IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ROANOKE DIVISION

UNITED STATES OF AMERICA, Plaintiff,

v.

TELEBRANDS CORPORATION, a corporation; and, AJIT KHUBANI individually and as an officer and director of the corporation, Defendants.

Civ. Action No. 96-0827-R

STIPULATION MODIFYING CONSENT DECREE

WHEREAS:

1. On September 18, 1996, plaintiff, the United States of America, filed a complaint in this Court against defendants, Telebrands Corporation and Ajit Khubani, seeking relief for alleged violations of the Federal Trade Commission's Trade Regulation Rule Concerning Mail or Telephone Merchandise, 16 C.F.R. Part 435 ("Rule").

2. This Court entered a Consent Decree (the "Consent Decree") on September 23, 1996, requiring defendants to pay a civil penalty, permanently enjoining the corporate defendant and its successors and assigns and the individual defendant from violating the Rule, and requiring them, among other things, to maintain detailed records documenting their compliance with the Rule.

3. The Consent Decree provides that this Court retains jurisdiction for the purpose, inter alia, of enabling the parties to apply for further orders or directions regarding the Consent Decree.

4. Pursuant to the Consent Decree, defendants paid the required civil penalty.

5. Since entry of the Consent Decree the Federal Trade Commission ("Commission") has determined that it has reason to believe as follows:

a. At all times material herein, defendants have engaged in mail or telephone order sales of consumer household products, including "static" dusters, buckwheat pillows, glider exercise devices, depilatory devices and novelty watches, in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. 44;

b. Beginning on or around January 1, 1997, in numerous instances defendants have violated the Rule in the sale by mail or telephone of these products; and,

c. At all times material herein, defendants have failed to maintain and, in numerous instances, have failed to accurately maintain, records of mail or telephone orders documenting their compliance with the Rule, as required by the Consent Decree.

6. Without admitting the allegations or any wrongdoing, defendants have agreed with plaintiff to a settlement of the Commission's allegations and have negotiated a Modified Consent Decree (attached hereto as Exhibit "A"), providing for the following:

a. For alleged violations of the Rule and the Consent Decree occurring after January 1, 1997, payment by defendants of additional monetary civil penalties;

b. Extension of the duration of, and the addition of provisions relating to, the maintenance of records of mail or telephone orders;

c. Extension of the duration of the reporting requirements of the Consent Decree; and

d. Implementation of monitoring by an independent third party of defendants' operations relating to the solicitation, recordkeeping and fulfillment of mail or telephone orders. 7. The parties seek entry of the Modified Consent Decree to replace the Consent Decree entered by this Court in 1996.

NOW, THEREFORE, IT IS HEREBY AGREED AND STIPULATED, by and between the parties, that the Consent Decree is, upon approval by the Court, hereby modified and superseded by the Modified Consent Decree, attached hereto as Exhibit "A."

SO ORDERED this day of , 1999.

UNITED STATES DISTRICT JUDGE
FOR THE UNITED STATES OF AMERICA:

DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
U.S. Department of Justice

United States Attorney
Western District of Virginia

Assistant U.S. Attorney
Western District of Virginia

EUGENE M. THIROLF, Director
Office of Consumer Litigation

Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Washington, D.C. 20530

FOR THE FEDERAL TRADE COMMISSION:

ELAINE D. KOLISH
Associate Director for Enforcement
Bureau of Consumer Protection
Federal Trade Commission

LAWRENCE HODAPP
Assistant Director for Enforcement
Federal Trade Commission

JOEL N. BREWER
ROBERT M. FRISBY
Attorneys
Bureau of Consumer Protection
Federal Trade Commission
601 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
(202) 326-2967

FOR THE DEFENDANTS:

TELEBRANDS CORPORATION

Dated: By:

AJIT KHUBANI
President
Telebrands Corporation

AJIT KHUBANI, individually

ULLMAN SHAPIRO & ULLMAN, L.L.P.
299 Broadway, Suite 1700
New York, New York 10007
Attorney for Defendants

By:

ROBERT ULLMAN
A Member of the Firm

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ROANOKE DIVISION

UNITED STATES OF AMERICA, Plaintiff,

TELEBRANDS CORPORATION, a corporation; and, AJIT KHUBANI individually and as an officer and director of the corporation, Defendants.

