<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996
REGISTRATION NO. 33-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
-----------------------------
SEL-LEB MARKETING, INC.
(Name of small business issuer in its charter)
NEW YORK 7389 11-3180295
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1435 51 Street
North Bergen, New Jersey 07047
(201) 864-3316
(Address and telephone number of principal executive offices
and principal place of business or intended principal place of business)
Harold Markowitz
1435 51 Street
North Bergen, New Jersey 07047
(201) 864-3316
(Name, address and telephone number of agent for service)
-----------------------------
Copies to:
James Martin Kaplan, Esq.
Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Telephone No.: (212) 486-1700
Facsimile No.: (212) 223-1151
-----------------------
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
-----------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
Pursuant to Rule 429 under the Securities Act of 1933, as amended, a
Prospectus which forms a part of this Registration Number 33-________ also
relates to Registration Statement No. 33-88134. In addition, a resale
prospectus is also included as part of this Registration No. 33-________.
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED
MAXIMUM PROPOSED
AMOUNT OFFERING MAXIMUM
TO BE PRICE PER AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF REGISTERED SECURITY OFFERING REGISTRATION
SECURITIES TO BE REGISTERED (1) (2) PRICE (2) FEE
- --------------------------------------------------------------------------------
Common Stock,
par value $.01 per share... 180,000 $7.1875 $1,293,750 $446.12
================================================================================
(1) Said shares represent shares underlying Redeemable Warrants issued to
certain affiliates of the Registrant. This Registration Statement also
relates to an aggregate of 6,240,000 shares (after giving effect to a
three-for-one stock split, which was effected in the form of a share
distribution on February 29, 1996) included in the Prospectus which is
part of Registration No. 33-88134. A registration fee in the amount of
$4,344.84 was previously paid in connection with such shares.
(2) Estimated pursuant to Rule 457 under the Securities Act of 1933, as
amended, solely for purposes of calculating the registration fee.
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one
to be used in connection with an offering of (a) up to 5,760,000 shares of
Common Stock, $.01 par value, of Sel-Leb Marketing, Inc. (the "Company") which
are reserved for issuance upon exercise of Redeemable Warrants, each to purchase
one share of Common Stock at an exercise price of $2.00 per share ("Warrants"),
(b) 80,000 Units, each consisting of three shares of Common Stock and three
Redeemable Warrants, issuable upon exercise of the Underwriter's Warrants issued
in connection with the Company's initial public offering of Common Stock and
Warrants in July 1995, (c) up to 240,000 shares of Common Stock included in the
Units underlying the Underwriter's Warrants and up to 240,000 shares of Common
Stock issuable upon exercise of the Warrants included in such Units and (d) up
to 180,000 shares of Common Stock issuable upon exercise of Warrants held by
certain affiliates of the Company (the "Offering Prospectus"), and (ii) one to
be used in connection with the sale of Common Stock by certain selling security
holders (the "Selling Security Holder Prospectus"). The Offering Prospectus and
the Selling Security Holder Prospectus will be identical in all respects except
that the alternate pages for the Selling Security Holder Prospectus included
herein are labeled "Alternate Page for Selling Security Holder Prospectus."
<PAGE>
SEL-LEB MARKETING, INC.
CROSS REFERENCE SHEET
Item in Form SB-2 Caption or Location in Prospectus
1. Front of Registration Statement and
Outside Front Cover Page of
Prospectus. . . . . . . . . . . . . . Facing Page of Registration
Statement; Cross Reference
Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and
Risk Factors. . . . . . . . . . . . . Prospectus Summary; Risk
Factors
4. Use of Proceeds. . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price. . . . Outside Front Cover Page; Risk
Factors; Underwriting
6. Dilution . . . . . . . . . . . . . . . Risk Factors; Dilution
7. Selling Security Holders . . . . . . . (1)
8. Plan of Distribution . . . . . . . . . (2)
9. Legal Proceedings. . . . . . . . . . . Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons . . . . Management
11. Security Ownership of Certain
Beneficial Owners and
Management. . . . . . . . . . . . . . Principal Shareholders
12. Description of Securities. . . . . . . Description of Securities
13. Interest of Named Experts
and Counsel . . . . . . . . . . . . . *
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . . . *
15. Organization Within Last
Five Years. . . . . . . . . . . . . . Prospectus Summary;
Management's Discussion and
Analysis or Plan of
Operations; Business; Certain
Transactions
16. Description of Business. . . . . . . . Prospectus Summary; Business
17. Management's Discussion and
Analysis or Plan of
Operations. . . . . . . . . . . . . . Management's Discussion and
Analysis or Plan of Operations
18. Description of Property. . . . . . . . Business
19. Certain Relationships and
Related Transactions. . . . . . . . . Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters . . . . . Outside Front Cover Page of
Prospectus; Risk Factors;
Certain Market Information
Description of Securities;
hares Eligible for Future
Sale; Underwriting
21. Executive Compensation . . . . . . . . Management
22. Financial Statements . . . . . . . . . Financial Statements
23. Changes In and Disagreements
With Accountants on Accounting
and Financial Disclosure. . . . . . . *
- --------------------------------------
* Not applicable or answer is negative.
(1) In Offering Prospectus: Outside Front Cover Page of Prospectus;
Concurrent Registration of Common Stock. In Selling Security Holder
Prospectus: Outside Front and Outside Back Cover Pages of Prospectus;
Prospectus Summary; Selling Security Holders and Plan of Distribution.
(2) In Offering Prospectus: Outside Front and Outside Back Cover Pages of
Prospectus; Prospectus Summary. In Selling Security Holder
Prospectus: Outside Front and Outside Back Cover Pages of Prospectus;
Prospectus Summary; Selling Security Holders and Plan of Distribution.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PROSPECTUS PRELIMINARY PROSPECTUS DATED JUNE 14, 1996
SUBJECT TO COMPLETION
SEL-LEB MARKETING, INC.
5,760,000 Shares of Common Stock,
Issuable Upon the Exercise of Redeemable Warrants
180,000 Shares of Common Stock, Issuable Upon the Exercise
of Redeemable Warrants Held by Certain Affiliates of the Company
80,000 Units, Each Unit Consisting of
Three Shares of Common Stock and Three Redeemable Warrants,
240,000 Shares of Common Stock Included in such Units
and 240,000 Shares of Common Stock
Issuable Upon the Exercise of Redeemable Warrants Included in such Units
This Prospectus relates to (i) the sale of up to 5,760,000 shares of common
stock, par value $.01 per share (the "Common Stock"), of Sel-Leb Marketing, Inc.
(the "Company" or "Sel-Leb") which are reserved for issuance upon the exercise
of redeemable warrants, each warrant to purchase one share of Common Stock
(each, a "Warrant"), issued in connection with the Company's 1995 initial public
offering of securities (the "IPO"), (ii) the sale of up to 180,000 shares of
Common Stock which are reserved for issuance upon the exercise of Warrants held
by certain affiliates of the Company, (iii) the issuance of up to 80,000 units
(the "Units") issuable upon the exercise of the warrants (the "Underwriter's
Warrants") originally sold to Duke & Co., Inc. (the "Underwriter") in connection
with the IPO, each Unit consisting of three shares of Common Stock and three
Warrants, and (iv) up to 240,000 shares of Common Stock which are included in
the Units and up to 240,000 shares of Common Stock which are reserved for
issuance upon the exercise of the Warrants included in the Units.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at a price of $2.00, subject to adjustment in certain
circumstances, for a period of three years commencing July 13, 1996. The
Warrants are redeemable by the Company at any time commencing July 13, 1996 upon
notice of not less than 30 days, at a price of $.05 per Warrant, provided that
the closing bid quotation of the Common Stock on the Nasdaq Small-Cap Market
("NASDAQ") has exceeded $3.33 per share (subject to adjustment) for a period of
20 consecutive trading days during the period in which the Warrants are
exercisable. The holders of Warrants will have the right to exercise their
Warrants until the close of business on the date fixed for redemption. See
"Description of Securities."
On July 13, 1995, the Common Stock and the Warrants began trading on NASDAQ
under the symbols "SELB" and "SELBW," respectively, and on the Boston Stock
Exchange ("BSE") under the symbols "SLL" and "SLLW," respectively. On June 11,
1996, the closing sale price of the Common Stock and Warrants on NASDAQ was
$7.25 and $13.50, respectively. The closing sale price of the Warrants does not
reflect the warrant adjustment scheduled to occur on June 20, 1996, which
warrant adjustment is described elsewhere in this Prospectus. See "Prospectus
Summary" and "Certain Market Information."
Concurrently with this Offering, 180,000 shares of Common Stock (the
"Selling Security Holders' Shares") issuable upon the exercise of Warrants held
by certain affiliates of the Company have been registered by the Company under
the Securities Act of 1933, as amended, on behalf of such individuals (the
"Selling Security Holders") pursuant to a prospectus (the "Selling Security
Holder Prospectus") included within the Registration Statement of which this
Prospectus forms a part. The Company will not receive any of the proceeds from
the sale of the Selling Security Holders' Shares. See "Concurrent Registration
of Common Stock."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" (COMMENCING ON PAGE 8)
AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT APPLICABLE TO AND MAY NOT BE USED FOR THE RESALE OF
THE COMMON STOCK ACQUIRED UPON EXERCISE OF THE WARRANTS.
THE DATE OF THIS PROSPECTUS IS ______________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered by this Prospectus.
This Prospectus, filed as part of such Registration Statement, does not contain
all of the information set forth in, or annexed as exhibits to, the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and this offering, reference is made to the Registration Statement
including the exhibits filed therewith. The Registration Statement may be
inspected and copies may be obtained from the Public Reference Section at the
Commission's principal office, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the New York Regional Office, 7 World Trade
Center, New York, New York 10048, upon payment of the fees prescribed by the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and where the contract
or other document has been filed as an exhibit to the Registration Statement,
each such statement is qualified in all respects by such reference to the
applicable document filed with the Commission.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file reports, proxy statements and other information
with the Securities and Exchange Commission ("Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; at its New York Regional Office, 7 World Trade Center, New York, New
York 10048; and at its Chicago Regional Office, 500 West Madison Street,
Chicago, Illinois 60661-2511, and copies of such material can be obtained from
the Commission's Public Reference Section at prescribed rates. The Company
furnishes its shareholders with annual reports containing audited financial
statements and such other periodic reports as the Company deems appropriate or
as may be required by law.
--------------------------------
-2-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO
READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, THE
INFORMATION SET FORTH IN THIS PROSPECTUS GIVES EFFECT TO A THREE-FOR-ONE STOCK
SPLIT OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE ("COMMON STOCK"),
WHICH WAS EFFECTED IN THE FORM OF A SHARE DISTRIBUTION ON FEBRUARY 29, 1996 (THE
"SHARE DISTRIBUTION"). PURSUANT TO THE SHARE DISTRIBUTION, EACH HOLDER OF
RECORD OF COMMON STOCK ON FEBRUARY 2, 1996 RECEIVED TWO ADDITIONAL SHARES OF
COMMON STOCK FOR EACH SHARE HELD ON SUCH DATE. IN CONNECTION WITH THE SHARE
DISTRIBUTION, THE COMPANY ADJUSTED THE TERMS OF THE WARRANTS, WHICH ORIGINALLY
REPRESENTED THE RIGHT TO PURCHASE ONE SHARE OF COMMON STOCK AT AN EXERCISE PRICE
OF $6.00 PER SHARE, TO PROVIDE THAT, AS A RESULT OF THE SHARE DISTRIBUTION, EACH
WARRANT REPRESENTED THE RIGHT TO PURCHASE THREE SHARES OF COMMON STOCK AT AN
EXERCISE PRICE OF $2.00 PER SHARE. ON JUNE 6, 1996, THE COMPANY ELECTED TO
ADJUST THE NUMBER OF WARRANTS OUTSTANDING (THE "WARRANT ADJUSTMENT"). AS A
RESULT OF THE WARRANT ADJUSTMENT, EFFECTIVE JUNE 20, 1996, EACH HOLDER OF A
WARRANT ON JUNE 17, 1996 WILL, IN LIEU OF HOLDING ONE WARRANT TO PURCHASE THREE
SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $2.00 PER SHARE, HOLD THREE
WARRANTS, EACH TO PURCHASE ONE SHARE OF COMMON STOCK AT AN EXERCISE PRICE OF
$2.00 PER SHARE. UNLESS OTHERWISE INDICATED, THE INFORMATION SET FORTH IN THIS
PROSPECTUS GIVES EFFECT TO THE WARRANT ADJUSTMENT.
THE COMPANY
The Company is primarily engaged in the distribution and marketing of
consumer merchandise to retail sellers such as mass merchandisers, discount
chain stores and electronic retailers. The Company's business presently
consists of the following activities: (i) opportunistic purchasing and
secondary sourcing (I.E., distributing merchandise on a wholesale basis outside
of normal distribution channels to retail merchants) of a broad range of name-
brand and off-brand products such as health and beauty aids, cosmetics,
fragrances, kitchen items and other household items, (ii) developing, marketing
and selling the Company's own proprietary brands of budget-line health, beauty
aid and cosmetic products, which are manufactured for the Company by contract
manufacturers, (iii) representing manufacturers and distributors as a sales
agent, on a commission basis, in connection with the sale to mass merchandise
retailers of merchandise manufactured and distributed by such third parties and
(iv) developing, marketing and selling products to be promoted by celebrity
spokespersons and sold by the Company to mass merchandise retailers, as well as
products which will "tie in" to specific television shows and be sold by the
Company on television in connection with those shows, with the intent to
thereafter sell such products to mass merchandise retailers. The Company's
strategy is to capitalize on increased consumer demand for value and convenience
resulting from the increased acceptance by consumers of mass merchandisers,
electronic retailers and other mass marketing retail outlets, as well as on the
popularity of consumer products endorsed by celebrity spokespersons.
The Company, which was incorporated under the laws of the State of New York
on September 21, 1993, consummated in July 1995 an initial public offering (the
"IPO") of units (the "IPO Units"), each IPO Unit consisting of three shares of
common stock, par value $.01 per share ("Common Stock"), and three redeemable
warrants, each to purchase one share of Common Stock (the "Warrants").
Immediately following the issuance of the IPO Units, the Common Stock and
Warrants became separately tradeable and transferable. On May 18, 1995, Linette
Cosmetics, Inc. ("Linette Cosmetics"), a corporation founded in 1985 by Harold
Markowitz, the Chairman of the Board of the Company, and Jorge Lazaro, the
Executive Vice President and Secretary of the Company, was merged with and into
the Company, with the Company as the surviving corporation (the "Linette
Merger"). Prior to the Linette Merger, all of the outstanding capital stock of
Linette Cosmetics was owned by Mr. Markowitz, Mr. Lazaro and Paul Sharp, the
President and Chief Executive Officer of the Company, who together
-3-
<PAGE>
comprised the shareholders of the Company until the IPO. In addition,
immediately prior to the consummation of the IPO, each of Messrs. Markowitz,
Sharp and Lazaro contributed to the Company his 20% equity interest in Lea
Cosmetics, Inc. ("Lea Cosmetics") and the Company acquired from the remaining
shareholder his 40% equity interest in Lea Cosmetics (the "Lea Acquisition").
As a result, Lea Cosmetics became a wholly-owned subsidiary of the Company and,
on August 3, 1995, Lea Cosmetics was merged with and into the Company, with the
Company as the surviving corporation.
The Company's principal executive offices are located at 1435 51 Street,
North Bergen, New Jersey 07047, and its telephone number is (201) 864-3316.
THE OFFERING
Securities offered . . . . . . . Up to 5,760,000 shares of Common Stock
reserved for issuance upon exercise of
outstanding Warrants, up to 80,000 Units
(each consisting of three shares of Common
Stock and three Warrants) issuable upon
exercise of 80,000 warrants originally sold
to Duke & Co., Inc. (the "Underwriter") in
connection with the IPO (the "Underwriter's
Warrants"), up to 240,000 shares of Common
Stock included in the Units underlying the
Underwriter's Warrants and up to 240,000
shares of Common Stock reserved for issuance
upon exercise of the Warrants included in
such Units. Also includes up to 180,000
shares of Common Stock reserved for issuance
upon exercise of Warrants held by certain
affiliates of the Company. See "Description
of Securities" and "Certain Transactions."
Common Stock Outstanding
Before the Offering(1) . . . . 7,440,000 shares
After the Offering(1)(2) . . . 13,860,000 shares
Units. . . . . . . . . . . . . . Each Unit consists of three shares of Common
Stock and three Warrants. The Units offered
hereby are issuable upon exercise of the
Underwriter's Warrants. The Underwriter's
Warrants entitle the Underwriter to purchase
up to 80,000 Units at an exercise price of
$7.50 per Unit.
-4-
<PAGE>
Warrants
Exercise terms . . . . . . . . Exercisable for a period of three years
commencing July 13, 1996, each to purchase
one share of Common Stock for $2.00, subject
to adjustment in certain circumstances. See
"Description of Securities -- Redeemable
Warrants."
Expiration date. . . . . . . . July 12, 1999.
Redemption . . . . . . . . . . Redeemable by the Company at any time
commencing on July 13, 1996, upon notice of
not less than 30 days, at a price of $.05
per Warrant, provided that the closing bid
quotation of the Common Stock on NASDAQ has
exceeded $3.33 per share (subject to
adjustment) for a period of 20 consecutive
trading days during the period in which the
Warrants are exercisable. The Warrants will
be exercisable until the close of business
on the date fixed for redemption. See
"Description of Securities -- Redeemable
Warrants."
Use of Proceeds. . . . . . . . The net proceeds, if any, received by the
Company upon exercise of the Warrants
(including Warrants held by certain
affiliates of the Company), the
Underwriter's Warrants and the Warrants
included therein will be utilized for
working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors . . . . . . . . . . The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution and
should not be purchased by investors who
cannot afford the loss of their entire
investment. Holders of Warrants should
carefully consider the factors set forth
under the caption "Risk Factors" before
exercising the Warrants to purchase the
shares offered hereby. See "Risk Factors"
and "Dilution."
NASDAQ symbols . . . . . . . . Common Stock -- "SELB".
Warrants -- "SELBW".
BSE symbols. . . . . . . . . . Common Stock -- "SLL".
Warrants -- "SLLW".
-5-
<PAGE>
- ------------------------------------
(1) Does not include (i) 1,024,500 shares of Common Stock reserved for issuance
upon exercise of stock options granted under the Company's 1995 Stock
Option Plan (the "Stock Option Plan"); (ii) 325,500 shares of Common Stock
reserved for issuance upon exercise of options available for future grant
under the Stock Option Plan; (iii) 80,000 shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1995
Nonemployee Directors' Stock Option Plan (the "Directors' Plan");
(iv) 220,000 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the Directors' Plan; and (v)
490,689 shares of Common Stock issuable upon exercise of a warrant granted
to Jan Mirsky, previously a consultant to, and currently the Executive Vice
President -- Finance and Chief Operating Officer of, the Company (the
"Consulting Warrant"). See "Management -- 1995 Stock Option Plan" and "--
Directors and Executive Officers," "Certain Transactions" and "Description
of Securities."
(2) Assumes (i) exercise of all outstanding Warrants (including Warrants held
by certain affiliates of the Company), (ii) exercise of all Underwriter's
Warrants and (iii) exercise of all Warrants included in the Units issuable
upon exercise of the Underwriter's Warrants, although there can be no
assurance that any of the foregoing will be exercised.
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the historical
financial statements of the Company included elsewhere in this Prospectus. Such
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
Statement of Income Data: Three
Year Ended December 31, Months Ended March 31,
----------------------- ----------------------
1994(1)(3) 1995(2)(3) 1995(3) 1996(3)
---------- ---------- ------- -------
(unaudited)
-----------
<S> <C> <C> <C> <C>
Revenue $10,794,294 $11,480,135 $2,354,848 $3,070,765
Operating income $651,874 $595,157 $144,598 $141,388
Pro forma net income $253,437 $341,423 $49,100 $90,543
Pro forma net income per share:
Primary $0.05 $0.05 $0.01 $0.01
Fully Diluted $0.05 $0.04 $0.01 $0.01
Pro forma weighted average number
of common shares outstanding
Primary 4,969,089 8,429,726 4,969,089 13,977,189
Fully Diluted 4,969,089 8,491,491 4,969,089 14,154,955
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Information: March 31, 1996
- ------------------------- --------------
(unaudited)
----------
Actual As Adjusted(4)
------ --------------
<S> <C> <C>
Current assets $5,850,375 $18,590,375
Current liabilities $1,665,669 $1,665,669
Working capital $4,184,706 $16,924,706
Total assets $6,444,599 $19,184,599
Total liabilities $1,665,669 $1,665,669
Shareholders' equity $4,778,930 $17,518,930
</TABLE>
-6-
<PAGE>
- ---------------------------------
(1) Restated to include the results of operations of the Company and Linette
Cosmetics for the twelve-month period ended December 31, 1994 and of Lea
Cosmetics for the twelve-month period ended September 30, 1994.
(2) Includes the results of operations of the Company and Linette Cosmetics for
the twelve-month period ended December 31, 1995 and of Lea Cosmetics for
the fifteen-month period ended December 31, 1995. The results of
operations of Lea Cosmetics for the three-month period from October 1, 1994
to December 31, 1994 included in the statement of operations for 1995 were
not material.
(3) Prior to the Linette Merger, the Company and Linette Cosmetics were treated
as S Corporations, with earnings taxed for federal and certain state income
tax purposes directly to their respective shareholders. Pro forma
financial information includes a pro forma adjustment for income taxes
treated on a C Corporation basis.
(4) Gives effect to the sale of 5,940,000 shares of Common Stock upon the
exercise of outstanding Warrants (including Warrants held by certain
affiliates of the Company), and the sale of 240,000 shares of Common Stock
upon the exercise of the Underwriters' Warrants and 240,000 shares of
Common Stock upon exercise of the Warrants included therein, resulting in
net proceeds to the Company of $12,740,000 (after deducting expenses of the
offering other than solicitation fees, if any, to be paid to the
Underwriter in connection with the exercise of the Warrants). See "Warrant
Solicitation."
-7-
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK, INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED
BELOW, AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT IN THE
COMPANY, SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS INHERENT IN AND AFFECTING
THE BUSINESS OF THE COMPANY AND THIS OFFERING.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN
THIS PROSPECTUS, INCLUDING BUT NOT LIMITED TO GENERAL TRENDS IN THE RETAIL
INDUSTRY, THE ABILITY OF THE COMPANY TO SUCCESSFULLY IMPLEMENT ITS EXPANSION
PLANS, CONSUMER ACCEPTANCE OF ANY PRODUCTS DEVELOPED AND SOLD BY THE COMPANY,
AND THE ABILITY OF THE COMPANY TO DEVELOP ITS "CELEBRITY" PRODUCT BUSINESS.
DEPENDENCE ON CERTAIN CUSTOMERS. The Company's ten largest customers
accounted for approximately 83% and 69% of the Company's net sales during the
three-month period ended March 31, 1996 and the year ended December 31, 1995,
respectively. During the three-month period ended March 31, 1996, BJ's
Wholesale Club accounted for approximately 36% of the Company's sales, and
during the year ended December 31, 1995, BJ's Wholesale Club and Ames Department
Stores accounted for approximately 26% and 11%, respectively, of the Company's
sales. The Company believes that it has good relationships with its customers,
and that, as a consequence of its strong and, in many instances, long-term
relationships with many of such customers, they will continue to do business
with the Company. However, the Company has no long-term contracts with any of
its customers, all of which purchase products from the Company pursuant to
individually placed purchase orders. Therefore, there can be no assurance that
the Company's customers, including any of its largest customers, will continue
to purchase merchandise from the Company, and the loss of a significant volume
of purchases from a number of its customers could have a material adverse effect
on the Company's business and results of operations. In addition, although the
Company has sold substantially all merchandise acquired by it through
opportunistic purchases in each of the last three fiscal years, there can be no
assurance that the Company, which typically purchases merchandise before it has
arranged for customers for such merchandise, will be able to obtain customers
for all such merchandise acquired by it in the future, or that if it is able to
secure such customers, sales to such customers will yield acceptable profit
margins. See "Business -- General."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS AND SUPPLIERS. The Company makes
opportunistic purchases of merchandise from manufacturers as well as from
secondary sources such as wholesalers, retailers, financially distressed
businesses and duty-free distributors. The Company purchases such merchandise
through individually placed purchase orders and does not have any contracts with
any such suppliers, depending, instead, on its ongoing relationships and prior
dealings with such suppliers to obtain merchandise at favorable prices when it
becomes available for sale to secondary suppliers. Although the Company
believes that its relationships with its suppliers are good and that it would be
able to locate other sources of merchandise in the event of the loss of one or
more of such suppliers, there can be no assurance that the Company will not
experience delays or other difficulties in obtaining merchandise, which could
have a material adverse effect on the Company's business and results of
operations. See "Business -- General -- Opportunistic Purchasing and Secondary
Sourcing Archives."
To date, all of the Company's proprietary brand name budget-line health,
beauty aid and
-8-
<PAGE>
cosmetic products sold under the Linette-Registered Trademark-,
Vea-Registered Trademark- and Zia-Registered Trademark- brand names and all
packaging therefor have been manufactured and supplied by third parties in
accordance with the Company's specifications. The Company purchases all
materials for its products (including raw materials and packaging) through
individually placed purchase orders to various suppliers, who deliver the
products to LPD Packaging, Inc., a manufacturer engaged by the Company; such
manufacturer, in turn, provides filling and packaging services, performs
quality control, distributes the finished products and, if necessary,
warehouses such products. During the year ended December 31, 1995 and the
three-month period ended March 31, 1996, the Company paid $616,640 and
$120,165, respectively, to this manufacturer for such services. Although the
Company believes that its manufacturer has the capacity to produce volumes of
products sufficient to meet the Company's foreseeable needs, there can be no
assurance of such. Furthermore, although the Company believes that it has a
good relationship with this manufacturer and that the Company will continue
to obtain its finished products to be sold under the Linette-Registered
Trademark-, Vea-Registered Trademark- and Zia-Registered Trademark- brand
names from such manufacturer in the foreseeable future, the Company does not
have a written contract with this manufacturer and there can therefore be no
assurance of such. In the event the Company were to experience difficulties
with or the loss of services of its present manufacturer, the Company
believes that it would be able to retain the services of other manufacturers;
however, there can be no assurance that such services could be retained on a
timely basis or on terms as favorable as those with its present manufacturer.
Likewise, although the Company has experienced no difficulty in obtaining
necessary products, supplies and packaging from its suppliers and believes
that it could obtain items of the same quantity and quality from other
suppliers, in the event the Company were to experience difficulties with any
of its present suppliers, the Company might be unable to obtain such items on
a timely basis. The loss of either the Company's present manufacturer or any
of its present suppliers, or any significant delays in obtaining another
manufacturer or other suppliers in the event of any such loss, could have an
adverse effect on the Company's business and results of operations. See
"Business -- General -- Sale of Proprietary Brand Name Products."
To date, all merchandise sold by the Company in connection with the "Jackie
Collins" line of products has been purchased by the Company from third-party
manufacturers and distributors, both in the United States and abroad. In
addition, the Company currently anticipates that all products developed by it as
television program "tie-in" products pursuant to its agreement with Direct
Access Group/Television Production Partners ("Direct Access"), as well as other
celebrity-endorsed products, if any, developed by the Company, will be purchased
from third-party manufacturers. Typically, the Company develops or will develop
the design of the celebrity-endorsed products in conjunction with the celebrity
who is to promote such products, and will develop the design of any television
"tie-in" products in conjunction with Direct Access. Once the product has been
developed, the Company will arrange for the manufacture of the product by a
third-party manufacturer according to the Company's design specifications;
however, the Company does not enter into long-term contracts with such third
parties, but instead purchases (and currently anticipates that it will in the
future continue to purchase) such merchandise through individually placed
purchase orders. Accordingly, the Company is dependent on the ability of its
manufacturers to meet its design and quality specifications. Although the
Company believes that, in the event it were to experience difficulties with or
the loss of services of any of such manufacturers, it would be able to engage
other manufacturers who could be retained by the Company and meet its production
requirements on a timely basis, there can be no assurance of such. The loss of
any of such manufacturers, or any significant delays in obtaining other
manufacturers in the event of any such loss, could have an adverse effect on the
Company's business and results of operations. See "Business -- General --
Development of 'Celebrity' Products."
-9-
<PAGE>
RISKS ASSOCIATED WITH PUBLIC TRENDS IN THE RETAIL INDUSTRY. The retail
industry is significantly affected by many factors, including changes in the
national economy or in regional and local economies, changes in consumer
preferences and confidence in the overall economy, increases in the number of
retail operations and intense competition in the retail industry generally. In
addition, factors such as inflation may have a greater effect on the retail
industry than on other industries. Furthermore, several retail firms, including
retail customers of the Company, have filed for bankruptcy protection and there
can be no assurance of their continued existence or of the continued existence
of any of the Company's retail customers. During the past three years, the
Company has written off an immaterial amount of receivables as a result of these
bankruptcies. The loss of a significant number of the Company's customers could
have a material adverse effect on the business and results of operations of the
Company. See "-- Dependence on Certain Customers."
RISK OF LOSS OF CERTAIN PRODUCTS. The Company currently warehouses all of
the raw materials used in connection with its proprietary brand name health,
beauty aid and cosmetics products, as well as the finished products, at LPD
Packaging, Inc.'s warehouses. Accordingly, the Company is subject to the risk
of the loss of all or a portion of such inventory, either as a result of theft,
fire or otherwise. Although the Company maintains insurance which would cover
any such losses (including losses associated with business interruptions) and
believes that, in the event of a complete or significant loss, it would be able
to replace such inventory (i.e., by purchasing materials from other sources and,
if necessary, retaining the services of another manufacturer) within a period of
approximately two to three months, the Company is subject to the risk of loss of
customers during such period. See "Business -- General -- Sale of Proprietary
Brand Name Products," "-- Insurance" and "-- Property."
