary in this type of high class commercial
building and satisfactory to the Landlord and
all such replacements shall be first-class in
workmanship materials and finish and as
specified in the notice provided for in
paragraph (ii.ii) hereof.
(o) Notwithstanding clause 2(n) above the Tenant shall if
so required by the Landlord remove all additions
improvements or fixtures from the Premises and
reinstate the Premises to their original state and
condition to the satisfaction of the Landlord on the
expiration or sooner determination of the Term hereby
granted.
(p) On the expiration of the Term hereby granted or upon
an earlier termination of this Lease the Tenant shall
surrender to the Landlord possession of the Premises
with all additions improvements and fixtures then
included therein except as hereinabove provided in a
good clean and tenantable repair and condition (fair
wear and tear and inherent defects excepted) to the
satisfaction of the Landlord.
(q) The Landlord and its agents shall be permitted to
visit and examine the Premises at any reasonable hour
of the day upon reasonable notice (except in an
emergency when no notice is required) and workmen may
enter at any time when authorized by the Landlord or
the Landlord's agents to enter the Premises at
reasonable times upon reasonable notice (except in an
emergency when no notice is required) to make or
14
<PAGE>
facilitate repairs or prevent damage in any part
of the Building and to remove such portions of
the walls floors and ceilings of the Premises as
may be required for the purpose of making such
repairs or preventing such darnage. If the Tenant
shall not be personally present to open and permit an
entry into the Premises at any time when for any
reason an entry therein shall be necessary or
permissible hereunder the Landlord or the Landlord's
agents may forcibly or otherwise enter the Premises
without rendering the Landlord or such agents liable
to any claim or cause of action for damages by reason
thereof if during such entry the Landlord shall accord
reasonable care to the Tenant's property provided that
the right and authority hereby reserved do not impose
nor does the Landlord assume by reason thereof any
responsibility or liability whatsoever for the care or
supervision of the Premises or any of the pipes
fixtures appliances or appurtenances therein contained
or therewith in any manner connected except as may be
herein specifically provided. The Tenant shall make
good all defects and wants of repair found to be the
liability of the Tenant within the period of fifteen
(15) days from the date of receipt of notice written
or verbal from the Landlord to make good or amend the
same.
(r) For the purposes of Part m of the Landlord and
Tenant (Consolidation) Ordinance (Cap. 7) rent shall
be deemed to be in arrears if not paid in advance on
the due date in accordance with Clause 2(a) hereof.
(s) To pay on demand to the Landlord all reasonable costs
incurred by the Landlord in cleansing and clearing
any of the drains choked or stopped up owing to the
negligence of the Tenant or of his visitors guests
employees or licensees.
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<PAGE>
(t) At all times during the continuance of the Term
hereby created to insure with an insurance company in
Hong Kong approved by the Landlord such approval not
to be unreasonably withheld or delayed against fire
and claims by third parties in respect of damage or
loss to the Premises however caused or arising out of
the Tenant's use and occupation of the Premises and
to pay all premiums therefor and on demand to produce
and (if so required) deliver up to the Landlord or
its agent every such policy of insurance and the
receipt for the last payment of premium AND the
Tenant hereby covenants with the Landlord that the
Tenant will fully indemnify the Landlord and keep the
Landlord indemnified against any claims made by third
parties as aforesaid.
(u) The Tenant shall not use the Premises for the
storage of goods or merchandise other than in such
quantities consistent with the nature of the Tenant's
trade or business nor to keep or store or cause or
permit to be kept or stored any extra hazardous or
hazardous goods within the meaning of the Dangerous
Goods Ordinance or any enactment replacing the same
and the regulations applicable thereto, and in so far
as such Ordinance or its schedules or regulations may
be altered this Clause shall have reference to any
alteration thereof.
(v) For the period of six months prior to the expiration
of the Term to permit the Landlord to display on the
exterior of the Premises a sign indicating that the
Premises are available for letting and during such
period to permit the Landlord and its representatives
16
<PAGE>
to enter the Premises with prospective tenants at
reasonable hours of the day upon prior reasonable
notice to view and inspect the same the Landlord
causing as little inconvenience as is reasonably
practicable.
(w) Not to permit or suffer any part of the Premises to
be used for the purpose of gambling or for any
illegal immoral or improper purpose.
(x) To be responsible for the removal of garbage and
refuse Mom the Premises. The Tenant shall not dispose
of any garbage or rubbish except in the manner from
time to time prescribed by the Landlord and until
such time as such garbage is removed from the
Building to keep the same securely sealed in
containers of a design to be approved by the
Landlord. In the event of the Landlord providing a
collection service for garbage and refuse the same
shall be used by the Tenant to the exclusion of any
other similar service and the use of such service
provided by the Landlord shall be at the sole cost of
the Tenant.
(y) To reimburse the Landlord the cost of replacing any
broken damaged defective or burned out light bulbs
tubes and globes in the Premises which may be
provided by the Landlord.
(z) Not to take delivery of furniture or fixtures or
bulky items of goods in and out of the Building
during normal office hours and under no circumstances
shall passenger lifts be used for delivery purposes.
(aa) Not to install additional locks bolts or other
fittings to the Premises or in any way to cut or
alter the same without the prior written consent of
the Landlord such consent not to be unreasonably
withheld or delayed.
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<PAGE>
(ab)To reimburse the Landlord the cost of repairing or
replacing any air-conditioning fan-coil unit or any
other part of the air-conditioning system or
installation which is damaged or rendered defective by
the misuse or negligence of the Tenant or any of the
Tenant's visitors employees or licensees.
(ac)Not to place a load upon any floor of the Premises in
excess of the loading for which the floor is designed.
The Landlord reserves the right to prescribe the
weight and position of all safes and heavy machinery
which must be placed so as to ensure an acceptable
distribution of weight.
(ad)To use only the name designated by the Landlord for
the Building, and shall use such name for its business
address and for no other purpose.
(ae)Not to mane or permit to be made any music or noise
so as to cause a nuisance or annoyance to the
Landlord or any other tenant of the Building or do or
permit anything to be done therein which will
interfere with the rights comfort or convenience of
the other tenants.
(af)To permit the Landlord at all times during' the Term
to exercise without interruption or interference any
of the rights set out in the Schedule hereto.
3. The Landlord hereby covenants with the Tenant as follows:
(a) To keep in good repair the Building's main walls
roofs main passages main stairways main electricity
cables and main drains and pipes intended for the
general service of the Building and all such repairs
shall be at the expense of the Landlord unless the
same shall have been rendered necessary by the act or
18
<PAGE>
neglect or carelessness of the Tenant or any
of the visitors guests employees contractors or
licensees of the Tenant in which case the expense is
to be borne by the Tenant Provided that the
Landlord's liability hereunder shall not be deemed
to have arisen unless and until notice in writing of
any want of repair shall have been previously given
by the Tenant to the Landlord and the Landlord shall
have failed to repair the same within a reasonable
time.
