<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number 0-15414
For the transition period from ____ to _____
ALOETTE COSMETICS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2056003
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Wright's Lane East, West Chester, PA 19380
(Address of principal executive offices) (Zip Code)
(610) - 692-0600
(Registrant's telephone number, including area code)
None
(Securities registered pursuant to Section 12 (b) of the Act)
Common Stock, no par value
(Securities registered pursuant to Section 12 (g) of the Act)
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 Regulations S-B 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-KSB or any
amendment to this Form 10-KSB. [X].
The undersigned registrant hereby amends Part III of its Annual Report
filed on Form 10-KSB dated March 30, 1998, for the fiscal year ended December
31, 1997, as set forth in the pages attached hereto.
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The bylaws of the Company provide for a Board of Directors that is
divided into three classes of directors designated Class I, Class II and Class
III, respectively, with each class being as equal in number as possible. The
current term of office of directors in Class III will expire at the 1998 Annual
Meeting of Stockholders, that of the directors in Class I will expire at the
1999 Annual Meeting, and that of the directors in Class II will expire at the
2000 Annual Meeting. Directors in each class have three-year terms. The
Company's bylaws provide that the Board of Directors shall consist of between
four and twelve members. Currently, the membership of the Board of Directors is
five members.
<TABLE>
<CAPTION>
Principal Occupations Director
Name Age For Past Five Years Class Since
- ---- --- --------------------- ----- --------
<S> <C> <C> <C> <C>
Patricia J. Defibaugh 51 Chairman of the Board of the Company III 1978
since May, 1978; President and Chief
Operating Officer of the Company since
February, 1995; Chief Executive Officer
of the Company since January, 1986;
Treasurer of the Company since March,
1986; Secretary of the Company since
April, 1991.
Mark J. DeNino 44 Managing Director, Technology Leaders III 1995
Management, Inc. (venture capital
management) Wayne, Pennsylvania,
since October, 1994; Director, Integrated
Systems Consulting, Inc., since 1995;
Director, CRW Financial, Inc., since 1995;
President, Crossroads Capital, Inc.
(investment banking), Wayne, Pennsylvania,
from 1991 to 1994.
John E. Defibaugh 64 President of the Company from 1985 I 1995/
to 1991; Chief Operating Officer of the 1978-1991
Company from 1986 to 1991; Secretary of the
Company from 1986 to 1991;
Secretary-Treasurer of the Company from 1978
to 1986; Consultant to the Company from 1995
through 1997.
William J. Albertus, Sr. 65 President, CBA Steel Corp. (steel sales) II 1995
Pennsylvania, since 1985.
Robert B. Throm 65 Vice President of the Company from II 1985
January, 1982, to March, 1990.
</TABLE>
<PAGE>
The Board of Directors and its Committees
The Board of Directors met 8 times in 1997. No Director attended fewer
than seventy-five percent of the aggregate number of all meetings of the Board
and its committees on which each Director served in 1997.
Set forth below is information concerning certain committees of the
Company's Board of Directors:
The Audit Committee. The Audit Committee provides general oversight in
financial reporting and the adequacy of the Company's internal controls. The
Audit Committee also selects, subject to ratification by shareholders, the
Company's independent public accountants. The committee met one time during
1997. Members of the committee are presently Messrs. Defibaugh, DeNino and
Albertus.
The Executive Committee. The Executive Committee is authorized to
exercise all of the authority of the Board of Directors in the management of the
Company between board meetings unless otherwise provided by the Company's
bylaws. In cooperation with the officers of the Company, the committee also
makes recommendations to the Board of Directors with reference to general
matters pertaining to personnel and compensation of non-officer employees. The
committee meets from time to time on an informal basis. Members of the committee
are presently Ms. Defibaugh, Mr. Defibaugh and Mr. DeNino.
The Compensation Committee. The Compensation Committee reviews and
approves the remuneration of officers and approves remuneration and benefit
plans including bonus, incentive stock option, ESOP and Profit Sharing/401(k)
plans. The committee met one time in 1997. Members of the committee are
presently Messrs. Defibaugh, DeNino, and Throm.
The Nominating Committee. The Nominating Committee reviews candidates
and recommends to the Board of Directors nominees for membership on the Board of
Directors. The committee met one time in 1997. Members of the committee are
presently Ms. Defibaugh and Mr. Defibaugh.
