<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number 333-62989
CDRJ INVESTMENTS (LUX) S.A.
---------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Luxembourg 98-0185444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10, rue Antoine Jans
L-1820 Luxembourg
Luxembourg
(Address, including zip code, of registrant's principal executive offices)
(352) 476-867-1
(Registrant's telephone number, including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 3 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [x] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $2.00 per share, outstanding at November 12, 1999
828,202 shares
================================================================================
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
Index to Financial Statements and Exhibits
Filed with the Quarterly Report of the Company on Form 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited): Page
----
<S> <C> <C>
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signature 27
Exhibits 28
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,568 $ 18,358
Receivables, net of allowances of $2,352 in 1999
and $2,284 in 1998 29,784 24,449
Inventories 28,688 33,195
Prepaid taxes 8,776 5,835
Property held for sale 4,537 -
Prepaid expenses and other current assets 4,176 5,648
-------- --------
Total current assets 80,529 87,485
Property and equipment, net 50,324 56,238
Other assets:
Goodwill, net of accumulated amortization of $2,621 in 1999
and $1,161 in 1998 77,354 77,193
Trademarks, net of accumulated amortization of $2,218 in 1999
and $929 in 1998 53,265 53,234
Deferred financing fees and other, net of accumulated
amortization of $2,581 in 1999 and $1,407 in 1998 13,024 14,484
-------- --------
TOTAL $274,496 $288,634
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,250 $ 2,500
Accounts payable 14,819 25,905
Accrued liabilities 34,576 34,183
Income taxes payable 95 1,017
Deferred income taxes - 953
-------- --------
Total current liabilities 52,740 64,558
Long-term debt 138,275 139,000
Deferred income taxes 10,558 8,202
Other long-term liabilities 1,463 1,433
-------- --------
Total liabilities 203,036 213,193
-------- --------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Common stock, par value $2.00; 1,020,000 shares authorized;
829,940 shares issued and outstanding 1,660 1,660
Additional paid-in capital 81,275 81,275
Accumulated deficit (10,501) (8,041)
Other comprehensive income (loss) - cumulative foreign
currency translation adjustment (974) 547
-------- --------
Total stockholders' equity 71,460 75,441
-------- --------
TOTAL $274,496 $288,634
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION> 1999 1998 1999 1998
------------- ------------ ------------ ---------------------------------
Predecessor
Three Months Three Months Nine Months Five Months -----------------
Ended Ended Ended Ended Four Months
September 30 September 30 September 30 September 30 Ended April 30
------------- ------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Net sales $67,139 $57,608 $206,729 $98,616 $77,282
Cost of sales 17,508 19,206 58,310 31,798 22,287
------------- ------------ ------------ ----------- -----------------
Gross profit 49,631 38,402 148,419 66,818 54,995
Selling, general and administrative expenses 43,209 38,651 129,074 63,444 49,554
Restructuring charge - - 2,719 - -
------------- ------------ ------------ ----------- -----------------
Income (loss) from operations 6,422 (249) 16,626 3,374 5,441
Other income (expense):
Exchange gain (loss) 279 17 3,725 (1,280) 1,376
Interest income (expense), net (4,237) (4,527) (12,459) (7,234) 78
Other, net (117) (251) (28) (94) 104
------------- ------------ ------------ ----------- -----------------
Income (loss) before income taxes 2,347 (5,010) 7,864 (5,234) 6,999
Income tax expense 2,945 474 10,324 831 2,899
------------- ------------ ------------ ----------- -----------------
Net income (loss) $ (598) $(5,484) $ (2,460) $(6,065) $ 4,100
============= ============ ============ =========== =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998
1999 ---------------------------------
--------------- Predecessor
Nine Months Five Months --------------
Ended Ended Four Months
September 30 September 30 Ended April 30
--------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,460) $ (6,065) $ 4,100
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Depreciation and amortization 5,393 2,981 1,363
Amortization of deferred financing fees 1,175 630 -
Deferred income taxes 1,403 2,215 375
Unrealized foreign exchange gain (3,725) - -
Changes in assets and liabilities:
Receivables, net (2,928) (8,870) (2,063)
Inventories 2,325 (2,026) (512)
Prepaid expenses and other current assets 1,472 (10,779) (7,457)
Other assets (693) (601) 3,948
Accounts payable and accrued liabilities (5,166) 19,250 (7,144)
Income taxes payable/prepaid (3,457) 2,340 (247)
Other long-term liabilities 30 568 (408)
-------- --------- --------
Net cash used in operating activities (6,631) (357) (8,045)
-------- --------- --------
Cash flows from investing activities:
Payments of previously accrued Acquisition fees (1,830) (5,355) -
Proceeds from sales of property and equipment - 2,917 8,811
Purchases of property and equipment (3,958) (4,555) (6,124)
Purchase of Jafra Business, net of cash received
of $2,339 - (184,732) -
Withholding taxes on purchase price - (12,929) -
Purchases of marketable securities - - (97)
-------- --------- --------
Net cash provided by (used in) investing activities (5,788) (204,654) 2,590
-------- --------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facility 1,900 - -
Principal repayments under term loan facility (1,875) - -
Capital contributions by Gillette - - 5,013
Transactions with Gillette and other divisions - - (13,792)
Proceeds from issuance of subordinated debt - 100,000 -
Proceeds from issuance of revolving credit facility - 20,700 -
Proceeds from term loan - 25,000 -
Contribution of equity - 82,707 -
Deferred financing fees - (11,645) -
-------- --------- --------
Net cash provided by (used in) financing activities 25 216,762 (8,779)
Effect of exchange rate changes on cash (1,396) (1,536) (333)
Effect of accounting calendar change on cash - - 6,276
-------- --------- --------
Net increase (decrease) in cash and cash equivalents (13,790) 10,215 (8,291)
Cash and cash equivalents at beginning of period 18,358 228 10,231
-------- --------- --------
Cash and cash equivalents at end of period $ 4,568 $ 10,443 $ 1,940
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
(Continued)
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONCLUDED)
Non-cash investing and financing activities:
During the second quarter of 1999, the Company sold inventory with a
book value of approximately $2.3 million and fixed assets with a net book
value of approximately $3.8 million to a third party contractor in
connection with a manufacturing outsourcing agreement, in exchange for
notes receivable with present values of $2.1 million and $1.5 million,
respectively (See Note 8). The resulting loss of approximately $2.5
million was recorded as a charge against the restructuring accrual
established in connection with the Acquisition.
6
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The unaudited interim consolidated financial statements of CDRJ Investments
(Lux) S.A. (the "Parent") and subsidiaries and Jafra Cosmetics International
(the "Predecessor") have been prepared in accordance with Article 10 of the
Securities and Exchange Commission's Regulation S-X. In the opinion of
management, the accompanying interim financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's financial statements as of September 30, 1999, and for all
the interim periods presented.
The Parent, a Luxembourg societe anonyme, Jafra Cosmetics International, Inc.,
a Delaware corporation ("JCI"), Jafra Cosmetics International, S.A. de C.V., a
sociedad anonima de capital variable organized under the laws of the United
Mexican States ("Jafra S.A.") and certain other subsidiaries of the Parent
were organized by Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman
Islands exempted limited partnership managed by Clayton, Dubilier & Rice, Inc.
("CD&R") to acquire (the "Acquisition") the worldwide Jafra Cosmetics
business (the "Jafra Business") of The Gillette Company ("Gillette"). JCI
and Jafra S.A. are indirect, wholly owned subsidiaries of the Parent. The Parent
is a holding company that conducts all of its operations through its
subsidiaries. The Parent and its subsidiaries are collectively referred to as
the "Company." On April 30, 1998, pursuant to an acquisition agreement (the
"Acquisition Agreement") between the Parent, certain of its subsidiaries and
Gillette, (i) Jafra Cosmetics International Inc., a California corporation,
merged with and into JCI, with JCI as the surviving entity, (ii) Jafra S.A.
acquired the stock of Grupo Jafra, S.A. de C.V., a Mexican company ("Grupo
Jafra"), which merged with and into Jafra S.A. following the consummation of
the Acquisition, with Jafra S.A. as the surviving entity, (iii) indirect
subsidiaries of the Parent purchased the stock of Gillette subsidiaries
conducting the Jafra Business in Germany, Italy, the Netherlands and
Switzerland; and (iv) indirect subsidiaries of the Parent acquired from various
Gillette subsidiaries certain assets used in the Jafra Business in Austria,
Argentina, Colombia and Venezuela.
The accompanying consolidated financial statements as of and for the three and
nine month periods ended September 30, 1999 and for the three and five month
periods ended September 30, 1998 reflect the operations of the Parent and its
subsidiaries. The accompanying combined financial statements for the four months
ended April 30, 1998 reflect the operations of the Jafra Business prior to the
Acquisition and are referred to as the "Predecessor" operations. All
significant intercompany or interdivisional accounts and transactions between
entities comprising the Jafra Business have been eliminated in consolidation and
combination. Certain previously reported amounts have been reclassified to
conform to the current period presentation.
The combined financial statements of the Predecessor included the following
subsidiaries and divisions of Gillette: Jafra Cosmetics International, Inc., a
California corporation; Jafra Cosmetics GmbH, a German company; Jafra Cosmetics
International B.V., a Netherlands company; Jafra Cosmetics S.p.A., an Italian
company; Jafra Cosmetics A.G., a Swiss company; Grupo Jafra S.A. de C.V., a
Mexican company, and its subsidiaries, together with certain operating assets
and the related operating profit of Gillette Braun used in the Jafra business in
Mexico (the "Braun Assets"); the Jafra-related operations of Gillette
affiliates in Austria, Argentina, Colombia and Venezuela; and the assets related
to the Jafra intellectual property, formerly held by Gillette, that are used in
the Jafra Business.
Because of the debt financing incurred in connection with the Acquisition, the
exclusion of certain assets and liabilities not acquired, and the adjustments
made to allocate the excess of the aggregate purchase price over the historical
value of the net assets acquired, the accompanying consolidated financial
statements of the Company are not directly comparable to those of the
Predecessor.
The purchase price of the Jafra Business was $212.3 million (consisting of the
$202.5 million cash purchase price and $9.8 million of Acquisition fees).
During 1999, the final amount of fees related to the Acquisition and the
concurrent issuance of debt was determined to be $21.7 million. $9.8 million of
such fees were allocated as Acquisition fees, and were accounted for as goodwill
in the purchase price allocation. $11.9 million of such fees were capitalized
as deferred financing fees, which are being amortized over the term of the
related debt.
In 1998, the Predecessor changed the reporting period for its foreign
operations from a fiscal year ending November 30 to a calendar year ending
December 31. The line item denoted "Effect of accounting calendar change on
cash" in the combined statements of cash flows represents the change in the
cash balance of the Predecessor's foreign operations from November 30, 1997 to
December 31, 1997.
The following unaudited pro forma financial information for the Company gives
effect to the Acquisition, including its impact upon depreciation and
amortization expense, CD&R management fees, executive compensation, insurance
7
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
expense, interest expense on Acquisition debt, and the related income tax effect
of the foregoing adjustments as if the transaction had occurred as of January 1,
1998 (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1998
--------------------
<S> <C>
Net sales $175,898
Net loss $ (6,565)
</TABLE>
The pro forma results have been prepared for comparative purposes only and do
not purport to represent what the Company's actual results of operations would
have been had the transaction occurred as of January 1, 1998 and are not
intended to be a projection of future results or trends.
Throughout 1998, Jafra S.A.'s functional currency was the U.S. dollar because
Mexico was considered to be a hyperinflationary economy. As of January 1, 1999,
Mexico is no longer considered a hyperinflationary economy, and the Company now
accounts for its Mexican operations using the peso as its functional currency.
Approximately $2.0 million of deferred income tax liabilities associated with
temporary income tax differences that arose from the change in functional
currency have been reflected as an adjustment to the cumulative translation
component of stockholders' equity.
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivative
instruments and for hedging activities and will be effective January 1, 2001.
The Company is currently analyzing the impact on the financial statements of
adopting this standard.
(2) Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------------
<S> <C> <C>
Raw materials and supplies $10,155 $ 7,553
Finished goods 18,533 25,642
-------------- ------------------
Total inventories $28,688 $33,195
============== ==================
</TABLE>
8
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------------
<S> <C> <C>
Land $17,543 $20,126
Buildings 15,907 16,608
Machinery and equipment 21,151 22,256
-------------- ------------------
54,601 58,990
Less accumulated depreciation 4,277 2,752
-------------- ------------------
Property and equipment, net $50,324 $56,238
============== ==================
</TABLE>
In connection with the outsourcing of the U.S. product manufacturing functions
in June 1999, management began to consider disposing a parcel of idle land and
an idle building owned by JCI. In the third quarter of 1999, JCI placed these
parcels of real property for sale. During October 1999, JCI entered into
definitive agreements regarding the disposition of these parcels of real
property. The Company expects to consummate the transactions contemplated under
such agreements in December 1999. The carrying values of the land and building
at September 30, 1999 are $3.2 million and $1.3 million, respectively,
representing the lower of cost or net realizable value, and are classified as
property held for sale in the accompanying consolidated balance sheet.
(4) Income Taxes
The actual income tax rate differs from the "expected" income tax rate
(computed by applying the U.S. federal corporate rate of 35% to income before
income taxes) for the three and nine month periods ended September 30, 1999
principally as a result of valuation allowances applied to losses by the U.S.
entity, JCI, and certain foreign subsidiaries, and a higher effective tax rate
in the Mexico entity, Jafra S.A., due to certain inflation-related income tax
adjustments.
(5) Comprehensive Income (Loss)
Comprehensive income (loss) is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1999 1998
---------------- --------------- ------------------ ---------------------------------
Predecessor
---------------
Three Months Three Months Nine Months Five Months Four Months
Ended Ended Ended Ended Ended
September 30 September 30 September 30 September 30 April 30
---------------- --------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $(598) $(5,484) $(2,460) $(6,065) $4,100
Foreign currency translation adjustment 339 23 (1,521) (153) (333)
---------------- --------------- ------------------ -------------- ---------------
Comprehensive income (loss) $(259) $(5,461) $(3,981) $(6,218) $3,767
================ =============== ================== ============== ===============
</TABLE>
(6) Commitments and Contingencies
The Company is involved from time to time in routine legal matters
incidental to its business. The Company believes that the resolution of such
matters will not have a material adverse effect on the Company's business,
financial condition or results of operations.
(7) Financial Reporting for Business Segments
The Company's business is comprised of one industry segment, direct
selling, with worldwide operations. The Company is organized into geographical
business units that each sell the full line of Jafra cosmetics, skin care, body
care, fragrances, and other products. Jafra has three reportable business
segments: the U.S. (JCI), Mexico (Jafra S.A.), and Europe.
9
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JCI and Jafra S.A. have each guaranteed the obligations under the 11 3/4%
Subordinated Notes due 2008 (the "Notes") which were issued by JCI and Jafra
S.A. in conjunction with the Acquisition on April 30, 1998. The following
consolidating financial statement data segregate between those entities that
guarantee the Notes ("Guarantor entities") and those entities that do not
guarantee the Notes ("Nonguarantor entities"); in addition, European business
segment information is separately disclosed. Prior to the Acquisition, JCI and
Jafra S.A. were Jafra Cosmetics International, Inc., a California corporation,
and Grupo Jafra, respectively, as defined below. The Nonguarantor entities are
the Parent's indirect European subsidiaries in Germany, the Netherlands,
Switzerland, Italy, Austria and Poland and its indirect South American
subsidiaries in Colombia, Argentina, Venezuela and Brazil. The Company's
subsidiaries in Poland and Brazil did not begin incurring costs until the third
quarter of 1998.
The accounting policies of the business segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results have been prepared using a management approach,
which is consistent with the basis and manner in which the Company's management
internally disaggregates financial information for the purposes of assisting in
making internal operating decisions. The Company evaluates performance based on
stand alone business segment operating results, including allocations of
corporate expenses based upon revenues, which differs from the legal and
statutory allocations. Such differences in the allocation of corporate expenses
have not been tax effected. Additionally, the Company accounts for intersegment
sales as inventory transfers.
Consolidating condensed statement of operations data for the three months
ended September 30, 1999 and 1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended September 30, 1999
---------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
-------------------------------- Entities
JCI Jafra S.A. ---------------------- Total
(U.S.) (Mexico) Total Europe Other Consolidated
------- ---------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $16,115 $39,920 $56,035 $ 6,950 $ 4,154 $67,139
Cost of sales 3,696 10,611 14,307 1,741 1,460 17,508
------- ------- ------- ------- ------- -------
Gross profit 12,419 29,309 41,728 5,209 2,694 49,631
Selling, general and
administrative expenses:
Business segment 10,780 18,805 29,585 5,802 3,529 38,916
Allocated corporate
expenses 1,031 2,551 3,582 449 262 4,293
------- ------- ------- ------- ------- -------
Income (loss) from operations 608 7,953 8,561 (1,042) (1,097) 6,422
Other expense (income) 2,231 1,543 3,774 365 (64) 4,075
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes (1,623) 6,410 4,787 (1,407) (1,033) 2,347
Income taxes 8 2,916 2,924 20 1 2,945
------- ------- ------- ------- ------- -------
Net income (loss) $(1,631) $ 3,494 $ 1,863 $(1,427) $(1,034) $ (598)
======= ======= ======= ======= ======= =======
<CAPTION>
Three months ended September 30, 1998
-----------------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
----------------------------------------- Entities
JCI Jafra S.A. ------------------------- Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
------- --------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $17,616 $27,162 $44,778 $ 8,678 $ 4,152 $ - $57,608
Cost of sales 5,489 9,987 15,476 2,621 1,109 - 19,206
------- ------- ------- ------- ------- ------- -------
Gross profit 12,127 17,175 29,302 6,057 3,043 - 38,402
Selling, general and
administrative expenses:
Business segment 9,778 13,999 23,777 7,523 3,462 - 34,762
Allocated corporate
expenses 1,193 1,831 3,024 588 277 - 3,889
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations 1,156 1,345 2,501 (2,054) (696) - (249)
Other expense (income) 3,197 911 4,108 590 (143) 206 4,761
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes (2,041) 434 (1,607) (2,644) (553) (206) (5,010)
Income taxes - 844 844 (456) 86 - 474
------- ------- ------- ------- ------- ------- -------
Net income (loss) $(2,041) $ (410) $(2,451) $(2,188) $ (639) $ (206) $(5,484)
======= ======= ======= ======= ======= ======= =======
</TABLE>
10
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidating condensed statement of operations data for the nine months ended
September 30, 1999 and the five months ended September 30, 1998 and combining
condensed statement of operations data for the four months ended April 30, 1998
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
---------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
----------------------------------------- Entities
JCI Jafra S.A. ------------------------- Total
(U.S.) (Mexico) Total Europe Other Consolidated
-------- --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $51,168 $120,575 $171,743 $23,370 $11,616 $206,729
Cost of sales 14,768 34,105 48,873 5,644 3,793 58,310
-------- -------- -------- ------- ------- --------
Gross profit 36,400 86,470 122,870 17,726 7,823 148,419
Selling, general and
administrative expenses:
Business segment 32,031 54,943 86,974 19,382 9,851 116,207
Allocated corporate
expenses 3,184 7,505 10,689 1,455 723 12,867
Restructuring charge 2,719 - 2,719 - - 2,719
-------- -------- -------- ------- ------- --------
Income (loss) from operations (1,534) 24,022 22,488 (3,111) (2,751) 16,626
Other expense (income) 6,724 836 7,560 1,404 (202) 8,762
-------- -------- -------- ------- ------- --------
Income (loss) before
income taxes (8,258) 23,186 14,928 (4,515) (2,549) 7,864
Income taxes 54 10,196 10,250 48 26 10,324
-------- -------- -------- ------- ------- --------
Net income (loss) $(8,312) $ 12,990 $ 4,678 $(4,563) $(2,575) $ (2,460)
======== ======== ======== ======= ======= ========
<CAPTION>
Five months ended September 30, 1998
-------------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
------------------------------------ Entities
JCI Jafra S.A. -------------------- Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
------- ---------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,578 $ 46,113 $ 76,691 $15,261 $ 6,664 $ - $ 98,616
Cost of sales 9,638 16,129 25,767 4,314 1,717 - 31,798
------- -------- -------- ------- ------- --------- --------
Gross profit 20,940 29,984 50,924 10,947 4,947 - 66,818
Selling, general and
administrative expenses:
Business segment 17,137 21,592 38,729 12,962 5,504 - 57,195
Allocated corporate
expenses 1,938 2,922 4,860 967 422 - 6,249
------- -------- -------- ------- ------- --------- --------
Income (loss) from operations 1,865 5,470 7,335 (2,982) (979) - 3,374
Other expense (income) 4,214 4,198 8,412 130 (140) 206 8,608
------- -------- -------- ------- ------- --------- --------
Income (loss) before
income taxes (2,349) 1,272 (1,077) (3,112) (839) (206) (5,234)
Income taxes - 1,201 1,201 (456) 86 - 831
------- -------- -------- ------- ------- --------- --------
Net income (loss) $(2,349) $ 71 $ (2,278) $(2,656) $ (925) $ (206) $ (6,065)
======= ======== ======== ======= ======= ========= ========
</TABLE>
11
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Four months ended April 30, 1998
---------------------------------------------------------------------------------------
Guarantor Entities
----------------------------------- Nonguarantor
JCI Grupo Jafra Entities Other Total
(U.S.) (Mexico) Total (Europe) Regions Eliminations Combined
------- ----------- ------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $23,611 $35,722 $59,333 $13,047 $4,902 $ - $77,282
Cost of sales 7,881 10,483 18,364 2,962 1,238 (277) 22,287
------- ------- ------- ------- ------ ----- -------
Gross profit 15,730 25,239 40,969 10,085 3,664 277 54,995
Selling, general and
administrative expenses:
Business segment 14,261 17,777 32,038 9,779 3,792 - 45,609
Allocated corporate expenses 1,206 1,823 3,029 666 250 - 3,945
------- ------- ------- ------- ------ ----- -------
Income (loss) from operations 263 5,639 5,902 (360) (378) 277 5,441
Other expense (income) 864 (2,791) (1,927) 353 16 - (1,558)
------- ------- ------- ------- ------ ----- -------
Income (loss) before income taxes (601) 8,430 7,829 (713) (394) 277 6,999
Income taxes 1 2,524 2,525 374 - - 2,899
------- ------- ------- ------- ------ ----- -------
Net income (loss) $ (602) $ 5,906 $ 5,304 $(1,087) $ (394) $ 277 $ 4,100
======= ======= ======= ======= ====== ===== =======
Consolidating condensed balance sheet data as of September 30, 1999 is summarized as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
-------------------------------------------- Entities
JCI Jafra S.A. ------------------ Total
(U.S.) (Mexico) Parent Total Europe Other Eliminations Consolidated
-------- ----------- ---------- -------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,319 $ 7 $ 10 $ 1,336 $ 1,755 $ 1,477 $ - $ 4,568
Receivables 6,133 18,887 - 25,020 2,872 1,892 - 29,784
Inventories 5,622 16,763 - 22,385 3,203 3,702 (602) 28,688
Property held for sale 4,537 - - 4,537 - - - 4,537
Other current assets 9,349 9,631 4 18,984 3,230 701 (9,963) 12,952
-------- -------- ------- -------- ------- ------- --------- --------
Total current assets 26,960 45,288 14 72,262 11,060 7,772 (10,565) 80,529
Property and equipment, net 16,952 30,598 - 47,550 2,138 636 - 50,324
Other assets:
Goodwill, net 34,181 34,102 187 68,470 8,093 791 - 77,354
Trademarks, net 20,256 27,636 193 48,085 4,915 265 - 53,265
Other (1) 24,555 4,910 71,672 101,137 1,234 1,799 (91,146) 13,024
-------- -------- ------- -------- ------- ------- --------- --------
Total $122,904 $142,534 $72,066 $337,504 $27,440 $11,263 $(101,711) $274,496
======== ======== ======= ======== ======= ======= ========= ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable and
accrued expenses $ 17,952 $ 23,387 $ - $ 41,339 $ 6,711 $ 2,018 $ (673) $ 49,395
Other current liabilities 3,023 3,756 4 6,783 3,079 2,773 (9,290) 3,345
-------- -------- ------- -------- ------- ------- --------- --------
Total current liabilities 20,975 27,143 4 48,122 9,790 4,791 (9,963) 52,740
Total long term debt 90,400 47,875 - 138,275 - - - 138,275
Other liabilities - 12,067 - 12,067 17,571 1,778 (19,395) 12,021
-------- -------- ------- -------- ------- ------- --------- --------
Total liabilities 111,375 87,085 4 198,464 27,361 6,569 (29,358) 203,036
Stockholders' equity 11,529 55,449 72,062 139,040 79 4,694 (72,353) 71,460
-------- -------- ------- -------- ------- ------- --------- --------
Total $122,904 $142,534 $72,066 $337,504 $27,440 $11,263 $(101,711) $274,496
======== ======== ======= ======== ======= ======= ========= ========
</TABLE>
(1) Other assets include long-term intercompany notes receivable, JCI's and
Parent's investments in subsidiaries, and other miscellaneous assets.
