CONFIDENTIAL MEMORANDUM
To: From: Re: Date:
All Shareholders Scott A. Chaplan, Esq. Urban Life System, LLC and MyFaithDate.com, Inc. September 12, 2006
I. INTRODUCTION A critical analysis has been performed by our consulting team, CETL Associates ("Consultant"), concerning our interest in forming and investing in two (2) new ventures, MyFaithDate.com, Inc., an Internet dating service and Urban Life System, LLC, a direct response empowerment series. This memorandum is bifurcated by entity, and each segment discusses the Consultant's work product, addresses additional issues and concerns and presents for your review the Board's preliminary conclusions, pending General Counsel review. II. MYFAITHDATE.COM, INC. MyFaithDate.Com. The Consultant provided a review of the California Corporations Code and related statutes regarding general partnerships, limited partnerships and limited liability companies. A brief review of that analysis is below: a. Corporations Generally. No authority was cited for the conclusions, including the reference that "its liabilities almost never transfer to its owners." Certain taxes, including the trust fund portion of accrued and unpaid payroll taxes will, however, inure to the detriment of shareholders. So can certain uninsured claims for worker's compensation. Finally, in light of some of the potential exposure inherent in this business context, alter ego liability must be protected against through adequate insurance (including umbrella coverage), strict adherence to corporate formalities like regular meetings, minutes and compliance with our prospective corporate governing documentation. The discussion goes on to discuss the distinction between C corporations, S corporations, public corporations and private corporations. The General Counsel will need to flush out the analysis a bit regarding which form of entity is preferable between the aforementioned. Certain conclusions regarding Corporations, for instance, are incorrect. A single shareholder may form a C corporation. C corporations may be closely held or not, regardless of whether or not they ultimately go public. The discussion of earnings and taxation likewise needs to be visited by the financial team and the General Counsel. Specifically, EBIT means "earnings before interest and taxes." The taxation issue is not relegated to dividends per say. Retained earnings are taxed, at least in California, at the corporate rate. If, thereafter, salaries are paid to the officers or employees, they likewise pay personal income taxes. The balance of the conclusions regarding C corporations are sound. The S corporation analysis is excellent. While the avoidance of double taxation is preferable, the exit strategy may very well drive the entity choice.
Further, the capital formation may necessitate a different form. b. Sole Proprietorship and General Partnership. This section does not address whether a sole proprietorship mandates only one stakeholder. Does it General Counsel? What about an unincorporated association? Why does a sole proprietorship offer "better control and business administration?" Do partners share exposure jointly and severally? Always? These questions need to be answered. The conclusions in this section regarding these not being the correct entity forms for our new venture are correct. c. Limited Liability Companies. Some of the conclusions in this section need to be amended, and others need to have authority cited. Specifically, neither llcs nor corporations are "similar in all states." State corporate law varies radically. In a single member llc, can the entity be treated as a partnership for taxation purposed? We need to inquire of the Consultant as to why they believe an llc can be formed easier than a corporation. The analysis as to the favor-ability of this form of entity is correct. d. Limited Liability Partnership. This form of entity is inapposite since we are not endeavoring to go into a professional service business. e. Conclusion Subject to a final determination from the General Counsel, the Board recommends the formation of this entity as a Delaware corporation. Attached for your review are articles of incorporation prepared by our agent, Parasec and bless by our General Counsel. The reasoning for this conclusion relates to the required capital structure and the exit strategy. We view this investment as a 24-36 month hold with an initial equity offering from a VC (to be named) within 12 months in an amount of approximately $5,000,000.00 and a supplemental public offering within 12-24 months thereafter. Our Chief Financial Officer is now working on projections and forecasts for this entity which will be completed, along with a marketing plan, in the next several weeks. Remaining formation documents include the Notice of Transaction for the Delaware Department of Corporations, the Qualification for California, Bylaws and a Shareholders' Agreement. The foregoing documents will be prepared by the Consultant and memorandums will be provided next week reflecting the analysis of each document and their respective salient provisions as they relate to our business and intended business model. III. URBAN LIFE SYSTEM, LLC a. Testimonials. The Consultant did an excellent job assessing the potential testimonials within the space. Should non-faith based testimonials be elicited? If so, from whom? Why? If the Pastor Morales is not the right Latino Pastor, who is? Is this role required or preferred? If not, why not? b. Media. The analysis indicated that we should begin by testing, through television, in the top 15-20 markets defined by size. Why? What data supports this conclusion? The conclusions in this segment need citations for support, i.e. where did this data come from? How long should the test run? 1
day? 1 week? 15-20 markets at a time? The Consultant needs to respond to these questions so we can have the answers reviewed by the General Counsel and integrated into our business plan if we decide to proceed. What does BET cost? Please obtain rates. Do we buy time from a broker or directly? Which Latino media outlets make sense? The Consultant's analysis is correct regarding a media mix. The question for their marketing department remains what mix taking into consideration our intended demographic. The Consultant likewise needs to describe what that demographic is, e.g., age, income level, sex, etc. Who is our customer remains to be answered.
c. Core Values. How do we ensure that it is not a get rich quick scheme? What should our content look like? How do we stay true to our holistic empowerment values? d. Competition. The Consultant did not provide data on which competitors should be emulated, distanced from or otherwise. We will need this information to proceed. e. Legal Analysis. The recitation of the distinctions between legal entities is accurate. No recommendation was made. In consulting with our General Counsel, in light of the exit strategy, a limited liability company formed in California appears to be the most practical choice. Our corporate offices are in Santa Monica, California, our production will take place in California and our content will be created here. Our initial core market will also probably emanate from California. f. Conclusion. The Board recommends further investment and analysis regarding both ventures which, at present, appear viable. We will be issuing a memorandum to the Consultant by Wednesday of this week regarding follow up research and development prior to our Board Meeting Tuesday, September 18, 2006 at 6:00 P.M. in Suite G. An agenda for the Board Meeting will be circulated by Wednesday, September 13, 2006. Please review the section on threatened litigation regarding these projects. It appears that a leak has occurred, and the specious reference from our General Counsel on my voice mail indicated possible infringement and/or interference.
Thank you. Sincerely, URBAN HOLDINGS, LLC
Scott A. Chaplan Chairman of the Board