Civ. Action No. 96-0827-R

MODIFIED CONSENT DECREE

WHEREAS:

1. On September 18, 1996, plaintiff, the United States of America, filed a complaint in this Court against defendants, Telebrands Corporation and Ajit Khubani, seeking relief for alleged violations of the Federal Trade Commission's Trade Regulation Rule Concerning Mail or Telephone Merchandise, 16 C.F.R. Part 435 ("Rule").

2. This Court entered a Consent Decree (the "Consent Decree") on September 23, 1996, requiring defendants to pay a civil penalty, permanently enjoining the corporate defendant and its successors and assigns and the individual defendant from violating the Rule, and requiring them, among other things, to maintain detailed records documenting their compliance with the Rule.

3. Since entry of the Consent Decree the Federal Trade Commission ("Commission") has determined that it has reason to believe as follows:

a. At all times material herein, defendants have engaged in mail or telephone order sales of consumer household products, including "static" dusters, buckwheat pillows, glider exercise devices, depilatory devices and novelty watches, in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. 44.

b. Beginning on or around January 1, 1997, in numerous instances, after having received through the mails or by telephone "properly completed orders," as that term is defined in Section 435.2(d) of the Rule, 16 C.F.R.  435.2(d), and having been unable to ship the ordered merchandise to the buyer within the Rule's applicable time, as set out in Section 435.1(a)(1) of the Rule, 16 C.F.R. 435.1(a)(1) (the "applicable time"), defendants have violated Section 435(b)(1) of the Rule by failing, in delays of 30 days or less, to offer to the buyer, clearly and conspicuously and without prior demand, an option either to consent to this delay in shipping or to cancel the order and receive a prompt refund (the "delay option notice"); violated Section 435(b)(1) of the Rule by failing to offer the buyer the delay option notice within the applicable time; violated Section 435.1(b)(1)(iii) of the Rule by failing, in delays of more than 30 days, to notify the buyer that, unless the buyer expressly consents to the delay, the buyer's order will be canceled automatically within a given time; violated Section 435.1(b)(2) of the Rule by failing to ship by the revised shipping date in the delay option notice and failing to offer the buyer a renewed option to either consent to a further delay or to cancel the order and receive a prompt refund; and violated Sections 435.1(c)(3) and (5) of the Rule by failing, in each of the foregoing instances, to make a prompt refund.

c. At all times material herein, defendants have failed to maintain and, in numerous instances, have failed to accurately maintain, records of mail or telephone orders documenting their compliance with the Rule, as required by Paragraphs 8.A., 8.E., 8.F., 8.J., 8.L., 8.M., 8.N., 8.O., and 8.P. of the Consent Decree.

d. Repeated violations of the Consent Decree, or long delay in implementing it, as alleged herein, justify this Court's appointment, pursuant to Rule 53 of the Federal Rules of Civil Procedure, of a special master, with expertise in all aspects of mail or telephone order fulfillment, to audit and report to the Court and the parties how the defendants might bring their operation into full compliance.

4. Without admitting wrongdoing or any violation of the Rule or the Consent Decree, the defendants have agreed to a settlement of the Commission's allegations and a modification of the Consent Judgment upon the terms and conditions set forth below:

DEFINITIONS

1. "Consent Decree" shall mean the Consent Decree entered in the above-captioned matter on September 23, 1996.

2. "Defendants" (except in Part II of this Modified Consent Decree) means Telebrands Corporation, and its officers, directors, agents, servants, employees, subsidiaries, affiliates, successors or assigns, and Ajit Khubani, individually and in his representative capacities, jointly and severally, and all other persons or entities in active concert or participation with them who receive actual notice of this Modified Consent Decree by personal service or otherwise.

