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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to to
Commission File Number 333-62989
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CDRJ Investments (Lux) S.A.
(Exact name of Registrant as specified in its charter)
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<S> <C>
Luxembourg 98-0185444
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
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4 Boulevard Royal
L-2449 Luxembourg
Luxembourg
(352) 226027
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 12 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 10, 2000, the registrant had outstanding 830,659 shares of
common stock, par value $2.00 per share.
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CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
TABLE OF CONTENTS
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Item Description Page
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PART I
1. Business.......................................................... 1
2. Properties........................................................ 8
3. Legal Proceedings................................................. 8
4. Submission of Matters to a Vote of Security Holders............... 8
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 9
6. Selected Financial Data........................................... 10
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 12
7A. Quantitative and Qualitative Disclosures About Market Risk........ 23
8. Financial Statements and Supplementary Data....................... 26
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 63
PART III
10. Directors, Executive Officers and Significant Employees of the
Company.......................................................... 63
11. Executive Compensation............................................ 66
12. Security Ownership of Certain Beneficial Owners and Management.... 68
13. Certain Relationships and Related Transactions.................... 69
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 71
Signatures........................................................ 77
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PART I
ITEM 1. BUSINESS
General
CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme ("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.
Jafra is a manufacturer and marketer of premium skin and body care products,
color cosmetics, fragrances, and other personal care products. Jafra markets
its products through a direct selling, multilevel distribution system
comprised of self-employed salespersons (known as "sales representatives").
Jafra's business is comprised of one industry segment, direct selling, with
worldwide operations. Financial information relating to geographic areas is
incorporated by reference to the analysis of net sales and pretax income from
operations by geographic area in Note 11 to the financial statements included
herein.
Jafra was founded in 1956, as a California corporation, by Jan and Frank Day
and was purchased by Gillette in 1973. The Company expanded into Latin America
in 1977 and into Europe in 1978. 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
("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").
Strategy
The Company's strategy consists primarily of the following key initiatives:
Deploy Senior Management Team with Significant Direct Selling
Experience. Jafra's senior management team has an average of over 20 years of
direct selling industry experience, including various senior management
positions with Jafra competitors, Avon Products, Inc. ("Avon") and Mary Kay
Corporation ("Mary Kay"). Jafra believes that this management team will
continue to provide the dynamic leadership required to attract new sales
representatives and managerial talent, inspire new and existing sales
representatives to greater productivity, and execute the Company's new market
development strategy.
Grow Sales Representative Base in Existing Markets. Jafra plans to expand
its sales representative base in existing markets by (i) targeting expansion
into new geographic areas and demographic groups within the U.S. and Mexico,
(ii) ensuring that the commission and compensation structure remain
competitive while rewarding those who sponsor new sales representatives, (iii)
providing more training meetings and marketing communications materials for
sales representative managers, and (iv) initiating enhanced recognition
programs to motivate current as well as former or inactive sales
representatives.
Increase Sales Representative Productivity. The Company plans to continue to
focus on increasing the productivity, as measured by net resale sales per
active sales representative, of its existing sales representatives by (i)
revitalizing and upgrading the Company's product lines, (ii) offering an
improved "product selling
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proposition" that generates excitement by linking Company products to the
latest fashion trends and (iii) initiating improved marketing activities at
the point of sale, by providing sales representatives with enhanced product
training and promotional materials that emphasize the product selling
proposition.
Expand Internationally. The Company believes that its existing distribution
and manufacturing capabilities provide a strong platform for expansion into
new markets, which will allow it to diversify its revenue base. During 1999,
the Company began distributing products in Brazil and Chile. The Company
presently has operations in 12 countries outside the U.S. and in a number of
additional countries through distributors, although approximately 83% of the
Company's sales in 1999 were in the United States and Mexico. The Company
expects that it will be able to implement its new market development strategy
with limited additional capital expenditures and without diverting focus from
the Company's core markets. The Company intends to focus its expansion efforts
on markets that the Company believes (i) do not require high start-up costs,
such as markets contiguous to the Company's existing markets, (ii) have proven
to be receptive to direct selling techniques, (iii) demonstrate promising
economic demographics, including population size, growth of gross domestic
product and an expanding middle class, and (iv) evidence demand for quality
cosmetic products. The Company intends to expand into one market in the Asia
Pacific region in the latter half of 2000.
Utilize the Internet and Electronic Commerce to Augment Sales. The Company
plans to enhance its use of the Internet as a communications and order
fulfillment tool for its sales representatives. The Company believes that use
of the Internet as an order fulfillment tool by sales representatives will
result in better service to both the sales representatives and their customers
at a lower cost to the Company. Sales representatives will be able to submit
orders electronically, which reduces the potential for errors that may occur
when Company personnel enter orders manually. In addition, the Company intends
to provide potential new Jafra customers with the opportunity of placing
orders directly through its World Wide Web site, while still maintaining the
integrity of the sales representative lineage structure.
Improve Operating Efficiency. The Company continues to improve operating
efficiency through cost-cutting, better inventory management, and streamlining
of marketing efforts and product lines. In June of 1999, U.S. product
manufacturing functions were outsourced to a third party vendor, which
management expects to result in additional operating efficiencies.
Products
Jafra continuously introduces new and revitalized products based on changes
in consumer demand and technological advances in order to enhance the quality,
image and price positioning of its products. During 1999, the Company launched
52 new products and revised the formulas of seven existing products. Research
and development is conducted at the Jafra Skin, Body and Color Laboratory,
located in the Westlake Village facility. Amounts incurred on research
activities relating to the development of new products and improvement of
existing products were $2.1 million in 1999, $3.1 million in 1998, and $2.9
million in 1997.
Employees in the Research and Development Department formulate products and
analyze them for chemical purity and microbial integrity. A separate pilot
plant allows testing via small batch production prior to full scale
manufacture. Jafra continues to invest in the globalization and upgrading of
its product lines by adding new formulations and contemporary fragrances. In
addition, during 1999, the Company changed its corporate logo to build better
brand awareness and a fresh image and the packaging of the products was
updated accordingly. Through globalized product development, manufacturing and
packaging, Jafra believes that it has enhanced the consistency and quality of
its products in all geographic regions and across all product lines.
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The following table sets forth the sales of the Company's principal product
lines for the three years ended December 31, 1999, 1998 and 1997:
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1999 1998 1997
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Sales by Percentage Sales by Percentage Sales by Percentage
Product Line of total Product Line of total Product Line of total
($ in millions) sales ($ in millions) sales ($ in millions) sales
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Color Cosmetics ........ $ 81.3 28.0% $ 70.9 28.6% $ 66.9 29.1%
Fragrances ............. 76.4 26.3 47.3 19.0 40.8 17.8
Skin Care .............. 60.9 21.0 58.4 23.5 57.8 25.2
Personal Care .......... 35.6 12.3 46.5 18.7 34.9 15.2
Other (1) .............. 36.3 12.4 25.2 10.2 29.1 12.7
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Total ................ $290.5 100.0% $248.3 100.0% $229.5 100.0%
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(1) Includes sales aids (party hostess gifts, demonstration products, etc.)
and promotional materials.
Color. Jafra's range of color cosmetics for the face, eyes, lips, cheeks and
nails contribute significantly to Company results. The Company develops
internally its lipstick formulas, foundations and mascaras. In 1997, Jafra
launched its Always Color lipstick line, which competes with products
featuring the latest technology in long-wearing, transfer-resistant formulas
and has helped to revitalize the color line. Time Protector lipsticks,
launched in early 1998, feature contemporary colors with skin care benefits,
including sunscreen and antioxidants, as well as moisturizers and
conditioners. In 1999, the Company implemented a new color palette strategy
based increasingly on local, rather than global, color preferences.
Skin Care. Jafra sells personalized skin programs including cleansers,
masks, skin fresheners and moisturizers for day and night. In addition to
basic skin care products, Jafra offers a range of special care products for
special needs, including its premier product, Royal Jelly Milk Balm Moisture
Lotion, an Alpha Hydroxy complex (Rediscover) and products for maturing skin
(Advanced Time Protector and Time Corrector), eye care (Optimeyes) and extra
firming (Skin Firming Complex). All of these special care products use the
most recent advances in biotech ingredients.
Fragrance. Direct selling is a significant distribution channel for
fragrances, and Jafra's new scents have enabled the Company to participate on
an increasingly larger scale. In 1996, Jafra introduced Adorisse, a
contemporary women's fragrance, and Fm Force Magnetique, a prestige men's
fragrance. Jafra further extended its fragrance line in 1997 with Le Moire for
women and Legend for Men. In 1999, Jafra introduced Chosen, a prestige
fragrance for women, as well as a special 20th anniversary fragrance for the
Mexico market. The fragrance category includes line extensions such as body
lotions, shower gels, deodorants, after-shave lotions and shave creams for
some of the most popular fragrances.
Personal Care. Jafra markets a broad selection of body, bath, sun and
personal care products, including deodorants and shampoos. Jafra's premier
body care product, Royal Jelly Body Complex, contains "royal jelly" (a
substance produced by queen bees) in an oil-free deep moisturizing formula
with natural botanical extracts and vitamins. Other offerings in the body care
line include sunscreens, hand care lotions, contouring creams, revitalizing
sprays, and bath products. While Jafra varies its product offerings and
continues to develop new products, its Royal Almond and Precious Protein lines
have been top sellers for nearly forty years.
Marketing
Strategy and Product Positioning. Jafra positions its products to appeal to
a relatively wide range of market categories, demographic groups and
lifestyles. Jafra products generally price at the higher end of the mass
market category but slightly below prestige brands such as Clinique. As
compared to its direct selling competitors, Jafra prices in line with Mary
Kay, but higher than Avon, which targets the lower to middle mass market.
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Product Strategy. Jafra's product strategy is to provide customers with
exciting and prestige quality product lines that fit into Jafra's value-added
demonstration sales techniques and promote the sale of multiple products per
home visit. To that end, Jafra develops integrated products and actively
promotes cross-selling among categories, thus encouraging multi-product sales
and repeat purchases. Product variety and modernization are keys to the
Company's success. The Company believes it is on the cutting edge in
development of skin care formulations and in identification of fashion trends.
In formulation of color cosmetics, the Company employs a "fast follower"
product strategy which focuses the Company's development efforts on products
that have proven successful in the marketplace.
Marketing Material & Corporate Image. The Company generally does not
advertise, but supports its identity and corporate image through its energetic
network of sales representatives and favorable word-of-mouth that the Company
believes its products generate. The Company uses a sophisticated and
integrated promotional approach that includes meetings, marketing literature,
and the Internet to create strong corporate imagery and support the corporate
identity. In mid-1999, the Company revised its creative approach, achieving a
more contemporary look and further enhancing its brand personality. The
Company believes that its marketing expenses are far below those of its retail
competitors.
Independent Sales Force
Jafra's self-employed sales force comprised approximately 292,000 sales
representatives worldwide as of December 31, 1999, 55,000, 192,000, and 45,000
of which are in the U.S., Mexico, and Europe and South America combined,
respectively. These sales representatives are not agents or employees of
Jafra; they are independent contractors or dealers. They purchase products
directly from the Company and sell them directly to their customers.
More seasoned senior sales representatives, who have experience managing
their own sales representative networks, recruit and train the Company's field
level organization. Jafra sells substantially all of its products directly to
its sales representatives. Each sales representative conducts her Jafra sales
operations as a stand-alone business, purchasing Jafra goods and reselling
them to customers, as well as offering free personal care consultations. The
Company's independent sales force constitutes its primary marketing contact
with the general public.
Selling. The primary role of a Jafra sales representative is to sell Jafra
products. Although the majority of the Company's sales occur as a result of
person-to-person sales, the Company also encourages its sales representatives
to arrange sales parties at customers' homes. Sales parties permit a more
efficient use of a sales representative's time, allowing the sales
representative to offer products and cosmetic advice to multiple potential
customers at the same time, and provide a comfortable selling environment in
which clients can learn about skin care and sample the Jafra product line.
Such parties also provide an introduction to potential recruits and the
opportunity for referrals to other potential clients, party hostesses and
recruits.
Jafra does not require sales representatives to maintain any inventory. The
Company believes that the inventory requirements of other leading direct
sellers are often onerous to sales representatives. Instead, Jafra sales
representatives can wait to purchase products from the Company until they have
a firm customer order to fill. Sales representatives generally personally
deliver orders to their customers within one week of placement of an order. By
delivering products directly to the customer, the Jafra sales representative
creates an additional sales opportunity. The short-term delivery requirements
and the nature of the Company's business preclude any significant backlog.
Recruiting. The Company believes that it enjoys a competitive advantage in
recruiting sales representatives due to its lower start-up costs and its
policy of providing retail discounts even on small orders. Other major
attractions to prospective recruits include flexible hours, increased
disposable income, an attractive incentive program (including international
travel, national and regional meetings, awards and free products), personal
and professional recognition, social interaction, product discounts and career
development opportunities. The Company also emphasizes its commitment to sales
representatives' personal and professional training, thereby building sales
representatives' management and entrepreneurial skills.
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Sales Representative Management and Training. To become a manager, a sales
representative must sponsor a specified number of recruits and meet certain
minimum sales levels. The manager signs a manager's contract, and earns
commissions on her personal sales plus commissions on the sales of her
downline sales representatives. A manager continues to gain seniority in the
Jafra sales force by meeting the prescribed recruitment and sales requirements
at each level of management. At more senior levels, managers may have several
junior managers who in turn sponsor and manage other managers and sales
representatives. The most successful managers have many such downline managers
and sales representatives, and earn commissions on their personal sales plus
commissions on their downline group's sales.
Training for new sales representatives focuses first on the personalized
selling of the Jafra product line, beginning with skin care and the
administration of a Jafra business. Training is conducted primarily by the
Company's sales representative managers. Managers train their downline sales
representatives at monthly meetings using materials prepared by the Company.
In training managers, the Company seeks to improve leadership and management
skills, while teaching managers to motivate downline sales representatives to
higher sales levels.
Income Opportunities and Recognition. Sales representatives earn income by
purchasing products from Jafra at retail discounts and selling to consumers at
suggested retail prices. Once a sales representative becomes a manager, her
compensation also includes commissions on the wholesale value of paid sales
made by herself and her recruits. Commissions vary among markets. Jafra pays
commissions directly to managers on receipt of payment for the underlying
product sale. While this commission-based incentive system diminishes the
Company's profit margin on individual product sales, it results in increased
numbers of sales representatives selling Jafra products, which ultimately
earns greater profits for the Company.
The Company believes that public recognition of sales accomplishments serves
the dual purpose of identifying successful role models and boosting sales
representative morale. Each year Jafra sponsors major events in each of its
national markets to recognize and reward sales and recruiting achievements and
strengthen the bond between the independent sales force and the Company. Sales
representatives and managers must meet certain minimum levels of sales and new
sales representative sponsorship in order to receive invitations to attend
these events.
International Operations
Jafra's international operations are subject to certain customary risks
inherent in carrying on business abroad, including the risk of adverse
currency fluctuations, the effect of regulatory and legal restrictions imposed
by foreign governments, and unfavorable economic and political conditions.
Jafra's international operations are conducted primarily through
subsidiaries in 12 countries outside the United States and in a number of
additional countries through distributors. The Company's most important
markets to date have been Mexico, the United States, and Europe, which
represented approximately 59%, 24% and 11%, respectively, of total 1999 sales.
The Company intends to increase the number of markets in which it participates
and grow revenues in those markets in order to diversify its revenue base and
to minimize any adverse impact that a downturn in the Mexican economy would
have on the Company given the increasingly large percentage of sales
attributable to the Mexican market. The Company has entered into foreign
currency forward exchange contracts to mitigate the risk of potential currency
devaluation in Mexico. See "Quantitative and Qualitative Disclosures About
Market Risk--Foreign Currency Risk."
Manufacturing
Jafra has a manufacturing facility in Naucalpan, Mexico, which is near
Mexico City. This facility produces color cosmetics and most fragrances. Until
June of 1999, the Company produced skin care and personal use products at its
Westlake Village, California manufacturing facility. In June of 1999, the
Company outsourced its U.S. product manufacturing functions to a third party
contractor (the "Contractor").
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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
inventories, manufacturing the inventories at its current location in Chino,
California, complying with applicable laws and regulations, and performing
quality assurance functions.
The Company purchases from other third party suppliers certain finished
goods and raw materials for use in its manufacturing operations. In general,
the Company does not have written contracts with its other suppliers. Finished
goods and raw materials used in the Company's products, such as glass,
plastics, and chemicals, generally are available stock items or can be
obtained to Company specifications from more than one potential supplier.
Distribution
The Company uses twelve distribution centers around the world, seven of
which are operated by Company personnel and five of which are outsourced. The
U.S. warehouses in Bridgeport, New Jersey and Westlake Village, California
currently stock the entire Jafra product line. In Mexico, the Company has
outsourced virtually all of its distribution to third parties. Management
believes that its facilities are adequate to meet global demand for the
foreseeable future.
Typically, owned or leased distribution centers are located in an area that
allows for direct delivery to sales representatives by either post or carrier.
Maintaining a short delivery cycle in direct selling is an important
competitive advantage.
Competition
Jafra sells all of its products in highly competitive markets. The principal
bases of competition in the cosmetics direct selling industry are price,
quality and range of product offerings. On the basis of information available
to it from industry sources, management believes that there are over a
thousand companies (including both direct sales and cosmetic manufacturing
companies) that sell products that compete with Jafra's products. Several
direct sales companies compete with Jafra in sales of cosmetic products, and
at least two such competitors, Mary Kay and Avon, are substantially larger
than Jafra in terms of total independent salespersons, sales volume and
resources. In addition, Jafra's products compete with cosmetics and toiletry
items manufactured by cosmetic companies that sell their products in retail or
department stores. Several of such competitors are substantially larger than
Jafra in terms of sales and have substantially more resources. Jafra also
faces competition in recruiting independent salespersons from other direct
selling organizations whose product lines may or may not compete with Jafra's
products.
Jafra believes that its senior management team with a strong direct selling
track record, motivated and loyal direct sales force, prestige quality product
lines, product development capabilities, geographic diversification, short
delivery cycle, and manufacturing technology are significant factors in
establishing and maintaining its competitive position.
Patents and Trademarks
Jafra's operations do not depend to any significant extent upon any single
trademark other than the Jafra trademark. Some of the trademarks used by
Jafra, however, are identified with and important to the sale of Jafra's
products. Jafra's most important trademarks are: Adorisse (a contemporary
women's fragrance), Chosen (a
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premium women's fragrance), Eau D'Aromes (revitalizing fragrance spray), Fm
Force Magnetique (a men's prestige fragrance), Legend for Men (a men's premium
fragrance), Le Moire (a contemporary women's fragrance), Optimascara
(mascara), Optimeyes (eye treatment lotion), Rediscover (skin cream with Alpha
Hydroxy), Royal Jelly Body Complex (body lotion), Royal Jelly Milk Balm
Moisture Lotion (moisturizing lotion), Time Corrector (skin cream) and Time
Protector (skin cream). Jafra's operations do not depend to any significant
extent on any single or related group of patents, although the Company has
applied for or received patent protection in its major markets for certain
skin creams, dispensers and product containers, nor do they rely upon any
single or related group of licenses, franchises or concessions. Jafra has in
the past licensed know-how from Gillette relating to the design, development
and manufacture of its products and is permitted to continue to use such know-
how in connection with its products.
In 1998, a former employee of Gillette filed applications to register the
Jafra trademark in Algeria, Bangladesh, China, Cyprus, Egypt, Gambia, Ghana,
Guyana, India, Kenya, Malawi, Morocco, Nigeria, OAPI, Pakistan, Sierra Leone,
Syria, Sudan, Surinam, Tanzania, Tunisia, Zambia, and Zimbabwe, jurisdictions
in which Jafra does not currently operate. In 1998, Gillette obtained a court
order prohibiting this employee from transferring or licensing such trademark
applications and registrations and requiring that the trademark applications
and registrations be assigned to Gillette. The documentation has been
transferred to Jafra. Jafra is in the process of filing the documents obtained
by Gillette to cause the abandonment of this former employee's applications
and the cancellation of this former employee's registrations in those
jurisdictions in which the Gillette documentation will be accepted. Jafra is
attempting to secure the abandonment and cancellation of all of the
applications and registrations in jurisdictions where such applications and
registrations will not expire without action on the part of Jafra. If Jafra is
not able to secure cancellations or abandonment of the applications and
registrations in these jurisdictions, Jafra may be prohibited from
distributing its products in such jurisdictions, or may face significant costs
in establishing its right to do so.
Management Information Systems
Historically, each marketing region within Jafra handled its own computing
systems, staffing and development, leading to the development of disparate
functionality and standards. Previous plans to replace the commercial systems
in Jafra's key markets during 1999 were deferred until the latter part of 2000
and 2001 so the Company could devote the necessary resources to the ensure
that Year 2000 compliance and other business initiatives were achieved. During
1999, the Company redefined its Internet strategy and began to develop and
implement an e-commerce system that is expected to be operational by the
middle of 2000. During the latter part of 2000 and throughout 2001, the
Company intends to equip each of its major markets with a local integrated
marketing system, a global Distributed Resource Planning (DRP) system, and a
new commercial system that is tailored to comply with local regulatory demands
as well as unique aspects of each market.
Seasonality
The Company's sales in the fourth quarter of the year are typically higher
than in the other three quarters of the year due to seasonal holiday
purchases. Fourth quarter net sales were approximately 29% of total net sales
in both 1999 and 1998. Excluding net non-recurring charges of approximately
$0.7 million in 1999, consisting of restructuring and impairment charges of
approximately $1.7 million offset by a gain of approximately $1.0 million on
the sale of assets, fourth quarter operating profit was 41 percent and 31
percent of total operating profit in 1999 and 1998, respectively.
Environmental Matters
The Company is subject to various federal, state, local and foreign laws or
regulations governing environmental, health and safety matters. The Company
believes that it is in material compliance with all such laws and regulations
and under present conditions the Company does not foresee that such laws and
regulations will have a material adverse effect on capital expenditures,
earnings or the competitive position of the Company.
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Employees
As of December 31, 1999, the Company had 762 full-time employees, of which
228 were employed in the U.S. and 534 in other countries. On a functional
basis, 106 were in manufacturing, warehousing, distribution and technical
operations, 455 were in sales and marketing, and 201 were in administration.
The Company also had 295 outside contract employees.
ITEM 2. PROPERTIES
The Company is headquartered and maintains a warehouse and distribution
facility in Westlake Village, California, 40 miles north of Los Angeles.
Manufacturing is done on a global basis for the color and fragrance product
lines at the Company's facility in Naucalpan, Mexico. The Westlake Village,
California and Naucalpan, Mexico facilities are owned by the Company, except
for a small portion of the Naucalpan facility that is leased. In addition, the
Company leases certain distribution facilities, sales offices and service
centers to facilitate its operations globally. The Company's properties are
suitable and adequate to meet its current and anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
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 operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for Parent common stock (the
"Common Stock"). Prior to September 30, 1998, the only holders of the Common
Stock were CD&R Fund V and Messrs. Clark, Rubio, and Ralph S. Mason, III. On
September 30, 1998, certain members of management, certain directors and other
persons purchased an aggregate of 40,437 shares of the Common Stock in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended. On October 1, 1999, a former member of management exercised
579 options to purchase Common Stock, then sold a total of 2,317 shares of
Common Stock back to the Company. On November 19, 1999, certain members of
management and a director purchased an aggregate of 2,457 shares of the Common
Stock. All of these transactions were exempt from the registration
requirements of the Securities Act of 1933, as amended. See "Security
Ownership of Certain Beneficial Owners and Management." No dividends have been
paid by Parent on its shares of the Common Stock nor does Parent expect to pay
dividends on its Common Stock in the foreseeable future. The declaration and
payment of future dividends, if any, will be at the sole discretion of the
Board of Directors of Parent, subject to the restrictions set forth in the
Senior Credit Agreement and the indenture for its Senior Subordinated Notes
(the "Indenture"), which currently restrict the payment of cash dividends to
stockholders, and restrictions, if any, imposed by other indebtedness
outstanding from time to time. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources."
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company, as
described in Note 1 of the consolidated financial statements appearing
elsewhere herein (amounts in millions except for sales representative data).
The audited financial statements for the year ended December 31, 1999, the
eight months ended December 31, 1998, the four months ended April 30, 1998,
and the year ended December 31, 1997 and as of December 31, 1999 and 1998
appear elsewhere herein, and the related selected financial data should be
read in conjunction with such statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." All
other financial data presented has been derived from audited financial
statements of the Company which are not included herein. The financial data
prior to April 30, 1998 reflect the Jafra Business prior to the Acquisition
and are referred to as the "Predecessor" operations.
<TABLE>
<CAPTION>
Predecessor
----------------------------------------
Eight Months Four Months
Year Ended Ended Ended Year Ended December 31,
December 31, December 31, April 30, ----------------------------
1999 1998 1998 1997 1996 1995
------------ ------------ ----------- -------- -------- --------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ 290.5 $ 171.0 $ 77.3 $ 229.5 $ 224.5 $ 218.4
Cost of sales(a)........ 82.3 56.3 22.7 68.6 58.2 54.3
-------- -------- -------- -------- -------- --------
Gross profit............ 208.2 114.7 54.6 160.9 166.3 164.1
Selling, general and
administrative
expenses(a) ........... 174.8 107.4 49.2 140.5 150.5 145.0
Restructuring and other
non-recurring
charges(b)............. 4.8 -- -- 0.4 6.1 9.6
Loss (gain) on sale of
assets................. (1.0) 0.2 -- (0.1) -- --
-------- -------- -------- -------- -------- --------
Income from operations.. 29.6 7.1 5.4 20.1 9.7 9.5
Other income (expense):
Exchange gain (loss).. 3.3 (1.8) 1.4 0.3 -- 25.5(c)
Interest income
(expense), net....... (16.9) (11.5) 0.1 0.3 0.8 4.3
Other, net............ 0.1 (0.1) 0.1 (0.5) (0.5) (0.4)
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 16.1 (6.3) 7.0 20.2 10.0 38.9
Income taxes............ 10.9 1.7 2.9 4.8 2.6 6.1
-------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item..... 5.2 (8.0) 4.1 15.4 7.4 32.8
Extraordinary loss on
early extinguishment of
debt, net of income tax
benefit of $0.2........ 0.6 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....... $ 4.6 $ (8.0) $ 4.1 $ 15.4 $ 7.4 $ 32.8
======== ======== ======== ======== ======== ========
Balance Sheet Data (at
end of period):
Cash and cash
equivalents............ $ 4.9 $ 18.4 $ 10.2 $ 8.7 $ 7.5
Total working capital... 34.2 22.9 22.6 24.4 49.4
Property and equipment,
net.................... 50.6 56.2 43.7 41.8 43.7
Total assets............ 278.4 288.6 175.2 164.5 203.1
Total debt.............. 133.5 141.5 8.5 -- --
Stockholders' equity.... $ 75.8 $ 75.4 $ 77.3 $ 78.6 $ 108.7
Other Financial Data:
EBITDA(d)............... $ 36.8 $ 12.1 $ 6.9 $ 24.0 $ 12.5 $ 11.9
Net cash provided by
(used in) operating
activities............. (1.6) 18.1 (8.0) 26.7 2.8 27.5
Net cash provided by
(used in) investing
activities............. (3.1) (211.1) 2.5 (5.8) (4.5) (13.9)
Net cash provided by
(used in) financing
activities............. (7.4) 211.7 (8.8) (19.0) 5.0 (13.4)
Depreciation and
amortization........... 7.1 5.1 1.4 4.4 3.3 2.8
Amortization of deferred
financing fees......... 1.8 1.4 -- -- -- --
Capital expenditures.... 5.8 6.4 6.1 8.9 10.3 20.3
Total sales
representatives........ 292,000 247,600 220,000 220,800 208,500 216,700
Active sales
representatives........ 137,000 116,000 109,000 104,000 102,000 98,000
Sales representative
productivity(e)........ $ 1,891 $ 1,928 $ 1,928 $ 1,966 $ 1,056 $ 1,008
</TABLE>
10
<PAGE>
- --------
(a) Cost of sales for the eight months ended December 31, 1998 includes a $2.7
million charge relating to the sale of certain inventories that were
revalued to fair value in conjunction with the Acquisition. Certain sales
promotional and manufacturing expenses which were previously reported as
selling, general and administrative expenses have been reclassified to
cost of sales to conform to the current period presentation. Total amounts
that have been reclassified are $5.5 million, $2.4 million and $9.5
million for the eight-month period ended December 31, 1998, the four-month
period ended April 30, 1998 and the year ended December 31, 1997,
respectively.
(b) Restructuring and other non-recurring charges include the following: for
1999, approximately $3.7 million of restructuring charges and
approximately $1.1 million of asset impairment charges; for 1997, net
reorganization charges of $3.5 million that were partially offset by a
cash recovery of $2.3 million resulting from the settlement of a legal
action brought by the Company against a computer systems contractor for
which a $5.4 million charge was taken in 1996, and a gain of $0.8 million
relating to the sale of a facility that had previously been written-off;
for 1996, a $5.4 million non-cash charge for the write-off of certain
computer systems and related costs, and net reorganization charges of $0.7
million; and for 1995, net reorganization charges of $9.6 million.
(c) Exchange gain (loss) for 1995 includes a $25.5 foreign exchange gain in
Jafra S.A. resulting from having had U.S. dollar denominated intercompany
receivables from affiliates at the time of the December 1994 peso
devaluation.
(d) EBITDA is defined as income or loss before income taxes, net interest
expense, exchange gains and losses, depreciation and amortization, and
extraordinary items. The Company believes that EBITDA provides useful
information regarding the Company's ability to service debt but should not
be considered in isolation or as a substitute for the statement of
operations or cash flow data prepared in accordance with the generally
accepted accounting principles and included elsewhere in this Form 10-K or
as a measure of the Company's operating performance, profitability or
liquidity. While EBITDA is frequently used as a measure of operations and
the ability to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies due to
differences and methods of calculation.
(e) For the years 1996 and 1995, the Company defined sales representative
productivity as net sales in U.S. dollars per average sales
representative. For the years 1999, 1998 and 1997, the Company defines
sales representative productivity as resale sales in U.S. dollars per
active sales representative. In general, sales representatives are
considered to be active if they place at least one order within four
months. Full year 1998 sales representative productivity is shown for
comparability purposes.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations, financial condition
and liquidity of the Company should be read in conjunction with the
information contained in the consolidated financial statements and notes
thereto included elsewhere in this Form 10-K. These statements have been
prepared in conformity with generally accepted accounting principles and
require management to make estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes. Actual
results could differ from these estimates.
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 operations of the Company for the year ended December 31,
1999, the combined operations of the Predecessor and the Company for the year
ended December 31, 1998, and the operations of the Predecessor for 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
Predecessor
-------------
1999 1998(1)(2) 1997(2)
------------- -------------- -------------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $290.5 100.0% $ 248.3 100.0% $229.5 100.0%
Cost of sales................... 82.3 28.3 79.0 31.8 68.6 29.9
------ ----- ------- ----- ------ -----
Gross profit.................... 208.2 71.7 169.3 68.2 160.9 70.1
Selling, general and
administrative expenses........ 174.8 60.2 156.6 63.1 140.5 61.2
Restructuring and impairment
charges........................ 4.8 1.7 -- 0.0 0.4 0.2
Loss (gain) on sale of assets... (1.0) (0.4) 0.2 0.1 (0.1) (0.1)
------ ----- ------- ----- ------ -----
Income from operations.......... 29.6 10.2 12.5 5.0 20.1 8.8
Exchange gain (loss)............ 3.3 1.1 (0.4) (0.1) 0.3 0.1
Interest income (expense), net.. (16.9) (5.8) (11.4) (4.6) 0.3 0.1
Other income (expense), net..... 0.1 0.0 -- 0.0 (0.5) (0.2)
------ ----- ------- ----- ------ -----
Income before income taxes...... 16.1 5.5 0.7 0.3 20.2 8.8
Income tax expense.............. 10.9 3.7 4.6 1.9 4.8 2.1
------ ----- ------- ----- ------ -----
Net income (loss) before
extraordinary item............. 5.2 1.8 (3.9) (1.6) 15.4 6.7
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $0.2..... 0.6 0.2 -- 0.0 -- 0.0
------ ----- ------- ----- ------ -----
Net income (loss)............... $ 4.6 1.6% $ (3.9) (1.6)% $ 15.4 6.7%
====== ===== ======= ===== ====== =====
Statement of Cash Flows Data:
Net cash provided by (used in)
operating activities........... $ (1.6) $ 10.1 $ 26.7
Net cash used in investing
activities..................... (3.1) (208.6) (5.8)
Net cash (used in) provided by
financing activities........... (7.4) 202.9 (19.0)
Effect of exchange rate changes
on cash........................ (1.4) (0.9) (0.3)
Effect of accounting calendar
change on cash................. -- 6.3 --
------ ------- ------
Net increase (decrease) in
cash........................... $(13.5) $ 9.8 $ 1.6
====== ======= ======
</TABLE>
- -------
(1) Pursuant to the terms of the Acquisition, the Company was acquired by
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 and cash flows for the year ended December 31,
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 eight months ended December 31, 1998.