Remuneration of Directors
For the 1997 fiscal year, members of the Board of Directors of the
Company who were not also officers or employees of the Company received an
annual fee of $7,500. In lieu of the payment of cash fees for individual
meetings, the Company granted 1,000 warrants subject to vesting to purchase
Common Stock to each outside director, in accordance with the Company's Amended
and Restated Directors' Stock Warrant Plan. Mr. DeNino received 24,000 stock
options in 1995 which vest in three equal installments at the end of each year
of service on the executive committee. Members of the Board of Directors who are
officers of the Company receive no additional remuneration beyond their salaries
as officers for serving as directors. Corporate officers are elected by the
Board of Directors and serve at the discretion of the Board.
Executive Directors
In addition to Ms. Defibaugh, Jean M. Lewis, Vice President of Finance
is an executive officer of the Company. Ms. Lewis, age 36, joined the Company in
April 1986 as Corporate Controller and became Vice President of Finance in
August 1989. Ms. Lewis is a Certified Public Accountant.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Remuneration of Executive Officers
The following table sets forth the compensation paid by the Company for
services rendered in all capacities to the Company and its subsidiaries during
1997 to all executive officers whose compensation exceeded $100,000 in 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (f) (g) (i)
Name & Principal Year Salary Bonus Restricted Options/ All other
Position ($) ($) Stock Awards(s)($) SARs (#) Compensation ($)
Patricia J. Defibaugh 1997 $ 227,000 $ 0 0 0 $ 8,991 (1)
Chairman of the Board and Chief 1996 228,600 30,500 0 0 8,974 (1)
Executive Officer 1995 226,800 0 0 0 8,464 (1)
Jean M. Lewis 1997 $ 96,200 $ 10,000 0 0 $ 6,672(1)
Vice President of Finance 1996 96,600 0 0 0 5,945(1)
1995 96,000 0 0 0 5,640(1)
</TABLE>
- -------------------------------------
(1) Represents the Company's contributions to its Profit Sharing/401(k) Plan
for the benefit of each officer.
The following table sets forth the number of securities underlying unexercised
options at the end of 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
----------------------------------------------------
(d)
Number of Securities
Underlying Unexercised Option/SARS
(a) at FY-End (#)
Name Exercisable/Unexercisable
Patricia J. Defibaugh 150,000
112,501/37,499
Jean M. Lewis 75,000
62,501/12,499
<PAGE>
Employment Agreements and Arrangements
Patricia J. Defibaugh
- ---------------------
On March 31, 1993, the Company entered into an employment agreement
with Ms. Defibaugh. The agreement's original term expired on March 31, 1998, and
since that date, Ms. Defibaugh's employment has continued on a month-to-month
basis under terms substantially similar to those provided for in her prior
agreement. Under this agreement, Ms. Defibaugh is to receive a base salary of
$225,000 per annum, subject to annual adjustment in the discretion of the
Compensation Committee of the Board of Directors, a discretionary bonus, and
incentive compensation equal to 2.5% of the increase, if any, in the Company's
pre-tax income for each fiscal year during the term of the agreement. In
addition, Ms. Defibaugh is to receive an automobile stipend and the Company is
to provide her with disability insurance. Under the Company's Severance Policy
for Executive Officers, the executive, upon termination, other than for cause,
is entitled to receive a severance payment equal to one month's base salary for
each year of service up to a maximum of six months. Upon termination, she will
also be subject to a two-year restrictive covenant.
The employment agreement provides Ms. Defibaugh with severance
arrangements which will be payable in the event of (i) a significant change in
the beneficial ownership of the Company's Common Stock; (ii) a significant
change in the composition of the Company's Board of Directors; or (iii) the
adoption of a plan of the liquidation of the Company (a "change in control")
which event has not been approved by the Board of Directors of the Company as
then constituted, and the subsequent termination or resignation of Ms.
Defibaugh. Such severance arrangements provide for a lump sum cash payment equal
to Ms. Defibaugh's then current year annual salary, including incentive
compensation as described above for the last completed fiscal year prior to
termination or resignation, multiplied by a factor of three, as well as full
benefits provided under her agreement for a period of three years (or the cash
payment value thereof) after the date of such termination or resignation. If
such an event not approved by the Board of Directors were to occur on the date
hereof, Ms. Defibaugh will be entitled to receive approximately $700,000 upon
termination or resignation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On April 23, 1998 there were outstanding and entitled to vote 2,104,253
shares of Common Stock. The following table sets forth information concerning,
as of April 23, 1998, the number of shares beneficially owned by each director,
each executive officer named in the "Summary Compensation Table" set forth in
this Proxy Statement, and officers and directors as a group, and the percentage
of outstanding shares of Common Stock (based on a total of 2,104,253 shares
outstanding as of April 23, 1998) so owned, as determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended ("Rule 13d-3").