RISKS ASSOCIATED WITH EXPANSION PLANS; DEPENDENCE ON NEW PRODUCT
INTRODUCTIONS AND MARKET ACCEPTANCE TO IMPLEMENT EXPANSION PLANS. As part of
the Company's strategy of taking advantage of the growth in mass merchandising
and value retailing, the Company will seek to continue introducing its own brand
name health, beauty aid and cosmetic products, thereby providing the Company
with an ongoing supply of products and making the Company less reliant on third
party and/or opportunistic sources of merchandise. The success of the Company's
expansion plan is dependent upon its ability to identify and develop products
that can be successfully sold to retail chains and other mass merchandisers at
acceptable profit margins. There can be no assurance that the Company will be
able to successfully develop and introduce new products under its own brand
names, that any such products will meet with consumer acceptance in the
marketplace or that any such products will be sold at acceptable profit margins.
In addition, the Company may seek to obtain rights to additional proprietary
lines either by acquisition or through licensing or other arrangements.
However, as of the date hereof, the Company has no agreements, understandings or
commitments related thereto, and there can be no assurance that any such
acquisition opportunities will become available, that the Company would be
successful in acquiring any such rights on favorable terms, or that the Company
would be successful in marketing and selling any product lines so acquired by
it. See "Business -- General -- Sale of Proprietary Brand Name Products."
The Company is also seeking to expand the "celebrity" product area of its
business, including by marketing and distributing in the traditional retail
market celebrity merchandise which is originally offered for sale on television
or by developing products to be promoted by celebrities and sold directly in
such traditional markets. The success of the Company's expansion plan is
dependent on the Company's ability to retain the services of celebrities and to
develop products to be endorsed by such celebrities which will meet with
consumer acceptance. The Company has previously developed a line of products
endorsed by best-selling author Jackie Collins which were sold on Home Shopping
Network
-10-
<PAGE>
in 1994 and 1995, is currently selling directly into the traditional retail
market a line of "Jackie Collins Wild" fragrances and is currently in the
process of developing a line of bath products and jewelry for Ms. Collins for
sale by the Company to mass market merchandisers. There can be no assurance
that the Company will be able to sell additional amounts of such fragrances in
the future, that it will be able to successfully develop and/or promote any
other products for Ms. Collins, that the Company will be able to retain the
services of other celebrities in the future or successfully develop and/or
promote any products for any other celebrities whose services are retained by
the Company or that any such products so developed for Ms. Collins or any other
celebrities will meet with consumer acceptance or generate any significant
revenues. See "Business -- General -- Development of 'Celebrity' Products."
Pursuant to its agreement with Direct Access, the Company has been granted
the exclusive right to develop and sell cosmetics, fragrances and spa items in
connection with "tie-in" product programs developed by Direct Access for
television networks and producers. Such product programs are expected to
involve the development of products which "tie in" to characters, activities
and/or themes of a specific television show. The agreement with Direct Access
also provides that the Company will be entitled to sell any merchandise
developed by it for any of such television shows through other retail
distribution channels, provided that the Company pays a royalty in connection
therewith at a negotiated amount. As of the date hereof, the Company has been
authorized to develop and act as the exclusive manufacturer and distributor of a
cosmetic, fragrance and skin care line to be sold in connection with the CBS
daytime drama THE YOUNG AND THE RESTLESS. However, as of the date hereof,
Direct Access has not secured air time for the promotion and sale of such
products, and there can be no assurance that it will be successful in doing so
or that, if such air time is secured, the products will meet with consumer
acceptance. There can also be no assurance that Direct Access will be able to
successfully negotiate with any other television networks or producers for the
development of other program product "tie-ins" or that Direct Access will be
able to secure air time during which any such products can be marketed and sold.
See "Business -- General -- Development of 'Celebrity' Products."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. The proceeds to the Company
from the exercise of the Warrants (including Warrants held by certain affiliates
of the Company), the Underwriter's Warrants and the Warrants included therein,
net of the expenses of this offering (other than solicitation fees, if any, to
be paid to the Underwriter in connection with the exercise of Warrants), will be
approximately $12,740,000 assuming that all such Warrants, Underwriter's
Warrants and Warrants included therein are exercised. The Company has been
advised by the Underwriter that it currently intends to exercise all of the
Underwriter's Warrants at such time as such Underwriter's Warrants become
exercisable, thereby resulting in proceeds to the Company (before deducting
expenses) of $600,000. Management anticipates that the proceeds of this
offering, if any, will be allocated to working capital and general corporate
purposes. Accordingly, the Company's management will have broad discretion as
to the application of such proceeds. See "Use of Proceeds" and "Warrant
Solicitation."
COMPETITION. The areas of business in which the Company engages are highly
competitive businesses. The secondary sourcing business is characterized by
intense competition, both in the products sold and in the retaining of
relationships with suppliers and customers. With respect to its ability to
obtain merchandise, the Company competes with other secondary sources, as well
as with wholesale distributors and retailers. The Company believes that its
ability to purchase a broad array of merchandise at competitive prices is
critical to its success. With respect to sales to its customers, the Company
competes with other secondary suppliers of merchandise, as well as with
manufacturers who sell directly to retail merchandisers. In addition, with
respect to products sold under the Company's Linette-Registered Trademark-, Vea-
Registered Trademark- and Zia-Registered Trademark- brand names, the Company
competes with other manufacturers at the retail store level for shelf
-11-
<PAGE>
space and promotional space. Many of the Company's existing or potential
competitors are well established companies and have or will have substantially
greater financial, marketing and other resources than the Company. The Company
believes that it competes on the basis of value, product assortment and
availability, service to customers and reputation, as well as on the basis of
its long-standing and well-established relationships with both its suppliers and
customers. Although the Company believes that it will be able to compete
effectively on the basis of such factors, there can be no assurance of such.
In connection with its "celebrity" products business, the Company competes
or will compete with manufacturers and marketing organizations that seek out
celebrities to endorse products and assist in marketing programs for their
merchandise. In addition, the Company believes that virtually all celebrities
have agents who can negotiate directly with retailers in order to secure
marketing contracts on their behalf. The Company believes that it competes on
the basis of its ability to design products which are consistent with the
celebrities' respective preferences and characters and to provide such products
to retailers at competitive prices. Furthermore, although the Company is not
aware of any other entities which currently manufacture, market or develop
television "tie-in" products to be sold on television during the airing of the
related program, the Company believes that any such products developed by the
Company will compete with other products sold in the electronic retailing market
(including through television infomercials and interactive television shopping
networks), as well as other products sold in the traditional retail market which
relate to characters or themes of television shows or movies. The Company
believes that it will compete on the basis of the unique nature of such
television "tie-in" products, as well as on its ability to provide such products
at competitive prices.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The success of the Company is
largely dependent on the personal efforts of Harold Markowitz, its Chairman of
the Board, Paul Sharp, its President and Chief Executive Officer, Jan Mirsky,
its Executive Vice President - Finance and Chief Operating Officer, Jack Koegel,
its Vice Chairman, and Jorge Lazaro, its Executive Vice President. In
particular, the future success of the Company's celebrity products line of
business is dependent on the efforts of Mr. Markowitz, who has to date been
primarily responsible for developing relationships with various celebrities.
Although the Company has entered into an employment agreement with each of
Messrs. Markowitz, Sharp, Mirsky, Koegel and Lazaro, each of which agreements
provides that the employee shall devote substantially all of such employee's
working time and attention to the Company, the loss of services of any of such
individuals could have a material adverse effect on the Company's business and
prospects. See "Management."
CONTROL BY MANAGEMENT AND CURRENT SHAREHOLDERS. As of the date of this
Prospectus, Messrs. Markowitz, Sharp, Mirsky, Koegel and Lazaro, each of whom is
an officer and director of the Company, beneficially own, in the aggregate,
approximately 64.7% of the outstanding Common Stock (assuming no exercise of the
Warrants, the Underwriter's Warrants or the Warrants included therein or of
options or warrants held by persons other than Messrs. Markowitz, Sharp, Mirsky,
Koegel and Lazaro). Accordingly, in the event such shareholders were to act in
concert with respect to the Company's operations, they would be in a position to
cause an increase in the authorized capital or cause the dilution, merger or
sale of assets of the Company, and generally control the affairs of the Company.
Assuming that all of the Warrants, Underwriter's Warrants and Warrants included
therein are exercised, Messrs. Markowitz, Sharp, Mirsky, Koegel and Lazaro will
beneficially own, in the aggregate, approximately 37.0% of the outstanding
Common Stock (assuming no exercise of any other options or warrants other than
those held by such individuals). Although such shareholders would not
represent, in the aggregate, a majority of the voting securities of the Company,
their significant beneficial holdings would enable them to exercise substantial
influence over the Company. See "Principal Shareholders."
-12-
<PAGE>
INSURANCE AND POTENTIAL LIABILITY. While no material product liability
claims have been made against the Company in the past, as a distributor of
merchandise, including health and beauty aids, cosmetics, fragrances and
household items, the Company could be exposed to possible liability claims from
others for personal injury or property damage due to design or manufacturing
defects or otherwise. The Company maintains a product liability insurance
policy that has a $1,000,000 per occurrence limit and a $2,000,000 aggregate
limit, and a $3,000,000 umbrella liability insurance policy to cover claims in
excess of the limits of its products liability insurance. In addition, the
Company believes that the suppliers from whom it purchases such merchandise,
including the manufacturers thereof, maintain adequate levels of product
liability insurance. Although the Company believes that its product liability
insurance coverage is adequate in light of prior experience and future
expectations, there can be no assurance of such. In addition, the Company
maintains other insurance, including insurance relating to property and personal
injury, similar, the Company believes, to that maintained by comparable retail
businesses and in amounts which the Company currently considers adequate.
Nevertheless, a partially or completely uninsured claim against the Company, if
successful and of sufficient magnitude, could have a material adverse effect on
the Company. See "Business -- Insurance."
RISK OF ELIMINATION OF SUPPLY OF PRESTIGE FRAGRANCES. The Company believes
that a portion of the prestige fragrances purchased by it may include
trademarked products manufactured in foreign countries and trademarked products
manufactured in the United States that may have been sold to foreign
distributors. From time to time, United States trademark owners and their
licensees and trade associations have initiated litigation or administrative
agency proceedings seeking to halt the importation into the United States of
such foreign manufactured or previously exported trademarked products. Although
the Company is not currently the subject of any such legal or administrative
actions, and is not aware of any such threatened legal or administrative
actions, there can be no assurance that the Company's business activities will
not become the subject of such actions in the future, or that future judicial,
legislative or administrative agency action will not limit or eliminate some or
all of the secondary sources of supply of prestige fragrances used by the
Company. However, the Company believes that any future limitation on or
elimination of its sources of supply of prestige fragrances for sale to its
customers would not have a material adverse effect on the Company, although
there can be no assurance of such.
IMMEDIATE AND SUBSTANTIAL DILUTION. This offering involves an immediate
and substantial dilution of $.76 per share (or 38%) to investors receiving
shares of Common Stock in this offering upon the exercise of Warrants,
Underwriter's Warrants or the Warrants included therein. See "Dilution."
NO DIVIDENDS. The Company has not paid any dividends to date, other than a
dividend paid in 1995 to those individuals who constituted the Company's
shareholders prior to the IPO, which dividend was paid in connection with the
termination of the Company's status as an S Corporation. It is the Company's
intention to retain earnings, if any, to finance the operation and expansion of
its business and, therefore, it does not expect to pay cash dividends in the
foreseeable future. See "Management's Discussion and Analysis or Plan of
Operation," "Certain Transactions" and "Description of Securities -- Dividends."
ELIMINATION OF LIABILITY OF DIRECTORS AND OFFICERS. The Company's
Certificate of Incorporation eliminates the liability of a director of the
Company for monetary damages for breach of duty as a director, subject to
certain exceptions. In addition, the Certificate of Incorporation provides for
the Company to indemnify, under certain conditions, directors and officers of
the Company against all expenses, liabilities and losses reasonably incurred by
such persons in connection therewith. The foregoing provisions may reduce the
likelihood of derivative litigation against directors and may
-13-
<PAGE>
discourage or deter shareholders or management from suing directors for breaches
of their duty of care, even though such an action, if successful, might
otherwise benefit the Company and its shareholders. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon the
consummation of this offering, the Company will have 13,860,000 shares of Common
Stock outstanding (assuming no exercise of outstanding options or warrants other
than the Warrants (including Warrants held by certain affiliates of the
Company), the Underwriter's Warrants and the Warrants included therein), of
which 9,000,000 shares of Common Stock will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). All of the remaining 4,860,000 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption under
the Securities Act. Concurrently with this offering, an aggregate of 180,000 of
such restricted shares are being registered by the Company under the Securities
Act pursuant to the Selling Security Holder Prospectus included within the
Registration Statement of which this Prospectus forms a part. In addition,
commencing in October 1995, an aggregate of 4,500,000 restricted shares became
eligible for sale under Rule 144, subject to certain volume limitations
prescribed by Rule 144 and to the contractual restrictions described below. The
balance of the restricted shares will become eligible for sale under Rule 144,
subject to the volume limitations prescribed by Rule 144, commencing in July
1997. The Company has granted Mr. Mirsky certain demand and "piggyback"
registration rights (subject to certain limitations) with respect to the shares
of Common Stock issuable upon exercise of the Consulting Warrant. In connection
with the IPO and at the request of the Underwriter, Mr. Mirsky waived such
rights for a period of eighteen months commencing July 13, 1995. In addition,
in connection with the IPO, the Company also granted the Underwriter demand and
piggyback registration rights with respect to the 240,000 shares of Common Stock
and 240,000 Warrants issuable upon exercise of the Underwriter's Warrants and
the 240,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Underwriter's Warrants. The 480,000 shares of Common Stock
underlying the Underwriter's Warrants have been included in the Registration
Statement of which this Prospectus forms a part. No prediction can be made as
to the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. While all of the Company's officers and directors, and
certain shareholders of the Company, have agreed not to sell or otherwise
dispose of any of their shares of Common Stock (an aggregate of 4,860,000 shares
(including the 180,000 shares included in the Selling Security Holder
Prospectus)) for a period of eighteen months commencing July 13, 1995 without
the prior written consent of the Underwriter (other than pursuant to private
transfers in which the transferee agrees to abide by the same restriction), and
Mr. Mirsky has waived the registration rights granted to him under the
Consulting Warrant for a period of eighteen months commencing July 13, 1995
(and, as a director and officer of the Company is subject to the aforementioned
restriction during such eighteen-month period on sales of any shares of Common
Stock issuable upon exercise of his warrant), the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and the Warrants and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Certain Transactions," "Description of Securities" and "Shares
Eligible for Future Sale."
INABILITY TO EXERCISE WARRANTS. The Company intends to qualify the sale of
the securities offered hereby in a limited number of states. Although certain
exemptions in the securities laws of certain states might permit Warrants to be
transferred to purchasers in states other than those in which the Warrants were
initially qualified, the Company will be prevented from issuing Common Stock in
such
-14-
<PAGE>
other states upon the exercise of the Warrants unless an exemption from
qualification is available or unless the issuance of Common Stock upon exercise
of the Warrants is qualified. The Company is under no obligation to seek, and
may decide not to seek or may not be able to obtain, qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants held will
expire and have no value if such Warrants cannot be sold. Accordingly, the
market for the Warrants may be limited because of these restrictions. Further,
a current prospectus covering the Common Stock issuable upon exercise of the
Warrants must be in effect before the Company may accept Warrant exercises.
There can be no assurance the Company will be able to have a prospectus in
effect when this Prospectus is no longer current, notwithstanding the Company's
commitment to use its best efforts to do so. See "Description of Securities --
Redeemable Warrants."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company at any time commencing on July 13, 1996, upon notice of
not less than 30 days, at a price of $.05 per Warrant, provided the closing bid
quotation of the Common Stock on NASDAQ has exceeded $3.33 (subject to
adjustment) for a period of 20 consecutive trading days during the period in
which the Warrants are exercisable. Redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Warrants at the
then-current market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which is likely to be substantially less than
the market value of the Warrants at the time of redemption. See "Certain Market
Information" and "Description of Securities -- Redeemable Warrants."
EXERCISE PRICE ARBITRARILY DETERMINED. The exercise price and other terms
of the Warrants were determined by negotiation between the Company and the
Underwriter and are not necessarily related to the Company's assets, book value
or financial condition, and may not be indicative of the actual value of the
Company.
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; RISKS RELATING TO
LOW-PRICED STOCKS. The Company's Common Stock and Warrants are listed on
NASDAQ. In order to continue to be listed on NASDAQ, however, the Company must
maintain $2,000,000 in total assets, a $200,000 market value of the public float
and $1,000,000 in total capital and surplus. In addition, continued inclusion
requires two market-makers and a minimum bid price of $1.00 per share; provided,
however, that if the Company falls below such minimum bid price, it will remain
eligible for continued inclusion in NASDAQ if the market value of the public
float is at least $1,000,000 and the Company has $2,000,000 in capital and
surplus. The failure to meet these maintenance criteria in the future may
result in the delisting of the Company's securities from NASDAQ. In such event,
trading, if any, in the Common Stock and Warrants would thereafter be conducted
in the over-the-counter markets through the so-called "pink sheets" or the
NASD's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's securities could be impaired, not only in the number of securities
which could be bought and sold, but also through delays in the timing of
transactions, difficulty in obtaining accurate quotations as to the market value
of the securities and reductions in the security analysts' and the news media's
coverage of the Company. Delisting of the Company's securities may result in
lower prices for the Company's securities than might otherwise prevail. See
"Description of Securities -- NASDAQ and Boston Stock Exchange Listing."
In addition, if the Common Stock were to become delisted from trading on
NASDAQ and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Exchange Act which
-15-
<PAGE>
require additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a penny stock (generally, any non-NASDAQ equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions
in the Common Stock and Warrants, which could severely limit the market
liquidity of the Common Stock and Warrants, the ability of purchasers in this
offering to sell the Common Stock and Warrants in the secondary market and the
Company's ability to obtain additional financing.
USE OF PROCEEDS
The proceeds received by the Company upon exercise of the Warrants
(including Warrants held by certain affiliates of the Company), the
Underwriter's Warrants and the Warrants included therein, net of expenses of the
offering (other than solicitation fees, if any, to be paid to the Underwriter in
connection with the exercise of Warrants), will be $12,740,000, assuming that
all of such Warrants, Underwriter's Warrants and Warrants included therein are
exercised. There can be no assurance as to the number of Warrants, if any, or
Underwriter's Warrants or Warrants included therein, if any, which will be
exercised. However, the Company has been advised by the Underwriter that the
Underwriter currently intends to exercise all of the Underwriter's Warrants
thereby resulting in proceeds to the Company (before deducting expenses) of
$600,000. Management anticipates that the net proceeds of this offering, if
any, will be allocated to working capital and general corporate purposes. In
addition, management of the Company anticipates that, upon receipt of the net
proceeds of this offering, a portion of such proceeds will be used to repay any
amounts then outstanding under the Company's revolving line of credit agreement
with United Jersey Bank. As of the date of this Prospectus, the Company has an
aggregate principal amount of $100,000 outstanding under this line of credit.
See "Management's Discussion and Analysis or Plan of Operation."
The proceeds allocated to working capital and general corporate purposes
will be applied, to the extent necessary, to the Company's current operations.
-16-
<PAGE>
CERTAIN MARKET INFORMATION
The shares of Common Stock of the Company commenced trading on the Nasdaq
Small Capitalization Market under the symbol "SELB" on July 13, 1995. The range
of high and low reported closing sales prices for the Common Stock as reported
by Nasdaq since the commencement of trading were as follows:
Fiscal Year 1995 High (1) Low (1)
- ---------------- ---------- -------
Third Quarter . . . . . $3.17 $2.71
Fourth Quarter . . . . . $5.50 $2.81
Fiscal Year 1996
- ----------------
First Quarter . . . . . $7.00 $4.67
Second Quarter (through
June 12, 1996) . . . . . $8.00 $6.44
- --------------------------
(1) All share prices with respect to dates prior to the Share Distribution have
been adjusted to give effect to the Share Distribution. All share prices
have been rounded to the nearest cent.
The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
On June 10, 1996, as reported by the Company's transfer agent, shares
of Common Stock were held by 17 persons, based on the number of record holders,
including several holders who are nominees for an undetermined number of
beneficial owners.
DILUTION
The difference between the exercise price of the Warrants and the
adjusted net tangible book value per share of Common Stock after this offering,
assuming exercise for cash of all Warrants (including Warrants held by certain
affiliates of the Company), Underwriter's Warrants and Warrants included
therein, constitutes the dilution to investors in this offering. Net tangible
book value per share on any given date is determined by dividing the net
tangible book value (total tangible assets less total liabilities) of the
Company on such date by the number of shares of Common Stock outstanding on such
date.
At March 31, 1996, the net tangible book value of the Company was
$4,505,189, or $.61 per share of Common Stock. After giving effect to the sale
by the Company of 5,940,000 shares of Common Stock upon the exercise of
outstanding Warrants (including Warrants held by certain affiliates of the
Company), 240,000 shares of Common Stock upon the exercise of the Underwriter's
Warrants and 240,000 shares of Common Stock upon the exercise of the Warrants
included therein, and the receipt of the net proceeds therefrom, the net
tangible book value at March 31, 1996 would have been $17,245,189,
-17-
<PAGE>
or $1.24 per share of Common Stock, representing an immediate increase in net
tangible book value of $.63 per share to existing shareholders and an immediate
dilution of $.76 (38%) per share to those who exercise Warrants. The following
table illustrates the foregoing information with respect to dilution on a per
share basis:
Public offering price per share of Common Stock upon
exercise of Warrants(1). . . . . . . . . . . . . . . . . . . . . . . . . $2.00
Net tangible book value per share before offering. . . . . . . $. 61
Increase per share attributable to investors in
this offering(2)(3) . . . . . . . . . . . . . . . . . . . . . $ .63
Adjusted net tangible book value after offering. . . . . . . . . . . . . . $1.24
-----
Dilution to investors in this offering . . . . . . . . . . . . . . . . . . $.76
-----
-----
- -------------------------------
(1) Before deducting solicitation fees, if any, to be paid to the Underwriter
in connection with the exercise of Warrants. See "Warrant Solicitation."
(2) Assumes no exercise of other outstanding options or warrants.
(3) Includes proceeds from the sale of 240,000 shares of Common Stock upon the
exercise of the Underwriter's Warrants at an average price of $2.50 per
share.
CAPITALIZATION
The following table sets forth, as of March 31, 1996, the capitalization of
the Company (i) on a historical basis and (ii) as adjusted to give retroactive
effect to the issuance and sale of the securities offered hereby and the
anticipated application of the estimated net proceeds therefrom. This
information should be read in conjunction with the Company's financial
statements and related notes appearing elsewhere in this Prospectus.
March 31, 1996
--------------
(unaudited)
-----------
Actual As Adjusted(1)
------ --------------
Long-term debt, less current portion $ -0- $ -0-
Total long-term debt -0- -0-
Shareholders' equity
Common stock, par value $0.01 per
share, 40,000,000 shares authorized,
7,440,000 shares issued and
outstanding (actual) and 13,860,000
shares issued and outstanding
(as adjusted) 74,400 138,600
Additional paid-in capital 4,183,464 16,859,264
Retained earnings 521,066 521,066
---------- -----------
Total shareholders' equity 4,778,930 17,518,930
---------- -----------
Total capitalization $4,778,930 $17,518,930
---------- -----------
---------- -----------
- -----------------------------------
(1) Gives effect to the sale of 5,940,000 shares of Common Stock upon the
exercise of outstanding Warrants (including Warrants held by certain
affiliates of the Company), and the sale of 240,000 shares of Common Stock
upon exercise of the Underwriters' Warrants and 240,000 shares of Common
Stock upon exercise of the Warrants included therein, resulting in net
proceeds to the Company of $12,740,000 (after deducting expenses of the
offering other than solicitation fees, if any, to be paid to the
Underwriter in connection with the exercise of the Warrants). See
"Warrant Solicitation."
-18-
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1995 and for
the years ended December 31, 1995 and 1996 is derived from the Company's
financial statements, audited by Goldstein Golub Kessler & Company, P.C.,
included elsewhere in this Prospectus. The data as of March 31, 1996 and for
the three-month periods ended March 31, 1995 and 1996 is derived from the
Company's unaudited financial statements included elsewhere in this Prospectus,
which, in the opinion of management, include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
information set forth herein. This data should be read in conjunction with the
financial statements of the Company, including their respective notes and
"Management's Discussion and Analysis or Plan of Operation".
<TABLE>
<CAPTION>
Statement of Income Data: Three
-----
Year Ended December 31, Months Ended March 31,
----------------------- ----------------------
1994(1)(3) 1995(2)(3) 1995(3) 1996(3)
---------- ---------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Revenue $10,794,294 $11,480,135 $2,354,848 $3,070,765
Operating income $651,874 $595,157 $144,598 $141,388
Pro forma net income $253,437 $341,423 $49,100 $90,543
Pro forma net income per share:
Primary $0.05 $0.05 $0.01 $0.01
Fully Diluted $0.05 $0.04 $0.01 $0.01
Pro forma weighted average number of common
shares outstanding
Primary 4,969,089 8,429,726 4,969,089 13,977,189
Fully Diluted 4,969,089 8,491,491 4,969,089 14,154,955
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: March 31, 1996
--------------
(unaudited)
Actual As Adjusted(4)
------ --------------
<S> <C> <C>
Current assets $5,850,375 $18,590,375
Current liabilities $1,665,669 $1,665,669
Working capital $4,184,706 $16,924,706
Total assets $6,444,599 $19,184,599
Total liabilities $1,665,669 $1,665,669
Shareholders' equity $4,778,930 $17,518,930
</TABLE>
- --------------------------------------
(1) Restated to include the results of operations of the Company and Linette
Cosmetics for the twelve-month period ended December 31, 1994 and of Lea
Cosmetics for the twelve-month period ended September 30, 1994.
(2) Includes the results of operations of the Company and Linette Cosmetics for
the twelve-month period ended December 31, 1995 and of Lea Cosmetics for
the fifteen-month period ended December 31, 1995. The results of
operations of Lea Cosmetics for the three-month period from October 1, 1994
to December 31, 1994 included in the statement of operations for 1995 were
not material.
(3) Prior to the Linette Merger, the Company and Linette Cosmetics were treated
as S Corporations, with their earnings taxed for federal and certain state
income tax purposes directly to their respective shareholders. Pro forma
financial information includes a pro forma adjustment for income taxes
treated on a C Corporation basis.
(4) Gives effect to the sale of 5,940,000 shares of Common Stock upon the
exercise of the outstanding Warrants (including Warrants held by certain
affiliates of the Company), and the sale of 240,000 shares of Common Stock
upon exercise of the Underwriters' Warrants and 240,000 shares of Common
Stock upon exercise of the Warrants included therein, resulting in net
proceeds to the Company of $12,740,000 (after deducting expenses of this
offering other than solicitation fees, if any, to be paid to the
Underwriter in connection with the exercise of the Warrants). See "Warrant
Solicitation."
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction
with the financial statements of the Company included elsewhere in this
Prospectus and the related notes thereto.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTH PERIOD
ENDED MARCH 31, 1995
Net sales for the three months ended March 31, 1996 were $3,070,765
compared to $2,354,848 for the three months ended March 31, 1995,
representing an increase of 30%. This increase in net sales resulted from
increases in both the sales of the Company's own proprietary brand name line
of beauty aids and cosmetics and sales of merchandise acquired in connection
with the Company's opportunistic purchasing business.
Cost of sales increased from $1,777,363 for the three month period in
1995 to $2,283,866 for the same period in 1996. However, the cost of goods
sold decreased as a percentage of sales from 75.5% in 1995 to 74.4% in 1996,
reflecting increased sales of the Company's proprietary brand name line of
beauty aids and cosmetics, which products generally have a higher profit
margin than other merchandise sold by the Company. The gross profit margins
of the Company are subject to fluctuation due to varying profit margins
applicable to the particular merchandise acquired by the Company in
connection with its opportunistic purchasing business.
Selling, general and administrative ("SG&A") expenses increased from
$432,887 in 1995 to $645,511 in 1996. The principal components of SG&A are
payroll, rent, commissions, insurance, legal, accounting and other fees paid
to third parties and travel and promotional expenses. The increase in SG&A
expenses in 1996 resulted primarily from the increased payroll and travel
expenses incurred by the Company in connection with its growth and increases
in other expenses resulting from its status as a public company.
As a result of the increase in the cost of sales and the increase in
SG&A expenses, total operating expenses increased from $2,210,250 in 1995 to
$2,929,377 in 1996.
As a result of the increase in operating expenses, operating income
decreased from $144,598 in 1995 to $141,388 in 1996. The increase in
interest income of $9,902 in 1996 compared to $-0- in 1995 and the decrease
in interest expense from $37,953 in 1995 to $12,243 in 1996 resulted in an
increase in income before provision for income tax of $106,645 in 1995 to
$139,048 in 1996. The pro forma net income reflects an adjustment to the
earnings of the Company for income taxes as if the Company's S Corporation
status had terminated at the beginning of the period.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net sales for the fiscal year ended December 31, 1995 were $11,286,114
compared to $10,401,907 for the fiscal year ended December 31, 1994,
representing an increase of 9%. This increase in net sales resulted
primarily from sales of the Company's own proprietary brand name line of
beauty aids and cosmetics.
-20-
<PAGE>
Income from commissions decreased from $392,387 in fiscal year 1994 to
$194,021 in fiscal year 1995 as a result of the Company's increased emphasis
on the sale of its own branded products and the resulting decrease in its
sales on a commission basis of products manufactured and distributed by third
parties.