(2) Certain sales promotional and manufacturing expenses which were previously
reported as selling, general and administrative expenses have been
reclassified to cost of sales to conform to the current period
presentation. Total amounts that have been reclassified are $7.9 million
and $9.5 million for the years ended December 31, 1998 and 1997,
respectively. In addition, restructuring charges and loss (gain) on sale
of assets, which were previously included in selling, general and
administrative expenses and other income (expense), respectively, have
been separately disclosed in the accompanying consolidated statements of
operations for the eight months ended December 31, 1998 and the year ended
December 31, 1997 to conform to current period presentation.
12
<PAGE>
Year ended December 31, 1999 compared to the year ended December 31, 1998
Net sales. Net sales for 1999 increased to $290.5 million from $248.3
million in 1998, an increase of $42.2 million, or 17.0%. Sales in local
currencies for 1999 increased by 23.6% over 1998. The sales in local
currencies were higher than the increase measured in U.S. dollars, primarily
as a result of a weaker average exchange rate for the Mexican peso when
measured against the U.S. dollar in 1999 as compared to 1998. The Company's
1999 average number of sales representatives worldwide increased to
approximately 275,000, or 19.6%, over the 1998 average. The Company defines
sales representative productivity as resale sales in U.S. dollars per active
sales representative. In general, sales representatives are considered to be
active if they place one order within four months. The Company's sales
representative productivity decreased 1.9% in 1999.
In Mexico, net sales for 1999 increased to $171.5 million from $118.6
million in 1998, an increase of $52.9 million, or 44.6%. Sales in Mexico in
local currency increased by 53.7% over 1998. The significant year to year
increase was driven by the larger sales representative base, product price
increases, the introduction of new products and increased productivity of
sales representatives. In Mexico, the 1999 average number of sales
representatives increased to approximately 180,000, or 32.7% over the 1998
average. Sales representative productivity in Mexico increased 7.3% in 1999.
In the U.S., net sales for 1999 decreased to $70.7 million from $74.3
million in 1998, a decrease of $3.6 million, or 4.8%. Low margin sales to a
third party manufacturer in 1999 and 1998 were $1.2 million and $3.1 million,
respectively. Excluding the impact of these sales, net sales in the U.S. for
1999 decreased 2.4%, primarily due to small decreases in the number and
productivity of sales representatives. In the U.S., the 1999 average number of
sales representatives decreased to approximately 56,000, or 2.1% below the
1998 average. Sales representative productivity in the U.S. decreased 0.7% in
1999.
In Europe, net sales for 1999 decreased to $32.5 million from $40.2 million
in 1998, a decrease of $7.7 million, or 19.2%. Contributing to the sales
decline was an unfavorable exchange rate impact on sales of $1.3 million.
Excluding the exchange rate impact, net sales decreased 15.9%, also due in
part to decreases in the number and productivity of sales representatives. In
Europe, the 1999 average number of sales representatives decreased to
approximately 18,000, or 8.7% under the 1998 average. Sales representative
productivity in Europe decreased 5.6% in 1999.
Gross profit. Gross profit in 1999 increased to $208.2 million from $169.3
million in 1998, an increase of $38.9 million, or 23.0%. Gross profit as a
percentage of sales (gross margin) increased to 71.7% from 68.2%. Cost of
sales for 1998 included a $2.7 million charge related to the sale of certain
inventories, primarily in Mexico, that were revalued in conjunction with the
Acquisition. Additionally, low margin third party sales in the U.S. in 1999
and 1998 were $1.2 million and $3.1 million, respectively. Excluding the
effects of these items, adjusted gross margin was 72.0% and 70.1% for 1999 and
1998, respectively.
In Mexico, the increased margin was due to a combination of product price
increases, manufacturing efficiencies related to increased volume, cost
control measures and the management of product mix. In the U.S., the margin
improvement was due primarily to a combination of lower discounting on
promotional sales, product price increases, and a more favorable sales mix
which included fewer low margin third party sales. Additionally, the cost
efficiencies gained in the second half of 1999 as a result of the outsourcing
of the manufacturing facility increased the U.S. gross margin for the year by
approximately 100 basis points (one percent of sales). In Europe, margins
improved due to product cost reductions and a more favorable sales mix in
1999.
Selling, general and administrative expenses. SG&A expenses in 1999
increased to $174.8 million from $156.6 million in 1998, an increase of $18.2
million, or 11.6%. SG&A as a percentage of net sales decreased in 1999 to
60.2% from 63.1% for 1998.
In Mexico, SG&A expenses increased to $75.1 million from $56.3 million in
1998, an increase of $18.8 million, or 33.4%. The increased SG&A in Mexico
related primarily to sales promotions, commissions
13
<PAGE>
and administrative expenses incurred to support growing sales. In addition,
Mexico incurred $0.7 million of incremental expenses for amortization of
goodwill and trademarks as a result of the Acquisition, representing a full
year of amortization in 1999 versus eight months in 1998. In the U.S., SG&A
expenses in 1999 increased to $42.9 million from $42.6 million in 1998, an
increase of $0.3 million, or 0.7%. The U.S. incurred $0.5 million of
incremental expenses for amortization of goodwill and trademarks in 1999 as a
result of the Acquisition, representing a full year of amortization in 1999
versus eight months in 1998. Excluding those expenses, the SG&A spending in
the U.S. actually declined by $0.2 million in 1999. In Europe, SG&A expenses
in 1999 decreased to $25.8 million from $30.5 million in 1998, a decrease of
$4.7 million, or 15.4%, due to a combination of lower variable expenses
related to lower sales levels, and expense controls. Corporate expenses in
1999 increased to $17.4 million from $14.0 million, an increase of $3.4
million, or 24.3%, primarily as a result of increased personnel costs of the
post-Acquisition management team.
Restructuring and impairment charges. In 1999, the Company recorded
approximately $3.7 million of restructuring charges and approximately $1.1
million of asset impairment charges. The restructuring charges consisted of
approximately $2.7 million of charges related to the outsourcing of the
Company's U.S. product manufacturing functions, and approximately $1.0 million
of other restructuring activities in the U.S., Europe and Mexico.
Substantially all of the charges related to severance costs.
Also in 1999, the Company recognized an asset impairment charge of
approximately $1.1 million relating to long-lived assets (goodwill and
trademarks) owned by its German subsidiary ("Jafra Germany"). In the fourth
quarter of 1999, concurrent with the Company's annual business planning
process, the Company recognized that sales levels in Jafra Germany had
declined more than anticipated since the Acquisition. The Company performed an
impairment review and concluded that Jafra Germany's future undiscounted cash
flows were below the carrying value of its related long-lived assets.
Accordingly, the Company recorded a noncash impairment loss of approximately
$1.1 million to adjust the carrying values of Jafra Germany's goodwill and
trademarks to their estimated fair values, which were determined based on
anticipated future cash flows discounted at a rate commensurate with Jafra
Germany's weighted average cost of capital.
Loss (gain) on sale of assets. Gain on sale of assets increased to $1.0
million in 1999 from a loss of $0.2 million in 1998, an increase of $1.2
million. The increase was primarily due to the $1.0 million gain on sales of a
parcel of property and an office building in the U.S. in the fourth quarter of
1999.
Exchange gain (loss). The Company's foreign exchange gain in 1999 increased
to $3.3 million from an exchange loss of $0.4 million in 1998. The 1999
exchange gain was primarily due to $3.7 million of exchange gains generated by
Mexico, partially offset by exchange losses in Europe of $0.4 million. In
Mexico, exchange gains during 1999 related primarily to the remeasurements and
repayments of U.S. dollar-denominated debt as the peso strengthened against
the dollar. During 1998, 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.
Interest expense. During 1999, the Company incurred $16.9 million of
interest expense (including amortization of certain deferred financing fees)
related to the debt incurred in conjunction with the Acquisition. Prior to the
Acquisition, the Company was not leveraged, and accordingly, the 1998 expense
included only eight months of Acquisition-related interest expense. During
1999, the Company obtained a Consent and Waiver to the Senior Credit Agreement
that allowed the Company to repurchase the Notes in the open market from time
to time, up to an aggregate amount of $25.0 million, and the Company
repurchased a portion of its Notes with a face value of $14.0 million prior to
maturity. In the first quarter of year 2000 the Company repurchased and
retired additional Notes with a face value of $10.3 million prior to maturity.
The repurchased Notes were replaced with lower cost debt under the Revolving
Credit Facility. The Company expects to save approximately $1.0 million in
interest expense in 2000 as a result of these debt restructuring activities.
14
<PAGE>
Income tax expense. Income tax expense increased to $10.9 million in 1999
from $4.6 million in 1998, an increase of $6.3 million. The increased income
tax expense for 1999 is primarily the result of higher taxable income
generated by the Company's Mexican subsidiary in 1999 as compared to 1998. In
1999, the Company's effective tax rate was 67.7%, while in 1998, the Company
had a 657% effective tax rate due to valuation allowances recorded against
operating losses in the U.S. and Europe. In 1999, the Company was able to
utilize a portion of operating losses previously recorded in the U.S., and the
Company expects its effective tax rate to decrease in year 2000 due to the
ability to utilize additional net operating losses in the U.S.
Net income (loss). Net income increased to $4.6 million in 1999 from a net
loss of $3.9 million in 1998, an increase of $8.5 million. The increase was
primarily due to a $38.9 million increase in gross profit, a $3.7 million
increase in exchange gains, and a $1.2 million increase in loss (gain) on sale
of assets, partially offset by a $18.2 million increase in SG&A expenses, the
$4.8 million restructuring and impairment charges incurred in 1999, a $5.5
million increase in interest expense resulting from the Acquisition, a $6.3
million increase in income tax expense, and a $0.6 million extraordinary loss,
net of tax, on early extinguishment of debt.
Year ended December 31, 1998 compared to the year ended December 31, 1997
Reclassification. Certain sales promotional and manufacturing expenses which
were previously reported as selling, general and administrative expenses have
been reclassified to cost of sales to conform to the current period
presentation. Total amounts that have been reclassified are $7.9 million and
$9.5 million for the years ended December 31, 1998 and 1997, respectively. In
addition, restructuring charges and loss (gain) on sale of assets, which were
previously included in selling, general and administrative expenses and other
income (expenses), respectively, have been separately disclosed in the
accompanying consolidated statements of operations for the eight months ended
December 31, 1998 and the year ended December 31, 1997 to conform to current
period presentation.
Net sales. Net sales for 1998 increased to $248.3 million from $229.5
million in 1997, an increase of $18.8 million, or 8.2%. The Company's average
number of sales representatives worldwide increased to approximately 230,000,
or 11.9%, over the 1997 average. Productivity, defined as resale sales in U.S.
dollars per active sales representative, declined 1.9% on a worldwide basis,
principally due to weak sales in Europe and the impact of the decline in the
peso to U.S. dollar exchange rate. In the U.S., net sales increased 5.2% to
$74.3 million in 1998 from $70.6 million in 1997, while the average number of
sales representatives increased to approximately 57,000 or 11.9% over the 1997
average. Approximately $2.5 million of the U.S. sales increase consisted of
low-margin sales to a former affiliated third party manufacturer during the
transition period following the Acquisition, while the remainder of the
increase was due to growth in the sales representative base. In Latin America,
net sales increased to $133.8 million in 1998 from $112.1 million in 1997, an
increase of $21.7 million, or 19.4%, while the number of sales representatives
increased to approximately 172,900, or 17.9%. The majority of the increase in
Latin American sales came from Mexico, where net sales increased $21.0
million, or 21.5%, and the average sales representative base increased to
approximately 135,000, or 17.3% over the 1997 average. Sales in Mexico in
local currency increased by 42.5% over the prior year due to the larger sales
representative base, product price increases, the Company's successful annual
convention and the introduction of new products. Sales in Europe declined
14.1% to $40.2 million in 1998 from $46.8 million in 1997, due primarily to
the decline in the average number of sales representatives in Europe to
approximately 19,000, down 9.7% from 1997.
Gross profit. Gross profit in 1998 increased to $169.3 million from $160.9
million in 1997, an increase of $8.4 million, or 5.2%. Gross profit as a
percentage of sales (gross margin) decreased to 68.2% from 70.1%. The decrease
in gross margin was due principally to the effects of accounting for the
Acquisition and low-margin sales to a formerly affiliated third-party
manufacturer during the transition period following the Acquisition. Cost of
sales for 1998 included a $2.7 million charge relating to the sale of certain
inventories that were revalued in conjunction with the Acquisition. In
addition, $2.5 million of incremental sales in 1998 were made to a former
Gillette affiliate that assisted in the production process and sold certain
products to the Company's Mexican
15
<PAGE>
subsidiary. These U.S. sales were made subsequent to the Acquisition on a
cost-recovery basis with no profit. Excluding the effects of these items,
adjusted gross margin for 1998 was 70.0%, virtually unchanged from the prior
year.
Selling, general & administrative expenses. SG&A expenses in 1998 increased
to $156.6 million from $140.5 million in 1997, an increase of $16.1 million,
or 11.5%. SG&A as a percentage of net sales increased in 1998 to 63.1% from
61.2% for 1997. The primary reason for the increase in SG&A was a $8.6 million
increase in promotional expense, relating primarily to markets which have
experienced sales growth. Additionally, as a result of the Acquisition, 1998
SG&A expenses included $2.1 million of amortization of goodwill and
trademarks. Excluding the acquisition-related amortization from 1998, SG&A as
a percentage of sales for 1998 was 62.2%.
Restructuring and impairment charges. Restructuring and impairment charges
in 1997 of $0.4 million were comprised of reorganization costs of $3.5
million, that were partially offset by recovery through litigation of $2.3
million of costs in the U.S. relating to an improper installation of certain
proprietary computer systems, and a gain of $0.8 million in Mexico on the sale
of a facility which had previously been written off.
Exchange gain (loss). The Company's foreign exchange loss in 1998 was $0.4
million compared to a gain of $0.3 million in 1997, a decrease of $0.7
million, primarily due to foreign currency transaction losses in Mexico.
During 1998, 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.
Interest expense. During 1998, the Company incurred $11.4 million of
interest expense (including amortization of certain financing costs) related
to the debt incurred in conjunction with the Acquisition. Prior to the
Acquisition, the Company was not leveraged.
Other income (expense). Other income (expense) in 1998 was zero compared to
an expense of $0.5 million in 1997. Other expense in 1997 consisted of
miscellaneous non-operating items.
Income tax expense. Income tax expense decreased $0.2 million to $4.6
million in 1998 from $4.8 million in 1997. In 1998, the Company provided
valuation allowances against net operating losses in the U.S. and Europe which
had the impact of significantly increasing the effective tax rate. In
addition, the 1997 effective tax rate in Mexico was abnormally low due to
favorable permanent differences relating to the tax treatment of certain peso-
denominated inflationary items.
Net income (loss). Net income (loss) decreased $19.3 million to a $3.9
million loss in 1998 from $15.4 million of income in 1997. This decrease was
due principally to $11.7 million of increased net interest expense in 1998 as
a result of the new debt structure, the $2.7 million increase in cost of sales
resulting from the revaluation of inventories in connection with the
Acquisition, the absence of margin on $2.5 million of incremental sales made
in 1998 to a former Gillette affiliate who assisted in the production process
and sold certain products to the Company's Mexican subsidiary, and $2.1
million in increased goodwill and trademark amortization In addition, the
Company's effective tax rate increased significantly due to valuation
allowances provided against net operating losses in the U.S. and Europe.
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, $41.5 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
16
<PAGE>
of management, certain directors and other persons. The purchase price for the
Jafra Business, after final adjustments determined in 1999, was approximately
$212.4 million (excluding $12.0 million of financing fees and expenses),
consisting of $202.5 million in cash and $9.9 million of Acquisition fees.
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 (subsequently
reduced in 1999 and 2000 by the repurchases described below), 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 through April 30, 2004.
Scheduled term loan principal payments under the Term Loan Facility will be
approximately $3.5 million, $4.5 million, $5.5 million, $6.5 million, and $2.5
million for each of the years from 2000 through 2004, respectively. Borrowings
under the Revolving Credit Facility ($25.0 million as of December 31, 1999)
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 December 31, 1999 ranged from approximately 8.0% to approximately
8.9% for the LIBOR-based borrowings, and the rate for the prime-based
borrowings was approximately 9.9%. Borrowings under the Senior Credit
Agreement are secured by substantially all of the assets of JCI and Jafra S.A.
Interest expense in 1999 was $16.9 million, including approximately $1.8
million of non-cash amortization of deferred financing fees. During 1999, cash
paid for interest was approximately $16.7 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 as of December 31, 1999 under the Revolving Credit Facility, in
the amount of $1.1 million.
The Notes are unsecured and are generally non-callable for five years.
Thereafter, the Notes will be callable at premiums declining to par in the
eighth year. Prior to May 1, 2001, JCI and Jafra S.A. at their option may
concurrently redeem the Notes on a pro rata basis in an aggregate principal
amount equal to up to 35% of the original aggregate principal amount of the
Notes not exceeding the aggregate cash proceeds of one or more equity
offerings, at a redemption price of 111.75% plus accrued interest; provided,
however, that an aggregate principal amount of the Notes equal to at least 65%
of the original aggregate principal amount of the Notes must remain
outstanding after each such redemption.
A Consent and Waiver, dated November 19, 1999, to the Senior Credit
Agreement allows the Company to repurchase the Notes in the open market from
time to time, with the aggregate purchase prices for all such Notes
repurchased not to exceed $25.0 million. During the fourth quarter of 1999,
the Company repurchased and retired Notes with a face value of $14.0 million
prior to maturity. In the first quarter of year 2000, the Company repurchased
and retired additional Notes with a face value of $10.3 million prior to
maturity. The repurchased debt was replaced with lower cost debt under the
Revolving Credit Facility. The Company expects to save approximately $1.0
million in interest expense in 2000 as a result of these debt restructuring
activities.
During the fourth quarter of 1999, the Company sold a parcel of real
property and an office building in the U.S., receiving net sales proceeds of
$5.6 million, with a resulting gain from the transactions of approximately
$1.0 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 over the next year.
17
<PAGE>
Outsourcing of Manufacturing Functions
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.
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 December 31, 1999,
the remaining liability for such charges was approximately $0.6 million. The
majority of the remaining costs have been paid out in cash during the first
quarter of 2000, although certain individuals will receive severance payments
that will extend until the second or third quarter of 2000.
The fixed assets and inventories 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 inventories of approximately $2.2 million is non-
interest bearing, and is payable in monthly installments over one year,
commencing October 1, 1999. At December 31, 1999, approximately $2.1 million
of notes from the Contractor (reflected at fair value, net of discount), as
well as approximately $0.5 million of unsecured accounts receivable, were
included in receivables and approximately $1.0 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 addition, 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 inventories, manufacturing the inventories 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 $1.6 million in 1999, compared to
cash provided by operating activities of $10.1 million in 1998 and $26.7
million in 1997. The $11.7 million decrease in cash flow from operations in
1999 compared to 1998 is attributable to a decrease in the change of working
capital items of $21.8 million, partially offset by a $10.1 million increase
in net income adjusted for depreciation, amortization and other non-cash items
included in net income. The $16.6 million decrease in cash flow from
operations in 1998 compared to 1997 is attributable to a $8.5 million decrease
in the change in working capital items, and a $8.1 million decrease in net
income adjusted for depreciation, amortization and other non-cash items
included in net income.
Net cash used in investing activities was $3.1 million in 1999, consisting
of capital expenditures of $5.8 million, payments of previously accrued
Acquisition fees of $1.8 million and miscellaneous items totaling $1.0
million, partially offset by proceeds from the sales of a parcel of property
and an office building of $5.6 million. Capital expenditures in 2000 are
expected to be approximately $12.0 million, comprised of $6.7 million for
information technology, $2.9 million for production equipment, $1.6 million
for space and facilities and $0.8 million for miscellaneous items.
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<PAGE>
Net cash used in financing activities was $7.4 million in 1999, consisting
primarily of $13.5 million for the repurchase of subordinated debt with a face
value of $14.0 million and $2.5 million for principal repayments under the
term loan facility, partially offset by net borrowings under the revolving
credit facility of $8.5 million.
The effect of exchange rate changes on cash was $1.4 million for 1999,
relating primarily to fluctuations in the exchange rate of the peso.
Foreign Operations
Sales outside of the United States aggregated 76%, 70%, and 69% of the
Company's total net sales for the fiscal years 1999, 1998, and 1997,
respectively. In addition, as of December 31, 1999, international subsidiaries
comprised approximately 75% of the Company's consolidated total assets.
Accordingly, the Company has experienced and continues to be exposed to
foreign exchange risk. In December 1999, the Company entered into foreign
currency forward contracts in Mexican pesos to reduce the effect of
potentially adverse exchange rate fluctuations in Mexico. However, for
virtually the entire 1999 year, the Company's operating results were impacted
by foreign currency fluctuations, and during 1998, the stronger U.S. dollar
negatively impacted revenues and operating income of the Company's operations
in Mexico and Europe. Net sales for 1999 would have increased by an additional
$14.7 million, or 5.9%, over reported amounts if average exchange rates in
1999 remained the same as in 1998.
The Company's subsidiary in Mexico, Jafra S.A., generated approximately
59.1% of the Company's net sales for 1999, compared to 47.7% for 1998,
substantially all of which were denominated in Mexican pesos. Mexico has
experienced periods of high inflation in the past. During 1997 and 1998, Jafra
S.A.'s functional currency was the U.S. dollar because Mexico was considered
to be a hyperinflationary economy during these periods. 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 $43.9 million of U.S. dollar denominated third party
debt and $41.0 million of U.S. dollar-denominated intercompany debt as of
December 31, 1999. Because the functional currency in Mexico 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. Jafra S.A. recognized
an unrealized exchange gain of approximately $2.4 million and a realized
exchange gain on repayments of debt of approximately $0.4 million for 1999.
Year 2000 Issue
The Company established a Year 2000 compliance methodology which encompassed
six phases: discovery, planning, resolution, testing, implementation and
certification. The scope of the Company's compliance program included
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 has completed all phases with respect to both
its information technology systems and non-information technology systems. The
Company has upgraded its main operating systems to a Year 2000 compliant
version in all of the markets in which it conducts business.
As part of its investigation conducted in the discovery phase, the Company
prepared a questionnaire that was distributed to 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. The Company received written responses
from substantially all of these suppliers. Confirming each such supplier's
responses, the Company did not experience any dating problems associated with
the Year 2000. The Company developed contingency plans on a country by country
basis. These contingency plans primarily involved the use of additional
temporary labor and manual procedures to process and ship orders in case
specific mission-critical systems failed on Year 2000 related dates.
The Company believes that it has successfully rendered its products,
internal management and other administrative systems, and external information
systems year 2000 compliant. Since January 1, 2000 the Company has experienced
no disruptions in its business operations as a result of Year 2000 compliance
problems
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<PAGE>
and has received no reports of any Year 2000 compliance problems with its
products. The Company is continuing to monitor third-party vendors for
additional recommended Year 2000 compliance. The Company has spent
approximately $1.6 million to date to render both information technology and
non-information technology systems Year 2000 compliant.
Nonetheless, some problems related to Year 2000 risks may not appear until
several months after January 1, 2000. Year 2000 issues could include problems
with Company products, with third-party products or technologies that are used
by the Company, or with which its products exchange data. Any problems that
are not identified and corrected successfully and completely could adversely
affect the business of the Company. However, the Company expects that any
additional cost to fix any Year 2000 problems that may be identified will
involve internal labor-hours and will not be material.
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 representatives is not expected to be
significant and will be converted and recorded in the Company's accounting
records to 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 is currently identifying the impact the euro will have on
its information systems throughout Europe. 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 has
budgeted sufficient funds in 2000 to commence the transition to a Euro
compliant system portfolio in Europe. The Company does not expect the
introduction of the euro to materially adversely affect its business,
financial condition, or results of operations.
Business Trends and Initiatives
The Company has experienced significant sales growth in Mexico over the last
two years, due in large part to an increase in the number of sales
representatives. The Company's Mexican subsidiary generated 59.1% of the
Company's consolidated net sales for 1999, compared to 47.7% for 1998. The
sales growth in Mexico for 1999 was 44.6% in U.S. dollars and 53.7% in local
currency. Given a continued stable economic environment, the Company expects
to continue to grow its revenues and representative base in Mexico, but no
assurance can be given that sales in Mexico will continue to increase at these
rates.
The U.S. market plans to implement a number of strategies during 2000 which,
along with the initiation of doing business via e-commerce and an increased
focus on sponsoring new representatives through enhanced training programs,
are intended to stimulate sales growth in the range of 10-15% over 1999
levels.
Net sales in Europe for 1999 declined at a rate of approximately 19.2% from
the comparable period of the prior year, primarily due to declines in both the
number and productivity of sales representatives, along with an unfavorable
exchange rate impact. The Company expects to show single digit sales growth in
2000 over the 1999 levels. The Company continues to evaluate opportunities to
streamline its operations to enhance the profitability achieved by these
markets.
20
<PAGE>
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 slightly, and its percentage of net sales in Europe will decrease
slightly for the near term.
The Company has made plans to develop new business in 2000 through expansion
into new markets, particularly one in Asia, and by utilizing the Internet and
electronic commerce to increase its revenue base in existing markets.
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 statements
in "Business--Strategy" concerning (a) the Company's belief that the senior
management team will continue to provide the dynamic leadership required to
attract new sales representatives and managerial talent, inspire new and
existing sales representatives to greater productivity and execute the
Company's new market development strategy; (b) the Company's plans to expand
its sales representative base in existing markets and to increase sales
representative productivity; (c) the Company's belief that its existing
distribution and manufacturing capabilities provide a strong platform for the
Company to expand into new markets and thereby diversify its revenue base; (d)
the Company's expectation that it will be able to implement its new market
development strategy with limited additional capital expenditures and without
diverting focus from the Company's core markets; and (e) the Company's belief
that use of the Internet by its sales representatives will result in better
service to customers at a lower cost; (ii) the statement in "Business--
International Operations" that the Company intends to increase the number of
markets in which it participates and grow revenues in those markets in order
to diversify its revenue base and to minimize any adverse impact that a
downturn in the Mexican economy could have on the Company; (iii) the statement
in "Business--Manufacturing" that goods and raw materials used in the
Company's products generally are available or can be obtained to Company
specifications from more than one potential supplier; (iv) the statement in
"Business--Distribution" that management believes its facilities are adequate
to meet global demand for the foreseeable future; (v) the statements in
"Business--Management Information Systems" concerning the Company's
expectations that (a) its e-commerce system is expected to be operational by
mid-2000 and (b) each of its major markets will be equipped during the latter
part of 2000 or 2001 with a local integrated marketing system, a global
Distributed Resource Planning system, and a new commercial system; (vi) the
statement in "Business--Environmental Matters" that the Company believes that
environmental laws and regulations will not have a material adverse effect on
its capital expenditures, earnings or competitive position; (vii) other
statements as to management's or the Company's expectations, intentions and
beliefs presented in "Business"; (viii) the statement in "Properties" that the
Company's properties are suitable to meets its anticipated requirements; (ix)
the statement in "Legal Proceedings" 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; (x) the statements in "--Liquidity and Capital
Resources" concerning (a) the Company's expectation that it expects to save
approximately $1.0 million in interest expense in 2000 as a result of debt
restructuring activities; and (b) the Company's belief that it will have
sufficient liquidity to meet its cash requirements and working capital needs
over the next twelve months; (xi) the statements in "--Year 2000 Issue" that
(a) the Company believes it has successfully rendered its products, internal
management and external information systems Year 2000 compliant; and (b) that
the cost to fix any Year 2000 problems that may be identified will involve
internal labor-hours and will not be material; (xii) 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 representatives will not
be significant and (b) the introduction of the euro will not materially
adversely affect its business, financial condition or results of operations;
(xiii) the statements in "--Business Trends and Initiatives" that (a) given a
continued stable economic environment, the Company expects to continue to grow
its revenues and representative base in Mexico, but not at historical growth
rates, (b) the Company expects to grow its year 2000 sales in the U.S. market
10-15% due to new strategies and the initiation of e-commerce business; (c)
the Company's expectation that sales in Europe will show single digit sales
growth in 2000, and (d) the Company's expectation that its
21
<PAGE>
percentage of net sales in Mexico will increase and its percentage of net
sales in Europe will decrease for the near term; and (xiv) 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
following important factors, and those important factors described elsewhere
in this report (including, without limitation, those discussed in "Business--
Strategy," "--International Operations," "--Distribution," "--Manufacturing,"
"--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," "--European
Economic and Monetary Union" and "--Business Trends and Initiatives"), 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:
. The Company's high degree of leverage could have important consequences
to the Company, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired in the future; (ii) a substantial portion of
the Company's cash flow from operations must be dedicated to the payment
of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for other purposes; (iii) certain of the
Company's borrowings will be at variable rates of interest, which could
cause the Company to be vulnerable to increases in interest rates and
(iv) the Company may be more vulnerable to economic downturns and be
limited in its ability to withstand competitive pressures.
. The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness, and to comply with the
covenants and restrictions contained in the instruments governing such
indebtedness, will depend on its financial and operating performance,
which, in turn, is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond
its control, including operating difficulties, increased operating
costs, market cyclicality, product prices, the response of competitors,
regulatory developments, and delays in implementing strategic projects.
. The Company's ability to meet its debt service and other obligations
will depend in significant part on the extent to which the Company can
implement successfully its business strategy. The components of the
Company's strategy are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond
the control of the Company.
. The Company's ability to conduct and expand its business outside the
United States and the amount of revenues derived from foreign markets
are subject to the risks inherent in international operations. The
Company's international operations may be adversely affected by import
duties or other legal restrictions on imports, currency exchange control
regulations, transfer pricing regulations, the possibility of
hyperinflationary conditions and potentially adverse tax consequences,
among other things. Given the balance of payment deficits and shortages
in foreign exchange reserves that many such economies, including the
Mexican economy, have suffered in recent years, there can be no
assurance that the governments of nations in which the Company operates,
or intends to expand, will not take actions that materially adversely
affect the Company and its business.
. The direct selling cosmetics and personal care products business is
highly competitive. A number of the Company's competitors, including
Avon and Mary Kay, are significantly larger and have substantially
greater resources and less leverage than the Company, which may provide
them with greater flexibility to respond to changing business and
economic conditions than the Company. An increase in the amount of
competition faced by the Company, or the inability of the Company to
22
<PAGE>
compete successfully, could have a material adverse effect on the
Company's business, financial condition and results of operations.
. The Company's ability to anticipate changes in market and industry
trends and to successfully develop and introduce new and enhanced
products on a timely basis will be a critical factor in its ability to
grow and to remain competitive. There can be no assurance that new
products and product enhancements will be completed on a timely basis or
will enjoy market acceptance following their introduction. In addition,
the anticipated development schedules for new or improved products are
inherently difficult to predict and are subject to delay or change as a
result of shifting priorities in response to customers' requirements and
competitors' new product introductions.
. The sale of cosmetics and other personal care products correlates
strongly to the level of consumer spending generally, and thus is
significantly affected by the general state of the economy and the
ability and willingness of consumers to spend on discretionary items.