(b) The Landlord shall keep and maintain the lift
service for the convenience of the Tenant subject to
the discretionary power of the Landlord to prescribe
the manner of maintaining the said service.The Tenant
or any person using the said lift service shall do so
entirely at his own risk.
(c) The Landlord shall provide and maintain for the
Premises a central air-conditioning service during
normal business hours namely from 8:00 a.m. to 6:00
p.m. from Mondays to Fridays and from 8:00 a.m. to
1:30 p.m. on Saturdays. No such central
air-conditioning supply will be provided outside these
hours other than as may be agreed in advance with the
Landlord. Notwithstandirig any provision to the
contrary the Landlord shall not be liable to pay
compensation to the Tenant in respect of any period
during which owing to circumstances beyond the control
of the Landlord the airconditioning plant shall not be
operating as the result of mechanical or power failure
need of repair or overhaul or for any other reason
beyond the control of the Landlord nor shall the
Landlord be liable to grant to the Tenant any
abatement of Rent in respect of such interruption.
19
<PAGE>
(d) The Tenant upon, duly paying the Rent and observing
and performing the terms and complying with the
conditions on the part of the Tenant to be performed as
herein set forth shall at all times during the Term
hereby granted quietly have hold and enjoy the Premises
without any suit trouble or hindrance from the Landlord
or anyone lawfully claiming under through or in trust
for the Landlord.
(e) The Landlord shall during the continuance of this
Lease pay the Government Rent and Property Tax and
other outgoings of a capital or non-recurring nature in
respect of the Premises.
4. It is hereby mutually agreed as follows:
(a) (i) If the Rent and / or the Operating Charges
and/or other moneys hereby reserved or any part
thereof shall be unpaid for 15 days after the same
shall become payable whether formally demanded or
not; or
(ii) If the Tenant shall default in the performance
or observance of any term or condition hereof; or
(iii) If the Tenant shall become bankrupt or enter into
any composition or arrangement with creditors or
shall suffer any execution to be levied on its goods
or being a company shall go into liquidation;
then and in any such case it shall be lawful for the
Landlord to re-enter the Premises or any part thereof
in the name of the whole and thereupon this Lease shall
absolutely determine but without prejudice to any right
of action of the Landlord in respect of any antecedent
breach of the Tenant's terms and conditions and a
written notice given by the Landlord to the Tenant to
the effect that the
20
<PAGE>
Landlord thereby exercises the right of re-entry
hereby conferred shall be a full and sufficient
exercise of such power notwithstanding any statutory
or common law provisions to the contrary. All costs
and expenses for and incidental to any demand for the
Rent and the Operating Charges or any other sum
payable under this Lease (if the Landlord elects to so
demand) or action or distraint for the recovery of the
same (including any solicitors' or counsel's fees on
solicitor and own client basis) shall be paid by the
Tenant and shall be recoverable from him as a debt on
a full indemnity basis
(b) Notwithstanding anything hereinbefore contained if
the Tenant shall fail to pay the Rents and / or the
Operating Charges and / or other moneys herein
reserved or any part thereof on due dates the Landlord
shall be entitled to :
(i) recover from the Tenant as a debt the following
expenses incurred by the Landlord in the course of
recovering the Rents and / or Operating Charges
and / or other moneys unpaid or any part thereof:
(i.i) such sum as the Landlord shall reasonably
determine to be collection charges for the
additional work incurred by the Landlord's
staff in collecting the Rents and / or the
Operating Charges and / or other moneys
unpaid or any part thereof;
(i.ii) all solicitors' and / or counsels' fees (on a
solicitor and own client basis) and court
fees incurred by the Landlord for the purpose
of recovering the Rents and / or the
21
<PAGE>
Operating Charges and / or other moneys
unpaid or any part thereof; and
(i.iii) any other fees paid to debt-collectors
appointed by the Landlord for the purpose of
collecting the Rents and / or the Operating
Charges and / or other moneys unpaid or any
part thereof.
(ii) terminate or disconnect the supply of
air-conditioning water electricity and other
services and facilities to the Premises and / or
to the Tenant.
(c) This Lease sets out the full agreement between the
parties. No other warranties or representations have
been made or given relating to the tenancy or to the
Building or the Premises. If any warranty or
representation has been made the same is hereby
waived. The provisions of this Lease cannot be changed
orally.
(d) Acceptance of the Rent by the Landlord shall not be
deemed to operate as a waiver by the Landlord of any
right to proceed against the Tenant in respect of any
breach by the Tenant of any of its obligations
hereunder. No condoning excusing or overlooking by the
Landlord of any default breach or non-observance or
nonperformance by the Tenant at any time or times of
any of the Tenant's obligations herein contained shall
operate as a waiver of the Landlord's rights hereunder
in respect of any continuing or subsequent default
breach or non-observance or non-performance or so as
to defeat or affect in any way the rights of the
Landlord herein in respect of any such continuing
or subsequent default or breach and no waiver
by the Landlord shall be inferred from or implied by
22
<PAGE>
anything done or permitted by the Landlord unless
expressed in writing and signed by the Landlord.
(e) Any notice by the Landlord to the Tenant shall be
deemed to have been duly served and any demand by the
Landlord upon the Tenant shall be deemed to have been
duly made if delivered to or sent by prepaid post or
left at the Premises or at the last known address of
the Tenant. Any notice by the Tenant to the Landlord
shall be deemed to have been given if in writing and
delivered or mailed by prepaid registered mail to the
registered office of the Landlord.
(f) For the purposes of this Lease any act default or
omission of the agents servants employees contractors
licensees guests invitees or customers of the Tenant
shall be deemed to be the act default or omission of
the Tenant.
(g) The stamp duty registration fee and ratification fee
(if any) payable on this Lease and its counterpart
shall be borne by the Landlord and Tenant in equal
shares.
(h) The Tenant shall deposit with the Landlord the sum
of HONG KONG DOLLARS EIGHT HUNDRED SIXTY TWO THOUSAND
THEE HUNDRED AND FOURTEEN ONLY (~$862,314.00) as
security for the due payment of the Rent the Operating
Charges and other moneys hereby stipulated
(hereinafter referred to as "the Deposit") and the due
observance and performance of the terms and conditions
herein contained and on the part of the Tenant to be
observed and performed. The Deposit shall be subject
to revision in the event of adjustment in the Rent,
rates and / or Operating Charges. The Deposit shall be
23
<PAGE>
retained by the Landlord for its own use and benefit
throughout the Term free of any interest to the Tenant
with power for the Landlord without prejudice to any
other right or remedy hereunder to deduct therefrom
the amount of any of the Rent Me Operating Charges
or other moneys payable hereunder which is in arrears
or any loss or damage sustained by the Landlord as
the result of any non-observance or non-performance by
the Tenant of any such agreement stipulation or
condition. In the event of any deduction being
made by the Landlord from the Deposit in accordance
herewith the Tenant shall on demand by the Landlord
forthwith further deposit the amount so deducted and
failure by the Tenant so to do shall entitle the
Landlord forthwith to re-enter the Premises and to
determine this Lease as hereinbefore provided.