Cost of sales increased from $8,314,521 in 1994 to $8,868,566 in 1995.
However, the cost of goods sold decreased as a percentage of sales from 79.9%
in 1994 to 78.6% in 1995, reflecting increased sales of the Company's
proprietary brand name line of beauty aids and cosmetics and increased sales
of prestige fragrances, which products generally have a higher profit margin
than other merchandise sold by the Company.
SG&A expenses increased from $1,827,889 in 1994 to $2,016,412 in 1995.
The increase in SG&A expenses in 1995 resulted primarily from the increased
professional fees incurred by the Company in connection with the IPO and its
status as a public company and increased payroll expenses resulting from the
Company's having hired additional employees following the IPO.
As a result of the increase in the cost of sales and the increase in
SG&A expenses, total operating expenses increased from $10,142,420 in 1994 to
$10,884,978 in 1995.
As a result of the decrease in the amount of commission income and the
increase in the Company's operating expenses, operating income decreased from
$651,874 in 1994 to $ 595,157 in 1995.
Other income (expense) included income of $101,489 for the year 1995 and
a net expense of $71,392 for the year 1994. Other income in 1995 was
primarily comprised of proceeds of approximately $49,000 resulting from the
settlement of an insurance claim and restitution by a former employee in the
amount of $52,000. The expense in 1994 of approximately $71,000 represents a
one-time charge for settlement of an insurance claim including the amount of
$23,000 of loss not covered by the insurance settlement, fees paid to the
insurance adjuster and other expenses.
The provision for income taxes of $70,000 in 1994 primarily represents
taxes owed by Lea Cosmetics, which was taxed as a C Corporation. During
1994, Linette Cosmetics and the Company were operated as S Corporations, and
earnings of these companies during such period were taxed for federal and
certain other income tax purposes directly to their shareholders. Upon the
consummation of the Linette Merger, the Company ceased being an S Corporation
and, accordingly, became subject to federal and state income taxes. The
provision for income taxes of $234,000 in 1995 reflects taxes owed by the
Company with respect to earnings of the Company during the period following
the termination of its status as an S Corporation.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company completed the IPO, in which it sold an
aggregate of 920,000 IPO Units, with each IPO Unit consisting of three shares
of Common Stock and three Warrants, at a price of $5.00 per IPO Unit for
gross proceeds of $4,600,000.
After deducting fees and expenses of the IPO of approximately
$1,274,000, the net proceeds of the IPO were used to repay $850,000 of loans
outstanding under the Company's then existing borrowing arrangement with a
bank and a $250,000 note (the "Bridge Note") which had been issued to a
bridge investor (the "Bridge Investor") in connection with certain bridge
financing secured by the Company. The remaining $2,226,000 was added to
working capital.
In connection with the Company's IPO, the balance of loans to the
Company by related
-21-
<PAGE>
parties, which was $769,000 at such time, was reduced by $300,000. The debt
of $300,000 was converted into conversion units (equivalent to the IPO Units)
(the "Conversion Units") at the rate of $5.00 per Conversion Unit for an
aggregate of 60,000 Conversion Units. The remaining $469,000 was scheduled
to be repaid by the Company with interest at an annual rate of 8% on January
20, 1997 out of available working capital, if available, on such terms as
were to be determined by the board of directors of the Company. On March 21,
1996, the Company repaid such remaining balance at a discount of $46,900 and
increased additional paid-in capital by a corresponding amount.
Prior to the consummation of the Linette Merger, the Company and Linette
Cosmetics were treated as S Corporations. As a result, earnings of such
companies during such period were taxed for federal and certain state income
tax purposes directly to the shareholders of the companies. On May 17, 1995,
the Company declared a distribution payable to the shareholders of such
companies prior to the Linette Merger in an amount equal to the taxes payable
on earnings of the Company during the period of its S Corporation status (the
"S Corporation Distribution"), which distribution was payable following the
consummation of the IPO after the amount thereof had been determined. In
September and October of 1995, the Company paid S Corporation Distributions
in the aggregate amount of approximately $156,250.
In May 1995, the Company borrowed, for working capital purposes and to
pay a portion of the expenses of the IPO, an aggregate of $250,000 (the
"Bridge Financing") from the Bridge Investor, an accredited investor
unaffiliated with the Company or any of its executives or directors. In
connection with the Bridge Financing, the Company issued to the Bridge
Investor (i) the Bridge Note, which bore interest at the rate of 8% per annum
and was due and payable on the earlier of the consummation of the IPO or
November 23, 1995 and (ii) 1,000,000 warrants (the "Bridge Warrants"), each
of which was exercisable until November 23, 1995 and entitled the holder
thereof to purchase three shares of Common Stock at an exercise price of
$2.00 per share. Upon the consummation of the IPO, each Bridge Warrant
automatically converted into a warrant having the same terms as the Warrants.
The Company used a portion of the proceeds of the IPO to repay the entire
principal amount of the Bridge Note, plus accrued interest thereon.
On November 6, 1995, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with United Jersey Bank (the "Lender")
pursuant to which it obtained a revolving line of credit for general working
capital purposes in an aggregate principal amount up to $2,000,000, subject
to a borrowing base limitation. The line of credit bears interest at
fluctuating rates per annum based on the "Prevailing Base Rate" (as defined
in the Loan Agreement) of the Lender. As of the date hereof, the Company has
an aggregate principal amount of $100,000 outstanding under this line of
credit. Any funds borrowed by the Company under the Loan Agreement are
secured primarily by the inventory and receivables of the Company. The Loan
Agreement terminates on May 31, 1997. Although the Company anticipates that
it will renew the Loan Agreement upon its termination, there can be no
assurance that the Loan Agreement will be renewed at such time.
At March 31, 1996, the Company had working capital of $4,184,706 and
cash and short-term investments of $72,388.
The Company anticipates that the proceeds of this offering, which will
increase the Company's available working capital and cash, together with
anticipated cash flow from the Company's operations, will be sufficient to
satisfy the Company's cash requirements for at least twelve months. In the
event the Company's plans change (due to unanticipated expenses or
difficulties or otherwise), or if the proceeds of this offering and projected
cash flow otherwise prove insufficient to fund operations, the Company could
be required to seek additional financing sooner than currently anticipated.
Except for
-22-
<PAGE>
the Loan Agreement, which expires on May 31, 1997, the Company has no
current arrangements with respect to, or sources of, additional financing.
Accordingly, there can be no assurance that additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. The Company's inability to obtain such additional financing could have
a material adverse effect on the Company's long-term liquidity and on the
proposed business expansion plans of the Company.
-23-
<PAGE>
BUSINESS
GENERAL
The Company is primarily engaged in the distribution and marketing of
consumer merchandise to retail sellers such as mass merchandisers, discount
chain stores and electronic retailers. The Company's business presently
consists of the following activities: (i) opportunistic purchasing and
secondary sourcing (I.E., distributing merchandise on a wholesale basis
outside of normal distribution channels to retail merchants) of a broad range
of name-brand and off-brand products such as health and beauty aids,
cosmetics, fragrances, kitchen items and other household items, (ii)
developing, marketing and selling the Company's own proprietary brands of
budget-line health, beauty aid and cosmetic products, which are manufactured
for the Company by contract manufacturers, (iii) representing manufacturers
and distributors as a sales agent, on a commission basis, in connection with
the sale to mass merchandise retailers of merchandise manufactured and
distributed by such third parties and (iv) developing, marketing and selling
products to be promoted by celebrity spokespersons and sold by the Company to
mass merchandise retailers, as well as products which will "tie in" to
specific television shows and be sold by the Company on television in
connection with those shows, with the intent to thereafter sell such products
to mass merchandise retailers. The Company's strategy is to capitalize on
increased consumer demand for value and convenience resulting from the
increased acceptance by consumers of mass merchandisers, electronic retailers
and other mass marketing retail outlets, as well as on the popularity of
consumer products endorsed by celebrity spokespersons.
The Company, which was incorporated under the laws of the State of New
York in September 1993, consummated the IPO in July 1995. Pursuant to the
Linette Merger, which was consummated on May 18, 1995, Linette Cosmetics, a
corporation founded in 1985 by Harold Markowitz, the Chairman of the Board of
the Company, and Jorge Lazaro, the Executive Vice President and Secretary of
the Company, was merged with and into the Company, with the Company as the
surviving corporation. Prior to the Linette Merger, all of the outstanding
capital stock of Linette Cosmetics was owned by Mr. Markowitz, Mr. Lazaro and
Paul Sharp, the President and Chief Executive Officer of the Company, who
together comprised the shareholders of the Company until the IPO. In
addition, immediately prior to the consummation of the IPO, the Company
consummated the Lea Acquisition, pursuant to which each of Messrs. Markowitz,
Sharp and Lazaro contributed to the Company his 20% equity interest in Lea
Cosmetics and the Company acquired from the remaining shareholder his 40%
equity interest in Lea Cosmetics. As a result, Lea Cosmetics became a
wholly-owned subsidiary of the Company and, on August 3, 1995, Lea Cosmetics
was merged with and into the Company, with the Company as the surviving
corporation.
OPPORTUNISTIC PURCHASING AND SECONDARY SOURCING ACTIVITIES. The Company
acts as a secondary sourcer of a broad range of name-brand and off-brand
merchandise, including health and beauty aids, cosmetics, fragrances, kitchen
items and other household products. The Company acquires its merchandise in
negotiated purchases either directly from consumer goods manufacturers or
from wholesalers, retailers, financially distressed businesses, duty-free
distributors and other secondary sources located both in the United States
and, to a limited extent, in Europe, and sells the merchandise to retail
chains and other mass merchandisers located throughout the United States and,
more recently, in Canada. During the year ended December 31, 1995, the
Company purchased merchandise from over 50 different suppliers and sold the
merchandise to over 30 different retailers, including, among others, BJ's
Wholesale Club (which accounted for approximately 26% of the Company's net
sales in 1995), Ames Department Stores (which accounted for approximately 11%
of the Company's net sales in 1995) and Bill's Dollar Stores and Hills
Department Stores (each of which accounted for between 4% and 5% of the
Company's net sales in 1995). The Company believes that its longstanding
relationships with many of its suppliers
-24-
<PAGE>
and customers are important to the secondary sourcing activities of the
Company, and that its relationship with its suppliers and customers are good.
In connection with its distribution activities, the Company has the
ability to repackage merchandise acquired by it or to provide other
value-added services at the request of a customer. For example, if the
Company were to acquire merchandise which had been packaged by the
manufacturer as a four-pack item (I.E., four items to the package), the
Company could, if requested by the customer, repackage the item as a ten-pack
item prior to delivery of the merchandise to the customer. Likewise, at a
customer's request, the Company has the ability to package several different
items together to create a gift or bonus package. The Company believes that
its ability to provide such value-added services allows it to service the
ongoing needs of its customers and to enhance its sales and customer
relations.
Because the Company focuses on the opportunistic acquisition of
merchandise (other than designer fragrances) such as purchases of closed-out,
overstocked and/or change-of-packaging brand name items, the Company is
generally able to purchase such merchandise at a discount below wholesale
cost. The Company then sells the merchandise to discount retailers and other
mass merchandisers who seek to purchase products at discount prices in order
to supplement their normal inventory purchases or for special promotions.
The merchandise is sold at prices that are above the Company's cost, although
at prices that are still generally below wholesale. Although the Company
typically purchases merchandise before it has located customers for such
merchandise, it has sold substantially all merchandise acquired by it in each
of the last three fiscal years.
The Company purchases the name-brand and off-brand merchandise which it
sells to retailers from over 50 suppliers, including consumer goods
manufacturers, wholesalers, retailers, financially distressed businesses,
duty-free distributors and other secondary sources. The Company is
continually seeking to locate new sources of merchandise. Generally, the
Company will be contacted by a manufacturer or other supplier when such
supplier has excess merchandise that is available for resale through the
secondary market; alternatively, the Company will also contact a supplier if
it becomes aware that the supplier has merchandise which it desires to sell.
Although certain suppliers may have provided a majority or all of a
particular type of product or particular category of merchandise, no supplier
accounted for more than 10% of the Company's total merchandise purchases for
the year ended December 31, 1995 other than Stealth International, which
accounted for approximately 10% of such total purchases. During the year
ended December 31, 1995, substantially all of the Company's secondary
sourcing merchandise was purchased from domestic suppliers, with the
remainder being purchased from suppliers located in Europe. The Company
believes that the loss of any one of its suppliers would not have a material
adverse effect on the Company and that alternative sources of merchandise are
readily available in all existing product categories as well as additional
product categories.
All merchandise is purchased by the Company from its suppliers through
individually placed purchase orders. The Company does not have any
contractual relationships with any of its suppliers and depends, instead, on
its ongoing relationships and prior dealings with such suppliers to obtain
merchandise at favorable prices when it becomes available to secondary
suppliers. The Company believes that such ongoing relationships with its
suppliers have resulted from its prior dealings with such suppliers, in many
cases over a period of years, and its reliability and strength as a customer.
Several of the Company's principals have been involved in the opportunistic
purchasing business for more than 20 years and have developed many on-going
contacts with suppliers.
Currently, all purchasing and pricing decisions with respect to the
Company's opportunistic purchasing activities are made by Messrs. Markowitz,
Sharp and Lazaro, who locate sources of merchandise and determine whether any
given product will be suitable for wholesale distribution to
-25-
<PAGE>
mass merchandise retailers or other customers. Generally, the Company
believes that it has the ability to sell all merchandise that is acquired by
it. The Company has credit arrangements with substantially all of its
existing suppliers, thereby allowing the Company to purchase merchandise on
account. Generally, such credit arrangements allow the Company to purchase
merchandise with payment generally due 30 days after the purchase.
The Company also acts as a wholesale distributor of prestige, designer
fragrances. Historically, manufacturers of such fragrances have sold their
products primarily to leading department stores. As a result, mass
merchandisers have traditionally only been able to obtain such items from
secondary sources such as the Company. Typically, the Company purchases
these fragrances from other secondary sources such as export and import
companies, duty-free distributors and department stores which are liquidating
their excess inventory. Unlike other merchandise which is acquired by the
Company at prices that are significantly below wholesale, the Company
purchases the prestige fragrances at above-wholesale prices (although still
well below their normal retail price). The Company, in turn, sells such
items to mass merchandisers. The Company believes that sales of such
fragrances will continue to constitute a portion of its sales, although there
can be no assurance of such.
The Company believes that a portion of the prestige fragrances purchased
by it may include trademarked products manufactured in foreign countries and
trademarked products manufactured in the United States that may have been
sold to foreign distributors. From time to time, United States trademark
owners and their licensees and trade associations have initiated litigation
or administrative agency proceedings seeking to halt the importation into the
United States of such foreign manufactured or previously exported trademarked
products. Although the Company is not currently the subject of any such
legal or administrative actions, and is not aware of any such threatened
legal or administrative actions, there can be no assurance that the Company's
business activities will not become the subject of such actions in the
future, or that future judicial, legislative or administrative agency action
will not limit or eliminate some or all of the secondary sources of supply of
prestige fragrances used by the Company. However, the Company believes that
any future limitation on or elimination of its sources of supply for prestige
fragrances for sale to its customers would not have a material adverse effect
on the Company, although there can be no assurance of such.
SALE OF PROPRIETARY BRAND NAME PRODUCTS. The Company is also currently
engaged in the development, marketing and sale of its own proprietary brand
name budget-line health, beauty aid and cosmetic products. Prior to the Lea
Acquisition, many of such products were developed and sold by Lea Cosmetics
and purchased by the Company, who in turn sold such products to many of the
mass merchandisers included in its customer base. The Company's beauty aid
and cosmetic products include budget-line lipsticks, lip pencils, nail
polishes and eye pencils, which are manufactured in a variety of colors and
are sold under the Linette-Registered Trademark-, Vea-Registered Trademark-
and Zia-Registered Trademark- brand names (and, in the past, under the "Lea"
brand name) to retail chains and other mass merchandisers located throughout
the United States. All of the Company's proprietary beauty aid and cosmetic
products and all packaging therefor are manufactured and supplied by third
parties in accordance with the Company's specifications. The Company
purchases all materials for these products (including raw materials and
packaging) through individually placed purchase orders to various suppliers.
The Company has credit arrangements with such suppliers that allow it to
purchase merchandise on credit with payment generally due 30 days after
purchase. To date, the Company has not experienced any shortages of or
difficulties in obtaining the raw materials used in its products or the
materials used for the packaging of its products. Furthermore, the Company
believes that alternate sources of supply for such materials are readily
available and that the loss of any one of its suppliers would not have a
material adverse effect. The Company believes that it has good relationships
with the suppliers of raw materials and packaging for its proprietary
products.
-26-
<PAGE>
Typically, all materials purchased by the Company for its proprietary
beauty aid and cosmetic products are delivered directly by the suppliers to
the Company's contract manufacturer, which is presently LPD Packaging, Inc.,
a manufacturer engaged by the Company to provide filling and packaging
services, perform quality control, distribute the finished products and, if
necessary, warehouse the products. All products are manufactured pursuant to
the Company's specifications on a purchase order basis. Although the Company
believes that its contract manufacturer has the capacity to produce volumes
of the Company's products sufficient to meet the Company's foreseeable
needs,there can be no assurance of such. Furthermore, although the Company
believes that it has a good relationship with this manufacturer and that the
Company will continue to obtain its finished beauty aid and cosmetic products
from such manufacturer in the foreseeable future, the Company does not have a
written contract with this manufacturer and there can therefore be no
assurance of such. In the event the Company were to experience difficulties
with or the loss of services of its present manufacturer, the Company
believes that it would be able to retain the services of other manufacturers;
however, there can be no assurance that such services could be retained on a
timely basis or on terms as favorable as those with its present manufacturer.
As part of the Company's strategy of taking advantage of the growth in
mass merchandising and value retailing, the Company will seek to continue
introducing its own brand name products, thereby providing the Company with a
supply of products and making the Company less reliant on third party and/or
opportunistic sources of merchandise. The Company may also seek to acquire
rights to additional proprietary product lines through licensing or other
arrangements, although there can be no assurance of such.
COMMISSION SALES. In addition to establishing its own sources of
merchandise, the Company also acts as a sales agent for other manufacturers
and distributors of merchandise which is sold in the mass merchandise market.
In September 1994, the Company entered into a five-year agreement with Clyde
Duneier, Inc. ("Duneier"), a manufacturer and distributor of fine jewelry,
pursuant to which the Company acts as the exclusive sales agent for Duneier
for its Ames Department Store account, in consideration for which the Company
is paid a fixed annual fee and royalty payments on net sales over certain
specified amounts. The Company currently anticipates that, in light of its
present plans to develop and sell more of its proprietary brand name
products, the Company may not enter into any additional arrangements pursuant
to which it would sell, on a commission basis, products that are manufactured
and distributed by third parties. In addition, there can be no guaranty that
the Company's agreement with Duneier will be renewed upon the expiration of
such agreement in September 1999.
DEVELOPMENT OF "CELEBRITY" PRODUCTS. The Company believes that the
increasing popularity of consumer products endorsed by celebrities may
provide significant future opportunities for the Company. Accordingly, the
Company is seeking to develop products for promotion by celebrity
spokespersons, which products will be sold by the Company to mass
merchandising and electronic retailers. In this connection, the Company will
seek to enter into agreements with celebrities for whom it believes it will
be able to successfully develop products which will have consumer appeal.
In November 1993, the Company entered into an agreement with Jackie
Collins, the best-selling author of such novels as HOLLYWOOD WIVES, ROCK
STAR, SINNERS and LADY BOSS. Pursuant to this agreement, the Company
developed a line of "Jackie Collins" products (including fragrances, costume
jewelry, accessories, sunglasses and belts) which were sold to Home Shopping
Network and promoted by Ms. Collins on Home Shopping Network in four
appearances in 1994 and one appearance in 1995. The Company believes that,
based on its success in developing products for Ms. Collins in connection
with such appearances and the strength of her appeal to consumers, there is
significant opportunity for the Company to develop products to be promoted by
Ms. Collins and sold in the traditional retail market.
-27-
<PAGE>
Accordingly, the Company has developed a line of "Jackie Collins Wild"
fragrances, which were launched by the Company into the retail market in
October 1995. The Company is also currently in the process of developing a
line of bath products and jewelry for Ms. Collins for sale by the Company to
mass market merchandisers. However, there can be no assurance that the
Company will be able to sell any additional amounts of such fragrances, that
it will be able to successfully develop and/or promote any other products for
Ms. Collins or that any of the products so developed will meet with consumer
acceptance or generate any significant revenues.
In November 1995, the Company entered into an agreement with Direct
Access Group/Television Production Partners ("Direct Access") pursuant to
which Direct Access has granted the Company the exclusive right to develop
and sell cosmetics, fragrances and spa items in connection with "tie-in"
product programs developed by Direct Access for television networks and
producers. Such product programs involve the development of products which
"tie in" to characters, activities and/or themes of a specific television
show. Pursuant to its agreement with Direct Access, the Company has been
authorized to develop and act as the exclusive manufacturer and distributor
of a cosmetic, fragrance and skin care line to be known as "Jabot for the
Young and Restless Generation," which was inspired by and will be sold in
connection with, the CBS daytime drama THE YOUNG AND THE RESTLESS. It is
anticipated that such products, as well as any other products developed by
the Company pursuant to the agreement, will be sold on a telemarketing basis
during the airing of the "tie-in" show. The Agreement also provides that the
Company will also be entitled to sell any merchandise developed by it for any
of such television shows through other retail distribution channels, provided
that the Company pays a royalty in connection therewith at a negotiated
amount either to Direct Access or to the television producer or network for
which such merchandise has been developed. The exclusive right granted to
the Company to develop products for Direct Access will be for a term of 24
months, commencing upon the airing of the first television show on which
merchandise is offered for sale. The Company has advanced $50,000 to Direct
Access in order to secure the grant of its exclusive right. As of the date
hereof, Direct Access has not secured air time for the promotion and sale of
the "Jabot" products, and there can be no assurance of such. In addition,
there can be no assurance that Direct Access will be able to successfully
negotiate with any television networks or producers for the development of
other program product "tie-ins" or that Direct Access will be able to secure
air time during which any such products can be marketed and sold.
The Company has also entered into agreements with other celebrities (or
with entities with which such celebrities are affiliated or personal service
corporations representing such celebrities), including actress Barbara Eden,
fashion designer Albert Nipon and Best Buddies, a charitable organization
founded by Anthony Kennedy Shriver. To date, the Company has not developed
any products for any of such celebrities, and there can be no assurance that
the Company will develop any such products in the future.
Although the Company is seeking to develop the "celebrity" product area
of its business, including by marketing and distributing in the traditional
retail market merchandise which is originally offered for sale on television
or by developing products to be promoted by celebrities and sold directly in
such traditional markets, there can be no assurance that the Company will be
successful in its endeavors. To date, the Company has not generated a
significant amount of revenues from such celebrity products, and there can be
no assurance that it will be able to successfully develop any such products
or that any such products developed by the Company will meet with consumer
acceptance. In addition, except as described above, as of the date hereof the
Company has no agreements, understandings or commitments related to such plan
of development.
-28-
<PAGE>
COMPETITION
The areas of business in which the Company engages are highly
competitive businesses. The secondary sourcing business is characterized by
intense competition, both in the products sold and in the retaining of
relationships with suppliers and customers. With respect to its ability to
obtain merchandise, the Company competes with other secondary sources, as
well as with wholesale distributors and retailers. The Company believes that
its ability to purchase a broad array of merchandise at competitive prices is
critical to its success. With respect to sales to its customers, the Company
competes with other secondary suppliers of merchandise, as well as with
manufacturers who sell directly to retail merchandisers. In addition, with
respect to products sold under the Company's Linette-Registered Trademark-,
Vea-Registered Trademark- and Zia-Registered Trademark- brand names, as well
as the Company's other brand names, the Company competes with other
manufacturers at the retail store level for shelf space and promotional
space. Many of the Company's existing or potential competitors are well
established companies and have or will have substantially greater financial,
marketing and other resources than the Company. The Company believes that it
competes on the basis of value, product assortment and availability, service
to customers and reputation, as well as on the basis of its long-standing and
well-established relationships with both its suppliers and customers.
Although the Company believes that it will be able to compete effectively on
the basis of such factors, there can be no assurance of such.
In connection with its "celebrity" products business, the Company
competes or will compete with manufacturers and marketing organizations that
seek out celebrities to endorse products and assist in marketing programs for
their merchandise. In addition, the Company believes that virtually all
celebrities have agents who can negotiate directly with retailers in order to
secure marketing contracts on their behalf. The Company believes that it
competes on the basis of its ability to design products which are consistent
with the celebrities' respective preferences and characters and to provide
such products to retailers at competitive prices. Furthermore, although the
Company is not aware of any other entities which currently manufacture,
market or develop television "tie-in" products to be sold on television in
connection with the related program, the Company believes that any such
products developed by the Company will compete with other products sold in
the electronic retailing market (including through television infomercials
and interactive television shopping networks), as well as other products sold
in the traditional retail market which relate to characters or themes of
television shows or movies. The Company believes that it will compete on the
basis of the unique nature of such television "tie-in" products, as well as
on its ability to provide such products at competitive prices.
TRADEMARK AND SERVICEMARK PROTECTION
To date, products developed by the Company (and by Linette Cosmetics
prior to the Linette Merger and Lea Cosmetics prior to the Lea Acquisition)
have been sold under the Linette-Registered Trademark-, Vea-Registered
Trademark- and Zia-Registered Trademark- trademarks and the "Lea" mark. The
Company has registered the Linette-Registered Trademark-, Vea-Registered
Trademark- and Zia-Registered Trademark- trademarks with the United States
Patent and Trademark Office (the "Trademark Office"). However, there can be
no assurance that these marks do not or will not violate the proprietary
rights of others, that such marks would be upheld if challenged or that the
Company would not be prevented from using its trademarks. The Company has not
applied for a trademark registration of the "Lea" mark and has been advised
that a trademark application for the "Lea" mark was filed with the Trademark
Office by an unrelated entity for use in connection with the sale of skin
care and other cosmetic products. The Company has ceased using such mark and
does not intend to market its products using such mark in the future. The
Company believes that, because the proprietary brand-name products sold by
the Company are "budget" items whose appeal to consumers is based primarily
on price, packaging and color assortment rather than on the product's name,
the Company's inability to use any given mark should not have a material
adverse effect on the Company. Although no claims have been made to date
against the
-29-
<PAGE>
Company alleging that the use of the "Lea" mark violates the rights of any
other party, there can be no assurance that such mark does not violate the
proprietary rights of any other party.
The Company has also applied to the Trademark Office for the
registration of the trademark "Jackie Collins Wild," the trademark under
which the Company sells a fragrance developed for Ms. Collins. In addition,
the Company has also applied to the Trademark Office to register certain
other trademarks which it intends to use in the future in connection with its
own proprietary brand name products, and intends to register other brand
names chosen by the Company for its own line of products. However, there can
be no assurance that the Company will be able to register any such marks.
The owner of the Jabot-Registered Trademark- trademark has granted to
Direct Access a license to use such trademark in connection with the "Jabot"
line of products to be developed and sold in connection with the CBS daytime
drama THE YOUNG AND THE RESTLESS. Pursuant to such license, Direct Access
has the right to grant to the Company, and accordingly has granted to the
Company, a license to use such trademark in connection with the "Jabot for
the Young and Restless" line of products to be developed and sold by the
Company pursuant to its arrangement with Direct Access.
PERSONNEL
The Company currently employs 14 full-time employees and approximately
25 part-time employees (the exact number of which fluctuates from time to
time based on the Company's needs), who are hired by the Company primarily to
repackage products and perform other similar services. All of the Company's
full-time employees are paid on a salaried basis. None of the Company's
employees are covered by any collective bargaining agreements. Management
believes that its employee relations are good.
INSURANCE
To date, no material product liability claims have been made against the
Company; however, as a distributor of merchandise, including health and
beauty aids, cosmetics, fragrances and household items, the Company could be
exposed to possible liability claims from others for personal injury or
property damage due to design or manufacturing defects or otherwise. The
Company maintains a product liability insurance policy that has a $1,000,000
per occurrence limit and a $2,000,000 aggregate limit, and a $3,000,000
umbrella liability insurance policy to cover claims in excess of the limits
of its product liability insurance. In addition, the Company believes that
the suppliers from whom it purchases such merchandise, including the
manufacturers thereof, maintain adequate levels of product liability
insurance. The Company also maintains other insurance, including insurance
relating to property and personal injury, which the Company believes is
similar to that maintained by comparable businesses and in amounts which the
Company currently considers adequate. The Company believes that its
insurance coverage, including without limitation its product liability
coverage, is adequate in light of prior experience and future expectations.
Nevertheless, a partially or completely uninsured claim against the Company,
if successful and of sufficient magnitude, could have a material adverse
effect on the Company.
LEGAL PROCEEDINGS
The Company, Mr. Markowitz and Mr. Mirsky (collectively, the "Sel-Leb
Defendants") have been named as defendants-in-counterclaim in an action pending
in the Supreme Court of the State of New York, County of New York, entitled
GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP V. PETER Z.