Reduced consumer confidence and spending generally may result in reduced
demand for the Company's products and limitations on the ability of the
Company to maintain or increase prices. A decline in general economic
conditions or general consumer spending in any of the Company's major
markets could have a material adverse effect on the Company's business,
financial condition and results of operations.
. The Company is subject to or affected by governmental regulations
concerning, among other things, (i) product formulation, (ii) product
claims and advertising, whether made by the Company or its sales
representatives, (iii) fair trade and distributor practices and (iv)
environmental, health and safety matters. In addition, new regulations
could be adopted or any of the existing regulations could be changed at
any time in a manner that could have a material adverse effect on the
Company's business and results of operations. Present or future health
or safety or food and drug regulations could delay or prevent the
introductions of new products into a given country or marketplace or
suspend or prohibit the sale of existing products in such country or
marketplace. The Company believes that it is in compliance in all
material respects with such laws and regulations now in effect.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks arising from transactions in
the normal course of its business, and from debt incurred in connection with
the Acquisition. Such risk is principally associated with interest rate and
foreign exchange fluctuations, as well as changes in the Company's credit
standing.
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<PAGE>
Interest Rate Risk
The Company has U.S. dollar denominated debt obligations in both the United
States and Mexico that have fixed and variable interest rates and mature on
various dates. The table below presents principal cash flows and related
interest rates by fiscal year of maturity:
Debt Obligation Information at December 31, 1999
(Amounts in U.S. dollars in 000's)
<TABLE>
<CAPTION>
Expected Year of Maturity Fair Value
----------------------------------------------------------- December 31,
2000 2001 2002 2003 2004 Thereafter Total 1999(1)
------ ------ ------ ------ ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Subordinated
Notes, Term Loan, and
Revolving Credit
Facility
Fixed Rate (US$) ..... $86,000 $86,000 $83,850
Average Interest Rate
..................... 11.75%
Variable Rate (US$)
..................... $3,500 $4,500 $5,500 $6,500 $27,500 -- 47,500 47,500
Average Interest Rate
..................... 8.89% 8.89% 8.89% 8.89% 8.89% 8.89%
</TABLE>
Debt Obligation Information at December 31, 1998
(Amounts in U.S. dollars in 000's)
<TABLE>
<CAPTION>
Expected Year of Maturity Fair Value
----------------------------------------------------------- December 31,
1999 2000 2001 2002 2003 Thereafter Total 1998(1)
------ ------ ------ ------ ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Subordinated
Notes, Term Loan, and
Revolving Credit
Facility
Fixed Rate (US$) ..... $100,000 $100,000 $88,000
Average Interest Rate
..................... 11.75%
Variable Rate (US$)
..................... $2,500 $3,500 $4,500 $5,500 $6,500 19,000 41,500 41,500
Average Interest Rate
..................... 8.04% 8.04% 8.04% 8.04% 8.04% 8.04%
</TABLE>
- --------
(1) The Company's estimate of the fair value of its Senior Subordinated Notes
at December 31, 1999 was based upon quoted market prices. The Company's
estimate of the fair value of its Senior Subordinated Notes at December
31, 1998 was based upon information provided by a broker dealer that makes
a market in the Company's Senior Subordinated Notes. As the Company's
Revolving Credit Facilities and the Term Loan are variable rate debt, and
the interest rate spread paid by the Company is adjusted for changes in
certain financial ratios of the Company, the fair value of the Revolving
Credit Facilities and the Term Loan approximated their carrying amounts at
December 31, 1999 and 1998.
Foreign Currency Risk
The Company operates globally, with manufacturing facilities in Mexico and
distribution facilities in various locations around the world. All
intercompany product sales are denominated in U.S. dollars. In addition, 76%
of the Company's 1999 revenue was generated in countries with a functional
currency other than the U.S. dollar. As a result, the Company's 1999 earnings
and cash flows are exposed to fluctuations in foreign currency exchange rates.
The Company may reduce its primary market exposures to fluctuations in
foreign exchange rates and hedge contractual foreign currency cash flows or
obligations (including third-party and intercompany foreign currency
transactions) by creating offsetting positions through the use of forward
exchange contracts. The Company regularly monitors its foreign currency
exposures and ensures that contract amounts do not exceed the amounts of the
underlying exposures. The Company does not use derivative financial
instruments for trading or speculative purposes, nor is the Company a party to
leveraged derivatives.
24
<PAGE>
The table below describes the forward contracts that were outstanding at
December 31, 1999 (dollar amounts in thousands). These foreign currency
forward contracts do not qualify as hedging transactions under the current
accounting definitions and, accordingly, have been marked to market through
income.
<TABLE>
<CAPTION>
Forward
Contract Position in Maturity Contract Fair
Foreign Currency Date US Dollars(1) Date Rate Value(1)
---------------- -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 $ 3,722 3/31/00 9.671 $ 3,690
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,890 4/28/00 9.770 3,856
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 2,929 5/31/00 9.900 2,907
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,997 6/30/00 10.008 3,967
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 1,977 7/31/00 10.118 1,962
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,032 8/31/00 10.223 3,010
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,874 9/29/00 10.326 3,846
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,641 10/31/00 10.438 3,617
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 2,844 11/30/00 10.548 2,829
------- -------
$29,906 $29,684
======= =======
</TABLE>
- --------
(1) The "Forward Position in U.S. Dollars" and the "Fair Value" presented
above represent notional amounts. The net of these two amounts, $222,000,
represents the fair value of the forward contracts and has been recorded
as an asset in the accompanying consolidated balance sheet as of December
31, 1999.
Prior to entering into foreign currency exchange contracts, the Company
evaluates the counter parties' credit ratings. Credit risk represents the
accounting loss that would be recognized at the reporting date if counter
parties failed to perform as contracted. The Company does not currently
anticipate non-performance by such counter parties.
The Company's Mexican subsidiary, Jafra S.A., had U.S. dollar denominated
debt of $84.9 million and $55.0 million at December 31, 1999 and 1998,
respectively. During 1998, there were no gains or losses on remeasuring U.S.
dollar denominated debt because the functional currency of Mexico was
considered to be the U.S. dollar in 1998. Effective January 1, 1999, the
Company began accounting for its Mexican operations using the peso as the
functional currency. Accordingly, gains and loss on remeasuring such debt to
the U.S. dollar are now included in income. From January 1, 1999 to December
31, 1999, the value of the peso to the U.S. dollar increased by 5.0%, and
Jafra S.A. incurred a $2.8 million foreign currency transaction gain related
to the remeasurement and repayment of U.S. dollar denominated debt.
Based upon the $84.9 million of outstanding debt at December 31, 1999, a 10%
decline in the peso to U.S. dollar exchange rate would result in a $8.5
million foreign currency transaction loss.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report for the year ended December 31, 1999, the
eight-month period ended December 31, 1998 and the four-month period
ended April 30, 1998..................................................... 27
Independent Auditors' Report for the year ended December 31, 1997......... 28
Consolidated Balance Sheets--As of December 31, 1999 and 1998............. 29
Consolidated Statements of Operations--For the year ended December 31,
1999, the eight-month period ended December 31, 1998, the four-month
period ended April 30, 1998, and the year ended December 31, 1997........ 30
Consolidated Statements of Stockholders' Equity--For the year ended
December 31, 1999, the eight-month period ended December 31, 1998, the
four-month period ended April 30, 1998, and the year ended December 31,
1997..................................................................... 31
Consolidated Statements of Cash Flows--For the year ended December 31,
1999, the eight-month period ended December 31, 1998, the four-month
period ended April 30, 1998, and the year ended December 31, 1997........ 32
Notes to Consolidated Financial Statements................................ 34
Schedule II--Valuation and Qualifying Accounts............................ 62
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CDRJ Investments (Lux) S.A.
Luxembourg
We have audited the accompanying consolidated balance sheets of CDRJ
Investments (Lux) S.A. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1999 and the eight-month period
ended December 31, 1998 and the combined statements of operations, divisional
equity, and cash flows of Jafra Cosmetics International (the "Predecessor")
for the four-month period ended April 30, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CDRJ
Investments (Lux) S.A. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the year ended
December 31, 1999 and the eight-month period ended December 31, 1998 and the
combined results of operations and cash flows of the Predecessor for the four-
month period ended April 30, 1998 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
March 2, 2000
Los Angeles, California
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
CDRJ Investments (Lux) S.A.:
We have audited the accompanying combined statements of operations,
divisional equity, and cash flows of Jafra Cosmetics International (the
"Predecessor Company") for the year ended December 31, 1997. These combined
financial statements are the responsibility of the Predecessor Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit. Our audit also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Predecessor Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Jafra Cosmetics International for the year ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
KPMG LLP
February 27, 1998
Los Angeles, California
28
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 4,906 $ 18,358
Receivables, less allowances for doubtful accounts
of $3,087 in 1999 and $2,284 in 1998.............. 31,277 24,449
Inventories........................................ 30,290 33,195
Prepaid income taxes............................... 13,875 5,835
Prepaid expenses and other current assets
(including value-added tax receivables of $6,053
in 1999 and $3,252 in 1998)....................... 8,608 5,648
-------- --------
Total current assets............................. 88,956 87,485
Property and equipment, net.......................... 50,607 56,238
Other assets:
Goodwill, net...................................... 75,323 77,193
Trademarks, net.................................... 51,605 53,234
Deferred financing fees and other, net............. 11,886 14,484
-------- --------
Total............................................ $278,377 $288,634
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 3,500 $ 2,500
Accounts payable................................... 15,005 25,905
Accrued liabilities................................ 33,424 34,183
Income taxes payable............................... 276 1,017
Deferred income taxes.............................. 2,587 953
-------- --------
Total current liabilities........................ 54,792 64,558
Long-term debt....................................... 130,000 139,000
Deferred income taxes................................ 15,731 8,202
Other long-term liabilities.......................... 2,060 1,433
-------- --------
Total liabilities................................ 202,583 213,193
-------- --------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, par value $2.00; authorized,
1,020,000 shares; issued and outstanding, 830,659
shares in 1999 and 829,940 shares in 1998......... 1,661 1,660
Additional paid-in capital......................... 81,381 81,275
Accumulated deficit................................ (3,393) (8,041)
Cumulative foreign currency translation
adjustment........................................ (3,855) 547
-------- --------
Total stockholders' equity....................... 75,794 75,441
-------- --------
Total............................................ $278,377 $288,634
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Predecessor
------------------------
Eight Months Four Months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
1999 1998 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................. $290,450 $171,019 $77,282 $229,524
Cost of sales.............. 82,239 56,324 22,666 68,604
-------- -------- ------- --------
Gross profit............. 208,211 114,695 54,616 160,920
Selling, general and
administrative expenses... 174,834 107,452 49,175 140,459
Restructuring and
impairment charges........ 4,812 -- -- 400
Loss (gain) on sale of
assets.................... (1,043) 150 -- (126)
-------- -------- ------- --------
Income from operations... 29,608 7,093 5,441 20,187
Other income (expense):
Exchange gain (loss)..... 3,330 (1,742) 1,376 312
Interest, net............ (16,888) (11,431) 78 306
Other, net............... 24 (201) 104 (540)
-------- -------- ------- --------
Income (loss) before income
taxes..................... 16,074 (6,281) 6,999 20,265
Income tax expense......... 10,874 1,760 2,899 4,816
-------- -------- ------- --------
Income (loss) before
extraordinary item........ 5,200 (8,041) 4,100 15,449
Extraordinary loss on early
extinguishment of debt,
net of income tax benefit
of $177.................. 552 -- -- --
-------- -------- ------- --------
Net income (loss).......... $ 4,648 $ (8,041) $ 4,100 $ 15,449
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except for shares)
<TABLE>
<CAPTION>
Cumulative
Common Stock(1) foreign Retained
----------------- Additional currency earnings Total
Number of paid-in translation (accumulated stockholders' Comprehensive
Shares Amount capital(1) adjustment deficit) equity(1) income (loss)
--------- ------- ---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance at January 1,
1997................... -- $47,641 $ 4,564 $(53,983) $80,419 $78,641
Net income.............. -- -- -- -- 15,449 15,449 $15,449
Dividends paid to
Gillette............... -- -- -- -- (18,355) (18,355) --
Capital of new division
included in combined
group.................. -- 1,926 -- -- -- 1,926 --
Translation adjustment.. -- -- -- (357) -- (357) (357)
-------
Total comprehensive
income................. -- -- -- -- -- -- $15,092
------- ------- ------- -------- ------- ------- =======
Balance at December 31,
1997................... -- 49,567 4,564 (54,340) 77,513 77,304
Net income for four
months ended April 30,
1998................... -- -- -- -- 4,100 4,100 $ 4,100
Net loss for foreign
subsidiaries due to
change in reporting
period (unaudited)..... -- -- -- -- (1,197) (1,197) --
Dividends paid to
Gillette............... -- -- -- -- (20,990) (20,990) --
Capital contributions by
Gillette............... -- -- -- -- 31,735 31,735 --
Translation adjustment.. -- -- -- (333) -- (333) (333)
-------
Total comprehensive
income................. -- -- -- -- -- -- $ 3,767
------- ------- ------- -------- ------- ------- =======
Balance at April 30,
1998................... -- $49,567 $ 4,564 $(54,673) $91,161 $90,619
======= ======= ======= ======== ======= =======
CDRJ INVESTMENTS (LUX)
S.A. AND SUBSIDIARIES:
Common stock issued upon
formation of CDRJ
Investments (Lux) S.A.,
April 30, 1998......... 789,503 $ 1,579 $77,371 $ -- $ -- $78,950
Issuance of common
stock.................. 40,437 81 3,904 -- -- 3,985
Net loss for eight
months ended December
31, 1998............... -- -- -- -- (8,041) (8,041) $(8,041)
Translation adjustment.. -- -- -- 547 -- 547 547
-------
Total comprehensive
loss................... -- -- -- -- -- -- $(7,494)
------- ------- ------- -------- ------- ------- =======
Balance at December 31,
1998................... 829,940 1,660 81,275 547 (8,041) 75,441
Issuance of common
stock.................. 3,036 6 449 -- -- 455
Repurchase of common
stock.................. (2,317) (5) (343) -- -- (348)
Net income.............. -- -- -- -- 4,648 4,648 $ 4,648
Translation adjustment.. -- -- -- (4,402) -- (4,402) (4,402)
-------
Total comprehensive
income................. -- -- -- -- -- -- $ 246
------- ------- ------- -------- ------- ------- =======
Balance at December 31,
1999................... 830,659 $ 1,661 $81,381 $ (3,855) $(3,393) $75,794
======= ======= ======= ======== ======= =======
</TABLE>
- -------
(1) Predecessor common stock and additional paid-in capital represent
subsidiary capital, and total stockholders' equity of the Predecessor
represents divisional equity.
See accompanying notes to consolidated financial statements.
31
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Predecessor
------------------------
Eight Months Four Months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
1999 1998 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)......... $ 4,648 $ (8,041) $ 4,100 $ 15,449
Extraordinary loss on
early extinguishment of
debt, net of taxes..... 552 -- -- --
-------- --------- -------- --------
Income (loss) before
extraordinary item....... 5,200 (8,041) 4,100 15,449
Adjustments to reconcile
income (loss) before
extraordinary item to net
cash provided by (used
in) operating activities:
Loss (gain) on sale of
property and
equipment.............. (1,043) 150 -- (126)
Depreciation and
amortization........... 7,119 5,089 1,363 4,361
Amortization of deferred
financing fees......... 1,832 1,407 -- --
Asset impairment
charge................. 1,084 -- -- --
Unrealized foreign
exchange gain.......... (2,377) -- -- --
Deferred income taxes... 7,320 4,516 375 (2,596)
Changes in operating
assets and liabilities:
Receivables, net...... (3,686) (4,095) (2,063) (1,027)
Inventories........... 613 5,260 (512) 7,113
Prepaid expenses and
other current
assets............... (2,960) (2,313) (7,457) (657)
Other assets.......... (1,182) (760) 3,948 1,571
Accounts payable and
accrued liabilities.. (5,904) 19,699 (7,144) (3,682)
Income taxes
payable/prepaid...... (8,198) (2,878) (247) 6,792
Other long-term
liabilities.......... 627 80 (408) (481)
-------- --------- -------- --------
Net cash provided by
(used in) operating
activities.......... (1,555) 18,114 (8,045) 26,717
-------- --------- -------- --------
Cash flows from investing
activities:
Purchase of Jafra
Business, net of cash
received of $2,339....... -- (187,226) -- --
Withholding taxes on
purchase price........... -- (12,929) -- --
Payments of previously
accrued Acquisition
fees..................... (1,856) (7,542) -- --
Proceeds from sale of
property and equipment... 5,551 2,917 8,811 3,132
Purchases of property and
equipment................ (5,798) (6,367) (6,124) (8,932)
Other..................... (991) -- (97) --
-------- --------- -------- --------
Net cash provided by
(used in) investing
activities.......... (3,094) (211,147) 2,590 (5,800)
-------- --------- -------- --------
Cash flows from financing
activities:
Gross issuance
(repurchase) of
subordinated debt........ (13,490) 100,000 -- --
Gross borrowings
(repayments) under term
loan facility............ (2,500) 25,000 -- --
Net borrowings
(repayments) under
revolving credit
facility................. 8,500 16,500 -- --
Net proceeds from bank
debt..................... -- -- -- 8,513
Capital contributions by
Gillette................. -- -- 5,013 1,926
Dividends paid to
Gillette................. -- -- -- (18,355)
Transactions with Gillette
and other divisions...... -- -- (13,792) (11,075)
Issuance of common stock.. 455 82,707 -- --
Repurchase of common
stock.................... (348) -- -- --
Deferred financing fees... -- (12,471) -- --
-------- --------- -------- --------
Net cash provided by
(used in) financing
activities.......... (7,383) 211,736 (8,779) (18,991)
-------- --------- -------- --------
Effect of exchange rate
changes on cash........... (1,420) (573) (333) (357)
Effect of accounting
calendar change on cash... -- -- 6,276 --
-------- --------- -------- --------
Net increase (decrease) in
cash and cash
equivalents............... (13,452) 18,130 (8,291) 1,569
Cash and cash equivalents
at beginning of period.... 18,358 228 10,231 8,662
-------- --------- -------- --------
Cash and cash equivalents
at end of period.......... $ 4,906 $ 18,358 $ 1,940 $ 10,231
======== ========= ======== ========
</TABLE>
(continued on next page)
See accompanying notes to consolidated financial statements
32
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Concluded)
(In thousands)
<TABLE>
<CAPTION>
Predecessor
------------------------
Eight Months Four Months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
1999 1998 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Supplemental disclosure of
cash flow information:
Cash paid during the year
for:
Interest................. $16,656 $8,301 $ 501 $2,811
Income taxes............. 10,541 4,402 4,135 4,313
Supplemental schedule of
non-cash investing and
financing activities:
As described in Note 9, in
connection with the
Acquisition at April 30,
1998, certain
intercompany balances
between Gillette and the
Predecessor were
forgiven. These amounts
were accounted for as
direct contributions to
(reductions from) equity.
Intercompany accounts
payable................. $ -- $ -- $ 26,722 $ --
Intercompany accounts
receivable.............. -- -- (20,990) --
</TABLE>
During 1999, the Company sold inventories with a book value of approximately
$2.3 million and equipment 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 14). The resulting loss of
approximately $2.5 million was recorded as a charge against the restructuring
accrual established in connection with the Acquisition.
See accompanying notes to consolidated financial statements
33
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Description of Business
Basis of Presentation
CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme (the "Parent"),
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 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 year
and for the eight-month period ended December 31, 1999 and 1998, respectively,
reflect the operations of the Parent and its subsidiaries. The accompanying
combined financial statements for the four months ended April 30, 1998 and the
year ended December 31, 1997 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.
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 divested operations of the
Predecessor, principally in Portugal, Spain, Brazil and the United Kingdom
(collectively the "Divested Markets"); 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. The Parent did not acquire the Divested
Markets as part of 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.
34
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying financial statements for the year ended December 31, 1997
include the operating results of the Predecessor's foreign subsidiaries for
the fiscal year ended November 30. In 1998, the Predecessor changed the
reporting period for the foreign operations from a fiscal year ending November
30 to a calendar year. The line item denoted "Effect of accounting calendar
change on cash" in the consolidated 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 unaudited results of operations
for the period from December 1 through December 31, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Net sales...................................................... $9,619
Gross profit................................................... 7,201
Loss from operations........................................... 727
Income taxes................................................... 470
Net loss....................................................... 1,197
</TABLE>
The purchase price for the Jafra Business was approximately $212.4 million
(excluding $12.0 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 $9.9 million of Acquisition fees. The $202.5 million
cash purchase price included $187.1 million paid by the Company directly to
Gillette in cash at the closing date, (net of cash of $2.3 million received as
part of the Acquisition), and $12.9 million of withholding taxes paid by the
Company on behalf of Gillette subsequent to the closing date of the
Acquisition. In addition, on November 3, 1998, the Company paid Gillette an
additional $2.5 million (net of a receivable from Gillette of $5.1 million) as
a final adjustment of the purchase price. In 1999, the final amount of fees
related to the Acquisition and the concurrent issuance of debt was determined
to be $21.9 million. $9.9 million of such fees were allocated as Acquisition
fees, and were accounted for as goodwill in the purchase price allocation
below. The financing fees of $12.0 million were capitalized as deferred
financing fees, and are being amortized over the term of the related debt. The
Acquisition has been accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their respective fair values at the date of
Acquisition based on valuations and other studies. The following sets forth
the purchase price allocation (amounts in millions):
<TABLE>
<S> <C>
Net tangible assets acquired (net of liabilities assumed of $38.2
million)........................................................ $ 69.0
Allocation of excess purchase price:
Property and equipment......................................... 18.4
Accrued income taxes........................................... 0.9
Deferred income tax liability.................................. (0.8)
Accrual of restructuring/rationalization costs (Note 10)....... (4.4)
Inventories.................................................... (2.4)
Trademarks..................................................... 53.8
Goodwill....................................................... 77.9
------
Total......................................................... $212.4
======
</TABLE>
35
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
expense, interest expense on Acquisition debt, and the related income tax
effect of the foregoing adjustments as if the Transaction had occurred at the
beginning of the periods presented (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net sales........................................ $248,301 $229,524
Net loss......................................... (8,541) (2,551)
</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 at the beginning of the periods
presented and are not intended to be a projection of future results or trends.
Description of Business
The Company is an international manufacturer and marketer of premium skin
and body care products, color cosmetics, fragrances, and other personal care
products. The Company markets its products primarily in 13 countries, 12
outside the United States, and a number of additional countries through
distributors, through a direct selling, multilevel distribution system
comprised of self-employed salespersons (known as "sales representatives").
(2) Summary of Significant Accounting Policies
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents include cash, time
deposits and all highly liquid debt instruments purchased with a maturity of
three months or less.
Inventories. Inventories are stated at the lower of cost, as determined by
the first-in, first-out basis, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation of property and equipment is provided for over the estimated
useful lives of the respective assets using the straight-line method.
Estimated useful lives are 40 years for buildings and improvements and 5 to 10
years for machinery and equipment. Maintenance and repairs, including cost of
minor replacements, are charged to operations as incurred. Costs of additions
and betterments are added to property and equipment accounts provided that
such expenditures increase the useful life or the value of the asset.
Intangible Assets. Intangible assets principally consist of goodwill and
trademarks, which are amortized using the straight-line method. Goodwill and
trademarks resulting from the Company's acquisition of the Jafra Business from
Gillette are being amortized over a period of 40 years, while the
Predecessor's goodwill was amortized generally over a period of 37.5 years.
Accumulated amortization of goodwill and trademarks at December 31, 1999 was
$3,160,000 and $2,303,000, respectively. Accumulated amortization of goodwill
and trademarks at December 31, 1998 was $1,161,000 and $929,000, respectively.
Deferred Financing Costs. In connection with the acquisition of the Jafra
Business, the Company incurred approximately $12.0 million of costs related to
the 11.75% Senior Subordinated Notes due 2008 (the "Notes"),
36
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Revolving Credit Facility and the Term Loan Facility (see Note 6). Such
costs are being amortized on a basis that approximates the interest method
over the expected term of the related debt. Accumulated amortization at
December 31, 1999 and 1998 was $2,000,000 and $1,407,000, respectively. In
connection with the early retirement of the Notes as described in Note 6, a
portion of the unamortized deferred financing costs was written off and
included in the determination of the extraordinary loss on early
extinguishment of debt. Total amounts that were written off during 1999 were
$1,239,000.
Impairment of Long-Lived Assets and Enterprise Goodwill. Long-lived assets
and enterprise goodwill are reviewed for impairment, based on undiscounted
cash flows, whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. If this review
indicates that the carrying amount of the long-lived assets and goodwill is
not recoverable, the Company will recognize an impairment loss, measured by
the future discounted cash flow method (see Note 10).
Foreign Currency Forward Contracts. In 1999, the Company entered into
foreign currency forward contracts in Mexican pesos to reduce the effect of
adverse exchange rate fluctuations in Mexico. As a matter of policy, the
Company does not hold or issue foreign currency forward contracts for trading
or speculative purposes. These contracts are marked-to-market each month and
the fair value of the contracts are included in current assets and
liabilities, with the offsetting gain or loss included in exchange gain (loss)
in the accompanying consolidated statements of operations.
Fair Value of Financial Instruments. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable approximate fair value
because of the short-term maturities of these instruments. The fair value of
the Notes at December 31, 1999 was $84 million, based on quoted market price.
The fair value of the Notes was $88 million at December 31, 1998, based upon
information provided by a broker-dealer that makes a market in the Company's
Notes. As the Company's Revolving Credit Facilities and the Term Loan are
variable rate debt, and the interest rate spread paid by the Company is
adjusted for changes in certain financial ratios of the Company, the fair
value of the Revolving Credit Facilities and the Term Loan approximated their
carrying amounts at December 31, 1999 and 1998. The fair value of the
Company's foreign currency forward contracts at December 31, 1999 was
$222,000, measured by quoted market price, and was recorded as a prepaid asset
in the accompanying consolidated balance sheets.
Research and Development. Research and development costs are expensed as
incurred. Total research and development expense aggregated $2,130,000,
$1,902,000, $1,185,000, and $2,911,000 for the year ended December 31, 1999,
the eight months ended December 31, 1998, the four months ended April 30,
1998, and the year ended December 31, 1997, respectively.
Income Taxes. The Company accounts for income taxes under the balance sheet
approach that requires the recognition of deferred income tax assets and
liabilities for the expected future consequences of events that have been
recognized in the Company's financial statements or income tax returns.
Management provides a valuation allowance for deferred income tax assets when
it is more likely than not that a portion of such deferred income tax assets
will not be realized.
Foreign Currency Translation. The functional currency for most foreign
subsidiaries is the local currency. Assets and liabilities of such foreign
subsidiaries are translated into U.S. dollars at current exchange rates, and
related revenues and expenses are translated at average exchange rates in
effect during the period. Resulting translation adjustments are recorded as a
component of other comprehensive income. Financial results of foreign
subsidiaries in countries with highly inflationary economies are translated
using a combination of current and historical exchange rates and any
translation adjustments are included in net earnings, along with all
transaction gains and losses for the period.
37
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1997 and 1998, Jafra S.A.'s functional currency was the U.S. dollar
because Mexico was considered to be a hyperinflationary economy during these
periods. 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 76%, 70% and 69% of the Company's net sales for the years
ended December 31, 1999, 1998 and 1997, respectively, were generated by
operations located outside of the U.S. Mexico is the largest foreign
operation, accounting for 59%, 48% and 43% of the Company's net sales for the
years ended December 31, 1999, 1998 and 1997, respectively. As such, the
Company's results of operations are subject to fluctuations in the exchange
rate of the Mexican peso to the U.S. dollar. Mexico has historically
experienced periods of hyperinflation, and the value of the peso has been
subject to significant fluctuations with respect to the U.S. dollar.
New Accounting Standards. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement, as amended, establishes accounting and reporting standards for
derivative instruments and for hedging activities and will be effective for
the Company on January 1, 2001. The Company is currently analyzing the impact
on the financial statements of adopting this standard.
Reclassifications. Certain sales promotional and manufacturing expenses
which were previously reported as selling, general and administrative expenses
have been reclassified to cost of sales to conform to the current period
presentation. Total amounts that have been reclassified are $5,541,000,
$2,344,000 and $9,475,000 for the eight-month period ended December 31, 1998,
the four-month period ended April 30, 1998 and the year ended December 31,
1997, respectively. In addition, restructuring charges and loss (gain) on sale
of assets, which were previously included in selling, general and
administrative expenses and other income (expense), respectively, have been
separately disclosed in the accompanying consolidated statements of operations
for the eight months ended December 31, 1998 and the year ended December 31,
1997 to conform to current period presentation.
(3) Inventories
Inventories consist of the following at December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials and supplies.............................. $ 7,905 $ 7,553
Finished goods.......................................... 22,385 25,642
------- -------
Total inventories....................................... $30,290 $33,195
======= =======
</TABLE>
(4) Property and Equipment
Property and equipment consist of the following at December 31, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land.................................................... $17,418 $20,126
Buildings............................................... 16,777 16,608
Machinery and equipment................................. 21,511 22,256
------- -------
55,706 58,990
Less accumulated depreciation........................... 5,099 2,752
------- -------
Property and equipment, net............................. $50,607 $56,238
======= =======
</TABLE>
38
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1999, the Company sold a parcel of idle land and an idle building owned
by JCI for total consideration of $5.6 million. The sale resulted in a gain on
disposal of approximately $1.0 million, which was included in income from
continuing operations in the accompanying consolidated statements of
operations. The Company also sold certain equipment to a third party
manufacturer (see Note 14).
(5) Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Sales promotion and commissions....................... $ 11,856 $12,509
Accrued restructuring/rationalization costs (Note
10).................................................. 1,105 3,162
Accrued interest...................................... 1,717 2,429
Compensation and other benefit accruals............... 8,121 5,405
State and local sales taxes and other taxes........... 3,262 1,197
Accrued acquisition fees.............................. -- 3,385
Miscellaneous......................................... 7,363 6,096
-------- -------
$ 33,424 $34,183
======== =======
</TABLE>
(6) Debt
Debt consists of the following at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Subordinated Notes, unsecured, interest payable semi-
annually at 11.75%, due in 2008........................ $ 86,000 $100,000
Term Loan, principal and interest due in quarterly
installments through April 30, 2004, interest rates of
8.6% and 7.8% at December 31, 1999 and 1998,
respectively........................................... 22,500 25,000
Revolving Loan, due April 30, 2004, weighted average
interest rates of 9.1% and 8.4% at December 31, 1999
and 1998, respectively................................. 25,000 16,500
-------- --------
Total debt.............................................. 133,500 141,500
Less current maturities................................. (3,500) (2,500)
-------- --------
Long-term debt.......................................... $130,000 $139,000
======== ========
</TABLE>
The Company's long-term debt matures as follows (in thousands): $3,500 in
2000, $4,500 in 2001, $5,500 in 2002, $6,500 in 2003, $27,500 in 2004 and
$86,000 thereafter.
On April 30, 1998, JCI and Jafra S.A. borrowed $125 million by issuing $100
million aggregate principal amount of 11.75% Subordinated Notes due 2008 (the
"Notes") pursuant to an Indenture dated April 30, 1998 (the "Indenture") and
$25 million under a Senior Credit Agreement.
At the date of issuance, the Notes represented the several obligations of
JCI and 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.
Each of JCI and Jafra S.A. is an indirect, wholly owned subsidiary of the
Parent and has fully and unconditionally guaranteed the obligations under the
Notes of the other on a senior subordinated basis, subject to a 30-day
standstill period prior to enforcement of such guarantees. In addition, the
Parent has fully and
39
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
unconditionally guaranteed the Notes on a senior subordinated basis. JCI
currently has no U.S. subsidiaries. Each acquired or organized U.S. subsidiary
of JCI will fully and unconditionally guarantee the Notes jointly and
severally, on a senior subordinated basis. Each existing subsidiary of Jafra
S.A. fully and unconditionally guarantees the Notes jointly and severally, on
a senior subordinated basis, and each subsequently acquired or organized
subsidiary of Jafra S.A. will fully and unconditionally guarantee the Notes
jointly and severally, on a senior subordinated basis. 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, Chile, Venezuela and Brazil. All
guarantor and nonguarantor entities are either direct or indirect wholly owned
subsidiaries of the Parent. The Notes were registered in a registered exchange
offer, effective as of January 25, 1999, under the Securities Act of 1933, as
amended.