3. "Telephone" shall be as the term "telephone" is defined by the Mail or Telephone Order Merchandise Rule ("Rule"), 16 C.F.R.  435.2(b).

4. "Consumer complaint" refers to any communication by any person directly to defendants, or any communication by any person referred to defendants by a third-party dispute mediation agency or by a state or federal government agency, concerning (a) partial receipt, non-receipt or untimely receipt by any consumer of any merchandise ordered from defendants by mail or telephone, (b) partial receipt, non-receipt or untimely receipt by any consumer of any refund from defendants required by section 435.1(c) of the Rule, or (c) any failure to afford any consumer any timely or complete or accurate notice of delay from defendants required by section 435.1(b) of the Rule.

I. FINDINGS

1. This Court has jurisdiction of the subject matter and of the parties.

2. Relief may be granted against the defendants under Sections 5(a)(1), 5(m)(1)(A), 9, 13(b) and 16(a) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), 45(m)(1)(A), 49, 53(b), and 56(a).

II. CIVIL PENALTY

3. Pursuant to Section 5(m)(1)(A) of the Federal Trade Commission Act, 15 U.S.C.  45(m)(1)(A), defendants Telebrands Corporation and its successors and assigns, and Ajit Khubani, shall pay plaintiff a civil penalty in the amount of eight hundred thousand dollars ($800,000.00).

4. Defendants shall pay the amount required in Paragraph 3 in the following installments:

(A) Two hundred thousand dollars ($200,000.00) shall be due and payable within five (5) business days after receipt by defendants of written notice of the entry of this Modified Consent Decree.

(B) For the next two years, twenty-four (24) equal installments of twenty-five thousand dollars ($25,000.00) shall be due and payable within ten (10) business days after the first day of each month following receipt by defendants of written notice of the entry of this Modified Consent Decree.

5. If, having not at any time meanwhile defaulted in the making of any payment required by Paragraph 4, within one (1) year of the entry of this Modified Consent Decree, Defendants pay altogether seven hundred fifty thousand dollars ($750,000.00), the remaining fifty thousand dollars ($50,000.00) in civil penalties shall be forgiven.

6. Defendants shall make the payments required by Paragraphs 3-5 by electronic fund transfer in accordance with instructions provided by the Office of Consumer Litigation, Civil Division, U.S. Department of Justice, Washington, D.C. 20530, for appropriate disposition.

7. In the event of any default in payment, which default continues for ten (10) days beyond the due date of payment, the entire unpaid amount under Paragraphs 3-5, together with interest, as computed pursuant to 28 U.S.C. 1961, from the date of default to the date of payment, shall immediately become due and payable.

8. Within five (5) business days of the receipt by defendants of written notice of the entry of this Modified Consent Decree, defendants shall, pursuant to 31 U.S.C.  7701, furnish the Commission their respective taxpayer identifying numbers (Social Security and employer identification numbers), which shall, if necessary, be used for purposes of collecting and reporting on any delinquent amount arising out of their relationship with the government. Except for purposes of enforcing this Modified Consent Decree, this information shall be treated as exempt from public disclosure to the extent required by Section 21(f) of the Federal Trade Commission Act, 15 U.S.C.  57b-2(f).

III. INJUNCTION

9. Defendants are hereby enjoined from violating, directly or through any corporation, subsidiary, division, fulfillment house, drop shipper, agency or other device, any provision of the Rule, 16 C.F.R. Part 435, or as the Rule may hereafter be amended.

A copy of the Rule is attached hereto as "Appendix A" and incorporated herein as if fully set forth verbatim.