-30-
<PAGE>
ROSNER AND HINDALENE ROSNER (95/126559). The original action brought by
Gersten, Savage, Kaplowitz & Curtin, LLP ("Plaintiff") alleges nonpayment by
the defendants ("Defendants") of certain fees owed to Plaintiff for legal
work performed by it for Defendants in connection with a civil litigation
matter and bankruptcy proceeding involving Defendants. Defendants have
asserted several counterclaims against Plaintiff, the Sel-Leb Defendants and
the Underwriter (collectively, the "Counterclaim Defendants"). The
counterclaims allege, among other things, that Mr. Rosner had acted as a
"finder" in connection with Company's IPO and that he had entered into an
oral agreement with the Company and the Underwriter, which was represented by
Plaintiff in the IPO, pursuant to which he would be compensated for his
services out of the proceeds of the IPO and would receive warrants to
purchase Common Stock. Defendants seek damages in excess of $1.5 million
against the Counterclaim Defendants based on such counterclaims. Discovery
is currently pending in connection with this litigation. The counterclaims
brought by the Defendants have been reviewed by counsel and, based on such
review, management of the Company believes that the counterclaims are without
merit. The Sel-Leb Defendants have filed answers denying the allegations set
forth in the counterclaims brought against them, and such counterclaims will
continue to be vigorously defended by the Sel-Leb Defendants. In addition,
counsel for the Sel-Leb Defendants has been advised by counsel for the other
Counterclaim Defendants that such counsel believes that the counterclaims
brought against the other Counterclaim Defendants are without merit and that
such other Counterclaim Defendants have filed answers denying the allegations
set forth therein.
The Company is not a party or subject to any other legal proceedings,
other than claims and lawsuits arising in the ordinary course of business.
The Company does not believe that any such claims or lawsuits will have a
material adverse effect on its financial condition or results of operations.
PROPERTIES
The Company's principal executive offices are located at 1435 51 Street,
North Bergen, New Jersey, 07047. Such premises include approximately 18,000
square feet of office and warehouse space, and are leased on a month-to-month
basis at a monthly rent of $5,833. The Company also leases approximately
10,000 square feet of storage space in Middletown, New York from the contract
manufacturer of certain of the Company's beauty aid and cosmetic products,
which space the Company uses to warehouse materials and finished products.
Pursuant to the Company's written agreement with such lessor, the Company
leased such space during the period from October 1995 to December 1995 at an
annual rate of $30,000 and will continue to lease the space during the
three-year period commencing January 1, 1996 at an annual rent of $35,000.
In addition, the Company leases approximately 500 square feet of office space
located in Milford, Massachusetts on a month-to-month basis at a monthly rent
of $700. The Company also leases public warehouse space from time to time on
an as-needed basis for the storage of inventory.
The Company believes that the space afforded by such properties is
adequate for the current needs of its business.
-31-
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as
follows:
NAME AGE POSITION
---- --- --------
Harold Markowitz 55 Chairman of the Board and Director
Paul Sharp 46 President, Chief Executive Officer and
Director
Jan Mirsky 55 Executive Vice President-Finance, Chief
Operating Officer and Director
Jorge Lazaro 48 Executive Vice President, Secretary and
Director
Jack Koegel 44 Vice Chairman of the Board
Stanley R. Goodman 66 Assistant Secretary and Director
Edward C. Ross 52 Director
L. Douglas Bailey 54 Director
HAROLD MARKOWITZ, a co-founder of the Company, has been Chairman of the
Board of the Company since December 1994. Prior to such time, he served as
President and a director of the Company from its inception in September 1993
to December 1994. Mr. Markowitz was also a co-founder of Linette Cosmetics
and served as a director of Linette Cosmetics from its inception in 1985
until the Linette Merger. In 1986, Mr. Markowitz co-founded Beauty Labs, Inc.
("Beauty Labs"), a publicly-held company which marketed cosmetics and other
accessories to mass merchandisers, and served as the Chairman of the Board
and a director of Beauty Labs from 1987 to 1991. Since 1979, Mr. Markowitz
has served as a director and President and, together with his wife, as sole
shareholders, of Sela Sales Ltd., a trading company founded by Mr. Markowitz
which engaged in secondary sourcing of merchandise for distribution into
major retail outlets until it ceased conducting such operations in November
1988.
PAUL SHARP has served as Chief Executive Officer of the Company since
May 1995 and as President and a director of the Company since December 1994.
Mr. Sharp also served as Secretary and Treasurer and a director of Linette
Cosmetics from 1990 to December 1994. From 1987 to 1989, Mr. Sharp served as
Corporate Vice President of Zayre Corporation, a mass merchandising retailer,
where he was responsible for the fragrance, cosmetic and health and beauty
product lines. Prior to 1987, Mr. Sharp served in various other capacities at
Zayre Corporation and on the Retail Advisory Board of The Gillette Company, a
manufacturer of personal care products, and was engaged as a retail marketing
consultant for Smith-Kline Beecham Company, a manufacturer of health and
beauty aids and pharmaceuticals.
JAN MIRSKY has served as the Chief Operating Officer and Executive Vice
President-Finance of the Company since January 1995 and as a director of the
Company since December 1994. In addition, he acted as a marketing consultant
to the Company from January 1994 to January 1995, at which time he became an
employee of the Company. From 1991 to January 1995, Mr. Mirsky was engaged as
an independent management, marketing and financial consultant. Mr. Mirsky
also served as a director of Builders Transport, Inc., a publicly-held
trucking company, from 1992 to 1995, and from 1984 to 1991 served as the
Chief Financial Officer and a director of Angio-Medical Corporation, a
publicly-held bio-pharmaceutical company co-founded by him which ceased
conducting business in 1991.
-32-
<PAGE>
JORGE LAZARO, a co-founder of the Company, has been Executive Vice
President of the Company since May 1995 and the Secretary and a director of
the Company since its inception in September 1993. Mr. Lazaro also served as
the President of the Company from December 1994 to May 1995 and as Treasurer
of the Company from its inception to December 1994. Mr. Lazaro was also a
co-founder of Linette Cosmetics and served as President and a director of
Linette Cosmetics from its inception in 1985 until the Linette Merger, and
has served as the Secretary and Treasurer and as a director of Lea Cosmetics
from its inception in October 1992 until the merger of Lea Cosmetics with and
into the Company in August 1995. Mr. Lazaro has also served, since 1989, as a
director and President of H. Howlin International Inc., a trading company
founded by Mr. Lazaro and of which he is the sole shareholder which, until it
ceased conducting operations in March 1993, imported and marketed health and
beauty aids to the United States market. In addition, since 1991 Mr. Lazaro
has served as a director and the Secretary and Treasurer of Lazmar Inc., a
company co-founded by him which, until it ceased conducting its day-to-day
business operations in July 1993, acted as a distributor of health and beauty
aids and fragrances.
JACK KOEGEL has served as the Vice Chairman of the Company since
September 1995 and as a director of the Company since December 1994. From
1993 until September 1993, Mr. Koegel served as President of Retail Concepts
2000, Inc., a retail consulting company founded by him. Mr. Koegel served as
President of Twin Valu Stores (a division of Super Valu Inc.) from 1991 to
1993 and as Executive Vice President of ShopKo Stores/Twin Valu Stores (a
division of Super Valu Inc.) from 1989 to 1991.
STANLEY R. GOODMAN has served as Assistant Secretary of the Company
since May 1995 and as a director of the Company since December 1994. Since
February 1994, Mr. Goodman has been a partner at Goodman Saperstein & Cuneo,
a law firm specializing in statutory and regulatory issues concerning
pharmaceuticals, cosmetics and related consumer products, and from 1989 to
February 1994 was a partner of Goodman & Saperstein, a predecessor to his
current firm. He also served as a director and General Counsel of Beauty Labs
from 1987 until the time of its merger with Robern Industries, Inc. in 1992.
EDWARD C. ROSS has served as a director of the Company since December
1994. Mr. Ross has been a partner in the accounting firm of Finkle, Ross &
Rost since 1975. He has also been involved as a principal in various start-up
companies as well as established operating businesses, ranging in type from
manufacturing to real estate to financial consulting. Mr. Ross is a Certified
Public Accountant in New York and New Jersey, and is a member of the American
Institute of Certified Public Accountants.
L. DOUGLAS BAILEY was appointed as a director of the Company in March
1996. Beginning in 1996, Mr. Bailey became the President and Chief Executive
Officer of Precision Fixtures and Graphics, a manufacturer of store fixtures,
and since 1995 he has served as President of Bailey & Associates, Inc., a
consulting firm for the retail industry. From 1993 to 1995, Mr. Bailey
served as President of Home Shopping Club, Inc., a subsidiary of Home
Shopping Network, Inc. and the operator of Home Shopping Network, a live,
customer-interactive retail sales television network, and from 1970 to 1992
served as the Senior Vice President of Eckerd Drug Company, a retail drug
store chain.
Officers are appointed by the Board of Directors and serve at the
discretion of the Board. All directors hold office for a term of one year
until the next annual meeting of shareholders and the election and
qualification of their successors. Each director who is not an employee of
the Company is paid $500 for each meeting of the Board of Directors attended
by such director. The Company also reimburses each such director for all
reasonable expenses incurred by him in attending meetings. In addition,
non-employee directors of the Company are eligible to participate in the
Company's 1995 Nonemployee
-33-
<PAGE>
Directors' Stock Option Plan (the "Nonemployee Directors' Plan"), pursuant to
which each non-employee director is automatically granted (i) upon becoming a
director of the Company, an option to purchase 5,000 shares of Common Stock
and (ii) each year, on the day of the Company's annual meeting of
shareholders, an option to purchase 5,000 shares of Common Stock. On the
effective date of the IPO, the Company granted to each of Messrs. Goodman,
Koegel and Ross, pursuant to the Nonemployee Directors' Plan, an option to
purchase 15,000 shares of Common Stock at an exercise price of $1.67 per
share. At the time of such grant, Mr. Koegel was not an officer of the
Company. Upon becoming a director of the Company in March 1996, Mr. Bailey
was granted, pursuant to the Nonemployee Directors' Plan, an option to
purchase 5,000 shares of Common Stock at an exercise price of $6.50 per
share. In connection with the Company's 1996 annual meeting, each of Messrs.
Goodman, Ross and Bailey were granted, pursuant to the Nonemployee Directors'
Plan, an option to purchase 5,000 shares of Common Stock at an exercise price
of $6.875 per share.
The Company has agreed, for a period of three years from the date of
this Prospectus, to nominate and use its best efforts to elect a designee of
the Underwriter as a director of the Company, or, at the Underwriter's
option, as a non-voting advisor to the Company's Board of Directors. The
Company's officers, directors and shareholders have agreed to vote their
shares of Common Stock in favor of such designee. The Underwriter has not yet
exercised its right to designate such a person.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation in each of the last three fiscal years of the person who served
as the Company's Chief Executive Officer during the fiscal year ended
December 31, 1995, and the Company's four most highly compensated officers
(other than the Chief Executive Officer) who were serving as officers at
December 31, 1995 (collectively, the "Named Officers").
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation (2) Awards Payouts
------------------------------------- ------------------------- -------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Fiscal Bonus Compensation Award(s) Options/ Payouts Compensation
Position(1) Year Salary ($) ($) ($) ($) SARs(#)(3) ($) ($)
- -------------------- ------ ---------- ----- ------------ ----------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul Sharp 1995 125,000 -0- 9,427(4) -0- -0-(5) -0- -0-
President and 1994 -0- -0- 135,333(6)(7) -0- -0- -0- -0-
Chief Executive 1993 -0- -0- 148,272(8)(9) -0- -0- -0- -0-
Officer
Harold Markowitz 1995 125,000 -0- 13,889(10) -0- -0-(5) -0- -0-
Chairman of the 1994 31,250 -0- 100,126(7)(11) -0- -0- -0- -0-
Board 1993 -0- -0- 122,118(9)(12) -0- -0- -0- -0-
Jan S. Mirsky 1995 108,365 -0- 1,388(13) -0- 477,000(14) -0- -0-
Executive Vice 1994 -0- -0- -0- -0- -0- -0- -0-
President - Finance 1993 -0- -0- -0- -0- -0- -0- -0-
and Chief
Operating Officer
Jorge Lazaro 1995 125,000 -0- 9,600(15) -0- -0-(5) -0- -0-
Executive Vice 1994 125,000 -0- 3,333(7) -0- -0- -0- -0-
President and 1993 125,000 -0- 4,329(9) -0- -0- -0- -0-
Secretary
-34-
<PAGE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation (2) Awards Payouts
------------------------------------- ------------------------- -------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Fiscal Bonus Compensation Award(s) Options/ Payouts Compensation
Position(1) Year Salary ($) ($) ($) ($) SARs(#)(3) ($) ($)
- -------------------- ------ ---------- ----- ------------ ----------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Koegel 1995 25,000(18) -0- 28,600(17) -0- 390,000(18) -0- -0-
Vice Chairman of 1994 -0- -0- -0- -0- -0- -0- -0-
the Board 1993 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- --------------
(1) Mr. Mirsky was appointed Executive Vice President - Finance and Chief
Operating Officer of the Company in January 1995 and did not serve as
an officer or employee of the Company in 1994 or 1993. Mr. Koegel was
appointed Vice Chairman of the Board in September 1995, and did not
serve as an officer or employee of the Company in 1995 prior thereto
or in 1994 or 1993.
(2) Annual compensation figures for Messrs. Sharp, Markowitz and Lazaro
include compensation paid to such individuals by the Company and
Linette Cosmetics for the period in 1995 prior to the Linette Merger
and for the years 1994 and 1993.
(3) All share numbers have been adjusted to give effect to the Share
Distribution.
(4) Represents amounts paid by the Company with respect to an automobile
for use by Mr. Sharp in connection with his services to the Company.
(5) In July 1995, the Company granted to each of Messrs. Sharp, Markowitz
and Lazaro, pursuant to the Stock Option Plan, options to purchase an
aggregate of 67,500 shares of Common Stock. In September 1995, each
such individual agreed to the cancellation of such options by the
Company.
(6) Includes $125,000 of sales commissions paid by the Company to Mr.
Sharp and $7,000 for rent related to office use.
(7) Includes $3,333 paid by the Company in 1994 for directors' fees.
(8) Includes $135,543 of sales commissions paid by the Company to Mr.
Sharp and $8,400 for rent related to office use.
(9) Includes $4,329 paid by the Company in 1993 for directors' fees.
(10) Includes (i) $10,068 paid by the Company with respect to an automobile
for use by Mr. Markowitz in connection with his services to the
Company and (ii) $3,821 for certain membership fees paid by the
Company on behalf of Mr. Markowitz.
(11) Includes $96,793 of consulting fees paid by Linette Cosmetics to Sela
Sales Ltd., a company founded by Mr. Markowitz and of which he and his
wife are the sole shareholders.
(12) Includes $117,789 of consulting fees paid by Linette Cosmetics to Sela
Sales Ltd.
(13) Represents amounts paid by the Company with respect to an automobile
for use by Mr. Mirsky in connection with his services to the Company.
(14) Includes 477,000 shares underlying options granted to Mr. Mirsky by
the Company in July 1995 pursuant to the Stock Option Plan. In
September 1995, Mr. Mirsky agreed to the cancellation of
-35-
<PAGE>
additional options to purchase 63,000 additional shares of Common
Stock granted to him in July 1995 under the Stock Option Plan.
(15) Represents amounts paid by the Company with respect to an automobile
for use by Mr. Lazaro in connection with his services to the Company.
(16) Represents salary paid to Mr. Koegel pursuant to his employment
agreement for the period from October 1, 1995 to December 31, 1995
following his appointment as Vice Chairman of the Company.
(17) Includes (i) $25,000 paid by the Company for the construction of an
office for Mr. Koegel in St. Paul, Minnesota, (ii) $1,200 paid by the
Company to Mr. Koegel with respect to medical insurance purchased
directly by him and (iii) $2,400 paid by the Company with respect to
an automobile for use by Mr. Koegel in connection with his services to
the Company.
(18) Includes (i) 15,000 shares underlying an option granted to Mr. Koegel
by the Company in July 1995, prior to his becoming Vice Chairman of
the Company, pursuant to the Nonemployee Directors' Plan and (ii)
375,000 shares underlying an option granted to Mr. Koegel by the
Company in September 1995 pursuant to the Stock Option Plan.
OPTION/SAR GRANTS DURING FISCAL 1995
The following table provides information related to options granted to
the Named Executive Officers during fiscal 1995. No stock appreciation rights
were issued by the Company during fiscal 1995.
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES
OPTIONS/SARS IN FISCAL EXERCISE OR BASE EXPIRATION
NAME GRANTED(#)(1) YEAR(2) PRICE ($/SH)(3) DATE
---- ------------- ------------ ---------------- ----------
Paul Sharp -0-(4) - - -
Harold Markowitz -0-(4) - - -
Jan S. Mirsky 477,000(5) 45.2% $1.67 7/12/05
Jorge Lazaro -0-(4) - - -
Jack Koegel 375,000(6) 35.6% $2.75 9/27/05
- --------------
(1) All share numbers have been adjusted to give effect to the Share
Distribution.
(2) For purposes of calculating the Percentage of Total Options/SARs
Granted to Employees in Fiscal Year, the number of options granted to
employees in fiscal year 1995 does not include the options granted to
Messrs. Sharp, Markowitz, Mirsky and Lazaro in July 1995 which were
subsequently cancelled in September 1995. See footnotes (4) and (5)
below.
(3) All exercise prices have been adjusted to give effect to the Share
Distribution.
-36-
<PAGE>
(4) In July 1995, the Company granted to each of Messrs. Sharp, Markowitz
and Lazaro, pursuant to the Company's Stock Option Plan, options to
purchase an aggregate of 67,500 shares of Common Stock. In September
1995, each such individual agreed to the cancellation of such options
by the Company.
(5) Does not include 63,000 shares underlying options granted to Mr.
Mirsky by the Company in July 1995 pursuant to the Stock Option Plan,
which options were cancelled in September 1995.
(6) Does not include 15,000 shares underlying options granted to Mr.
Koegel by the Company in July 1995 pursuant to the Nonemployee
Directors' Plan and prior to Mr. Koegel's becoming an officer of the
Company.
AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 1995 AND YEAR END OPTION/SAR
VALUES
The following table provides information related to options
exercised by the Named Executive Officers during fiscal 1995 and the number
and value of options and stock appreciation rights held at fiscal year end
which are currently exercisable. No options or stock appreciation rights
were exercised during fiscal 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT FY-END(1) AT FY-END($)(2)
ACQUIRED ON VALUE ------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul Sharp - - - - - -
Harold Markowitz - - - - - -
Jan S. Mirsky -0- -0- 119,250 357,750 422,145 1,266,435
Jorge Lazaro - - - - - -
Jack Koegel -0- -0- 93,750(3) 281,250 230,625 691,875
</TABLE>
- --------------
(1) All share numbers have been adjusted to give effect to the Share
Distribution.
(2) The values of Unexercised In-the-Money Options/SARs represents the
aggregate amount of the excess of $5.21, the closing sales price
for a share of Common Stock (as adjusted to give effect to the
Share Distribution) on December 29, 1995, over the relevant
exercise price of all "in-the-money" options.
(3) Does not include 15,000 shares underlying options granted to Mr.
Koegel by the Company in July 1995 pursuant to the Nonemployee
Directors' Plan and prior to Mr. Koegel's becoming an officer of
the Company.
1995 STOCK OPTION PLAN
In order to attract, retain and motivate employees (including
officers), directors, consultants and other persons who perform substantial
services for or on behalf of the Company, the Company adopted the Stock
Option Plan, pursuant to which stock options covering an aggregate of
1,350,000 shares of the Company's Common Stock may be granted to such
persons. Under the Stock
-37-
<PAGE>
Option Plan, "incentive stock options" ("Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), may be granted to employees (including officers), and non-incentive
stock options ("Non-incentive Options") may be granted to any such employee
and to other persons (including directors) who perform substantial services
for or on behalf of the Company. Incentive Options and Non-incentive Options
are collectively referred to herein as "Options."
The Stock Option Plan is administered by the Stock Option Committee
(the "Committee"), which is vested with complete authority to administer and
interpret the Stock Option Plan, to determine the terms upon which Options
may be granted, to prescribe, amend and rescind such interpretations and
determinations and to grant Options. The Committee will have the power to
terminate the Stock Option Plan or amend the Stock Option Plan from time to
time in such respects as it deems advisable, except that no termination or
amendment shall materially adversely affect any outstanding Option without
the consent of the grantee, and the approval of the Company's shareholders
will be required in respect of any amendment which would (i) change the total
number of shares subject to the Stock Option Plan or (ii) change the
designation or class of employees or other persons eligible to receive
Incentive Options or Non-incentive Options.
The price at which shares covered by an Option may be purchased
pursuant thereto shall be no less than the par value of such shares and no
less than the fair market value of such shares on the date of grant (the
"Fair Market Value"). The Fair Market Value is generally equal to the last
sale price quoted for shares of Common Stock on the Nasdaq SmallCap Market on
the date of grant. The purchase price of shares issuable upon exercise of an
Option may be paid in cash or by delivery of shares with a value equal to the
exercise price of the Option. The Company may also loan the purchase price to
the optionee, or guarantee third-party loans to the optionee, on terms and
conditions acceptable to the Board of Directors. The number of shares covered
by an Option is subject to adjustment for stock splits, mergers,
consolidations, combinations of shares, reorganizations and
recapitalizations. Options are generally non-transferable except by will or
by the laws of descent and distribution, and in the case of employees, with
certain exceptions, may be exercised only so long as the optionee continues
to be employed by the Company. If the employee dies or becomes disabled, the
right to exercise the Option, to the extent then vested, continues for
specified periods. Non-incentive Options may be exercised within a period not
exceeding 10 years from the date of grant. The terms of Incentive Options are
subject to additional restrictions provided by the Stock Option Plan.
As of June 12, 1996, Options to acquire an aggregate of 1,024,500
shares of Common Stock at exercise prices ranging from $1.67 per share to
$2.75 per share have been granted under the Stock Option Plan to officers and
key employees of the Company, including Options to purchase 477,000 shares of
Common Stock at an exercise price of $1.67 per share granted to Mr. Mirsky in
July 1995 and Options to purchase 375,000 shares of Common Stock at an
exercise price of $2.75 per share granted to Mr. Koegel in September 1995.
All of the Options currently outstanding under the Stock Option Plan vest
over a three-year period, with 25% of such Options being exercisable
immediately upon grant and an additional 25% of such Options becoming
exercisable in each subsequent anniversary of the date of grant.
-38-
<PAGE>
DESCRIPTION OF EMPLOYMENT AGREEMENTS, SEVERANCE
ARRANGEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS WITH MESSRS. MARKOWITZ, SHARP AND LAZARO. On
June 30, 1995, the Company entered into identical employment agreements with
each of Messrs. Markowitz, Sharp and Lazaro. Pursuant to such agreements,
Messrs. Markowitz, Sharp and Lazaro are employed as the Chairman of the
Board, the President and Chief Executive Officer, and an Executive Vice
President, respectively, of the Company. The agreements provide that such
individuals shall devote substantially all of their working time and
attention to the business of the Company. Each such agreement has an initial
term of five years commencing July 20, 1995, and shall be automatically
renewable for successive one-year periods unless either the Company or the
employee elects not to renew his employment. The employment agreements
provide that each of Messrs. Markowitz, Sharp and Lazaro will receive an
initial annual base salary of $125,000, subject to such increases as shall be
approved by the Board of Directors of the Company. Pursuant to the employment
agreements, each of Messrs. Markowitz, Sharp and Lazaro will be eligible to
participate in any medical insurance, pension, profit sharing or other
employment benefit programs generally made available to senior executives of
the Company.
EMPLOYMENT AGREEMENT WITH JAN MIRSKY. On June 30, 1995, the
Company entered into an employment agreement with Mr. Mirsky, pursuant to
which Mr. Mirsky is employed as the Executive Vice President -- Finance and
Chief Operating Officer of the Company and is to devote substantially all of
his working time and attention to the business of the Company. Such
agreement, which became effective July 13, 1995, has an initial term of
eighteen months and is automatically renewable for successive one-year
periods unless either the Company or Mr. Mirsky elects not to renew his
employment. The employment agreement provides that Mr. Mirsky will receive an
initial annual base salary of $115,000, subject to such increases as shall be
approved by the Board of Directors of the Company. The agreement further
provides that Mr. Mirsky will be eligible to participate in any medical
insurance, pension, profit sharing or other employment benefit programs
generally made available to senior executives of the Company.
EMPLOYMENT AGREEMENT WITH JACK KOEGEL. Pursuant to the Company's
employment agreement with Mr. Koegel, which became effective September 27,
1995, Mr. Koegel is employed by the Company as the Vice Chairman of the
Company, and is to devote substantially all of his working time and attention
to the business of the Company. The agreement provides that services
performed by Mr. Koegel shall be rendered in the St. Paul, Minnesota
metropolitan area, provided that Mr. Koegel shall be required to travel as
reasonably required by the business of the Company. Such agreement has an
initial term of thirty-six months and is automatically renewable for
successive one-year periods unless either the Company or Mr. Koegel elects
not to renew his employment. The employment agreement provides that Mr.
Koegel will receive an initial annual base salary of $100,000, subject to
such increases as shall be approved by the Board of Directors of the Company.
The agreement further provides that Mr. Koegel will be eligible to
participate in any pension, profit sharing or other employment benefit
programs generally made available to senior executives of the Company other
than medical insurance benefits. However, the agreement provides that the
Company will pay Mr. Koegel $400 per month to cover costs incurred by him in
purchasing medical insurance directly. In addition, pursuant to the
agreement, the Company provides Mr. Koegel with a monthly automobile
allowance of $800 and has agreed to pay an aggregate of $25,000 for the
construction of an office for him in St. Paul, Minnesota.
Pursuant to the employment agreement, Mr. Koegel was granted an
option in September 1995 to purchase an aggregate of 375,000 shares of Common
Stock at an exercise price of $2.75 per share. In addition, the agreement
provides that, in the event the Company grants options, either under the
Stock Option Plan or any other stock option plan adopted by the Company, to
Messrs. Markowitz,
-39-
<PAGE>
Sharp, Mirsky and Lazaro during the term of Mr. Koegel's employment, Mr.
Koegel shall be entitled to receive a proportionate amount of additional
options on such terms as may be established by the Board of Directors.
SEVERANCE ARRANGEMENTS. Each of the employment agreements with
Messrs. Markowitz, Sharp, Lazaro, Mirsky and Koegel provides that the
employee's employment shall terminate (i) for "cause" (as defined in each of
the respective agreements), (ii) by reason of the employee's disability,
resignation or death, (iii) upon the expiration of the employment agreement
in accordance with its terms or (iv) in the event the employee is no longer
employed by the Company after a "Change of Control" (as defined below). Each
of the agreements further provides that, in the event the employee's
employment terminates for any reason (other than termination without cause or
in connection with a Change of Control), the employee shall be entitled to
receive his annual base salary, and any expense reimbursements, due and owing
to him at the time of such termination. In the event the employee is
terminated without cause, the employee shall be entitled to receive annual
base salary and expense reimbursements then due and owing to him, as well as
a lump-sum severance payment in an amount equal to his then annual base
salary for the balance of the term of the employment agreement.
CHANGE OF CONTROL ARRANGEMENTS. Each of the employment agreements
with Messrs. Markowitz, Sharp, Lazaro, Mirsky and Koegel provides that, in
the event of a Change of Control of the Company, each such employee will be
entitled to receive a lump-sum severance payment equal to three times his
then annual base salary if he is discharged for any reason (other than for
cause) or terminates his employment for "Good Reason" prior to the first
anniversary of such Change of Control, and shall be entitled to receive a
lump-sum payment equal to his then annual base salary if he voluntarily
leaves the employ of the Company for reasons other than discharge or for Good
Reason prior to the first anniversary of such Change of Control. As used in
the employment agreements, the term "Change of Control" means (a) any
transaction or series of transactions (including, without limitation, a
tender offer, merger or consolidation) the result of which is that any
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act), other than Messrs. Markowitz, Sharp, Mirsky and Lazaro (and,
in the case of Mr. Koegel's employment agreement, Mr. Koegel) or certain
related parties and any "person" or "group" solicited by any of such persons
or their related parties, (i) becomes the beneficial owner of more than 50%
of the total aggregate voting power of all classes of the voting stock of the
Company and/or warrants or options to acquire such voting stock, calculated
on a fully diluted basis, (ii) acquires all or substantially all of the
assets of the Company or (iii) enters into a contract with respect to any of
the foregoing, or (b) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Company's Board of
Directors cease for any reason to constitute a majority of the directors then
in office, unless such majority of the directors then in office has been
elected or nominated by Messrs. Markowitz, Sharp, Mirsky and Lazaro (and, in
the case of Mr. Koegel's employment agreement, Mr. Koegel) or certain related
parties. In addition, as used in the agreements, the term "Good Reason" means
(i) a change in the status or position of the employee which reflects a
change from the status and position(s) as were in effect immediately prior to
a Change of Control, (ii) the assignment to the employee of any duties or
responsibilities which, in the employee's reasonable judgment, are
inconsistent with his status or position(s), (iii) the removal of the
employee from his current position or reduction in his pay or requiring him
to relocate or (iv) the removal of the employee, without his consent, to any
location outside of the New York/New Jersey metropolitan area (or, in the
case of Mr. Koegel, the St. Paul, Minnesota metropolitan area) for a
continuous period of more than 30 days.