Subject as aforesaid the Deposit shall be refunded to
the Tenant by the Landlord without interest within
thirty days after the expiration or sooner
determination of this Lease and the delivery of
vacant possession to the Landlord or within thirty
days of the settlement of the last outstanding claim
by the Landlord against the Tenant in respect of
any breach non-observance or non-performance of any
of the agreements stipulations or conditions herein
contained and on the part of the Tenant to be
observed and performed whichever is the later.
(i) This Lease and the agreements stipulations and
conditions herein contained shall enure for the
benefit of and be binding on the Landlord its
successors and assigns. The obligations of the
Tenant hereunder up to the date of termination of
this Agreement shall be enforceable against the
24
<PAGE>
Tenant and its successors but unless expressly agreed
in writing by the Landlord the Tenant's successors
shall not succeed to or be entitled to any of the
benefits hereof or any interest hereunder.
(j) The Tenant acknowledges that no fine premium key
money or other consideration has been paid by the
Tenant to the Landlord for or in connection with the
grant of this lease.
(k) The Landlord hereby reserves the right at any time
during the Term hereby granted to change the name of
the Building or any part thereof and in respect
thereof the Landlord shall not be liable in damages to
the Tenant or be made a party to any other proceeding
or for costs or expenses of whatsoever nature incurred
by the Tenant as a result of such change.
(1) In the event of the Premises or any part thereof at
any time during the Term being damaged or destroyed by
fire water storm wind typhoon defective construction
white-ants earthquake subsidence of the ground or any
other cause (not attributable to the act default or
negligence of the Tenant) so as to be rendered unfit
for use and occupation or being declared unfit for use
and occupation or becoming subject to a closure order
then the Rent hereby stipulated or a fair proportion
thereof according to the nature and extent of the
damage sustained shall be suspended until the Premises
shall be again rendered fit for occupation and use
Provided Always that the Landlord shall be under
no obligation to reinstate the Premises if by
reason of the condition of the Premises or any local
regulations or other circumstances beyond the
control of the Landlord it is not practicable or
reasonable so to do. In such event the Landlord may
25
<PAGE>
forthwith or within a reasonable time thereafter
determine this Lease but such determination shall not
prejudice the rights and remedies of either party in
respect of any antecedent breach on the part of the
other.
(m) It is hereby declared that in the construction of
these presents unless the contrary intention appears
words importing the masculine gender shall include
female and neuter genders and vice versa words in
the singular shall include the plural and vice versa
and words importing persons shall include companies
or corporations and vice versa.
(n) This Lease is conditional upon vacant possession for
the Premises being delivered by the Landlord by the
Lease Commencement Date. If Arco Chemical Asia
Pacific Limited shall fail to deliver vacant
possession of the Premises by such a date, the Tenant
is entitled to withdraw from the lease by written
notice to the Landlord whereupon the service of the
said notice, this lease shall cease to have effect
and the Landlord and Tenant shall each be released
from their respective obligations under this Lease
except the Landlord shall refund to the Tenant
forthwith all payments (excluding stamp duty or
registration fee) made by the Tenant pursuant to the
Lease including the Deposit paid.
THE SCHEDULE
(1) The free passage and running of water soil gas
electricity and other services from and to other parts
of the Building in and through the pipes sewers drains
conduits gutters watercourses wires cables channels and
other conducting media (collectively "the Conducting
26
<PAGE>
Media") which are now or at any time during the Term
laid or made in upon through or under the Premises and
the free and uninterrupted use of all Conducting Media
serving other parts of the Building which are now or at
any time during the Term in upon through or under the
Premises.
(2) The right to construct and to maintain in over or under
the Premises any easements or services for the benefit
of any part of the Building or any adjoining property
of the Landlord.
(3) The right at any time during the Terrn at reasonable
times during normal business hours after giving
reasonable prior notice to the Tenant to enter (or in
cases of emergency to break and enter) upon the
Premises in order:
(a) to inspect cleanse repair amend remove or replace
with others the Conducting Media or any part
thereof;
(b) to inspect and to execute works in connection with
any of the easements or services referred to in
this Schedule;
(c) to carry out work or do anything whatsoever
comprised within the Landlord's obligations herein
contained whether or not the Tenant is liable
hereunder to make a contribution;
(d) to exercise any of the rights possessed by the
Landlord under the terms of this Agreement.
(4) The right to erect scaffolding for the purpose of
repairing refurbishing or cleaning the exterior of the
Building notwithstanding that such scaffolding may
temporarily interfere with the access to or enjoyment
and use of the Premises.
27
<PAGE>
(5) (a) The right to use or permit or authorize other
persons to use all or any part of the common areas
of the Building (including without limitation the
common entrances, passages, corridors, staircases,
lobbies and halls) whether by granting a tenancy,
lease or licence in respect thereof for any trade
business advertising or promotional use or
activities; and
(b) The right to remove, cancel, relocate or otherwise
change the common areas of the Building (including
but not limited to common entrances, passages,
corridors, staircases, lobbies and halls)
from time to time and in such manner as the Landlord
may reasonably deem fit without the same constituting
an actual or constructive eviction of the Tenant and
without incurring any liability of the Tenant provided
that such use or activities referred to in Paragraph
(a) and such removal, cancellation, relocation or other
change of the common areas of the Building referred to
in Paragraph (b) shall not significantly interfere with
access to the Premises.
AS WITNESS WHEREOF the hands of the parties the day and year
first above written.
28
<PAGE>
EXECUTED as a deed by Samson Chu )
)
)
)
the authorised signatory for and ) For and on behalf of
) PERFECT WIN PROPERTIES LTD.
on behalf of the Landlord in the )
) /s/
presence of: ) Authorized Signature
)
/s/ Annie Tang )
Annie Tang
EXECUTED as a deed by Dr Sam Nejand ) /s/ Dr Sam Nejand
)
Vice President of BeautiControl, )
)
the authorised signatory for and on )
)
behalf of the Tenant in the )
)
presence of: /s/ May Chang )
May Chang
RECEIVED the day and year first above )
)
written of and from the Tenant the sum )
)
of DOLLARS EIGHT HUNDRED )
) HK$862,314.00
SIXTY TWO THOUSAND THREE )
)
HUNDRED AND FOURTEEN ONLY )
)
Hong Kong Currency being the Deposit )
)
above expressed to be paid by the )
)
Tenant to the Landlord )
For and on behalf of
WITNESS: PERFECT WIN PROPERTIES LTD.