The Notes are unsecured and are generally non-callable for five years.
Thereafter, the Notes will be callable at premiums declining to par in the
eighth year. Prior to May 1, 2001, JCI and Jafra S.A. at their option may
concurrently redeem the Notes on a pro rata basis in an aggregate principal
amount equal to up to 35% of the original aggregate principal amount of the
Notes not exceeding the aggregate cash proceeds of one or more equity
offerings, at a redemption price of 111.75% plus accrued interest; provided,
however, that an aggregate principal amount of the Notes equal to at least 65%
of the original aggregate principal amount of the Notes must remain
outstanding after each such redemption.
A Consent and Waiver, dated November 19, 1999, to the Senior Credit
Agreement, as described below, allows the Company to repurchase the Notes in
the open market from time to time, with the aggregate purchase price for all
such Notes repurchased not to exceed $25 million. During 1999, the Company
retired Notes of JCI and Jafra S.A., prior to maturity, with a face value of
$8.4 million and $5.6 million, respectively. The debt repurchases resulted in
an extraordinary loss of $552,000, net of an income tax benefit of $177,000.
In addition, JCI and Jafra S.A. entered into a Senior Credit Agreement that
provides for senior secured credit facilities in an aggregate principal amount
of $90 million, consisting of a multicurrency Revolving Credit Facility of $65
million and a Term Loan Facility of $25 million. Borrowings under the Term
Loan Facility are payable in quarterly installments of principal and interest
over 6 years through April 30, 2004. 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 December 31, 1999 ranged from approximately 8.0%
to approximately 8.9% for the LIBOR-based borrowings and the rate for the
prime-based borrowings was approximately 9.9%. Borrowings under the Senior
Credit Agreement are secured by substantially all of the assets of JCI and
Jafra S.A.
Both the Indenture and the Senior Credit Agreement contain certain covenants
which limit the Company's ability to incur additional indebtedness, pay cash
dividends and make certain other payments. These debt agreements 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.
As of December 31, 1999, the Company had one irrevocable standby letter of
credit outstanding in the amount of $1.1 million. This letter of credit,
expiring on April 30, 2004, collateralizes the Company's obligation to a third
party in connection with certain lease agreements. The fair value of this
letter of credit approximates its contract value.
40
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Income Taxes
The Company's income (loss) before income taxes consists of the following
(amounts in thousands):
<TABLE>
<CAPTION>
Predecessor
------------------------
Eight months Four months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
1999 1998 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income (loss) before
income taxes:
United States......... $ 10,917 $(4,542) $ (601) $ 6,203
Foreign............... 5,157 (1,739) 7,600 14,062
-------- ------- ------ -------
$ 16,074 $(6,281) $6,999 $20,265
======== ======= ====== =======
</TABLE>
Actual income tax expense differs from the "expected" tax expense (computed
by applying the U.S. federal corporate rate of 35% to income before income
taxes) as a result of the following:
<TABLE>
<CAPTION>
Predecessor
------------------------
Eight months Four months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
1999 1998 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Provision for income
taxes at federal
statutory rate......... $ 5,626 $(2,198) $2,450 $ 7,093
Foreign income subject
to tax other than at
federal statutory
rate................... 2,475 36 (136) (2,310)
Foreign tax credits..... (1,784) -- -- --
State income taxes...... 171 -- -- --
Valuation allowance--
domestic............... 657 2,017 160 (507)
Valuation allowance--
foreign................ 3,879 2,075 252 --
Other................... (150) (170) 173 540
------- ------- ------ -------
Income tax expense...... $10,874 $ 1,760 $2,899 $ 4,816
======= ======= ====== =======
</TABLE>
41
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Predecessor's income was included in Gillette's consolidated U.S. income
tax return. For financial reporting purposes, the Predecessor has provided
income taxes on a separate-company basis. The components of the provision for
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
------------------------
Eight months Four months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
1999 1998 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current:
Federal............... $ 60 $ -- $ -- $ 222
------- ------- ------ -------
Foreign:
Mexico.............. 3,275 (2,511) 2,524 4,717
Europe.............. 99 (245) -- 1,938
Other............... 30 -- -- 854
------- ------- ------ -------
3,404 (2,756) 2,524 7,509
State................. 90 -- -- (170)
------- ------- ------ -------
Total current..... 3,554 (2,756) 2,524 7,561
Deferred--foreign....... 7,320 4,516 375 (2,745)
------- ------- ------ -------
Total income taxes on
income (loss) before
income taxes and
extraordinary item..... 10,874 1,760 2,899 4,816
Income tax benefit on
early extinguishment of
debt................... (177) -- -- --
------- ------- ------ -------
Total income tax
expense................ $10,697 $ 1,760 $2,899 $ 4,816
======= ======= ====== =======
</TABLE>
42
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred income tax assets and deferred income tax
liabilities at December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable................................. $ 690 $ 416
Net operating loss carryforward..................... 8,326 7,056
Disallowed interest expense......................... 2,279 --
Accrued bonuses..................................... 1,933 --
Foreign tax credit carryforward..................... 991 --
AMT carryforward.................................... 61 --
Accrued sales promotion............................. 2,958 2,904
Other accrued liabilities........................... 947 422
Other............................................... 2,042 906
-------- --------
Total deferred income tax assets.................. 20,227 11,704
Less valuation allowance............................ (8,880) (4,344)
-------- --------
Net deferred income tax assets.................... 11,347 7,360
Deferred income tax liabilities:
Transaction and deferred financing costs............ (446) (1,500)
Property and equipment.............................. (2,228) (1,824)
Trademark and goodwill.............................. (19,193) (8,436)
Inventories......................................... (7,585) (4,755)
Other............................................... (213) 0
-------- --------
Total deferred income tax liabilities............. (29,665) (16,515)
-------- --------
Net deferred income tax liabilities............... $(18,318) $ (9,155)
======== ========
</TABLE>
As discussed in Note 2--Foreign Currency Translation, the Company's Mexican
subsidiary changed its functional currency from the U.S. dollar to the Mexican
peso effective January 1, 1999. As a result, approximately $2.0 million of
deferred income tax liabilities associated with temporary income tax
differences that arose from the change in functional currency were reflected
as an adjustment to the cumulative translation component of stockholders'
equity. In addition, during 1999, the Company's Mexican subsidiary recorded a
deferred income tax asset related to certain temporary differences incurred in
connection with the Acquisition. The resulting deferred income tax asset of
approximately $400,000 was reflected as an adjustment to goodwill.
The Company records a valuation allowance on the deferred income tax assets
to reduce the total to an amount that management believes is more likely than
not to be realized. The valuation allowances at December 31, 1999 and 1998 are
based upon the Company's estimates of the future realization of deferred
income tax assets. Valuation allowances at December 31, 1999 and 1998 were
provided principally to offset operating loss carryforwards and foreign tax
credit carryforwards of the Company's U.S., European and South American
subsidiaries.
At December 31, 1999, the Company's deferred income tax asset for U.S.
foreign tax credits ($991,000) and tax loss carryforwards of the U.S. and
certain foreign subsidiaries totaling $9,317,000 were reduced by a valuation
allowance of $8,880,000. The tax loss carryforwards expire in varying amounts
between 2000 and 2009. Realization of the income tax carryforwards is
dependent on generating sufficient taxable income prior to expiration of the
carryforwards. Although realization is not assured, management believes it is
more likely than not that the net carrying value of the income tax
carryforwards will be realized.
43
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Benefit Plans
Predecessor Plans
Prior to the Company's acquisition of the Jafra Business, the Predecessor
participated in The Gillette Company Retirement Plan (the "Plan") which was a
defined benefit pension plan covering substantially all of Gillette's domestic
employees. Benefits were based on age, years of service and the level of
compensation during the final years of employment. Gillette's funding policy
was to contribute annually to the Plan the amount necessary to meet the
minimum funding standards established by the Employee Retirement Income
Security Act.
The components of Gillette's net pension expense for the Plan for the year
ended December 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Service cost.................................................... $ 29,892
Interest cost on projected benefit obligation................... 60,245
Actual return on Plan assets.................................... (184,649)
Net amortization and deferral................................... 116,569
---------
Pension expense............................................... $ 22,057
=========
</TABLE>
The Predecessor's share of the above pension expense was $261,000 for the
four months ended April 30, 1998 and $970,000 in 1997. The Predecessor's share
of pension expense was based on the Predecessor's payroll covered by the Plan
as a percentage of total payroll covered by the Plan.
The funded status of the Plan at December 31, 1997 was as follows (in
thousands):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Vested benefits................................................ $693,835
Nonvested benefits............................................. 94,981
--------
Accumulated benefit obligation............................... 788,816
Benefit obligation related to future compensation levels....... 170,642
--------
Projected benefit obligation................................. 959,458
Fair value of Plan assets, invested primarily in equities and
debt securities............................................... 990,026
--------
Projected benefit obligation in excess of Plan assets........ 30,568
Unrecognized transition obligation............................. 1,648
Unrecognized prior service cost................................ 11,478
Unrecognized net loss.......................................... 9,178
Minimum liability adjustment................................... (25,459)
--------
Gillette's prepaid pension cost................................ $ 27,413
========
</TABLE>
The primary assumptions used in determining obligations of the Plan were as
follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Discount rate........................................................ 7.00%
Increase in compensation levels...................................... 5.00%
Long-term rate of return on assets................................... 9.00%
</TABLE>
The Predecessor also participated in Gillette's plans which provided certain
health care and life insurance benefits to retired employees. Substantially
all of the Predecessor's employees became eligible for these benefits upon
retirement. At the time of retirement, employees who elect to participate are
required to pay some portion of such medical costs if hired before July 1,
1990, or all of such costs if hired after that date. Gillette's employee stock
ownership plan (ESOP) was established to assist employees who retire after
January 1, 1992 to finance their retiree medical costs.
44
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Predecessor recognized the cost of postretirement benefits other than
pensions during employees' active working lives. The components of Gillette's
net other postretirement benefit expense for the year ended December 31, 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Interest cost..................................................... $17,008
Service cost...................................................... 4,758
Actual return on assets........................................... (6,010)
Net amortization expense.......................................... (3,631)
-------
Other postretirement benefit expense............................ $12,125
=======
</TABLE>
The Predecessor's share of the above other postretirement benefit expense
was $37,000 for the four months ended April 30, 1998 and $128,000 in 1997. The
status of Gillette's plans and the amounts recognized in Gillette's balance
sheet was as follows (in thousands):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Retirees.......................................................... $162,739
Fully eligible active employees................................... 18,356
Other active employees............................................ 66,735
--------
Accumulated postretirement benefit obligation................... 247,830
Fair value of plan assets......................................... (33,249)
Unrecognized net gain............................................. 86,947
--------
Gillette's accrued postretirement liability....................... $301,528
========
</TABLE>
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 7.00% in 1997. The assumed health care cost trend
rate was 9% in 1997, decreasing to 5% by the year 2001. A one percentage point
increase in the trend rate would have increased Gillette's accumulated
postretirement benefit obligation by 12% and interest and service cost by 14%
in 1997.
ESOP shares allocated to participants reduce Gillette obligations over the
period of allocation. The account balance is assumed to have an annual yield
of 12%. In addition, Gillette established a retiree health benefits account
within its pension plan that will be used to partially fund health care
benefits for future retirees.
Company Plans
Certain of the Company's Germany employees participate in the Germany Plan,
which is a defined benefit pension plan covering key employees. Benefits are
based on age, years of service and the level of compensation during the final
years of employment. The Company's funding policy is to contribute annually to
the Germany Plan the amount necessary to meet the minimum funding standards.
The total pension expense was $43,000 for the year ended December 31, 1999,
$11,000 for the eight months ended December 31, 1998, $129,000 for the four
months ended April 30, 1998 and $140,000 for the year ended December 31, 1997.
Under Mexican labor laws, employees of Jafra S.A. and its subsidiaries are
entitled to a payment when they leave the Company if they have fifteen or more
years of service. In addition, the Company makes government mandated employee
profit sharing distributions equal to ten percent of the taxable income of the
subsidiary in which they are employed. Total expense under these programs was
$391,000 for the year ended December 31, 1999. No expense was incurred in
1998. The total liability was approximately $782,000 and $382,000 at December
31, 1999 and 1998, respectively, and is classified as a current liability in
the accompanying consolidated balance sheets.
45
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's U.S. subsidiary has an employee savings plan which permits
participants to make voluntary contributions by salary reductions pursuant to
section 401(k) of the Internal Revenue Code. Employees may defer up to 15% of
their total compensation, subject to statutory limitations. Employee
contributions of up to 10% of compensation are matched by the Company at the
rate of 50 cents per dollar. Employees do not vest in the Company contribution
until they have reached two years of service, at which time they become fully
vested. The Company's expense under this program was $628,000 for the year
ended December 31, 1999 and $420,000 for the eight months ended December 31,
1998.
The Company's U.S. subsidiary also has supplemental excess benefit savings
plans which permit participants to make voluntary contributions of up to 15%
of their total compensation. Employee contributions are matched on the same
basis as under the employee savings plan, and the vesting provisions are the
same. The Company's expense under this program was $179,000 for the year ended
December 31, 1999 and $17,000 for the eight months ended December 31, 1998.
Employee and employer contributions under such plan are placed into a trust
exclusively for the uses and purposes of plan participants and general
creditors of the Company. The Company has recorded an asset and the related
liability of $711,000 at December 31, 1999 in the accompanying consolidated
balance sheets.
(9) Related Party Transactions
In 1998, CD&R received a fee of $2.7 million, half of which was recorded as
a direct acquisition cost and half of which was capitalized as deferred
financing fees, for providing services related to the structuring,
implementation and consummation of the Acquisition, in addition to the
reimbursement of out-of-pocket expenses. Pursuant to a consulting agreement
entered into following the Acquisition, until the 10th anniversary of the
Acquisition or the date on which CD&R Fund V no longer has an investment in
the Company, CD&R will receive an annual fee originally of $500,000 and as of
January 1, 1999, of $400,000 (and reimbursement of out-of-pocket expenses) for
providing advisory, management consulting and monitoring services to the
Company. The CD&R fees incurred during 1999 and the eight months ended
December 31, 1998 were $400,000 and $333,000, respectively. In addition,
certain officers and directors of CD&R or its affiliates serve as directors of
the Company. In 1999 and 1998, certain directors and other persons purchased
an aggregate of 1,667 and 21,000 shares of Company common stock, respectively.
During 1999, the Company engaged Guidance Solutions ("Guidance"), a
corporation in which an investment fund managed by CD&R has an investment, to
develop its e-commerce business. Under the agreement entered into by both
parties, the Company will pay a fee of approximately $2.0 million to Guidance
in connection with planning, defining, designing and consulting services
performed. Total fees charged by Guidance in 1999 for providing such services
were $389,000.
Members of management financed a portion of the cash purchase price of the
shares of Company common stock they acquired through loans from the Chase
Manhattan Bank on market terms. To help members of management obtain such
terms for such financing, the Company fully and unconditionally guaranteed up
to 75% of the purchase price for the shares of Company common stock purchased
by each such member of management.
In April of 1998, the Predecessor sold land in Mexico to Gillette with a
book value of approximately $6 million for $12 million. The excess of the
sales price over the book value of the land, net of taxes, was recorded as a
contribution of capital from Gillette to the Predecessor. Prior to the closing
date of the Acquisition, intercompany accounts receivable and accounts payable
between Predecessor entities and Gillette were forgiven, and as such were
accounted for as direct reductions from (additions to) equity, respectively.
Certain expenses were charged by Gillette to the Predecessor prior to the
Acquisition. The predecessor management believes the amounts and methods of
allocation were reasonable and approximated actual services provided. The
allocations were based principally upon a formula using the percentage of
revenues of the Predecessor to the total consolidated revenues of Gillette.
The predecessor management performed regular
46
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reviews of the allocated costs and determined that the cost of these services
to the Predecessor, as if it were a stand-alone entity, would be comparable to
the costs allocated to it by Gillette. Such services included legal, trademark
and patent support, internal audit, and other administrative costs. Total
related net charges were $748,000 for the four months ended April 30, 1998 and
$2,045,000 for 1997. Such charges are included in selling, general, and
administrative expenses in the accompanying consolidated statements of
operations. Such allocations ceased upon consummation of the Acquisition, and,
as such, no amounts are included for 1999 and the eight months ended December
31, 1998.
Interest was charged and earned on intercompany receivables and payables
between Gillette and the Predecessor at the LIBOR rate prior to the
Acquisition. The total related interest was $152,000 for the four months ended
April 30, 1998 and $592,000 for 1997, and is included in interest, net, in the
accompanying consolidated statements of operations.
The Predecessor recognized profit on the sale of inventory to Gillette of
$157,000 for the four months ended April 30, 1998.
Gillette acted as a cash manager for the Predecessor prior to the
Acquisition. As such, balances due to/from Gillette and other divisions
consisted of amounts related to this and to the above transactions.
During 1997, Jafra Cosmetics International, Inc. wrote off approximately
$3,200,000 of payables due from its affiliate in Canada, as a result of the
decision to close the market in Canada. The division in Canada recorded this
as a credit to earnings. Accordingly, these transactions offset in
combination.
(10) Restructuring and Impairment Charges and Related Accruals
Current Year Restructuring and Impairment Charges. In 1999, the Company
recorded approximately $3.7 million of restructuring charges and approximately
$1.1 million of asset impairment charges. The restructuring charges consisted
of approximately $2.7 million of charges related to the outsourcing of the
Company's U.S. product manufacturing functions, and approximately $1.0 million
of other restructuring activities in the U.S., Europe and Mexico.
Substantially all of the charges related to severance costs. As the terms of
such severance were not communicated to the affected employees until
subsequent to the one-year anniversary of the Acquisition, such costs were
expensed during 1999. As of December 31, 1999, payments of approximately $2.6
million have been made for these charges. The Company anticipates that
substantially all of the remaining restructuring costs of approximately $1.1
million will be paid in 2000.
Also in 1999, the Company recognized an asset impairment charge of
approximately $1.1 million relating to long-lived assets (goodwill and
trademarks) owned by its German subsidiary ("Jafra Germany"). In the fourth
quarter of 1999, concurrent with the Company's annual business planning
process, the Company recognized that sales levels in Jafra Germany had
declined more than anticipated since the Acquisition. The Company performed an
impairment review and concluded that Jafra Germany's future undiscounted cash
flows were below the carrying value of its related long-lived assets.
Accordingly, the Company recorded a noncash impairment loss of approximately
$1.1 million to adjust the carrying values of Jafra Germany's goodwill and
trademarks to their estimated fair values, which were determined based on
anticipated future cash flows discounted at a rate commensurate with Jafra
Germany's weighted average cost of capital.
Acquisition Accrual. In connection with the Acquisition in 1998, 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,
and included approximately $2.9 million of severance costs and $1.1 million of
costs primarily relating to closure and/or relocation of certain distribution
facilities. As of the consummation of the Acquisition, senior management began
formulating a plan to close certain distribution facilities and involuntarily
terminate certain employees.
47
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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") (see Note 14). The total finalized cost of the
Acquisition Accrual is approximately $4.4 million, and resulted in a net
increase to goodwill of approximately $0.4 million in 1999. The components of
the Acquisition Accrual are summarized as follows (in thousands):
<TABLE>
<S> <C>
Disposal of fixed assets........................................... $2,336
Severance.......................................................... 1,724
Lease termination costs............................................ 197
Other.............................................................. 150
------
$4,407
======
</TABLE>
In the eight months ended December 31, 1998, approximately $0.7 million of
severance costs and $0.1 million of facilities closure costs were paid and
charged against the Acquisition Accrual. During 1999, all of the remaining
components of the Acquisition Accrual were incurred. At December 31, 1999,
there was no remaining liability related to the Acquisition Accrual.
Non-recurring Charges Prior to the Acquisition. In 1997, the Predecessor
Company incurred net non-recurring reorganization charges of $0.4 million,
comprised of reorganization costs of $3.5 million, which were offset by
recovery through litigation of $2.3 million of costs relating to an improper
installation of certain proprietary computer systems, and a gain of $0.8
million on the sale of a facility which had previously been written off. The
$3.5 million of reorganization costs, including $2.6 million of costs to
realign operations in Italy and South American markets, as well as $0.9
million of costs to close the Hungary and Canada markets, were comprised of
approximately $2.9 million of severance, $0.5 million of closure (lease costs)
and $0.1 million of other exit costs. These programs were adopted in early
1997 and the majority of payments associated with these programs were made
prior to the end of 1997. At the end of 1997, the remaining liability relating
to these reorganization activities was approximately $0.3 million.
As discussed above, the components of the additions and/or adjustments to
the aforementioned accruals include severance, lease costs, fixed asset
disposals, and other exit costs, and are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
Eight months ------------
Year Ended ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Additions--charges to income:
Severance........................ $ 3,502 $ -- $2,860
Lease costs...................... 57 -- 520
Other............................ 169 -- 120
------- ------ ------
Total additions................ 3,728 -- 3,500
Acquisition Accrual:
Severance........................ (1,176) 2,900 --
Fixed asset disposals............ 2,336 -- --
Lease costs...................... (903) 1,100 --
Other............................ 150 -- --
------- ------ ------
Acquisition Accrual, net....... 407 4,000 --
------- ------ ------
$ 4,135 $4,000 $3,500
======= ====== ======
</TABLE>
48
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A rollforward of the activity of the restructuring accruals is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
Eight months ------------
Year Ended ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Opening balance.................... $ 3,162 $ -- $ 380
Additions.......................... 3,728 4,000 3,500
Adjustment to goodwill balance..... 407 -- --
Charges against reserves........... (6,192) (838) (3,590)
------- ------ -------
Ending balance..................... $ 1,105 $3,162 $ 290
======= ====== =======
</TABLE>
The remaining costs at each year-end included in the restructuring accrual
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor
------------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Severance........................... $ 1,105 $2,154 $140
Lease costs......................... -- 1,008 150
------- ------ ----
$ 1,105 $3,162 $290
======= ====== ====
</TABLE>
The remaining balance at the end of 1997 was paid in the first quarter of
1998.
The principal component of the restructuring accruals is severance. A
summary of the severance activity is as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Predecessor
-----------------
Eight months
Year ended ended December Year ended
December 31, 1999 31, 1998 December 31, 1997
----------------- ---------------- -----------------
# of # of # of
Employees Amount Employees Amount Employees Amount
--------- ------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Opening balance......... 47 $ 2,154 -- $ -- 10 $ 275
Planned terminations.... 104 3,502 85 2,900 145 2,860
Adjustment to planned
terminations........... (39) (1,176) -- -- -- --
Actual terminations..... (69) (3,375) (38) (746) (147) (2,995)
--- ------- --- ------ ---- -------
Ending balance.......... 43 $ 1,105 47 $2,154 8 $ 140
=== ======= === ====== ==== =======
</TABLE>
The eight planned employee terminations as of December 31, 1997 occurred
during the four-month period ended April 30, 1998, at a total cost of
$140,000.
The operations of the markets that were restructured or eliminated were not
material to the combined financial statements; accordingly, separate financial
information on these markets has not been provided.
(11) Financial Reporting for Business Segments
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires disclosure
of certain information regarding operating segments, products and services,
geographic areas of operations and major customers.
49
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
JCI and Jafra S.A. have each guaranteed the obligations under the Notes
which were issued 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, Chile, Venezuela
and Brazil. The Company's subsidiaries in Poland and Brazil did not begin
incurring costs until the third quarter of 1998 and did not begin sales until
the first quarter of 1999. The Company's subsidiary in Chile did not begin
incurring costs and did not begin sales until the third quarter of 1999.
The combined financial statements of the Predecessor for the four months
ended April 30, 1998, and the year ended December 31, 1997 include the
accounts of the following subsidiaries of Gillette: Jafra Cosmetics
International, Inc., a California corporation (the Guarantor entity); Jafra
Cosmetics GmbH, a German company; Jafra Cosmetic International B.V., a
Netherlands company; Jafra Cosmetics S.p.A., an Italian company; Jafra
Cosmetics A.G., a Swiss company; the Jafra-related operations of a Gillette
affiliate in Austria; and the assets related to the Jafra intellectual
properties, held by Gillette, that are used in the Jafra Business
(collectively, the Nonguarantor entities). Additionally, the combined
financial statements of Grupo Jafra include the accounts of Grupo Jafra and
all of its subsidiaries together with certain operating assets and the related
operating profit of Gillette Braun used in the Jafra Business in Mexico and
the assets related to the Jafra intellectual properties held by Gillette.
Prior to the Acquisition, Jafra's operations in Argentina, Venezuela and
Colombia were not separate subsidiaries of the Company, but rather divisions
of Gillette subsidiaries that also conducted operations unrelated to the Jafra
Business. The accompanying financial statements include only the carved out
financial statements related to the Jafra Business of the South American
entities. As such, for the four months ended April 30, 1998 and the year ended
December 31, 1997, the results of operations and cash flows of the Jafra
Business in these countries and the immaterial results of operations and cash
flows of certain markets divested by Jafra prior to the Acquisition are
presented in the column denoted "Other Regions."
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.
50
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating condensed statements of operations data for the year ended
December 31, 1999, the eight months ended December 31, 1998, the four months
ended April 30, 1998, and the year ended December 31, 1997 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1999
-------------------------------------------------------------------------
Nonguarantor
Guarantor Entities Entities
---------------------------- ----------------
Jafra
JCI S.A. Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
-------- -------- -------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 70,686 $171,530 $242,216 $32,508 $15,726 $ -- $290,450
Cost of sales........... 19,540 49,505 69,045 8,113 5,270 (189) 82,239
-------- -------- -------- ------- ------- ----- --------
Gross profit............ 51,146 122,025 173,171 24,395 10,456 189 208,211
Selling, general and
administrative
expenses:
Business segment...... 42,869 75,095 117,964 25,805 13,702 (75) 157,396
Allocated corporate
expenses............. 4,244 10,298 14,542 1,952 944 -- 17,438
Restructuring and
impairment charges..... 3,146 172 3,318 1,429 65 -- 4,812
Gain on sales of
assets................. (1,043) -- (1,043) -- -- -- (1,043)
-------- -------- -------- ------- ------- ----- --------
Income (loss) from
operations 1,930 36,460 38,390 (4,791) (4,255) 264 29,608
Other expense (income):
Interest, net......... 8,873 6,803 15,676 1,448 (169) (67) 16,888
Royalty............... (17,838) 17,965 127 -- -- (127) --
Other, net............ (22) (3,801) (3,823) 519 (50) -- (3,354)
-------- -------- -------- ------- ------- ----- --------
Income (loss) before
income taxes........... 10,917 15,493 26,410 (6,758) (4,036) 458 16,074
Income tax expense...... 2,009 8,736 10,745 99 30 -- 10,874
-------- -------- -------- ------- ------- ----- --------
Income (loss) before
extraordinary item..... 8,908 6,757 15,665 (6,857) (4,066) 458 5,200
Extraordinary loss on
early extinguishment of
debt, net of income tax
benefit of $177........ 296 256 552 -- -- -- 552
-------- -------- -------- ------- ------- ----- --------
Net income (loss)....... $ 8,612 $ 6,501 $ 15,113 $(6,857) $(4,066) $ 458 $ 4,648
======== ======== ======== ======= ======= ===== ========
</TABLE>
During 1999, JCI (U.S.) charged Jafra S.A. (Mexico) a royalty fee of $17.8
million in connection with Jafra S.A.'s use of the marketing and distribution
systems and other know-how owned by JCI (U.S.) since the Acquisition date.
This charge is included in other expense (income).