12
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidating condensed statement of cash flows data for the nine months ended
September 30, 1999 and the five months ended September 30, 1998, and combining
condensed statement of cash flows data for the four months ended April 30, 1998
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
---------------------------------------------- Entities
JCI Jafra S.A. --------------------- Total
(U.S.) (Mexico) Parent Total Europe Other Consolidated
--------- ------------ ------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
Operating activities $ 2,230 $ (1,502) $ - $ 728 $ (4,994) $ (2,365) $ (6,631)
Investing activities (3,134) (1,813) - (4,947) (193) (648) (5,788)
Financing activities 1,870 (7,883) - (6,013) 2,810 3,228 25
Effect of exchange rate changes
on cash - (840) - (840) 208 (764) (1,396)
Cash at beginning of period 353 12,045 10 12,408 3,924 2,026 18,358
-------- -------- ------- -------- -------- -------- --------
Cash at end of period $ 1,319 $ 7 $ 10 $ 1,336 $ 1,755 $ 1,477 $ 4,568
======== ======== ======= ======== ======== ======== ========
Five months ended September 30, 1998
----------------------------------------------------------------------------------------------
Guarantor Entities Nonguarantor
---------------------------------------- Entities
JCI Jafra S.A. --------------------- Total
(U.S.) (Mexico) Parent Total Europe Other Eliminations Consolidated
--------- ----------- -------- ---------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
Operating activities $ (6,642) $ 5,331 $ 28 $ (1,283) $ 592 $ 314 $ 20 $ (357)
Investing activities (87,758) (93,190) - (180,948) (19,216) (4,490) - (204,654)
Financing activities 94,825 89,452 4,004 188,281 21,133 7,348 - 216,762
Effect of exchange rate changes
on cash - - - - (1,073) (443) (20) (1,536)
Cash at beginning of period - - - - 176 52 - 228
--------- ---------- -------- ---------- ---------- -------- ------- -----------
Cash at end of period $ 425 $ 1,593 $ 4,032 $ 6,050 $ 1,612 $ 2,781 $ - $ 10,443
========= ========== ======== ========== ========== ======== ======= ===========
Four months ended April 30, 1998
---------------------------------------------------------------------------
Guarantor Entities
------------------------------------- Nonguarantor
JCI Grupo Jafra Entities Other Total
(U.S.) (Mexico) Total (Europe) Regions Combined
---------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
Operating activities $ 1,361 $ (7,425) $ (6,064) $ (7,860) $ 5,879 $ (8,045)
Investing activities (528) 546 18 (242) 2,814 2,590
Financing activities (1,138) (6,232) (7,370) 7,276 (8,685) (8,779)
Effect of exchange rate changes
on cash - (181) (181) 364 (516) (333)
Effect of accounting
calendar change on cash (Note 1) - 6,358 6,358 (82) - 6,276
Cash at beginning of period 759 7,458 8,217 1,370 644 10,231
-------- -------- -------- ------- -------- --------
Cash at end of period $ 454 $ 524 $ 978 $ 826 $ 136 $ 1,940
======== ======== ======== ======= ======== ========
</TABLE>
13
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) Restructuring Charges and Related Accruals
In connection with the Acquisition, the Company initially recorded a $4.0
million accrual for restructuring and rationalization costs (the "Acquisition
Accrual"). This accrual related to the planned realignment of the Company's
operations subsequent to the Acquisition. As of the consummation of the
Acquisition, senior management began formulating a plan to close certain
distribution facilities and involuntarily terminate certain employees.
Prior to April 30, 1999 (the one year anniversary of the Acquisition), the
Company finalized plans related to the closure of certain worldwide facilities,
principally the closure and outsourcing of the U.S. product manufacturing
functions. These restructuring plans included the transfer of certain inventory
and the sale of fixed assets at a loss to a third party contractor (the
"Contractor") and the termination of certain employees. As a result of these
restructuring plans, the total cost of the Acquisition Accrual is now estimated
to be approximately $4.6 million, resulting in a net increase to goodwill of
approximately $0.6 million. As of September 30, 1999, the remaining liability
for the Acquisition Accrual was approximately $0.2 million.
The components of the Acquisition Accrual are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Disposal of fixed assets $2,336
Severance 1,724
Lease termination costs 397
Other 150
------
$4,607
======
</TABLE>
In June 1999, the Company announced certain employee terminations related to
the outsourcing of its U.S. product manufacturing functions. The related
estimated cost of approximately $2.7 million was charged to income from
operations in the accompanying consolidated statements of operations. At
September 30, 1999, the remaining liability for such charges was approximately
$1.2 million.
The fixed assets and inventory were sold to the Contractor in exchange for
secured promissory notes. The promissory note for the fixed assets of
approximately $1.5 million bears interest at an annual rate of 8%, and is
payable in monthly installments over three years, commencing January 1, 2000.
The promissory note for inventory of approximately $2.2 million is non-interest
bearing, and is payable in monthly installments over one year, commencing
October 1, 1999. At September 30, 1999, approximately $2.4 million of notes
from the Contractor (reflected at fair value, net of discount), as well as
approximately $0.6 million of unsecured accounts receivable, were included in
receivables and approximately $1.1 million of notes, representing the non-
current portion of the fixed asset notes from the Contractor, were included in
other assets in the accompanying consolidated balance sheets.
In connection with the sale of the fixed assets and inventory, the Company and
the Contractor entered into a manufacturing agreement, dated as of June 10,
1999, (the "Manufacturing Agreement"). Subject to the terms and conditions of
the Manufacturing Agreement, the Contractor has agreed to manufacture all of the
Company's requirements for certain cosmetic and skin care products for an
initial term of five years. Following the expiration of the initial five-year
term, the Manufacturing Agreement will be automatically extended for additional
one-year terms unless terminated by six months' prior written notice by either
party. The Manufacturing Agreement provides for price renegotiations by the
Contractor if the Company's quarterly or annual purchase volume falls below
specified minimums. In addition, the Company is obligated to purchase materials
acquired by the Contractor based upon product forecasts provided by the Company
if the Contractor is unable to sell such materials to a third party. There have
been no such repurchases to date. The Contractor is solely responsible for
obtaining the inventory, manufacturing the inventory at its current location in
Chino, California, complying with applicable laws and regulations, and
performing quality assurance functions.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme (the "Parent") is a
holding company that conducts all of its operations through its subsidiaries.
Prior to the consummation of the acquisition (the "Acquisition") by the Parent
of the Jafra Business (as defined) from The Gillette Company ("Gillette"), the
terms "Company" and "Jafra" refer to the various subsidiaries and divisions of
Gillette conducting the worldwide Jafra cosmetics business (the "Jafra
Business"), and, following the consummation of the Acquisition of Jafra,
collectively to the Parent and its subsidiaries. On April 30, 1998, the Parent
completed the Acquisition of Jafra from Gillette. The Parent was organized to
effect the Acquisition. The Acquisition was sponsored by Clayton, Dubilier &
Rice, Inc. ("CD&R"), a private investment firm specializing in acquisitions that
involve management participation. As part of the financing for the Acquisition,
Clayton, Dubilier & Rice Fund V Limited Partnership ("CD&R Fund V"), certain
members of new management, certain new directors and other persons made an
equity investment in the Parent of approximately $82.9 million in cash. In
addition, $100.0 million of 11 3/4% Senior Subordinated Notes due 2008 (the
"Notes") were issued and the Company entered into a credit agreement (the
"Senior Credit Agreement") with certain lenders. The Senior Credit Agreement
provides for senior secured credit facilities, including a $25.0 million term
loan facility (the "Term Loan Facility"), all of which was drawn at the closing
of the Acquisition, and a $65.0 million revolving credit facility (the
"Revolving Credit Facility"). The purchase price for the Jafra Business was
approximately $212.3 million (excluding $11.9 million of financing fees and
expenses), consisting of $202.5 million in cash ($2.5 million of which was
determined and paid subsequent to the Acquisition date) and $9.8 million of
Acquisition fees.
General
The following discussion of the results of operations, financial condition and
liquidity of the Company should be read in conjunction with the accompanying
consolidated financial statements and notes thereto and with the Company's
audited consolidated financial statements as of and for the period ended
December 31, 1998, included in the Company's Annual Report on Form 10-K. The
results of operations for the three and nine months ended September 30, 1999 are
not necessarily indicative of results that may be expected for future periods.
Business Trends and Initiatives
The markets in which the Company competes are highly competitive. Price,
quality, sales consultants and a broad range of product offerings are the
dominant competitive factors in the cosmetics direct selling industry. The
Company intends to respond to competitive pressures in each major geographic
marketplace in which it participates. The timing of these responses, which may
occur sooner in certain markets than in others, may impact future quarterly
results.
The Company has experienced significant sales growth in Mexico over the last
seven quarters, due in large part to an increase in the number of sales
consultants. The Company's Mexican subsidiary generated 58.3% of the Company's
consolidated net sales for the first nine months of 1999, compared to 47.7% for
the full year in 1998. The year to year sales growth in Mexico for the nine
months ended September 30, 1999 was 47.3% in U.S. dollars and 64.1% in local
currency. Given a continued stable economic environment, the Company expects to
continue to grow its revenues and consultant base in Mexico, but no assurance
can be given that sales in Mexico will continue to increase at these rates.
Net sales in the U.S. include certain low margin sales to a third party
manufacturer. Excluding the impact of these sales, U.S. net sales for the first
nine months of 1999 declined by $1.5 million, or 2.9%, primarily due to slight
decreases in the number and productivity of sales consultants. The Company
implemented a change in its compensation structure for its U.S. sales
consultants during the second quarter of 1999 that is expected to stimulate
productivity and generate modest growth for the remainder of this year and next
year. Excluding the impact of the third party sales, the Company expects the
full year U.S. 1999 net sales to be at or slightly above 1998 net sales.
Net sales in Europe for the first nine months of 1999 declined at a rate of
approximately 17.4% from the comparable nine month period of the prior year,
primarily due to declines in both the number and productivity of
15
<PAGE>
sales consultants, along with an unfavorable exchange rate impact. Excluding the
unfavorable exchange rate impact, sales in Europe decreased by 15.9%. The
Company expects to continue to show comparative period declines in sales in
Europe for the remainder of the current year and into the coming year, but at a
decreasing rate.
As a result of these differential growth rates, the Company expects, but no
assurance can be given, that its percentage of net sales in Mexico will
increase, and its percentage of net sales in Europe will decrease for the near
term.
Restructuring Charges
In connection with the Acquisition, the Company initially recorded a $4.0
million accrual for restructuring and rationalization costs (the "Acquisition
Accrual"). This accrual related to the planned realignment of the Company's
operations subsequent to the Acquisition. Prior to April 30, 1999 (the one
year anniversary of the Acquisition), the Company finalized plans related to the
closure of certain worldwide facilities, principally the closure and outsourcing
of the U.S. product manufacturing functions. These restructuring plans included
the transfer of certain inventory and the sale of fixed assets at a loss to a
third party contractor (the "Contractor") and the termination of certain
employees. As a result of these restructuring plans, the total cost of the
Acquisition Accrual was $4.6 million, resulting in an increase to goodwill of
approximately $0.6 million.
In June 1999, the Company announced certain employee terminations related to
outsourcing the U.S. product manufacturing functions. The related estimated
cost of approximately $2.7 million was charged to income from operations in the
accompanying consolidated statements of operations. At September 30, 1999, the
remaining liability for such charges was approximately $1.2 million. Based upon
anticipated production volumes, the Company believes, but no assurance can be
given, that it will realize annualized cost savings of approximately $2.5 to
$3.0 million as a result of this outsourcing. During the third quarter of 1999,
the estimated cost savings from the outsourcing were approximately $0.3 million.
Results of Operations
The following table represents selected components of the Company's results of
operations, in millions of dollars and as percentages of net sales. The table
reflects the consolidated operations of the Company for the three and nine
months ended September 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------------- --------------------------------------------
1999 1998 1999 1998 (1)
--------------------- ------------------------ ------------------------ ------------------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $67.1 100.0% $57.6 100.0% $206.7 100.0% $ 175.9 100.0%
Cost of sales 17.5 26.1 19.2 33.3 58.3 28.2 54.1 30.8
---------- ------- ------- ------- --------- ------- ---------- ------
Gross profit 49.6 73.9 38.4 66.7 148.4 71.8 121.8 69.2
Selling, general & administrative
expenses 43.2 64.4 38.7 67.2 129.1 62.5 113.0 64.2
Restructuring charge 0.0 0.0 0.0 0.0 2.7 1.3 0.0 0.0
---------- ------- ------- ------- --------- ------ ---------- ------
Income (loss) from operations 6.4 9.5 (0.3) (0.5) 16.6 8.0 8.8 5.0
Exchange gain 0.3 0.4 0.0 0.0 3.7 1.8 0.1 0.1
Interest expense, net (4.2) (6.3) (4.5) (7.8) (12.5) (6.0) (7.2) (4.1)
Other expense, net (0.2) (0.3) (0.2) (0.3) 0.0 0.0 0.0 0.0
---------- ------- ------- ------- -------- -------- ---------- ------
Income (loss) before income taxes 2.3 3.3 (5.0) (8.6) 7.8 3.8 1.7 1.0
Income tax expense 2.9 4.3 0.5 0.9 10.3 5.0 3.7 2.1
---------- ------- ------- ------- -------- -------- ---------- ------
Net loss $(0.6) (1.0)% $(5.5) (9.5)% $ (2.5) (1.2)% $ (2.0) (1.1)%
========== ======= ======= ======= ======== ======== ========== ======
</TABLE>
(1) Pursuant to the terms of the Acquisition Agreement, the Company was
acquired by the Parent on April 30, 1998. Accordingly, for purposes of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the results of operations for the nine months ended September 30,
1998 are a combination of the historic results of the Predecessor for the four
months ended April 30, 1998 and the Company's results of operations for the five
months ended September 30, 1998.
16
<PAGE>
Three months ended September 30, 1999 compared to the three months ended
September 30, 1998
Net sales. Net sales for the third quarter of 1999 increased to $67.1
million from $57.6 million in the third quarter of 1998, an increase of $9.5
million, or 16.5%. Net sales in local currencies for the third quarter of 1999
increased by 27.8% over the comparable prior year period. The Company's average
number of sales consultants worldwide for the third quarter increased to
approximately 276,000, or 17.8%, over the September 30, 1998 total.
In Mexico, net sales increased to $39.9 million for the third quarter of 1999
from $27.2 million in the third quarter of 1998, an increase of $12.7 million,
or 46.7%, while the average number of sales consultants for the third quarter
increased to approximately 181,000, or 35.2%. Net sales in Mexico in local
currency increased by 57.5% over the comparable prior year period. The
significant year to year increase was driven by the larger sales consultant
base, product price increases and the introduction of new products.
In the U.S., net sales declined to $16.1 million for the third quarter of 1999
from $17.6 million in the third quarter of 1998, a decrease of $1.5 million, or
8.5%, while the average number of sales consultants for the third quarter
decreased to approximately 55,000, or 12.6% from September 30, 1998. U.S. net
sales in the third quarter of 1998 included approximately $2.2 million of
certain low margin sales to a third party manufacturer. Excluding the impact of
these sales, net sales in the third quarter of 1999 increased $0.7 million, or
4.0%. The decrease in the number of sales consultants was partially offset by an
increase in productivity of the consultants.
In Europe, net sales declined to $7.0 million in the third quarter of 1999
from $8.7 million in the third quarter of 1998, a decrease of $1.7 million, or
19.5%. The decrease in net sales is primarily due to a decline in both the
number and productivity of sales consultants, along with an unfavorable exchange
rate impact of $0.5 million. Excluding the unfavorable exchange rate impact,
sales in Europe decreased 13.8% for the quarter. The average number of sales
consultants for the third quarter in Europe decreased to approximately 17,000,
or 7.8%, from September 30, 1998.
Gross profit. Gross profit in the third quarter of 1999 increased to $49.6
million from $38.4 million in the comparable prior year period, an increase of
$11.2 million, or 29.2%. Gross profit as a percentage of sales (gross margin)
increased to 73.9% from 66.7%. Cost of sales in 1998 included $1.7 million
relating to the sale of certain inventories that were revalued in conjunction
with the Acquisition. Additionally, 1998 net sales included low margin sales to
a third party manufacturer of approximately $2.2 million. Excluding the effect
of these items, the adjusted gross margin for the third quarter of 1998 would
have been 71.7%. The increased sales volumes in Mexico during the third quarter
of 1999 enabled the Company to take advantage of manufacturing efficiencies,
which more than offset a less favorable product mix consisting of higher
promotional sales than in the comparable period of 1998. In the U.S., the
reduced level of low margin sales in the third quarter of 1999 resulted in a
more favorable sales mix, and the outsourcing of the U.S. product manufacturing
functions had a favorable effect on margins. European margins increased due to
product cost reductions and a more favorable sales mix in 1999.
Selling, general and administrative expenses. SG&A expenses in the third
quarter of 1999 increased to $43.2 million from $38.7 million for the third
quarter of 1998, an increase of $4.5 million, or 11.6%. SG&A as a percentage of
net sales of 64.4% in the third quarter of 1999 was below 67.2% for the
comparable period in 1998, as SG&A expenses grew proportionally less than sales.
The increased SG&A expenses related primarily to sales promotions, commissions
and administrative expenses in Mexico, in conjunction with growing sales in that
region. In the U.S. market, SG&A expenses in the third quarter of 1999 were
$1.0 million higher than in the third quarter of 1998, due to higher sales
promotional expenses. SG&A expenses in Europe declined proportionately with
sales, primarily as a result of cost containment activities. Corporate SG&A
expenses, which consist of worldwide headquarters, marketing, and research and
development expenses, increased by $0.4 million in the third quarter of 1999,
relative to the comparable period of 1998.
Interest expense. During the third quarter of 1999, the Company incurred net
interest expense of $4.2 million (including amortization of deferred financing
fees) primarily related to the debt incurred in connection with the Acquisition.
In 1998, interest expense was $4.5 million for the same period. The average
outstanding loan balances and the effective borrowing rates on term loans and
LIBOR based revolving loans in the current period were lower than those of the
corresponding 1998 period.
Exchange gain (loss). The Company's foreign exchange gain was $0.3 million
for the third quarter of 1999.
17
<PAGE>
The third quarter 1999 gain relates primarily to the remeasurement in Mexico of
U.S. dollar-denominated debt to the peso, as the peso strengthened against the
U.S. dollar during the third quarter of 1999. During the comparable 1998 period,
the U.S. dollar strengthened substantially against the Mexican peso. This would
normally have resulted in an exchange loss for the Company due to the large
amount of U.S. dollar-denominated debt at Jafra S.A. However, as Mexico was
considered to be a hyperinflationary economy during 1998, the U.S. dollar was
the functional currency of the Mexican subsidiary. Accordingly, gains and losses
on the remeasurement of such debt were not included as a component of net income
in 1998.
Income tax expense. Income tax expense increased $2.4 million to $2.9
million in the third quarter of 1999 from $0.5 million in the comparable 1998
period. The Company's effective income tax rate differs from the federal
statutory rate primarily due to the valuation allowances recorded against
operating losses in the U.S. and Europe. The increased income tax expense for
the third quarter of 1999 is primarily the result of higher taxable income
generated by the Company's Mexican subsidiary in 1999 as compared to 1998.