/s/ Annie Tang /s/
Annie Tang Authorized Signature
29
<PAGE>
HOUSE RULES
(1) The public halls entrances passages and stairways of the
Building shall not be obstructed or used for any other
purpose than ingress to or egress from the Premises in
the Building.
(2) No public hall of the Building shall be decorated by any
tenant in any manner without the prior consent of the
Landlord.
(3) No tenant shall make or permit any noise such as to
cause a nuisance or annoyance to any other tenant in the
Building or the Landlord or do or permit anything to be
done therein which will interfere with the rights comfort
or convenience of other tenants.
(4) No tenant shall store arms, ammunition or unlawful goods
kerosene or any explosive or combustible substance in any
part of his Premises.
(5) Each tenant shall keep such tenant's Premises in a good
state of preservation and cleanliness and shall not sweep
or throw or permit to be swept or thrown therefrom or
from the doors windows terraces or balconies thereof any
dirt or other substance.
(6) No article shall be placed in the public halls passages
or on the public staircase landings nor shall anything be
hung or shaken from the doors windows terraces or
balconies or placed upon the window sills of the
Building.
(7) No shades awnings or window guards shall be used in or
about the Building except such as shall be approved by
the Landlord.
(8) No sign signal advertisement or illumination shall be
inscribed or exposed on or at any window or other
part of the Building except such as shall have been
approved in writing by the Landlord nor shall anything
project out of any window of the Building without similar
30
<PAGE>
approval. The Landlord will provide at the main entrance
hall of the Building for a Directory of such design as
may from time to time be determined by the Landlord. The
Landlord will at the expense of a tenant provide a
sign or plate indicating the name of the tenant on the
Directory.
(9) The public lifts in the Building unless of automatic
type and intended lot operation by a passenger shall be
operated only by employees of the Landlord and there
shall be no interference whatsoever with the same by
tenants or their guests licensees or employees.
(10) No velocipedes bicycles scooters or similar vehicles
shall be allowed in the public passenger lifts and no
baby carriage or any of the abovementioned vehicles
shall be allowed in the public halls passage ways areas
or courts of the Building.
(ll) Office equipment and supplies goods baggage and
packages of every kind are to be delivered only at the
service entrance of the Building and through the service
lift or service stairways to the Premises.
(12) Garbage and refuse from any premises shall be
deposited in such manner as the manager of the Building
may direct.
(13) Water-closets and other water apparatus in the
Building shall not be used for any purpose other than
those for which they were constructed nor shall any
sweepings rubbish rags or any other articles be thrown
into the same. Any damage resulting from misuse of any
water-closets or apparatus shall be paid for by the
tenant in whose Premises or by any of whose guests
licensees or employees it shall have been caused.
(14) No tenant shall send any employee of the Landlord out
of the Building on any private business of a tenant.
31
<PAGE>
(15) No bird or animal shall be kept harboured or allowed
in of the premises.
(16) No radio or television aerial shall be attached to or
hung from the exterior of the Building.
(17) Any consent or approval given under these rules by the
Landlord shall be revocable at any time.
(18) Complaints regarding the service of the Building shall
be made in writing to the Landlord or any other person
designated by the Landlord.
(l9) No tenant shall allow any visitor licensee or employee
of the tenant to stand or queue up outside his premises
thereby causing an obstruction to the passages and
entrance halls used in common with the other tenants of
the Building.
(20) The Landlord shall have the right to prohibit any
advertising by any tenant which in the Landlord's
opinion tends to impair the reputation of the Building
or its desirability as a building for offices and
shopping mall and upon written notice from the Landlord
the tenant shall refrain from or discontinue such
advertising.
(21) Windows shall remain closed save in an emergency such
as fire or breakdown of the air-conditioning system.
(22) Canvassing and peddling in the Building is strictly
prohibited and each tenant shall co-operate to prevent
the same.
(23) Each tenant must upon the termination of his tenancy
return to the Landlord all keys of stores offices and
toilet rooms used by such tenant.
(24) The loading and unloading of goods shall be carried
out at such times in such areas and through such
entrances as shall be designated by the Landlord for
this purpose from time to time.
32
<PAGE>
(25) No heating facilities in addition to such facilities
as may be provided by the Landlord (if any) shall be
installed without the written consent of the Landlord.
(26) It is the responsibility of a tenant to maintain and
keep clean and clear of rubbish the public areas
immediately adjacent to his premises to the satisfaction
of the Landlord.
33
EXHIBIT 10.22
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of
December 3, 1998 is by and between CARALOE, INC., a Texas
corporation ("Seller"), and EVENTUS INTERNATIONAL, INC., a
Delaware corporation ("Buyer"),
WITNESSEH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires
to purchase from Seller, Caraloe's Manapol[R] Powder (hereinafter
referred to under the name "Product") in the quantities, at the
price, and upon the terms and conditions hereinafter set forth;
and
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties
hereto agree as follows:
Term. The term of this Agreement shall commence on
December 3, 1998, and shall end at midnight on December 2, 2005,
unless sooner terminated as provided herein (the "Term").
2. Sale and Purchase. Subject to the terms and conditions of
this Agreement, Seller shall sell to Buyer, and Buyer shall
purchase from Seller, during each year of the Term, agreed upon
monthly quantities equal to all of Buyer's needs for Manapol[R]
Powder for the Product. Seller shall, however, not be required to
sell monthly quantities in excess of Seller's present plant, farm
or manufacturing capacity. The Product specifications shall be
mutually agreed upon by the Parties within ninety (90) days from
the date of execution of this Agreement. Failure to reach
agreement on the specifications within ninety (90) days shall
cause this Agreement to terminate unless an extension thereto is
mutually agreed upon by the Parties hereto.
3. A. Seller warrants to Buyer that all Manapol[R] Powder
sold by Seller pursuant to this Agreement will generally conform
to the quality specifications set forth in Exhibit A to this
Agreement as per Buyer and Seller mutual agreement referenced
above. EXCEPT AS PROVIDED IN THIS PARAGRAPH 3, THERE ARE: NO
WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTS OF MERCHANTABILITY, FITNESS
AND FITNESS FOR A PARTICULAR PURPOSE, MADE WITH RESPECT TO THE
MANAPOL[R] POWDER TO BE SOLD HEREUNDER, AND NONE SHALL BE IMPLIED
BY LAW.