51
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Eight months ended December 31, 1998
-------------------------------------------------------------------------
Nonguarantor
Guarantor Entities Entities
---------------------------- ----------------
JCI Jafra S.A. Total
(U.S.) (Mexico) Total Europe Other Eliminations Consolidated
------- ---------- -------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $50,695 $82,837 $133,532 $27,178 $10,309 $ -- $171,019
Cost of sales........... 17,487 27,814 45,301 7,715 2,706 602 56,324
------- ------- -------- ------- ------- ----- --------
Gross profit............ 33,208 55,023 88,231 19,463 7,603 (602) 114,695
Selling, general and
administrative
expenses:
Business segment...... 28,809 38,432 67,241 20,752 9,408 4 97,405
Allocated corporate
expenses............. 2,978 4,866 7,844 1,597 606 -- 10,047
Loss on sale of assets.. 150 -- 150 -- -- -- 150
------- ------- -------- ------- ------- ----- --------
Income (loss) from
operations............. 1,271 11,725 12,996 (2,886) (2,411) (606) 7,093
Other expense (income):
Interest, net......... 5,973 4,838 10,811 890 (270) -- 11,431
Other, net............ (160) 2,149 1,989 22 (69) 1 1,943
------- ------- -------- ------- ------- ----- --------
Income (loss) before
income taxes........... (4,542) 4,738 196 (3,798) (2,072) (607) (6,281)
Income tax expense
(benefit).............. -- 1,948 1,948 (245) 57 -- 1,760
------- ------- -------- ------- ------- ----- --------
Net income (loss)....... $(4,542) $ 2,790 $ (1,752) $(3,553) $(2,129) $(607) $ (8,041)
======= ======= ======== ======= ======= ===== ========
</TABLE>
<TABLE>
<CAPTION>
Four months ended April 30, 1998
-----------------------------------------------------------------------
Guarantor Entities
--------------------------
Grupo Nonguarantor
JCI 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........... 8,371 10,372 18,743 2,962 1,238 (277) 22,666
------- ------- ------- ------- ------ ----- -------
Gross profit............ 15,240 25,350 40,590 10,085 3,664 277 54,616
Selling, general and
administrative
expenses:
Business segment...... 13,771 17,888 31,659 9,779 3,792 -- 45,230
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 tax expense...... 1 2,524 2,525 374 -- -- 2,899
------- ------- ------- ------- ------ ----- -------
Net income (loss)....... $ (602) $ 5,906 $ 5,304 $(1,087) $ (394) $ 277 $ 4,100
======= ======= ======= ======= ====== ===== =======
</TABLE>
52
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------------------------------------
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............... $70,637 $97,577 $168,214 $46,806 $14,504 $ -- $229,524
Cost of sales........... 26,679 28,439 55,118 9,638 3,848 -- 68,604
------- ------- -------- ------- ------- ------- --------
Gross profit............ 43,958 69,138 113,096 37,168 10,656 -- 160,920
Selling, general and
administrative
expenses:
Business segment...... 34,943 48,202 83,145 33,764 8,918 1,587 127,414
Allocated corporate
expenses............. 4,015 5,546 9,561 2,660 824 -- 13,045
Restructuring and other
non-recurring charges.. (2,300) (800) (3,100) -- 3,500 -- 400
Gain on sale of assets.. (126) -- (126) -- -- -- (126)
------- ------- -------- ------- ------- ------- --------
Income (loss) from
operations............. 7,426 16,190 23,616 744 (2,586) (1,587) 20,187
Other expense (income).. 1,223 591 1,814 170 (3,237) 1,175 (78)
------- ------- -------- ------- ------- ------- --------
Income (loss) before
income taxes........... 6,203 15,599 21,802 574 651 (2,762) 20,265
Income tax expense...... 52 1,972 2,024 1,938 854 -- 4,816
------- ------- -------- ------- ------- ------- --------
Net income (loss)....... $ 6,151 $13,627 $ 19,778 $(1,364) $ (203) $(2,762) $ 15,449
======= ======= ======== ======= ======= ======= ========
</TABLE>
53
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating condensed balance sheet data as of December 31, 1999 and 1998
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------------------------------------------
Nonguarantor
Guarantor Entities 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:
Receivables........... $ 5,485 $ 21,454 $ -- $ 26,939 $ 2,447 $ 1,891 $ -- $ 31,277
Inventories........... 4,789 19,513 -- 24,302 2,450 3,684 (146) 30,290
Other current assets.. 9,078 22,336 382 31,796 4,558 2,076 (11,041) 27,389
-------- -------- ------- -------- ------- ------- --------- --------
Total current
assets.............. 19,352 63,303 382 83,037 9,455 7,651 (11,187) 88,956
Property and
equipment, net....... 17,220 30,562 -- 47,782 2,132 693 -- 50,607
Other assets:
Goodwill, net........ 33,960 32,960 187 67,107 7,155 1,061 -- 75,323
Trademarks, net...... -- 51,280 192 51,472 248 261 (376) 51,605
Other(1)............. 57,916 4,100 76,096 138,112 4,455 1,858 (132,539) 11,886
-------- -------- ------- -------- ------- ------- --------- --------
Total................ $128,448 $182,205 $76,857 $387,510 $23,445 $11,524 $(144,102) $278,377
======== ======== ======= ======== ======= ======= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses..... $ 14,323 $ 26,350 $ -- $ 40,673 $ 6,407 $ 1,724 $ (375) $ 48,429
Other current
liabilities.......... 3,698 6,581 274 10,553 2,758 3,451 (10,399) 6,363
-------- -------- ------- -------- ------- ------- --------- --------
Total current
liabilities......... 18,021 32,931 274 51,226 9,165 5,175 (10,774) 54,792
Total long term debt.... 87,600 42,400 -- 130,000 -- -- -- 130,000
Other liabilities....... 711 56,737 -- 57,448 17,999 2,506 (60,162) 17,791
-------- -------- ------- -------- ------- ------- --------- --------
Total liabilities....... 106,332 132,068 274 238,674 27,164 7,681 (70,936) 202,583
Stockholders' equity.... 22,116 50,137 76,583 148,836 (3,719) 3,843 (73,166) 75,794
-------- -------- ------- -------- ------- ------- --------- --------
Total................ $128,448 $182,205 $76,857 $387,510 $23,445 $11,524 $(144,102) $278,377
======== ======== ======= ======== ======= ======= ========= ========
</TABLE>
54
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------------------------------------------------------------
Nonguarantor
Guarantor Entities 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:
Receivables........... $ 6,601 $ 12,654 $ -- $ 19,255 $ 3,620 $ 1,574 $ -- $ 24,449
Inventories........... 12,323 12,684 -- 25,007 5,350 3,440 (602) 33,195
Other current assets.. 10,908 21,130 14 32,052 4,867 3,085 (10,163) 29,841
-------- -------- ------- -------- ------- ------- --------- --------
Total current
assets............ 29,832 46,468 14 76,314 13,837 8,099 (10,765) 87,485
Property and
equipment, net....... 25,075 28,380 -- 53,455 2,640 143 -- 56,238
Other assets:
Goodwill, net........ 35,488 31,971 -- 67,459 8,869 865 -- 77,193
Trademarks, net...... 20,650 26,550 197 47,397 5,587 250 -- 53,234
Other(1)............. 26,572 6,006 75,678 108,256 1,363 3,726 (98,861) 14,484
-------- -------- ------- -------- ------- ------- --------- --------
Total.............. $137,617 $139,375 $75,889 $352,881 $32,296 $13,083 $(109,626) $288,634
======== ======== ======= ======== ======= ======= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses..... $ 21,472 $ 27,931 $ (255) $ 49,148 $ 7,918 $ 3,992 $ (970) $ 60,088
Other current
liabilities.......... 1,500 7,631 101 9,232 3,801 630 (9,193) 4,470
-------- -------- ------- -------- ------- ------- --------- --------
Total current
liabilities....... 22,972 35,562 (154) 58,380 11,719 4,622 (10,163) 64,558
Total long term debt.... 85,000 54,000 -- 139,000 -- -- -- 139,000
Other liabilities....... -- 11,715 -- 11,715 14,912 572 (17,564) 9,635
-------- -------- ------- -------- ------- ------- --------- --------
Total liabilities....... 107,972 101,277 (154) 209,095 26,631 5,194 (27,727) 213,193
Stockholders' equity.... 29,645 38,098 76,043 143,786 5,665 7,889 (81,899) 75,441
-------- -------- ------- -------- ------- ------- --------- --------
Total.............. $137,617 $139,375 $75,889 $352,881 $32,296 $13,083 $(109,626) $288,634
======== ======== ======= ======== ======= ======= ========= ========
</TABLE>
- -------
(1) Other assets include long-term intercompany notes receivable, JCI's and
Parent's investment in subsidiaries, and other miscellaneous assets.
Consolidating condensed statement of cash flows data for the year ended
December 31, 1999, the eight months ended December 31, 1998, the four months
ended April 30, 1998, and the year ended December 31, 1997 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1999
---------------------------------------------------------------------------------
Nonguarantor
Guarantor Entities 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.. $ 18,020 $(14,125) $260 $ 4,155 $(3,540) $(2,438) $ 268 $(1,555)
Investing activities.. 1,146 (2,622) -- (1,476) (586) (1,032) -- (3,094)
Financing activities.. (19,446) 4,866 108 (14,472) 3,674 3,415 -- (7,383)
Effect of exchange rate
changes on cash........ -- (161) -- (161) (460) (531) (268) (1,420)
Cash at beginning of
period................. 353 12,045 10 12,408 3,924 2,026 -- 18,358
-------- -------- ---- -------- ------- ------- ----- -------
Cash at end of period... $ 73 $ 3 $378 $ 454 $ 3,012 $ 1,440 $ -- $ 4,906
======== ======== ==== ======== ======= ======= ===== =======
</TABLE>
55
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Eight months ended December 31, 1998
------------------------------------------------------------------------------------
Nonguarantor
Guarantor Entities 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.. $ (6,192) $ 23,601 $(178) $ 17,231 $ 2,517 $(1,634) $ -- $ 18,114
Investing activities.. (90,366) (95,814) -- (186,180) (19,324) (5,643) -- (211,147)
Financing activities.. 96,911 84,258 188 181,357 21,130 9,249 -- 211,736
Effect of exchange rate
changes on cash........ -- -- -- -- (575) 2 -- (573)
Cash at beginning of
period................. -- -- -- -- 176 52 -- 228
-------- -------- ----- --------- -------- ------- ---- ---------
Cash at end of period... $ 353 $ 12,045 $ 10 $ 12,408 $ 3,924 $ 2,026 $ -- $ 18,358
======== ======== ===== ========= ======== ======= ==== =========
</TABLE>
<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 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>
<TABLE>
<CAPTION>
Year ended December 31, 1997
---------------------------------------------------------------------------
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 cash provided by
(used in)
Operating activities.. $ 13,467 $ 11,534 $ 25,001 $(4,031) $ 5,747 $ -- $ 26,717
Investing activities.. (2,130) 4,162 2,032 (437) (7,395) -- (5,800)
Financing activities.. (11,228) (13,220) (24,448) 4,347 1,110 -- (18,991)
Effect of exchange rate
changes on cash........ 158 (200) (42) (587) 272 -- (357)
Cash at beginning of
period................. 492 5,182 5,674 2,021 967 -- 8,662
-------- -------- -------- ------- ------- ---- --------
Cash at end of period... $ 759 $ 7,458 $ 8,217 $ 1,313 $ 701 $ -- $ 10,231
======== ======== ======== ======= ======= ==== ========
</TABLE>
56
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional business segment information is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------
United Total
States Mexico Europe Other Eliminations Consolidated
------ ------ ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Depreciation and
amortization............ $2,569 $3,276 $1,022 $252 $ -- $7,119
Amortization of deferred
financing fees.......... 840 992 -- -- -- 1,832
Capital expenditures..... 1,838 2,622 586 752 -- 5,798
Eight months ended
December 31, 1998
Depreciation and
amortization............ 2,556 1,810 672 51 -- 5,089
Amortization of deferred
financing fees.......... 731 676 -- -- -- 1,407
Capital expenditures..... 3,807 2,052 333 175 -- 6,367
Four months ended April
30, 1998
Depreciation and
amortization............ 740 275 236 112 -- 1,363
Capital expenditures..... 528 5,354 242 -- -- 6,124
Year ended December 31,
1997
Depreciation and
amortization............ 2,030 1,719 612 -- -- 4,361
Capital expenditures..... 2,718 5,019 788 407 -- 8,932
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
Sales by Percentage Sales by Percentage Sales by Percentage
Product Line of total Product Line of total Product Line of total
($ in millions) sales ($ in millions) sales ($ in millions) sales
--------------- ---------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Color Cosmetics......... $ 81.3 28.0% $ 70.9 28.6% $ 66.9 29.1%
Fragrances.............. 76.4 26.3 47.3 19.0 40.8 17.8
Skin Care............... 60.9 21.0 58.4 23.5 57.8 25.2
Personal Care........... 35.6 12.3 46.5 18.7 34.9 15.2
Other(1)................ 36.3 12.4 25.2 10.2 29.1 12.7
------ ----- ------ ----- ------ -----
Total................. $290.5 100.0% $248.3 100.0% $229.5 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
- --------
(1) Includes sales aids (party hostess gifts, demonstration products, etc.) and
promotional materials.
(12) Commitments and Contingencies
The Company leases office and warehouse facilities as well as manufacturing,
transportation and data processing equipment under operating leases which
expire at various dates through 2005. Future minimum lease payments under
noncancelable operating leases as of December 31, 1999 are (in thousands):
<TABLE>
<S> <C>
2000............................................................. $ 2,972
2001............................................................. 2,877
2002............................................................. 2,127
2003............................................................. 1,150
2004............................................................. 635
Thereafter....................................................... 284
-------
$10,045
=======
</TABLE>
57
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense was $3,610,000, $1,973,000, $951,000 and $1,500,000 for the
year ended December 31, 1999, the eight months ended December 31, 1998, the
four months ended April 30, 1998, and the year ended December 31, 1997,
respectively.
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.
(13) Management Incentive Arrangements
Company Plan
Effective as of the closing of the Acquisition, the Company adopted a stock
incentive plan (the "Stock Incentive Plan"), which provides for the sale to
members of senior management of up to 52,141 shares of common stock of the
Parent and the issuance of options to purchase up to 104,282 additional shares
of common stock. The Company has reserved 156,423 shares for issuance under
the Stock Incentive Plan. In 1999 and 1998, 2,457 and 39,340 shares,
respectively, were purchased subject to the Stock Incentive Plan. The purchase
price of such shares was $150 and $100 per share for purchases in 1999 and
1998, respectively, and represents the estimated fair value at the date of
sale. In addition, during 1999, a former member of management exercised
options to purchase 579 shares of common stock of the Parent at an option
price of $100 per share. Under certain circumstances, the management
stockholders can require the Company to repurchase their shares for an amount
not to exceed fair value. In 1999, the Company repurchased 2,317 shares at a
purchase price of $150 per share. As of December 31, 1999, there were 76,784
options outstanding under the Stock Incentive Plan. As of December 31, 1999
and 1998, additional options available for grants were 27,498 and 25,602,
respectively.
In connection with the purchase of common stock of the Parent, certain
members of senior management were granted options to purchase two additional
shares of common stock for each share purchased at an exercise price equal to
the fair value at the date of grant. These options have a life of ten years
from the date of grant, and the average remaining lives as of December 31,
1999 and 1998 are 8.77 and 9.75 years, respectively. A summary of the status
and activity of the Company options is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.......... 78,680 $100.00 -- --
Granted................................... 1,580 150.00 78,680 $100.00
Exercised................................. (579) 100.00 -- --
Canceled.................................. (2,897) 100.00 -- --
------ ------
Outstanding at year-end................... 76,784 101.03 78,680 100.00
====== ======
Options exercisable at year-end........... 12,534 $100.00 --
</TABLE>
Fifty percent of the options granted are expected to vest in three equal
installments on each of the first three anniversaries of the date of grant,
subject to the continuous employment of the grantee ("Option Type 1"). The
remaining fifty percent of the options become vested as follows, subject to
the continuous employment of the grantee: (a) up to one-third of the options
become vested as of each of the first three anniversaries of the date of grant
if the Company achieves at least 85% of its EBITDA target for the immediately
preceding fiscal year, (b) if less than one-third of the total number of
options shall have become vested as provided in clause (a) above, the portion
that has not become so vested shall become vested as of the first day of the
fiscal year following the fiscal
58
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
year, if any, that the Company achieves its cumulative EBITDA target, and (c)
any options that do not become vested as provided above will become vested on
the ninth anniversary of the date of grant ("Option Type 2").
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for these options. As the options were granted with exercise prices
equal to the fair value at the date of grant, no compensation cost was
recognized by the Company upon issuance of such options. The fair value of
each option granted by the Company was estimated using the Black Scholes
option pricing model. The assumptions used in this pricing model and the
weighted average fair value of options granted during 1999 and 1998 were
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
Option Option Option Option
Type 1 Type 2 Type 1 Type 2
------ ------ ------ ------
<S> <C> <C> <C> <C>
Risk-free interest rate................... 6.0% 6.0% 4.2% 4.2%
Expected option life (in years)........... 5.0 9.0 5.0 9.0
Expected volatility....................... 0.0% 0.0% 0.0% 0.0%
Expected dividend yield................... 0.0% 0.0% 0.0% 0.0%
Weighted average fair value per option.... $38.55 $62.12 $18.88 $31.39
</TABLE>
Predecessor Plan
In 1997, certain key employees of the Predecessor were granted options to
purchase stock of Gillette. There were no options granted during the four
months ended April 30, 1998. The Predecessor applied APB Opinion No. 25 and
related Interpretations in accounting for these options. As the options were
granted with exercise prices equal to or greater than the fair value at the
date of grant, no compensation cost was allocated to the Predecessor. The fair
value of each option granted by Gillette was estimated using the Black Scholes
option pricing model, with the following assumptions used for grants in 1997:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Risk-free interest rate.............................................. 6.6%
Expected option life (in years)...................................... 4.6
Expected volatility.................................................. 19.2%
Expected dividend yield.............................................. 0.9%
</TABLE>
A summary of the activity of the Gillette Company options held by employees
of the Predecessor is as follows (thousands of shares):
<TABLE>
<CAPTION>
1997
-----------------------
Weighted Average
Shares Exercise Price
------ ----------------
<S> <C> <C>
Outstanding at beginning of year................. 612 $37.00
Granted.......................................... 98 93.00
Exercised........................................ (128) 30.00
Canceled......................................... (2) 66.00
----
Outstanding at year-end.......................... 580 54.00
Option exercisable at year-end................... 464
Weighted average fair value of options granted
during the year................................. $25.00
</TABLE>
59
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Compensation Cost
Had the Company and the Predecessor recorded compensation cost based on the
fair value of options granted at the grant date, as prescribed by FASB
Statement No.123, pro forma net income (loss) would have been as follows (in
thousands):
<TABLE>
<CAPTION>
Predecessor
Eight months ------------
Year Ended ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss), as reported.... $4,648 $(8,041) $15,449
Pro forma compensation cost....... 677 148 2,800
------ ------- -------
Pro forma net income (loss)....... $3,971 $(8,189) $12,649
====== ======= =======
</TABLE>
Employment Agreements
Certain senior executive officers have employment agreements which provide
for annual bonuses if the Company achieves the performance goals established
under its annual incentive plan for executives.
(14) Outsourcing of the U.S. Product Manufacturing Functions
In connection with the Company's restructuring plans with respect to the
closure and outsourcing of its U.S. product manufacturing functions as
discussed in Note 10, certain fixed assets and inventories 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 inventories of
approximately $2.2 million is non-interest bearing, and is payable in monthly
installments over one year, commencing October 1, 1999. At December 31, 1999,
approximately $2.1 million of notes from the Contractor (reflected at fair
value, net of discount), as well as approximately $0.5 million of unsecured
accounts receivable, were included in receivables and approximately $1.0
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 addition, 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 inventories,
manufacturing the inventories at its current location in Chino, California,
complying with applicable laws and regulations, and performing quality
assurance functions.
(15) Foreign Currency Forward Contracts
In 1999, the Company entered into foreign currency forward contracts in
Mexican pesos to reduce the effect of adverse exchange rate fluctuations in
Mexico. The outstanding foreign currency forward contracts at December 31,
1999 had a notional value of $29,906,000 and mature in 2000. Notional amounts
do not quantify
60
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
market or credit exposure or represent assets or liabilities of the Company,
but are used in the calculation of cash settlements under the contracts. The
table below describes the forward contracts that were outstanding at December
31, 1999 (in thousands):
<TABLE>
<CAPTION>
Forward
Contract Position in Maturity Contract Fair
Foreign Currency Date US Dollars(1) Date Rate Value(1)
---------------- -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 $ 3,722 3/31/00 9.671 $ 3,690
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,890 4/28/00 9.770 3,856
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 2,929 5/31/00 9.900 2,907
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,997 6/30/00 10.008 3,967
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 1,977 7/31/00 10.118 1,962
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,032 8/31/00 10.223 3,010
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,874 9/29/00 10.326 3,846
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 3,641 10/31/00 10.438 3,617
Buy US Dollar/sell Mexican
Peso....................... 12/22/99 2,844 11/30/00 10.548 2,829
------- -------
$29,906 $29,684
======= =======
</TABLE>
- --------
(1) The "Forward Position in US Dollars" and the "Fair Value" presented above
represent notional amounts. The net of these two amounts, $222,000,
represents the fair value of the forward contracts and has been recorded
as an asset in the accompanying consolidated balance sheet as of December
31, 1999.
Prior to entering into foreign currency exchange contracts, the Company
evaluates the counter parties' credit ratings. Credit risk represents the
accounting loss that would be recognized at the reporting date if counter
parties failed to perform as contracted. The Company does not currently
anticipate non-performance by such counter parties.
61
<PAGE>
CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Balance charged to charged Balance
at beginning costs and to other Deductions- at end
Descriptions of period expenses accounts recoveries of period
------------ ------------ ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Accounts Receivable:
CDRJ Investments (Lux)
S.A. and
Subsidiaries:
1999................ $2,284 $4,651 $ -- $3,848 $3,087
May 1-December 31,
1998............... 2,137 3,951 -- 3,804 2,284
Predecessor:
January 1-April 30,
1998............... 2,057 1,982 -- 1,902 2,137
1997................ 1,919 158 -- 20 2,057
Inventories:
CDRJ Investments (Lux)
S.A. and
Subsidiaries:
1999................ 4,900 2,256 -- 4,714 2,442
May 1-December 31,
1998............... 7,089(1) 922 -- 3,111 4,900
Predecessor:
January 1-April 30,
1998............... 1,628 733 -- 220 2,141
1997................ 2,314 240 -- 926 1,628
</TABLE>
- --------
(1) Increase in inventory reserves of $4,948 over Predecessor's balance at
April 30, 1998 represents certain purchase accounting entries recorded in
connection with the Acquisition.
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE
COMPANY
The names, ages and positions of the executive officers, significant
employees and directors of the Company as of March 15, 2000 are set forth
below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ronald B. Clark......... 64 Chairman and Chief Executive Officer; Director
Gonzalo R. Rubio........ 56 President and Chief Operating Officer; Director
Ralph S. Mason, III..... 48 Vice Chairman, Executive Vice President and General Counsel
Michael DiGregorio...... 45 Senior Vice President and Chief Financial Officer
Jaime Lopez Guirao...... 52 President of Global Operations
Alan Fearnley........... 49 Senior Vice President of Global Marketing
Joaquim Simoes.......... 47 Vice President and Chief Information Officer
Fabio Stillitano........ 41 President of United States Operations
Eugenio Lopez Barrios... 58 President of Mexican Operations
Jose Luis Peco.......... 54 President of European Operations
Ademar Serodio.......... 56 President of South American Operations (excluding Brazil)
Donald J. Gogel......... 51 Director
Steven D. Goldstein..... 48 Director
Thomas E. Ireland....... 50 Director
Siri Marshall........... 51 Director
David A. Novak.......... 31 Director
Paul Orfalea............ 52 Director
Ann Reese............... 47 Director
Edward H. Rensi......... 55 Director
Kenneth D. Taylor....... 65 Director
</TABLE>
Ronald B. Clark has served as a director and the Chairman and Chief
Executive Officer since joining the Company in May 1998. Mr. Clark served from
1996 to January 1998 as President, Richmont Europe (Mary Kay Holding Company).
From 1992 to 1995, he was President of Mary Kay Europe. Prior to that, he
served as Executive Vice President of Primerica Corp., President of Jafra
Cosmetics International, Inc., and Vice President of Avon Products, Inc. Mr.
Clark's employment agreement provides that he shall be a director of Parent
during the term of his employment.
Gonzalo R. Rubio has served as a director and the President and Chief
Operating Officer since joining the Company in May 1998. Mr. Rubio served from
1993 to 1997 as Area Vice President and later President of the European
operations of Mary Kay Inc. From 1970 to 1993, Mr. Rubio was employed by Avon
Products Inc., serving alternately as Area Director for Europe, International
Operations Director and Area Director for Latin America. Mr. Rubio's
employment agreement provides that he shall be a director of Parent during the
term of his employment.
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<PAGE>
Ralph S. Mason, III has served as the Vice Chairman, Executive Vice
President and General Counsel since joining the Company in May 1998. For more
than the prior five years, Mr. Mason was the senior and founding partner at
Mason, Taylor & Colicchio, a law firm in Princeton, New Jersey.
Michael DiGregorio currently serves as Senior Vice President and Chief
Financial Officer of the Company. From June 1998 to May 1999, Mr. DiGregorio
served as President of the United States Operations of the Company. From 1995
to June 1998, Mr. DiGregorio served as Financial Director and General Manager
of Jafra Mexico. From 1993 to 1995, Mr. DiGregorio served as Senior Vice
President, Finance and Chief Financial Officer of Atlantis Plastics, Inc.
Jaime Lopez Guirao has served as President, Global Operations since joining
the Company in June 1998. For more than the prior five years, Mr. Guirao was
employed by Avon Products, Inc., holding several operational, management and
Country President positions in Europe and the Americas.
Alan Fearnley has served as Senior Vice President of Global Marketing since
joining the Company in June 1998. From 1997 to 1998, Mr. Fearnley served as
Vice President of Marketing for Dermatologica. Prior to that, Mr. Fearnley
took a year's sabbatical to attend the Sloan Fellowship Masters Program at the
London Business School. During this sabbatical, Mr. Fearnley also served as
consultant to various companies. From 1987 to 1995, Mr. Fearnley served as
Senior Vice President of Global Marketing of Jafra.
Joaquim C. Simoes has served as Vice President and Chief Information Officer
since joining the Company in August 1999. Prior to joining the Company, Mr.
Simoes served as the Chief Information Officer, South American Theater, at
PricewaterhouseCoopers. From September 1997 to February 1998, Mr. Simoes
served as Senior Manager, Software & Systems at Pitney Bowes, Inc. From 1995
to 1997, Mr. Simoes owned and served as President of ExecuTrain of Rhode
Island. Prior to ExecuTrain, Mr. Simoes spent 16 years with Avon Products Inc.
in significant domestic and global positions within the Information Technology
area.
Fabio Stillitano currently serves as President of United States Operations
of the Company. From August 1998 to January 2000, Mr. Stillitano served as the
General Manager of Jafra Italy. From January 1998 to August 1998, Mr.
Stillitano served as General Manager and President's Advisor of GTS-DIBI Group
in Italy and Spain. From 1994 to January 1998, Mr. Stillitano served as Vice
President of Sales for Avon Cosmetics in Italy.
Eugenio Lopez Barrios has served as President of Mexican Operations since
joining the Company in June 1998. From 1993 to 1998, Mr. Barrios was President
of Mary Kay Mexico. Prior to that, Mr. Barrios was employed by Avon Products,
Inc. for over 30 years, where he oversaw Operations in Mexico, South America
and Central America.
Jose Luis Peco has served as President of European Operations of the Company
since joining the Company in June 1998. From 1994 to 1998, Mr. Peco served as
Vice President of European Operations for Mary Kay Cosmetics and President of
Mary Kay Cosmetics--Iberia. Prior to that, Mr. Peco served as Controller and
Financial Director for various European Operations for Avon Products, Inc. for
over 20 years.
Ademar Serodio joined the Company in January 2000 and currently serves as
President of South America Operations of the Company (excluding Brazil). For
more than the prior five years, Mr. Serodio was employed by Avon Products,
Inc., holding several Country President roles in Avon's South American
markets.
Donald J. Gogel has been a director of the Company since January 1998. Since
1998, Mr. Gogel has served as Chief Executive Officer of CD&R; since 1995 he
has served as President and a director of CD&R and since 1989 he has been a
principal of CD&R. Mr. Gogel is also a limited partner of CD&R Associates V
Limited Partnership ("Associates V"), the general partner of CD&R Fund V, and
President and Chief Executive Officer and a director of CD&R Investment
Associates II, Inc. ("Investment Associates II"), a Cayman Islands exempted
company that is the managing general partner of Associates V. Mr. Gogel is a
director of Kinko's, Inc., a corporation in which Fund V has an investment,
Alliant Foodservice, Inc., and its parent, CDRF Holding, Inc., corporations
in which an investment fund managed by CD&R has an investment, Global
Decisions Group, LLC,
64
<PAGE>
a limited liability company in which an investment fund managed by CD&R has an
investment, and Turbochef, Inc. Mr. Gogel serves as a member of the
compensation committee of the board of directors of Kinko's, Inc. and
Turbochef, Inc.
Steven D. Goldstein has been a director of the Company since July 1998 and
has served as Chairman and Chief Executive Officer of Invenet, LLC since
December 1997. Prior to joining Invenet, LLC, Mr. Goldstein was employed as
President, Credit of Sears, Roebuck & Co. From 1982 to 1996, Mr. Goldstein was
employed by American Express Co., serving most recently as the Chairman and
Chief Executive Officer of American Express Bank.
Thomas E. Ireland has been a director of the Company since March 1998 and is
a principal of CD&R, a limited partner of Associates V and a shareholder of
Investment Associates II. From 1988 until joining CD&R in 1997, Mr. Ireland
served as a senior managing director of Alvarez & Marsal, Inc. Mr. Ireland
also serves on the board of directors of the Maine Coast Heritage Trust.
Siri Marshall has been a director of the Company since July 1999. Ms.
Marshall has been employed by General Mills since 1994 and currently serves as
its Senior Vice President, Corporate Affairs and General Counsel. From 1979
until joining General Mills, Ms. Marshall was employed by Avon Products, Inc.,
serving most recently as Senior Vice President, General Counsel and Secretary.
David A. Novak has been a director of the Company since January 1998. Mr.
Novak is a principal of CD&R, a limited partner of Associates V, and a
shareholder of Investment Associates II. Prior to joining CD&R in 1997, Mr.
Novak worked in the Merchant Banking and Investment Banking Divisions of
Morgan Stanley & Co. Incorporated and for the Central European Development
Corporation. Mr. Novak also serves on the board of directors of Allied
Worldwide, Inc., a corporation in which Fund V has an investment.
Paul Orfalea has been a director of the Company since July 1998 and is the
founder of Kinko's, Inc., a corporation in which Fund V has an investment. For
more than the prior five years, Mr. Orfalea has been employed by Kinko's,
Inc., serving as its Chairperson. Mr. Orfalea is also a director of DataProse,
Inc., Espresso Caffe Corp., Glendale Federal Bank and Kinko's, Inc., and
serves as a member of the compensation committee of the board of directors of
Glendale Federal Bank.
Ann Reese has been a director of the Company since July 1998. Ms. Reese is a
professional employee of CD&R and joined that firm in 1999. From prior to 1995
to December 1995 Ms. Reese was Treasurer and from December 1995 to March 1998
Chief Financial Officer of ITT Corp., a company in the hotel and gaming
businesses and previously in insurance and manufacturing.
Edward H. Rensi has been a director of the Company since July 1998. For more
than the prior five years, Mr. Rensi has been employed by McDonalds USA,
serving most recently as President and Chief Executive Officer. Mr. Rensi also
serves as a director of Snap-On Inc. and I.S.C. Corporation, and serves as a
member of the compensation committee of the board of directors of Snap-On Inc.
Kenneth D. Taylor has been a director of the Company since July 1998 and has
been the Chairman of Global Public Affairs, Inc. since October 1994. From 1991
to 1994, Mr. Taylor served as the Chairman of Taylor & Ryan, Inc. Mr. Taylor
is a director of Devine Entertainment Corporation, Taylor Gas Liquids Fund,
McCarvill Corporation, William Resources Inc., AdvantEdge International Inc.,
Finsa Energeticos, Alberta Northeast Gas Limited, and J&H Marsh & McLennan
Limited.
At present, all directors will hold office until their successors are
elected and qualified, or until their earlier removal or resignation.
65
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Compensation Of Executive Officers
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four additional most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers") for each of the last two fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------ ------------
Other Annual Securities All Other
Name and Principal Bonus Compensation Underlying Compensation
Position Year Salary ($) ($) ($) Options (#) ($)(1)
------------------ ---- ---------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald B. Clark......... 1999 609,288 510,000 -- -- 30,273
Chairman and Chief 1998 406,154(2) 360,000 -- 18,328 15,692
Executive Officer
Gonzalo R. Rubio........ 1999 507,740 425,000 -- -- 55,228
President and Chief 1998 326,923(2) 300,000 -- 18,328 1,344
Operating Officer
Ralph S. Mason, III..... 1999 456,966 382,000 146,238(3) -- 1,771
Vice Chairman,
Executive 1998 304,616(2) 270,000 263,082(4) 14,536 --
Vice President and
General Counsel
Jaime Lopez Guirao...... 1999 455,597 382,000 -- -- 47,910
President of Global 1998 253,846(5) 870,000(6) -- 6,000 2,269
Operations
Michael A. DiGregorio... 1999 304,352 212,000 -- -- 22,718
Senior Vice President
and 1998 190,385(5) 150,000 79,292(7) 3,476 5,192
Chief Financial Officer
</TABLE>
- --------
(1) Amounts shown in this column constitute contributions by the Company under
the Company's 401(k) and Supplemental Savings Plans.
(2) Messrs. Clark, Rubio, and Mason joined the Company on May 1, 1998.
(3) Amount includes reimbursement for expenses of $140,000 incurred by Mr.
Mason in order to relocate to Company headquarters.
(4) Amount includes reimbursement for expenses of $258,347 incurred by Mr.
Mason in order to relocate to Company headquarters
(5) Messrs. Guirao and DiGregorio joined the Company on June 1, 1998.
(6) Amount includes a $600,000 incentive bonus accrued in connection with the
hiring of Mr. Guirao.
(7) Amount includes reimbursement for expenses of $75,474 incurred by Mr.
DiGregorio in order to relocate to Company headquarters.
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<PAGE>
Option Grants in 1999
There were no stock options granted to the Named Executive Officers during
the year ended December 31, 1999.
Fiscal Year-End Option Value Table
The following table sets forth information for each Named Executive Officer
with regard to the aggregate value of options held at December 31, 1999. No
options were exercised by such executive officers during the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options/SARs at the-Money Options at
December 31, 1999 (#)(1) December 31, 1999 ($)(2)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald B. Clark......... 3,055 15,273 $152,750 $763,650
Gonzalo R. Rubio........ 3,055 15,273 152,750 763,650
Ralph S. Mason, III..... 2,423 12,113 121,150 605,650
Jaime Lopez Guirao...... 1,000 5,000 50,000 250,000
Michael A. DiGregorio... 579 2,897 28,950 144,850
</TABLE>
- --------
(1) The Company has not granted any stock appreciation rights and its stock
plan does not provide for the granting of such rights.
(2) Calculated based on a per share price of Parent Common Stock of $150, the
estimated fair market value as of December 31, 1999, less the per share
exercise price.
Compensation Of Directors
During 1999, each outside director of the Company received a retainer of
$40,000 for serving on the Board of Directors of the Company and was
reimbursed for his or her out-of-pocket expenses incurred in connection with
attending board meetings. The Company pays no additional remuneration to
officers of the Company or the principals or employees of CD&R for serving as
directors.
Employment Agreements
The Company has employment agreements with each of the Named Executive
Officers. The employment agreements of Messrs. Clark, Rubio and Mason have an
initial term of three years that becomes a continuous "rolling" two year term
as of the first anniversary of the closing of the Acquisition (the "Closing").