The address for each such person named below is 1301 Wright's Lane East, West
Chester, Pennsylvania, 19380.
<TABLE>
<CAPTION>
Name of Number of Shares Percent of
Beneficial Owner Owned (1) Class (2)
- ---------------- --------- ---------
<S> <C> <C>
Patricia J. Defibaugh 904,679 (3) 40.1%
Robert B. Throm 31,658 (4) 1.5%
John E. Defibaugh 45,000 (5) 2.1%
Mark J. DeNino 19,000 (5)(6) *
William J. Albertus, Sr. 3,294 (5) *
Jean M. Lewis 87,955 (7) 4.0%
--------- ----
All officers and directors as a group (6 persons) 1,091,676 (8) 46.3%
=========
</TABLE>
<PAGE>
(1) Unless otherwise indicated, each Director and executive officer has
sole voting and investment power with respect to the shares indicated
as beneficially owned by such Director or executive officer.
(2) All percentages are rounded to the nearest tenth of a percent.
(3) Includes 150,000 options, which are immediately exercisable, and 7,287
shares of Common Stock granted pursuant to, and vested under the
Company's Employee Stock Ownership Plan.
(4) Includes 5,000 immediately exercisable Warrants issued pursuant to the
Company's Directors' Warrant Plan.
(5) Includes 2,000 immediately exercisable Warrants issued pursuant to
the Company's Directors' Warrant Plan.
(6) Includes 16,000 options, which are immediately exercisable.
(7) Includes 75,000 options, which are immediately exercisable, and 11,755
shares of Common Stock granted pursuant to, and vested under, the
Company's Employee Stock Ownership Plan.
(8) Includes 252,000 options and warrants, which are immediately
exercisable.
* Less than 1%
The following table sets forth information concerning, as of April 23,
1998, each person, other than Patricia J. Defibaugh, whose beneficial ownership
is noted above, known to the Company to be the beneficial owner of more than
five percent (5%) of the Company's Common Stock as determined in accordance with
Rule 13d-3. The information set forth below is derived, without independent
investigation on the part of the Company, from filings made by such beneficial
owners pursuant to Rule 13d-3.
<TABLE>
<CAPTION>
Name and Business Address of Beneficial Owner Number of Shares Owned Percent of Class
- --------------------------------------------- ---------------------- ----------------
<S> <C> <C>
Dimensional Fund Advisors, Inc. 127,100 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Pure World, Inc. 118,998 5.7%
376 Main Street
Bedminster, NJ 07921
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John E. Defibaugh, a director and co-founder of the Company, resigned
as an officer and director of the Company effective April 22, 1991. In November
1995, Mr. Defibaugh entered into a one year consulting agreement with the
Company which was continued on a monthly basis through July, 1997. Mr. Defibaugh
was re-elected as a director in 1995.
On April 26, 1991, the Company repurchased 777,881 shares of the
Company's Common Stock owned by Mr. Defibaugh, at a price per share of $10.8458,
for aggregate consideration of $8,436,741.75. Of the purchase price, $3,000,000
of such amount was paid upon consummation with the balance to be paid over a ten
year period. This agreement was restructured in April 1996. The new terms were
an initial payment of $200,000, with interest to accrue on the unpaid balance at
the rate of 7% and monthly payments of $50,000 which began in May 1996. Interest
payments will be deferred until all principal has been paid in full. Upon
repayment of principal, monthly payments of $50,000 will continue until all
<PAGE>
deferred interest has been paid. In 1997, $600,000 was paid to Mr. Defibaugh as
a reduction in principal. At December 31, 1997, the amount of subordinated debt
and deferred interest outstanding was $1,555,720 and $602,371, respectively.
In February 1992, the Company entered into a franchise and license
agreement with a limited liability company of the Federal Republic of Germany,
Alover Cosmetics GmbH ("Alover") for the exclusive right to use the tradename,
trademarks and marketing and product know-how of the Company in certain eastern
European countries. Mr. Defibaugh beneficially owns fifty percent of the shares
of outstanding stock of Alover. This agreement expired in February 1997.
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to its report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
Aloette Cosmetics, Inc.
-----------------------
(Registrant)
/s/ Jean M. Lewis
---------------------------
(Signature)
Jean M. Lewis
Chief Financial Officer
Date: April 30, 1998