ELIMINATION OF LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation, as amended, eliminates the
liability of a
-40-
<PAGE>
director of the Company for monetary damages for breach of duty as a
director, subject to certain exceptions. In addition, the Certificate of
Incorporation, as amended, provides for the Company to indemnify, under
certain conditions, directors and officers of the Company against all
expenses, liabilities and losses reasonably incurred by such persons in
connection therewith. The foregoing provisions may reduce the likelihood of
derivative litigation against directors and may discourage or deter
shareholders or management from suing directors for breaches of their duty of
care, even though such an action, if successful, might otherwise benefit the
Company and its shareholders.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus
and as adjusted to reflect the sale by the Company of shares of Common Stock
in this offering, the beneficial ownership of shares of Common Stock by (i)
each person who is known by the Company to own more than 5% of the
outstanding shares of Common Stock, (ii) each Named Officer and (iii) all of
the Company's officers and directors as a group:
AMOUNT AND PERCENT
NATURE OF PERCENT BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNED PRIOR TO OWNED FOLLOWING
BENEFICIAL OWNER(1) OWNERSHIP(2)(3) OFFERING THE OFFERING(4)
- ------------------- --------------- -------------------- ---------------
Harold Markowitz 1,560,000(5) 20.8% 11.3%
Paul Sharp 1,560,000(6) 20.8% 11.3%
Jorge Lazaro 1,560,000(7) 20.8% 11.3%
Jan Mirsky 609,939(8) 7.6% 4.2%
Jack Koegel 108,750(9) 1.4% *
Stanley R. Goodman 20,000(10) * *
Edward C. Ross 20,000(11) * *
L. Douglas Bailey 10,000(12) * *
All officers and directors
as a group(8 persons) 5,448,689(5)-(12) 65.0% 37.2%
- --------------
* Less than 1%
(1) The address for each such person is c/o Sel-Leb Marketing, Inc., 1435
51 Street, North Bergen, New Jersey 07047.
(2) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date of this
Prospectus upon the exercise of options or warrants. Each beneficial
owner's percentage ownership is determined by assuming that options or
warrants that are held by such person (but not those held by any other
person) and which are exercisable within 60 days from the date of this
Prospectus have been exercised. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock
beneficially owned by them.
-41-
<PAGE>
(3) The number of shares beneficially owned by each individual gives
effect to the Share Distribution.
(4) These percentages assume that all outstanding Warrants (including
Warrants held by certain affiliates of the Company) are exercised and
that the Underwriter exercises all of the Underwriter's Warrants and
all of the Warrants included therein.
(5) Includes 60,000 shares of Common Stock issuable upon exercise of
Warrants included in the Conversion Units issued to Mr. Markowitz in
connection with the IPO.
(6) Includes 60,000 shares of Common Stock issuable upon exercise of
Warrants included in the Conversion Units issued to Mr. Sharp in
connection with the IPO.
(7) Includes 60,000 shares of Common Stock issuable upon exercise of
Warrants included in the Conversion Units issued to Mr. Lazaro in
connection with the IPO.
(8) Includes (i) 490,689 shares of Common Stock issuable upon exercise of
a warrant granted to Mr. Mirsky by the Company and (ii) 119,250 shares
of Common Stock issuable upon exercise of options granted to
Mr. Mirsky under the Company's Stock Option Plan. Does not include
357,750 shares of Common Stock issuable upon exercise of options
granted to Mr. Mirsky under the Stock Option Plan which are not
exercisable within 60 days of the date of this Prospectus.
(9) Includes (i) 15,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Koegel under the Nonemployee Directors' Plan
and (ii) 93,750 shares of Common Stock issuable upon the exercise of
options granted to Mr. Koegel under the Stock Option Plan. Does not
include 281,250 shares of Common Stock issuable upon exercise of
options granted to Mr. Koegel under the Stock Option Plan which are
not exercisable within 60 days of the date of this Prospectus.
(10) Includes 20,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Goodman under the Nonemployee Directors' Plan.
(11) Includes 20,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Ross under the Nonemployee Directors' Plan.
(12) Includes 10,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Bailey under the Nonemployee Directors' Plan.
-42-
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
Immediately prior to the consummation of the IPO in July 1995, Mr.
Markowitz, Mr. Sharp and H. Howlin International Inc. ("Howlin"), a company
founded by Mr. Lazaro and of which he is currently President and sole
shareholder, had outstanding loans to the Company in the amount of $289,667,
$189,667 and $289,667, respectively (collectively, the "Shareholder Loans").
In connection with the IPO, $100,000 of each of the Shareholder Loans was
converted by the Company into Conversion Units, each Conversion Unit
consisting of three shares of Common Stock and three Warrants, at the rate
of $5.00 per Conversion Unit. Pursuant to this conversion, an aggregate of
60,000 Conversion Units were issued to Messrs. Markowitz, Sharp and Lazaro
(as designee of Howlin). The balance of each of the Shareholder Loans was
repaid by the Company in March 1996. In connection with the IPO and at the
request of the Underwriter, each of Messrs. Markowitz, Sharp and Lazaro
agreed not to sell or otherwise dispose of any of their shares of Common
Stock (including the 180,000 aggregate shares of Common Stock issuable upon
exercise of the Warrants included in the Conversion Units) for a period of
eighteen months commencing July 13, 1995. The Company and the Underwriter's
have subsequently agreed to allow Messrs. Markowitz, Sharp and Lazaro to
include the 180,000 shares of Common Stock issuable upon exercise of the
Warrants included in the Conversion Units in the Selling Security Holder
Prospectus. See "Concurrent Registration of Common Stock."
In July 1995, the Company repaid the entire amount outstanding
under its then existing borrowing arrangement with a bank. All amounts
borrowed by the Company pursuant to this arrangement had been jointly and
severally guaranteed by Messrs. Markowitz, Sharp and Lazaro, who had
subordinated an aggregate principal amount of $700,000 of the Shareholder
Loans to the bank.
In October 1992, Messrs. Markowitz, Sharp and Lazaro and a fourth
individual founded Lea Cosmetics. In connection with the Lea Acquisition,
immediately prior to the consummation of the IPO in July 1995, each of
Messrs. Markowitz, Sharp and Lazaro contributed to the Company his 20% equity
interest in Lea Cosmetics, and the Company acquired from the additional
shareholder his 40% interest in Lea Cosmetics. As a result, Lea Cosmetics
became a wholly-owned subsidiary of the Company and, in August 1995, was
merged with and into the Company. During the period from January 1, 1995 to
the date of the Lea Acquisition and, the twelve-month period ended December
31, 1994, the Company purchased $532,330 and $723,615, respectively, of
merchandise from Lea Cosmetics, which purchases were made on an arm's-length
basis. During such periods, any products of Lea Cosmetics which were sold by
the Company were purchased from Lea Cosmetics at the Company's selling price
and, accordingly, the Company realized no profits on the sale of such
merchandise.
Prior to the Linette Merger, the Company and Linette Cosmetics were
treated as S Corporations for federal and certain state income tax purposes.
As a result, earnings of such companies during such period were taxed
directly to Messrs. Markowitz, Sharp and Lazaro, who comprised all of the
shareholders of the Company and Linette Cosmetics during such period, rather
than to the Company or Linette Cosmetics, as the case may be. On May 17,
1995, the Company declared the S Corporation Distribution payable to such
shareholders in an amount equal to the taxes payable on the earnings of the
Company during the period from the date of its formation on September 21,
1993 (and, in the case of Linette Cosmetics, from January 1, 1994) to the
date of the consummation of the Linette Merger, such distribution to be
payable following the consummation of the IPO after the amount thereof had
been determined. In September and October 1995, the Company paid the S
Corporation Distribution to Messrs. Markowitz, Sharp and Lazaro in an
aggregate amount of approximately $156,250.
-43-
<PAGE>
In January 1994, the Company issued and sold to Jan Mirsky, then a
consultant to the Company and currently the Executive Vice President -
Finance, Chief Operating Officer and a director of the Company, the
Consulting Warrant to purchase 490,689 shares of Common Stock, in
consideration for a $21,000 non-interest bearing promissory note payable to
the Company, due March 31, 1995, and the performance by him of services as a
marketing consultant to the Company. The Company subsequently agreed to
extend until May 17, 1995 the due date of the promissory note, and on May 17,
1995 Mr. Mirsky paid the entire $21,000 principal amount thereof. The
Consulting Warrant is exercisable at any time through March 31, 2000 at an
aggregate exercise price of $315,000. Pursuant to the Consulting Warrant,
Mr. Mirsky has been granted certain demand and piggyback registration rights
(subject to certain limitations) with respect to the shares of Common Stock
issuable upon exercise of the Warrant. In connection with the IPO and at the
request of the Underwriter, Mr. Mirsky has waived such rights for a period of
eighteen months commencing July 13, 1995, and has agreed not to sell during
such eighteen-month period any shares of Common Stock issuable upon exercise
of the Consulting Warrant other than in connection with certain transactions.
See "Description of Securities -- Registration Rights."
During the year ended December 31, 1994, the Company made
approximately $421,000 of inventory purchases from Linette Cosmetics. Also,
Linette Cosmetics made advances to, or paid expenses on behalf of, the
Company of $639,247 during such period, and the Company made repayments to,
and paid expenses on behalf of Linette Cosmetics, resulting in a balance due
to Linette Cosmetics at December 31, 1994 of $46,854. During the period from
January 1, 1995 to the date of the Linette Merger, the Company made no
inventory purchases from Linette Cosmetics and Linette Cosmetics made no
advances to, and paid no expenses on behalf of, the Company. As of the date
of the Linette Merger, the Company had a balance due to Linette Cosmetics of
$69,004.
In March 1993, Howlin ceased conducting operations and, in
connection therewith, transferred its inventory to the Company pursuant to a
consignment arrangement whereby the Company sold the inventory on Howlin's
behalf, remitted to Howlin an amount equal to the original cost to Howlin of
the goods sold by the Company and retained for its own account any profits
received from the sale of such goods. During 1995, the Company purchased
from Howlin all inventory then held by the Company pursuant to such
arrangement for a purchase price of approximately $13,800, which amount
represented the original cost to Howlin of such inventory.
In March 1993, Lazmar Inc. ("Lazmar"), a company in which Mr.
Lazaro owns 50% of the outstanding stock, delivered inventory to the Company
pursuant to a consignment arrangement similar to the Company's arrangement
with Howlin. During 1995, the Company purchased from Lazmar all inventory
then held by it pursuant to such arrangement for a purchase price of
approximately $70,000, which amount represented the original cost to Lazmar
of such inventory. At March 31, 1996 and December 31, 1995, the Company had
an account payable to Lazmar of approximately $69,820 and $80,000,
respectively.
CONCURRENT REGISTRATION OF COMMON STOCK
Concurrently with this offering, an aggregate of 180,000 shares of
Common Stock (the "Selling Security Holders' Shares") issuable upon the
exercise of Warrants held by certain affiliates of the Company (the "Selling
Security Holders") are being registered by the Company under the Securities
Act pursuant to a Selling Security Holder Prospectus included within the
Registration Statement of which this Prospectus form a part. The Company
will not receive any of the proceeds from the sale of the Selling Security
Holders' Shares. It is anticipated that such shares will be offered and sold
from time to time in the over-the-counter market, or otherwise, at prices and
terms then prevailing or at prices related
-44-
<PAGE>
to the then-current market price, or in negotiated transactions; provided,
however, that no Selling Security Holders' Shares may be sold by any Selling
Security Holder without the prior written consent of the Underwriter during
the period of eighteen months commencing July 13, 1995. See "Shares Eligible
for Future Sale."
DESCRIPTION OF SECURITIES
GENERAL
As of the date of this Prospectus, the authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock, par value $.01 per
share, of which 7,440,000 shares are outstanding. The following description
of the securities of the Company and certain provisions of the Company's
Certificate of Incorporation and By-Laws, each as amended, is a summary and
is qualified in its entirety by the provisions of the Certificate of
Incorporation and By-Laws as currently in effect. As of June 10, 1996, the
Company's Common Stock was held of record by 17 shareholders.
UNITS
Each Unit consists of three (3) shares of Common Stock and three
(3) Warrants. See "-- Common Stock" and "-- Redeemable Warrants." The Common
Stock and Warrants will be separately tradeable or transferable immediately
upon the issuance of the Units.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of shareholders, including the
election of directors. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election if they choose to do so. The Certificate
of Incorporation, as amended, does not provide for preemptive rights or for
cumulative voting for the election of directors. Holders of Common Stock will
be entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor, and will be entitled to receive, pro rata, all assets of the
Company available for distribution to such holders upon liquidation. Holders
of Common Stock have no preemptive, subscription or redemption rights. All
outstanding shares of Common Stock are, and the Common Stock offered hereby,
upon issuance and sale, will be, fully paid and nonassessable.
REDEEMABLE WARRANTS
Each Warrant entitles the registered holder thereof (the "Warrant
Holders") to purchase one share of Common Stock at a price of $2.00 subject
to adjustment in certain circumstances, for a period of three years
commencing on July 13, 1996 until 5:00 p.m., Eastern Time, on July 12, 1999.
The Warrants are redeemable by the Company at any time commencing
on July 13, 1996, upon notice of not less than 30 days, at a price of $.05
per Warrant, provided that the closing bid quotation of the Common Stock on
NASDAQ or last sale price if quoted on a national securities exchange has
exceeded $3.33 per share (subject to adjustment) for a period of 20
consecutive trading days during the period in which the Warrants are
exercisable. The Warrant Holders shall have the right to exercise their
Warrants until the close of business on the date fixed for redemption. The
Warrants have been issued (and any Warrants issued upon exercise of the
Underwriter's Warrants will be issued) in registered form under a warrant
agreement by and among the Company, Continental Stock Transfer & Trust
-45-
<PAGE>
Company, as warrant agent, and the Underwriter (the "Warrant Agreement"). The
exercise price and number of shares of Common Stock or other securities
issuable on exercise of the Warrants are subject to adjustment in certain
circumstances, including in the event of a stock dividend, recapitalization,
reorganization, merger or consolidation of the Company. In addition, the
Warrants are subject to adjustment for issuances of Common Stock at prices
below the market price of a share of Common Stock on NASDAQ. Reference is
made to the Warrant Agreement (which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part) for a complete
description of the terms and conditions therein (the description herein
contained being qualified in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date at the offices of the warrant
agent, with the exercise form on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by full payment of the
exercise price (by certified check or bank draft payable to the Company) to
the warrant agent for the number of Warrants being exercised. The Warrant
Holders do not have the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the
Company has filed a current registration statement with the Commission
covering the shares of Common Stock issuable upon exercise of such Warrant
and such shares have been registered or qualified or deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of such Warrant. The Company will use its best
efforts to have all such shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, subject to the terms of the Warrant Agreement.
While it is the Company's intention to do so, there can be no assurance that
it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay to such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
The Company has agreed to pay to the Underwriter a warrant
solicitation fee (the "Warrant Solicitation Fee") in connection with the
exercise of Warrants under certain circumstances and subject to certain
conditions and restrictions. See "Warrant Solicitation."
DIVIDENDS
Other than the S Corporation Distribution, the Company has not
declared or paid a cash dividend on its Common Stock since its inception.
The payment by the Company of dividends, if any, is within the discretion of
the Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant
factors. The Board of Directors does not intend to declare any dividends in
the foreseeable future, but instead intends to retain earnings, if any, for
use in the Company's business operations.
-46-
<PAGE>
REGISTRATION RIGHTS
In connection with the IPO, the Company granted to the Underwriter
certain demand and piggyback registration rights with respect to the 240,000
shares of Common Stock issuable upon exercise of the Underwriter's Warrants
and the 240,000 shares of Common Stock and 240,000 Warrants issuable upon the
exercise of the Warrants included in the Underwriter's Warrants. All 480,000
shares of Common Stock underlying the Underwriter's Warrants have been
included in the Registration Statement of which this Prospectus forms a part.
In addition, the Company has granted to Mr. Mirsky, a director of the
Company, certain demand and piggyback registration rights (subject to certain
limitations) with respect to the shares of Common Stock issuable upon
exercise of the Consulting Warrant. In connection with the IPO and at the
request of the Underwriter, Mr. Mirsky waived such rights for a period of
eighteen months commencing July 13, 1995. See "Certain Transactions."
NASDAQ AND BOSTON STOCK EXCHANGE LISTING
The Common Stock and Warrants are listed on NASDAQ. In order to
continue to be listed on NASDAQ, however, the Company must maintain
$2,000,000 in total assets, a $200,000 market value of the public float and
$1,000,000 in total capital and surplus. In addition, continued inclusion
requires two market-makers and a minimum bid price of $1.00 per share;
provided, however, that if the Company falls below such minimum bid price, it
will remain eligible for continued inclusion in NASDAQ if the market value of
the public float is at least $1,000,000 and the Company has $2,000,000 in
capital and surplus. The failure to meet these maintenance criteria in the
future may result in the delisting of the Company's securities from NASDAQ.
In such event, trading, if any, in the Units, Common Stock and Warrants would
thereafter be conducted in the over-the-counter markets through the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board." Consequently, the
liquidity of the Company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays
in the timing of transactions, difficulty in obtaining accurate quotations as
to the market value of the securities and reductions in the security
analysts' and the news media's coverage of the Company. Delisting of the
Company's securities may result in lower prices for the Company's securities
than might otherwise prevail.
The Common Stock and Warrants are also listed on the Boston Stock
Exchange.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
REPORTS TO SHAREHOLDERS
The Company has registered the Common Stock and Warrants under the
provisions of Sections 12(b) and 12(g) of the Exchange Act, and has agreed
that it will use its best efforts to continue to maintain such registration
for a minimum of five years from July 13, 1995. Such registration requires
the Company to comply with periodic reporting, proxy solicitation and certain
other requirements of the Exchange Act.
-47-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have
13,860,000 shares of Common Stock outstanding, of which 9,000,000 shares of
Common Stock will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
affiliate of the Company (in general, a person who has a control relationship
with the Company), which shares will be subject to the resale limitations of
Rule 144 under the Securities Act. All of the remaining 4,860,000 shares of
Common Stock are deemed to be "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act, in that such
shares were issued and sold by the Company in private transactions not
involving a public offering and in the future may only be sold pursuant to a
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144, or pursuant to another exemption under the
Securities Act. Concurrently with this offering, an aggregate of 180,000 of
such restricted shares are being registered by the Company under the
Securities Act pursuant to the Selling Security Holder Prospectus included
within the Registration Statement of which this Prospectus forms a part. In
addition, commencing in October 1995, an aggregate of 4,500,000 of the
4,860,000 restricted shares became eligible for sale under Rule 144, subject
to the volume limitations prescribed by Rule 144 and to the contractual
restrictions described below. The balance of the restricted shares will
become eligible for sale under Rule 144, subject to the volume limitations
prescribed by Rule 144, commencing in July 1997. See "Concurrent
Registration of Common Stock."
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the shares of Common Stock are quoted on NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the
sale. A person who has not been an affiliate of the Company for at least the
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described
above.
All of the Company's officers and directors and certain
shareholders of the Company have agreed not to sell or otherwise dispose of
their shares of Common Stock (an aggregate of 4,860,000 shares (including the
180,000 shares included in the Selling Security Holder Prospectus)) for a
period of eighteen months commencing July 13, 1997 (other than pursuant to
private transfers) without the prior written consent of the Underwriter.
WARRANT SOLICITATION
The Company has agreed, in connection with the exercise of the
Warrants pursuant to solicitation, to pay to the Underwriter a warrant
solicitation fee of 5% of the exercise price for each Warrant exercised;
provided, however, that the Underwriter will not be entitled to receive such
compensation in Warrant exercise transactions in which (i) the market price
of Common Stock at the time of exercise is lower than the exercise price of
the Warrants; (ii) the Warrants are held in any discretionary account; (iii)
disclosure of compensation arrangements is not made in documents provided to
holders of the Warrants at the time of exercise; (iv) the exercise of
Warrants is unsolicited by the Underwriter; or (v) the solicitation of
exercise of the Warrants was in violation of Rule 10b-6 promulgated under the
Exchange Act.
-48-
<PAGE>
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon
for the Company by Zimet, Haines, Friedman & Kaplan, New York, New York.
EXPERTS
The financial statements of Sel-Leb Marketing, Inc. as of December
31, 1995 and for the two years in the period ended December 31, 1995 included
in this Prospectus have been included in reliance upon the reports of
Goldstein Golub Kessler & Company, P.C., independent certified public
accountants, given upon the authority of said firm as experts in accounting
and auditing.
-49-
<PAGE>
SEL-LEB MARKETING, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENT AT DECEMBER 31, 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Independent Auditor's Report F-2
Balance Sheet F-3
Statement of Income F-4
Statement of Shareholders' Equity F-5 - F-6
Statement of Cash Flows F-7
Notes to Financial Statements F-8 - F-16
FINANCIAL STATEMENT AT MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
Balance Sheet (Unaudited) F-17
Statement of Income (Unaudited) F-18
Statement of Shareholders' Equity (Unaudited) F-19
Statement of Cash Flows (Unaudited) F-20
Notes to Financial Statements (Unaudited) F-21-23
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Sel-Leb Marketing, Inc.
We have audited the accompanying balance sheet of Sel-Leb Marketing, Inc. as of
December 31, 1995 and the related statements of income, shareholders' equity,
and cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 referred to above present fairly, in
all material respects, the financial position of Sel-Leb Marketing, Inc. as of
December 31, 1995 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the financial statements of
Sel-Leb Marketing, Inc. for the year ended December 31, 1994 have been restated
to include the results of operations of Linette Cosmetics, Inc. and Lea
Cosmetics, Inc., entities which merged with and into Sel-Leb Marketing, Inc. in
1995.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 3, 1996, except for the first paragraph of Note 9,
as to which the date is March 12, 1996
F-2
<PAGE>
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 832,970
Accounts receivable, less allowance for doubtful accounts of $100,000 2,175,813
Inventory (Note 1) 2,470,086
Prepaid expenses and other current assets 353,557
Deferred income tax asset, net of valuation allowance (Note 10) 52,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,884,426
Property and Equipment - at cost, net of accumulated depreciation (Notes 1 and 3) 270,703
Goodwill (Note 2) 280,823
Other Assets 3,611
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $6,439,563
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 4) $ 941,242
Due to affiliates (Note 9) 118,310
Income taxes payable (Note 10) 269,525
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,329,077
Long-term Debt - related parties (Note 9) 469,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,798,077
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingency (Notes 5, 6 and 12)
Shareholders' Equity (Notes 7 and 8)
Common stock - $.01 par value; authorized 40,000,000 shares, issued and
outstanding 7,440,000 shares 74,400
Additional paid-in capital 4,136,563
Retained earnings 430,523
- ------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 4,641,486
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,439,563
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
STATEMENT OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Net sales (Notes 1 and 11) $11,286,114 $10,401,907
Commission income (Note 1) 194,021 392,387
- ------------------------------------------------------------------------------------------------------------------------------
Total revenue 11,480,135 10,794,294
- ------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of sales (Note 9) 8,868,566 8,314,521
Selling, general and administrative expenses (Note 5) 2,016,412 1,827,899
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 10,884,978 10,142,420
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 595,157 651,874
Interest expense, net of interest income of $34,972 in 1995 (Note 9) (83,809) (120,471)
Other income (expenses) 101,489 (71,392)
- ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes and minority interest in earnings of subsidiary 612,837 460,011
Provision for income taxes (Note 10) (234,000) (70,000)
- ------------------------------------------------------------------------------------------------------------------------------
Income before minority interest in earnings of subsidiary 378,837 390,011
Minority interest in earnings of subsidiary (Note 1) (39,414) (31,574)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 339,423 $ 358,437
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Pro forma information (unaudited) (Notes 1 and 13):
Net income $ 341,423 $ 253,437
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Primary earnings per share $ .05 $ .05
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share $ .04 $ .05
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
STATEMENT OF SHAREHOLDERS' EQUITY
(Note 1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------------
RECEIVABLE
IN CONNECTION
WITH SALE OF
RETAINED COMMON STOCK
ADDITIONAL EARNINGS PURCHASE
COMMON STOCK PAID-IN (ACCUMULATED WARRANT AND SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) COMMON STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,320,000 $ 1,000 $ 52,096 $ (11,982) $ (2,000) $ 39,114
Sale of stock warrants (Note 8) - - 21,000 - (21,000) -
Capital contribution of imputed
interest on noninterest bearing
loans (Note 9) - - 14,703 - - 14,703
Net income - - - 358,437 - 358,437
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 4,320,000 1,000 87,799 346,455 (23,000) 412,254
Adjustment of par value - 42,200 (42,200) - - -
Capital contribution of imputed
interest on noninterest bearing
loans (Note 9) - - 4,225 - - 4,225
Collection of receivable - - - - 21,000 21,000
Issuance of stock warrants (Note 8) - - 10,000 - - 10,000
</TABLE>
(continued)
See Notes to Financial Statements
F-5
<PAGE>
STATEMENT OF SHAREHOLDERS' EQUITY
(Note 1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------------
RECEIVABLE
IN CONNECTION
WITH SALE OF
RETAINED COMMON STOCK
ADDITIONAL EARNINGS PURCHASE
COMMON STOCK PAID-IN (ACCUMULATED WARRANT AND SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) COMMON STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adjustment resulting from
termination of S Corporation
status (Note 10) - - $ 255,355 $ (255,355) - -
Issuance of common stock in
connection with acquisition of
subsidiary (Notes 1 and 2) 180,000 $ 1,800 380,575 - $ 2,000 $ 384,375
Conversion of long-term debt into
common shares (Note 9) 180,000 1,800 298,200 - - 300,000
Net proceeds from sale of stock
(Note 7) 2,760,000 27,600 3,298,852 - - 3,326,452
Distribution to shareholders (Note 10) - - (156,243) - - (156,243)
Net income - - - 339,423 - 339,423
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 7,440,000 $ 74,400 $ 4,136,563 $ 430,523 - $4,641,486
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 339,423 $ 358,437
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 25,947 5,490
Deferred income tax benefit (52,000) -
Allowance for doubtful accounts 40,000 -
Imputed interest contributed to capital 4,225 14,703
Interest expense related to issuance of warrants 10,000 -
Minority interest in earnings of subsidiary 39,414 31,574
Changes in operating assets and liabilities:
Increase in accounts receivable (400,026) (641,127)
(Increase) decrease in inventory (1,301,391) 137,873
Increase in due from affiliates - (152,939)
Increase in prepaid expenses and other current assets (220,491) (32,401)
Increase (decrease) in accounts payable and accrued expenses (310,669) 306,068
Increase (decrease) in due to affiliates (56,630) 1,436
Increase in income taxes payable 183,877 52,135
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,698,321) 81,249
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Repayments from affiliates 122,510 -
Purchase of property and equipment (275,515) (16,000)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (153,005) (16,000)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Advances to affiliate - (50,000)
Net proceeds from (repayments of) notes payable - bank (800,000) 50,000
Net proceeds from sale of stock and warrants 3,440,003 -
Distributions to shareholders (156,243) -
Collection of receivable in connection with sale of
common stock purchase warrant 21,000 -
Deferred offering costs - (113,550)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,504,760 (113,550)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 653,434 (48,301)
Cash and cash equivalents at beginning of year 179,536 227,837
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 832,970 $ 179,536
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 112,568 $ 110,763
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 16,475 $ 5,769
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In May 1995, the Company issued warrants to purchase 3,000,000 shares of the Company's common stock and
charged operations for $10,000 of interest expense (Notes 7 and 8).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
The Company issued 180,000 shares of the Company's common stock, valued at $384,375, in connection with the
40% acquisition of Lea (Note 2).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
In July 1995, shareholders converted $300,000 of long-term debt into 180,000 shares of the Company's common stock
and warrants to purchase 180,000 shares of the Company's common stock.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Finanical Statements
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION, PRESENTATION, PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT
ACCOUNTING POLICIES:
Sel-Leb Marketing, Inc. ("Sel-Leb") was incorporated under the laws of the State
of New York on September 21, 1993. On May 18, 1995, Linette Cosmetics, Inc.
("Linette"), a company having the same ownership as Sel-Leb, merged with and
into Sel-Leb. On July 13, 1995, the shareholders of Sel-Leb contributed their
60% interest in Lea Cosmetics, Inc. ("Lea") to Sel-Leb and Sel-Leb purchased the
remaining 40% interest (the "40% Interest") (see Note 2). As a result, Lea
became a wholly owned subsidiary of Sel-Leb and was subsequently merged with and
into Sel-Leb. The merger of Linette with and into Sel-Leb and the contribution
of the 60% interest in Lea to Sel-Leb, have been reported at historical cost in
a manner similar to a pooling of interests. The purchase of the 40% Interest in
Lea by Sel-Leb has been accounted for as a purchase. All significant
intercompany transactions and balances among Sel-Leb, Linette and Lea
(collectively the "Company") through the dates of the mergers and the
acquisition of the 40% Interest have been eliminated.
The statement of income for Sel-Leb for the year ended December 31, 1994 has
been restated to include the results of operations of Sel-Leb and Linette for
the 12 months ended December 31, 1994 and the results of operations of Lea for
the 12 months ended September 30, 1994. The effect of the restatement was to
increase net income for the year ended December 31, 1994 by approximately
$211,000. The statement of income for the Company for the year ended December
31, 1995 includes the results of operations of Sel-Leb and Linette for the 12
months ended December 31, 1995 and the results of operations of Lea for the 15
months ended December 31, 1995. The results of operations for Lea for the 3-
month period from October 1, 1994 to December 31, 1994, included in the
statement of income for 1995, were not material.
The Company is a secondary sourcer (distributing merchandise on a wholesale
basis outside normal distribution channels to retail merchants) of a broad range
of name-brand and off-brand merchandise. The Company also packages and
wholesales beauty aid and cosmetic products. In addition, the Company develops
marketing programs to sell consumers products through television home-shopping
networks and other electronic media by using celebrity spokespersons. Revenue
from marketing programs for the years ended December 31, 1995 and 1994 were not
significant.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management affecting the
reported amounts of assets and liabilities and revenue and expenses and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Inventory, consisting primarily of finished goods, is stated at the lower of
cost, determined by the first-in, first-out method, or market.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated useful lives of the related assets.
Sales revenue is recognized on the date the merchandise is shipped.
Commission income is recognized upon the sale of the related product.
Cash equivalents consist of money market accounts.