The employment agreements of Messrs. Guirao and DiGregorio have a continuous
"rolling" term of two years, commencing as of June 1, 1998. Pursuant to their
respective agreements, as of their 1999 anniversary dates, Messrs. Clark,
Rubio, Mason, Guirao and DiGregorio receive annual base salaries of $614,000,
$512,000, $460,000, $459,000 and $307,000, respectively. In addition, each of
Messrs. Clark, Rubio, Mason and Guirao are eligible for a target annual bonus
equal to 60%, and Mr. DiGregorio is eligible for a target annual bonus equal
to 50%, of such Named Executive Officer's annual base salary if the Company
achieves the performance goals established under its annual incentive plan for
executives and may receive a larger bonus if such goals are exceeded. The
employment agreements further provide that, in the event of a termination of
any such Named Executive Officer's employment by the Company without "cause"
(as defined in the employment agreement) or by such executive for "good
reason" (as so defined), such Named Executive Officer will be entitled to
continued payments of his base salary for the remaining term of his employment
agreement and to payment of a pro rata annual bonus for the year of
termination provided that the Company achieves the performance objectives
applicable for such year and each year thereafter. Each of the employment
agreements also contains covenants regarding nondisclosure of confidential
information, noncompetition and nonsolicitation.
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<PAGE>
Compensation Committee Interlocks And Insider Participation
The Board of Directors of the Company established a Compensation Committee
to review all compensation arrangements for executive officers of the Company.
The individuals serving on the Compensation Committee during 1999 were Mr.
Taylor, Chairperson, Mr. Orfalea, and Mr. Gogel. Mr. Gogel is President, Chief
Executive Officer and a director of CD&R and a limited partner of CD&R
Associates V Limited Partnership ("Associates V"), the general partner of CD&R
Fund V. In 1998, CD&R received a fee of $2.7 million for providing services
related to the structuring, implementation and consummation of the
Acquisition. CD&R currently charges the Company an annual fee of $400,000
(plus reimbursement of out-of-pocket expenses) for advisory, management
consulting and monitoring services to the Company. Parent has also agreed to
indemnify the members of the Board employed by CD&R and CD&R against
liabilities incurred under securities laws with respect to their services to
the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Parent owns, indirectly, all of the outstanding capital stock of JCI and
Jafra S.A. The table below sets forth, as of March 10, 2000, the owners of 5%
or more of the Parent Common Stock and the ownership of Parent Common Stock by
the directors and each Named Executive Officer, as well as by all directors
and Named Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
Number
of Percent
Name Shares of Class
---- ------- --------
<S> <C> <C>
Clayton, Dubilier & Rice Fund V Limited Partnership(1).... 769,600 92.65
Donald J. Gogel(2)........................................ -- --
Steven D. Goldstein....................................... 2,000 *
Thomas E. Ireland(2)...................................... -- --
Siri Marshall............................................. 1,667 *
David A. Novak(2)......................................... -- --
Paul Orfalea.............................................. 2,500 *
Ann Reese................................................. 2,500 *
Edward H. Rensi........................................... 2,500 *
Kenneth D. Taylor......................................... 500 *
Ronald B. Clark(3)........................................ 12,219 1.47
Gonzalo R. Rubio(4)....................................... 12,219 1.47
Ralph S. Mason, III(5).................................... 9,691 1.17
Jaime Lopez Guirao(6)..................................... 4,000 *
Michael A. DiGregorio(7).................................. 2,317 *
All directors and Named Executive Officers as a group (14
persons)(8).............................................. 52,112 6.27
</TABLE>
- --------
The symbol "*" denotes less than 1 percent.
(1) Associates V is the general partner of CD&R Fund V and has the power to
direct CD&R Fund V as to the voting and disposition of shares held by CD&R
Fund V. CD&R Investment Associates II, Inc. ("Investment Associates II")
is the managing general partner of Associates V and has the power to
direct Associates V as to its direction of CD&R Fund V's voting and
disposition of the shares held by CD&R Fund V. No person controls the
voting and dispositive power of Investment Associates II with respect to
the shares owned by CD&R Fund V. Each of Associates V and Investment
Associates II expressly disclaims beneficial ownership of the shares owned
by CD&R Fund V. The business address for each of CD&R Fund V, Associates V
and Investment Associates II is c/o Investment Associates II, 1403 Foulk
Road, Suite 106, Wilmington, Delaware 19803.
(2) Does not include shares owned by CD&R Fund V.
(3) Includes 3,055 shares as to which Mr. Clark has a right to acquire through
the exercise of stock options.
68
<PAGE>
(4) Includes 3,055 shares as to which Mr. Rubio has a right to acquire through
the exercise of stock options.
(5) Includes 2,423 shares as to which Mr. Mason has a right to acquire through
the exercise of stock options.
(6) Includes 1,000 shares as to which Mr. Guirao has a right to acquire
through the exercise of stock options.
(7) Includes 579 shares as to which Mr. DiGregorio has a right to acquire
through the exercise of stock options.
(8) Includes 10,112 shares which the directors and Named Executive Officers as
a group have a right to acquire through the exercise of stock options.
Messrs. Clark, Rubio and Mason purchased shares of Common Stock at the
Closing. On September 30, 1998, certain members of management, certain
directors and other persons purchased an aggregate of 40,437 shares of
Common Stock, on October 1, 1999, a former member of management exercised
579 options to purchase Common Stock, and on November 19, 1999, certain
members of management and a director purchased an aggregate of 2,457
shares of Common Stock in transactions exempt from the registration
requirements of the Securities Act . Shares owned by CD&R Fund V are not
included herein. Mr. Gogel is an officer, director and shareholder of
Investment Associates II and Mr. Ireland and Mr. Novak are each
shareholders of Investment Associates II.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CD&R Fund V, which is Parent's largest stockholder, is a private investment
fund managed by CD&R. Amounts contributed to CD&R Fund V by its limited
partners are invested at the discretion of the general partner in equity or
equity-related securities of entities formed to effect leveraged buy-out
transactions and in the equity of corporations where the infusion of capital,
coupled with the provision of managerial assistance by CD&R, can be expected
to generate returns on investments comparable to returns historically achieved
in leveraged buyout transactions. The general partner of CD&R Fund V is
Associates V, and the general partners of Associates V are Investment
Associates II, CD&R Investment Associates, Inc. and CD&R Cayman Investment
Associates, Inc., a Cayman Islands exempted company. Each of Mr. Gogel, who is
President, Chief Executive Officer and a director of CD&R, President and a
director of Investment Associates II and a limited partner of Associates V,
Mr. Ireland, who is a principal of CD&R, a limited partner of Associates V and
a shareholder of Investment Associates II, and Mr. Novak, who is a principal
of CD&R, a limited partner of Associates V, and a shareholder of Investment
Associates II are directors of Parent. See "Directors and Executive Officers
of the Company."
CD&R is a private investment firm that is organized as a Delaware
corporation. CD&R is the manager of a series of investment funds, including
CD&R Fund V. CD&R generally assists in structuring, arranging financing for
and negotiating the transactions in which the funds it manages invest. After
the consummation of such transactions, CD&R generally provides advisory,
management consulting and monitoring services to the companies in which its
investment funds have invested during the period of such fund's investment.
CD&R received at Closing an initial transaction fee of $2.7 million for
providing services related to the structuring, implementation and consummation
of the Acquisition, in addition to the reimbursement of out-of-pocket
expenses. Pursuant to a consulting agreement entered into at the Closing,
until the tenth anniversary of the Acquisition or the date on which CD&R Fund
V no longer has an investment in the Company, CD&R will receive an annual fee
originally of $500,000 and as of January 1, 1999, of $400,000 (and
reimbursement of out-of-pocket expenses) for providing advisory, management
consulting and monitoring services to the Company. Such services include,
among others, helping the Company to establish effective banking, legal and
other business relationships and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of the Company. As required by the terms of the Company's lending
arrangements, such fees were determined by arm's-length negotiation and are
believed by the Company to be reasonable.
CD&R, CD&R Fund V and Parent entered into an indemnification agreement,
pursuant to which Parent has agreed to indemnify the members of its board of
directors, as well as CD&R, CD&R Fund V, Associates V, Investment Associates
II and certain of their members, partners, associates and affiliates (the
"Indemnitees") to
69
<PAGE>
the fullest extent allowable under applicable law and to indemnify the
Indemnitees against any suits, claims, damages or expenses which may be made
against or incurred by them under applicable securities laws in connection
with offerings of securities of the Company, liabilities to third parties
arising out of any action or failure to act by the Company, and, except in
cases of gross negligence or intentional misconduct, the provision by CD&R of
advisory, management consulting and monitoring services.
During 1999, the Company engaged Guidance Solutions Inc. ("Guidance"), a
corporation in which an investment fund managed by CD&R has an investment, to
develop its e-commerce business. Under the agreement entered into by both
parties, the Company will pay a fee of approximately $2.0 million to Guidance
in connection with the planning, defining, designing and consulting services
performed. Total fees charged by Guidance in 1999 for providing such services
were $389,000.
The Company has entered into employment agreements with various members of
management, including each of the Named Executive Officers. See "Executive
Compensation--Employment Agreements." The employment agreements of Messrs.
Clark and Rubio provide that each will be a director of Parent during the term
of his employment.
In July of 1999, a former member of management terminated his employment
with the Company. Under the terms of his employment agreement, he received
total compensation of approximately $509,000, consisting of a severance
payment of $240,000 in July 1999, a payment of approximately $29,000 in
October 1999 relating to the cashless exercise of 579 options of Common Stock,
and a severance payment of $240,000 in January 2000.
Under certain circumstances, stockholders can require the Company to
purchase their shares of Common Stock. In October 1999, a former member of
management exercised 579 options to purchase Common Stock, then requested that
the Company purchase his entire balance of Common Stock, consisting of 2,317
shares. The Company repurchased these shares at a total cost of $348,000, or
$150 per share, which represented the estimated fair value at the time of
purchase.
In November 1999, a director, Siri Marshall, and certain members of
management purchased 1,667 and 790 shares of Common Stock, respectively at a
purchase price of $150.00 per share. Certain members of management were also
granted options to purchase an aggregate of 1,580 shares of Common Stock.
Certain members of management, including Named Executive Officers, financed a
portion of the cash purchase price of the shares of Common Stock they acquired
through loans from the Chase Manhattan Bank on market terms. To help members
of management obtain such terms for such financing, the Company fully and
unconditionally guaranteed up to 75% of the purchase price for the shares of
Common Stock purchased by each such member of management. The Company
guaranteed loans for $687,300, $687,300, $545,100, $225,000 and $131,500
extended to Messrs. Clark, Rubio, Mason, Guirao, and DiGregorio, respectively,
which remain outstanding.
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<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. Reference is made to the Index to Financial
Statements and Schedules of the Company on page 26 of this Annual Report on
Form 10-K.
(a)(2) Financial Statement Schedules. Reference is made to the Index to
Financial Statements and Schedules of the Company on page 26 of this Annual
Report on Form 10-K.
(a)(3) Exhibits. The following documents are exhibits to this Annual Report
on Form 10-K.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.1 Articles of Association (Statuts Coordonnes) of CDRJ Investments
(Lux) S.A., as restated on September 30, 1998; previously filed
as Exhibit 3.1 to Amendment 2 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed
December 23, 1998, and incorporated herein by reference.
3.2 Certificate of Incorporation of CDRJ Acquisition Corporation,
dated March 31, 1998; previously filed as Exhibit 3.2 to
Registration Statement No. 333-62989 under the Securities Act of
1933, as amended, filed September 4, 1998, and incorporated
herein by reference.
3.3 Certificate of Merger of Jafra Cosmetics International, Inc. into
CDRJ Acquisition Corporation, dated April 30, 1998; previously
filed as Exhibit 3.3 to Registration Statement No. 333-62989
under the Securities Act of 1933, as amended, filed September 4,
1998, and incorporated herein by reference.
3.4 Amended and Restated By-laws of Jafra Cosmetics International,
Inc. (formerly CDRJ Acquisition Corporation), as adopted on July
21, 1998; previously filed as Exhibit 3.4 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
3.5 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Jafra Cosmetics International, S.A. de C.V., together with a
unofficial summary thereof in English; previously filed as
Exhibit 3.5 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
3.6 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Consultoria Jafra, S.A. de C.V., together with a unofficial
summary thereof in English; previously filed as Exhibit 3.6 to
Amendment No. 1 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed October 27, 1998,
and incorporated herein by reference.
3.7 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Dirsamex, S.A. de C.V., together with a unofficial summary
thereof in English; previously filed as Exhibit 3.7 to Amendment
No. 1 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed October 27, 1998, and
incorporated herein by reference.
3.8 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Distribuidora Venus, S.A. de C.V., together with a unofficial
summary thereof in English; previously filed as Exhibit 3.8 to
Amendment No. 1 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed October 27, 1998,
and incorporated herein by reference.
3.9 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Jafra Cosmetics S.A. de C.V., formerly known as Jafra Cosmetics
S. de R.L. de C.V., together with a unofficial summary thereof
in English; previously filed as Exhibit 3.9 to Amendment No. 1
to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed October 27, 1998, and incorporated
herein by reference.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.10 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Qualifax, S.A. de C.V., together with a unofficial summary
thereof in English; previously filed as Exhibit 3.10 to
Amendment No. 1 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed October 27, 1998,
and incorporated herein by reference.
3.11 Deed of Incorporation (acta constitutiva), including all
amendments thereto, and current by-laws (estatutos sociales) of
Reday, S.A. de C.V., together with a unofficial summary thereof
in English; previously filed as Exhibit 3.11 to Amendment No. 1
to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed October 27, 1998, and incorporated
herein by reference.
3.12 Notarial Deed and Resolutions, together with a unofficial summary
thereof in English, for the transformation of Jafra Cosmetics S.
de R.L. de C.V. into Jafra Cosmetics S.A. de C.V.
4.1 Indenture, dated April 30, 1998, among CDRJ Acquisition
Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ
Investments (Lux) S.A., and State Street Bank and Trust Company;
previously filed as Exhibit 4.1 to Registration Statement No.
33-62989 under the Securities Act of 1933, as amended, filed
September 4, 1998, and incorporated herein by reference.
4.2 First Supplemental Indenture, dated April 30, 1998, among
Consultoria Jafra, S.A. de C.V., Distribuidora Venus, S.A. de
C.V., Dirsamex, S.A. de C.V., Reday, S.A. de C.V., Qualifax S.A.
de C.V., and Jafra Cosmetics S.R.L., CDRJ Acquisition
Corporation and Jafra Cosmetics International, S.A. de C.V. and
State Street Bank and Trust Company; previously filed as Exhibit
4.2 to Registration Statement No. 333-62989 under the Securities
Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.3 Purchase Agreement, dated April 28, 1998, between Credit Suisse
First Boston Corporation, Chase Securities Inc., CDRJ
Acquisition Corporation, Jafra Cosmetics International, S.A. de
C.V., and CDRJ Investments (Lux) S.A; previously filed as
Exhibit 4.3 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.4 Purchase Agreement Amendment, dated April 30, 1998, executed on
behalf of each of Reday, S.A. de C.V., Distribuidora Venus, S.A.
de C.V., Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra
Cosmetics, S.R.L., Consultoria Jafra, S.A. de C.V., Credit
Suisse First Boston Corporation, and Chase Securities Inc.;
previously filed as Exhibit 4.4 to Registration Statement No.
333-62989 under the Securities Act of 1933, as amended, filed
September 4, 1998, and incorporated herein by reference.
4.5 Registration Rights Agreement, dated April 30, 1998, among CDRJ
Acquisition Corporation, Jafra Cosmetics International, Inc.,
Jafra Cosmetics International, S.A. de C.V., CDRJ Investments
(Lux) S.A., Reday, S.A. de C.V., Distribuidora, S.A. de C.V.,
Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra Cosmetics,
S.A. de C.V., Consultoria Jafra, S.A. de C.V., and Credit Suisse
First Boston Corporation; previously filed as Exhibit 4.5 to
Registration Statement No. 333-62989 under the Securities Act of
1933, as amended, filed September 4, 1998, and incorporated
herein by reference.
4.6 Credit Agreement, dated April 30, 1998, among CDRJ Acquisition
Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ
Investments (Lux) S.A., as Guarantor and Parent of the
Borrowers, the Lenders named therein and Credit Suisse First
Boston, as Administrative Agent; previously filed as Exhibit 4.6
to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed September 4, 1998, and incorporated
herein by reference.
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.7 Amendment No. 1 to the Credit Agreement, dated August 26, 1998;
previously filed as Exhibit 4.7 to Registration Statement No.
333-62989 under the Securities Act of 1933, as amended, filed
September 4, 1998, and incorporated herein by reference.
4.8 Indemnity, Subrogation and Contribution Agreement, dated April
30, 1998, among Jafra Cosmetics International, S.A. de C.V.
("JCISA"), each Subsidiary of JCSI listed on Schedule I thereto
and Credit Suisse First Boston; previously filed as Exhibit 4.8
to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed September 4, 1998, and incorporated
herein by reference.
4.9 JCI Guarantee Agreement, dated April 30, 1998, between CDRJ
Acquisition Corporation and Credit Suisse First Boston;
previously filed as Exhibit 4.9 to Registration Statement No.
333-62989 under the Securities Act of 1933, as amended, filed
September 4, 1998, and incorporated herein by reference.
4.10 JCISA Guarantee Agreement, dated April 30, 1998, between Jafra
Cosmetics International, S.A. de C.V. and Credit Suisse First
Boston; previously filed as Exhibit 4.10 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
4.11 JCISA Subsidiary Guarantee Agreement, dated April 30, 1998, among
each of the subsidiaries of Jafra Cosmetics International, S.A
de C.V. listed on Schedule I thereto, and Credit Suisse First
Boston; previously filed as Exhibit 4.11 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
4.12 Parent Guarantee Agreement, dated April 30, 1998, between CDRJ
Investments (Lux) S.A. and Credit Suisse First Boston;
previously filed as Exhibit 4.12 to Registration Statement No.
333-62989 under the Securities Act of 1933, as amended, filed
September 4, 1998, and incorporated herein by reference.
4.13 Pledge Agreement, dated April 30, 1998 among CDRJ Investments
(Lux) S.A., CDRJ North Atlantic Sarl, CDRJ Latin America Holding
Company B.V., Latin Cosmetics Holdings B.V., Regional Cosmetics
Holding B.V., Southern Cosmetics Holdings B.V., and CDRJ Mexico
Holding Company B.V., CDRJ Acquisition Corporation, Jafra
Cosmetics International, S.A. de C.V. and Credit Suisse First
Boston; previously filed as Exhibit 4.13 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
4.14 Security Agreement, dated April 30, 1998, among CDRJ Acquisition
Corporation ("JCI"), each subsidiary of JCI listed on Schedule I
thereto and Credit Suisse First Boston; previously filed as
Exhibit 4.14 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.15 Deed of Trust, with Assignment of Leases and Rents, Fixture
Filing and Security Agreement, dated April 30, 1998, by Jafra
Cosmetics International, Inc. to TitleServ Agency of New York
City, Inc., as trustee for the Benefit of Credit Suisse First
Boston; previously filed as Exhibit 4.15 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
4.16 Acknowledgment of Obligations and Mortgage, dated April 30, 1998,
granted by Reday, S.A. de C.V. in favor of Credit Suisse First
Boston, together with an unofficial English translation thereof;
previously filed as Exhibit 4.16 to Registration Statement
No. 33-62989 under the Securities Act of 1933, as amended, filed
September 4, 1998, and incorporated herein by reference.
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.17 Notarial Deed of Pledge, dated April 30, 1998, with respect to
the pledge to Credit Suisse First Boston of (i) 24 ordinary
shares of the capital stock of CDRJ Europe Holding Company B.V.
by Jafra Cosmetics International, Inc., and (ii) 40 ordinary
shares of the capital stock of CDRJ Latin America Holding B.V.
by CDRJ North Atlantic (Lux) Sarl; previously filed as Exhibit
4.17 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998,
and incorporated herein by reference.
4.18 Consent and Waiver, dated as of November 19, 1999, to the Credit
Agreement dated as of April 30, 1998, as amended by Amendment
No. 1 thereto dated as of August 26, 1998, among Jafra
Cosmetics International Inc., Jafra Cosmetics International
S.A. de C.V., CDRJ Investments (Lux) S.A., the several banks
and financial institutions party to the Credit Agreement, the
Issuing Bank and Credit Suisse First Boston., as Administrative
Agent.
4.19 Substitution of Trustee and Partial Reconveyance of Deed of
Trust, Assignment of Leases and Rents, Fixture Filing and
Security Agreement, and Release of Financing Statement, dated
November 29, 1999, which amends the Deed of Trust filed as
Exhibit 4.15 above.
4.20 Partial Reconveyance of Deed of Trust, Assignment of Leases and
Rents, Fixture Filing and Security Agreement and Release of
Financing Statement, dated November 29, 1999, which amends the
Deed of Trust filed as Exhibit 4.15 above.
10.1 Indemnification Agreement, dated April 30, 1998, among CDRJ
Investments (Lux) S.A., CDRJ Acquisition Corporation, Jafra
Cosmetics International, S.A. de C.V., Clayton, Dubilier &
Rice, Inc., Clayton, Dubilier & Rice Fund V Limited
Partnership; previously filed as Exhibit 10.1 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
10.2 Consulting Agreement, dated April 30, 1998, by and among CDRJ
Investments (Lux) S.A., Jafra Cosmetics International, Inc. and
Jafra Cosmetics, S.A. de C.V., and Clayton, Dubilier & Rice,
Inc.; previously filed as Exhibit 10.2 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as
amended, filed September 4, 1998, and incorporated herein by
reference.
10.3 Form of Employment Agreement for Messrs. Clark, Rubio, Mason,
Guirao and DiGregorio; previously filed as Exhibit 10.3 to
Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed September 4, 1998, and incorporated
herein by reference.
10.4 Amended and Restated Jafra Cosmetics International, Inc. Stock
Incentive Plan, as adopted September 3, 1998; previously filed
as Exhibit 10.4 to Amendment No. 1 to Registration Statement
No. 333-62989 under the Securities Act of 1933, as amended,
filed October 27, 1998, and incorporated herein by reference.
10.5 CDRJ Investments (Lux) S.A. Form of Management Stock Option
Agreement; previously filed as Exhibit 10.5 to Amendment No. 1
to Registration Statement No. 333-62989 under the Securities
Act of 1933, as amended, filed October 27, 1998, and
incorporated herein by reference.
10.6 Amended and Restated Stock Purchase Warrant, dated September 30,
1998, by and between CDRJ Investments (Lux) S.A. and Jafra
Cosmetics International, Inc.; previously filed as Exhibit 10.6
to Amendment No. 1 to Registration Statement No. 333-62989
under the Securities Act of 1933, as amended, filed October 27,
1998, and incorporated herein by reference.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.7 Registration and Participation Agreement, dated April 30, 1998,
among CDRJ Investments (Lux) S.A. and Clayton, Dubilier & Rice
Fund V Limited Partnership and the other parties thereto;
previously filed as Exhibit 10.7 to Registration Statement
No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
10.8 CDRJ Investments (Lux) S.A. Form of Management Stock Subscription
Agreement; previously filed as Exhibit 10.8 to Amendment No. 1
to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed October 27, 1998, and incorporated
herein by reference.
10.9 CDRJ Investments (Lux) S.A. Form of Individual Investor Stock
Subscription Agreement; previously filed as Exhibit 10.9 to
Amendment No. 1 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed October 27, 1998,
and incorporated herein by reference.
10.10 Jafra Cosmetics International, Inc. Supplemental Savings Plan,
dated October 27, 1998; previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, filed May 17, 1999, and incorporated herein by
reference.
10.11 Jafra Cosmetics International, Inc. Special Supplemental Savings
Plan for Non-United States-Source Income, dated January 20,
1999; previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, filed May 17, 1999, and incorporated herein by reference.
10.12 Asset Purchase Agreement, dated as of June 10, 1999, as amended
by Amendment No. 1, dated as of June 10, 1999; by and between
the Company and the Contractor, previously filed as Exhibit 10.1
to Form 8-K, filed on June 10, 1999, and incorporated herein by
reference (portions of which were filed under a confidentiality
request).
10.13 Amendment No. 1 to Asset Purchase Agreement, dated as of June 10,
1999; previously filed as Exhibit 10.2 to Form 8-K, filed on
June 10, 1999, and incorporated herein by reference (portions of
which were filed under a confidentiality request).
10.14 Manufacturing Agreement, dated as of June 10, 1999, by and
between the Company and the Contractor, as amended by Amendment
No. 1, dated as of June 22, 1999; previously filed as Exhibit
10.3 to Form 8-K, filed on June 10, 1999, and incorporated
herein by reference (portions of which were filed under a
confidentiality request).
10.15 Form of Amendment No. 1 to Manufacturing Agreement, dated as of
June 10, 1999; previously filed as Exhibit 10.4 to Form 8-K,
filed on June 10, 1999 and incorporated herein by reference
(portions of which were filed under a confidentiality request).
10.16 Form of Secured Note for the Assets, dated June 10, 1999, made by
the Contractor in favor of the Company; previously filed as
Exhibit 10.5 to Form 8-K, filed on June 10, 1999 and
incorporated herein by reference (portions of which were filed
under a confidentiality request).
10.17 Form of Secured Note for the Inventory, dated June 10, 1999, made
by the Contractor in favor of the Company; previously filed as
Exhibit 10.6 to Form 8-K, filed on June 10, 1999 and
incorporated herein by reference (portions of which were filed
under a confidentiality request).
10.18 Sale Agreement, dated as of September 29, 1999, between the
Company and Townsgate Road LLC; previously filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, filed November 12, 1999, and
incorporated herein by reference.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.19 Sale Agreement, dated as of October 15, 1999, between the Company
and Selvin Properties; previously filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, filed November 12, 1999, and incorporated
herein by reference.
10.20 Trust Agreement dated May 26, 1999 by and between Jafra Cosmetics
International, Inc. and Scudder Trust Company.
10.21 Amendment No. 1 to Consulting Agreement, dated as of March 15,
2000, by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics
International, Inc., Jafra Cosmetics International, S.A. de
C.V., and Clayton, Dubilier & Rice, Inc.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1999, the Company filed no reports on
Form 8-K.
76
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Ronald B. Clark
By: _________________________________
Name: Ronald B. Clark
Title: Chief Executive Officer of
the Advisory Committee and
Director
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald B. Clark Chief Executive Officer of March 30, 2000
____________________________________ the Advisory Committee and
Ronald B. Clark Director (Principal
executive officer)
/s/ Michael A. DiGregorio Senior Vice President and March 30, 2000
____________________________________ Chief Financial Officer of
Michael A. DiGregorio the Advisory Committee
(Principal financial
officer, Principal
accounting officer)
/s/ Ralph S. Mason, III Secretary and Executive Vice March 30, 2000
____________________________________ President of the Advisory
Ralph S. Mason, III Committee (Representative
in the U.S.)
/s/ Donald J. Gogel Director March 30, 2000
____________________________________
Donald J. Gogel
/s/ Steven D. Goldstein Director March 30, 2000
____________________________________
Steven D. Goldstein
/s/ Thomas E. Ireland Director March 30, 2000
____________________________________
Thomas E. Ireland
/s/ Siri Marshall Director March 30, 2000
____________________________________
Siri Marshall
/s/ David A. Novak Director March 30, 2000
____________________________________
David A. Novak
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul Orfalea Director March 30, 2000
____________________________________
Paul Orfalea
/s/ Ann Reese Director March 30, 2000
____________________________________
Ann Reese
/s/ Edward H. Rensi Director March 30, 2000
____________________________________
Edward H. Rensi
/s/ Gonzalo Rubio Director March 30, 2000
____________________________________
Gonzalo Rubio
Director
____________________________________
Kenneth D. Taylor
</TABLE>
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
No annual report or proxy material has been sent to security holders.
78
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.1 Articles of Association (Statuts Coordonnes) of CDRJ Investments (Lux)
S.A., as restated on September 30, 1998; previously filed as Exhibit
3.1 to Amendment 2 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed December 23, 1998, and
incorporated herein by reference.
3.2 Certificate of Incorporation of CDRJ Acquisition Corporation, dated
March 31, 1998; previously filed as Exhibit 3.2 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
3.3 Certificate of Merger of Jafra Cosmetics International, Inc. into CDRJ
Acquisition Corporation, dated April 30, 1998; previously filed as
Exhibit 3.3 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
3.4 Amended and Restated By-laws of Jafra Cosmetics International, Inc.
(formerly CDRJ Acquisition Corporation), as adopted on July 21, 1998;
previously filed as Exhibit 3.4 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
3.5 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Jafra Cosmetics
International, S.A. de C.V., together with a unofficial summary
thereof in English; previously filed as Exhibit 3.5 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
3.6 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Consultoria
Jafra, S.A. de C.V., together with a unofficial summary thereof in
English; previously filed as Exhibit 3.6 to Amendment No. 1 to
Registration Statement No. 333-62989 under the Securities Act of
1933, as amended, filed October 27, 1998, and incorporated herein by
reference.
3.7 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Dirsamex, S.A.
de C.V., together with a unofficial summary thereof in English;
previously filed as Exhibit 3.7 to Amendment No. 1 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed October 27, 1998, and incorporated herein by reference.
3.8 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Distribuidora
Venus, S.A. de C.V., together with a unofficial summary thereof in
English; previously filed as Exhibit 3.8 to Amendment No. 1 to
Registration Statement No. 333-62989 under the Securities Act of
1933, as amended, filed October 27, 1998, and incorporated herein by
reference.
3.9 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Jafra Cosmetics
S.A. de C.V., formerly known as Jafra Cosmetics S. de R.L. de C.V.,
together with a unofficial summary thereof in English; previously
filed as Exhibit 3.9 to Amendment No. 1 to Registration Statement No.
333-62989 under the Securities Act of 1933, as amended, filed October
27, 1998, and incorporated herein by reference.
3.10 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Qualifax, S.A.
de C.V., together with a unofficial summary thereof in English;
previously filed as Exhibit 3.10 to Amendment No. 1 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed October 27, 1998, and incorporated herein by reference.
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.11 Deed of Incorporation (acta constitutiva), including all amendments
thereto, and current by-laws (estatutos sociales) of Reday. S.A. de
C.V., together with a unofficial summary thereof in English;
previously filed as Exhibit 3.11 to Amendment No. 1 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed October 27, 1998, and incorporated herein by reference.
3.12 Notarial Deed and Resolutions, together with a unofficial summary
thereof in English, for the transformation of Jafra Cosmetics S. de
R.L. de C.V. into Jafra Cosmetics S.A. de C.V.
4.1 Indenture, dated April 30, 1998, among CDRJ Acquisition Corporation,
Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux)
S.A., and State Street Bank and Trust Company; previously filed as
Exhibit 4.1 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.2 First Supplemental Indenture, dated April 30, 1998, among Consultoria
Jafra, S.A. de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex,
S.A. de C.V., Reday, S.A. de C.V., Qualifax S.A. de C.V., and Jafra
Cosmetics S.R.L., CDRJ Acquisition Corporation and Jafra Cosmetics
International, S.A. de C.V. and State Street Bank and Trust Company;
previously filed as Exhibit 4.2 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
4.3 Purchase Agreement, dated April 28, 1998, between Credit Suisse First
Boston Corporation, Chase Securities Inc., CDRJ Acquisition
Corporation, Jafra Cosmetics International, S.A. de C.V., and CDRJ
Investments (Lux) S.A; previously filed as Exhibit 4.3 to
Registration Statement No. 333-62989 under the Securities Act of
1933, as amended, filed September 4, 1998, and incorporated herein by
reference.
4.4 Purchase Agreement Amendment, dated April 30, 1998, executed on behalf
of each of Reday, S.A. de C.V., Distribuidora Venus, S.A. de C.V.,
Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra Cosmetics,
S.R.L., Consultoria Jafra, S.A. de C.V., Credit Suisse First Boston
Corporation, and Chase Securities Inc.; previously filed as Exhibit
4.4 to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed September 4, 1998, and incorporated herein
by reference.