Net loss. Income from operations for the third quarter of 1999 was $6.4
million, a $6.7 million increase from the comparable 1998 period. The increase
resulted from increased gross profit of $11.2 million, which was partially
offset by increased SG&A expenses of $4.5 million. The net loss decreased to
$0.6 million in the third quarter of 1999 from a net loss of $5.5 million in
the comparable 1998 period, due to the $6.7 million increase in income from
operations, a $0.3 million decrease in net interest expense, and a $0.3 million
increase in exchange gains, partially offset by a $2.4 million increase in
income taxes.
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998
Net sales. Net sales for the nine months ended September 30, 1999 increased
to $206.7 million from $175.9 million in the comparable prior year period, an
increase of $30.8 million, or 17.5%. Sales in local currencies for the nine
months ended September 30, 1999 increased by 27.6% over the comparable prior
year period. The sales increase in local currency was substantially higher than
the increase measured in U.S. dollars, primarily as a result of the weaker
Mexican peso in 1999. The Company's average number of sales consultants
worldwide increased to approximately 271,000, or 20.4%, over the September 1998
average.
In Mexico, net sales increased to $120.6 million for the nine months ended
September 30, 1999 from $81.8 million in the comparable prior year period, an
increase of $38.8 million, or 47.4%, while the average number of sales
consultants increased to approximately 176,000, or 35.0%, over the September
1998 year-to-date average. Sales in Mexico in local currency increased by 64.1%
over the prior year. The significant year to year increase was driven by the
larger sales consultant base, product price increases and the introduction of
new products.
In the U.S., net sales decreased to $51.2 million for the nine months ended
September 30, 1999 from $54.2 million in the comparable prior year period, a
decrease of $3.0 million, or 5.5%. Low margin sales to a third party
manufacturer were $1.2 million and $2.7 million for the nine months ended
September 30, 1999 and 1998, respectively. Excluding the impact of these sales,
net sales in the U.S. for the first nine months of 1999 declined 2.9% primarily
due to slight decreases in the number and productivity of sales consultants. The
average number of sales consultants decreased to approximately 57,000, or 1.2%
from the September 1998 year-to-date average.
In Europe, net sales declined to $23.4 million for the nine months ended
September 30, 1999 from $28.3 million in the comparable prior year period, a
decrease of $4.9 million, or 17.3%, while the average number of sales
consultants decreased to approximately 18,000 or 8.8% under the September 1998
year-to-date average. Contributing to the sales decline was an unfavorable
exchange rate impact on sales of $0.4 million. Excluding the exchange rate
impact, net sales decreased 15.9%.
Gross profit. Gross profit for the nine months ended September 30, 1999
increased to $148.4 million from $121.8 million in the comparable prior year
period, an increase of $26.6 million, or 21.8%. Gross profit as a percentage of
sales (gross margin) increased to 71.8% from 69.2%. Cost of sales for 1998
included $2.5 million related to the sale of certain inventories that were
revalued in conjunction with the Acquisition. Additionally, low margin third
party sales were $1.2 million and $2.7 million for the nine months of 1999 and
1998, respectively. Excluding the effect of these items, adjusted gross margin
would have been 72.2% and 71.8% for the nine months of 1999 and 1998,
respectively. The increased sales volumes in Mexico during the first nine months
of 1999 enabled the Company to take advantage of manufacturing efficiencies,
which more than offset a less favorable product mix consisting of higher
promotional sales than in the comparable period of 1998. European margins for
the
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nine months ended September 30, 1999 increased slightly from those of the
corresponding prior period.
Selling, general and administrative expenses. SG&A expenses for the nine
months ended September 30, 1999 increased to $129.1 million from $113.0 million
for the comparable prior year period, an increase of $16.1 million, or 14.2%.
SG&A as a percentage of net sales decreased in the 1999 period to 62.5% from
64.2% for the comparable period in 1998. Excluding the impact on SG&A expenses
from start up markets in Brazil and Poland for the nine months ended September
30, 1999, SG&A as a percentage of net sales would have been 61.7%. The increased
SG&A expenses related primarily to sales promotions, commissions and
administrative expenses incurred in Mexico to support growing sales. In the
U.S. market, SG&A expenses for the first nine months of 1999 increased $0.7
million, or 2.0%, from the comparable period of 1998. Corporate expenses for the
first nine months of 1999 increased by $2.7 million, or 26.2%, over the
comparable 1998 period primarily as a result of increased personnel costs of the
post-Acquisition management team. Additionally, as a result of the Acquisition,
SG&A expenses for the first nine months of 1999 included $1.3 million of
incremental expenses for amortization of goodwill and trademarks that were not
incurred by the Predecessor for the first four months of 1998.
Restructuring charge. In June 1999, the Company announced certain employee
terminations related to outsourcing the U.S. product manufacturing functions.
The estimated cost of approximately $2.7 million was charged to income from
operations in the accompanying consolidated statements of operations.
Interest expense. During the nine months ended September 30, 1999, the
Company incurred $12.5 million of net interest expense (including amortization
of deferred financing fees) related to the debt incurred in connection with the
Acquisition. The comparable prior year period included only five months of
Acquisition-related interest expense in the amount of $7.2 million.
Exchange gain. The Company's foreign exchange gain for the nine months ended
September 30, 1999 increased $3.6 million to $3.7 million from $0.1 million in
the comparable prior year period, primarily due to the remeasurement in Mexico
of U.S. dollar-denominated debt to the peso as the peso strengthened against the
dollar. During the comparable 1998 period, the U.S. dollar strengthened
substantially against the Mexican peso. This would normally have resulted in an
exchange loss for the Company due to the large amount of U.S. dollar-denominated
debt at Jafra S.A. However, as Mexico was considered to be a hyperinflationary
economy during 1998, the U.S. dollar was the functional currency of the Mexican
subsidiary. Accordingly, gains and losses on the remeasurement of such debt
were not included as a component of net income in 1998.
Income tax expense. Income tax expense increased $6.6 million to $10.3
million for the nine months ended September 30, 1999 from $3.7 million in the
comparable prior year period. The Company's effective income tax rate differs
from the federal statutory rate primarily due to the valuation allowances
recorded against operating losses in the U.S. and Europe. The increased income
tax expense for the nine months ended September 30, 1999 is primarily the result
of higher taxable income generated by the Company's Mexican subsidiary in 1999
as compared to 1998.
Net income (loss). Income from operations for the nine months ended September
30, 1999 was $16.6 million, a $7.8 million increase from the comparable prior
year period. The increase resulted from increased higher margin net sales of
$30.8 million and resulting increase in gross profit of $26.6 million, partially
offset by the $2.7 million restructuring charge incurred in the second quarter
of 1999 and a $16.1 million increase in SG&A expenses (including $1.3 million of
incremental amortization expense resulting from the Acquisition). Excluding the
aforementioned restructuring charge, income from operations would have been
$19.3 million, resulting in a $10.5 million increase from the comparable 1998
period. The net loss increased to $2.5 million for the nine months ended
September 30, 1999 from $2.0 million in the comparable 1998 period, due to the
$6.6 million increase in income taxes and the $5.3 million increase in interest
expense resulting from the Acquisition, partially offset by the $7.8 million
increase in income from operations and the $3.6 million increase in exchange
gains.
Liquidity and Capital Resources
The Acquisition was consummated on April 30, 1998. As part of the financing
for the Acquisition, $100.0 million of Notes were issued, $41.1 million of
borrowings were initially drawn down under the Senior Credit Agreement ($25.0
million under the Term Loan Facility and $16.1 million under the Revolving
Credit Facility), and $82.9 million of cash was contributed as an equity
investment by CD&R Fund V, certain members of management,
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certain directors and other persons. The purchase price for the Jafra Business
was approximately $212.3 million (excluding $11.9 million of financing fees and
expenses), consisting of $202.5 million in cash and $9.8 million of Acquisition
fees. The $11.9 million of financing fees and expenses are being amortized over
the term of the related debt, while the $9.8 million of Acquisition fees were
reflected as additional goodwill.
The Company's liquidity needs arise primarily from principal and interest
payments under the Notes, the Term Loan Facility and the Revolving Credit
Facility. The Notes represent several obligations of Jafra Cosmetics
International, Inc. ("JCI") and Jafra Cosmetics International, S.A. de C.V.
("Jafra S.A.") in the amount of $60 million and $40 million, respectively, with
each participating on a pro rata basis upon redemption. The Notes mature in 2008
and bear a fixed interest rate of 11.75% payable semi-annually.
Borrowings under the Senior Credit Agreement are payable in quarterly
installments of principal and interest over six years. Scheduled term loan
principal payments under the Term Loan Facility will be approximately $2.5
million, $3.5 million, $4.5 million, $5.5 million, $6.5 million, and $2.5
million for each of the years from 1999 through 2004, respectively. Borrowings
under the Revolving Credit Facility mature on April 30, 2004. Borrowings under
the Senior Credit Agreement bear interest at an annual rate of LIBOR plus a
margin not to exceed 2.625% or an alternate base rate (the higher of the prime
rate or federal funds rate plus 1%, plus an applicable margin not to exceed
1.625%). The interest rates in effect at September 30, 1999 were approximately
8.1% for the LIBOR-based borrowings, and the rate for the prime-based borrowings
was approximately 9.9%. Interest expense in 1999 is expected to be
approximately $16.0 to $17.0 million, including approximately $1.6 million of
non-cash amortization of deferred debt issuance costs. During the nine months
ended September 30, 1999, cash paid for interest was approximately $9.4 million.
Both the indenture (the "Indenture"), dated as of April 30, 1998, under which
the Notes were issued, and the Senior Credit Agreement contain certain covenants
that limit the Company's ability to incur additional indebtedness, pay cash
dividends and make certain other payments. The Indenture and the Senior Credit
Agreement also require the Company to maintain certain financial ratios
including a minimum EBITDA to cash interest expense coverage ratio and a maximum
debt to EBITDA ratio. The Company has one letter of credit outstanding under the
Revolving Credit Facility in the amount of $1.0 million.
During October 1999, the Company entered into definitive agreements with
respect to the disposition of a parcel of real property and an office building.
These properties had an aggregate carrying value of approximately $4.5 million
as of September 30, 1999 and are currently being held in escrow pending the
consummation of these transactions. The Company anticipates that the
disposition of these properties will be consummated in the fourth quarter of
1999, at which time the Company expects to receive net sales proceeds of
approximately $5.6 million, with a resulting gain from the transactions of
approximately $1.1 million.
The Company believes, but no assurance can be given, that its existing cash,
cash flow from operations and availability under the Senior Credit Agreement
will provide sufficient liquidity to meet the Company's cash requirements and
working capital needs until the maturity of the Revolving Credit Facility.
Outsourcing of Manufacturing
In connection with the Acquisition, the Company initially recorded a $4.0
million accrual for restructuring and rationalization costs (the "Acquisition
Accrual"). This accrual related to the planned realignment of the Company's
operations subsequent to the Acquisition. Prior to April 30, 1999 (the one
year anniversary of the Acquisition), the Company finalized plans related to the
closure of certain worldwide facilities, principally the closure and outsourcing
of the U.S. product manufacturing functions. These restructuring plans included
the transfer of certain inventory and the sale of fixed assets at a loss to a
third party contractor (the "Contractor") and the termination of certain
employees. The total cost of the Acquisition-related restructuring accrual is
now estimated to be approximately $4.6 million, an increase of approximately
$0.6 million over the initial estimate, resulting in an increase to goodwill of
approximately $0.6 million.
In June 1999, the Company announced certain employee terminations related to
outsourcing the U.S. product manufacturing functions. The related estimated
cost of approximately $2.7 million was charged to income from operations in the
accompanying consolidated statements of operations. At September 30, 1999, the
remaining liability for such charges was approximately $1.2 million. The
majority of the remaining costs are expected to be
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paid out in cash over the next three months, although certain individuals will
receive severance payments that will extend until the second or third quarter of
2000.
The fixed assets and inventory were sold to the Contractor in exchange for
secured promissory notes. The promissory note for the fixed assets of
approximately $1.5 million bears interest at an annual rate of 8%, and is
payable in monthly installments over three years, commencing January 1, 2000.
The promissory note for inventory of approximately $2.2 million is non-interest
bearing, and is payable in monthly installments over one year, commencing
October 1, 1999. At September 30, 1999, approximately $2.4 million of notes
from the Contractor (reflected at fair value, net of discount), as well as
approximately $0.6 million of unsecured accounts receivable, were included in
receivables and approximately $1.1 million of notes, representing the non-
current portion of the fixed asset notes from the Contractor, were included in
other assets.
In connection with the sale of the fixed assets and inventory, the Company and
the Contractor entered into a manufacturing agreement, dated as of June 10,
1999, (the "Manufacturing Agreement"). Subject to the terms and conditions of
the Manufacturing Agreement, the Contractor has agreed to manufacture all of the
Company's requirements for certain cosmetic and skin care products for an
initial term of five years. Following the expiration of the initial five-year
term, the Manufacturing Agreement will be automatically extended for additional
one-year terms unless terminated by six months' prior written notice by either
party. The Manufacturing Agreement provides for price renegotiations by the
Contractor if the Company's quarterly or annual purchase volume falls below
specified minimums. In addition, the Company is obligated to purchase materials
acquired by the Contractor based upon product forecasts provided by the Company
if the Contractor is unable to sell such materials to a third party. The
Contractor is solely responsible for obtaining the inventory, manufacturing the
inventory at its current location in Chino, California, complying with
applicable laws and regulations, and performing quality assurance functions.
Cash Flows
Net cash used in operating activities was $6.6 million for the nine months
ended September 30, 1999. Net loss after adding back depreciation and other
non-cash items provided operating cash flow of $1.8 million, and was offset by
an increase in working capital items of $7.7 million and an increase in other
assets of $0.7 million. The increased working capital was primarily due to a
$5.1 million reduction in accounts payable and accrued liabilities, a $3.5
million increase in prepaid taxes and a $2.9 million increase in accounts
receivable, partially offset by reductions in inventories of $2.3 million and
prepaid expenses and other current assets of $1.5 million.
Net cash used in investing activities was $5.8 million for the nine months
ended September 30, 1999. Capital expenditures were $4.0 million, consisting
primarily of information systems upgrades and manufacturing equipment. Total
capital spending for 1999 is budgeted at approximately $5.0 million, and is
expected to be in the range of $7.0 to $10.0 million in 2000 due to planned
modifications to information systems. In addition, the Company paid $1.8
million of previously accrued costs relating to the Acquisition.
No net cash was provided by (used in) financing activities for the nine months
ended September 30, 1999. Net borrowings under the Revolving Credit Facility
provided net cash of $1.9 million, which was offset by $1.9 million in principal
repayments under the Term Loan Facility.
The effect of exchange rate changes on cash was $1.4 million for the nine
months ended September 30, 1999, relating primarily to fluctuations in the
exchange rate of the peso.
Foreign Operations
Sales outside of the United States aggregated approximately 75.2% of the
Company's total net sales for the nine months ended September 30, 1999, compared
to approximately 69.2% for the comparable prior year period. In addition, as of
September 30, 1999, international subsidiaries comprised approximately 64.6%
(excluding intercompany balances) of the Company's consolidated total assets.
Accordingly, the Company has experienced and continues to be exposed to foreign
exchange risk. Although the Company historically has not entered into foreign
currency hedging contracts to mitigate this risk, it has entered into foreign
exchange trading facilities with several financial institutions in the U.S. and
Mexico, which will enable the Company to do so in the future. The Company
currently has no plans to enter into foreign currency hedging contracts, but
will evaluate the benefits and costs of potentially doing so in the future.
Foreign currency fluctuations can also impact operating results. The average
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exchange rate of the peso to the U.S. dollar weakened substantially for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998. Net sales for the nine months ended September 30, 1999 would have been
approximately $15.7 million higher than reported if average exchange rates in
the first nine months of 1999 remained the same as in the comparable 1998
period.
The Company's subsidiary in Mexico, Jafra S.A., generated approximately 58.3%
of the Company's net sales for the nine months ended September 30, 1999,
compared to 46.5% for the comparable 1998 period, substantially all of which
were denominated in Mexican pesos. The Company manufactures a significant amount
of its products in Mexico, which allows the Company to have a significant
portion of its Mexican manufacturing costs denominated in pesos. Jafra S.A. will
continue to buy product manufactured in the United States by the Contractor in
U.S. dollar denominated prices. Although Jafra S.A. buys products manufactured
in the United States in U.S. dollar denominated prices, it also sells a majority
of its manufactured product for export in U.S. dollar denominated prices. These
U.S. dollar denominated sales help to mitigate the currency exposure on U.S.
dollar denominated purchases.
Mexico has experienced periods of high inflation in the past. Throughout
1998, Mexico's functional currency was the U.S. dollar because Mexico was
considered to be a hyperinflationary economy. As of January 1, 1999, Mexico is
no longer considered a hyperinflationary economy, and the Company now accounts
for its Mexican operations using the peso as its functional currency. Jafra
S.A. had $49.3 million of U.S. dollar denominated third party debt as of
September 30, 1999. Because the functional currency is no longer the U.S.
dollar, gains and losses of remeasuring such debt to the U.S. dollar from the
peso are now included as a component of net income, and resulted in the Company
recognizing an exchange gain of approximately $3.9 million for the nine months
ended September 30, 1999. Because of the significant amount of U.S. dollar
denominated debt owed by Jafra S.A., fluctuations in the peso-to-dollar exchange
rate can have a material impact on the Company's earnings.
Year 2000 Issue
Prior to the Acquisition, the Company established a Year 2000 compliance
methodology and schedule based on the Gillette model. This methodology
encompassed six phases: discovery, planning, resolution, testing, implementation
and certification. The scope of the Company's compliance program includes
information technology (computer systems, hardware and operating systems),
facilities (phone systems, plant machinery, elevators and security systems),
embedded software in production equipment and major suppliers of raw materials
and finished goods. The Company completed the discovery and planning phases with
respect to both its information technology systems and non-information
technology systems. Approximately 25% of the systems addressed were found to
require some level of remediation or replacement. The Company is currently in
the resolution phase with respect to such systems, in which all affected
hardware, software and equipment are being repaired, upgraded or replaced.
The Company expects to complete the resolution and testing phases for all
systems (information technology and non-information technology) by the end of
November 1999. The Company expects to complete the implementation and
certification phases by the end of November 1999. As of October 29, 1999, the
Company estimated that its resolution and testing phases for mission critical
information technology systems were approximately 95% complete. The Company has
upgraded its main operating systems to a Year 2000 compliant version in the
United States, Mexico, Germany, the Netherlands, Austria, Venezuela, Argentina,
Poland and Colombia, and also upgraded its financial systems in the United
States, Mexico, Argentina, Colombia, Poland, Brazil, Venezuela, Italy and the
Netherlands. The Company expects to have the operating systems upgraded in
Italy, Switzerland, and Brazil and the financial systems upgraded in Germany,
Austria and Switzerland by the end of November 1999.
With respect to its non-information technology systems, the Company estimates
that its resolution and testing phases are virtually complete. Most non-
information technology systems were already Year 2000 compliant, but several
phone systems and one voice mail system required upgrades that are now
completed. The Company has spent approximately $1,600,000 to date on the
discovery, planning, and resolution phases for both information technology and
non-information technology systems.
The Company expects to spend approximately $50,000 to complete the remaining
Year 2000 compliance program, and believes it has sufficient cash, cash flow and
borrowing availability to meet its cash needs. Costs incurred to modify existing
systems are being expensed as incurred.
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As part of its investigation conducted in the discovery phase, the Company
prepared a questionnaire that was distributed to approximately 106 of its major
suppliers, which supply (either directly or indirectly through the Company's
contract manufacturer) 75% of the raw materials and finished goods purchased by
the Company from third party suppliers. As of October 29, 1999 the Company has
received written responses from 98 of these suppliers. Each such supplier has
informed the Company that they do not expect that the dating problems associated
with the Year 2000 will have a material adverse effect on their ability to
continue to supply the Company in accordance with past practice, and 90 of such
suppliers have already completed their Year 2000 remediation efforts. Based on
these replies, the Company does not believe that the inability of any of the
suppliers that have not yet responded to the Company's request for information,
or have not yet completed their Year 2000 remediation efforts, to continue to
supply the Company would have a material adverse effect on the Company's
business, financial condition or results of operations. The Company intends to
seek and identify alternate sources of supply for the affected raw materials and
finished products in the event it has not received assurance by the end of
November 1999 from the remaining companies that they will be able to supply the
Company without material disruption into the Year 2000. The Company currently
believes there are alternative sources for all such materials.
The Company is developing contingency plans on a country by country basis.
These contingency plans primarily involve the use of additional temporary labor
and manual procedures to process and ship orders. In the event that the Company
does not complete all phases of its year 2000 compliance program by December 31,
1999 or experiences significant operational problems due to unresolved year 2000
problems of third parties that do business with the Company, the Company's most
likely worst case scenario would be that it would be unable to process and ship
orders in a timely manner or to respond to customer inquiries. No assurance can
be given that the Company would be able to perform these functions without
incurring significant additional expense, or that these functions would be
performed on a timely basis. This could lead to a loss of revenue and customer
satisfaction, which could have a material adverse effect on the Company's
business, results of operations, liquidity, and financial condition.
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that day. The euro will trade on currency exchanges and
be available for non-cash transactions during the transition period between
January 1, 1999 and January 1, 2002. During this transition period, the existing
currencies are scheduled to remain legal tender in the participating countries
as denominations of the euro and public and private parties may pay for goods
and services using either the euro or the participating countries' existing
currencies.
During the transition period, the Company will continue to utilize the
respective country's existing currency as the functional currency. Use of the
euro by the Company or its sales consultants is not expected to be significant
and will be converted and recorded in the Company's accounting records in the
existing functional currency.
The Company intends to adopt the euro as its functional currency when the
majority of its transactions in the member countries are conducted in the euro.