4. Deliveries. Buyer shall instruct Seller from time to time
during the Term, by placing a purchase order with Seller
reasonably in advance of the date Buyer desires Manapol[R] Powder
to be delivered to it hereunder, (i) as to the quantities of
Manapol[R] Powder to be delivered to Buyer, (ii) as to the
specific date of delivery, (iii) as to the specific location of
delivery and (iv)
1
<PAGE>
as to the carrier or particular type of carrier for such
delivery. During the Term, Buyer shall provide Seller (a) on an
annual basis prior to the beginning of each year of the Term a
nonbinding forecast of Buyer's minimum and maximum aggregate
delivery requirements for Manapol[R]Powder for such year (provided
that such forecast for the second year of the Term shall be
provided to Seller by October 1, 1999), and (b) on a quarterly
basis at least thirty (30) days prior to the end of each
tnree-month period of the Term a forecast acceptable to Seller
(which shall be binding on Buyer) of Buyer's minimum and maximum
delivery requirements for Manapol[R] Powder for each month of the
next three-month period (provided that such forecast for the
initial period of the Term ending on March 31, 1999, shall be
provided to Seller by January 4, 1999). The quantities of
Manapol[R] Powder ordered by Buyer pursuant to this Agreement from
time to time shall be spaced in a reasonable manner, and Buyer
shall order such quantities in accordance with Buyer's binding
forecasts. In no event shall Seller be required to deliver to
Buyer in any three-month period a quantity of Manapol[R]Powder in
excess of 125 % of the maximum delivery requirement for such
period set forth in the binding forecast for such period accepted
by Seller. Deliveries of Manapol[R]Powder shall be made by Seller
under normal trade conditions in the usual and customary manner
being utilized by Seller at the time and location of the
particular delivery. The Manapol[R] Powder delivered to Buyer
hereunder shall be packaged per agreement of the Parties. All
deliveries of Manapol[R]Powder to Buyer hereunder shall be made by
Seller F.O.B. at the facilities of Seller or its affiliates
located in Irving, Texas.
5. Purchase Price. All Manapol[R] Powder to be purchased by
Buyer under this Agreement shall be purchased by it, during the
first, second and third years of this Agreement, at a price per
Product as set forth on Exhibit B to this Agreement. Thereafter,
Buyer and Seller shall meet on a yearly basis to mutually agree
upon prices for the upcoming contract year. If prices for the
upcoming year cannot be agreed upon the Agreement shall terminate
on December 3 of the contract year in question. At delivery
point, Buyer shall bear all freight, insurance and similar costs,
and all sales taxes, with respect to such purchases from that
point forward. The purchase price of Manapol[R] Powder, together
with all related freights insurance and similar costs, and sales
taxes, shall be paid by Buyer to Seller within thirty (30) days
after the date of invoice.
6. Labels and Advertising
(a) IDA Compliance of Labels and Advertising. AD labels and
advertising relating to the Manapol[R] Powder that reference
Carrington Laboratories or Seller sold hereunder must strictly
comply with all applicable rules and regulations of the FDA and
all other applicable laws, rules and regulations, including but
not limited to FDA requirements relating to product ingredients.
(b) Claims by Eventus International, Eventus International
hereby agrees not to make, or permit any of its employees, agents
or distributors to make, any claims of any prop erties or results
relating to Manapol[R] Powder and Caraloe, Inc. or Seller, unless
such claims have received written approval from the Seller.
2
<PAGE>
(c) FDA Approval of Claims. If Eventus International to seek
FDA approval as to any specific claims with respect to the
Manapol[R] Powder, Eventus International hereby agrees to (i)
notify Caraloe ofthe claims and the application prior to filing
and (ii) to keep informed as to the progress of the application,
including but not limited to sending Caraloe copies of all
communications or notices to or from the FDA, as applicable.
(d) Right to Approve Labels. etc. If Caraloe so requests,
Eventus International shall not use any label, advertisement or
marketing material or individual spokesman associated with the
Manapol[R] Powder and Carrington Laboratories or Seller, unless
such label, advertisement or marketing material or individual
spokesman has first been submitted to and approved by Caraloe.
Caraloe shall not unreasonably withhold its approval of any such
label, advertisement or marketing material.
(e) Compliance by Third Parties. Eventus International shall
take all steps reasonably necessary to ensure that its
distributors and any other parties to whom it sells any of the
Manapol[R] Powder for resale do not relabel, repackage, advertise,
sell or attempt to sell the Manapol[R] Powder in a manner that
would violate this Agreement if done by Eventus International.
7. Confidentiality. In the performance of Seller's
obligations pursuant to this Agreement, Buyer may acquire from
Seller or its affiliates technical, commercial, operating or
other proprietary information relative to the business or
operations of Seller or its affiliates (the "Confidential
Information"). Buyer shall maintain the confidentiality, and take
a'D necessary precautions to safeguard the secrecy, of any and
all Confidential Information it may acquire from Seller or its
affiliates. Buyer shall not use any of such Confidential
Information for its own benefit or for the benefit of anyone
else. Buyer shall not publicly disclose the existence of this
Agreement or the terms hereof without the prior written consent
of Seller.
8. Force Majeure. Seller shall not have any liability
hereunder if it shall be prevented from performing any of its
obligations hereunder by reason of any factor beyond its control,
including, without limitation, fire, explosion, accident, riot,
flood, drought, storm, earthquake, lightning, frost, civil
commotion, sabotage, vandalism, smoke, hail, embargo, act of God
or the public enemy, other casualty, strike or lockout, or
interference, prohibition or restriction imposed by any
government or any officer or agent thereof ("Force Majeure"), and
Seller's obligations, so far as may be necessary, shall be
suspended during the period of such Force Majeure and shall be
cancelled in respect of such quantities of Manapol[R] Powder as
would have been sold hereunder but for such suspension. Seller
shall give to Buyer prompt notice of any such Force Majeure, the
date of commencement thereof and its probable duration and shall
give a further notice in like manner up on the termination
thereof. Each party hereto shall endeavor with due diligence to
resume compliance with its obligations hereunder at the earliest
date and shall do all that it reasonably can to overcome or
mitigate the effects of any such Force Majeure upon its
obligations under this Agreement.
3
<PAGE>
9. Rights Upon Default.
(a) Sellers Rights Upon Default. If Buyer (i) fails to
purchase the quantities of Manapol[R]Powder specified for purchase
by Buyer hereunder, (ii) fails to make a payment hereunder when
due or (iii) otherwise breaches any term of this Agreement, and
such failure or breach is not cured to Seller's reasonable
satisfaction within 5 days (in the case of a failure to make a
payment) or 30 days (in any other case) after receipt of notice
thereofby Buyer, or if Buyer fails to perform or observe any
covenant or condition on its part to be performed when required
to be performed or observed, and such failure continues after the
applicable grace period, if any, specified in the Agreement,
Seller may refuse to make further deliveries hereunder and may
terminate this Agreement upon notice to Buyer and, in addition,
shall have such other rights and remedies, including the right to
recover damages, as are available to Seller under applicable law
or otherwise. If Buyer becomes bankrupt or insolvent, or if a
petition in bankruptcy is filed by or against it, or if a
receiver is appointed for it or its properties, Seller may refuse
to make further deliveries hereunder and may terminate this
Agreement upon notice to Buyer, without prejudice to any rights
of Seller existing hereunder or under applicable law or
otherwise. Any subsequent shipment of Manapol[R] Powder by Seller
after a failure by Buyer to make any payment hereunder, or after
any other default by Buyer hereunder, shall not constitute a
waiver of any rights of Seller arising out of such prior default;
nor shall Seller's failure to insist upon strict performance of
any provision of this Agreement be deemed a waiver by Seller of
any of its rights or remedies hereunder or under applicable law
or a waiver by Seller of any subsequent default by Buyer in the
performance of or compliance with any of the terms of this
Agreement.