F-8
<PAGE>
Pro forma earnings per share are computed based on the weighted average number
of shares actually outstanding plus the shares that would be outstanding
assuming the exercise of dilutive stock options and warrants, all of which are
considered common stock equivalents, using the modified treasury stock method
for 1995 and the treasury stock method for 1994. For the pro forma fully
diluted computation for 1995, the weighted average number of shares outstanding
includes the number of shares that would be issued from the exercise of stock
options and warrants reduced by the number of shares which would have been
purchased from the proceeds of such exercise at the market price of the
Company's common stock on December 31, 1995, because those prices were higher
than the average market prices during the year. For the 1994 pro forma earnings
per share, the weighted average number of common shares outstanding has been
increased to reflect the number of shares whose proceeds would have been
necessary to fund the distribution to shareholders paid from the proceeds of the
Company's initial public offering ("IPO") (see Note 7). For the year ended
December 31, 1995, the number of shares used in the computation of primary
earnings per share and fully diluted earnings per share were 8,429,726 and
8,491,491, respectively. For the year ended December 31, 1994, the number of
shares used for both calculations amounted to 4,969,089.
The Company maintains cash in bank accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses on these
accounts.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," on January 1, 1996. Management believes the effect of the
adoption will not be significant to the financial statements.
The Company intends to elect to continue to measure compensation cost using
Accounting Principles Board Opinion No. 25 as is permitted by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," effective for financial statements with fiscal years beginning
after December 15, 1995.
2. ACQUISITION:
In July 1995, Sel-Leb purchased the 40% Interest in Lea in a business
combination accounted for as a purchase. The purchase price was 180,000 shares
of newly issued, unregistered shares of Sel-Leb's common stock, 90,000 of which
were issued in January 1996 upon Lea's achieving certain sales volume for 1995.
The accompanying financial statements reflect the issuance of these shares of
common stock as if they were issued on December 31, 1995. The fair value of the
assets acquired, including approximately $281,000 allocated to goodwill, which
is being amortized over 10 years, amounted to approximately $384,000 and
liabilities assumed amounted to approximately $101,000. Amortization expense
related to goodwill and charged to operations in the year ended December 31,
1995 amounted to $2,445.
The Company reviews the carrying value of goodwill for impairment periodically
and whenever events or changes in circumstances indicate that the amount may not
be recoverable. The review for recoverability includes an estimate by the
Company of the future undiscounted cash flows expected to result from the use of
the assets acquired and their eventual disposition. An impairment will be
F-9
<PAGE>
recognized if the carrying value of the assets exceeds the estimated future
undiscounted cash flows of those assets.
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following at December 31, 1995:
Estimated
Useful Life
----------------------------------------------------------------------
Machinery and equipment $114,236 5 to 7 years
Display fixtures 182,387 2 to 3 years
Computer equipment 18,440 5 years
----------------------------------------------------------------------
315,063
Less accumulated depreciation 44,360
----------------------------------------------------------------------
$270,703
----------------------------------------------------------------------
----------------------------------------------------------------------
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December 31,
1995:
Trade accounts payable $807,320
Accrued interest 3,127
Accrued professional fees 93,279
Accrued commissions 32,320
Accrued payroll 5,196
----------------------------------------------------------------------
$941,242
----------------------------------------------------------------------
----------------------------------------------------------------------
5. COMMITMENTS:
The Company leases warehouse and production facilities under a noncancelable
operating lease which expires December 31, 1998.
The future minimum rental payments under the lease are as follows:
Year ending December 31,
1996 $ 35,000
1997 35,000
1998 35,000
----------------------------------------------------------------------
$105,000
----------------------------------------------------------------------
----------------------------------------------------------------------
The Company leases additional offices and warehouse facilities on a month-to-
month basis.
Rent expense for the years ended December 31, 1995 and 1994 amounted to $74,207
and $80,450, respectively.
The Company has entered into employment agreements with five officers which
expire at various times through July 2000.
F-10
<PAGE>
The aggregate minimum commitment for future salaries is as follows:
Year ending December 31,
1996 $ 565,000
1997 475,000
1998 475,000
1999 375,000
2000 188,000
----------------------------------------------------------------------
$2,078,000
----------------------------------------------------------------------
----------------------------------------------------------------------
The Company has various promotional agreements whereby it pays royalty fees to
celebrities based upon a percentage of net sales attributable to the
celebrities' appearances.
During the year ended December 31, 1994, the Company charged $300,000 to
operations in connection with an agreement with a celebrity for selling and
promotional activities. The agreement was for one year and expired in March
1995.
6. LINE OF CREDIT:
The Company has a line of credit with a bank expiring May 31, 1996 which
provides for borrowings not to exceed the lesser of $2,000,000 or prescribed
levels of eligible accounts receivable and inventory, as defined. Borrowings
under the line of credit bear interest at a bank's prevailing base rates, as
defined in the agreement. As of December 31, 1995, no amounts were outstanding
under the line of credit.
7. SHAREHOLDERS' EQUITY:
Accumulated earnings during the period in which the Company was an S Corporation
(see Note 10) have been included in the accompanying financial statements as
additional paid-in capital.
On January 4, 1995, the Company increased its authorized number of shares to
10,000,000 shares of common stock, effected a 17,760.8 for 1 stock split and
changed the par value of its common stock from no par to $.01 par. On May 18,
1995, the Company effected a .810706 reverse stock split. In February 1996, the
Company increased its authorized number of shares to 40,000,000 shares of common
stock and effected a 3 for 1 stock split. The increase in authorized shares and
the stock splits have been given retroactive effect in the accompanying
financial statements.
On July 13, 1995, the Company completed its IPO of 2,760,000 shares of the
Company's common stock and 920,000 warrants. Each warrant entitles the holder
to purchase three shares of the Company's common stock at an exercise price of
$2.00 per share. The net proceeds to the Company were approximately $3,326,000
after deducting underwriters' commissions and expenses of the offering which
totaled approximately $1,274,000.
F-11
<PAGE>
8. OPTIONS AND WARRANTS:
In 1995, the Company adopted the 1995 Stock Option Plan (the "Option Plan") in
which 1,350,000 common shares have been reserved for future issuance. The
Option Plan provides for the issuance of incentive stock options and
nonincentive stock options for the sale of shares of common stock to employees
of the Company at a price not less than the fair market value of the shares on
the date of the option grant, provided that the exercise price of any incentive
stock option granted to an employee owning more than 10% of the outstanding
common shares of the Company may not be less than 110% of the fair market value
of the shares on the date of the incentive stock option grant. The term of each
option and the manner of exercise are determined by the Board of Directors.
Employees are fully vested in the options 3 years after the date of grant and
the options are exercisable up to 10 years after the date of grant. At December
31, 1995, options to purchase 1,054,500 shares of common stock are outstanding
under the Option Plan.
In 1995, the Company adopted the 1995 Nonemployee Director's Stock Option Plan
(the "Directors' Plan") in which 300,000 common shares have been reserved for
future issuance. The Directors' Plan provides for the sale of shares of common
stock to nonemployee directors of the Company at a price not less than the fair
market value of the shares on the date of the option grant. The term of each
option and the manner of exercise is determined by the Board of Directors, but
in no case can the options be exercisable 10 years beyond the date of grant.
Upon election to the Board of Directors, and after each re-election, each
nonemployee director is granted an option to purchase 15,000 common shares
exercisable upon the date of grant. At December 31, 1995, options to purchase
60,000 shares of common stock are outstanding under the Directors' Plan.
Transactions relating to all stock options granted and outstanding are as
follows:
Number
of Shares Price
under Option per Share
---------------------------------------------------------------------------
Granted during the year ended December 31, 1995 1,380,000 $1.67 - $2.75
Canceled (265,500) $1.67
---------------------------------------------------------------------------
BALANCED AT DECEMBER 31, 1995 1,114,500 $1.67 - $2.75
---------------------------------------------------------------------------
---------------------------------------------------------------------------
On January 5, 1994, the Company sold a warrant to purchase 490,689 shares of the
Company's common stock for $21,000 to a consultant who became an officer of the
Company. The warrant is exercisable through March 21, 2000 at an exercise price
of $315,000.
In May 1995, the Company borrowed $250,000 from an investor, which was
subsequently repaid out of the proceeds of the IPO (see Note 7). In connection
with this financing, the Company issued the investor 1,000,000 warrants, each of
which entitles the holder to purchase three shares of common stock at a price of
$2.00 per share, exercisable for a three-year period commencing July 13, 1996.
Upon issuance of the warrants the Company charged operations for $10,000 and
increased additional paid-in capital by a corresponding amount.
F-12
<PAGE>
Upon consummation of the Company's IPO (see Note 7), the Company sold warrants
to purchase up to 240,000 units at an exercise price of $2.50 per unit to the
underwriter and its designees for an aggregate of $10.00. Each unit consists of
one share of common stock and a warrant entitling the holder to purchase one
share of common stock at an exercise price of $2.00 per share.
At December 31, 1995, common stock was reserved for the following reasons:
Exercise of common stock options 1,114,500
Exercise of common stock warrants 6,910,689
----------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS:
The Company had loans payable to its shareholders and/or entities owned by such
shareholders amounting to $769,000 of which $169,000 was noninterest bearing.
Interest on that amount was imputed, charged to operations and treated as a
contribution to capital. Immediately prior to the IPO, $300,000 of such loans
was converted into 60,000 conversion units, each unit consisting of three shares
of common stock and one warrant entitling the holder to purchase three shares of
common stock at an exercise price of $2.00 per share. The balance of $469,000
at December 31, 1995 now bears interest at an average rate of 8% per annum and
was to be repaid on January 13, 1997 out of available working capital. On March
12, 1996, the Company agreed to repay the loans. The Company received a
discount of $46,900 on the outstanding balance and increased additional paid-in
capital by a corresponding amount. Interest expense for the years ended
December 31, 1995 and 1994 amounted to $49,602 and $66,712, respectively.
In 1993, H. Howlin International, Inc. ("Howlin"), a company owned 100% by a
shareholder of the Company, transferred all of its inventory to the Company
under an arrangement which was being accounted for as a consignment. In 1995,
the Company purchased the consigned inventory from Howlin. Purchases from
Howlin amounted to $13,782 and $107,795 for the years ended December 31, 1995
and 1994, respectively. At December 31, 1995, there were no amounts due to
Howlin.
At December 31, 1994, the Company had goods on consignment from a company which
is 50% owned by a shareholder of the Company. In 1995, the Company purchased
the consigned inventory from this company. Purchases from this company amounted
to $69,768 and $5,560 for the years ended December 31, 1995 and 1994,
respectively. At December 31, 1995, the amount due to this company was $80,065.
During the year ended December 31, 1994, the Company made sales of approximately
$671,000 to third parties utilizing the names Sela Sales, Ltd., and Polvo
Distributors, Inc., companies owned 100% by shareholders of the Company.
During the year ended December 31, 1994, the Company made purchases of
approximately $185,000 from third parties utilizing the name Sela Sales, Ltd.
F-13
<PAGE>
10. INCOME TAXES:
The shareholders of Sel-Leb and Linette had consented that each company be taxed
as a small business corporation (S Corporation) under the provisions of the
federal income tax laws. On May 18, 1995, the merger of Linette with and into
Sel-Leb (see Note 1) terminated the S Corporation status of both entities. The
Company distributed $156,243 to these shareholders following the consummation of
the Company's IPO (see Note 7). This amount represented the taxes payable on
the earnings of Sel-Leb from its inception through the date its S Corporation
status was terminated and on the earnings of Linette from January 1, 1994
through the date its S Corporation status was terminated.
Deferred income tax asset at December 31, 1995 consists of the following:
Capital loss carryforward $ 84,000
Allowance for bad debts 40,000
Other 12,000
----------------------------------------------------------------------
136,000
Valuation allowance (84,000)
----------------------------------------------------------------------
NET DEFERRED INCOME TAX ASSET $ 52,000
----------------------------------------------------------------------
----------------------------------------------------------------------
The provision for income taxes consists of the following:
Year ended December 31, 1995 1994
----------------------------------------------------------------------
Federal income taxes:
Current $222,000 $26,000
Deferred (40,000) -
----------------------------------------------------------------------
TOTAL FEDERAL INCOME TAXES 182,000 26,000
----------------------------------------------------------------------
State income taxes:
Current 64,000 44,000
Deferred (12,000) -
----------------------------------------------------------------------
TOTAL STATE INCOME TAXES 52,000 44,000
----------------------------------------------------------------------
TOTAL PROVISION FOR INCOME TAXES $234,000 $70,000
----------------------------------------------------------------------
----------------------------------------------------------------------
F-14
<PAGE>
The provision for income taxes differs from the amount computed using the
federal statutory rate of 34% as a result of the following:
Year ended December 31, 1995 1994
----------------------------------------------------------------------
Tax at federal statutory rate 34% 34%
Flow-through of S Corporation taxable
income (loss) to shareholders 1 (34)
State income taxes, net of federal income
tax effect 7 15
Other items, net (4) -
----------------------------------------------------------------------
38% 15%
----------------------------------------------------------------------
----------------------------------------------------------------------
11. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1995, approximately 26% and 11% of the
Company's sales were to two customers. During the year ended December 31, 1994,
approximately 27% of the Company's sales were to one customer.
12. LITIGATION:
The Company, certain of its officers and directors, the underwriter of the
Company's IPO and counsel for the underwriter (collectively the "Counterclaim
Defendants") are included as defendants in a counterclaim to an action not
involving the Company. This counterclaim alleges the existence of an oral
agreement to compensate certain individuals for their efforts in connection with
the Company's IPO. This counterclaim seeks damages in excess of $1,500,000 from
the Counterclaim Defendants. Management and its legal counsel believe that the
litigation has no basis in law or fact, and intend to vigorously defend against
the claim. The financial statements do not include any adjustment related to
this claim.
F-15
<PAGE>
13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The pro forma net income in the accompanying statement of income for the years
ended December 31, 1995 and 1994 includes a pro forma adjustment for income
taxes on a C Corporation basis as indicated below.
Year ended December 31, 1995 1994
----------------------------------------------------------------------
Income before provision for income taxes and
minority interest in earnings of subsidiary
before pro forma adjustment for income taxes $612,837 $460,011
----------------------------------------------------------------------
Pro forma provision for income taxes:
Federal 180,000 137,000
State 52,000 38,000
----------------------------------------------------------------------
232,000 175,000
----------------------------------------------------------------------
Income before minority interest in earnings
of subsidiary 380,837 285,011
Minority interest in earnings of subsidiary (39,414) (31,574)
----------------------------------------------------------------------
PRO FORMA NET INCOME $341,423 $253,437
----------------------------------------------------------------------
----------------------------------------------------------------------
The pro forma provision for income taxes differs from the amount of pro forma
income tax determined by applying the applicable federal statutory rates
primarily because of the effect of state and local taxes.
F-16
<PAGE>
SEL-LEB MARKETING, INC.
UNAUDITED BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash and cash equivalents $ 72,388
Accounts receivable - net 2,260,823
Inventory 3,289,298
Prepaid expenses and other
current assets 175,866
Deferred income tax asset,
net of valuation allowance 52,000
----------
Total current assets 5,850,375
Property and equipment - net 316,872
Goodwill 273,741
Other assets 3,611
----------
Total assets $6,444,599
----------
----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Accounts payable and accrued expenses $1,343,634
Due to affiliates 90,067
Income taxes payable 231,968
----------
Total current liabilities and total liabilities 1,665,669
----------
Common Stock - $.01 par value;
authorized 40,000,000 shares, issued
and outstanding 7,440,000 shares (Note 1) 74,400
Additional paid-in capital 4,183,464
Retained earnings 521,066
----------
Shareholders' equity 4,778,930
----------
Total Liabilities and Shareholders' Equity $6,444,599
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-17
<PAGE>
SEL-LEB MARKETING, INC.
UNAUDITED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Net Sales $3,070,765 $2,354,848
Operating Expenses:
Cost of sales 2,283,866 1,777,363
Selling, general and administrative expenses 645,511 432,887
---------- ----------
Total operating expenses 2,929,377 2,210,250
Operating income 141,388 144,598
Interest income 9,902 0
Interest expense (12,242) (37,953)
---------- ----------
Income before provision for
income taxes and minority interest in earnings
of subsidiary 139,048 106,645
Provision for income taxes (Note 4) 48,505 14,000
---------- ----------
90,543 92,645
Minority interest in earnings of subsidiary -- 10,620
Net income $ 90,543 $ 82,025
---------- ----------
---------- ----------
Pro forma information
Net income (Note 4) $ 90,543 $ 49,100
---------- ----------
---------- ----------
Primary earnings per share $0.01 $0.01
---------- ----------
---------- ----------
Fully diluted earnings per share $0.01 $0.01
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-18
<PAGE>
SEL-LEB MARKETING, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
--------- ---------
(Note 1)
Cash flow from operating activities:
<S> <C> <C>
Net income $ 90,543 $ 82,025
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Imputed interest on noninterest bearing loans 0 4,225
Depreciation 25,126 425
Minority interest in earnings of subsidiary 0 10,620
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (85,010) 146,926
Increase in inventories (819,212) (244,687)
Increase in due from affiliates 0 (28,226)
Decrease in prepaid expenses and
other current assets 177,690 32,141
Increase (decrease) in accounts payable
and accrued expenses 354,593 (21,969)
Increase (decrease) in due to affiliates (18,000) 118,315
--------- ---------
Net cash provided by (used in) operating
activities (274,270) 99,795
--------- ---------
Cash flow from investing activities:
Net (advances to) repayments from affiliates (64,213) 60,000
--------- ---------
Cash flow from financing activities:
Net proceeds from notes to bank 0 150,000
Net repayment of long term debt
to related parties (422,099) 0
Deferred offering costs paid 0 (43,250)
--------- ---------
Net cash provided by (used in) financing
activities (422,099) 106,750
--------- ---------
Net increase (decrease) in cash (760,582) 266,545
--------- ---------
--------- ---------
Cash at beginning of period 832,970 179,536
--------- ---------
--------- ---------
Cash at end of period $ 72,388 $ 446,081
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-19
<PAGE>
SEL-LEB MARKETING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
--------- ------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 7,440,000 $74,400 $4,136,563 $430,523 $4,641,486
Discount in connection
with repayment of
related party debt -- 46,901 -- 46,901
Net income -- -- 90,543 90,543
--------- ------- ---------- --------- --------------
Balance at March 31, 1996 7,440,000 $74,400 $4,183,464 $521,066 $4,778,930
--------- ------- ---------- --------- --------------
--------- ------- ---------- --------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-20
<PAGE>
SEL-LEB MARKETING, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(The information pertaining to the three month periods ending
March 31, 1995 and 1996 are unaudited)
1. BASIS OF PRESENTATION, EVENTS, AND INITIAL PUBLIC OFFERING
The financial statements of Sel-Leb Marketing, Inc., ("the
Company") included herein have been prepared pursuant to generally
accepted accounting principles and have not been examined by
independent public accountants. In the opinion of management all
adjustments which are of a normal recurring nature necessary to present
fairly the results of operation have been made. Pursuant to Securities
and Exchange Commission ("SEC") rules and regulations, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements unless
significant changes have taken place since the end of the most recent
fiscal year. The disclosures contained herein should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-KSB filed with the SEC on March 31, 1996. The results
of operations for the three month period ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
The Company completed its initial public offering ("IPO") in July 1995
of 920,000 units, each unit consisting (after giving effect to
a 3-for-1 stock split effected in the form of a share distribution in
February 1996) of three shares of common stock and one warrant entitling
the holder to purchase three shares of common stock at an exercise price
of $2.00 per share. The warrants will be exercisable for a three year
period commencing July 13,1996. The Company used a portion of the net
proceeds of the IPO to repay bank and bridge loans outstanding as of the
date of the IPO.
On January 4, 1995, the Company increased its authorized number of
shares to 10,000,000 shares of common stock, effected a 17,760.8 for 1
stock split and changed the par value of its common stock from no par to
$.01 par. On May 18, 1995, the Company effected a .810706 reverse stock
split. In February 1996, the Company increased its authorized number of
shares to 40,000,000 shares of common stock and consummated a 3 for 1
stock split, which was effected as a share distribution pursuant to
which each holder of a share of common stock received two additional
shares for each share held. The increase in authorized shares and the
stock splits have been given retroactive effect in the accompanying
financial statements.
On May 18, 1995, the Company and Linette Cosmetics, Inc.
("Linette"), two companies with the same ownership interests, merged,
with the Company as the
F-21
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
surviving corporation. In addition, certain shareholders of the
Company contributed their 60% interest in Lea Cosmetics, Inc. ("Lea") to
the Company in connection with the IPO. The Company purchased the
remaining 40% interest in Lea immediately prior to consummation of its
IPO and Lea was subsequently merged into the Company in August 1995.
The purchase price for the 40% interest in Lea consisted of 180,000
shares of common stock, 90,000 of which were issued in January 1996 upon
Lea's achieving certain sales volume for 1995.
The merger of Linette with and into the Company and the
contribution of the 60% interest in Lea to the Company, have been
reported at historical cost in a manner similar to a pooling of
interests. The purchase of the 40% interest in Lea by the Company has
been accounted for as a purchase.
2. EARNINGS PER SHARE
Earnings per share amounts are computed based on the weighted
average numbers of shares actually outstanding plus the shares that
would be outstanding assuming exercise of dilutive stock options and
warrants, all of which are considered to be common stock equivalents.
The number of shares that would be issued from the exercise of stock
options and warrants has been reduced by the number of shares that could
have been purchased from the proceeds of such exercise at the average
market price of the Company's stock.
Pursuant to the modified treasury stock method, the number of
shares purchased has been limited to 20% of the outstanding shares and
the balance of funds has been hypothetically invested in U.S.
government securities or commercial paper with appropriate recognition
of any income tax effect.
For the three months ended March 31, 1996, the number of shares
used in the computation of primary earnings per share and fully dilutive
earnings per share were 13,977,189 and 14,154,955, respectively. For
the comparable period in 1995 the number of shares used for both
calculations amounted to 4,969,089.
3. ACQUISITION
In July 1995, the Company purchased the 40% interest in Lea in a
business combination accounted for as a purchase. The purchase price was
180,000 shares of newly issued, unregistered shares of the Company's
common stock, 90,000 of which were issued in
F-22
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
January 1996 upon Lea's achieving certain sales volume for 1995.
The accompanying financial statements reflect the issuance of these
shares of common stock as if they were issued on December 31, 1995. The
fair value of the assets acquired, including approximately $281,000
allocated to goodwill, which is being amortized over 10 years, amounted
to approximately $384,000 and liabilities assumed amounted to
approximately $101,000. Amortization expense related to goodwill and
charged to operations amounted to $7,082 for the three months ended
March 31, 1996.
The Company reviews the carrying value of goodwill for impairment
periodically and whenever events or changes in circumstances indicate that
the amount may not be recoverable. The review for recoverability
includes an estimate by the Company of the future undiscounted cash
flows expected to result from the use of the assets acquired and their
eventual disposition. An impairment will be recognized if the carrying
value of the assets exceeds the estimated future undiscounted cash flows of
those assets.
4. PROVISION FOR INCOME TAX
The provision for income tax for the three month period ended March 31,
1996 and the pro forma provision for the three month period ended March 31,
1995 reflects the Company's earnings taxed for Federal and certain State
income tax purposes at statutory rates. Prior to the merger of Linette
with and into the Company, the Company was treated as an S-Corporation,
with its earnings taxed for federal and certain state income tax purposes
directly to its shareholders.
F-23
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Certain Market Information . . . . . . . . . . . . . . . . . . . . . . . . . .17
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Concurrent Registration of Common Stock. . . . . . . . . . . . . . . . . . . .44
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .45
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . . . .48
Warrant Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-1
SEL-LEB MARKETING, INC.
5,760,000 SHARES OF COMMON STOCK,
ISSUABLE UPON THE EXERCISE OF REDEEMABLE WARRANTS
180,000 SHARES OF COMMON STOCK,
ISSUABLE UPON THE EXERCISE OF REDEEMABLE WARRANTS
HELD BY CERTAIN AFFILIATES OF THE COMPANY
80,000 UNITS,
EACH UNIT CONSISTING OF THREE SHARES OF
COMMON STOCK AND THREE REDEEMABLE WARRANTS,
240,000 SHARES OF COMMON STOCK
INCLUDED IN SUCH UNITS AND
240,000 SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE OF
REDEEMABLE WARRANTS INCLUDED IN SUCH UNITS
----------------
PROSPECTUS
----------------
, 1996
-------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
[Alternate page for Selling Security Holder Prospectus]
PROSPECTUS PRELIMINARY PROSPECTUS DATED JUNE 14, 1996
SUBJECT TO COMPLETION
SEL-LEB MARKETING, INC.
180,000 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale of up to 180,000 shares of
common stock, par value $.01 per share (the "Common Stock"), of Sel-Leb
Marketing, Inc. (the "Company") by certain affiliates thereof (the "Selling
Security Holders").
The Company will not receive any of the proceeds from the sales of the
Common Stock by the Selling Security Holders. It is anticipated that such
shares will be offered and sold from time to time in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then current market price, or in negotiated transactions; provided,
however, that no such shares may be sold by any of the Selling Security Holders
without the prior written consent of Duke & Co., Inc. ("Duke & Co." or the
"Underwriter") during the period of eighteen months commencing July 13, 1995.
All costs, expenses and fees in connection with the registration of the shares
offered by Selling Security Holders will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of such shares will be borne by
the Selling Security Holders. See "Selling Security Holders and Plan of
Distribution."
Concurrently with this offering, the Company is offering (the "Company
Offering"), pursuant to a separate prospectus included within the Registration
Statement of which this Prospectus forms a part (the "Company Prospectus"), (i)
up to 5,760,000 shares of Common Stock which are reserved for issuance upon the
exercise of redeemable warrants, each warrant to purchase one share of Common
Stock (each, a "Warrant"), issued in connection with the Company's 1995 initial
public offering of securities (the "IPO"), (ii) up to 180,000 shares of Common
Stock (which shares constitute the shares included in this Prospectus) reserved
for issuance upon the exercise of Warrants held by the Selling Security Holders,
(iii) up to 80,000 units (the "Units") issuable upon the exercise of the
warrants (the "Underwriter's Warrants") originally sold to Duke & Co. in
connection with the IPO, each Unit consisting of three shares of Common Stock
and three Warrant, and (iv) up to 240,000 shares of Common Stock which are
included in the Units and up to 240,000 shares of Common Stock which are
reserved for issuance upon the exercise of the Warrants included in the Units.
On July 13, 1995, the Common Stock and the Warrants began trading on NASDAQ
under the symbols "SELB" and "SELBW," respectively, and on the Boston Stock
Exchange ("BSE") under the symbols "SLL" and "SLLW," respectively. On June 11,
1996, the closing sale price of the Common Stock and Warrants on NASDAQ was
$7.25 and $13.50, respectively. The closing sale price of the Warrants does not
reflect the warrant adjustment scheduled to occur on June 20, 1996, which
warrant adjustment is described elsewhere in this Prospectus. See "Prospectus
Summary" and "Certain Market Information."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT
BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" (COMMENCING ON PAGE 8).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
comprised the shareholders of the Company until the IPO. In addition,
immediately prior to the consummation of the IPO, each of Messrs. Markowitz,
Sharp and Lazaro contributed to the Company his 20% equity interest in Lea
Cosmetics, Inc. ("Lea Cosmetics") and the Company acquired from the remaining
shareholder his 40% equity interest in Lea Cosmetics (the "Lea Acquisition").
As a result, Lea Cosmetics became a wholly-owned subsidiary of the Company and,
on August 3, 1995, Lea Cosmetics was merged with and into the Company, with the
Company as the surviving corporation.
The Company's principal executive offices are located at 1435 51 Street,
North Bergen, New Jersey 07047, and its telephone number is (201) 864-3316.
THE OFFERING
Securities offered . . . . . . . . . . . Up to 180,000 shares of Common Stock,
which shares are being issued to the
Selling Security Holders pursuant to
the Company Prospectus included
within the Registration Statement of
which this Prospectus forms a part
upon the exercise of Warrants held by
the Selling Security Holders. See
"Description of Securities" and
"Certain Transactions."
Common Stock Outstanding
Before the Company Offering(1) . . . . 7,440,000 shares
After the Company Offering(1)(2) . . . 13,860,000 shares
Use of Proceeds. . . . . . . . . . . . . The Company will not receive any of
the proceeds of this offering.
Risk Factors . . . . . . . . . . . . . . The securities offered hereby are
speculative and involve a high degree
of risk and should not be purchased
by investors who cannot afford the
loss of their entire investment. See
"Risk Factors."
NASDAQ symbol. . . . . . . . . . . . . Common Stock -- "SELB".
BSE symbol . . . . . . . . . . . . . . Common Stock -- "SLL".
-4-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
- ---------------
(1) Does not include (i) 1,024,500 shares of Common Stock reserved for issuance
upon exercise of stock options granted under the Company's 1995 Stock
Option Plan (the "Stock Option Plan"); (ii) 325,500 shares of Common Stock
reserved for issuance upon exercise of options available for future grant
under the Stock Option Plan; (iii) 80,000 shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1995
Nonemployee Directors' Stock Option Plan (the "Directors' Plan");
(iv) 220,000 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the Directors' Plan; and (v)
490,689 shares of Common Stock issuable upon exercise of a warrant granted
to Jan Mirsky, previously a consultant to, and currently the Executive Vice
President -- Finance and Chief Operating Officer of, the Company (the
"Consulting Warrant"). See "Management -- 1995 Stock Option Plan" and "--
Directors and Executive Officers," "Certain Transactions" and "Description
of Securities."
(2) Assumes exercise of all Warrants held by the Selling Security Holders.
Also assumes (i) exercise of all other outstanding Warrants, (ii) exercise
of all Underwriter's Warrants and (iii) exercise of all Warrants included
in the Units issuable upon exercise of the Underwriter's Warrants, although
there can be no assurance that any of the foregoing will be exercised.