The Company has identified that its European commercial system will not support
the euro, and is looking into various alternatives either to update or replace
the system. The Company does not expect the introduction of the euro to
materially adversely affect its business, financial condition, or results of
operations.
Information Concerning Forward-Looking Statements
Certain of the statements contained in this report (other than the Company's
consolidated financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statement in
"Commitments and Contingencies" that the Company believes that the resolution of
the routine legal matters in which it is involved will not have a material
adverse effect on the Company's business, financial condition or results of
operations; (ii) the statements in "--Business Trends and Initiatives"
concerning (a) the Company's intent to respond to competitive pressures in each
major geographic marketplace in which it participates, (b) the Company's
expectation that it will grow its revenues and consultant base in Mexico, (c)
the Company's expectation that the new compensation structure for its U.S. sales
consultants will stimulate productivity and generate modest growth in the
remainder of the year and year 2000 and that excluding the impact of the third
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party sales, full year U.S. 1999 sales will be at or slightly above 1998 sales,
(d) the Company's expectation that it will continue to show comparative period
declines in sales in Europe for the remainder of the year; and (e) the Company's
expectation that the percentage of its net sales represented by sales in Mexico
will increase for the near term and that the percentage of its net sales in
Europe will decrease for the near term; (iii) the statement in "--Restructuring
Charges" concerning the Company's belief that it will realize annualized cost
savings of approximately $2.5 to $3.0 million as a result of its outsourcing of
the U.S. product manufacturing functions; (iv) the statements in "--Liquidity
and Capital Resources" concerning (a) the Company's expectation that interest
expense in 1999 will be approximately $16.0 to $17.0 million, including $1.6
million of non-cash amortization of deferred debt issuance costs; (b) the
Company's anticipation that it will consummate the disposition of certain assets
of real property in the fourth quarter of 1999, at which time it will receive
net sales proceeds for such properties of approximately $5.6 million, with a
resulting gain from the transactions of approximately $1.1 million; and (c) the
Company's belief that it will have sufficient liquidity to meet its cash
requirements and working capital needs until the maturity of the Revolving
Credit Facility; (v) the statement in "--Outsourcing of Manufacturing" that the
majority of the remaining costs associated with the outsourcing are expected to
be paid out in cash over the next three months, although certain individuals
will receive severance payments that will extend until the second or third
quarter of 2000; (vi) the statement in "--Cash Flows" that total capital
spending for 1999 is budgeted at approximately $5.0 million, and is expected to
be in the range of $7.0 to $10.0 million in 2000 due to planned modifications to
information systems; (vii) the statements in "--Foreign Operations" (a) that
the Company continues to be exposed to foreign exchange risk and has entered
into foreign exchange trading facilities that will enable it to enter into
foreign currency hedging contracts in the future; (b) that the Company
currently has no plans to enter into foreign currency hedging contracts, but
will evaluate the benefits and costs of doing so in the future; and (c) that
fluctuations in the peso-to-dollar exchange rate can have a material impact on
the Company's earnings; (viii) the statements in "--Year 2000 Issue"
concerning (a) the Company's expectation that the resolution and testing phase
for all systems will be complete by the end of November 1999; (b) the Company's
expectation that it will complete the implementation and certification phases by
the end of November 1999; (c) the Company's expectation that its operating
systems will be upgraded in Italy, Switzerland, and Brazil by the end of
November 1999; (d) the Company's expectation that its financial systems in
Germany, Austria and Switzerland will be upgraded by the end of November 1999;
(e) the Company's belief that it has sufficient cash, cash flow and borrowing
availability to meet its cash needs; (f) the Company's belief that the inability
of its suppliers to continue to supply the Company would not have a material
adverse effect on the Company's business, financial condition or results of
operations; (g) the Company's intention to identify alternate sources of supply
by the end of November 1999 and its belief that there are alternative sources
for potentially affected raw materials and finished products; (h) the Company's
identification of its most likely worst case scenario; and (ix) the statements
in "--European Economic and Monetary Union" concerning the Company's
expectations that (a) use of the euro by the Company or its sales consultants
will not be significant; and (b) the introduction of the euro will not
materially adversely affect its business, financial condition or results of
operations; and (x) other statements as to management's or the Company's
expectations or beliefs presented in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Forward-looking statements are based upon management's current expectations
and beliefs concerning future developments and their potential effects upon the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management. The
factors described in the Company's Annual Report on Form 10-K for the period
ended December 31, 1998 (including, without limitation, those discussed in
"Business--Strategy," "--International Operations," "--Distribution," "--
Manufacturing," "--Patents and Trademarks," "--Management Information
Systems," "--Environmental Matters," "Properties," "Legal Proceedings"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Results of Operations," "--Liquidity and Capital Resources," "-
- -Foreign Operations," "--Year 2000 Issue,"and "European Economic and
Monetary Union"), or in other Securities and Exchange Commission filings, could
affect (and in some cases have affected) the Company's actual results and could
cause such results to differ materially from estimates or expectations reflected
in such forward-looking statements.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks which arise during the normal course of
its business from changes in interest rates and foreign currency exchange rates.
The Company has not historically used derivative financial instruments to manage
or hedge these risks. See disclosures under Item 7a, "Quantitative and
Qualitative Disclosures About Market Risks" in the Company's Annual Report on
Form 10-K for the period ended December 31, 1998. No significant changes have
occurred during the nine months ended September 30, 1999.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See discussion under "Legal Proceedings" in the Company's Annual Report on
Form 10-K for the period ended December 31, 1998 and in footnote six to the
Financial Statements included in Item 1 of this document.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Siri Marshall was elected to the board of directors of the Parent at a board
of directors meeting held on July 21, 1999. In addition, Joaquim C. Simoes was
appointed as Vice President and Chief Information Officer of the Company on
August 11, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- --- --------
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number Description of Document
- ------ -----------------------
10.1 Sale Agreement, dated as of September 29, 1999, between the Company and
Townsgate Road LLC
10.2 Sale Agreement, dated as of October 15, 1999, between the Company and
Selvin Properties
27.1 Financial Data Schedule
(b) Reports on Form 8-K
- --- -------------------
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CDRJ Investments (Lux) S.A.
/s/ MICHAEL DIGREGORIO
-------------------------------
Michael DiGregorio
Senior Vice President and Chief Financial
Officer of the Advisory Committee
(Principal Financial Officer)
November 12, 1999
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EXHIBITS
Exhibit
Number Description of Document
- ------ -----------------------
10.1 Sale Agreement, dated as of September 29, 1999, between the Company and
Townsgate Road LLC
10.2 Sale Agreement, dated as of October 15, 1999, between the Company and
Selvin Properties
27.1 Financial Data Schedule
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Exhibit 10.1
STANDARD OFFER, AGREEMENT AND ESCROW
INSTRUCTIONS FOR PURCHASE OF REAL ESTATE
(Non-Residential)
American Industrial Real Estate Association
September 29, 1999
1. Buyer.
1.1 Townsgate Road LLC, a California Corporation, ("Buyer") hereby offers
to purchase the real property, hereinafter described, from the owner thereof
("Seller") (collectively, the "Parties" or individually, a "Party") through an
escrow ("Escrow") to close on or before November 15, 1999 ("Expected Closing
Date") to be held by American Title & Escrow ("Escrow Holder") whose address is
950 Hampshire Road, Westlake Village, CA 91361, Phone No. 800-650-2240,
Facsimile No. 805-370-1420 upon the terms and conditions set forth in this
agreement ("Agreement"). Buyer shall have the right to assign Buyer's rights
hereunder, but any such assignment shall not relieve Buyer of Buyer's
obligations herein unless Seller expressly releases Buyer.
1.2 The term "Date of Agreement" as used herein shall be the date when by
execution and delivery (as defined in paragraph 20.2) of this document or a
subsequent counter-offer thereto, Buyer and Seller have reached agreement in
writing whereby Seller agrees to sell, and Buyer agrees to purchase, the
Property upon terms accepted by both Parties.
2. Property.
2.1 The real property ("Property") that is the subject of this offer
consists of approximately 2.85 acres of vacant land. M-1 Zone is located in the
City of Thousand Oaks, County of Ventura, State of California, is commonly known
by the street address of 2393 Townsgate Road and is legally described as: In
Escrow.
(APN: 698-011-18-5).
2.2 If the legal description of the Property is not complete or is
inaccurate, this Agreement shall not be invalid and the legal description shall
be completed or corrected to meet the requirements of American Title Escrow
("Title Company"), which shall issue the title policy hereinafter described.
2.3 The Property includes, at no additional cost to Buyer, the permanent
improvements thereon, including those items which the law of the state in which
the Property is located provides is part of the Property, as well as the
following items, if any, owned by Seller and at present located on the Property:
electrical distribution systems (power panel, buss ducting, conduits,
disconnects, lighting fixtures); telephone distribution systems (lines, jacks
and connections only); space heaters; heating; ventilating; air conditioning
equipment ("HVAC"); air lines; fire sprinkler systems; security and fire
detection systems; carpets; window coverings; wall coverings; and None
(collectively, the "Improvements").
2.4 Within the time period specified in paragraph 9.1(a), Seller and/or
Seller's Broker shall make to Buyer, through escrow, all of the applicable
disclosures required by law (See American Industrial Real Estate Association
("AIR") standard form entitled "Seller's Mandatory Disclosure Statement").
3. Purchase Price.
3.1 The purchase price ("Purchase Price") to be paid by Buyer to Seller for
the Property shall be $2,400,000.00, payable as follows:
(a) Cash down payment, including the Deposit as defined in
paragraph 4.3 (or if an all cash transaction, the
Purchase Price): $2,400,000.00
[deleted]
Total Purchase Price: $2,400,000.00
4. Deposits.
4.1 Buyer hereby delivers a check in the sum of $100,000.00, payable to
Escrow Holder, to be held uncashed until the Date of Agreement. Such check
shall be deposited in accordance with paragraph 4.3 and applied toward the
Purchase Price of the Property at the Closing. Should Buyer and Seller not
enter into an agreement for purchase and sale, Buyer's check or funds shall,
upon request by Buyer, be promptly returned to Buyer.
4.2 Additional deposits:
(a) Within 5 business days after the Date of Agreement, Buyer shall
deposit with Escrow Holder the additional sum of
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$ None to be applied to the Purchase Price at the Closing.
(b) Within 5 business days after the contingencies discussed in paragraph
9.1(a) through (k) are approved or waived, Buyer shall deposit with Escrow
Holder the additional sum of $None to be applied to the Purchase Price at the
Closing.
4.3 Escrow Holder shall deposit the funds deposited with it by Buyer
pursuant to paragraphs 4.1 and 4.2 (collectively the "Deposit"), in a State or
Federally chartered bank in an interest bearing account whose term is
appropriate and consistent with the timing requirements of this transaction.
The Interest therefrom shall accrue to the benefit of Buyer, who hereby
acknowledges that there may be penalties or interest forfeitures if the
applicable instrument is redeemed prior to its specified maturity. Buyer's
Federal Tax Identification Number is . NOTE: Such interest bearing
account cannot be opened until Buyer's Federal Tax Identification Number is
provided.
[deleted]
7. Real Estate Brokers.
7.1 The following real estate broker(s) ("Brokers") and brokerage
relationships exist in this transaction and are consented to by the
Parties (check the applicable boxes):
_____________ represents Seller exclusively ("Seller's Broker");
_____________ represents Buyer exclusively ("Buyer's Broker"); or
Young Realtors represents both Seller and Buyer ("Dual Agency").
The Parties acknowledge that Brokers are the procuring cause of this Agreement.
See paragraph 24 for disclosures regarding the nature of a real estate agency
relationship. Buyer shall use the services of Buyer's Broker exclusively in
connection with any and all negotiations and offers with respect to the property
described in paragraph 2.1 for a period of one year from the date above.
7.2 Buyer and Seller each represent and warrant to the other that he/she/it
has had no dealings with any person, firm, broker or finder in connection with
the negotiation of this Agreement and/or the consummation of the purchase and
sale contemplated herein, other than the Brokers named in paragraph 7.1 and no
broker or other person, firm or entity, other than said Brokers is/are entitled
to any commission or finder's fee in connection with this transaction as the
result of any dealings or acts of such Party. Buyer and Seller do each hereby
agree to indemnify, defend, protect and hold the other harmless from and against
any costs, expenses or liability for compensation, commission or charges which
may be claimed by any broker, finder or other similar party, other than said
named Brokers by reason of any dealings or act of the Indemnifying Party.
8. Escrow and Closing.
8.1 Upon acceptance hereof by Seller, this Agreement, including any
counter-offers incorporated herein by the Parties, shall constitute not only the
agreement of purchase and sale between Buyer and Seller, but also instructions
to Escrow Holder for the consummation of the Agreement through the Escrow.
Escrow Holder shall not prepare any further escrow instructions restating or
amending the Agreement unless specifically so instructed by the Parties or a
Broker herein. Subject to the reasonable approval of the Parties, Escrow Holder
may, however, include its standard general escrow provisions.
8.2 As soon as practical after the receipt of this Agreement and any
relevant counter-offers, Escrow Holder shall ascertain the Date of Agreement as
defined in paragraphs 1.2 and 20.2 and advise the Parties and Brokers, in
writing, of the date ascertained.
8.3 Escrow Holder is hereby authorized and instructed to conduct the Escrow
in accordance with this Agreement, applicable law and custom and practice of the
community in which Escrow Holder is located, including any reporting
requirements of the Internal Revenue Code. In the event of a conflict between
the law of the state where the Property is located and the law of the state
where the Escrow Holder is located, the law of the state where the Property is
located shall prevail.
8.4 Subject to satisfaction of the contingencies herein described, Escrow
Holder shall close this escrow (the "Closing") by recording a general warranty
deed (a grant deed in California) and the other documents required to be
recorded, and by disbursing the funds and documents in accordance with this
Agreement.
8.5 Buyer and Seller shall each pay one-half of the Escrow Holder's charges
and Seller shall pay the usual recording fees and any required documentary
transfer taxes. Seller shall pay the premium for a standard coverage owner's or
joint protection policy of title insurance.
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8.6 Escrow Holder shall verify that all of Buyer's contingencies have been
satisfied or waived prior to Closing. The matters contained in paragraphs 9.1
subparagraphs (b), (c), (d), (e), (g), (i), (n), and (o), 9.4, 9.5, 12, 13, 14,
16, 18, 20, 21, 22, and 24 are, however, matters of agreement between the
Parties only and in no way constitute instructions to Escrow Holder.
8.7 If this transaction is terminated for non-satisfaction and non-waiver
of a Buyer's Contingency, as defined in paragraph 9.2, then neither of the
Parties shall thereafter have any liability to the other under this Agreement,
except to the extent of the breach of any affirmative covenant or warranty in
this Agreement. In the event of such termination, Buyer shall be promptly
refunded all funds deposited by Buyer with Escrow Holder, less only Title
Company and Escrow Holder cancellation fees and costs, all of which shall be
Buyer's obligation.
8.8 The Closing shall occur on the Expected Closing Date, or as soon
thereafter as the Escrow is in condition for Closing; provided, however, that if
the Closing does not occur by the Expected Closing Date and said Date is not
extended by mutual instructions of the Parties, a Party not then in default
under this Agreement may notify the other Party, Escrow Holder, and Brokers, in
writing that, unless the closing occurs within 5 business days following said
notice, the Escrow shall be deemed terminated without further notice or
instructions.
8.9 Except as otherwise provided herein, the termination of Escrow shall
not relieve or release either Party from any obligation to pay Escrow Holder's
fees and costs or constitute a waiver, release or discharge of any breach or
default that has occurred in the performance of the obligations, agreements,
covenants or warranties contained therein.
8.10 If this Escrow is terminated for any reason other than Seller's
breach or default, then at Seller's request, and as a condition to the return of
Buyer's deposit, Buyer shall within 5 days after written request deliver to
Seller, at no charge, copies of all surveys, engineering studies, soil reports,
maps, master plans, feasibility studies and other similar items prepared by or
for Buyer that pertain to the Property. Provided, however, that Buyer shall not
be required to deliver any such report if the written contract which Buyer
entered into with the consultant who prepared such report specifically forbids
the dissemination of the report to others.
9. Contingencies to Closing.
9.1 The Closing of this transaction is contingent upon the satisfaction or
waiver of the following contingencies. IF BUYER FAILS TO NOTIFY ESCROW HOLDER,
IN WRITING, OF THE DISAPPROVAL OF ANY OF SAID CONTINGENCIES WITHIN THE TIME
SPECIFIED THEREIN, IT SHALL BE CONCLUSIVELY PRESUMED THAT BUYER HAS APPROVED
SUCH ITEM, MATTER OR DOCUMENT. Buyer's conditional approval shall constitute
disapproval, unless provision is made by the Seller within the time specified
therefore by the Buyer in such conditional approval or by this Agreement,
whichever is later, for the satisfaction of the condition imposed by the Buyer.
Escrow Holder shall promptly provide all Parties with copies of any written
disapproval or conditional approval which it receives. With regard to
subparagraphs (a) through (l) the pre-printed time periods shall control unless
a different number of days is inserted in the spaces provided.
(a) Disclosure. Seller shall disclose to Buyer any matters required by
applicable law (see paragraph 2.4) and provide Buyer with a completed Property
Information Sheet ("Property Information Sheet") concerning the Property, duly
executed by or on behalf of Seller in the current form or equivalent to that
published by the AIR within (See 27) following the Date of Agreement. Buyer has
10 days from the receipt of said disclosures to approve or disapprove the
matters disclosed.
(b) Physical Inspection. Buyer has (See 27) days from the receipt of the
Property Information Sheet or the Date of Agreement, whichever is later, to
satisfy itself with regard to the physical aspects and size of the Property.
(c) Hazardous Substance Conditions Report. Buyer has (See 27) days from
the receipt of the Property Information Sheet or the Date of Agreement,
whichever is later, to satisfy itself with regard to the environmental aspects
of the Property. Seller recommends that Buyer obtain a Hazardous Substance
Conditions Report concerning the Property and relevant adjoining properties.
Any such report shall be paid for by Buyer. A "Hazardous Substance" for
purposes of this Agreement is defined as any substance whose nature and/or
quantity of existence, use, manufacture, disposal or effect, render it subject
to Federal, state or local regulation, investigation, remediation or removal as
potentially injurious to public health or welfare. A "Hazardous Substance
Condition" for purp9oses of this Agreement is defined as the
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existence on, under or relevantly adjacent to the Property of a Hazardous
Substance that would require remediation and/or removal under applicable
Federal, state or local law.
(d) Soil Inspection. Buyer has (See 27) days from the receipt of the
Property Information Sheet or the Date of Agreement, whichever is later, to
satisfy itself with regard to the condition of the soils on the Property.
Seller recommends that Buyer obtain a soil test report. Any such report shall
be paid for by Buyer. Seller shall provide Buyer copies of any soils report
that Seller may have within 10 days of the Date of Agreement.
(e) Governmental Approvals. Buyer has (See 27) days from the Date of
Agreement to satisfy itself with regard to approvals and permits from
governmental agencies or departments which have or may have jurisdiction over
the Property and which Buyer deems necessary or desirable in connection with its
intended use of the Property, including, but not limited to, permits and
approvals required with respect to zoning, planning, building and safety, fire,
police, handicapped and Americans with Disabilities Act requirements,
transportation and environmental matters.
(f) Conditions of Title. Escrow Holder shall cause a current commitment for
title insurance ("Title Commitment") concerning the Property issued by the Title
Company, as well as legible copies of all documents referred to in the Title
Commitment ("Underlying Documents") to be delivered to Buyer within 10 or ____
days following the Date of Agreement. Buyer has 10 days from the receipt of the
Title Commitment and Underlying Documents to satisfy itself with regard to the
condition of title. The disapproval of Buyer of any monetary encumbrance, which
by the terms of this Agreement is not to remain against the Property after the
Closing, shall not be considered a failure of this contingency, as Seller shall
have the obligation, at Seller's expense, to satisfy and remove such disapproved
monetary encumbrance at or before the Closing.
(g) Survey. Buyer has (See 27) days from the receipt of the Title
Commitment and Underlying Documents to satisfy itself with regard to any ALTA
title supplement based upon a survey prepared to American Land Title Association
("ALTA") standards for an owner's policy by a licensed surveyor, showing the
legal description and boundary lines of the Property, any easements of record,
and any improvements, poles, structures and things located within 10 feet of
either side of the Property boundary lines. Any such survey shall be prepared
at Buyer's direction and expense. If Buyer has obtained a survey and approved
the ALTA title supplement, Buyer may elect within the period allowed for Buyer's
approval of a survey to have an ALTA extended coverage owner's form of title
policy, in which event Buyer shall pay any additional premium attributable
thereto.
(h) Existing Leases and Tenancy Statements. Seller shall within N/A days of
the Date of Agreement provide both Buyer and Escrow Holder with legible copies
of all leases, subleases or rental arrangements (collectively, "Existing
Leases") affecting the Property, and with a tenancy statement ("Estoppel
Certificate") in the latest form or equivalent to that published by the AIR,
executed by Seller and/or each tenant and subtenant of the Property. Seller
shall use its best efforts to have each tenant complete and execute an Estoppel
Certificate. If any tenant fails or refuses to provide an Estoppel Certificate
then Seller shall complete and execute an Estoppel Certificate for that tenancy.
Buyer has 10 days from the receipt of said Existing Leases and Estoppel
Certificates to satisfy itself with regard to the Existing Leases and any other
tenancy issues.
(i) Other Agreements. Seller shall within 10 or N/A days of the Date of
Agreement provide Buyer with legible copies of all other agreements ("Other
Agreements") known to Seller that will affect the Property after Closing. Buyer
has 10 days from the receipt of said Other Agreements to satisfy itself with
regard to such Agreements.
(j) Financing. If paragraph 5 hereof dealing with a financing contingency
has not been stricken, the satisfaction or waiver of such New Loan contingency.