4.5 Registration Rights Agreement, dated April 30, 1998, among CDRJ
Acquisition Corporation, Jafra Cosmetics International, Inc., Jafra
Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A.,
Reday, S.A. de C.V., Distribuidora, S.A. de C.V., Dirsamex, S.A. de
C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.A. de C.V.,
Consultoria Jafra, S.A. de C.V., and Credit Suisse First Boston
Corporation; previously filed as Exhibit 4.5 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
4.6 Credit Agreement, dated April 30, 1998, among CDRJ Acquisition
Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ
Investments (Lux) S.A., as Guarantor and Parent of the Borrowers, the
Lenders named therein and Credit Suisse First Boston, as
Administrative Agent; previously filed as Exhibit 4.6 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
4.7 Amendment No. 1 to the Credit Agreement, dated August 26, 1998;
previously filed as Exhibit 4.7 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
4.8 Indemnity, Subrogation and Contribution Agreement, dated April 30,
1998, among Jafra Cosmetics International, S.A. de C.V. ("JCISA"),
each Subsidiary of JCSI listed on Schedule I thereto and Credit
Suisse First Boston; previously filed as Exhibit 4.8 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.9 JCI Guarantee Agreement, dated April 30, 1998, between CDRJ
Acquisition Corporation and Credit Suisse First Boston; previously
filed as Exhibit 4.9 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.10 JCISA Guarantee Agreement, dated April 30, 1998, between Jafra
Cosmetics International, S.A. de C.V. and Credit Suisse First Boston;
previously filed as Exhibit 4.10 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
4.11 JCISA Subsidiary Guarantee Agreement, dated April 30, 1998, among each
of the subsidiaries of Jafra Cosmetics International, S.A de C.V.
listed on Schedule I thereto, and Credit Suisse First Boston;
previously filed as Exhibit 4.11 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
4.12 Parent Guarantee Agreement, dated April 30, 1998, between CDRJ
Investments (Lux) S.A. and Credit Suisse First Boston; previously
filed as Exhibit 4.12 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.13 Pledge Agreement, dated April 30, 1998 among CDRJ Investments (Lux)
S.A., CDRJ North Atlantic Sarl, CDRJ Latin America Holding Company
B.V., Latin Cosmetics Holdings B.V., Regional Cosmetics Holding B.V.,
Southern Cosmetics Holdings B.V., and CDRJ Mexico Holding Company
B.V., CDRJ Acquisition Corporation, Jafra Cosmetics International,
S.A. de C.V. and Credit Suisse First Boston; previously filed as
Exhibit 4.13 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.14 Security Agreement, dated April 30, 1998, among CDRJ Acquisition
Corporation ("JCI"), each subsidiary of JCI listed on Schedule I
thereto and Credit Suisse First Boston; previously filed as Exhibit
4.14 to Registration Statement No. 333-62989 under the Securities Act
of 1933, as amended, filed September 4, 1998, and incorporated herein
by reference.
4.15 Deed of Trust, with Assignment of Leases and Rents, Fixture Filing and
Security Agreement, dated April 30, 1998, by Jafra Cosmetics
International, Inc. to TitleServ Agency of New York City, Inc., as
trustee for the Benefit of Credit Suisse First Boston; previously
filed as Exhibit 4.15 to Registration Statement No. 333-62989 under
the Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
4.16 Acknowledgment of Obligations and Mortgage, dated April 30, 1998,
granted by Reday, S.A. de C.V. in favor of Credit Suisse First
Boston, together with an unofficial English translation thereof;
previously filed as Exhibit 4.16 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
4.17 Notarial Deed of Pledge, dated April 30, 1998, with respect to the
pledge to Credit Suisse First Boston of (i) 24 ordinary shares of the
capital stock of CDRJ Europe Holding Company B.V. by Jafra Cosmetics
International, Inc., and (ii) 40 ordinary shares of the capital stock
of CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux) Sarl;
previously filed as Exhibit 4.17 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
4.18 Consent and Waiver, dated as of November 19, 1999, to the Credit
Agreement dated as of April 30, 1998, as amended by Amendment No. 1
thereto dated as of August 26, 1998, among Jafra Cosmetics
International Inc., Jafra Cosmetics International S.A. de C.V., CDRJ
Investments (Lux) S.A., the several banks and financial institutions
party to the Credit Agreement, the Issuing Bank and Credit Suisse
First Boston., as Administrative Agent.
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.19 Substitution of Trustee and Partial Reconveyance of Deed of Trust,
Assignment of Leases and Rents, Fixture Filling and Security
Agreement, and Release of Financing Statement, dated November 29,
1999, which amends the Deed of Trust filed as Exhibit 4.15 above.
4.20 Partial Reconveyance of Deed of Trust, Assignment of Leases and Rents,
Fixture Filing and Security Agreement and Release of Financing
Statement, dated November 29, 1999, which amends the Deed of Trust
filed as Exhibit 4.15 above.
10.1 Indemnification Agreement, dated April 30, 1998, among CDRJ
Investments (Lux) S.A., CDRJ Acquisition Corporation, Jafra Cosmetics
International, S.A. de C.V., Clayton, Dubilier & Rice, Inc., Clayton,
Dubilier & Rice Fund V Limited Partnership; previously filed as
Exhibit 10.1 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
10.2 Consulting Agreement, dated April 30, 1998, by and among CDRJ
Investments (Lux) S.A., Jafra Cosmetics International, Inc. and Jafra
Cosmetics, S.A. de C.V., and Clayton, Dubilier & Rice, Inc.;
previously filed as Exhibit 10.2 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed September
4, 1998, and incorporated herein by reference.
10.3 Form of Employment Agreement for Messrs. Clark, Rubio, Mason, Guirao
and DiGregorio; previously filed as Exhibit 10.3 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed September 4, 1998, and incorporated herein by reference.
10.4 Amended and Restated Jafra Cosmetics International, Inc. Stock
Incentive Plan, as adopted September 3, 1998; previously filed as
Exhibit 10.4 to Amendment No. 1 to Registration Statement No. 333-
62989 under the Securities Act of 1933, as amended, filed October 27,
1998, and incorporated herein by reference.
10.5 CDRJ Investments (Lux) S.A. Form of Management Stock Option Agreement;
previously filed as Exhibit 10.5 to Amendment No. 1 to Registration
Statement No. 333-62989 under the Securities Act of 1933, as amended,
filed October 27, 1998, and incorporated herein by reference.
10.6 Amended and Restated Stock Purchase Warrant, dated September 30, 1998,
by and between CDRJ Investments (Lux) S.A. and Jafra Cosmetics
International, Inc.; previously filed as Exhibit 10.6 to Amendment
No. 1 to Registration Statement No. 333-62989 under the Securities
Act of 1933, as amended, filed October 27, 1998, and incorporated
herein by reference.
10.7 Registration and Participation Agreement, dated April 30, 1998, among
CDRJ Investments (Lux) S.A. and Clayton, Dubilier & Rice Fund V
Limited Partnership and the other parties thereto; previously filed
as Exhibit 10.7 to Registration Statement No. 333-62989 under the
Securities Act of 1933, as amended, filed September 4, 1998, and
incorporated herein by reference.
10.8 CDRJ Investments (Lux) S.A. Form of Management Stock Subscription
Agreement; previously filed as Exhibit 10.8 to Amendment No. 1 to
Registration Statement No. 333-62989 under the Securities Act of
1933, as amended, filed October 27, 1998, and incorporated herein by
reference.
10.9 CDRJ Investments (Lux) S.A. Form of Individual Investor Stock
Subscription Agreement; previously filed as Exhibit 10.9 to Amendment
No. 1 to Registration Statement No. 333-62989 under the Securities
Act of 1933, as amended, filed October 27, 1998, and incorporated
herein by reference.
10.10 Jafra Cosmetics International, Inc. Supplemental Savings Plan, dated
October 27, 1998; previously filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed May 17, 1999, and incorporated herein by reference.
10.11 Jafra Cosmetics International, Inc. Special Supplemental Savings Plan
for Non-United States-Source Income, dated January 20, 1999;
previously filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, filed May 17, 1999,
and incorporated herein by reference.
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.12 Asset Purchase Agreement, dated as of June 10, 1999, as amended by
Amendment No. 1, dated as of June 10, 1999; by and between the
Company and the Contractor, previously filed as Exhibit 10.1 to Form
8-K, filed on June 10, 1999, and incorporated herein by reference
(portions of which were filed under a confidentiality request).
10.13 Amendment No. 1 to Asset Purchase Agreement, dated as of June 10,
1999; previously filed as Exhibit 10.2 to Form 8-K, filed on June 10,
1999, and incorporated herein by reference (portions of which were
filed under a confidentiality request).
10.14 Manufacturing Agreement, dated as of June 10, 1999, by and between the
Company and the Contractor, as amended by Amendment No. 1, dated as
of June 22, 1999; previously filed as Exhibit 10.3 to Form 8-K, filed
on June 10, 1999, and incorporated herein by reference (portions of
which were filed under a confidentiality request).
10.15 Form of Amendment No. 1 to Manufacturing Agreement, dated as of June
10, 1999; previously filed as Exhibit 10.4 to Form 8-K, filed on June
10, 1999 and incorporated herein by reference (portions of which were
filed under a confidentiality request).
10.16 Form of Secured Note for the Assets, dated June 10, 1999, made by the
Contractor in favor of the Company; previously filed as Exhibit 10.5
to Form 8-K, filed on June 10, 1999 and incorporated herein by
reference (portions of which were filed under a confidentiality
request).
10.17 Form of Secured Note for the Inventory, dated June 10, 1999, made by
the Contractor in favor of the Company; previously filed as Exhibit
10.6 to Form 8-K, filed on June 10, 1999 and incorporated herein by
reference (portions of which were filed under a confidentiality
request).
10.18 Sale Agreement, dated as of September 29, 1999, between the Company
and Townsgate Road LLC; previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, filed November 12, 1999, and incorporated herein
by reference.
10.19 Sale Agreement, dated as of October 15, 1999, between the Company and
Selvin Properties; previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, filed November 12, 1999, and incorporated herein by reference.
10.20 Trust Agreement dated May 26, 1999 by and between Jafra Cosmetics
International, Inc. and Scudder Trust Company.
10.21 Amendment No. 1 to Consulting Agreement, dated as of March 15, 2000,
by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics
International, Inc., Jafra Cosmetics International, S.A. de C.V., and
Clayton, Dubilier & Rice, Inc.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
</TABLE>
83
<PAGE>
EXHIBIT 3.12
[LETTERHEAD]
JORGE ANTONIO FRANCOZ GARATE
NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA
ESTADO DE MEXICO
- --ESCRITURA NUMERO VEINTIOCHO MIL CUATROCIENTOS SETENTA Y UNO.------------------
VOLUMEN NUMERO SETECIENTOS CUARENTA Y DOS.-------------------------------En la
Ciudad de Naucalpan de Juarez, Estado de Mexico, a los dieciocho dias del mes de
Noviembre de mil novecientos noventa y ocho, Yo, el Licenciado JORGE ANTONIO
FRANCOZ GARATE, NOTARIO PUBLICO NUMERO DIECISIETE, del Distrito Judicial de
Tlalnepantla, Estado de Mexico y Notario del PATRIMONIO INMUEBLE FEDERAL, hago
constar que ante mi comparece el senor ALBERTO MENA ADAME, en su caracter de
Delegado Especial del Acta de Asamblea General Extraordinaria de Accionistas, de
la Sociedad Mercantil denominada "JAFRA COSMETICS", SOCIEDAD DE RESPONSABILIDAD
LIMITADA DE CAPITAL VARIABLE, celebrada el dia seis de Mayo de mil novecientos
noventa y ocho, en la que se acordo entre otros puntos LA TRANSFORMACION DE LA
SOCIEDAD A SOCIEDAD ANONIMA DE CAPITAL VARIABLE, LA ADOPCION DE ESTATUTOS
SOCIALES, EL NOMBRAMIENTO DE MIEMBROS DEL ORGANO DE ADMINISTRACION, LOS
FUNCIONARIOS DE LA SOCIEDAD Y DESGINACION DE LOS COMISARIOS DE LA MISMA;
solicita del suscrito Notario P R O T O C O L I CE en lo conducente dicha Acta,
al tenor de los antecedente clausulas siguientes:-------------------------------
ANTECEDENTES-------------------------------------------Declara el compareciente
con la representacion que ostenta y bajo protesta de decir verdad:--------------
I.--CONSTITUCION DE SOCIEDAD.--Que por escritura publica numero veinticinco mil
ciento cincuenta y seis, de fecha veintinueve de junio de mil novecientos
ochenta y ocho, otorgada ante la fe del Licenciado ROBERTO NUNEZ Y BANDERA,
Notario Publico numero Uno, de Mexico, Distrito Federal, cuyo primer testimonio
quedo debidamente INSCRITO en el Registro Publico de Comercio de Mexico,
Distrito Federal, bajo el Folio Mercantil numero UNO UNO CERO SEIS NUEVE NUEVE,
previo permiso concedido por la Secretaria de Relaciones Exteriores, numero cero
tres uno dos cuatro ocho, Expediente cero nueve diagonal uno ocho cinco cuatro
dos diagonal ocho ocho, se constituyo la Sociedad Mercantil denominada
"COMERCIALIZADORA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, con duracion de
noventa y nueve anos, domicilio social en Mexico, Distrito Federal, Capital
Social de QUINIENTOS MIL PESOS PESOS, MONEDA NACIONAL, Y clausula de
Inclusion de Extranjeros.-------------------------------------------------------
II.--CAMBIO DE DENOMINACION.--Que por escritura Publica numero treinta y un mil
quinientos cuarenta y cinco, de fecha seis de diciembre de mil novecientos
noventa y uno, otorgada ante la fe del Licenciado Roberto Nunez y Bandera,
Notario Publico numero Uno del Distrito Federal, cuyo primer testimonio quedo
debidamente inscrito en el Registro Publico de la Propriedad y de Comercio de
Mexico, Distrito Federal, en el
1
<PAGE>
Folio Mercantil numero UNO UNO CERO SEIS NUEVE NUEVE, se hizo constar la
Protocolizacion del Acta General Ordinaria, celebrada por los accionistas de
"JAFRA COSMETICS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, el dia veinte de agosto
de mil novecientos noventa y uno, en la que se tomo el acuerdo de cambiar la
denominacion de "COMERCIALIZADORA JAFRA", S.A. DE C.V., por la de "JAFRA
COSMETICS".--------------------------------------------------------------------
III.-CAPITAL SOCIAL.--Que por diversas escrituras se aumento el Capital Social
en su parte Variable, siendo que por escritura publica numero treinta y cuatro
mil ciento cuarenta, de fecha veintinueve de marzo de mil novecientos noventa y
tres, otorgada ante la fe del ante la fe del Licenciado Roberto Nunez y Bandera,
Notario Publico numero Uno de Mexico, Distrito Federal, se hizo constar la
Protocolizacion del acta de Asamblea General Extraordinaria celebrada el treinta
y uno de octubre de mil novecientos noventa y dos, en la que se acordo entre
otros el reducir su capital social, en su parte variable, en la cantidad de DOCE
MIL OCHOCIENTOS MILLONES DE PESOS, Moneda Nacional, para que en lo sucesivo el
capital social ascendiera a la suma de QUINCE MILLONES DOSCIENTOS CUARENTA Y
CUATRO MIL NOVECIENTOS DOS PESOS, de los cuales QUINCE MILLONES DOSCIENTOS
CUARENTA Y CUATRO MIL DOSCIENTOS CUARENTA Y CUATRO PESOS, Moneda Nacional
corresponden a la parte variable de dicho capital social y QUINIENTOS MIL PESOS,
Moneda Nacional, a la parte minima variable.------------------------------------
IV.--NOBRAMIENTO DE FUNCIONARIOS Y OTORGAMIENTO DE PODERES Y AUTORIZACIONES A
LOS MISMOS.--Que por escritura Publica numero veintinueve mil doscientos ocho,
de fecha ocho de octubre de mil novecientos noventa, otorgada ante la fe del
Licenciado Roberto Nunez y Bandera, Notario Publico numero Uno de Mexico,
Distrito Federal, cuyo primer testimonio quedo debidamente inscrito en el
Registro Publico de la Propiedad y de Comercio, bajo el Folio mercantil numero
UNO UNO CERO SEIS NUEVE NUEVE, se hizo constar la Protocolizacion del acta de
Asamblea General ordinaria, celebrada el dia veintiocho de febrero de mil
novecientos noventa, en la que se acordo entre otros el nombramiento como
Director de Finanzas de la Sociedad al senor MIGUEL ANGEL CASTANEDA PEREZ,
otorgandole al mismo un poder.--------
V.--NOBRAMIENTO DEL ADMINISTRADOR UNICO Y PROTOCOLIZACION DE LOS NUEVOS
ESTATUTOS SOCIALES.--Que por escritura Publica numero tres mil cuatrocientos
cuarenta y cinco, de fecha veintiocho de abril de mil novecientos noventa y
cinco, otorgada ante la fe del Licenciado Carlos Antonio Rea Field, Notario
Publico numero Ciento ochenta y siete de Mexico, Distrito Federal, cuyo primer
testimonio se encuentra pendiente de su inscripcion en el Registro Publico de la
Propiedad y de Comercio, se hizo constar la Protocolizacion del acta de Asamblea
General ordinaria Anual y Extraordinaria, celebrada el primero de agosto de mil
novecientos noventa y cuatro, en la que se acordo entre otros el nombrar como
Administrador Unico al senor JULIO PEDRO CEPEDA REBOLLO, y modificar
integramente sus estatutos sociales--------------------------------------------
VI.--LA DESIGNACION DEL DIRECTOR DE FINANZAS Y EL OTORGAMIENTO DE PODERES
GENERALES.--Que por escritura Publica numero Veintiseis mil ochocientos
cuarenta, volumen seiscientos ochenta y siete, de fecha dieciocho de Septiembre
de mil novecientos noventa y siete, otorgada ante la fe del suscrito Notario,
cuyo primer testimonio quedo debidamente registrado quedo
2
<PAGE>
debidamente inscrito en el Registro Publico de la Propiedad y de Comercio, bajo
el Folio Mercantil UNO UNO CERO SEIS NUEVE NUEVE, se hizo constar la
Protocolizacion del acta de Asamblea General Ordinaria de Accionistas, en la que
se acordo entre otros la designacion del senor Ernesto Omar Cavassuto como
Director de Finanzas de la sociedad y otorgamiento de poderes en su favor.------
- --------------------------------------------------------------------------------
VII.--RENUNCIA AL CARGO DE DIRECTOR GENERAL, DESIGNACION DEL PRESIDENTE Y EL
OTORGAMIENTO DE PODERES GENERALES.--Que por escritura Publica numero Veintiseis
mil ochocientos sesenta y dos, volumen seiscientos ochenta y siete, de fecha
veintitres de Septiembre de mil novecientos noventa y siete, otorgada ante la fe
del suscrito Notario, cuyo primer testimonio quedo debidamente registrado quedo
debidamente inscrito en el Registro Publico de la Propiedad y de Comercio, bajo
el Folio Mercantil UNO UNO CERO SEIS NUEVE NUEVE, se hizo constar la
Protocolizacion del acta de Asamblea General Ordinaria de Accionistas, en la que
se acordo entre otros la renuncia del senor Alfredo Munda Tabusso a su cargo de
Director General de la sociedad, su designacion como Presidente de la misma y
otorgamiento de poderes en su favor.--------------------------------------------
VIII.--RENUNCIA DEL DIRECTOR DE FINANZAS; DESIGNACION DEL DIRECTOR DEL DIRECTOR
GENERAL Y EL OTORGAMIENTO DE PODERES GENERALES.--Que por escritura Publica
numero Veintiseis mil ochocientos sesenta y tres, volumen seiscientos ochenta y
siete, de fecha veintitres de Septiembre de mil novecientos noventa y siete,
otorgada ante la fe del suscrito Notario, cuyo primer testimonio quedo
debidamente registrado quedo debidamente inscrito en el Registro Publico de la
Propiedad y de Comercio, bajo el Folio Mercantil UNO UNO CERO SEIS NUEVE NUEVE,
se hizo constar la Protocolizacion del acta de Asamblea General Ordinaria de
Accionistas, en la que se acordo entre otros la renuncia del senor Michael
Anthony DiGregorio DiMaio a su cargo de Director de Finanzas de la sociedad, su
designacion Director General de la misma y otorgamiento de poderes en su favor.
- --------------------------------------------------------------------------------
IX.--REVOCACION DE PODERES, DESIGNACION DEL CONSEJO DE ADMINISTRACION,
RATIFICACION DEL COMISARIO Y COMISARIO SUPLENTE.-- Que por escritura Publica
numero Veintiseis mil ochocientos sesenta y cuatro, volumen seiscientos ochenta
y siete, de fecha veintitres de Septiembre de mil novecientos noventa y siete,
otorgada ante la fe del suscrito Notario, cuyo primer testimonio quedo
debidamente registrado quedo debidamente inscrito en el Registro Publico de la
Propiedad y de Comercio, bajo el Folio Mercantil UNO UNO CERO SEIS NUEVE NUEVE,
se hizo constar la Protocolizacion del acta de Asamblea General Ordinaria de
Accionistas, en la que se acordo entre otros la revocatcion de los poderes
otorgados por la Sociedad en favor del senor Dario Macias Ruelas; la designacion
del Consejo de Administracion designandose al efecto a los senores Alfredo Munda
Tabusso, como Presidente, Ernesto Omar Cavassuto Tesorero, Alberto Mena Adame,
Secretario, Michael Anthony DiGregorio DiMaio Vocal, Sergio Rene Aparicio
Gonzalez, Vocal, y como miembros suplentes a los senores Rodolfo Lopez Cerdan,
Martha Cecilia Echeverri Correa, Maria Dolores Sanchez Cano Gascon, Luis Alfonso
Cervantes Muniz, y la ratificacion de Comisario y Comisario Suplente de la
misma.--------------------------------------------------------------------------
X.--INFORME DEL CONSEJO DE ADMINISTRACION DE LA SOCIEDAD; EL INFORME DEL
COMUISARIO DE LOS ESTADOS FINANCIEROS Y LA APLICACION DE LOS RESULTADOS
OBTENIDOS POR LA SOCIEDAD
3
<PAGE>
DURANTE EL EJERCICIO SOCIAL CONCLUIDO EL 31 DE DICIEMBRE DE 1996.-- Que por
escritura Publica numero Veintiseis mil trescientos veintitres, volumen
Setecientos seis, de fecha diecicocho de Febrero de mil novecientos noventa y
ocho, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se
encuentra pendiente de inscripcion por lo reciente de su otorgamiento se hizo
constar la Protocolizacion parcial del acta de Asamblea General Ordinaria Anual
de Accionistas, en la que se acordo entre otros la aprobacion en todas y cada
una de sus partes los estados financieros auditados de la sociedad
correspondientes al ejercicio social concluido el 31 de diciembre de 1996; la
aprobacion del informe del Comisario de la sociedad, senor Fernando Holguin
Maillard respecto de los estados financieros del ejercicio social concluido el
31 de diciembre de 1996; la aprobacion de la aplicacion de los resultados
obtenidos por la sociedad durante el ejercicio social concluido el 31 de
diciembre de 1996.------------------------------------------
XI.--DESIGNACION DEL CONSEJO DE ADMINISTRACION; DESIGNACION DEL COMISARIO Y
COMISARIO SUPLENTE; EMOLUMENTOS A LOS MIEMBROS DEL CONSEJO DE ADMINISTRACION Y
COMISARIOS; RENUNCIA DEL DIRECTOR DE RELACIONES INDUSTRIALES Y REVOCACION DEL
PODERES.-- Que por escritura Publica numero Veintisiete mil trescientos
veinticinco, volumen Setecientos siete, de fecha dieciocho de Febrero de mil
novecientos noventa y ocho, otorgada ante la fe del suscrito Notario, cuyo
primer testimonio se encuentra pendiente de inscripcion por lo reciente de su
otorgamiento se hizo constar la Protocolizacion del acta de Asamblea General
Ordinaria Anual de Accionistas, en la que se acordo entre otros la aprobacion
del Consejo de Administracion, la designacion del Comisario y Comisario
Suplente, la renuncia del Director de Relaciones Industriales y revocacion de
todos y cada uno de los poderes otorgados al mismo.-----------------------------
XII.--LA TRANSFORMACION Y LA REFORMA A LOS ESTATUTOS SOCIALES. -- Que por
excritura Publica numero cincuenta y tres mil ciento setenta y ocho, volumen
Mil setenta y nueve, de fecha trece de Abril de mil novecientos noventa y ocho,
otorgada ante la fe del Licenciado MIGUEL ALESSIO ROBLES, Notario Publico Numero
Diecinueve, de Mexico, Distrito Federal, cuyo primer testimonio se encuentra
debidamente inscrito en el Registro Publico de Comercio de Mexico, Distrito
Federal bajo el Folio Mercantil numero UNO UNO CERO SEIS NUEVE NUEVE, de fecha
diecisiete de Abril de mil novecientos noventa y ocho, se hizo constar la
Protocolizacion del acta de Asamblea General Extraordinaria de Accionistas, en
la que se acordo entre otros la transformacion de la Sociedad en SOCIEDAD DE
RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE, reformandose al efecto el total de
estatutos sociales.-------------------------------------------------------------
De dicha escritura agrego copia al apendice de esta escritura marcada con la
letra "A", asi como al testimonio que de la misma se expida.--------------------
XIII.--Declara el senor ALBERTO MENA ADAME, en su caracter de Delegado Especial,
que la Sociedad que representa no ha sufrido ninguna otra modificacion en su
escritura constitutiva.---------------------------------------------------------
XIV.--ACTA DE ASAMBLEA EN HOJAS SUELTAS--El compareciente presenta al suscrito
Notario el Acta de Asamblea General Extraordinaria de Accionistas de la
Sociedad, integrada por veinticinco hojas tamano carta, escritas por una sola
cara debidamente firmadas y que mediante este instrumento se protocoliza y la
cual a continuacion transcribo integramente.------------------------------------
"En la Ciudad de Mexico, Distrito Federal, domicilio social de Jafra Cosmetics,
S. de
4
<PAGE>
R.L. de C.V., siendo las 9:00 horas del dia de mayo de 1998 se reunieron el
Sr. James A. Ritch Grande Ampudia en representacion de Jafra Cosmetics
International, S.A. de C.V. y la Srita. Monica Rosado Reygadas en representacion
de Consultoria Jafra, S.A. DE C.V. con el objeto de celebrar una ASAMBLEA
GENERAL EXTRAORDINARIA DE SOCIOS DE JAFRA COSMETICS, S. DE R.L. DE C.V. a la que
fueron previa y oportunamente convocados. Estuvieron presentes los senores
Alberto Mena Adame en su caracter de Secretario del Consejo de Administracion de
la sociedad y el Sr. Eugenio Lopez Barrios en calidad de invitado.--------------
- ---------------------------------------------------Por designacion unanime de
los presentes, fungio como presidente de la Asamblea el Sr. Eugenio Lopez
Barrios, actuo como Secretario el del propio Consejo de Administracion, el Sr.
Alberto Mena Adame.-------------------------------------------------------El
presidente designo escrutador al Senor James A Ritch Grande Ampudia, quien
despues de aceptar su cargo y de revisar los instrumentos conteniendo los
mandatos de los representantes de los socios y el Libro de Registro de Partes
Sociales que la sociedad lleva, certifico que se encontraba representada en la
Asamblea la totalidad de las partes sociales de la sociedad actualmente en
circulacion, distribuidas de la siguiente forma:-------------------------------
- ---SOCIOS-----------------------------------------PARTES SOCIALES----VOTOS-----
- ---Jafra Cosmetics Internacional,----------------------------------------------
S.A. de C.V.------------------------------------------------------------2------
- ---------------2----------Consultoria Jafra, S.A. de C.V.----------------------
- ------------1----------------------1----------------TOTAL----------------------
- -----------------------------------3----------------------3--------------------
En virtud de la certificacion del escrutador de que se encontraba debidamente
representadas en la Asamblea la totalidad de las partes sociales emitidas por la
sociedad actualmente en circulacion, con fundamento en el articulo Decimo Sexto
de los estatutos sociales, el Presidente declaro la Asamblea legalmente
instalada, no obstante no haberse publicado la convocatoria respectiva.---------
- ---La Asamblea, por unanimidad de votos, aprobo la declaratoria anterior y
procedio a desahogar los asuntos contenidos en el siguiente:--------------------
- --------------------------------------------------------------------------------
- -----------------------------------ORDEN DEL DIA--------------------------------
- --I. Propuesta, discussion y, en su caso, resolucion sobre la transformacion de
la sociedad de una "Sociedad de Responsabilidad Limitada de Capital Variable" a
una "Sociedad Anonima de Capital Variable".-------------------------------------
- --II. Adopcion de estatutos sociales de la sociedad acordes a su nueva
estructura corporativa.---------------------------------------------------------
- --------------------------------------------------------------------------------
- --III. Nombramiento de los miembros del organo de administracion, los
funcionarios de la Sociedad y designacion de los comisarios de la misma.--------
IV. Designacion de delegados para formalizar las resoluciones adoptadas por la
- --Asamblea.---------------------------------------------------------------------
- --La Asamblea, por unanimidad de votos, aprobo el Orden del Dia, cuyos
puntos procedieron a desahogar en los siguientes terminos:----------------------
- --------------------------------------------------------------------------------
- --PUNTO UNO.- En relacion con el primer punto del Orden del dia, el senor
Eugenio Lopez Barrios, en su calidad de Presidente de la Asamblea, explico a los
presentes la conveniencia de modificar la estructura social de la sociedad
adoptando el tipo legal de sociedad anonima, continuando bajo la modalidad de
capital variable, conscientes de que dicha transformacion traera como
consecuencia el ajustar la estructura accionaria de la Sociedad de conformidad
con los requisitios que al efecto habran de prever los nuevos
5
<PAGE>
estatutos sociales de la sociedad y la Ley General de Sociedades Mercantiles.--
- --------------La Asamblea comento ampliamente la propuesta anterior, y despues
de hacer diversas preguntas y obtener las respuestas correspondientes a
satisfaccion de todos los socios, la Asamblea, por unanimidad de votos, resolvio
adoptar las siguientes:---------------------------------------------------------
- ------------RESOLUCIONES--------------------------------------------"1. Se
aprueba la transformacion de JAFRA COSMETICS, S. DE R.L. DE C.V. en "Sociedad
Anonima de Capital Variable", de conformidad con lo dispuesto en los Articulos
182 fraccion VI, 227 y 228 de la Ley General de Sociedades Mercantiles".--------
"2. Los acuerdos adoptados por la Asamblea respecto de la transformacion de la
sociedad surtiran efectos respecto de la misma en la fecha de celebracion de la
presente Asamblea. De conformidad con lo dispuesto por el articulo 255 de la
Ley General de Sociedades Mercantiles la transformacion surtira efectos respecto
de terceros en la fecha de inscripcion de los acuerdos correspondientes en el
Registro Publico de la Propiedad y de Comercio del Distrito Federal, en virtud
de que la Sociedad en este acto aprueba el pago en forma anticipada de las
deudas de la Sociedad en favor de aquellos acreedores que no hayan dado su
consentimiento a la transformacion y que asi lo soliciten por escrito, dandose
por vencidos los creditos con efectos a partir del 31 de marzo de 1998.-----"3.