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the historical
financial statements of the Company included elsewhere in this Prospectus. Such
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
Statement of Income Data: Three
Year Ended December 31, Months Ended March 31,
------------------------------ -------------------------
1994(1)(3) 1995(2)(3) 1995(3) 1996(3)
---------- ---------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Revenue $10,794,294 $11,480,135 $2,354,848 $3,070,765
Operating income $651,874 $595,157 $144,598 $141,388
Pro forma net income $253,437 $341,423 $49,100 $90,543
Pro forma net income per share:
Primary $0.05 $0.05 $0.01 $0.01
Fully Diluted $0.05 $0.04 $0.01 $0.01
Pro forma weighted average number of common shares
outstanding
Primary 4,969,089 8,429,726 4,969,089 13,977,189
Fully Diluted 4,969,089 8,491,491 4,969,089 14,154,955
<CAPTION>
Balance Sheet Information: March 31, 1996
--------------
(unaudited)
Actual As Adjusted(4)
---------- --------------
<S> <C> <C>
Current assets $5,850,375 $18,590,375
Current liabilities $1,665,669 $1,665,669
Working capital $4,184,706 $16,924,706
Total assets $6,444,599 $19,184,599
Total liabilities $1,665,669 $1,665,669
Shareholders' equity $4,778,930 $17,518,930
</TABLE>
-5-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
- ---------------
(1) Restated to include the results of operations of the Company and Linette
Cosmetics for the twelve-month period ended December 31, 1994 and of Lea
Cosmetics for the twelve-month period ended September 30, 1994.
(2) Includes the results of operations of the Company and Linette Cosmetics for
the twelve-month period ended December 31, 1995 and of Lea Cosmetics for
the fifteen-month period ended December 31, 1995. The results of
operations of Lea Cosmetics for the three-month period from October 1, 1994
to December 31, 1994 included in the statement of operations for 1995 were
not material.
(3) Prior to the Linette Merger, the Company and Linette Cosmetics were treated
as S Corporations, with earnings taxed for federal and certain state income
tax purposes directly to their respective shareholders. Pro forma
financial information includes a pro forma adjustment for income taxes
treated on a C Corporation basis.
(4) Gives effect to the sale in the Company Offering of 5,940,000 shares of
Common Stock upon the exercise of outstanding Warrants (including Warrants
held by the Selling Security Holders), and the sale of 240,000 shares of
Common Stock upon the exercise of the Underwriters' Warrants and 240,000
shares of Common Stock upon exercise of the Warrants included therein,
resulting in net proceeds to the Company of $12,740,000 (after deducting
expenses of the Company Offering other than solicitation fees, if any, to
be paid to Duke & Co. in connection with the exercise of the Warrants).
-6-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
[THIS PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
in 1994 and 1995, is currently selling directly into the traditional retail
market a line of "Jackie Collins Wild" fragrances and is currently in the
process of developing a line of bath products and jewelry for Ms. Collins for
sale by the Company to mass market merchandisers. There can be no assurance
that the Company will be able to sell additional amounts of such fragrances in
the future, that it will be able to successfully develop and/or promote any
other products for Ms. Collins, that the Company will be able to retain the
services of other celebrities in the future or successfully develop and/or
promote any products for any other celebrities whose services are retained by
the Company or that any such products so developed for Ms. Collins or any other
celebrities will meet with consumer acceptance or generate any significant
revenues. See "Business -- General -- Development of 'Celebrity' Products."
Pursuant to its agreement with Direct Access, the Company has been granted
the exclusive right to develop and sell cosmetics, fragrances and spa items in
connection with "tie-in" product programs developed by Direct Access for
television networks and producers. Such product programs are expected to
involve the development of products which "tie in" to characters, activities
and/or themes of a specific television show. The agreement with Direct Access
also provides that the Company will be entitled to sell any merchandise
developed by it for any of such television shows through other retail
distribution channels, provided that the Company pays a royalty in connection
therewith at a negotiated amount. As of the date hereof, the Company has been
authorized to develop and act as the exclusive manufacturer and distributor of a
cosmetic, fragrance and skin care line to be sold in connection with the CBS
daytime drama THE YOUNG AND THE RESTLESS. However, as of the date hereof,
Direct Access has not secured air time for the promotion and sale of such
products, and there can be no assurance that it will be successful in doing so
or that, if such air time is secured, the products will meet with consumer
acceptance. There can also be no assurance that Direct Access will be able to
successfully negotiate with any other television networks or producers for the
development of other program product "tie-ins" or that Direct Access will be
able to secure air time during which any such products can be marketed and sold.
See "Business -- General -- Development of 'Celebrity' Products."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. The proceeds, if any, to the
Company from the Company Offering, net of the expenses of the Company Offering
(other than solicitation fees, if any, to be paid to Duke & Co. in connection
with the exercise of Warrants), will be approximately $12,740,000 assuming the
issuance and sale of all securities (including the Underwriter' Warrants) being
offered by the Company pursuant to the Company Prospectus. The Company has been
advised by Duke & Co. that it currently intends to exercise all of the
Underwriter's Warrants at such time as such Underwriter's Warrants become
exercisable, thereby resulting in proceeds to the Company (before deducting
expenses) of $600,000. Management anticipates that the proceeds of the Company
Offering, if any, will be allocated to working capital and general corporate
purposes. Accordingly, the Company's management will have broad discretion as
to the application of such proceeds. See "Use of Proceeds."
COMPETITION. The areas of business in which the Company engages are highly
competitive businesses. The secondary sourcing business is characterized by
intense competition, both in the products sold and in the retaining of
relationships with suppliers and customers. With respect to its ability to
obtain merchandise, the Company competes with other secondary sources, as well
as with wholesale distributors and retailers. The Company believes that its
ability to purchase a broad array of merchandise at competitive prices is
critical to its success. With respect to sales to its customers, the Company
competes with other secondary suppliers of merchandise, as well as with
manufacturers who sell directly to retail merchandisers. In addition, with
respect to products sold under the Company's Linette-Registered Trademark-, Vea-
Registered Trademark- and Zia-Registered Trademark- brand names, the Company
competes with other manufacturers at the retail store level for shelf space and
promotional space. Many of the Company's existing or potential competitors are
well established companies and have or will have substantially greater
financial, marketing and other resources than the Company. The Company believes
that it competes on the basis of value, product assortment and
-11-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
availability, service to customers and reputation, as well as on the basis of
its long-standing and well-established relationships with both its suppliers and
customers. Although the Company believes that it will be able to compete
effectively on the basis of such factors, there can be no assurance of such.
In connection with its "celebrity" products business, the Company competes
or will compete with manufacturers and marketing organizations that seek out
celebrities to endorse products and assist in marketing programs for their
merchandise. In addition, the Company believes that virtually all celebrities
have agents who can negotiate directly with retailers in order to secure
marketing contracts on their behalf. The Company believes that it competes on
the basis of its ability to design products which are consistent with the
celebrities' respective preferences and characters and to provide such products
to retailers at competitive prices. Furthermore, although the Company is not
aware of any other entities which currently manufacture, market or develop
television "tie-in" products to be sold on television during the airing of the
related program, the Company believes that any such products developed by the
Company will compete with other products sold in the electronic retailing market
(including through television infomercials and interactive television shopping
networks), as well as other products sold in the traditional retail market which
relate to characters or themes of television shows or movies. The Company
believes that it will compete on the basis of the unique nature of such
television "tie-in" products, as well as on its ability to provide such products
at competitive prices.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The success of the Company is
largely dependent on the personal efforts of Harold Markowitz, its Chairman of
the Board, Paul Sharp, its President and Chief Executive Officer, Jan Mirsky,
its Executive Vice President - Finance and Chief Operating Officer, Jack Koegel,
its Vice Chairman, and Jorge Lazaro, its Executive Vice President. In
particular, the future success of the Company's celebrity products line of
business is dependent on the efforts of Mr. Markowitz, who has to date been
primarily responsible for developing relationships with various celebrities.
Although the Company has entered into an employment agreement with each of
Messrs. Markowitz, Sharp, Mirsky, Koegel and Lazaro, each of which agreements
provides that the employee shall devote substantially all of such employee's
working time and attention to the Company, the loss of services of any of such
individuals could have a material adverse effect on the Company's business and
prospects. See "Management."
CONTROL BY MANAGEMENT AND CURRENT SHAREHOLDERS. As of the date of this
Prospectus, Messrs. Markowitz, Sharp, Mirsky, Koegel and Lazaro, each of whom is
an officer and director of the Company, beneficially own, in the aggregate,
approximately 64.7% of the outstanding Common Stock (assuming no exercise of the
Warrants, the Underwriter's Warrants or the Warrants included therein or of
options or warrants held by persons other than Messrs. Markowitz, Sharp, Mirsky,
Koegel and Lazaro). Accordingly, in the event such shareholders were to act in
concert with respect to the Company's operations, they would be in a position to
cause an increase in the authorized capital or cause the dilution, merger or
sale of assets of the Company, and generally control the affairs of the Company.
Upon completion of the Company Offering, and assuming that all of the Warrants,
Underwriter's Warrants and Warrants included therein are exercised, Messrs.
Markowitz, Sharp, Mirsky, Koegel and Lazaro will beneficially own, in the
aggregate, approximately 37.0% of the outstanding Common Stock (assuming no
exercise of any other options or warrants other than those held by such
individuals). Although such shareholders would not represent, in the aggregate,
a majority of the voting securities of the Company, their significant beneficial
holdings would enable them to exercise substantial influence over the Company.
See "Principal Shareholders."
INSURANCE AND POTENTIAL LIABILITY. While no material product liability
claims have been made against the Company in the past, as a distributor of
merchandise, including health and beauty aids, cosmetics, fragrances and
household items, the Company could be exposed to possible liability claims
-12-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
from others for personal injury or property damage due to design or
manufacturing defects or otherwise. The Company maintains a product liability
insurance policy that has a $1,000,000 per occurrence limit and a $2,000,000
aggregate limit, and a $3,000,000 umbrella liability insurance policy to cover
claims in excess of the limits of its products liability insurance. In
addition, the Company believes that the suppliers from whom it purchases such
merchandise, including the manufacturers thereof, maintain adequate levels of
product liability insurance. Although the Company believes that its product
liability insurance coverage is adequate in light of prior experience and future
expectations, there can be no assurance of such. In addition, the Company
maintains other insurance, including insurance relating to property and personal
injury, similar, the Company believes, to that maintained by comparable retail
businesses and in amounts which the Company currently considers adequate.
Nevertheless, a partially or completely uninsured claim against the Company, if
successful and of sufficient magnitude, could have a material adverse effect on
the Company. See "Business -- Insurance."
RISK OF ELIMINATION OF SUPPLY OF PRESTIGE FRAGRANCES. The Company believes
that a portion of the prestige fragrances purchased by it may include
trademarked products manufactured in foreign countries and trademarked products
manufactured in the United States that may have been sold to foreign
distributors. From time to time, United States trademark owners and their
licensees and trade associations have initiated litigation or administrative
agency proceedings seeking to halt the importation into the United States of
such foreign manufactured or previously exported trademarked products. Although
the Company is not currently the subject of any such legal or administrative
actions, and is not aware of any such threatened legal or administrative
actions, there can be no assurance that the Company's business activities will
not become the subject of such actions in the future, or that future judicial,
legislative or administrative agency action will not limit or eliminate some or
all of the secondary sources of supply of prestige fragrances used by the
Company. However, the Company believes that any future limitation on or
elimination of its sources of supply of prestige fragrances for sale to its
customers would not have a material adverse effect on the Company, although
there can be no assurance of such.
NO DIVIDENDS. The Company has not paid any dividends to date, other than a
dividend paid in 1995 to those individuals who constituted the Company's
shareholders prior to the IPO, which dividend was paid in connection with the
termination of the Company's status as an S Corporation. It is the Company's
intention to retain earnings, if any, to finance the operation and expansion of
its business and, therefore, it does not expect to pay cash dividends in the
foreseeable future. See "Management's Discussion and Analysis or Plan of
Operation," "Certain Transactions" and "Description of Securities -- Dividends."
ELIMINATION OF LIABILITY OF DIRECTORS AND OFFICERS. The Company's
Certificate of Incorporation eliminates the liability of a director of the
Company for monetary damages for breach of duty as a director, subject to
certain exceptions. In addition, the Certificate of Incorporation provides for
the Company to indemnify, under certain conditions, directors and officers of
the Company against all expenses, liabilities and losses reasonably incurred by
such persons in connection therewith. The foregoing provisions may reduce the
likelihood of derivative litigation against directors and may discourage or
deter shareholders or management from suing directors for breaches of their duty
of care, even though such an action, if successful, might otherwise benefit the
Company and its shareholders. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon the
consummation of the Company Offering, the Company will have 13,860,000 shares of
Common Stock outstanding (assuming no exercise of outstanding options or
warrants other than the Warrants (including Warrants held by the Selling
Security Holders), the Underwriter's Warrants and the Warrants included
therein), of which 9,000,000 shares of Common Stock will be freely tradeable
without restriction or further registration under the
-13-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
Securities Act of 1933, as amended (the "Securities Act"). All of the remaining
4,860,000 shares of Common Stock outstanding are "restricted securities," as
that term is defined under Rule 144 promulgated under the Securities Act, and in
the future may only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 or
pursuant to another exemption under the Securities Act. An aggregate of 180,000
of such restricted shares are being registered by the Company under the
Securities Act pursuant to this Prospectus. In addition, commencing in October
1995, an aggregate of 4,500,000 restricted shares became eligible for sale under
Rule 144, subject to certain volume limitations prescribed by Rule 144 and to
the contractual restrictions described below. The balance of the restricted
shares will become eligible for sale under Rule 144, subject to the volume
limitations prescribed by Rule 144, commencing in July 1997. The Company has
granted Mr. Mirsky certain demand and "piggyback" registration rights (subject
to certain limitations) with respect to the shares of Common Stock issuable upon
exercise of the Consulting Warrant. In connection with the IPO and at the
request of Duke & Co., Mr. Mirsky waived such rights for a period of eighteen
months commencing July 13, 1995. In addition, in connection with the IPO, the
Company also granted Duke & Co. demand and piggyback registration rights with
respect to the 240,000 shares of Common Stock and 240,000 Warrants issuable upon
exercise of the Underwriter's Warrants and the 240,000 shares of Common Stock
issuable upon exercise of the Warrants included in the Underwriter's Warrants.
The 480,000 shares of Common Stock underlying the Underwriter's Warrants have
been included in the Company Prospectus which is included in the Registration
Statement of which this Prospectus forms a part. No prediction can be made as
to the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. While all of the Company's officers and directors, and
certain shareholders of the Company, have agreed not to sell or otherwise
dispose of any of their shares of Common Stock (an aggregate of 4,860,000 shares
(including the 180,000 shares of Common Stock included in this Prospectus)) for
a period of eighteen months commencing July 13, 1995 without the prior written
consent of Duke & Co. (other than pursuant to private transfers in which the
transferee agrees to abide by the same restriction), and Mr. Mirsky has waived
the registration rights granted to him under the Consulting Warrant for a period
of eighteen months commencing July 13, 1995 (and, as a director and officer of
the Company is subject to the aforementioned restriction during such
eighteen-month period on sales of any shares of Common Stock issuable upon
exercise of his warrant), the possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Common Stock and the Warrants and could impair the Company's
ability to raise capital through the sale of its equity securities. See
"Certain Transactions," "Description of Securities" and "Shares Eligible for
Future Sale."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; RISKS RELATING TO
LOW-PRICED STOCKS. The Company's Common Stock and Warrants are listed on
NASDAQ. In order to continue to be listed on NASDAQ, however, the Company must
maintain $2,000,000 in total assets, a $200,000 market value of the public float
and $1,000,000 in total capital and surplus. In addition, continued inclusion
requires two market-makers and a minimum bid price of $1.00 per share; provided,
however, that if the Company falls below such minimum bid price, it will remain
eligible for continued inclusion in NASDAQ if the market value of the public
float is at least $1,000,000 and the Company has $2,000,000 in capital and
surplus. The failure to meet these maintenance criteria in the future may
result in the delisting of the Company's securities from NASDAQ. In such event,
trading, if any, in the Common Stock and Warrants would thereafter be conducted
in the over-the-counter markets through the so-called "pink sheets" or the
NASD's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's securities could be impaired, not only in the number of securities
which could be bought and sold, but also through delays in the timing of
transactions, difficulty in obtaining accurate quotations as to the market value
of the securities and reductions in the security analysts' and the news media's
coverage of the Company. Delisting of the Company's securities may result in
lower prices for the Company's
-14-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
securities than might otherwise prevail. See "Description of Securities --
NASDAQ and Boston Stock Exchange Listing."
In addition, if the Common Stock were to become delisted from trading on
NASDAQ and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Exchange Act which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in the Common Stock
and Warrants, which could severely limit the market liquidity of the Common
Stock and Warrants, the ability of purchasers in this offering to sell the
Common Stock and Warrants in the secondary market and the Company's ability to
obtain additional financing.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock by the Selling Security Holders. The proceeds, if any,
received by the Company from the Company Offering, net of expenses of the
Company Offering (other than solicitation fees, if any, to be paid to Duke & Co.
in connection with the exercise of Warrants), will be $12,740,000, assuming the
issuance and sale of all securities (including the Underwriter's Warrants) being
offered by the Company pursuant to the Company Prospectus. There can be no
assurance as to the number of Warrants, if any, or Underwriter's Warrants or
Warrants included therein, if any, which will be exercised in connection with
the Company Offering. However, the Company has been advised by Duke & Co. that
it currently intends to exercise all of the Underwriter's Warrants, thereby
resulting in proceeds to the Company (before deducting expenses) of $600,000.
Management anticipates that the net proceeds of the Company Offering, if any,
will be allocated to working capital and general corporate purposes. In
addition, management of the Company anticipates that, upon receipt of the net
proceeds of the Company Offering, a portion of such proceeds will be used to
repay any amounts then outstanding under the Company's revolving line of credit
agreement with United Jersey Bank. As of the date of this Prospectus, the
Company has an aggregate principal amount of $100,000 outstanding under this
line of credit. See "Management's Discussion and Analysis or Plan of
Operation."
The proceeds allocated to working capital and general corporate purposes
will be applied, to the extent necessary, to the Company's current operations.
-15-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
[THIS PAGE INTENTIONALLY LEFT BLANK]
-16-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
CERTAIN MARKET INFORMATION
The shares of Common Stock of the Company commenced trading on the Nasdaq
Small Capitalization Market under the symbol "SELB" on July 13, 1995. The range
of high and low reported closing sales prices for the Common Stock as reported
by Nasdaq since the commencement of trading were as follows:
Fiscal Year 1995 High (1) Low (1)
- ---------------- -------- -------
Third Quarter. . . . . . . . . . . . . . . . . . . $3.17 $2.71
Fourth Quarter . . . . . . . . . . . . . . . . . . $5.50 $2.81
Fiscal Year 1996
- -----------------
First Quarter. . . . . . . . . . . . . . . . . . . $7.00 $4.67
Second Quarter (through June 12, 1996) . . . . . . $8.00 $6.44
- ---------------
(1) All share prices with respect to dates prior to the Share Distribution have
been adjusted to give effect to the Share Distribution. All share prices
have been rounded to the nearest cent.
The prices set forth above reflect inter dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
On June 10, 1996, as reported by the Company's transfer agent,
shares of Common Stock were held by 17 persons, based on the number of record
holders, including several holders who are nominees for an undetermined number
of beneficial owners.
-17-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
CAPITALIZATION
The following table sets forth, as of March 31, 1996, the capitalization of
the Company (i) on a historical basis and (ii) as adjusted to give retroactive
effect to the issuance and sale of the securities in the Company Offering and
the anticipated application of the estimated net proceeds therefrom. This
information should be read in conjunction with the Company's financial
statements and related notes appearing elsewhere in this Prospectus.
March 31, 1996
--------------
(unaudited)
Actual As Adjusted(1)
------ --------------
Long-term debt, less current portion $ -0- $ -0-
---------- -----------
Total long-term debt -0- -0-
---------- -----------
Shareholders' equity
Common stock, par value $0.01 per
share, 40,000,000 shares authorized,
7,440,000 shares issued and outstanding
(actual) and 13,860,000 shares issued
and outstanding (as adjusted) 74,400 138,600
Additional paid-in capital 4,183,464 16,859,264
Retained earnings 521,066 521,066
---------- -----------
Total shareholders' equity 4,778,930 17,518,930
---------- -----------
Total capitalization $4,778,930 $17,518,930
---------- -----------
---------- -----------
- ---------------
(1) Gives effect to the sale in the Company Offering of 5,940,000 shares of
Common Stock upon the exercise of outstanding Warrants (including Warrants
held by the Selling Security Holders), and the sale of 240,000 shares of
Common Stock upon exercise of the Underwriters' Warrants and 240,000 shares
of Common Stock upon exercise of the Warrants included therein, resulting
in net proceeds to the Company of $12,740,000 (after deducting expenses of
the Company Offering other than solicitation fees, if any, to be paid to
Duke & Co. in connection with the exercise of the Warrants).
-18-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1995 and for the
years ended December 31, 1995 and 1996 is derived from the Company's financial
statements, audited by Goldstein Golub Kessler & Company, P.C., included
elsewhere in this Prospectus. The data as of March 31, 1996 and for the three-
month periods ended March 31, 1995 and 1996 is derived from the Company's
unaudited financial statements included elsewhere in this Prospectus, which, in
the opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth herein. This data should be read in conjunction with the financial
statements of the Company, including their respective notes and "Management's
Discussion and Analysis or Plan of Operation".
<TABLE>
<CAPTION>
STATEMENT OF INCOME DATA: Three
Year Ended December 31, Months Ended March 31,
------------------------------ -------------------------
1994(1)(3) 1995(2)(3) 1995(3) 1996(3)
---------- ---------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE $10,794,294 $11,480,135 $2,354,848 $3,070,765
Operating income $651,874 $595,157 $144,598 $141,388
Pro forma net income $253,437 $341,423 $49,100 $90,543
Pro forma net income per share:
Primary $0.05 $0.05 $0.01 $0.01
Fully Diluted $0.05 $0.04 $0.01 $0.01
Pro forma weighted average number of common
shares outstanding
Primary 4,969,089 8,429,726 4,969,089 13,977,189
Fully Diluted 4,969,089 8,491,491 4,969,089 14,154,955
<CAPTION>
BALANCE SHEET DATA: March 31, 1996
--------------
(unaudited)
Actual As Adjusted(4)
---------- --------------
<S> <C> <C>
Current assets $5,850,375 $18,590,375
Current liabilities $1,665,669 $1,665,669
Working capital $4,184,706 $16,924,706
Total assets $6,444,599 $19,184,599
Total liabilities $1,665,669 $1,665,669
Shareholders' equity $4,778,930 $17,518,930
</TABLE>
- ---------------
(1) Restated to include the results of operations of the Company and Linette
Cosmetics for the twelve-month period ended December 31, 1994 and of Lea
Cosmetics for the twelve-month period ended September 30, 1994.
(2) Includes the results of operations of the Company and Linette Cosmetics for
the twelve-month period ended December 31, 1995 and of Lea Cosmetics for
the fifteen-month period ended December 31, 1995. The results of
operations of Lea Cosmetics for the three-month period from October 1, 1994
to December 31, 1994 included in the statement of operations for 1995 were
not material.
(3) Prior to the Linette Merger, the Company and Linette Cosmetics were treated
as S Corporations, with their earnings taxed for federal and certain state
income tax purposes directly to their respective shareholders. Pro forma
financial information includes a pro forma adjustment for income taxes
treated on a C Corporation basis.
(4) Gives effect to the sale in the Company Offering of 5,940,000 shares of
Common Stock upon the exercise of the outstanding Warrants (including
Warrants held by the Selling Security Holders), and the sale of 240,000
shares of Common Stock upon exercise of the Underwriters' Warrants and
240,000 shares of Common Stock upon exercise of the Warrants included
therein, resulting in net proceeds to the Company of $12,740,000 (after
deducting expenses of this offering other than solicitation fees, if any,
to be paid to Duke & Co. in connection with the exercise of the Warrants).
-19-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
parties, which was $769,000 at such time, was reduced by $300,000. The debt of
$300,000 was converted into conversion units (equivalent to the IPO Units) (the
"Conversion Units") at the rate of $5.00 per Conversion Unit for an aggregate of
60,000 Conversion Units. The remaining $469,000 was scheduled to be repaid by
the Company with interest at an annual rate of 8% on January 20, 1997 out of
available working capital, if available, on such terms as were to be determined
by the board of directors of the Company. On March 21, 1996, the Company repaid
such remaining balance at a discount of $46,900 and increased additional paid-in
capital by a corresponding amount.
Prior to the consummation of the Linette Merger, the Company and Linette
Cosmetics were treated as S Corporations. As a result, earnings of such
companies during such period were taxed for federal and certain state income tax
purposes directly to the shareholders of the companies. On May 17, 1995, the
Company declared a distribution payable to the shareholders of such companies
prior to the Linette Merger in an amount equal to the taxes payable on earnings
of the Company during the period of its S Corporation status (the "S Corporation
Distribution"), which distribution was payable following the consummation of the
IPO after the amount thereof had been determined. In September and October of
1995, the Company paid S Corporation Distributions in the aggregate amount of
approximately $156,250.
In May 1995, the Company borrowed, for working capital purposes and to pay
a portion of the expenses of the IPO, an aggregate of $250,000 (the "Bridge
Financing") from the Bridge Investor, an accredited investor unaffiliated with
the Company or any of its executives or directors. In connection with the
Bridge Financing, the Company issued to the Bridge Investor (i) the Bridge Note,
which bore interest at the rate of 8% per annum and was due and payable on the
earlier of the consummation of the IPO or November 23, 1995 and (ii) 1,000,000
warrants (the "Bridge Warrants"), each of which was exercisable until November
23, 1995 and entitled the holder thereof to purchase three shares of Common
Stock at an exercise price of $2.00 per share. Upon the consummation of the
IPO, each Bridge Warrant automatically converted into a warrant having the same
terms as the Warrants. The Company used a portion of the proceeds of the IPO to
repay the entire principal amount of the Bridge Note, plus accrued interest
thereon.
On November 6, 1995, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with United Jersey Bank (the "Lender") pursuant to which
it obtained a revolving line of credit for general working capital purposes in
an aggregate principal amount up to $2,000,000, subject to a borrowing base
limitation. The line of credit bears interest at fluctuating rates per annum
based on the "Prevailing Base Rate" (as defined in the Loan Agreement) of the
Lender. As of the date hereof, the Company has an aggregate principal amount of
$100,000 outstanding under this line of credit. Any funds borrowed by the
Company under the Loan Agreement are secured primarily by the inventory and
receivables of the Company. The Loan Agreement terminates on May 31, 1997.
Although the Company anticipates that it will renew the Loan Agreement upon its
termination, there can be no assurance that the Loan Agreement will be renewed
at such time.
At March 31, 1996, the Company had working capital of $4,184,706 and cash
and short-term investments of $72,388.
The Company anticipates that the proceeds of the Company Offering, which
will increase the Company's available working capital and cash, together with
anticipated cash flow from the Company's operations, will be sufficient to
satisfy the Company's cash requirements for at least twelve months. In the
event the Company's plans change (due to unanticipated expenses or difficulties
or otherwise), or if the proceeds of this offering and projected cash flow
otherwise prove insufficient to fund operations, the Company could be required
to seek additional financing sooner than currently anticipated. Except for
-22-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
director of the Company for monetary damages for breach of duty as a director,
subject to certain exceptions. In addition, the Certificate of Incorporation, as
amended, provides for the Company to indemnify, under certain conditions,
directors and officers of the Company against all expenses, liabilities and
losses reasonably incurred by such persons in connection therewith. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from suing
directors for breaches of their duty of care, even though such an action, if
successful, might otherwise benefit the Company and its shareholders.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale by the Company of shares of Common Stock in the
Company Offering, the beneficial ownership of shares of Common Stock by (i) each
person who is known by the Company to own more than 5% of the outstanding shares
of Common Stock, (ii) each Named Officer and (iii) all of the Company's officers
and directors as a group:
AMOUNT AND PERCENT PERCENT
NATURE OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNED PRIOR TO OWNED FOLLOWING
NAME AND ADDRESS OF OWNERSHIP OFFERING AND THE COMPANY
BENEFICIAL OWNER(1) (2)(3) COMPANY OFFERING OFFERING(4)
- ------------------- --------- ---------------- ---------------
Harold Markowitz 1,560,000(5) 20.8% 11.3%
Paul Sharp 1,560,000(6) 20.8% 11.3%
Jorge Lazaro 1,560,000(7) 20.8% 11.3%
Jan Mirsky 609,939(8) 7.6% 4.2%
Jack Koegel 108,750(9) 1.4% *
Stanley R. Goodman 20,000(10) * *
Edward C. Ross 20,000(11) * *
L. Douglas Bailey 10,000(12) * *
All officers and 5,448,689(5)-(12) 65.0% 37.2%
directors as a group
(8 persons)
- ---------------
* Less than 1%
(1) The address for each such person is c/o Sel-Leb Marketing, Inc., 1435 51
Street, North Bergen, New Jersey 07047.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
-41-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
(3) The number of shares beneficially owned by each individual gives effect to
the Share Distribution.
(4) These percentages assume the issuance and sale of all securities offered in
the Company Offering.
(5) Includes 60,000 shares of Common Stock issuable upon exercise of Warrants
included in the Conversion Units issued to Mr. Markowitz in connection with
the IPO.
(6) Includes 60,000 shares of Common Stock issuable upon exercise of Warrants
included in the Conversion Units issued to Mr. Sharp in connection with the
IPO.
(7) Includes 60,000 shares of Common Stock issuable upon exercise of Warrants
included in the Conversion Units issued to Mr. Lazaro in connection with
the IPO.