10. In connection with the employment of any fulfillment house, drop shipper, agency or other person employed to perform any activities, directly or indirectly, relating to the advertising, sale, or fulfillment of mail or telephone order merchandise, or the keeping of records required by this Modified Consent Decree, defendants shall, among other things:

a. Use due diligence to obtain the cooperation of such persons that:

(1) They comply with the Rule and this Modified Consent Decree, and afford access to any monitor appointed under Part V of this Modified Consent Decree; and,

(2) They notify defendants immediately in writing of any problems that could reasonably result in Rule violations or in violations of this Modified Consent Decree if not remedied;

b. "Seed" orders by transmitting to such persons test orders, in a volume and frequency reasonable in light of the overall volume of orders received, to reveal noncompliance with the Rule or this Modified Consent Decree, or any nonperformance of their contractual obligations to defendants;

c. Regularly monitor consumer complaints for unusual surges in the number of complaints or other evidence of noncompliance with the Rule or this Modified Consent Decree;

d. Monitor the accuracy of recordkeeping and fulfillment activities, including but not limited to comparisons with any information documented by consumer complaints; and

e. Promptly correct any fulfillment, notification, refund, or recordkeeping failure as soon as it is discovered, including but not limited to making prompt refunds to any affected consumers.

IV. RECORDKEEPING REQUIREMENTS

11. IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Modified Consent Decree, defendants shall maintain and preserve from destruction all records from the preceding two (2) years demonstrating compliance with the Rule and this Modified Consent Decree.

12. In addition to the foregoing, with respect to their compliance with the Rule, for a period of five (5) years after the entry of this Modified Consent Decree defendants shall maintain and preserve from destruction all records from the preceding two (2) years as follows:

(a) All advertisements or other promotional materials for any merchandise covered by the Rule and a complete dissemination schedule for each, including the date and medium of dissemination or the publication and date thereof;

(b) All documents or materials relied upon by the defendants to substantiate any express shipment representation in each advertisement for the merchandise, or, if no shipment representation is made, 30-day shipment;

(c) All documents or materials relied upon by the defendants to substantiate any shipment representation in any delay option notice or renewed option notice required by the Rule;

(d) All reports, tests, studies, surveys, demonstrations or other evidence (such as complaints from consumers) in their possession or control that contradict, qualify, or call into question any express or implied shipment representation in any advertising or in any delay option notice or renewed option notice or the basis upon which they relied for such representation;

(e) The name and address of each consumer ordering the merchandise;

(f) The date of their receipt of each consumer's order;

(g) The applicable time, as set out in Section 435.1(a)(1) of the Rule, for each consumer's order;

(h) The form of payment (cash, check, money order or charge) for each consumer's order;

(i) For each consumer's order, the identity and quantity of each item of merchandise ordered;

(j) The total payment received from each consumer for each consumer's order;

(k) The date of shipment to the consumer of each item of merchandise in the consumer's order;

(l) The date (within two business days) of mailing or otherwise providing to each consumer of any delay option notice or renewed option notice required by the Rule;

(m) If more than one form delay option notice is used, the identity of the form mailed or otherwise provided each consumer;

(n) The date provided to each consumer in any delay option notice or renewed option notice required by the Rule;

(o) The date of receipt and type of consumer response to any Rule-required delay option notice or and Rule-required renewed option notice;

(p) The name and address of each consumer who makes any complaint respecting any non-delivery, partial delivery or untimely delivery of the merchandise, any non-payment, partial payment or delayed payment of any refund required by the Rule, or respecting any failure of the defendants to provide notification of delay and to obtain the consumer's consent thereto, and the date of receipt of the complaint by defendants;

(q) The date of any consumer request for a refund;

(r) The date and amount of any refund paid to any consumer because of non-delivery or untimely delivery of the merchandise;

(s) All form delay notices and the periods during which they were used; and

(t) All contracts and correspondence with any fulfillment house, drop shipper, agency or other person to perform any activities, directly or indirectly, relating to the advertising, sale or fulfillment of mail or telephone order merchandise, or the keeping of records required by this Modified Consent Decree.