(k) Existing Notes. If paragraph 3.1(c) has not been stricken, Seller shall
within 10 or N/A days of the Date of Agreement provide Buyer with legible copies
of the Existing Notes, Existing Deeds of Trust and related agreements
(collectively, "Loan Documents") to which the Property will remain subject after
the Closing. Escrow Holder shall promptly request from the holders of the
Existing Notes a beneficiary statement ("Beneficiary Statement") confirming:
(1) the amount of the unpaid principal balance, the current interest rate, and
the date to which interest is paid, and (2) the nature and amount of any
impounds held by the beneficiary in connection with such loan. Buyer has 10
days from the receipt of the Loan Documents and Beneficiary Statements to
satisfy itself with regard to such financing. Buyer's obligation to close is
conditioned upon Buyer being able to purchase the Property without acceleration
or change in the
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terms of any Existing Notes or charges to Buyer except as otherwise provided in
this Agreement or approved by Buyer, provided, however, Buyer shall pay the
transfer fee referred to in paragraph 3.2 hereof.
(l) Personal Property. In the event that any personal property is included
in the Purchase Price, Buyer has 10 or N/A days from the Date of Agreement to
satisfy itself with regard to the title condition of such personal property.
Seller recommends that Buyer obtain a UCC-1 report. Any such report shall be
paid for by Buyer, Seller shall provide Buyer copies of any liens or
encumbrances affecting such personal property that it is aware of within N/A
days of the Date of Agreement.
(m) Destruction, Damage or Loss. There shall not have occurred prior to the
Closing, a destruction of, or damage or loss to, the Property or any portion
thereof, from any cause whatsoever, which would cost more than $10,000.00 to
repair or cure. If the cost of repair or cure is $10,000.00 or less, Seller
shall repair or cure the loss prior to the Closing. Buyer shall have the
option, within 10 days after receipt of written notice of a loss costing more
than $10,000.00 to repair or cure, to either terminate this transaction or to
purchase the Property notwithstanding such loss, but without deduction or offset
against the Purchase Price. If the cost to repair or cure is more than
$10,000.00, and Buyer does not elect to terminate this transaction, Buyer shall
be entitled to any insurance proceeds applicable to such loss. Unless otherwise
notified in writing, Escrow Holder shall assume no such destruction, damage or
loss has occurred prior to Closing.
(n) Material Change. Buyer shall have 10 days following receipt of written
notice of a Material Change within which to satisfy itself with regard to such
change. "Material Change" shall mean a change in the status of the use,
occupancy, tenants, or condition of the Property that occurs after the date of
this offer and prior to the Closing. Unless otherwise notified in writing,
Escrow Holder shall assume that no Material Change has occurred prior to the
Closing.
(o) Seller Performance. The delivery of all documents and the due
performance by Seller of each and every undertaking and agreement to be
performed by Seller under this Agreement.
(p) Warranties. That each representation and warranty of Seller herein be
true and correct as the Closing. Escrow Holder shall assume that this condition
has been satisfied unless notified to the contrary in writing by any Party prior
to the closing.
(q) Brokerage Fee. Payment at the Closing of such brokerage fee as is
specified in this Agreement or later written instructions to Escrow Holder
executed by Seller and Brokers ("Brokerage Fee"). It is agreed by the Parties
and Escrow Holder that Brokers are a third party beneficiary of this Agreement
insofar as the Brokerage Fee is concerned, and that no change shall be made with
respect to the payment of the Brokerage Fee specified in this Agreement, without
the written consent of Brokers.
9.2 All of the contingencies specified in subparagraphs (a) through (p) of
paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and may be
elsewhere herein referred to as "Buyer Contingencies."
9.3 If any Buyer's Contingency or any other matter subject to Buyer's
approval is disapproved as provided for herein in a timely manner ("Disapproved
Item"), Seller shall have the right within 10 days following the receipt of
notice of Buyer's disapproval to elect to cure such Disapproved Item prior to
the Expected Closing Date ("Seller's Election"). Seller's failure to give to
Buyer within said 10 day period, written notice of Seller's commitment to cure
such Disapproved Item on or before the Expected Closing Date shall be
conclusively presumed to be Seller's Election not to cure such Disapproved Item.
If Seller elects, either by written notice or failure to give written notice,
not to cure a Disapproved Item, Buyer shall have the election, within 10 days
after Seller's Election to either accept title to the Property subject to such
Disapproved Item, or to terminate this transaction. Buyer's election to
terminate this transaction. Unless expressly provided otherwise herein,
Seller's right to cure shall not apply to the remediation of Hazardous Substance
Conditions or to the Financing Contingency. Unless the Parties mutually
instruct otherwise, if the time periods for the satisfaction of contingencies or
for Seller's and Buyer's said Elections would expire on a date after the
expected Closing Date, the Expected Closing Date shall be deemed extended to
coincide with the expiration of 3 business days following the expiration of:
(a) the applicable contingency period(s), (b) the period within which the Seller
may elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the
period within which Buyer may elect to proceed with this transaction, whichever
is later.
9.4 Buyer understands and agrees that until such time as all Buyer's
Contingencies have been satisfied or waived, Seller and/or its agents may
solicit, entertain and/or accept back-up offers to purchase the subject
Property.
9.5 The Parties acknowledge that extensive local, state and Federal
legislation establish broad liability upon owners and/or users of real property
for the investigation and remediation of Hazardous
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Substances. The determination of the existence of a Hazardous Substance
Condition and the evaluation of the impact of such a condition are highly
technical and beyond the expertise of Brokers. The Parties acknowledge that they
have been advised by Brokers to consult their own technical and legal experts
with respect to the possible presence of Hazardous Substances on this Property
or adjoining properties, and Buyer and Seller are not relying upon any
investigation by or statement of Brokers with respect thereto. The Parties
hereby assume all responsibility for the impact of such Hazardous Substances
upon their respective interests herein.
10. Documents Required at or before closing:
10.1 Five days prior to the Closing date Escrow Holder shall obtain an
updated Title Commitment concerning the Property from the Title Company and
provide copies thereof to each of the Parties.
10.2 Seller shall deliver to Escrow Holder in time for delivery to Buyer at
the Closing, an original ink signed:
(a) Grant or general warranty deed, duly executed and in recordable
form, conveying fee title to the Property to Buyer.
(b) If paragraph 3.1(c) has not been stricken, the Beneficiary
Statements concerning Existing Note(s).
(c) If applicable, the Existing Leases and Other Agreements together
with duly executed assignments thereof by Seller and Buyer. The assignment of
Existing Leases shall be on the most recent Assignment and Assumption of
Lessor's Interest in Lease form published by the AIR or its equivalent.
(d) If applicable, Estoppel Certificates executed by Seller and/or the
tenant(s) of the Property.
(e) An affidavit executed by Seller to the effect that Seller is not a
"foreign person" within the meaning of Internal Revenue Code Section 1445 or
successor statutes. If Seller does not provide such affidavit in form
reasonably satisfactory to Buyer at least 3 business days prior to the Closing,
Escrow Holder shall at the Closing deduct from Seller's proceeds and remit to
Internal Revenue Service such sum as is required by applicable Federal law with
respect to purchases from foreign sellers.
(f) If the Property is located in California, an affidavit executed by
Seller to the effect that Seller is not a "nonresident" within the meaning of
California Revenue and Tax Code Section 18662 or successor statutes. If Seller
does not provide such affidavit in form reasonably satisfactory to Buyer at
least three business days prior to the Closing, Escrow Holder shall at the
Closing deduct from Seller's proceeds and remit to the Franchise Tax Board such
sum as is required by such statute.
(g) If applicable, a bill of sale, duly executed, conveying title to any
included personal property to Buyer.
(h) If the Seller is a corporation, a duly executed corporate resolution
authorizing the execution of this Agreement and the sale of the Property.
10.3 Buyer shall deliver to Seller through Escrow:
(a) The cash portion of the Purchase Price and such additional sums as
are required of Buyer under this Agreement for prorations, expenses and
adjustments. The balance of the cash portion of the Purchase Price, including
Buyer's Escrow charges and other cash charges, if any, shall be deposited by
Buyer with Escrow Holder, by federal funds wire transfer, or any other method
acceptable to Escrow Holder as immediately collectable funds, no later than 2:00
P.M. on the business day prior to the Expected Closing Date.
(b) If a Purchase Money Note and Purchase Money Deed of Trust are called
for by this Agreement, the duly executed originals of those documents, the
Purchase Money Deed of Trust being in recordable form, together with evidence of
fire insurance on the improvements in the amount of the full replacement cost
naming Seller as a mortgage loss payee, and a real estate tax service contract
(at Buyer's expense), assuring Seller of notice of the status of payment of real
property taxes during the life of the Purchase Money Note.
(c) The Assignment and Assumption of Lessor's Interest in Lease form
specified in paragraph 10.2(c) above, duly executed by Buyer.
(d) Assumptions duly executed by Buyer of the obligations of Seller that
accrue after Closing under any Other Agreements.
(e) If applicable, a written assumption duly executed by Buyer of the
loan documents with respect to Existing Notes.
(f) If the Buyer is a corporation, a duly executed corporate resolution
authorizing the execution of this Agreement and the purchase of the Property.
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10.4 At Closing, Escrow Holder shall cause to be issued to Buyer a standard
coverage (or ALTA extended, if elected under paragraph 9.1(g)) owner's form
policy of title insurance effective as of the Closing, issued by the Title
Company in the full amount of the Purchase Price, insuring title to the Property
vested in Buyer, subject only to the exceptions approved by Buyer. In the event
there is a Purchase Money Deed of Trust in this transaction, the policy of title
insurance shall be a joint protection policy insuring both Buyer and Seller.
IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO
OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE
PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY
BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAIN IN ORDER TO
ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING.
11. Prorations and Adjustments.
11.1 Taxes. Real property taxes and special assessment bonds payable by the
owner of the Property shall be prorated through Escrow as of the date of the
Closing, based upon the latest tax bill available. The Parties agree to prorate
as of the Closing any taxes assessed against the Property by supplemental bill
levied by reason of events occurring prior to the Closing. Payment shall be
made promptly in cash upon receipt of a copy of any such supplemental bill of
the amount necessary to accomplish such proration.
11.2 Insurance. WARNING: The insurance coverage which Seller maintained on
the Property will terminate on the Closing. Buyer is advised to obtain
appropriate insurance to cover the Property.
11.3 Rentals, Interest and Expenses. Collected rentals, interest on
Existing Notes, utilities, and operating expenses shall be prorated as of the
date of Closing. The Parties agree to promptly adjust between themselves
outside of Escrow any rents received after the Closing.
11.4 Security Deposit. Security Deposits held by Seller shall be given to
Buyer as a credit to the cash required of Buyer at the Closing.
11.5 Post Closing Matters. Any item to be prorated that is not determined
or determinable at the Closing shall be promptly adjusted by the Parties by
appropriate cash payment outside of the Escrow when the amount due is
determined.
11.6 Variations in Existing Note Balances. In the event that buyer is
taking title to the Property subject to an Existing Deed of Trust(s), and in the
event that a Beneficiary Statement as to the applicable Existing Note(s)
discloses that the unpaid principal balance of such Existing Note(s) at the
Closing will be more or less than the amount set forth in paragraph 3.1(c)
hereof ("Existing Note Variation"),then the purchase Money Note(s) shall be
reduced or increased by an amount equal to such Existing Note Variation. If
there is to be no Purchase Money Note, the cash required at the Closing per
paragraph 3.1(a) shall be reduced or increased by the amount of such Existing
Note Variation.
11.7 Variations in New Loan Balance. In the event Buyer is obtaining a New
Loan and in the event that the amount of the New Loan actually obtained is
greater than the amount set forth in paragraph 5.1 hereof, the Purchase Money
Note, if one is called for in this transaction, shall be reduced by the excess
of the actual face amount of the New Loan over such amount as designated in
paragraph 5.1 hereof.
12. Representation and Warranties of Seller and Disclaimers.
12.1 Seller's warranties and representations shall survive the Closing and
delivery of the deed for a period of three years, and, are true, material and
relied upon by Buyer and Brokers in all respects. Seller hereby makes the
following warranties and representations to Buyer and Brokers:
(a) Authority of Seller. Seller is the owner of the Property and/or has
the full right, power and authority to sell, convey and transfer the Property to
Buyer as provided herein, and to perform Seller's obligations hereunder.
(b) Maintenance During Escrow and Equipment Condition At Closing.
Except as otherwise provided in paragraph 9.1(m) hereof, Seller shall maintain
the Property until the Closing in its present condition, ordinary wear and tear
excepted. The HVAC, plumbing elevators, loading doors and electrical systems
shall be in good operating order and condition at the time of Closing.
(c) Hazardous Substances/Storage Tanks. Seller has no knowledge, except
as otherwise disclosed to Buyer in writing, of the existence or prior existence
on the Property of any Hazardous Substance, nor of the existence or prior
existence of any above or below ground storage tank.
7
<PAGE>
(d) Compliance. Seller has no knowledge of any aspect or condition of
the Property which violates applicable laws, rules, regulations, codes or
covenants, conditions or restrictions, or of improvements or alterations made to
the Property without a permit where one was required, or of any unfulfilled
order or directive of any applicable governmental agency or casualty insurance
company requiring any investigation, remediation, repair, maintenance or
improvement be performed on the Property.
(e) Changes in Agreements. Prior to the Closing, Seller will not
violate or modify any Existing Lease or Other Agreement, or create any new
leases or other agreements affecting the Property, without Buyer's written
approval, which approval will not be unreasonably withheld.
(f) Possessory Rights. Seller has no knowledge that anyone will, at the
Closing, have any right to possession of the Property, except as disclosed by
this Agreement or otherwise in writing to Buyer.
(g) Mechanics' Liens. There are no unsatisfied mechanics' or
materialmens' lien rights concerning the Property.
(h) Actions, Suits or Proceedings. Seller has no knowledge of any
actions, suits or proceedings pending or threatened before any commission,
board, bureau, agency, arbitrator, court or tribunal that would affect the
Property or the right to occupy or utilize same.
(i) Notice of Changes. Seller will promptly notify Buyer and Brokers in
writing of any Material Change (see paragraph 9.1(n)) affecting the Property
that becomes known to Seller prior to the Closing.
(j) No Tenant Bankruptcy Proceedings. Seller has no notice or knowledge
that any tenant of the Property is the subject of a bankruptcy or insolvency
proceeding.
(k) No Seller Bankruptcy Proceedings. Seller is not the subject of a
bankruptcy, insolvency or probate proceeding.
(l) Personal Property. Seller has no knowledge that anyone will, at the
Closing, have any right to possession of any personal property included in the
Purchase Price nor knowledge of any liens or encumbrances affecting such
personal property, except as disclosed by this Agreement or otherwise in writing
to Buyer.
12.2 Buyer hereby acknowledges that, except as otherwise stated in this
Agreement, Buyer is purchasing the Property in its existing condition and will,
by the time called for herein, make or have waived all inspections of the
Property Buyer believes are necessary to protect its own interest in, and its
contemplated use of, the Property. The Parties acknowledge that, except as
otherwise stated in this Agreement, no representations, inducements, promises,
agreements, assurances, oral or written, concerning the Property, or any aspect
of the occupational safety and health laws, Hazardous Substance laws, or any
other act, ordinance or law, have been made by either Party or Brokers, or
relied upon by either Party hereto.
12.3 In the event that Buyer learns that a Seller representation or
warranty might be untrue prior to the Closing, and Buyer elects to purchase the
Property anyway then, and in that event, Buyer waives any right that it may have
to bring an action or proceeding against Seller or Brokers regarding said
representation or warranty.
12.4 Any environmental reports, soils reports, surveys, and other similar
documents which were prepared by third party consultants and provided to Buyer
by Seller or Seller's representatives, have been delivered as an accommodation
to Buyer and without any representation or warranty as to the sufficiency,
accuracy, completeness, and/or validity of said documents, all of which Buyer
relies on at its own risk. Seller believes said documents to be accurate, but
Buyer is advised to retain appropriate consultants to review said documents and
investigate the Property.
13. Possession.
Possession of the Property shall be given to Buyer at the Closing subject to the
rights of tenants under Existing Leases.
14. Buyer's Entry.
At any time during the Escrow period, Buyer, and its agents and representatives,
shall have the right at reasonable times and subject to rights of tenants, to
enter upon the Property for the purpose of making inspections and tests
specified in this Agreement. No destructive testing shall be conducted,
however, without Seller's prior approval which shall not be unreasonably
withheld. Following any such entry or work, unless otherwise directed in
writing by Seller, Buyer shall return the Property to the condition it was
8
<PAGE>
in prior to such entry or work, including the recompaction or removal of any
disrupted soil or material as Seller may reasonably direct. All such inspections
and tests and any other work conducted or materials furnished with respect to
the Property by or for Buyer shall be paid for by Buyer as and when due and
Buyer shall indemnify, defend, protect and hold harmless Seller and the Property
of and from any and all claims, liabilities, losses, expenses (including
reasonable attorneys' fees), damages, including those for injury to person or
property, arising out of or relating to any such work or materials or the acts
or omissions of Buyer, its agents or employees in connection therewith.
15. Further Documents and Assurances.
The Parties shall each, diligently and in good faith, undertake all actions and
procedures reasonably required to place the Escrow in condition for Closing as
and when required by this Agreement. The Parties agree to provide all further
information, and to execute and deliver all further documents, reasonably
required by Escrow Holder or the Title Company.
16. Attorneys' Fees.
If any Party or Broker brings an action or proceeding (including arbitration)
involving the Property, to enforce the terms hereof, or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term "Prevailing Party" shall include, without limitation, a Party or Broker
who substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorneys' fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred.
17. Prior Agreements/Amendments.
17.1 This Agreement supersedes any and all prior agreements between
Seller and Buyer regarding the Property.
17.2 Amendments to this Agreement are effective only if made in
writing and executed by Buyer and Seller.
18. Broker's Rights.
18.1 If this sale is not consummated due to the default of either the
[deleted] or Seller, the defaulting Party shall be liable to and shall pay to
Brokers the Brokerage Fee that Brokers would have received had the sale been
consummated. If Buyer is the defaulting party, payment of said Brokerage Fee is
in addition to any obligation with respect to liquidated or other damages.
18.2 Upon the Closing, Brokers are authorized to publicize the facts
of this transaction.
19. Notices.
19.1 Whenever any Party, Escrow Holder or Brokers herein shall desire
to give or serve any notice, demand, request approval, disapproval or other
communication, each such communication shall be in writing and shall be
delivered personally, by messenger or by mail, postage prepaid, to the address
set forth in this Agreement or by facsimile transmission.
19.2 Service of any such communication shall be deemed made on the
date of actual receipt if personally delivered. Any such communication sent by
regular mail shall be deemed given 48 hours after the same is mailed.
Communications sent by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed delivered 24 hours after delivery of
the same to the Postal Service or courier. Communications transmitted by
facsimile transmission shall be deemed delivered upon telephonic confirmation of
receipt (confirmation report from fax machine is sufficient), provided a copy is
also delivered via delivery or mail. If such communication is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day.
19.3 Any Party or Broker hereto may from time to time, by notice in
writing, designate a different address to which, or a different person or
additional persons to whom, all communications are thereafter to be made.
9
<PAGE>
20. Duration of Offer.
20.1 If this offer is not accepted by Seller on or before 5:00 P.M.
according to the time standard applicable to the city of Westlake Village on the
date of September 29, 1999, it shall be deemed automatically revoked.
20.2 The acceptance of this offer, or of any subsequent counteroffer
hereto, that creates an agreement between the Parties as described in paragraph
1.2, shall be deemed made upon delivery to the other Party or either Broker
herein of a duly executed writing unconditionally accepting the last outstanding
offer or counteroffer.
21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable only
if initiated by both Parties).
THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO FIX,
PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY
SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.
THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES PROVIDED
FOR THE BUYER'S BENEFIT, BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE ENTITLED
TO LIQUIDATED DAMAGES IN THE AMOUNT OF $100,000.00. UPON PAYMENT OF SAID SUM TO
SELLER, BUYER SHALL BE RELEASED FROM ANY FURTHER LIABILITY TO SELLER, AND ANY
ESCROW CANCELLATION FEES AND TITLE COMPANY CHARGES SHALL BE PAID BY SELLER.
/S/HS /S/DB
--------------- ---------------
Buyer Initials Seller Initials
22. ARBITRATION OF DISPUTES. (This Arbitration of Disputes paragraph is
applicable only if initialed by both Parties.)
22.1 ANY CONTROVERSY AS TO WHETHER SELLER IS ENTITLED TO THE LIQUIDATED
DAMAGES AND/OR BUYER IS ENTITLED TO THE RETURN OF DEPOSIT MONEY, SHALL BE
DETERMINED BY BINDING ARBITRATION BY, AND UNDER THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION ("COMMERCIAL RULES"). ARBITRATION HEARINGS
SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED. ANY SUCH CONTROVERSY
SHALL BE ARBITRATED BY THREE ARBITRATORS WHO SHALL BE IMPARTIAL REAL ESTATE
BROKERS WITH AT LEAST 5 YEARS OF FULL TIME EXPERIENCE IN BOTH THE AREA WHERE THE
PROPERTY IS LOCATED AND THE TYPE OF REAL ESTATE THAT IS THE SUBJECT OF THIS
AGREEMENT. THEY SHALL BE APPOINTED UNDER THE COMMERCIAL RULES. THE ARBITRATORS
SHALL HEAR AND DETERMINE SAID CONTROVERSY IN ACCORDANCE WITH APPLICABLE LAW, THE
INTENTION OF THE PARTIES AS EXPRESSED IN THIS AGREEMENT AND ANY AMENDMENTS
THERETO, AND UPON THE EVIDENCE PRODUCED AT AN ARBITRATION HEARING. PRE-
ARBITRATION DISCOVERY SHALL BE PERMITTED IN ACCORDANCE WITH THE COMMERICAL RULES
OR STATE LAW APPLICABLE TO ARBITRATION PROCEEDINGS. THE AWARD SHALL BE EXECUTED
BY AT LEAST TWO OF THE THREE ARBITRATORS, BE RENDERED WITHIN 30 DAYS AFTER THE
CONCLUSION OF THE HEARING, AND MAY INCLUDE ATTORNEYS' FEES AND COSTS TO THE
PREVAILING PARTY PER PARAGRAPH 16 HEREOF. JUDGMENT MAY BE ENTERED ON THE AWARD
IN ANY COURT OF COMPETENT JURISDICTION NOTWITHSTANDING THE FAILURE OF A PARTY
DULY NOTIFIED OF THE ARBITRATION HEARING TO APPEAR THEREAT.