(b) Buver's Rights Upon Default. If Seller fails in any
material respect to perform its obligations hereunder, and such
failure is not cured to Buyer's reasonable satisfaction within 30
days after receipt of notice thereof by Seller, Buyer shall have
the right to refuse to accept further deliveries hereunder and to
terminate this Agreement upon notice to Seller and, in addition,
shaft have such other rights and remedies, including the right to
recover damages, as are available to Buyer under applicable law
or otherwise. Any subsequent acceptance of delivery of Manapol[R]
Powder by Buyer after any default by Seller under this Agreement
shall not constitute a waiver of any rights of Buyer arising out
of such prior default; nor shall Buyer's failure to insist upon
strict performance of any provision of this Agreement be deemed a
waiver by Buyer of any of its rights or remedies hereunder or
under applicable law or a waiver by Buyer of any subsequent
default by Seller in the performance of or compliance with any of
the terms of this Agreement.
10. Disclaimer and Indemnity. Buyer shall assume all
financial and other obligations for Buyer Product, and Seller
shall not incur any liability or responsibility to Buyer or to
third parties arising out of or connected in any manner with
Buyer Product. In no event shall Seller be liable for lost
profits, special damages, consequential damages or contingent
liabilities arising out of or connected in any manner with this
Agreement or Buyer Product. Buyer shall defend, indemnify and
hold harmless Seller and its affiliates, and their respective of
ricers, directors, employees and agents, from and against all
claims, liabilities, demands, damages, expenses and losses
(including reasonable attorneys' fees and expenses) arising out
of or connected with (i) any manufacture, use, sale or other
4
<PAGE>
disposition of Buyer Product, or any other Product of Buyer, by
Buyer or any other party and (ii) any breach by Buyer of any of
its obligations under this Agreement.
11. Equitable Relief A breach by Buyer of the provisions of
Paragraph 2 shall cause Seller to suffer irreparable harm and, in
such event, Seller shall be entitled, as a matter of right, to a
restrailung order and other injunctive relief from any court of
competent jurisdiction, restraining any further violation
thereofby Buyer, its officers, agents, servants, employees and
those persons in active concert or participation with them. The
right to a restraining order or other injunctive relief shall be
supplemental to any other right or remedy Seller may have,
including, without limitation, the recovery of damages for the
breach of such provisions or of any other provisions of this
Agreement.
12. Survival. The expiration or termination of the Term
shall not impair the rights or obligations of either party hereto
which shall have accrued hereunder prior to such expiration or
termination. The provisions of Paragraphs 7, 9,10 and 11 hereof,
and the rights and obligations of the parties thereunder, shall
survive the expiration or termination of the Term.
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws ofthe State
of Texas.
14. Succession. Neither party hereto may assign or otherwise
transfer this Agreement or any of its rights or obligations
hereunder (including, without limitation, by merger or
consolidation) without the prior written consent ofthe other
party; provided, however, that Seller may assign any of its
rights or obligations hereunder to any U.S. Incorporated
affiliate of Seller. Subject to the immediately preceding
sentence, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns.
15. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto relating to the matters
covered hereby and supersede any and all prior understandings,
whether written or oral, with respect to such matters. The terms
of this Agreement shall prevail over any inconsistent terms
contained in any purchase order issued by Buyer and
acknowledgment or acceptance thereof issued by Seller. No
modification, waiver or discharge of this Agreement or any of its
terms shall be binding unless in writing and signed by the party
against which the modification, waiver or discharge is sought to
be enforced.
<PAGE>
16. Notices. All notices and other communications with
respect to this Agreement shall be in writing and shall be deemed
to have been duly given when delivered personally or when duly
deposited in the mails, first class mail, postage prepaid, to the
address set forth below, or such other address hereafter
specified in like manner by one party to the other:
If to Seller:
Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: General Manager
If to Buyer:
Eventus International, Inc.
2121 Midway Road
Carrollton, TX 75006
Attention: President
17. Interpretation. In the event that any provision of this
Agreement is illegal invalid or unenforceable as written but may
be rendered legal, valid and enforceable by limitation thereof,
then such provision shall be deemed to be legal valid and
enforceable to the maximum extent permitted by applicable law.
The illegality, invalidity or unenforceability in its entirety of
any provision hereof will not affect the legality, validity or
enforceability of the remaining provisions of this Agreement.
18. No Inconsistent Actions. Each party hereto agrees that
it will not voluntarily undertake any action or course of action
inconsistent with the provisions or intent of this Agreement and,
subject to the provisions of Paragraph 8 hereof, will promptly do
all acts and take all measures as may be appropriate to comply
with the terms, conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the day
and year first above written.
CARALOE, INC.
By: /S/
Name:
Title:
EVENTUS INTERNATIONAL, INC
By: /S/
Name:
Title:
EXHIBIT 10.23
BEAUTICONTROL COSMETICS, INC.
1998 SPECIAL STOCK OPTION PLAN
1. Purpose. The purpose of the Plan is to provide non-employee
directors of BeautiControl Cosmetics, Inc. (the "Corporation") with a
proprietary interest in the Corporation through the granting of options
which will:
(a) provide a means through which the Corporation may
attract able persons to serve as non-employee directors of
the Corporation;
(b) increase the interest of non-employee directors in the
Corporation's welfare, and
(c) furnish an incentive to the non-employee directors to
continue their services for the Corporation and to reward
them for their services in a manner that will suitably
recognize the value of their judgment, counsel and
expertise.
2. Administration. The Plan shall be administered by the Board of
Directors of the Corporation ("Board"), or a committee thereof;
provided, however, that the Board in its discretion may appoint a
Stock Option Committee ("Committee") consisting of not less than two
non-employee members of the Board, for the purpose of administering
the Plan. Except as otherwise provided by the Board in written
directions to the Committee, the Committee shall have all of the
powers with respect to the Plan. Any member of the Committee (or ~
members in the event the Board elects to assume direct responsibility
for administration of the Plan) may be removed at any time, with or
without cause, by resolution of the Board. Any vacancy occurring in
the membership of the Committee may be filled by appointment by the
Board.
The Committee shall select one of its members to act as its
Chairman, and shall make such rules and regulations for its operation
as it deems appropriate. A majority of the Committee shall constitute a
quorum and the act of a majority of the members of the Committee
present at a meeting at which a quorum is present shall be the act of
the Committee.
3. Participants. Only directors who are not employees of the
Corporation shall be eligible to participate in the Plan.
