Retaining an Attorney for the Buy-Sell
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Jeremy Johnson, President, Too Faced Cosmetics
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Attorney Jonathan A. Michaels, Too Faced Cosmetics
The conception of Too Faced Cosmetics began nearly ten years ago. When I met Jerrod Blandino, current CEO and Creative Director of Too Faced Cosmetics, he was a sales consultant for Estee Lauder and gained a reputation as one of the most talented makeup artists in Hollywood. Frustrated with the lack of creativity, color variety, and quality of cosmetics available to the consumer market, Jerrod began custom-blending cosmetics for his celebrity and in-the-know clientele. Demand soon led him to a full-time job mixing products at home to satisfy clients’ requests.
While Jerrod was busy developing his name and reputation in Hollywood, I was working and gaining invaluable business management experience at Chanel and Estee Lauder. It wasn’t long after our meeting before we decided to explore our entrepreneurial spirit and Too Faced Cosmetics was formed.
Too Faced was officially launched in 1998 with a mission of combining the beauty of Hollywood past with the modernism of what women want today: luxurious textures, trend-setting colors, remarkable product innovations, and lots of shimmer. At first, Too Faced was operated out of a spare bedroom, with Jerrod and I working merciless long hours and investing every spare dime into the business. Soon the hard work paid off as Too Faced became the cosmetic choice of Hollywood’s A-list stars. Numerous write-ups in popular fashion magazines such as Cosmo and Vogue led to Too Faced becoming one of the top sellers at cosmetic retailer, Sephora.
The company began to gain momentum in the fall of 2001. Up until this point, our business start up and corporate structuring had been developed entirely with the help of a family friend. We realized that our rapid growth called for a more sophisticated structure. Shortly after that, we hired Jonathan Michaels, an attorney, to assist us in our corporate development.
Soon after we hired Jonathon, we learned about the advantages of having an appropriate buy-sell agreement in place. He gave us a template of issues that we needed to discuss and resolve in order to move forward. Together we worked through a host of issues that could have had a crippling effect on the business if not addressed, such as what would happen should a shareholder want to leave the company. Just as important, we realized we needed to develop a plan of action in the event of the death or disability of a shareholder. It was sobering to think about how the business would be impacted if a shareholder were to die and his shares were passed on to a spouse or family member who would receive full voting rights with regard to business operations. Once we had made it through these aspects of the agreement, the issues became even tougher:
- Given the nature of our business, should industry specific valuations be considered over fair market value?
- Would shareholders be forced to sell their shares in the event of termination of employment?
- Should a key-man life insurance policy be purchased to pay for a buyout should one of the shareholders die?
It was certainly difficult to talk about exit strategies with things going so well with our business. But with our document completed and behind us, we clearly see the wisdom of having worked together to find solutions that are fair to both of us should things change. We also realize how fortunate we are to have sat down and addressed these critical aspects before problems arose. And we understand that moving forward, our agreement will need to be reviewed and adjusted any time an additional shareholder is brought into the business or any material change is made to our company.
Once we got started working with our attorney, the process moved along quickly. Surprisingly, considering the value of the buy-sell agreement and from what it can save us, the cost to put it in place was not at all prohibitive, running roughly $1,500 to $2,000. With our attorney’s help, our final written buy-sell agreement allows the company to continue as a viable concern should some triggering event occur. It gives us piece of mind that the company we have worked so hard to build will not be torn apart by unforeseen events.
© 2006 Ewing Marion Kauffman Foundation. All rights reserved.
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