22.2 BUYER'S RESORT TO OR PARTICIPATION IN SUCH ARBITRATION PROCEEDINGS
SHALL NOT BAR SUIT IN A COURT OF COMPETENT JURISDICTION BY THE BUYER FOR DAMAGES
AND/OR SPECIFIC PERFORMANCE UNLESS AND UNTIL THE ARBITRATION RESULTS IN AN AWARD
TO THE SELLER OF LIQUIDATED DAMAGES, IN WHICH EVENT SUCH AWARD SHALL ACT AS A
BAR AGAINST ANY ACTION BY BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE.
22.3 NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF
10
<PAGE>
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR
AGREEMEDNT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO
NEUTRAL ARBITRATION.
/S/HS /S/DB
--------------- ---------------
Buyer Initials Seller Initials
23. Miscellaneous.
23.1 Binding Effect. This Agreement shall be binding on the Parties
without regard to whether or not paragraphs 21 and 22 are initialed by both of
the Parties. Paragraphs 21 and 22 are each incorporated into this Agreement only
if initialed by both Parties at the time that the Agreements is executed.
23.2 Applicable Law. This Agreement shall be governed by, and paragraph
22.3 is amended to refer to, the laws of the state in which the Property is
located.
23.3 Time of Essence. Time is of the essence of this Agreement.
23.4 Counterparts. This Agreement may be executed by Buyer and Seller in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Escrow Holder, after
verifying that the counterparts are identical except for the signatures, is
authorized and instructed to combine the signed signature pages on one of the
counterparts, which shall then constitute the Agreement.
23.5 Waiver of Jury Trial. The Parties hereby waive their respective
rights to trial by jury in any action or proceeding involving the Property or
arising out of this Agreement.
24. Disclosures Regarding The Nature of a Real Estate Agency Relationship.
24.1 The Parties and Brokers agree that their relationship(s) shall be
governed by the principles set forth in the applicable sections of the
California Civil Code, as summarized in paragraph 24.2.
24.2 When entering into a discussion with a real estate agent regarding a
real estate transaction, a Buyer or Seller should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Buyer and Seller acknowledge being advised by the
Brokers in this transaction, as follows:
(a) Seller's Agent. A Seller's agent under a listing agreement with
the Seller acts as the agent for the Seller only. A Seller's agent or subagent
has the following affirmative obligations: (1) To the Seller. A fiduciary duty
of utmost care, integrity, honesty, and loyalty in dealings with the Seller. (2)
To the Buyer and the Seller . a. Diligent exercise of reasonable skills and care
in performance of the agent's duties. b. A duty of honest and fair dealing with
good faith. c. A duty to disclose all facts known to the agent materially
affecting the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.
(b) Buyer's Agent. A selling agent can, with a Buyer's consent,
agree to act as agent for the Buyer only. In these situations, the agent is not
the Seller's agent, even if by agreement the agent may receive compensation for
services rendered, either in full or in part from the Seller. An agent acting
only for a Buyer has the following affirmative obligations. (1) To the Buyer: A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with
the Buyer. (2) To the Buyer and the Seller. a. Diligent exercise of reasonable
skills and care in performance of the agent's duties. b. A duty of honest and
fair dealing and good faith. c. A duty to disclose all facts known to
the agent materially affecting the value or
11
<PAGE>
desirability of the Property that are not known to, or within the diligent
attention and observation of, the Parties. An agent is not obligated to reveal
to either Party any confidential information obtained from the other Party which
does not involve the affirmative duties set forth above.
(c) Agent Representing Both Seller and Buyer. A real estate agent,
either acting directly or through one or more associate licenses, can legally be
the agent of both the Seller and the Buyer in a transaction, but only with the
knowledge and consent of both the Seller and the Buyer. (1) In a dual agency
situation, the agent has the following affirmative obligations to both the
Seller and the Buyer. a. A fiduciary duty of utmost care, integrity, honesty and
loyalty in the dealings with either Seller or the Buyer. b. Other duties to the
Seller and the Buyer as stated above in their respective sections (a) or (b) of
this paragraph
24.2. (2) In representing both Seller and Buyer, the agent may not without
the express permission of the respective Party, disclose to the other Party that
the Seller will accept a price less than the listing price or that the Buyer
will pay a price greater than the price offered. (3) The above duties of the
agent in a real estate transaction do not relieve a Seller or Buyer from the
responsibility to protect their own interests. Buyer and Seller should
carefully read all agreements to assure that they adequately express their
understanding of the transaction. A real estate agent is a person qualified to
advise about real estate. If legal or tax advise is desired, consult a
competent professional.
(d) Further Disclosures. Throughout this transaction Buyer and
Seller may receive more than one disclosure, depending upon the number of agents
assisting in the transaction. Buyer and Seller should each read its contents
each time it is presented, considering the relationship between them and the
real estate agent in this transaction and that disclosure. Brokers have no
responsibility with respect to any default or breach hereof by either Party. The
liability (including court costs and attorneys' fees), of any Broker with
respect to any breach of duty, error or omission relating to this Agreement
shall not exceed the fee received by such Broker pursuant to this Agreement,
provided, however, that the foregoing limitation on each Broker's liability
shall not be applicable to any gross negligence or willful misconduct of such
Broker.
24.3 Confidential Information: Buyer and Seller agree to identify to
Brokers as "Confidential" any communication or information given Brokers that is
considered by such Party to be confidential.
25. Construction of Agreement. In construing this Agreement, all headings and
titles are for the convenience of the Parties only and shall not be considered a
party of this Agreement. Whenever required by the context, the singular shall
include the plural and vice versa. Unless otherwise specifically indicated to
the contrary, the word "days" as used in this Agreement shall mean and refer to
calendar days. This Agreement shall not be construed as if prepared by one of
the parties, but rather according to its fair meaning as a whole, as if both
Parties had prepared it.
26. Additional Provisions:
Additional provisions of this offer, if any, are as follows or are attached
hereto by an addendum consisting of paragraphs 27 through 29.
27. Buyer to have 20 days from Date of Agreement (Contingency Period) to
inspect and approve all items under Contingencies No 9.1 thru 9.2. Item 9.3 is
not A PART OF THIS AGREEMENT. Items 9.4 and 9.5 ARE A PART OF THIS AGREEMENT.
28. This Agreement and sale is subject to Jafra's Board of Director's approval.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE TRANSACTION TO WHICH
IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
AGREEMENT.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PROPERTY. SAID INVESTIGATION SHOULD
12
<PAGE>
INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES,
THE ZONING OF THE PROPERTY, THE INTEGRITY AND CONDITION OF ANY STRUCTURES AND
OPERATING SYSTEMS, AND THE SUITABILITY OF THE PROPERTY FOR BUYER'S INTENDED USE.
WARNING: IF THE PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
- --------
PROVISIONS OF THIS AGREEMENT MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF
THE STATE IN WHICH THE PROPERTY IS LOCATED.
NOTE:
1. THIS FORM IS NOT FOR USE IN CONNECTION WITH THE SALE OF RESIDENTIAL
PROPERTY.
2. IF THE BUYER IS A CORPORATION, IT IS RECOMMENDED THAT THIS AGREEMENT BE
SIGNED BY TWO CORPORATE OFFICERS.
The undersigned Buyer offers and agrees to buy the Property on the terms and
conditions stated and acknowledges receipt of a copy hereof.
<TABLE>
<S> <C>
BROKER: BUYER:
Young Realtors Townsgate Road LLC, a California Corporation
By: /S/Joan Young /Date/09-29-99 By: /S/
Name Printed: Joan Young Name Printed:
Title: President Title:
By: /S/Joe Wilkins By:
Name Printed: Joe Wilkins Name Printed:
Title: Vice President Title:
Address: 971 S. Westlake Blvd., No. 100 Address: 21241 Ventura Blvd., Suite 169
Woodland Hills, CA 91364
805-446-1866 805-373-0790 818-348-9900 905-348-9925
Telephone Facsimile Telephone Facsimile
</TABLE>
29. Acceptance.
29.1 Seller accepts the foregoing offer to purchase the Property and hereby
agrees to sell the Property to Buyer on the terms and conditions therein
specified.
29.2 Seller acknowledges that Brokers have been retained to locate a Buyer
and are the procuring cause of the purchase and sale of the Property set forth
in this Agreement. In consideration of real estate brokerage service rendered
by Brokers, Seller agrees to pay Brokers a real estate Brokerage Fee in a sum
equal to In Esc% of the Purchase Price divided in such shares as said Brokers
shall direct in writing. This Agreement shall serve as an irrevocable
instruction to Escrow Holder to pay such Brokerage Fee to Brokers out of the
proceeds accruing to the account of Seller at the Closing.
29.3 Seller acknowledges receipt of a copy hereof and authorizes Brokers to
deliver a signed copy to Buyer.
NOTE: A PROPERTY INFORMATION SHEET IS REQUIED TO BE DELIVERED TO BUYER BY
SELLER UNDER THIS AGREEMENT.
<TABLE>
<S> <C>
BROKER: SELLER
Young Realtors Jafra Cosmetics International, Inc.
By: /S/Joan Young /Date/10-15-99 By: /S/Ralph S. Mason, III
Name Printed: Joan Young Name Printed: Ralph S. Mason, III
Title: President Title: Vice Chairman and General Counsel
Address: 2451 Townsgate Road
By: /S/Joe Wilkins Westlake Village, CA 91361
805-449-3004 805-449-3256
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Name Printed: Joe Wilkins Telephone Facsimile
Title: Vice President Federal ID No. 13-3998453
Address: 971 S. Westlake Blvd., No. 100
</TABLE>
30. As modified by that certain letter agreement dated October 25, 1999 and
executed by the Seller, Buyer and Broker.
14
<PAGE>
COMMISSION INSTRUCTIONS
Date: October 4, 1999
To: American Title Company
Escrow No: 11315-BAW
Property Address:
Unimproved Property - Townsgate Road, Westlake Village, CA 91361
From funds accruing to the account of the undersigned, upon the close of the
above numbered escrow only, for services rendered and commission due, you are to
pay the following persons and/or firms the following sums:
<TABLE>
<S> <C>
Young
Realtors............................................................ $102,000.00
971 Westlake Boulevard
Westlake Village, CA 91361
Attn: Joe Wilkins
TOTAL COMMISSION BEING PAID .......................... $102,000.00
</TABLE>
I/WE HEREBY IRREVOCABLY ASSIGN TO THE BROKER(S) NAMED ABOVE A PORTION OF MY
SALES PROCEEDS IN AN AMOUNT EQUAL TO THE COMMISSION SET FORTH ABOVE. THIS
ASSIGNMENT PROVIDES FOR THE DISBURSEMENT OF SAID COMMISSION TO THE BROKER(S) BY
ESCROW HOLDER UPON CLOSE OF ESCROW. THESE ESCROW COMMISSION INSTRUCTIONS MAY
NOT BE AMENDED OR REVOKED WITHOUT THE WRITTEN CONSENT OF THE BROKER(S) HEREIN.
Jafra Cosmetics International, Inc., a Delaware corporation
By: By:
-------------------------------- ---------------------------------
Ralph S. Mason III, Vice
Chairman and General Counsel
<PAGE>
EXHIBIT ONE
Lot 3, Tract No. 1921-2, in the City of Thousand Oaks, County of Ventura, State
of California, as per map recorded in Book 51 pages 85 to 88, inclusive, of
Maps, in the office of the County Recorder of said County.
EXCEPT ALL oil, gas and other hydrocarbon substances lying within and under that
portion of said land, lying below a depth of 500 feet, measured vertically, from
the surface of said land, without however, any right to enter upon the surface
of said land, nor into that portion of the subsurface thereof, lying above a
depth of 500 feet, measured vertically from said surface.
ALSO EXCEPTING that position of said Lot 3 described as follows:
Beginning at a point in that certain course shown as having a bearing and length
of N 00 28' 36" E. 267.63 feet in the Westerly line of Lot 4 of said tract, said
point being distant thereon N 00 28' 36" E, 243.38 feet from the Southerly
terminus thereof; thence S 51 D5' 06" E. 1180.82 feet to the Southeasterly line
of said Lot 3; thence along said Southeasterly line N 41 38' 14" E, 1.16 feet to
the Southwesterly line of Parcel 1 described in the deed to the State of
California recorded in Book 2788, page 272 of Official Records in said office;
thence Northwesterly along said Southwesterly line and the Southwesterly line of
Parcel 5 described in said deed to the Westerly line of Lot 14 in Block 14,
Thousand Oaks Tract, as per map recorded in Book 8, page 73 of Maps in said
county; thence along said Westerly line and along the Westerly line of Lot 15 S
00 29' 26" W, 24.25 feet to the Northwesterly prolongation of that certain
course hereinabove described as having a bearing of S 51 05' 06" E; thence
along said prolongation S 51 05' 06" E, 265.50 feet to the point of beginning.
<PAGE>
ADDITION AND/OR AMENDMENT TO ESCROW INSTRUCTIONS
To: American Title Company
Date: October 28, 1999
Escrow No.: 11315-BAW
Property Address: vacant land, Westlake Village, CA 91361
The instructions in this escrow are hereby modified, amended and/or supplemented
in the following particulars only:
The undersigned Buyer hereby removes all contingencies in the above-numbered
escrow.
It is mutually agreed by the undersigned Buyer and Seller that the closing date
for the property described in the above-numbered escrow is hereby amended to:
On or before December 1, 1999
As consideration for the closing date extension shown above, the undersigned
Buyer hereby agrees to pay Seller a maximum of $9,750.00. Escrow Holder is
hereby authorized and instructed to calculate the amount to be charged to Buyer
and credit to Seller as per the following: Escrow Holder is instructed to
charge Buyer the sum of $650.00 per day from November 16, 1999 to (but not
including) the date of close of escrow. The undersigned Buyer hereby agrees
that said sum will be deposited into escrow along with all other closing funds
required prior to the close of escrow.
Escrow Holder is further instructed to charge the commission due Young Realtors
an amount equal to one-half of Buyer's cost for the extension, but not to exceed
$4,875.00. This amount shall be credited to Seller, at close of escrow, toward
Buyer's cost in this matter.
These instructions may be executed in counterparts, all of which when taken
together, shall be deemed to be the instrument. I have received a copy of these
instructions as evidenced by my signature below.
ALL OTHER TERMS AND CONDITIONS OF THE INSTRUCTIONS DRAWN FOR THE ABOVE-NUMBERED
ESCROW ARE TO REMAIN THE SAME.
Townsgate Road LLC, a California corporation
By: By:
------------------------- -------------------------
William Bromiley Neil Shekhter
Jafra Cosmetics, Inc., a California corporation
By: By: /S/DJB
------------------------- -------------------------
Ralph S. Mason III, Vice Chairman
And General Counsel
The undersigned Broker hereby joins in the execution of this escrow instruction
for the purpose of authorizing the $4,875.00 payment described hereinabove.
Young Realtors
By:
---------------------------------
(authorized signature)
<PAGE>
EXHIBIT 10.2
STANDARD OFFER, AGREEMENT AND ESCROW
INSTRUCTIONS FOR PURCHASE OF REAL ESTATE
(Non-Residential)
American Industrial Real Estate Association
October 15, 1999
1. Buyer.
1.1 Selvin Properties or assignee/nominee, ("Buyer") hereby offers to
purchase the real property, hereinafter described, from the owner thereof
("Seller") (collectively, the "Parties" or individually, a "Party") through an
escrow ("Escrow") to close on or before December 10, 1999 ("Expected Closing
Date") to be held by American Title & Escrow ("Escrow Holder") whose address is
950 Hampshire Road, Westlake Village, CA 91361, Phone No. 805-371-9812,
Facsimile No. 805-370-1420 upon the terms and conditions set forth in this
agreement ("Agreement"). Buyer shall have the right to assign Buyer's rights
hereunder, but any such assignment shall not relieve Buyer of Buyer's
obligations herein unless Seller expressly releases Buyer.
1.2 The term "Date of Agreement" as used herein shall be the date when by
execution and delivery (as defined in paragraph 20.2) of this document or a
subsequent counter-offer thereto, Buyer and Seller have reached agreement in
writing whereby Seller agrees to sell, and Buyer agrees to purchase, the
Property upon terms accepted by both Parties.
2. Property.
2.1 The real property ("Property") that is the subject of this offer
consists of approximately 24,000 S.F. Two story office building is located in
the City of Westlake Village, County of Ventura, State of California, is
commonly known by the street address of 2393 Townsgate Road and is legally
described as: In Escrow.
(APN: 698-0-011-065).
2.2 If the legal description of the Property is not complete or is
inaccurate, this Agreement shall not be invalid and the legal description shall
be completed or corrected to meet the requirements of American Title ("Title
Company"), which shall issue the title policy hereinafter described.
2.3 The Property includes, at no additional cost to Buyer, the permanent
improvements thereon, including those items which the law of the state in which
the Property is located provides is part of the Property, as well as the
following items, if any, owned by Seller and at present located on the Property:
electrical distribution systems (power panel, buss ducting, conduits,
disconnects, lighting fixtures); telephone distribution systems (lines, jacks
and connections only); space heaters; heating; ventilating; air conditioning
equipment ("HVAC"); air lines; fire sprinkler systems; security and fire
detection systems; carpets; window coverings; wall coverings; and None
(collectively, the "Improvements").
2.4 Within the time period specified in paragraph 9.1(a), Seller and/or
Seller's Broker shall make to Buyer, through escrow, all of the applicable
disclosures required by law (See American Industrial Real Estate Association
("AIR") standard form entitled "Seller's Mandatory Disclosure Statement").
3. Purchase Price.
3.1 The purchase price ("Purchase Price") to be paid by Buyer to Seller for
the Property shall be $3,430,000.00, payable as follows:
(a) Cash down payment, including the Deposit as defined in paragraph
4.3 (or if an all cash transaction, the Purchase Price):
$3,430,000.00
[deleted]
Total Purchase Price: $3,430,000.00
3.2 If an Existing Deed of Trust permits the beneficiary to demand payment
of fees including, but not limited to, points, processing fees, and appraisal
fees as a condition to the transfer of the Property, Buyer agrees to pay such
fees up to a maximum of 1.5% of the unpaid principal balance of the applicable
Existing Note.
4. Deposits.
4.1 Buyer hereby delivers a check in the sum of $100,000.00, payable to
Escrow Holder, to be held uncashed until the Date of Agreement. Such check
shall be deposited in accordance with paragraph 4.3 and applied toward the
Purchase Price of the Property at the Closing. Should Buyer and Seller not
enter
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into an agreement for purchase and sale, Buyer's check or funds shall, upon
request by Buyer, be promptly returned to Buyer.
4.2 Additional deposits:
(a) Within 5 business days after the Date of Agreement, Buyer shall
deposit with Escrow Holder the additional sum of
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$ None to be applied to the Purchase Price at the Closing.
(b) Within 5 business days after the contingencies discussed in
paragraph 9.1(a) through (k) are approved or waived, Buyer shall deposit with
Escrow Holder the additional sum of $None to be applied to the Purchase Price at
the Closing.
4.3 Escrow Holder shall deposit the funds deposited with it by Buyer
pursuant to paragraphs 4.1 and 4.2 (collectively the "Deposit"), in a State or
Federally chartered bank in an interest bearing account whose term is
appropriate and consistent with the timing requirements of this transaction.
The Interest therefrom shall accrue to the benefit of Buyer, who hereby
acknowledges that there may be penalties or interest forfeitures if the
applicable instrument is redeemed prior to its specified maturity. Buyer's
Federal Tax Identification Number is . NOTE: Such interest bearing
account cannot be opened until Buyer's Federal Tax Identification Number is
provided.
[deleted]
7. Real Estate Brokers.
7.1 The following real estate broker(s) ("Brokers") and brokerage
relationships exist in this transaction and are consented to by the
Parties (check the applicable boxes):
_____________ represents Seller exclusively ("Seller's Broker");
_____________ represents Buyer exclusively ("Buyer's Broker"); or
Young Realtors represents both Seller and Buyer ("Dual Agency").
The Parties acknowledge that Brokers are the procuring cause of this Agreement.
See paragraph 24 for disclosures regarding the nature of a real estate agency
relationship. Buyer shall use the services of Buyer's Broker exclusively in
connection with any and all negotiations and offers with respect to the property
described in paragraph 2.1 for a period of one year from the date above.
7.2 Buyer and Seller each represent and warrant to the other that he/she/it
has had no dealings with any person, firm, broker or finder in connection with
the negotiation of this Agreement and/or the consummation of the purchase and
sale contemplated herein, other than the Brokers named in paragraph 7.1 and no
broker or other person, firm or entity, other than said Brokers is/are entitled
to any commission or finder's fee in connection with this transaction as the
result of any dealings or acts of such Party. Buyer and Seller do each hereby
agree to indemnify, defend, protect and hold the other harmless from and against
any costs, expenses or liability for compensation, commission or charges which
may be claimed by any broker, finder or other similar party, other than said
named Brokers by reason of any dealings or act of the Indemnifying Party
8. Escrow and Closing.
8.1 Upon acceptance hereof by Seller, this Agreement, including any
counter-offers incorporated herein by the Parties, shall constitute not only the
agreement of purchase and sale between Buyer and Seller, but also instructions
to Escrow Holder for the consummation of the Agreement through the Escrow.
Escrow Holder shall not prepare any further escrow instructions restating or
amending the Agreement unless specifically so instructed by the Parties or a
Broker herein. Subject to the reasonable approval of the Parties, Escrow Holder
may, however, include its standard general escrow provisions.
8.2 As soon as practical after the receipt of this Agreement and any
relevant counter-offers, Escrow Holder shall ascertain the Date of Agreement as
defined in paragraphs 1.2 and 20.2 and advise the Parties and Brokers, in
writing, of the date ascertained.
8.3 Escrow Holder is hereby authorized and instructed to conduct the Escrow
in accordance with this Agreement, applicable law and custom and practice of the
community in which Escrow Holder is located, including any reporting
requirements of the Internal Revenue Code. In the event of a conflict between
the law of the state where the Property is located and the law of the state
where the Escrow Holder is located, the law of the state where the Property is
located shall prevail.