4. Shares Subject to Plan. The Board may not grant options under
the Plan, in the aggregate, for more than 59,000 shares of Common Stock
of the Corporation (subject to adjustment in accordance with Section
10). Shares to be optioned and sold may be made available from either
authorized but unissued Common Stock or Common Stock held by the
Corporation in its treasury. Shares that by reason of the expiration of
an option or otherwise are no longer subject to purchase pursuant to an
option granted under the Plan may be reoffered under the Plan.
<PAGE>
5. Grants of Options. All options under this Plan shall be
granted by the Board. The grant of an option shall be evidenced by a
stock option agreement containing such terms and provisions as are
approved by the Board, but not inconsistent with this Plan. The
Corporation shall execute stock option agreements upon instructions
from the Board.
Each participant in the Plan shall be granted options in the
following manner:
(a) When a person is first elected or appointed as a
director of the Corporation, the Board shall grant such person, at
the meeting of the Board in which such person has been appointed,
or at the first meeting of the Board following his or her
election, options to purchase 2,500 shares of Common Stock; and
(b) In addition to the foregoing, throughout the term of
this Plan, on the fourteenth (14th) business day (the
"Determination Date") after the last day of the Corporation's
fiscal year, the Committee shall grant to each non-employee
director options to purchase 1,000 shares of Common Stock if the
Corporation's net income for the fiscal year immediately preceding
the Determination Date is equal to or greater than 105% of the
Corporation's net income for such previous fiscal year.
6. Exercise Price. The exercise price of options granted hereunder
shall be 100% of the fair market value of the Common Stock on the date
of grant of such option. For the purposes hereof, the fair market value
of the Common Stock shall be the closing price of the Common Stock on
such date on the principal national securities exchange on which the
Common Stock is listed, or if not so listed, the closing price of the
Common Stock on such date on the NASDAQ National Market, or if not so
quoted, the average of the bid and asked prices of the Common Stock on
such date in such other market in which shares of Common Stock are
regularly quoted, or if not so quoted, as established by the Board on
such date.
7. Term of Options. Each option and all rights thereunder shall
expire ten (10) years from the date on which the option is granted. No
option shall be exercised by any participant until after the expiration
of a period of one (1) year from the date of grant.
8. Termination of Service as Director. An option shall terminate
and no rights thereunder may be exercised if the person to whom it is
granted ceases to serve as a director of the Corporation, except that:
(a) If the holder of an option ceases to serve as a director
of the Corporation for any reason other than death, the holder of
an option may, at any time within not more than three (3) months
after such holder's service to the Corporation as a director
ceases, exercise an option to the extent, and only to the extent,
that the option or portion thereof had become exercisable on the
date of such holder's service to the Corporation as a director
ceased; and
<PAGE>
(b) If a holder of an option dies prior to the termination of
his right to exercise an option in accordance with the provisions
of his stock option agreement without having totally exercised the
option, the option may be exercised, to the extent of the shares
with respect to which the option could have been exercised by the
holder on the date of the holder's death, by the holder's estate
or by the person who acquired the right to exercise the option by
bequest or inheritance or by reason of the death of -- the holder.
Any option exercised after the death of a holder must be exercised
prior to the date of its expiration according to its terms or one
year from the date of the holder's death, whichever first occurs.
9. Exercise of Options. An option granted under the Plan shall be
exercisable as follows:
(a) Method of Exercise of Options. Each exercise of an option
granted hereunder, whether in whole or in part, shall be by
written notice to the Secretary of the Corporation, designating
the number of shares of Common Stock as to which the option is
exercised, and shall be accompanied by payment in full for the
number of shares of Common Stock so designated, together with any
written statements required by any applicable securities laws.
Unless further restricted by the Board in the option agreement
granting the option, payment for options to be exercised shall be
made (i) in cash, (ii) by certified or cashier's check, (iii) with
shares of Common Stock, (iv) at the sole discretion of the Board,
with a promissory note bearing a reasonable rate of interest, (v)
by delivery to the Corporation of irrevocable instructions from
the option holder to a broker or dealer, reasonably acceptable to
the Corporation, to sell certain of the shares of Common Stock
purchased upon exercise of the option or to pledge such shares as
collateral for a loan and promptly deliver to the Corporation the
amount of sale or loan proceeds necessary to pay such purchase
price, or (vi) by a combination of any of the foregoing. If paid
in whole or in part with shares of Common Stock, the value of the
shares of Common Stock surrendered shall be their market value as
determined by the Board in a uniform and non-discriminatory
manner. Nothing herein shall prohibit the Corporation, in its sole
discretion, from lending to the option holder, guaranteeing a loan
to the option holder, or otherwise assisting the option holder to
obtain the cash necessary to exercise all or a portion of an
option granted hereunder. Fractional shares may not be purchased
under an option. An option shall be deemed to be exercised when
such notice and payment have been received.
(b) Limitations on Exercise of Options. Except as otherwise
provided in this Plan, each option granted under the Plan shall be
exercisable, whether in whole or in part, no earlier than one (1)
year from the date of grant of the option, and only in such
installments as may be specified in the agreement granting the
option. In no event may an option be exercised or shares of Common
Stock issued pursuant to an option if any necessary listing of the
shares of Common Stock on a stock exchange or any necessary
registration under state or federal securities laws has not been
accomplished.
<PAGE>
10. Capital Adjustments. The aggregate number of shares of Common
Stock which may be purchased pursuant to options to be granted under
the Plan, the number of shares of Common Stock covered by each
outstanding option granted under the Plan, and the option price for
outstanding options, shall be proportionately adjusted to reflect any
stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, reorganization, liquidation,
or the like, of or by the Corporation. Any fractional shares resulting
from any such adjustment shall be eliminated for the purposes of such
adjustment.
11. Reorganization: Merger. Subject to any required action by the
stockholders, if the Corporation shall be the surviving or resulting
corporation in any merger or consolidation, any option granted
hereunder shall pertain to and apply to the securities or rights
(including cash, property or assets) to which a holder of the number of
In the event of any merger or consolidation pursuant to which the
Corporation is not the surviving or resulting corporation, there shall
be substituted for the shares of Common Stock an appropriate number of
shares of each class of stock or other securities or the amount of
cash, property or assets of the surviving or consolidated corporation
in respect of such shares exercisable for such stock, securities, cash
or property in accordance with their terms. Notwithstanding the
foregoing however, all such options may be canceled by the Corporation
as of the effective date of any such reorganization, merger or
consolidation or of any dissolution or liquidation of the Corporation
by giving notice to each holder thereof (or to his personal
representative) of its intention to do so and by permitting the
purchase during the thirty (30) day period next preceding such
effective date of all of the shares subject to such outstanding
options, without regard to the installment provisions of any option
agreement.