13. In addition to the foregoing, with respect to their compliance with the Rule, for a period of five (5) years after the entry of this Modified Consent Decree defendants shall maintain and preserve from destruction from the preceding one (1) year each complete written complaint of each consumer, including all documentation or other materials included with the complaint by the consumer, respecting any non-delivery, partial delivery or untimely delivery of the merchandise, any non-payment, partial payment or delayed payment of any refund required by the Rule, or respecting any failure of the defendants to provide notification of delay and to obtain the consumer's consent thereto, and the date of receipt of the complaint by defendants.

14. Defendants shall for a period of five (5) years after the entry of this Modified Consent Decree, permit the Commission or its staff, within seven (7) business days of their receipt of a written request, to inspect and copy all records they are required by this Modified Consent Decree to keep; provided, however, that any documents or records being actively used during the ordinary course of business are to be inspected during non-business hours or at a mutually convenient time.

V. MONITORING REQUIREMENTS

15. IT IS FURTHER ORDERED that, in connection with their sale of merchandise ordered by consumers by mail or by telephone, sixty (60) days from the date of the entry of this Modified Consent Decree, defendants shall retain a monitor, subject to the written approval of the Commission's Associate Director for Enforcement, to audit their records and activities for purposes of preparing and providing to this Court, the defendants and to the Commission a written report on defendants' compliance with the Rule and this Modified Consent Decree. Defendants shall pay the monitor his or her customary or usual fees and all reasonable costs and expenses related to his or her performance of his or her duties under this Part. Defendants shall afford the monitor promptly upon request access to, or assistance in gaining access to, any corporation, subsidiary, division, fulfillment house, drop shipper, agency or other person, controlled, employed or acting in concert with defendants, engaged, directly or indirectly, in the advertising, offering for sale, sale, or distribution of any merchandise ordered by consumers by mail or by telephone. The monitor's written report, which shall be provided to the Commission no later than one hundred fifty (150) days after the entry of this Modified Consent Decree, shall address the following issues:

a. With respect to records and materials defendants are required by the Rule and this Modified Consent Decree to keep and maintain, whether defendants' records are complete and accurate;

b. The extent to which defendants are in compliance with the Rule and with this Modified Consent Decree; and,

c. Whether there is a need for any significant modification in defendants' operations that would result in improved compliance with the Rule or this Modified Consent Decree.

16. A subsequent monitor's report shall thereafter be provided to the Court, the defendants and the Commission, on the first year anniversary of the first monitor's report. The parties may at any time by mutual written agreement, signed by each defendant and the Commission's Associate Director for Enforcement, require additional monitor's reports or rescind the requirement for additional monitor's reports. Defendants shall retain the same monitor to perform such additional monitoring and to prepare additional reports, unless the monitor declines or is unable to perform such work or the Associate Director for Enforcement notifies defendants in writing that, for cause, a new monitor should be retained. Any new monitor shall be approved in writing by the Associate Director for Enforcement. The monitor performing such additional monitoring and preparing such additional reports shall perform the duties and under the terms and conditions set forth in Paragraph 15 of this Part. In the event the defendants do not agree to retain any monitor after the second monitor's report, the Commission may petition this Court pursuant to Rule 53 of the Federal Rules of Civil Procedure, and the Court may, for cause shown, order the appointment of such additional monitors to perform such additional duties at defendants' expense, as may be appropriate.

VI. PERSONS AFFECTED; CONTINUING JURISDICTION

17. IT IS FURTHER ORDERED that the corporate defendant shall:

(a) Within thirty (30) days of the entry of this Modified Consent Decree, provide a copy of this Modified Consent Decree to each of the defendant's current directors and officers, to each supervising employee, agent, and representative having direct sales, advertising, recordkeeping, fulfillment, customer service, or policy responsibility with respect to the subject matter of this Decree, and to each fulfillment house, drop-shipper or agent or other person employed to perform any duty required by the Rule or this Modified Consent Decree, and keep records of all persons to whom this Modified Consent Decree is transmitted, including the transmission documents;