8.4 Subject to satisfaction of the contingencies herein described, Escrow
Holder shall close this escrow (the "Closing") by recording a general warranty
deed (a grant deed in California) and the other documents required to be
recorded, and by disbursing the funds and documents in accordance with this
Agreement.
8.5 Buyer and Seller shall each pay one-half of the Escrow Holder's charges
and Seller shall pay the usual recording fees and any required documentary
transfer taxes. Seller shall pay the premium for a standard coverage owner's or
joint protection policy of title insurance.
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8.6 Escrow Holder shall verify that all of Buyer's contingencies have been
satisfied or waived prior to Closing. The matters contained in paragraphs 9.1
subparagraphs (b), (c), (d), (e), (g), (i), (n), and (o), 9.4, 9.5, 12, 13, 14,
16, 18, 20, 21, 22, and 24 are, however, matters of agreement between the
Parties only and in no way constitute instructions to Escrow Holder.
8.7 If this transaction is terminated for non-satisfaction and non-waiver
of a Buyer's Contingency, as defined in paragraph 9.2, then neither of the
Parties shall thereafter have any liability to the other under this Agreement,
except to the extent of the breach of any affirmative covenant or warranty in
this Agreement. In the event of such termination, Buyer shall be promptly
refunded all funds deposited by Buyer with Escrow Holder, less only Title
Company and Escrow Holder cancellation fees and costs, all of which shall be
Buyer's obligation.
8.8 The Closing shall occur on the Expected Closing Date, or as soon
thereafter as the Escrow is in condition for Closing; provided, however, that if
the Closing does not occur by the Expected Closing Date and said Date is not
extended by mutual instructions of the Parties, a Party not then in default
under this Agreement may notify the other Party, Escrow Holder, and Brokers, in
writing that, unless the closing occurs within 5 business days following said
notice, the Escrow shall be deemed terminated without further notice or
instructions.
8.9 Except as otherwise provided herein, the termination of Escrow shall
not relieve or release either Party from any obligation to pay Escrow Holder's
fees and costs or constitute a waiver, release or discharge of any breach or
default that has occurred in the performance of the obligations, agreements,
covenants or warranties contained therein.
8.10 If this Escrow is terminated for any reason other than Seller's breach
or default, then at Seller's request, and as a condition to the return of
Buyer's deposit, Buyer shall within 5 days after written request deliver to
Seller, at no charge, copies of all surveys, engineering studies, soil reports,
maps, master plans, feasibility studies and other similar items prepared by or
for Buyer that pertain to the Property. Provided, however, that Buyer shall not
be required to deliver any such report if the written contract which Buyer
entered into with the consultant who prepared such report specifically forbids
the dissemination of the report to others.
9. Contingencies to Closing.
9.1 The Closing of this transaction is contingent upon the satisfaction or
waiver of the following contingencies. IF BUYER FAILS TO NOTIFY ESCROW HOLDER,
IN WRITING, OF THE DISAPPROVAL OF ANY OF SAID CONTINGENCIES WITHIN THE TIME
SPECIFIED THEREIN, IT SHALL BE CONCLUSIVELY PRESUMED THAT BUYER HAS APPROVED
SUCH ITEM, MATTER OR DOCUMENT. Buyer's conditional approval shall constitute
disapproval, unless provision is made by the Seller within the time specified
therefore by the Buyer in such conditional approval or by this Agreement,
whichever is later, for the satisfaction of the condition imposed by the Buyer.
Escrow Holder shall promptly provide all Parties with copies of any written
disapproval or conditional approval which it receives. With regard to
subparagraphs (a) through (l) the pre-printed time periods shall control unless
a different number of days is inserted in the spaces provided.
(a) Disclosure. Seller shall disclose to Buyer any matters required
by applicable law (see paragraph 2.4) and provide Buyer with a completed
Property Information Sheet ("Property Information Sheet") concerning the
Property, duly executed by or on behalf of Seller in the current form or
equivalent to that published by the AIR within 10 or days following the Date of
Agreement. Buyer has 10 days from the receipt of said disclosures to approve or
disapprove the matters disclosed.
(b) Physical Inspection. Buyer has See 27 days from the receipt of
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the Property Information Sheet or the Date of Agreement, whichever is later, to
satisfy itself with regard to the physical aspects and size of the Property.
(c) Hazardous Substance Conditions Report. Buyer has See 27 days from
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the receipt of the Property Information Sheet or the Date of Agreement,
whichever is later, to satisfy itself with regard to the environmental aspects
of the Property. Seller recommends that Buyer obtain a Hazardous Substance
Conditions Report concerning the Property and relevant adjoining properties.
Any such report shall be paid for by Buyer. A "Hazardous Substance" for
purposes of this Agreement is defined as any substance whose nature and/or
quantity of existence, use, manufacture, disposal or effect, render it subject
to Federal, state or local regulation, investigation, remediation or removal as
potentially injurious to public health or welfare. A "Hazardous Substance
Condition" for purp9oses of this Agreement is defined as the existence on, under
or relevantly adjacent to the Property of a Hazardous Substance that would
require remediation and/or removal under applicable Federal, state or local law.
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(d) Soil Inspection. Buyer has See 27 days from the receipt of the
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Property Information Sheet or the Date of Agreement, whichever is later, to
satisfy itself with regard to the condition of the soils on the Property. Seller
recommends that Buyer obtain a soil test report. Any such report shall be paid
for by Buyer. Seller shall provide Buyer copies of any soils report that Seller
may have within 10 days of the Date of Agreement.
(e) Governmental Approvals. Buyer has See 27 days from the Date of
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Agreement to satisfy itself with regard to approvals and permits from
governmental agencies or departments which have or may have jurisdiction over
the Property and which Buyer deems necessary or desirable in connection with its
intended use of the Property, including, but not limited to, permits and
approvals required with respect to zoning, planning, building and safety, fire,
police, handicapped and Americans with Disabilities Act requirements,
transportation and environmental matters.
(f) Conditions of Title. Escrow Holder shall cause a current
commitment for title insurance ("Title Commitment") concerning the Property
issued by the Title Company, as well as legible copies of all documents referred
to in the Title Commitment ("Underlying Documents") to be delivered to Buyer
within 10 or ____ days following the Date of Agreement. Buyer has 10 days from
the receipt of the Title Commitment and Underlying Documents to satisfy itself
with regard to the condition of title. The disapproval of Buyer of any monetary
encumbrance, which by the terms of this Agreement is not to remain against the
Property after the Closing, shall not be considered a failure of this
contingency, as Seller shall have the obligation, at Seller's expense, to
satisfy and remove such disapproved monetary encumbrance at or before the
Closing.
(g) Survey. Buyer has See 27 days from the receipt of the Title
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Commitment and Underlying Documents to satisfy itself with regard to any ALTA
title supplement based upon a survey prepared to American Land Title Association
("ALTA") standards for an owner's policy by a licensed surveyor, showing the
legal description and boundary lines of the Property, any easements of record,
and any improvements, poles, structures and things located within 10 feet of
either side of the Property boundary lines. Any such survey shall be prepared at
Buyer's direction and expense. If Buyer has obtained a survey and approved the
ALTA title supplement, Buyer may elect within the period allowed for Buyer's
approval of a survey to have an ALTA extended coverage owner's form of title
policy, in which event Buyer shall pay any additional premium attributable
thereto.
(h) Existing Leases and Tenancy Statements. Seller shall within N/A
days of the Date of Agreement provide both Buyer and Escrow Holder with legible
copies of all leases, subleases or rental arrangements (collectively, "Existing
Leases") affecting the Property, and with a tenancy statement ("Estoppel
Certificate") in the latest form or equivalent to that published by the AIR,
executed by Seller and/or each tenant and subtenant of the Property. Seller
shall use its best efforts to have each tenant complete and execute an Estoppel
Certificate. If any tenant fails or refuses to provide an Estoppel Certificate
then Seller shall complete and execute an Estoppel Certificate for that tenancy.
Buyer has 10 days from the receipt of said Existing Leases and Estoppel
Certificates to satisfy itself with regard to the Existing Leases and any other
tenancy issues.
(i) Other Agreements. Seller shall within 10 or ___ days of the Date
of Agreement provide Buyer with legible copies of all other agreements ("Other
Agreements") known to Seller that will affect the Property after Closing. Buyer
has 10 days from the receipt of said Other Agreements to satisfy itself with
regard to such Agreements.
(j) Financing. If paragraph 5 hereof dealing with a financing
contingency has not been stricken, the satisfaction or waiver of such New Loan
contingency.
(k) Existing Notes. If paragraph 3.1(c) has not been stricken, Seller
shall within 10 or ___ days of the Date of Agreement provide Buyer with legible
copies of the Existing Notes, Existing Deeds of Trust and related agreements
(collectively, "Loan Documents") to which the Property will remain subject after
the Closing. Escrow Holder shall promptly request from the holders of the
Existing Notes a beneficiary statement ("Beneficiary Statement") confirming: (1)
the amount of the unpaid principal balance, the current interest rate, and the
date to which interest is paid, and (2) the nature and amount of any impounds
held by the beneficiary in connection with such loan. Buyer has 10 days from the
receipt of the Loan Documents and Beneficiary Statements to satisfy itself with
regard to such financing. Buyer's obligation to close is conditioned upon Buyer
being able to purchase the Property without acceleration or change in the terms
of any Existing Notes or charges to Buyer except as otherwise provided in this
Agreement or approved by Buyer, provided, however, Buyer shall pay the transfer
fee referred to in paragraph 3.2 hereof.
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(l) Personal Property. In the event that any personal property is
included in the Purchase Price, Buyer has See 27 days from the Date of Agreement
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to satisfy itself with regard to the title condition of such personal property.
Seller recommends that Buyer obtain a UCC-1 report. Any such report shall be
paid for by Buyer, Seller shall provide Buyer copies of any liens or
encumbrances affecting such personal property that it is aware of within N/A
---
days of the Date of Agreement.
(m) Destruction, Damage or Loss. There shall not have occurred prior
to the Closing, a destruction of, or damage or loss to, the Property or any
portion thereof, from any cause whatsoever, which would cost more than
$10,000.00 to repair or cure. If the cost of repair or cure is $10,000.00 or
less, Seller shall repair or cure the loss prior to the Closing. Buyer shall
have the option, within 10 days after receipt of written notice of a loss
costing more than $10,000.00 to repair or cure, to either terminate this
transaction or to purchase the Property notwithstanding such loss, but without
deduction or offset against the Purchase Price. If the cost to repair or cure is
more than $10,000.00, and Buyer does not elect to terminate this transaction,
Buyer shall be entitled to any insurance proceeds applicable to such loss.
Unless otherwise notified in writing, Escrow Holder shall assume no such
destruction, damage or loss has occurred prior to Closing.
(n) Material Change. Buyer shall have 10 days following receipt of
written notice of a Material Change within which to satisfy itself with regard
to such change. "Material Change" shall mean a change in the status of the use,
occupancy, tenants, or condition of the Property that occurs after the date of
this offer and prior to the Closing. Unless otherwise notified in writing,
Escrow Holder shall assume that no Material Change has occurred prior to the
Closing.
(o) Seller Performance. The delivery of all documents and the due
performance by Seller of each and every undertaking and agreement to be
performed by Seller under this Agreement.
(p) Warranties. That each representation and warranty of Seller
herein be true and correct as the Closing. Escrow Holder shall assume that this
condition has been satisfied unless notified to the contrary in writing by any
Party prior to the closing.
(q) Brokerage Fee. Payment at the Closing of such brokerage fee as is
specified in this Agreement or later written instructions to Escrow Holder
executed by Seller and Brokers ("Brokerage Fee"). It is agreed by the Parties
and Escrow Holder that Brokers are a third party beneficiary of this Agreement
insofar as the Brokerage Fee is concerned, and that no change shall be made with
respect to the payment of the Brokerage Fee specified in this Agreement, without
the written consent of Brokers.
9.2 All of the contingencies specified in subparagraphs (a) through (p) of
paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and may be
elsewhere herein referred to as "Buyer Contingencies."
9.3 If any Buyer's Contingency or any other matter subject to Buyer's
approval is disapproved as provided for herein in a timely manner ("Disapproved
Item"), Seller shall have the right within 10 days following the receipt of
notice of Buyer's disapproval to elect to cure such Disapproved Item prior to
the Expected Closing Date ("Seller's Election"). Seller's failure to give to
Buyer within said 10 day period, written notice of Seller's commitment to cure
such Disapproved Item on or before the Expected Closing Date shall be
conclusively presumed to be Seller's Election not to cure such Disapproved Item.
If Seller elects, either by written notice or failure to give written notice,
not to cure a Disapproved Item, Buyer shall have the election, within 10 days
after Seller's Election to either accept title to the Property subject to such
Disapproved Item, or to terminate this transaction. Buyer's election to
terminate this transaction. Unless expressly provided otherwise herein,
Seller's right to cure shall not apply to the remediation of Hazardous Substance
Conditions or to the Financing Contingency. Unless the Parties mutually
instruct otherwise, if the time periods for the satisfaction of contingencies or
for Seller's and Buyer's said Elections would expire on a date after the
expected Closing Date, the Expected Closing Date shall be deemed extended to
coincide with the expiration of 3 business days following the expiration of:
(a) the applicable contingency period(s), (b) the period within which the Seller
may elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the
period within which Buyer may elect to proceed with this transaction, whichever
is later.
9.4 Buyer understands and agrees that until such time as all Buyer's
Contingencies have been satisfied or waived, Seller and/or its agents may
solicit, entertain and/or accept back-up offers to purchase the subject
Property.
9.5 The Parties acknowledge that extensive local, state and Federal
legislation establish broad liability upon owners and/or users of real property
for the investigation and remediation of Hazardous Substances. The
determination of the existence of a Hazardous Substance Condition and the
evaluation of
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the impact of such a condition are highly technical and beyond the expertise of
Brokers. The Parties acknowledge that they have been advised by Brokers to
consult their own technical and legal experts with respect to the possible
presence of Hazardous Substances on this Property or adjoining properties, and
Buyer and Seller are not relying upon any investigation by or statement of
Brokers with respect thereto. The Parties hereby assume all responsibility for
the impact of such Hazardous Substances upon their respective interests herein.
10. Documents Required at or before closing:
10.1 Five days prior to the Closing date Escrow Holder shall obtain
an updated Title Commitment concerning the Property from the Title Company and
provide copies thereof to each of the Parties.
10.2 Seller shall deliver to Escrow Holder in time for delivery to Buyer at
the Closing, an original ink signed:
(a) Grant or general warranty deed, duly executed and in recordable
form, conveying fee title to the Property to Buyer.
(b) If paragraph 3.1(c) has not been stricken, the Beneficiary
Statements concerning Existing Note(s).
(c) If applicable, the Existing Leases and Other Agreements together
with duly executed assignments thereof by Seller and Buyer. The assignment of
Existing Leases shall be on the most recent Assignment and Assumption of
Lessor's Interest in Lease form published by the AIR or its equivalent.
(d) If applicable, Estoppel Certificates executed by Seller and/or the
tenant(s) of the Property.
(e) An affidavit executed by Seller to the effect that Seller is not a
"foreign person" within the meaning of Internal Revenue Code Section 1445 or
successor statutes. If Seller does not provide such affidavit in form
reasonably satisfactory to Buyer at least 3 business days prior to the Closing,
Escrow Holder shall at the Closing deduct from Seller's proceeds and remit to
Internal Revenue Service such sum as is required by applicable Federal law with
respect to purchases from foreign sellers.
(f) If the Property is located in California, an affidavit executed by
Seller to the effect that Seller is not a "nonresident" within the meaning of
California Revenue and Tax Code Section 18662 or successor statutes. If Seller
does not provide such affidavit in form reasonably satisfactory to Buyer at
least three business days prior to the Closing, Escrow Holder shall at the
Closing deduct from Seller's proceeds and remit to the Franchise Tax Board such
sum as is required by such statute.
(g) If applicable, a bill of sale, duly executed, conveying title to
any included personal property to Buyer.
(h) If the Seller is a corporation, a duly executed corporate
resolution authorizing the execution of this Agreement and the sale of the
Property.
10.3 Buyer shall deliver to Seller through Escrow:
(a) The cash portion of the Purchase Price and such additional sums as
are required of Buyer under this Agreement for prorations, expenses and
adjustments. The balance of the cash portion of the Purchase Price, including
Buyer's Escrow charges and other cash charges, if any, shall be deposited by
Buyer with Escrow Holder, by federal funds wire transfer, or any other method
acceptable to Escrow Holder as immediately collectable funds, no later than 2:00
P.M. on the business day prior to the Expected Closing Date.
(b) If a Purchase Money Note and Purchase Money Deed of Trust are
called for by this Agreement, the duly executed originals of those documents,
the Purchase Money Deed of Trust being in recordable form, together with
evidence of fire insurance on the improvements in the amount of the full
replacement cost naming Seller as a mortgage loss payee, and a real estate tax
service contract (at Buyer's expense), assuring Seller of notice of the status
of payment of real property taxes during the life of the Purchase Money Note.
(c) The Assignment and Assumption of Lessor's Interest in Lease form
specified in paragraph 10.2(c) above, duly executed by Buyer.
(d) Assumptions duly executed by Buyer of the obligations of Seller
that accrue after Closing under any Other Agreements.
(e) If applicable, a written assumption duly executed by Buyer of the
loan documents with respect to Existing Notes.
(f) If the Buyer is a corporation, a duly executed corporate
resolution authorizing the execution of this Agreement and the purchase of the
Property.
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10.4 At Closing, Escrow Holder shall cause to be issued to Buyer a standard
coverage (or ALTA extended, if elected under paragraph 9.1(g)) owner's form
policy of title insurance effective as of the Closing, issued by the Title
Company in the full amount of the Purchase Price, insuring title to the Property
vested in Buyer, subject only to the exceptions approved by Buyer. In the event
there is a Purchase Money Deed of Trust in this transaction, the policy of title
insurance shall be a joint protection policy insuring both Buyer and Seller.
IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO
OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE
PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY
BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAIN IN ORDER TO
ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING.
11. Prorations and Adjustments.
11.1 Taxes. Real property taxes and special assessment bonds payable by
the owner of the Property shall be prorated through Escrow as of the date of the
Closing, based upon the latest tax bill available. The Parties agree to prorate
as of the Closing any taxes assessed against the Property by supplemental bill
levied by reason of events occurring prior to the Closing. Payment shall be made
promptly in cash upon receipt of a copy of any such supplemental bill of the
amount necessary to accomplish such proration.
11.2 Insurance. WARNING: The insurance coverage which Seller maintained
on the Property will terminate on the Closing. Buyer is advised to obtain
appropriate insurance to cover the Property.
11.3 Rentals, Interest and Expenses. Collected rentals, interest on
Existing Notes, utilities, and operating expenses shall be prorated as of the
date of Closing. The Parties agree to promptly adjust between themselves
outside of Escrow any rents received after the Closing.
11.4 Security Deposit. Security Deposits held by Seller shall be given to
Buyer as a credit to the cash required of Buyer at the Closing.
11.5 Post Closing Matters. Any item to be prorated that is not determined
or determinable at the Closing shall be promptly adjusted by the Parties by
appropriate cash payment outside of the Escrow when the amount due is
determined.
11.6 Variations in Existing Note Balances. In the event that buyer is
taking title to the Property subject to an Existing Deed of Trust(s), and in the
event that a Beneficiary Statement as to the applicable Existing Note(s)
discloses that the unpaid principal balance of such Existing Note(s) at the
Closing will be more or less than the amount set forth in paragraph 3.1(c)
hereof ("Existing Note Variation"),then the purchase Money Note(s) shall be
reduced or increased by an amount equal to such Existing Note Variation. If
there is to be no Purchase Money Note, the cash required at the Closing per
paragraph 3.1(a) shall be reduced or increased by the amount of such Existing
Note Variation.
11.7 Variations in New Loan Balance. In the event Buyer is obtaining a New
Loan and in the event that the amount of the New Loan actually obtained is
greater than the amount set forth in paragraph 5.1 hereof, the Purchase Money
Note, if one is called for in this transaction, shall be reduced by the excess
of the actual face amount of the New Loan over such amount as designated in
paragraph 5.1 hereof.
12. Representation and Warranties of Seller and Disclaimers.
12.1 Seller's warranties and representations shall survive the Closing and
delivery of the deed for a period of three years, and, are true, material and
relied upon by Buyer and Brokers in all respects. Seller hereby makes the
following warranties and representations to Buyer and Brokers:
(a) Authority of Seller. Seller is the owner of the Property and/or
has the full right, power and authority to sell, convey and transfer the
Property to Buyer as provided herein, and to perform Seller's obligations
hereunder.
(b) Maintenance During Escrow and Equipment Condition At Closing.
Except as otherwise provided in paragraph 9.1(m) hereof, Seller shall maintain
the Property until the Closing in its present condition, ordinary wear and tear
excepted. The HVAC, plumbing elevators, loading doors and electrical systems
shall be in good operating order and condition at the time of Closing.
(c) Hazardous Substances/Storage Tanks. Seller has no knowledge,
except as otherwise disclosed to Buyer in writing, of the existence or prior
existence on the Property of any Hazardous Substance, nor of the existence or
prior existence of any above or below ground storage tank.
<PAGE>
(d) Compliance. Seller has no knowledge of any aspect or condition of
the Property which violates applicable laws, rules, regulations, codes or
covenants, conditions or restrictions, or of improvements or alterations made to
the Property without a permit where one was required, or of any unfulfilled
order or directive of any applicable governmental agency or casualty insurance
company requiring any investigation, remediation, repair, maintenance or
improvement be performed on the Property.
(e) Changes in Agreements. Prior to the Closing, Seller will not
violate or modify any Existing Lease or Other Agreement, or create any new
leases or other agreements affecting the Property, without Buyer's written
approval, which approval will not be unreasonably withheld.
(f) Possessory Rights. Seller has no knowledge that anyone will, at
the Closing, have any right to possession of the Property, except as disclosed
by this Agreement or otherwise in writing to Buyer.