12. Liquidation; Dissolution. In case the Corporation shall at any
time while any option under this Plan shall be in force and remain
unexpired, sell all or substantially all its property or dissolve,
liquidate or wind up its affairs, each participant may thereafter
recede upon exercise thereof in lieu of each share of Common Stock of
the Corporation which such participant would have been entitled to
receive, the same kind and amount of any securities or assets as may be
issuable, distributable or payable upon any such sale, dissolution,
liquidation or winding up with respect to each share of Common Stock of
the Corporation. In the event that the Corporation shall at any time
prior to the expiration of any option make any partial distribution of
its assets, in the nature of a partial liquidation, whether payable in
cash or in kind (but excluding the distribution of a cash dividend
payable out of earned surplus and designated as such), then in such
event the exercise prices then in effect with respect to each option
shall be reduced, on the payment date of such distribution, in
proportion to the percentage reduction in the tangible book value of
the shares of the Corporation's Common Stock (determined in accordance
with generally accepted accounting principles) resulting by reason of
such distribution.
<PAGE>
13. Acceleration.
(a) A "Change in Control" for purposes of this Plan shall
mean (i) without prior approval of the Board a single person or
entity or group of affiliated persons or entitles acquires more
than 50% of the Common Stock issued and outstanding immediately
prior to such acquisition; (ii) stockholders approve the
consummation of any merger of the Corporation or any sale or other
disposition of all or substantially all of its assets, if the
stockholders of the Corporation immediately before such
transaction own, immediately after consummation of such
transaction, equity securities (other than options and other
rights to acquire equity securities) possessing less than 50% of
the voting power of the surviving or acquiring corporation; or
(iii) a change in the majority of the Board during any 24-month
period without the approval of a majority of directors in office
at the beginning of such period.
(b) If a Change in Control has occurred, all outstanding
options shall be immediately exercisable by the holder of the
option for the total remaining number of shares of Common Stock
covered by the option. Such option may then be exercised by its
holder at any time within a period of thirty (30) days following
the date on which the Change of Control occurred, unless otherwise
limited by the applicable stock option agreement.
(c) Any options subject to acceleration under this Section
that are not exercised during the period of thirty (30) days
provided in subsection (b) above shall be treated as if no Change
in Control had occurred and shall be governed by their original
terms.
14. Assignability. Unless the Board provides otherwise, options
granted under this Plan may be transferred by a participant to (i) the
spouse, children or grandchildren of the participant ('Immediate Family
Members"); (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members; (iii) a partnership in which such Immediate
Family Members are the only partners; (iv) an entity exempt from
federal income tax pursuant to Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") or any successor
provision; or (v) a split interest trust or pooled income fund
described in Section 25229(c)(2) of the Code or any successor
provision, Provided that (a:) there shall be no consideration for any
such transfer, and (y) subsequent transfers of a transferred stock
option shall be prohibited except those by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended. Following transfer, any such stock
option shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, and that for the
purposes of this Plan the terms "participant," "holder,'' and "option
holder" shall be deemed to include the transferee. After any such
transfer, the events described under the heading "Termination of
Service as Director" (set forth in Section A shall continue to be
applied with respect to the original participant, and the options shall
be exercisable by the transferee only to the extent described in
Section 8. The Board and the Corporation shall have no obligation to
inform any transferee of any expiration, termination, lapse or
acceleration of such option. The Corporation shall have no obligation
to register with any federal or state securities commission or agency
any Common Stock issuable or issued under this Plan that has been
transferred by a participant under this Section 14.
<PAGE>
15. Interpretation. The Board shall interpret this Plan and shall
prescribe such rules in connection with the operation of the Plan as it
determines to be advisable for the administration of the Plan. The
Board may rescind and amend its rules.
16. Amendment and Termination of the Plan. This Plan may be
amended or terminated by the Board at any time without the approval of
the stockholders of the Corporation.
17. Effect of the Plan. Neither the adoption of this Plan nor any
action of the Board shall be deemed to give any option holder any right
to continue to serve as a director of the Corporation or any other
rights except as may be evidenced by a stock option agreement, or any
amendment thereto, duly authorized by the Board and executed on behalf
of the Corporation and then only to the extent and upon the terms and
conditions expressly set forth therein.
18. Investment Intent. The Corporation may require that there be
presented to and filed with it by any participant under the Plan such
evidence as it may deem necessary to establish that the options granted
or shares of Common Stock granted or the shares of Common Stock to be
purchased are being acquired for investment and not with a view to
their distribution.
19. Term. Unless sooner terminated by action of the Board, this
Plan will terminate on February 18, 2008. The Board may not grant
options under this Plan after that date, but options granted before
that date will continue to be effective in accordance with their terms
and conditions.
20. Definitions. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings
indicated:
(a) "Plan" means this 1998 Special Stock Option Plan, as
amended from time to time.
(b) "Corporation" means BeautiControl Cosmetics, Inc., a
Delaware corporation.
(c) "Board" means the Board of Directors of the Corporation
and, to the extent applicable, or such members thereof as are
delegated powers under Section 2 of this Plan.
(d) "Common Stock" means the Common Stock which the
Corporation is currently authorized to issue or may in the
future be authorized to issue.
IN WITNESS WHEREOF, the Corporation has caused this instrument to
Executed as of February 18, 1998.
By: /s/ Richard W. Heath
Richard W. Heath, President
Attest:
/s/ M. Douglas Tucker
M. Douglas Tucker, Secretary
EXHIBIT 21
SUBSIDIARIES OF BEAUTICONTROL COSMETICS, INC.
Name of Subsidiary State of incorporation
JLH Advertising, Inc. Texas
BeautiControl International, Inc. Delaware
BeautiControl International Cosmetics
and Image Services, Inc. Delaware
BeautiControl Canada, Ltd. Ontario,Canada
Eventus International, Inc. Delaware
BeautiControl Taiwan Inc.,
Taiwan Branch Taipei, Taiwan
BeautiControl Hong Kong Inc.,
Hong Kong Branch Causeway Bay, Hong Kong
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement on Form S-3 No. 333-66075 of BeautiControl Cosmetics, Inc. and
in the related Prospectus and in the Registration Statements on Form S-8
No. 33-12005, 33-24363, 33-48626, 33-83500, 333-17479, and 333-69451 of
our report dated December 23, 1998, with respect to the consolidated
financial statements and schedule of BeautiControl Cosmetics, Inc.
included in this Form 10-K for the year ended November 30, 1998.
Dallas, Texas
February 24, 1999
Exhibit 23.2
To the Board of Directors of
BeautiControl Cosmetics Inc.
Consent of Independent Auditors
We hereby consent to the incorporation by reference in the audit report
of Ernst & Young LLP dated December 23, 1998 on the consolidated
financial statements of BeautiControl Cosmetics, Inc. included in the
Form 10K for the year ended November 30, 1998 of our report dated
December 15, 1998, with respect to the financial statements of
BeautiControl Taiwan Inc., Taiwan Branch for the year ended November 30,
1998.
Taiwan, Republic of China
February 23, 1999
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