(b) For a period of five (5) years from the date of entry of this Modified Consent Decree, provide a copy of the Decree to each of the defendant's directors and officers, and to each supervising employee, agent, and representative having direct sales, advertising, recordkeeping, fulfillment, customer service, or policy responsibility with respect to the subject matter of this Modified Consent Decree, and to each fulfillment house, drop-shipper agency or other person employed to perform any duty required by the Rule or this Modified Consent Decree, within five (5) days after such person assumes his or her position, and keep records of all persons to whom this Modified Consent Decree is transmitted, including the transmission documents; provided however, that a person who has previously been provided a copy of the Modified Consent Decree pursuant to subparagraph (a) of this Part need not be provided with another copy pursuant to this subparagraph; and

(c) Retain for a period of five (5) years from the date of entry of this Modified Consent Decree and, upon request, make available to the Commission for inspection and copying records of all persons to whom this Modified Consent Decree is transmitted.

(d) Notify the Commission's Associate Director for Enforcement, Federal Trade Commission, Washington, D.C. 20580, at least thirty (30) days prior to any change in the corporate defendant that may affect compliance obligations arising under this Modified Consent Decree, including but not limited to dissolution, assignment, sale, merger or other action that would result in the emergence of a successor corporation, the creation or dissolution of a subsidiary, parent or affiliate that engages in any acts or practices subject to this Modified Consent Decree, the proposed filing of a bankruptcy petition, or a change in the corporate name or address. Provided, however, that with respect to any proposed change in the corporation about which defendants learn less than thirty (30) days prior to the date such action is to take place, defendants shall notify the Commission's Associate Director for Enforcement as soon as practicable after obtaining such knowledge.

18. For a period of five (5) years from the date of entry of this Modified Consent Decree, the individual defendant shall notify the Commission's Associate Director for Enforcement within thirty (30) days of any change in his affiliation with, or change in his active participation in the management or direction of, any business which is engaged in the sale or distribution of merchandise covered by the Rule. Provided, however, that with respect to any change in his affiliation or participation, as aforesaid, about which defendant learns less than thirty (30) days prior to the date such action is to take place, defendant shall notify the Commission's Associate Director for Enforcement as soon as practicable after obtaining such knowledge.

19. This Court shall retain jurisdiction of this matter for the purpose of enabling any of the parties to this Modified Consent Decree to apply to the Court at any time for such further orders or directives as may be necessary or appropriate for the interpretation, implementation, or modification of this Modified Consent Decree, for the enforcement of compliance therewith, or the punishment of violations thereof.

JUDGMENT IS THEREFORE ENTERED in favor of plaintiff and against defendant, pursuant to all the terms and conditions recited above. this day of , 1999.

UNITED STATES DISTRICT JUDGE

The parties, by their respective counsel, hereby consent to the terms and conditions of the Modified Consent Decree as set forth above and consent to the entry thereof. Defendants waive any rights that may arise under the Equal Access to Justice Act, 28 U.S.C.  2412, as amended by Pub.L. 104-121, 110 Stat. 847, 863-64 (1996).

FOR THE UNITED STATES OF AMERICA:

DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
U.S. Department of Justice

United States Attorney
Western District of Virginia

Assistant U.S. Attorney
Western District of Virginia

EUGENE M. THIROLF, Director
Office of Consumer Litigation
Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Washington, D.C. 20530

FOR THE FEDERAL TRADE COMMISSION:

ELAINE D. KOLISH
Associate Director for Enforcement
Bureau of Consumer Protection

LAWRENCE HODAPP
Assistant Director for Enforcement
Bureau of Consumer Protection

JOEL N. BREWER
ROBERT FRISBY
Attorneys
Bureau of Consumer Protection
Federal Trade Commission
601 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
(202) 326-2967

FOR THE DEFENDANTS:

TELEBRANDS CORPORATION

DATED: By:

AJIT KHUBANI
President
Telebrands Corporation

AJIT KHUBANI, individually

ULLMAN SHAPIRO & ULLMAN, L.L.P.
299 Broadway, Suite 1700
New York, New York 10007
Attorney for Defendants

By:

ROBERT ULLMAN
A Member of the Firm

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