(g) Mechanics' Liens. There are no unsatisfied mechanics' or
materialmens' lien rights concerning the Property.
(h) Actions, Suits or Proceedings. Seller has no knowledge of any
actions, suits or proceedings pending or threatened before any commission,
board, bureau, agency, arbitrator, court or tribunal that would affect the
Property or the right to occupy or utilize same.
(i) Notice of Changes. Seller will promptly notify Buyer and Brokers
in writing of any Material Change (see paragraph 9.1(n)) affecting the Property
that becomes known to Seller prior to the Closing.
(j) No Tenant Bankruptcy Proceedings. Seller has no notice or
knowledge that any tenant of the Property is the subject of a bankruptcy or
insolvency proceeding.
(k) No Seller Bankruptcy Proceedings. Seller is not the subject of a
bankruptcy, insolvency or probate proceeding.
(l) Personal Property. Seller has no knowledge that anyone will, at
the Closing, have any right to possession of any personal property included in
the Purchase Price nor knowledge of any liens or encumbrances affecting such
personal property, except as disclosed by this Agreement or otherwise in writing
to Buyer.
12.2 Buyer hereby acknowledges that, except as otherwise stated in this
Agreement, Buyer is purchasing the Property in its existing condition and will,
by the time called for herein, make or have waived all inspections of the
Property Buyer believes are necessary to protect its own interest in, and its
contemplated use of, the Property. The Parties acknowledge that, except as
otherwise stated in this Agreement, no representations, inducements, promises,
agreements, assurances, oral or written, concerning the Property, or any aspect
of the occupational safety and health laws, Hazardous Substance laws, or any
other act, ordinance or law, have been made by either Party or Brokers, or
relied upon by either Party hereto.
12.3 In the event that Buyer learns that a Seller representation or warranty
might be untrue prior to the Closing, and Buyer elects to purchase the Property
anyway then, and in that event, Buyer waives any right that it may have to bring
an action or proceeding against Seller or Brokers regarding said representation
or warranty.
12.4 Any environmental reports, soils reports, surveys, and other similar
documents which were prepared by third party consultants and provided to Buyer
by Seller or Seller's representatives, have been delivered as an accommodation
to Buyer and without any representation or warranty as to the sufficiency,
accuracy, completeness, and/or validity of said documents, all of which Buyer
relies on at its own risk. Seller believes said documents to be accurate, but
Buyer is advised to retain appropriate consultants to review said documents and
investigate the Property.
13. Possession.
Possession of the Property shall be given to Buyer at the Closing subject to the
rights of tenants under Existing Leases.
14. Buyer's Entry.
At any time during the Escrow period, Buyer, and its agents and representatives,
shall have the right at reasonable times and subject to rights of tenants, to
enter upon the Property for the purpose of making inspections and tests
specified in this Agreement. No destructive testing shall be conducted,
however, without Seller's prior approval which shall not be unreasonably
withheld. Following any such entry or work, unless otherwise directed in
writing by Seller, Buyer shall return the Property to the condition it was in
prior to such entry or work, including the recompaction or removal of any
disrupted soil or material as
<PAGE>
Seller may reasonably direct. All such inspections and tests and any other work
conducted or materials furnished with respect to the Property by or for Buyer
shall be paid for by Buyer as and when due and Buyer shall indemnify, defend,
protect and hold harmless Seller and the Property of and from any and all
claims, liabilities, losses, expenses (including reasonable attorneys' fees),
damages, including those for injury to person or property, arising out of or
relating to any such work or materials or the acts or omissions of Buyer, its
agents or employees in connection therewith.
15. Further Documents and Assurances.
The Parties shall each, diligently and in good faith, undertake all actions and
procedures reasonably required to place the Escrow in condition for Closing as
and when required by this Agreement. The Parties agree to provide all further
information, and to execute and deliver all further documents, reasonably
required by Escrow Holder or the Title Company.
16. Attorneys' Fees.
If any Party or Broker brings an action or proceeding (including arbitration)
involving the Property, to enforce the terms hereof, or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term "Prevailing Party" shall include, without limitation, a Party or Broker
who substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorneys' fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred.
17. Prior Agreements/Amendments.
17.1 This Agreement supersedes any and all prior agreements between Seller
and Buyer regarding the Property.
17.2 Amendments to this Agreement are effective only if made in writing and
executed by Buyer and Seller.
18. Broker's Rights.
18.1 If this sale is not consummated due to the default of either the
[deleted] or Seller, the defaulting Party shall be liable to and shall pay to
Brokers the Brokerage Fee that Brokers would have received had the sale been
consummated. If Buyer is the defaulting party, payment of said Brokerage Fee is
in addition to any obligation with respect to liquidated or other damages.
18.2 Upon the Closing, Brokers are authorized to publicize the facts of
this transaction.
19. Notices.
19.1 Whenever any Party, Escrow Holder or Brokers herein shall desire
to give or serve any notice, demand, request approval, disapproval or other
communication, each such communication shall be in writing and shall be
delivered personally, by messenger or by mail, postage prepaid, to the address
set forth in this Agreement or by facsimile transmission.
19.2 Service of any such communication shall be deemed made on the date of
actual receipt if personally delivered. Any such communication sent by regular
mail shall be deemed given 48 hours after the same is mailed. Communications
sent by United States Express Mail or overnight courier that guarantee next day
delivery shall be deemed delivered 24 hours after delivery of the same to the
Postal Service or courier. Communications transmitted by facsimile transmission
shall be deemed delivered upon telephonic confirmation of receipt (confirmation
report from fax machine is sufficient), provided a copy is also delivered via
delivery or mail. If such communication is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
19.3 Any Party or Broker hereto may from time to time, by notice in
writing, designate a different address to which, or a different person or
additional persons to whom, all communications are thereafter to be made.
20. Duration of Offer.
<PAGE>
20.1 If this offer is not accepted by Seller on or before 5:00 P.M.
according to the time standard applicable to the city of Westlake Village on the
date of October 15, 1999, it shall be deemed automatically revoked.
20.2 The acceptance of this offer, or of any subsequent counteroffer
hereto, that creates an agreement between the Parties as described in paragraph
1.2, shall be deemed made upon delivery to the other Party or either Broker
herein of a duly executed writing unconditionally accepting the last outstanding
offer or counteroffer.
21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable only
if initiated by both Parties).
THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO FIX,
PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY
SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.
THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES PROVIDED
FOR THE BUYER'S BENEFIT, BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE ENTITLED
TO LIQUIDATED DAMAGES IN THE AMOUNT OF $100,000.00. UPON PAYMENT OF SAID SUM TO
SELLER, BUYER SHALL BE RELEASED FROM ANY FURTHER LIABILITY TO SELLER, AND ANY
ESCROW CANCELLATION FEES AND TITLE COMPANY CHARGES SHALL BE PAID BY SELLER.
/s/HS /s/DB
-------------- ----------------
Buyer Initials Seller Initials
22. ARBITRATION OF DISPUTES. (This Arbitration of Disputes paragraph is
applicable only if initialed by both Parties.)
22.1 ANY CONTROVERSY AS TO WHETHER SELLER IS ENTITLED TO THE LIQUIDATED
DAMAGES AND/OR BUYER IS ENTITLED TO THE RETURN OF DEPOSIT MONEY, SHALL BE
DETERMINED BY BINDING ARBITRATION BY, AND UNDER THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION ("COMMERCIAL RULES"). ARBITRATION HEARINGS
SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED. ANY SUCH CONTROVERSY
SHALL BE ARBITRATED BY THREE ARBITRATORS WHO SHALL BE IMPARTIAL REAL ESTATE
BROKERS WITH AT LEAST 5 YEARS OF FULL TIME EXPERIENCE IN BOTH THE AREA WHERE THE
PROPERTY IS LOCATED AND THE TYPE OF REAL ESTATE THAT IS THE SUBJECT OF THIS
AGREEMENT. THEY SHALL BE APPOINTED UNDER THE COMMERCIAL RULES. THE ARBITRATORS
SHALL HEAR AND DETERMINE SAID CONTROVERSY IN ACCORDANCE WITH APPLICABLE LAW, THE
INTENTION OF THE PARTIES AS EXPRESSED IN THIS AGREEMENT AND ANY AMENDMENTS
THERETO, AND UPON THE EVIDENCE PRODUCED AT AN ARBITRATION HEARING. PRE-
ARBITRATION DISCOVERY SHALL BE PERMITTED IN ACCORDANCE WITH THE COMMERICAL RULES
OR STATE LAW APPLICABLE TO ARBITRATION PROCEEDINGS. THE AWARD SHALL BE EXECUTED
BY AT LEAST TWO OF THE THREE ARBITRATORS, BE RENDERED WITHIN 30 DAYS AFTER THE
CONCLUSION OF THE HEARING, AND MAY INCLUDE ATTORNEYS' FEES AND COSTS TO THE
PREVAILING PARTY PER PARAGRAPH 16 HEREOF. JUDGMENT MAY BE ENTERED ON THE AWARD
IN ANY COURT OF COMPETENT JURISDICTION NOTWITHSTANDING THE FAILURE OF A PARTY
DULY NOTIFIED OF THE ARBITRATION HEARING TO APPEAR THEREAT.
22.2 BUYER'S RESORT TO OR PARTICIPATION IN SUCH ARBITRATION PROCEEDINGS
SHALL NOT BAR SUIT IN A COURT OF COMPETENT JURISDICTION BY THE BUYER FOR DAMAGES
AND/OR SPECIFIC PERFORMANCE UNLESS AND UNTIL THE ARBITRATION RESULTS IN AN AWARD
TO THE SELLER OF LIQUIDATED DAMAGES, IN WHICH EVENT SUCH AWARD SHALL ACT AS A
BAR AGAINST ANY ACTION BY BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE.
22.3 NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE
<PAGE>
THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW
YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH
RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMEDNT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO
NEUTRAL ARBITRATION.
/s/HS /s/DB
-------------- ---------------
Buyer Initials Seller Initials
23. Miscellaneous.
23.1 Binding Effect. This Agreement shall be binding on the Parties
without regard to whether or not paragraphs 21 and 22 are initialed by both of
the Parties. Paragraphs 21 and 22 are each incorporated into this Agreement only
if initialed by both Parties at the time that the Agreements is executed.
23.2 Applicable Law. This Agreement shall be governed by, and paragraph
22.3 is amended to refer to, the laws of the state in which the Property is
located.
23.3 Time of Essence. Time is of the essence of this Agreement.
23.4 Counterparts. This Agreement may be executed by Buyer and Seller in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Escrow Holder, after
verifying that the counterparts are identical except for the signatures, is
authorized and instructed to combine the signed signature pages on one of the
counterparts, which shall then constitute the Agreement.
23.5 Waiver of Jury Trial. The Parties hereby waive their respective
rights to trial by jury in any action or proceeding involving the Property or
arising out of this Agreement.
24. Disclosures Regarding The Nature of a Real Estate Agency Relationship.
24.1 The Parties and Brokers agree that their relationship(s) shall be
governed by the principles set forth in the applicable sections of the
California Civil Code, as summarized in paragraph 24.2.
24.2 When entering into a discussion with a real estate agent regarding a
real estate transaction, a Buyer or Seller should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Buyer and Seller acknowledge being advised by the
Brokers in this transaction, as follows:
(a) Seller's Agent. A Seller's agent under a listing agreement with
the Seller acts as the agent for the Seller only. A Seller's agent or subagent
has the following affirmative obligations: (1) To the Seller. A fiduciary duty
of utmost care, integrity, honesty, and loyalty in dealings with the Seller. (2)
To the Buyer and the Seller . a. Diligent exercise of reasonable skills and care
in performance of the agent's duties. b. A duty of honest and fair dealing with
good faith. c. A duty to disclose all facts known to the agent materially
affecting the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.
(b) Buyer's Agent. A selling agent can, with a Buyer's consent, agree
to act as agent for the Buyer only. In these situations, the agent is not the
Seller's agent, even if by agreement the agent may receive compensation for
services rendered, either in full or in part from the Seller. An agent acting
only for a Buyer has the following affirmative obligations. (1) To the Buyer: A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with
the Buyer. (2) To the Buyer and the Seller. a. Diligent exercise of reasonable
skills and care in performance of the agent's duties. b. A duty of honest and
fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the Property that are not
known to, or within the diligent attention and observation of, the
<PAGE>
Parties. An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the affirmative
duties set forth above.
(c) Agent Representing Both Seller and Buyer. A real estate agent,
either acting directly or through one or more associate licenses, can legally be
the agent of both the Seller and the Buyer in a transaction, but only with the
knowledge and consent of both the Seller and the Buyer. (1) In a dual agency
situation, the agent has the following affirmative obligations to both the
Seller and the Buyer. a. A fiduciary duty of utmost care, integrity, honesty and
loyalty in the dealings with either Seller or the Buyer. b. Other duties to the
Seller and the Buyer as stated above in their respective sections (a) or (b) of
this paragraph
24.2. (2) In representing both Seller and Buyer, the agent may not without
the express permission of the respective Party, disclose to the other Party that
the Seller will accept a price less than the listing price or that the Buyer
will pay a price greater than the price offered. (3) The above duties of the
agent in a real estate transaction do not relieve a Seller or Buyer from the
responsibility to protect their own interests. Buyer and Seller should
carefully read all agreements to assure that they adequately express their
understanding of the transaction. A real estate agent is a person qualified to
advise about real estate. If legal or tax advise is desired, consult a
competent professional.
(d) Further Disclosures. Throughout this transaction Buyer and Seller
may receive more than one disclosure, depending upon the number of agents
assisting in the transaction. Buyer and Seller should each read its contents
each time it is presented, considering the relationship between them and the
real estate agent in this transaction and that disclosure. Brokers have no
responsibility with respect to any default or breach hereof by either Party.
The liability (including court costs and attorneys' fees), of any Broker with
respect to any breach of duty, error or omission relating to this Agreement
shall not exceed the fee received by such Broker pursuant to this Agreement,
provided, however, that the foregoing limitation on each Broker's liability
shall not be applicable to any gross negligence or willful misconduct of such
Broker.
24.3 Confidential Information: Buyer and Seller agree to identify to
Brokers as "Confidential" any communication or information given Brokers that is
considered by such Party to be confidential.
25. Construction of Agreement. In construing this Agreement, all headings and
titles are for the convenience of the Parties only and shall not be considered a
party of this Agreement. Whenever required by the context, the singular shall
include the plural and vice versa. Unless otherwise specifically indicated to
the contrary, the word "days" as used in this Agreement shall mean and refer to
calendar days. This Agreement shall not be construed as if prepared by one of
the parties, but rather according to its fair meaning as a whole, as if both
Parties had prepared it.
26. Additional Provisions:
Additional provisions of this offer, if any, are as follows or are attached
hereto by an addendum consisting of paragraphs 27 through 29.
27. Buyer to have 30 days from Date of Acceptance (Contingency Period) to
inspect and approve all items under Contingencies No 9.1 thru 9.2. Item 9.3 is
not A PART OF THIS AGREEMENT. Items 9.4 and 9.5 ARE A PART OF THIS AGREEMENT.
28. This Agreement and sale is subject to Jafra's Board of Director's approval.
Said approval will be on or before October 20, 1999. Seller to provide phase I
report, plans, surveys, natural hazards report and any other documents currently
in their possession. Seller to guarantee lease back for a minimum of 6 months
from close of escrow at a rate of 1.20 psf (28,800.00 per month) and all
operating expenses and taxes over base rent.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE TRANSACTION TO WHICH
IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
AGREEMENT.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PROPERTY. SAID INVESTIGATION SHOULD
<PAGE>
INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES,
THE ZONING OF THE PROPERTY, THE INTEGRITY AND CONDITION OF ANY STRUCTURES AND
OPERATING SYSTEMS, AND THE SUITABILITY OF THE PROPERTY FOR BUYER'S INTENDED USE.
WARNING: IF THE PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
- --------
PROVISIONS OF THIS AGREEMENT MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF
THE STATE IN WHICH THE PROPERTY IS LOCATED.
NOTE:
1. THIS FORM IS NOT FOR USE IN CONNECTION WITH THE SALE OF RESIDENTIAL
PROPERTY.
2. IF THE BUYER IS A CORPORATION, IT IS RECOMMENDED THAT THIS AGREEMENT BE
SIGNED BY TWO CORPORATE OFFICERS.
The undersigned Buyer offers and agrees to buy the Property on the terms and
conditions stated and acknowledges receipt of a copy hereof.
BROKER: BUYER:
Young Realtors Selvin Properties
By: /s/Joan Young /Date/10-15-99 By: /s/Harry Selvin
Name Printed: Joan Young Name Printed: Harry Selvin
Title: President
By: /s/Joe Wilkins
Name Printed: Joe Wilkins
Title: Vice President
Address: 971 S. Westlake Blvd., No. 100
28. Acceptance.
28.1 Seller accepts the foregoing offer to purchase the Property and hereby
agrees to sell the Property to Buyer on the terms and conditions therein
specified.
28.2 Seller acknowledges that Brokers have been retained to locate a Buyer
and are the procuring cause of the purchase and sale of the Property set forth
in this Agreement. In consideration of real estate brokerage service rendered
by Brokers, Seller agrees to pay Brokers a real estate Brokerage Fee in a sum
equal to In Esc% of the Purchase Price divided in such shares as said Brokers
shall direct in writing. This Agreement shall serve as an irrevocable
instruction to Escrow Holder to pay such Brokerage Fee to Brokers out of the
proceeds accruing to the account of Seller at the Closing.
28.3 Seller acknowledges receipt of a copy hereof and authorizes Brokers to
deliver a signed copy to Buyer.
NOTE: A PROPERTY INFORMATION SHEET IS REQUIED TO BE DELIVERED TO BUYER BY
SELLER UNDER THIS AGREEMENT.
BROKER: SELLER
Young Realtors Jafra Cosmetics International, Inc.
By: /s/Joan Young /Date/10-15-99 By: /s/Daniel J. Burke
Name Printed: Joan Young Name Printed: Daniel J. Burke
Title: President Title: Associate General Counsel
Address: 2451 Townsgate Road
By: /s/Joe Wilkins Westlake Village, CA 91361
805-449-3004 805-449-3256
Name Printed: Joe Wilkins Telephone Facsimile
Title: Vice President Federal ID No. 13-3998453
Address: 971 S. Westlake Blvd., No. 100
<PAGE>
29. As modified by that certain letter agreement dated October 25, 1999 and
executed by the Seller, Buyer and Broker.
<PAGE>
October 25, 1999
Mr. Harry Selvin
Selvin Properties
280 E. Thousand Oaks Blvd.
Thousand Oaks, CA 91360
RE: Standard Offer, Agreement and Escrow Instructions For Purchase of Real
Property.
Dated October 15, 1999.
Property: 2393 Townsgate Rd., Westlake Village, CA 91361
Dear Mr. Selvin,
Jafra Cosmetics International, Inc., has approved the above referenced Offer,
subject to the following terms and conditions:
1. Review and approval by Jafra of Financial Statements for Selvin properties.
2. Jafra to lease back subject property from date of Close of Escrow to March
31, 2000, at a rate of $28,800.00 per month, plus all operating expenses,
including taxes, over the base rent. In the event Jafra extends the lease
term, the lease rate will be the same on a month to month basis.
3. Subject to Parties agreement of a formal Lease.
4. Buyer shall have the right to show the property "For Lease" during the
entire lease period.
5. Jafra to notify Buyer, in writing, no later than March 1, 2000, of Jafra's
intention to vacate the property or extend the lease term
6. Close of ESCROW to be on/or before December 17, 1999.
Sincerely,
/s/Joe Wilkins
Accepted: October 26, 1999 Accepted: October 26, 1999
Jafra Cosmetics International, Inc. Selvin Properties.
By: /s/Daniel J. Burke By: /s/Harry Selvin
Its: Associate General Counsel Its: Selvin Properties
<PAGE>
COMMISSION INSTRUCTIONS
Date: October 28, 1999
To: American Title Company
Escrow No: 11523-BAW
Property Address:
2393 Townsgate Rd., Westlake Village, CA 91361
From funds accruing to the account of the undersigned, upon the close of the
above numbered escrow only, for services rendered and commission due, you are to
pay the following persons and/or firms the following sums:
Young
Realtors...........................................................$137,200.00
971 Westlake Boulevard
Westlake Village, CA 91361
Attn: Joan Young
TOTAL COMMISSION BEING PAID .........................$137,200.00
I/WE HEREBY IRREVOCABLY ASSIGN TO THE BROKER(S) NAMED ABOVE A PORTION OF MY
SALES PROCEEDS IN AN AMOUNT EQUAL TO THE COMMISSION SET FORTH ABOVE. THIS
ASSIGNMENT PROVIDES FOR THE DISBURSEMENT OF SAID COMMISSION TO THE BROKER(S) BY
ESCROW HOLDER UPON CLOSE OF ESCROW. THESE ESCROW COMMISSION INSTRUCTIONS MAY
NOT BE AMENDED OR REVOKED WITHOUT THE WRITTEN CONSENT OF THE BROKER(S) HEREIN.
Jafra Cosmetics, Inc., a California corporation
By:________________________________ By:______________________________
Authorized Signature Authorized Signature
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CDRJ
INVESTMENTS (LUX) S.A. FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS THEN ENDED INCLUDED IN THE FORM 10-Q AS OF SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,568
<SECURITIES> 0
<RECEIVABLES> 32,136
<ALLOWANCES> 2,352
<INVENTORY> 28,688
<CURRENT-ASSETS> 80,529
<PP&E> 54,601
<DEPRECIATION> 4,277
<TOTAL-ASSETS> 274,496
<CURRENT-LIABILITIES> 52,740
<BONDS> 138,275
0
0
<COMMON> 1,660
<OTHER-SE> 69,800
<TOTAL-LIABILITY-AND-EQUITY> 274,496
<SALES> 206,729
<TOTAL-REVENUES> 206,729
<CGS> 58,310
<TOTAL-COSTS> 58,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,459
<INCOME-PRETAX> 7,864
<INCOME-TAX> 10,324
<INCOME-CONTINUING> (2,460)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,460)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