(8) Includes (i) 490,689 shares of Common Stock issuable upon exercise of a
warrant granted to Mr. Mirsky by the Company and (ii) 119,250 shares of
Common Stock issuable upon exercise of options granted to Mr. Mirsky under
the Company's Stock Option Plan. Does not include 357,750 shares of Common
Stock issuable upon exercise of options granted to Mr. Mirsky under the
Stock Option Plan which are not exercisable within 60 days of the date of
this Prospectus.
(9) Includes (i) 15,000 shares of Common Stock issuable upon exercise of
options granted to Mr. Koegel under the Nonemployee Directors' Plan and
(ii) 93,750 shares of Common Stock issuable upon the exercise of options
granted to Mr. Koegel under the Stock Option Plan. Does not include
281,250 shares of Common Stock issuable upon exercise of options granted to
Mr. Koegel under the Stock Option Plan which are not exercisable within 60
days of the date of this Prospectus.
(10) Includes 20,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Goodman under the Nonemployee Directors' Plan.
(11) Includes 20,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Ross under the Nonemployee Directors' Plan.
(12) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Bailey under the Nonemployee Directors' Plan.
-42-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
In January 1994, the Company issued and sold to Jan Mirsky, then a
consultant to the Company and currently the Executive Vice President - Finance,
Chief Operating Officer and a director of the Company, the Consulting Warrant to
purchase 490,689 shares of Common Stock, in consideration for a $21,000 non-
interest bearing promissory note payable to the Company, due March 31, 1995, and
the performance by him of services as a marketing consultant to the Company.
The Company subsequently agreed to extend until May 17, 1995 the due date of the
promissory note, and on May 17, 1995 Mr. Mirsky paid the entire $21,000
principal amount thereof. The Consulting Warrant is exercisable at any time
through March 31, 2000 at an aggregate exercise price of $315,000. Pursuant to
the Consulting Warrant, Mr. Mirsky has been granted certain demand and piggyback
registration rights (subject to certain limitations) with respect to the shares
of Common Stock issuable upon exercise of the Warrant. In connection with the
IPO and at the request of the Underwriter, Mr. Mirsky has waived such rights for
a period of eighteen months commencing July 13, 1995, and has agreed not to sell
during such eighteen-month period any shares of Common Stock issuable upon
exercise of the Consulting Warrant other than in connection with certain
transactions. See "Description of Securities -- Registration Rights."
During the year ended December 31, 1994, the Company made approximately
$421,000 of inventory purchases from Linette Cosmetics. Also, Linette Cosmetics
made advances to, or paid expenses on behalf of, the Company of $639,247 during
such period, and the Company made repayments to, and paid expenses on behalf of
Linette Cosmetics, resulting in a balance due to Linette Cosmetics at December
31, 1994 of $46,854. During the period from January 1, 1995 to the date of the
Linette Merger, the Company made no inventory purchases from Linette Cosmetics
and Linette Cosmetics made no advances to, and paid no expenses on behalf of,
the Company. As of the date of the Linette Merger, the Company had a balance
due to Linette Cosmetics of $69,004.
In March 1993, Howlin ceased conducting operations and, in connection
therewith, transferred its inventory to the Company pursuant to a consignment
arrangement whereby the Company sold the inventory on Howlin's behalf, remitted
to Howlin an amount equal to the original cost to Howlin of the goods sold by
the Company and retained for its own account any profits received from the sale
of such goods. During 1995, the Company purchased from Howlin all inventory
then held by the Company pursuant to such arrangement for a purchase price of
approximately $13,800, which amount represented the original cost to Howlin of
such inventory.
In March 1993, Lazmar Inc. ("Lazmar"), a company in which Mr. Lazaro owns
50% of the outstanding stock, delivered inventory to the Company pursuant to a
consignment arrangement similar to the Company's arrangement with Howlin.
During 1995, the Company purchased from Lazmar all inventory then held by it
pursuant to such arrangement for a purchase price of approximately $70,000,
which amount represented the original cost to Lazmar of such inventory. At
March 31, 1996 and December 31, 1995, the Company had an account payable to
Lazmar of approximately $69,820 and $80,000, respectively.
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale by the Selling Security
Holders of up to 180,000 shares of Common Stock (the "Selling Security Holders'
Shares") to be issued to the Selling Security Holders upon exercise of Warrants
held by them. The Company has agreed to register the public offering of the
Selling Security Holders' Shares under the Securities Act concurrently with the
Company Offering and to pay certain expenses in connection therewith. The
Selling Security Holders' Shares have been included in the Registration
Statement of which this Prospectus forms a part. None of the Selling Security
Holders' Shares may be sold by the Selling Security Holders during the period of
eighteen months commencing July 13, 1995 without the prior written consent of
Duke & Co. The Selling Security Holders currently serve as officers and
directors of the Company. See "Management." The Company will not receive any
of the proceeds from the sale of the Selling Security Holders' Shares by the
Selling
-44-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
Security Holders. The following table sets forth certain information with
respect to the Selling Security Holders:
BENEFICIAL BENEFICIAL
OWNERSHIP OF OWNERSHIP OF
SHARES OF COMMON SHARES OF COMMON
STOCK PRIOR TO STOCK AFTER
SELLING SECURITY HOLDERS SALE(1) SALE(2)
- ------------------------ ---------------- ----------------
Harold Markowitz,
Chairman of the Board and Director of 1,560,000 1,500,000
the Company
Paul Sharp,
President, Chief Executive Officer and 1,560,000 1,500,000
Director of the Company
Jorge Lazaro,
Executive Vice President, Secretary 1,560,000 1,500,000
and Director of the Company --------- ---------
Total 4,680,000 4,500,000
--------- ---------
--------- ---------
- ---------------
(1) Assumes no additional shares are acquired. See "Principal Shareholders"
for additional information regarding security ownership of the Selling
Security Holders.
(2) Assumes all of the Selling Security Holders' Shares offered hereby are sold
by the Selling Security Holders.
The Selling Security Holders' Shares may be offered and sold from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. The Selling Security Holders'
Shares may be sold by one or more of the following methods, including without
limitation: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchases; and (d) face-to-face transactions between
sellers and purchasers without a broker/dealer. In effecting sales, brokers or
dealers engaged by the Selling Security Holders may arrange for other brokers or
dealers to participate. Such brokers or dealers may receive commissions or
discounts from Selling Security Holders in amounts to be negotiated. Such
brokers and dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act, in connection
with such sales.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this offering, the Company is offering pursuant to the
Company Prospectus an aggregate of 5,940,000 shares of Common Stock issuable
upon the exercise of outstanding Warrants (including Warrants held by the
Selling Security Holders), 240,000 shares of Common Stock issuable upon exercise
of the Underwriter's Warrants and 240,000 shares of Common Stock issuable upon
exercise of the Warrants included therein.
-45-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
DESCRIPTION OF SECURITIES
GENERAL
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock, par value $.01 per share,
of which 7,440,000 shares are outstanding (not including the 180,000 shares of
Common Stock issuable upon exercise of the Warrants held by the Selling Security
Holders, which shares constitute the Selling Security Holders' Shares). The
following description of the securities of the Company and certain provisions of
the Company's Certificate of Incorporation and By-Laws, each as amended, is a
summary and is qualified in its entirety by the provisions of the Certificate of
Incorporation and By-Laws as currently in effect. As of June 10, 1996, the
Company's Common Stock was held of record by 17 shareholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of Incorporation,
as amended, does not provide for preemptive rights or for cumulative voting for
the election of directors. Holders of Common Stock will be entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor, and will be entitled
to receive, pro rata, all assets of the Company available for distribution to
such holders upon liquidation. Holders of Common Stock have no preemptive,
subscription or redemption rights. All outstanding shares of Common Stock are,
and the Common Stock offered hereby, upon issuance and sale, will be, fully paid
and nonassessable.
DIVIDENDS
Other than the S Corporation Distribution, the Company has not declared or
paid a cash dividend on its Common Stock since its inception. The payment by
the Company of dividends, if any, is within the discretion of the Board of
Directors and will depend on the Company's earnings, if any, its capital
requirements and financial condition, as well as other relevant factors. The
Board of Directors does not intend to declare any dividends in the foreseeable
future, but instead intends to retain earnings, if any, for use in the Company's
business operations.
REGISTRATION RIGHTS
In connection with the IPO, the Company granted to Duke & Co. certain
demand and piggyback registration rights with respect to the 240,000 shares of
Common Stock and 240,000 Warrants issuable upon exercise of the Underwriter's
Warrants and the 240,000 shares of Common Stock issuable upon the exercise of
the Warrants included in the Underwriter's Warrants. All 480,000 shares of
Common Stock underlying the Underwriter's Warrants have been included in the
Company Prospectus. In addition, the Company has granted to Mr. Mirsky, a
director of the Company, certain demand and piggyback registration rights
(subject to certain limitations) with respect to the shares of Common Stock
issuable upon exercise of the Consulting Warrant. In connection with the IPO
and at the request of Duke & Co., Mr. Mirsky waived such rights for a period of
eighteen months commencing July 13, 1995. See "Certain Transactions."
-46-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
NASDAQ AND BOSTON STOCK EXCHANGE LISTING
The Common Stock and Warrants are listed on NASDAQ. In order to continue to
be listed on NASDAQ, however, the Company must maintain $2,000,000 in total
assets, a $200,000 market value of the public float and $1,000,000 in total
capital and surplus. In addition, continued inclusion requires two market-makers
and a minimum bid price of $1.00 per share; provided, however, that if the
Company falls below such minimum bid price, it will remain eligible for
continued inclusion in NASDAQ if the market value of the public float is at
least $1,000,000 and the Company has $2,000,000 in capital and surplus. The
failure to meet these maintenance criteria in the future may result in the
delisting of the Company's securities from NASDAQ. In such event, trading, if
any, in the Units, Common Stock and Warrants would thereafter be conducted in
the over-the-counter markets through the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
difficulty in obtaining accurate quotations as to the market value of the
securities and reductions in the security analysts' and the news media's
coverage of the Company. Delisting of the Company's securities may result in
lower prices for the Company's securities than might otherwise prevail.
The Common Stock and Warrants are also listed on the Boston Stock Exchange.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004.
REPORTS TO SHAREHOLDERS
The Company has registered the Common Stock and Warrants under the
provisions of Sections 12(b) and 12(g) of the Exchange Act, and has agreed that
it will use its best efforts to continue to maintain such registration for a
minimum of five years from July 13, 1995. Such registration requires the
Company to comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Company Offering, the Company will have
13,860,000 shares of Common Stock outstanding, of which 9,000,000 shares of
Common Stock will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
affiliate of the Company (in general, a person who has a control relationship
with the Company), which shares will be subject to the resale limitations of
Rule 144 under the Securities Act. All of the remaining 4,860,000 shares of
Common Stock are deemed to be "restricted securities," as that term is defined
under Rule 144 promulgated under the Securities Act, in that such shares were
issued and sold by the Company in private transactions not involving a public
offering and in the future may only be sold pursuant to a registration statement
under the Securities Act, in compliance with the exemption provisions of
Rule 144, or pursuant to another exemption under the Securities Act. An
aggregate of 180,000 of such restricted shares are being registered by the
Company under the Securities Act pursuant to this Prospectus. In addition,
commencing in October 1995, an aggregate of 4,500,000 of the 4,860,000
restricted shares became eligible for sale under Rule 144, subject to the volume
limitations prescribed by Rule 144 and to the contractual restrictions described
below. The balance of the restricted shares will become eligible for sale under
Rule 144, subject to the volume limitations prescribed by Rule 144, commencing
in July 1997.
-47-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned restricted
shares of Common Stock beneficially for at least two years is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or, if
the shares of Common Stock are quoted on NASDAQ, the average weekly trading
volume during the four calendar weeks preceding the sale. A person who has not
been an affiliate of the Company for at least the three months immediately
preceding the sale and who has beneficially owned shares of Common Stock for at
least three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above.
All of the Company's officers and directors and certain shareholders of the
Company have agreed not to sell or otherwise dispose of their shares of Common
Stock (an aggregate of 4,860,000 shares (including the 180,000 shares included
in this Prospectus)) for a period of eighteen months commencing July 13, 1997
(other than pursuant to private transfers) without the prior written consent of
Duke & Co.
-48-
<PAGE>
[Alternate page for Selling Security Holder Prospectus]
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-----------------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Certain Market Information . . . . . . . . . . . . . . . . . . . . . . . . . .17
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . .20
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Selling Security Holders and Plan of Distribution. . . . . . . . . . . . . . .44
Concurrent Registration of Securities. . . . . . . . . . . . . . . . . . . . .45
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .46
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . . . .47
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-1
-----------------------------
SEL-LEB MARKETING, INC.
180,000 SHARES OF COMMON STOCK
-----------------------------
PROSPECTUS
-----------------------------
_______________________, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 402(b) of the New York Business Corporation Law ("New York
Law") permits a provision in the certificate of incorporation of each
corporation organized thereunder eliminating or limiting, with certain
exceptions, the personal liability of a director to the corporation or its
shareholders for monetary damages for certain breaches of fiduciary duty as a
director. The Certificate of Incorporation of the Registrant eliminates the
personal liability of directors to the fullest extent permitted by New York
Law.
Section 722 of New York Law ("Section 722"), in summary, empowers a
New York corporation, within certain limitations, to indemnify its officers
and directors against judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) actually and necessarily
incurred by them in connection with any nonderivative suit or proceeding if
they acted, in good faith, for a purpose they reasonably believed to be in or
not opposed to the best interest of the corporation, and, with respect to a
criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to derivative actions, Section 722 permits a
corporation to indemnify its officers and directors against amounts paid in
settlement and reasonable expenses (including attorneys' fees) actually and
necessarily incurred in connection with the defense or settlement of such
action, or in connection with an appeal therein, provided such person meets
the standard of conduct described in the preceding paragraph, except that no
indemnification is permitted in respect of (i) a threatened action, or a
pending action which is settled or otherwise disposed of or (ii) any claim
where such person has been found liable to the corporation, unless the court
in which the action was brought approves such indemnification and determines
that such person is fairly and reasonably entitled to be indemnified.
Reference is made to Article Seventh of the Certificate of
Incorporation, as amended, of the Registrant for the provisions which the
Registrant has adopted relating to indemnification of officers and directors.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Reference is also made to Section 8 of the Underwriting Agreement
included as Exhibit 1.1 to this Registration Statement. See Notes to Financial
Statements
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be incurred in connection with the offering
are as follows:
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . $ 446
NASDAQ listing fee . . . . . . . . . . . . . . . . . . . . . . . . 7,500
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . 125,000
Blue Sky expenses and legal fees . . . . . . . . . . . . . . . . . 22,500
Printing expenses . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Registrar and transfer agent fees and expenses . . . . . . . . . . 2,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . 25,000
Miscellaneous fees and expenses . . . . . . . . . . . . . . . . . 12,554
--------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $220,000
--------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 1, 1993, the Company issued 1,440,000 shares of Common
Stock to each of Harold Markowitz, Paul Sharp and Jorge Lazaro in
consideration for the payment by each of $333.33.
In January 1994, the Company issued and sold to Jan Mirsky, in
consideration for his services as a marketing consultant to the Company prior
to his becoming an employee of the Company, a warrant (the "Consulting
Warrant") to purchase 490,689 shares of Common Stock (after giving effect to
the aforementioned stock split and stock combination). The Consulting Warrant
is exercisable through March 31, 2000 at an aggregate exercise price of
$315,000. As additional consideration for the Consulting Warrant, Mr. Mirsky
delivered to the Company a promissory note payable to the Company in the
amount of $21,000, which amount was paid by Mr. Mirsky on May 17, 1995.
In connection with the merger of Linette Cosmetics, Inc. ("Linette
Cosmetics") with and into the Company, which was effected on May 18, 1995,
the Company issued to each of the shareholders of Linette Cosmetics three
shares of Common Stock for each share of common stock of Linette Cosmetics
held by such shareholder. As a result, the Company issued to each of Messrs.
Markowitz, Sharp and Lazaro 150 shares of Common Stock.
On May 23, 1995, the Company entered into a financing arrangement
(the "Bridge Financing"), pursuant to which it borrowed from Wellington
Corporation N.V., an accredited investor unaffiliated with the Company or any
of its executives or directors, $250,000 for working capital purposes and to
pay a portion of the expenses of this offering. In connection with the Bridge
Financing, the Company issued to such investor 3,000,000 warrants (the
"Bridge Warrants"), each of which was exercisable until November 23, 1995 and
entitled the holder thereof to purchase one share of Common Stock for $2.00.
Each Bridge Warrant automatically converted into a Warrant upon the
consummation of the Company's initial public offering.
On July 20, 1995, the Company acquired from Larry H. Pallini his
40% equity interest in Lea Cosmetics, Inc. In consideration therefor, the
Company issued to Mr. Pallini 180,000 shares of Common Stock, 90,000 of which
shares were issued on July 20, 1995 and 90,000 of which shares were issued in
January 1996 upon Lea Cosmetics, Inc.'s having achieved certain sales volumes
for 1995.
Each of the foregoing issuances of securities was made in reliance
upon the exemption
II-2
<PAGE>
from the registration provisions of the Securities Act afforded by Section
4(2) thereof, as a transaction not involving a public offering.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration
statement:
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
1.1 Underwriting Agreement dated July 13, 1995 between the
Company and Duke & Co., Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended September
30, 1995).
2.1 Agreement and Plan of Merger of Lea Cosmetics, Inc.
into the Company dated July 31, 1995, together with
Certificate of Merger filed with the Secretary of State
of the State of Delaware on August 3, 1995
(incorporated by reference to Exhibit 2.1 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995).
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995).
3.2 Amended and Restated By-Laws of the Company
(incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1995).
4.1 Form of Certificate for Common Stock (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the
Company's Registration Statement on Form SB-2
(Registration No. 33-88134), as filed with the
Securities and Exchange Commission on June 28, 1995
("Amendment No. 2")).
4.2 Warrant Agreement dated as of July 20, 1995 between the
Company, Continental Stock Transfer & Trust Company and
Duke & Co., Inc. (incorporated by reference to Exhibit
4.1 to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1995).
4.3 Form of Warrant Certificate (incorporated by reference
to Exhibit 4.3 to Amendment No. 2).
4.4 Underwriter's Warrant dated July 20, 1995, issued by
the Company to Duke & Co., Inc. (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly
Report on Form 10-QSB for the quarterly period ended
June 30, 1995).
II-3
<PAGE>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
4.5 Warrant and Registration Agreement dated as of July 20,
1995 between the Company and Jan Mirsky (incorporated
by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1995).
4.6 Registration Rights Agreement dated as of May 19, 1995
between the Company and Wellington Corporation N.V.
(incorporated by reference to Exhibit 4.7 to Amendment
No. 1 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-88134), as filed with the
Securities and Exchange Commission on May 24, 1995
("Amendment No. 1")).
5.1 Opinion of Zimet, Haines, Friedman & Kaplan.
10.1 Agreement dated November 1, 1993 between Chances, Inc.
and Linette Cosmetics, Inc., together with Assignment
of Contract by Linette Cosmetics, Inc. to the Company
and letter dated May 9, 1995 (incorporated by reference
to Exhibit 10.1 to Amendment No. 1).
10.1(A) Agreement dated July 19, 1995 by and between Chances,
Inc. and the Company (incorporated by reference to
Exhibit 10.1(A) to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995).
10.2 Agreement dated January 1, 1994 between Carlton Varney
and the Company (incorporated by reference to Exhibit
10.2 to Amendment No. 1).
10.3 Product Promotion Agreement dated August 23, 1994
between American Pop, Inc. and the Company
(incorporated by reference to Exhibit 10.3 to Amendment
No. 1).
10.4 Product Promotion Agreement dated December 1994 between
Linda Levinson and the Company (incorporated by
reference to Exhibit 10.4(A) to Amendment No. 1).
10.5 Product Promotion Agreement dated August 1994 between
Eden Ventures Corporation and the Company (incorporated
by reference to Exhibit 10.4(B) to Amendment No. 1).
10.6 Product Promotion Agreement dated March 1995 between
Best Buddies International, Inc. and the Company
(incorporated by reference to Exhibit 10.12 to
Amendment No. 1).
10.7 Agreement dated September 1994 between Clyde Duneier,
Inc.
II-4
<PAGE>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
and Linette Cosmetics, Inc. (incorporated by
reference to Exhibit 10.5 to Amendment No. 1).
10.8 Agreement dated October 25, 1993 between Tri-Star
Products, Inc. and Linette Cosmetics, Inc.
(incorporated by reference to Exhibit 10.6 to Amendment
No. 1).
10.9 Agreement dated April 1995 between River Products, Inc.
and the Company (incorporated by reference to Exhibit
10.13 to Amendment No. 1).
10.10 Financial Advisory and Investment Banking Agreement,
dated as of July 20, 1995, between the Company and Duke
& Co., Inc. (incorporated by reference to Exhibit 10.4
to the Company's Quarterly Report on Form 10-QSB for
the quarterly period ended June 30, 1995).
10.11 Letter Agreement dated September 10, 1992 between
Linette Cosmetics, Inc. and H. Howlin International,
Inc. (incorporated by reference to Exhibit 10.11 to
Amendment No. 1).
10.12 1995 Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-QSB for the quarterly period ended
June 30, 1995).
10.13 1995 Nonemployee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1995).
10.14 Stock Purchase Agreement dated May 18, 1995 between the
Company and Larry H. Pallini (incorporated by reference
to Exhibit 10.14 to Amendment No. 1).
10.15 Employment Agreement dated as of June 30, 1995 between
the Company and Harold Markowitz (incorporated by
reference to Exhibit 10.7 to the Company's Quarterly
Report on Form 10-QSB for the quarterly period ended
June 30, 1995).
10.16 Employment Agreement dated as of June 30, 1995 between
the Company and Paul Sharp (incorporated by reference
to Exhibit 10.8 to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30,
1995).
10.17 Employment Agreement dated as of June 30, 1995 between
the Company and Jan Mirsky (incorporated by reference
to Exhibit 10.9 to the Company's Quarterly Report on
Form 10-QSB for
II-5
<PAGE>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
the quarterly period ended June 30, 1995).
10.18 Employment Agreement dated as of June 30, 1995 between
the Company and Jorge Lazaro (incorporated by reference
to Exhibit 10.10 to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30,
1995).
10.19 Employment Agreement dated as of September 27, 1995
between the Company and Jack Koegel (incorporated by
reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1995).
10.20 Subscription Agreement executed May 19, 1995 by
Wellington Corporation N.V. (incorporated by reference
to Exhibit 10.20 to Amendment No. 2).
10.21 Agreement dated as of July 8, 1995 between Larry H.
Pallini and the Company (incorporated by reference to
Exhibit 10.21 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995).
10.22 Contribution Agreement dated as of July 13, 1996 by and
among the Company and Harold Markowitz, Paul Sharp and
Jorge Lazaro (incorporated by reference to Exhibit
10.13 to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended September 30, 1995).
10.23 Debt Conversion Agreement dated as of July 13, 1995 by
and among the Company, Harold Markowitz, Paul Sharp and
Jorge Lazaro (incorporated by reference to Exhibit
10.14 to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended September 30, 1995).
10.24 Loan and Security Agreement dated as of November 6,
1995 by and between United Jersey Bank and the Company
(incorporated by reference to Exhibit 10.15 to the
Company's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1995).
10.25 Letter Agreements dated November 21, 1995 and December
18, 1995 between the Company and Direct Access Group
(incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995).
10.26 Letter Agreement between the Company and LPD Packaging,
Inc. (incorporated by reference to Exhibit 10.26 to the
II-6
<PAGE>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995).
11.1 Statement re: computation of per share earnings (not
required because the relevant computation can be
clearly determined from material contained in the
financial statements).
23.1 Consent of Zimet, Haines, Friedman & Kaplan (included
in its opinion filed as Exhibit 5.1).
23.2 Consent of Goldstein Golub Kessler & Company, P.C.
II-7
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers of sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
set forth in the Registration Statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) include any additional or changed material information on
the plan of distribution;
(2) for determining liability under the Act, treat such
post-effective amendment as a new registration of the securities offered, and
the offering of the securities at that time to be the initial BONA FIDE
offering; and
(3) file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as express in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and has authorized this
Registration Statement to be signed on its behalf by the undersigned in the
City of North Bergen, New Jersey on June 14, 1996.
SEL-LEB MARKETING, INC.
By /s/ Harold Markowitz
-----------------------------
Harold Markowitz
CHAIRMAN OF THE BOARD
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Harold Markowitz and Jan S.
Mirsky, and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement on Form SB-2 has been signed below by the
following persons in the capacities and on the dates stated:
NAME TITLE DATE
---- ----- ----
/s/ Harold Markowitz Chairman of the Board and June 14, 1996
- -------------------------- Director
Harold Markowitz
/s/ Paul Sharp President, Chief Executive June 14, 1996
- -------------------------- Officer and Director (principal
Paul Sharp executive officer)
/s/ Jan Mirksy Executive Vice President- June 14, 1996
- -------------------------- Finance, Chief Operating Officer
Jan S. Mirsky and Director (principal financial
and accounting officer)
/s/ Jack Koegel Vice Chairman and Director June 14, 1996
- --------------------------
Jack Koegel
II-9
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ Jorge Lazaro Executive Vice President and June 14, 1996
- -------------------------- Secretary
Jorge Lazaro
/s/ L. Douglas Bailey Director June 14, 1996
- --------------------------
L. Douglas Bailey
/s/ Stanley R. Goodman Director June 14, 1996
- --------------------------
Stanley R. Goodman
/s/ Edward C. Ross Director June 14, 1996
- --------------------------
Edward C. Ross
II-10
<PAGE>
[ZIMET, HAINES, FRIEDMAN & KAPLAN LETTERHEAD]
June 14, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Sel-Leb Marketing, Inc.
Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
We have been requested by Sel-Leb Marketing, Inc., a New York corporation
(the "Company"), to furnish to you our opinion as to the matters set forth below
in connection with the preparation and filing of a Registration Statement on
Form SB-2 (the "Registration Statement") relating to the registration under the
Securities Act of 1933, as amended, and the rules and regulations thereunder, of
the sale by the Company of (a) up to 5,760,000 shares (the "Public Warrant
Shares") of Common Stock, par value $.01 per share, of the Company ("Common
Stock") issuable upon exercise of Redeemable Warrants, each to purchase one
share of Common Stock at an exercise price of $2.00 per share (the "Warrants");
(b) up to 80,000 units (the "Underwriter's Units"), each unit consisting of
three shares of Common Stock and three Warrants, issuable upon exercise of the
warrants (the "Underwriter's Warrants") granted to Duke & Co., Inc. (the
"Underwriter") in connection with the Company's July 1995 initial public
offering of securities; (c) up to 240,000 shares of Common Stock (the
"Underwriter's Warrant Shares") included in the Underwriter's Units; (d) up to
240,000 shares of Common Stock (the "Underwriter's Warrant Warrant Shares")
issuable upon exercise of the Warrants included in the Underwriter's Units; and
(e) up to 180,000 shares of Common Stock (the "Affiliate Warrant Shares")
issuable upon exercise of Warrants held by certain affiliates of the Company.
The information set forth in this letter with respect to Warrants gives effect
to the Warrant Adjustment (as defined in the Registration Statement).
We have examined the proceedings taken in connection with the incorporation
of the Company under the laws of the State
<PAGE>
-2-
of New York, including the certificate of incorporation of the Company and
any amendments thereto which have been filed. We have also examined (i) the
by-laws of the Company and any amendments thereto, (ii) the Registration
Statement, (iii) the Warrant Agreement, dated as of July 20, 1996 (the
"Warrant Agreement"), among the Company, the Underwriter and Continental
Stock Transfer & Trust Company, Inc. and (iv) the Underwriter's Warrant,
dated July 20, 1996, issued by the Company to the Underwriter. We have also
examined such other documents, records, certificates of public officials,
certificates and/or statements of officers and representatives of the Company
and matters of law as we have considered relevant. In such examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been independently
established, we have relied upon certificates and/or statements of officers
and representatives of the Company.
Based upon the foregoing, and subject to the qualifications stated herein
(and assuming that the securities referred to herein will be issued or sold
according to the Registration Statement at a time when such is effective and
that they will be in compliance with all applicable securities laws involved in
those states in which said securities may be sold), we are of the opinion that
(i) the Public Warrant Shares, the Underwriter's Units, the Underwriter's
Warrant Shares, the Underwriter's Warrant Warrant Shares and the Affiliate
Warrant Shares have been duly authorized and (ii) the Public Warrant Shares,
Underwriter's Warrant Warrant Shares and Affiliate Warrant Shares, when issued
and paid for pursuant to the terms of the Warrant Agreement, and the
Underwriter's Units and Underwriter's Warrant Shares, when issued and paid for
upon exercise of the Underwriter's Warrants in accordance with the terms
thereof, will be validly issued, fully-paid and non-assessable.
We are admitted to practice law only in the State of New York and we are
expert in, and express opinions only as to, the laws of the State of New York
and federal laws of the United States.
<PAGE>
-3-
We consent to the use and filing of this opinion in connection with the
Registration Statement and to the use of our name in the Registration Statement
under the caption "Legal Matters".
Very truly yours,
/s/ ZIMET, HAINES, FRIEDMAN & KAPLAN
ZIMET, HAINES, FRIEDMAN & KAPLAN
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Sel-Leb Marketing, Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 and Post-Effective Amendment No. 1 to
Form SB-2 of our report dated March 3, 1996, except for the first paragraph
of Note 9, as to which the date is March 12, 1996 on the financial statements
of Sel-Leb Marketing, Inc. as of December 31, 1995 and for the years ended
December 31, 1995 and 1994 which appear in such Prospectus. We also consent
to the reference to our firm under the captions, "Experts" and "Selected
Financial Data" in such Prospectus.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
June 13, 1996
New York, New York
- ------------------