Como consecuencia de la transformacion decretada y por virtud de ella, la
sociedad continuara existiendo y operando bajo la denominacion JAFRA COSMETICS,
la cual, en todo caso, ira seguida de las palabras SOCIEDAD ANONIMA DE CAPITAL
VARIABLE o de sus abreviaturas "S.A. de C.V.".----------------------------------
- ---------------"4. Sin perjuicio de su participacion en el capital, al surtir
efectos la transformacion de la sociedad, los socios continuaran respondiendo de
las obligaciones sociales hasta por un monto igual o equivalente al de sus
aportaciones. Asimismo, como resultado de la transformacion de la Sociedad a
una sociedad anonima de capital variable se hace constar que se aprueba que el
monto al que asciende el capital social de la Sociedad quede representado por
acciones ordinarias, communes, nominativas, con valor nominal de $1.00 M.N. (UN
PESO 00/100 M.N.) cada una. El capital social quedara distribuido de la
siguiente manera:---------------------------------------------------------------
- -------------------------ACCIONISTA---------------------------NUMERO DE
ACCIONES-------TOTAL---------------------------------------------------------
SERIE "A"---SERIE "B""-----------------------------Jafra Cosmetics--------------
- -----------------49,999--------15,194,902----------15,244,901----Internacional,
S.A. de C.V.--------------------------------------------------------------------
- ------------------------Consultoria Jafra,---------------------------------1----
- ----------------------------------------1----S.A. de C.V.-----------------------
- --------------------------------------------------------------------------TOTAL-
- ----------------------------------50,000-------15,194,902-----------15,244,902--
- ----"5. En este acto se instruye al Consejo de Administracion de la Sociedad
para que proceda a la emission de los certificados provionales o titulos
definitivos de acciones que correspondan a la nueva tenencia accionaria,, asi
como a la apertura de una libro de registro de acciones que debera de llevarse
de conformidad con lo dispuesto en la Ley General de Sociedades Mercantiles".---
- --------------------------------------------------------------"6. En
cumplimiento con lo dispuesto por los articulos 223 y 228 de la Ley General de
Sociedades Mercantiles, procedase de inmediato a protocolizar e inscribir los
acuerdos sobre la transformacion de la Sociedad adoptados por esta Asamblea en
el Registro Publico de la Propiedad y de Comercio del Distrito Federal, y a
publicar dichos acuerdos, asi como el balance general de Jafra Cosmetics, S. de
R.L. de C.V. al 30 de abrilde 1998
6
<PAGE>
en el Diario Oficial de la Federacion".----------------------------------------
- ----------------------PUNTO DOS.- En relacion con el segundo punto del Orden del
dia, el senor Eugenio Lopez Barrios, en su calidad de Presidente de la Asamblea,
manifesto a los presentes que como consecuencia de la transformacion de la
sociedad, resulta necesario adoptar nueveos estatutos sociales a efecto de
adecuar el pacto social a la nueva estructura de la sociedad. En tal virtud el
Secretario de la Asamblea procedio a dar lectura al proyecto de estatutos
sociales que se somete a la consideracion de la Asamblea, mismo que se hizo
llegar opportunamente a los accionistas de la sociedad para su analisis.-------
- -------------------La Asamblea comento ampliamente lo manifestado por el
Presidente en relacion a este punto resolviendo, por unanimidad de votos,
adoptar las siguientes:---------------------------------------------------------
- -----------RESOLUCIONES----------------------------------------------"1. Con
efectos a partir del 6 de Mayo de 1998 se sadoptan por JAFRA COSMETICS, S.A.
DE C.V. los estatutos cuyo texto se agrega sal expediente del acta de esta
Asamblea bajo la LETA "A" debidamente firmados por el Presidente y por el
Secretario de la Asamblea para su debida identificacion".-----------------------
- --------------------------------------PUNTO TRES.-En relacion con el tercer
punto del Orden del dia, el senor Eugenio Lopez Barrios, en su calidad de
Presidente de la Asamblea, expuso a la Asamblea
la necesidad de designar a los integrantes del Consejo de Administracion de la
sociedad, nombrar los funcionarios que ocupen los cargos de Presidente y
Vicepresidente Ejecutivo de la sociedad ante la renuncia presentada por el senor
David A. Novak al cargo de Vicepresidente y la designacion de Comisario y
Comisario suplente ante la renuncia de los senores Fernando Holguin Maillard y
Alfonso Galan Jimenez de la Cuesta a su cargo de Comisario y Comisario Suplente,
respectivamente.---------------------------------------------Al respecto la
asamblea adopto, por unanimidad de votos, las siguientes:------------------
- -------------------------------------------RESOLUCIONES-------------------------
- -------------------"1. Se aprueba que el Consejo de Administracion de la
Sociedad este integrado por las siguientes personas:----------------------------
- -----------------------------------------------PROPIETARIO----------------------
- ------------------------------------CARGO--------------------Eugenio Lopez
Barrios--------------------------------------------------Presidente-------------
- ----Ralph S. Mason III-------------------------------------------------------
Vicepresidente------------Alberto Mena Adame------------------------------------
- ----------------Secretario-----------------Martha Cecilia Echeverri Correa------
- ---------------------------------Vocal----------------------SUPLENTE------------
- --------------------------------------------------------------------------------
- -Maria Dolores Sanchez Cano Gascon"---------------------------------------------
- -------------Estando presente en la Asamblea el senor Eugenio Lopez Barrios
procedio a exhibir, en dinero en efectivo, la cantidad de $100.00 (Cien pesos
00/100, moneda nacional) como garantia de su gestion, agradecio el nombramiento
de que ha sido objeto y protesto su legal y correcto desempeno.-----------------
- ---------------------------------------------------------Se hace constar que los
demas miembros propietarios y suplentes del Consejo de Administracion, quienes
anteriormente integraban el Consejo de Gerentes de la Sociedad, a la fecha de su
nombramiento garantizaron su gestion y protestaron el fiel desempeno de su
cargo.--------------------------------------------------------------------------
- -------------------------"2. Se aprueba que seran funcionarios de la Sociedad
Eugenio Lopez Barrios como Presidente y Ralph S. Mason III como Vicepresidente
Ejecutivo de la misma."---------------"3. Se designa al C.P. Sergio Quezada,
como comisario propietario de la Sociedad y al C.P. Ernesto Valenzuela, como
comisario suplente de la misma.----------------------------
7
<PAGE>
- --Estando presentes en la Asamblea los senores Sergio Quezada y Ernesto
Valenzuela procedieron a exhibir, en dinero en efectivo, la cantidad de $100.00
(Cien pesos 00/100, moneda nacional) cada uno como garantia de su gestion,
agradecieron el nombramiento de que ha sido objeto y protestaron su legal y
correcto desempeno.------------------------------"4. Se acepta la renuncia del
senor David A. Novak a su cargo de Vicepresidente de la Sociedad, con efectos a
partir cel 6 de mayo de 1998, cargo para el que fue designado por acuerdo
adoptado por los socios con fecha 30 de Abril de 1998 en Asamblea General de
Socios, acuerdo que fue protocolizado en la escritura publica No. 53,282 de
fecha 30 de abril de 1998, otorgada por el Lic. Miguel Alessio Robles Landa,
Notario Publico No. 19 del Distrito Federal. Se agradecen al senor David A.
Novak los servicios prestados a la sociedad en su desempeno como Vicepresidente
de la misma.------------------------------------"5. Se acepta la renuncia del
senor Fernando Holguin Maillard a su cargo de Comisario Suplente, con efectos a
partir del 6 de mayo de 1998, cargo para el que fue designado por acuerdo
adoptado en la Asamblea General Ordinaria de Accionistas de "Comercializadora
Jafra, S.A.", anterior denominacion de la Sociedad, con fecha 10 de noviembre de
1988, el cual fue protocolizado en la escritura publica No. 29,199 de fecha 5 de
octubre de 1990, otorgada por el Lic. Roberto Nunez y Bandera, Notario Publico
No. 1 de la cuidad de Mexico, Distrito Federal y cuyo nombramiento fue
ratificado en diversas ocasiones, siendo la ultima el acuerdo adoptado en la
Asamblea General Extraordinaria de Accionistas de Jafra Cosmetics, S.A. de C.V.
celebrada el dia 30 de marzo de 988 y protocolizada mediante escritura publica
no. 53,178 de fecha 13 de abril de 1998, otorgada por el Lic. Miguel Alessio
Robles, Notario Publico No. 19 de Mexico, D.F. Se agradecen al senor Fernando
Holguin Maillard los servicios prestados a la sociedad en su desempeno como
Comisario de la misma."---------------------------------------"6. Se acepta la
renuncia del senor Alfonso Galan Jimenez de la Cuesta a su cargo de Comisario
Suplente, con efectos a partir del 6 de mayo de 1998, cargo para el que fue
designado por acuerdo adoptado en Asamblea General Ordinaria Anual de
Accionistas de Jafra Cosmetics, S.A. de C.V., celebrada el dia 31 de mayo de
1996, mismo que fue protocolizado en la escritura publica No. 4,457 de fecha 3
de octubre de 1996, otorgada por el Lic. Carlos Antonio Rea Field, Notario
Publico No. 187 del Distrito Federal y cuyo nombramiento fue ratificado en
diversas ocasiones, siendo la ultima el acuerdo adoptado en la Asamblea general
Extraordinaria de Accionistas de Jafra Cosmetics, S.A. de C.V. celebrada el dia
30 de marzo de 1998 y protocolizada mediante escritura publica no. 53,178 de
fecha 13 de abril de 1998, otorgada por el Lic. Miguel Alessio Robles, Notario
Publico No. 19 de Mexico, D.F. Se agradecen al senor Alfonso Galan Jimenez de
la Cuesta los servicios prestados a la sociedad como Comisario Suplente de la
misma."--------PUNTO CUARTO. -En relacion con el cuarto punto del Orden del Dia,
el senor Eugenio Lopez Barrios, en su calidad de Presidente de la Asamblea,
expuso a la Asamblea la designacion de los Senores Alberto Mena Adame, James A.
Ritch Grande Ampudia y a la Srita. Monica Rosado Reygadas, como delegados de la
Asamblea, a efecto de que cualquiera de ellos, conjunta o separadamante,
indistintamente, lleve a cabo los actos y firme los documentos que fueren
necesarios para dar cumplimiento y formalizar las resoluciones adoptadas por
esta Asamblea, incluyendo, entre otras: i) la obtencion del permiso
correspondiente de la Secretaria de Relaciones Exteriores, en caso de que el
mismo se requiera, ii) protocolizar por Notario Publico e inscribir en el
Registro Publico de la Propiedad y del Comercio del Distrito Federal los
acuerdos de
8
<PAGE>
transformacion y, en general, el acta de esta Asamblea, y iii) publicar el
balance general de la sociedad, asi como los avisos que fueren necesarios o
convenientes, en relacion con las resoluciones adoptadas por la Asamblea.-------
- ---------------------------------------------------Al respecto la asamblea
adopto, por unanimidad de votos, la siguiente:----------------------------------
- -------------------------------RESOLUCION---------------------------------------
- --"1. Se designan delegados de esta asamblea a los senores Alberto Mena Adame,
James A. Ritch Grande Ampudia y a la Senorita Monica Rosado Reygadas, a efecto
de que cualquiera de ellos, conjunta o separadamente, indistintamente, lleve a
cabo los actos y firme los documentos que fueren necesarios para dar
cumplimiento y formalizar las resoluciones adoptadas por esta asamblea,
incluyendo, entre otras: i ) la obtencion cel permiso correspondiente de la
Secretaria de Relaciones Exteriores, en caso de que el mismo se requiera, ii)
protocolizar por Notario Publico e inscribir en el Registro Publico de la
Propiedad y del Comercio del Distrito Federal los acuerdos de transformacion y,
en general, el acta de esta Asamblea, y iii) publicar el balance general de la
sociedad, asi como los avisos que fueren necesarios o convenientes, en relacion
con las resoluciones adoptadas por la Asamblea."--------------------------------
- -------------------------------------------El Presidente suspendio la Asamblea
para la redaccion de la presente acta, la cual fue leida y aprobada por todos
los que en ella intervinieron y firmada por el Presidente y el Secretario de la
Sociedad.-----------------------------------------------------------------------
- -------Se hace constar que al momento de adoptarse todas y cada una de las
resoluciones contenidas en esta acta estuvo representada y participo la
totalidad del capital de la sociedad. Se anexan al expediente de esta Acta de
Asamblea, bajo la LETRA "B", las cartas poder con las que los representantes de
los socios acreditaron su representacion en la Asamblea.------------------------
- ---------------------------------------------------------------------Se levanto
la asamblea a las 11:00 hrs. del 6 de Mayo de 1998.-----------------------------
- ---Sr. Eugenio Lopez Barrios. --Presidente.--Rubrica.--Sr. Alberto Mena Adame.--
Secretario.--Rubrica.-----------------------------------------------------------
- -------------------------ANEXO "A"----------------------------------------------
- --------------------------------------------------------------------------------
- --ESTATUTOS SOCIALES DE---------------------------------------------------------
- ---JAFRA COSMETICS, S.A. DE C.V.------------------------------------------------
NOMBRE, DOMICILIO, OBJETO, DURACION Y NACIONALIDAD-----------ARTICULO I. La
denominacion de la Sociedad es "JAFRA COSMETICS", la cual ira siempre de las
palabras "Sociedad Anonima de Capital Variable" o por su abreviatura, "S.A. de
C.V."---------------------------------------------------------------------------
- ------------------ARTICULO II. El domicilio de la Sociedad es la Ciudad de
Mexico, Distrito Federal, mismo que no se considerara modificado aun cuando la
Sociedad establezca agencias o sucursales en cualquier otra parte de la
Republica Mexicana o del extranjero, o designe domicilios convencionales para
la celebracion de actos y contratos especificos.------------
- ---ARTICULO III. La sociedad tendra por objeto:--------------------------------
- ------------------1. El ejercicio del comercio en general, incluyendo la compra,
venta, manufactura, distribucion, comercializacion, importacion, exportacion y
almacenamiento de toda clase de articulos para el cuidado de la piel, cosmeticos
de color, fragancias y cualesquiera otros productos para el cuidado e higiene
personal, articulos de joyeria y/o cualquier otro producto que la administracion
de la Sociedad considere necesario o conveniente, asi como todas las actividades
relacionadas de manera directa o indirecta con dicho objeto.-
9
<PAGE>
- --2. Fabricar, exportar, importar, adquirir, enajenar, arrendar, subarrendar,
dar y tomar en comodato todo tipo de mercaderias, equipos, maquinaria,
implementos y efectos necesarios para realizar las actividades descritas en el
parrafo 1) que antecede.----------------3. Adquirir y disponer por cualquier
medio legal de cualquier tipo de acciones, intereses o participaciones en otras
sociedades, fideicomisos, negocios o asociaciones, tanto de naturaleza civil
como mercantil.-------------------------------------------------------------4.
Comprar, vender, arrendar, hipotecar o gravar de cualquier forma legalmente
permitada, lo bienes muebles o inmuebles que se requieran o que sean
convenientes para la consecucion del objeto social, incluyendo la adquisicion,
establecimiento y operacion de laboratorios de investigacion.-----------------
- ------------------------------------------------------5. Prestar y pedir
prestado dinero con o sin garantia y garantizar las obligaciones de terceros por
cualquier medio (incluyendo los medios de garantia personal, fianza, prenda,
hipoteca, aval o de otra cualquier forma).--------------------------------------
- ----------------------6. Adquirir, transferir o disponer por cualquier medio
legal de patentes, derechos de patente, invenciones, marcas, nombre
comerciales, derechos de autor o de cualquier otro tipo de propiedad intelectual
que pueda ser necesaria o conveniente para la consecucion del objeto social.----
- -----------------------------------------------------------7. Actuar como
agente, comisionista, representante, apoderado o de cualquier otra manera
representar a todo tipo de personas morales y personas fisicas, tanto dentro
como fuera del territorio nacional.---------------------------------------------
- -------------------------------8. Recibir y prestar cualquier tipo de servicios
relacionados con el objeto social.-----------9. Establecer sucursales,
subsidiarias, agencias y oficinas de representacion en Mexico y en el
extranjero.---------------------------------------------------------------------
- -------------------10. Proporcionar y recibir servicios de maquila y de
fabricacion o procesamiento de materiales a y de toda clase de entidades y
negocios industriales y comerciales.---------------11. En general, realizar
todo tipo de negocios y actividades que se relaciones de manera directa o
indirecta con el objeto social.-------------------------------------------------
- -----ARTICULO IV. La duracion de la sociedad sera indefinida.-----------------
- -----------------ARTICULO V. La Sociedad es de nacionalidad Mexicana. Todo
extranjero que al momento de la constitucion o en cualquier momento posterior,
adquiera un interes o participacion en la Sociedad se considerara por ese solo
hecho como Mexicano con respecto a dicho interes o participacion y se entendera
que conviene en no invocar la proteccion de su Gobierno, bajo la pena, en caso
contrario, de perder las participaciones o intereses que hubiese adquirido en
favor de la Nacion Mexicana.----------------------------------------------------
- ----CAPITAL SOCIAL Y ACCIONES---------------------------------------------------
ARTICULO VI. El capital social sera variable. La parte minima fija sin derecho a
retiro del capital social sera la cantidad de $50,000.00 Pesos (Cincuenta mil
Pesos 00/100 M.N.) integramente suscrita y pagada, representada por 50,000
(cincuenta mil) acciones ordinarias Serie "A", nominativas con valor nominal de
$1.00 M.N. (UN PESOS 00/100 MONEDA NACIONAL) cada una.--------------------------
- ------------------------------------------- La parte variable del capital de la
sociedad estara integrada por acciones ordinarias, nominativas, Serie "B", con
valor nominal de $1.00 M.N. (UN PESOS 00/100 MONEDA NACIONAL) cada una.---------
- ----------------------------------------------------------El capital social
estara representado en su parte minima fija por acciones "Serie A" y en su parte
variable por acciones "Serie B". las cuales podran ser adquiridas tanto por
inversionistas mexicanos como extranjeros.--------------------------------------
10
<PAGE>
- --ARTICULO VII. Los aumentos o las reducciones del capital variable podran
realizarse en base a una resolucion de la Asamblea General Ordinaria de
Accionistas, cuya resolucion no requerira ser protocolizada ni inscrita en el
Registro Publico de Comercio, misma que debera determinar las condiciones en las
que deba realizarse dicho aumento o reduccion, tales como los terminos de
suscripcion y pago de las mismas, las caracteristicas de las acciones que se
emitan y cualquier otro asunto relacionado. Dichos aumentos de capital podran
pagarse en dinero o en especie por los accionistas de la sociedad, tal como haya
sido acordado por los accionistas de la compania y resuelto por la Asamblea de
Accionistas que resuelva dicho aumento de capital.-----------------------------
- ---------------------Por otro lado, los futuros aumentos o reducciones del
capital fijo deberan ser acordados por una Asamblea General Extraordinaria de
Accionistas.----------------------------------------ARTICULO VIII. Los titulos
de acciones y, en su caso , los certificados provisionales, contendran las
menciones a que se refiere el articulo 125 de la Ley General de Sociedades
Mercantiles. La Clausula Quinta de estos sera de igual forma transcrita.-------
- --ARTICULO IX. Cada accion representara un voto en las Asambleas de
Accionistas; el tenedor de la acciones de la Sociedad tendra derecho a votar en
todos los asuntos sometidos en la asamblea cuando por ley o por estos Estatutos
tenga derecho a votar, todas las acciones conferiran iguales derechos y
obligaciones a sus tenedores.----------------ARTICULO X. Los titulos de las
acciones contendran la firma del Administrador Unico o de dos miembros del
Consejo de Administracion, segun el caso. La firma de los Consejeros, si fuese
autorizado por el Consejo de Administracion, podra ser facsimilar, sujeto a la
condicion de que en tal caso los originales de las firmas respectivas seran
depositadas en el Registro Publico de Comercio correspondiente.-----------------
- --------------A solicitud de cualquier accionista, a cuyo cargo correran los
gastos que deriven de ello, los titulos de las acciones podran ser
intercambiados por diferentes titulos que representen un numero diferente de
acciones.-------------------------------------------------------ARTICULO XI. La
Sociedad debera llevar un Libro de Registro de Accionistas en el que se
inscribiran todas las operaciones de suscripcion, adquisicion o transferencia,
asi como cualquier gravamen de que sean objeto las acciones representativas del
capital social.-----------------------------------------------------------------
- --La Sociedad considerara como propietario de las acciones nominativas a la
persona registrada como tal en el Libro de Registro de Accionistas.-------------
- --------------------------ARTICULO XII. Los aumentos del capital social podran
efectuarse por medio de aportaciones en efectivo o en especie, por medio de la
capitalizacion de reservas, o cualquier otro excedente. En los casos de aumento
de capital social por medio de una nueva aportacion de efectivo, los accionistas
tendran el derecho de preferencia para suscribir y pagar las acciones que seran
emitidas, en proporcion con su tenencia accionaria al momento de ejercitar dicho
derecho de preferencia, dentro de los quince dias siguientes a la fecha de
publicacion del aviso correspondiente en el Diario Oficial de la Federacion o
calculados a partir de la fecha en que se celebro la asamblea, en el caso de que
todas la acciones representativas del capital social de la sociedad hayan estado
presentes o representadas en dicha asamblea.------------------------------------
- ----------------------------------En el caso en que despues de la terminacion
del plazo durante el cual los accionistas hayan tenido el derecho de ejercitar
su derecho de preferencia, algunas acciones no hayan sido suscristas, el
Administrador Unico o el Consejo de Administracion ofrecera dichas acciones a
terceros o las guardara en la tesoreria de la Sociedad, de conformidad con el
11
<PAGE>
acuerdo tomado por la Asamblea de Accionistas en el que se haya aprobado el
aumento de capital.-------------------------------------------------------------
- ------------------------------------No se podran emitir nuevas acciones hasta
que las acciones previamente emitidas hayan sido integramente suscristas y
pagadas.--------------------------------------------------------------La
Sociedad llevara un Libro de Registro de Variaciones de Capital.----------------
- -----------------------------------------------ADMINISTRACION-------------------
- -------------------------ARTICULO XIII. La administracion de la Sociedad sera
confiada a un Administrador Unico o a un Consejo de Administracion integrado po
el numero de Consejeros que determine la Asamblea Ordinaria de Accionistas. La
Asamblea Ordinaria de Accionistas tambien podra designar a Consejeros Suplentes
para actuar en el caso de ausencia de los Consejeros Propietarios.--------------
- ------------------------------------------------------------------ARTICULO XVI.
El Administrador Unico o los miembros del Consejo de Administracion en su caso,
no necesitan ser accionistas de la Sociedad, y, por regla general, duraran en su
cargo un ano contado a partir de la fecha de su designacion pudiendo ser
reelectos. En todo caso, permaneceran en su cargo hasta que sus sucesores tomen
posesion de sus cargos.---------------------------------------------------------
- ----------------ARTICULO XV. La Asamblea de Accionistas o el Consejo de
Administracion en Sesion designaran de entre sus miembros a una persona que
actue como Presidente del Consejo de Administracion. Tambien podra designar un
Secretario quien no necesariamente debera ser Consejero.------------------------
- ------------------------------------------------------------ARTICULO XVI. Las
sesiones del Consejo de Administracion seran celebradas en el domicilio social o
en cualquier otro lugar segun se determine previamente en la convocatoria
respectiva. Las sesiones de Consejo podran ser llevadas a cabo en cualquier
momento, pero al menos una vez al ano y seran convocadas por el Presidente o el
Secretario del Consejo o por cualesquiera dos Consejeros o por los Comisarios de
la Sociedad. La persona o personas que deseen convocar la sesion lo informaran
al Secretario del Consejo quien inmediatamente emitira la convocatoria
respectiva.-------------Las convocatorias seran hechas por escrito y enviadas al
domicilio de cada miembro del Consejo de Administracion o al lugar que designen
para tales efectos por telex contrasenado o telegrama o telecopia confirmados,
con por los menos 15 dias naturales de anticipacion a la fecha de la sesion.
Las convocatorias especificaran el objeto, la hora, fecha y lugar para la sesion
y sera firmadas por el Secretario del Consejo. Sin perjuicio de lo anterior, el
requisito de la convocatoria podra renunciarse por cualquier consejero en
relacion a cualquier sesion.----------------------------------------------------
- ---------------------ARTICULO XVII. Para que las sesiones del Consejo de
Administracion puedan celebrarse validamente, se requerira la asistencia de por
los menos la mayoria de los consejeros o sus respectivos suplentes. Las
resoluciones del Consejo de Adminitracion seran validas unicamente si fueron
aprobadas por el voto favorable de la mayoria de los miembros del Consejo de
Administracion presentes.-----------------------------------------------Las
resoluciones aprobadas unanimemente por todos los Consejeros fuera de sesion
tendran, para todos los efectos legales, la misma validez que si hubieran sido
adoptadas en sesion de consejo, siempre que sean confirmadas por escrito despues
de que hayan sido tomadas.------------------------------------------------------
- ---------------------------------------ARTICULO XVIII. El Consejo de
Administracion podra designar de entre sus miembros, un o mas delegados para la
realizacion de tareas especificas, con las facultades que le sean expresamente
conferidas en cada caso.--------------------------------------------------------
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- -ARTICULO XIX. El Administrador Unico o el Consejo de Administracion, segun
sea el caso, tendran las siguientes facultades:--------------------------------
- ----------------------------a) poder general para pleitos y cobranzas, con las
Facultades mas amplias permitidas por la ley, en terminos del primer parrafo de
articulo 2554 de Codigo Civil para el Distrito Federal y los articulos
correlativos de cualquier otro codigo civil de la Republica Mexicana (el "Codigo
Civil"), con todas las facultades generales y especiales que requieran Clausula
especial, incluyendo aquellas previstas en el articulo 2587 del Codigo Civil,
por lo que estaran facultados de una manera enunciativa pero no limitativa para:
representar a la Sociedad ante autoridades federales, estatales, municipales,
administrativas y judiciales, ante la Secretaria del Trabajo y ante las Juntas
de Conciliacion y Arbitraje y para firmar los documentos que sean necesarios en
ejercicio de sus facultades; para ejercitar toda clase de derechos y acciones
ante cualquier autoridad y Juntas de Conciliacion y Arbitraje; para someterse a
cualquier jurisdiccion; para promover y desistirse aun del juicio de amparo;
para presentar cargos y querellas penales y para comparecer como parte ofendida
y coadyuvar con el Ministerio Publico y otorgar perdones; para transigir; para
comprometer en arbitros; para articular y absolver posiciones; para aceptar y
liberar toda clase de garantias; para hacer cesion de bienes y para llevar a
cabo los demas actos que esten expresamente determinados por la ley.----------b)
Poder general para actos de administracion en terminos del segundo parrafo del
articulo 2554 del Codigo civil entre las que se inclyen las facultades de
celebrar, modificar, cumplir y rescindir toda clase de contratos y convenios,
obtener prestamos y en general llevar a cabo todos los actos que esten
directamente o indirectamente relacionados con los objetos sociales.------------
- -----------------------------------------------------c) Poder general para
actos de dominio en terminos del tercer parrafo del articulo 2554 del Codigo
Civil incluyendo las facultades para adquirir, transferir la titularidad de, asi
como gravar mediante prenda, hipoteca o de cualquier otra forma, derechos
personales y reales.------------------------------------------------------------
- ------------------------------------------d) Poder para emitir, aceptar,
endosar y de cualquier otra manera suscribir titulos de credito de conformidad
con el articulo Noveno de la Ley General de Titulos Y Operaciones de Credito.---
- -----------------------------------------------------------------------e) Poder
para conferir y revocar poderes generales y especiales dentro del ambito de las
facultades anteriormente mencionadas.-------------------------------------------
- --------------------f) Establecer sucunsales y agencias en cualquier parte ya
sea dentro o fuera de los Estados Unidos Mexicanos y cerrar dichas sucursales o
agencias.-------------------------------g) Establecer subsidiarias en cualquier
parte ya sea dentro o fuera de los Estados Unidos Mexicanos y para liquidar y
disolver dichas subsidiarias.--------------------------------h) Designar y
remover gerentes, funcionarios y empleados de la Sociedad y determinar sus
facultades, deberes y remuneraciones.-------------------------------------------
- -------------------------------------------ASAMBLEAS DE ACCIONISTAS-------------
- ------------------------ARTICULO XX. La autoridad suprema de la sociedad es la
Asamblea General Ordinaria de Accionistas, la cual podra por lo tanto adoptar
toda clase de acuerdos y ratificar todos los actos y transacciones realizadas
por la sociedad. Los acuerdos adoptados por la Asamblea de Accionistas seran
implementados por el Administrador Unico o el Consejo de Administracion, segun
sea el caso, o por la persona expresamente designada para tales efectos por la
Asamblea de Accionistas. Toda Asamblea de Accionistas se celebrara en el
comicilio social, salvo que el Administrador Unico o el
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Consejo de Administracion senalen otro lugar para tal efecto, o bien por caso
fortuito o fuerza mayor.--------------------------------------------------------
ARTICULO XXI. Las Asambleas de Accionistas seran Ordinarias o Extraordinarias.
Las Asambleas Ordinarias de Accionistas se celebraran por los menos una vez al
ano dentro de los primeros cuatro meses posteriores al cierre del ejercicio
fiscal. Las Asambleas Extraordinarias de Accionistas tendran lugar cuando sea
necesario resolver cualquiera de los asuntos contenidos en el articulo 182 de la
Ley General de Sociedades Mercantiles.------------------------------------------
- -----------------------------------------------------ARTICULO XXII. Las
Asambleas de Accionistas, ya sean ordinarias o extraordinarias, se celebraran
previa convocatoria del Administrador Unico o el Consejo de Administracion o por
cualquiera de los Comisarios en caso de incumplimiento del Administrador unico
o del Consejo de Administracion de conformidad con lo establecido en el articulo
166, fraccion VI de la Ley General de Sociedades Mercantiles. Las Asambleas se
celebraran tambien a solicitud los accionistas en los terminos de los articulos
184 y 185 de la Ley General de Sociedades Mercantiles.--------------------------
- -----------------------Las convocatorias para las Asambleas de Accionistas
contendran el lugar, fecha y hora en La cual se celebrara la asamblea, asi como
la mencion de ser la primera o subsecuente convocatoria. Las convocatorias se
publicaran en uno de los periodicos de mayor circulacion en el domicilio social,
con por lo menos quince (15) dias naturales anteriores a la fecha fijada para la
asamblea. En caso de una segunda convocatoria, se publicara dicha convocatoria
por los menos tres (3) dias anteriores a la fecha fijada para la asamblea. Las
convocatorias para cualquier Asamblea de Accionistas tambien deberan ser
enviadas por telecopia a cualquier accionista extranjero para asegurar su
recepcion con por lo menos quince (15) dias de anticipacion a la fecha de la
asamblea.------------------Los acuerdos unanimemente aprobados por todos los
accionistas que no se hayan reunido en una asamblea, tendran, para todos los
efectos legales, los mismos efectos juridicos que se hubieran tomado en una
asamblea, siempre y cuando sean confirmados por escrito en cualquier momento
posterior a aquel en que fueron tomados.--------------------ARTICULO XXIII. Las
Asambleas Ordinarias de Accionistas quedaran legalmente instaladas en la primera
convocatoria si los accionistas tenedores de por lo menos el 50% (cincuenta por
ciento) del capital social con derecho a voto de la Sociedad se encuentran
presentes o debidamente representados en dicha Asamblea y, los acuerdos ahi
tomados seran validos unicamente si son aprobados por el voto de la mayoria de
los accionistas presentes en dicha Asamblea. En el caso de que una Asamblea
Ordinaria no se celebre en la fecha programada por la falta de quorum, una
segunda convocatoria o una subsecuente convocatoria se realizara con la mencion
de dicha circunstancia y, en dicho caso, las Asambleas Ordinarias de Accionistas
seran consideradas como legalmente instaladas independientemente del numero de
las acciones presentes o representadas el la asamblea y los acuerdos adoptados
seran validos si son aprobados por el voto favorable de los presentes
o representados.----------------------------------------------------------------
- ------ARTICULO XXIV. Las Asambleas Extraordinarias quedaran legalmente
instaladas el la primera convocatoria si los accionistas tenedores de por lo
menos el 75% (setenta y cinco por ciento) del capital social con derecho a voto
de la sociedad estan presentes o debidamente representados en dichas Asambleas;
y en el caso de una segunda o subsecuente convocatoria, las Asambleas
Extraordinarias de Accionistas quedaran legalmente instaladas si por lo menos el
50% (cincuenta por cinto) de los accionistas tenedores de las acciones
representativas del capital social con derecho a voto se
14
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encuentran presentes o debidamente representados en cualquier Asamblea. Los
acuerdos tomados en Asamblea Extraordinarias de Accionistas, ya sea en primera o
subsecuentes convocatorias, seran validas si son aprobadas por el voto favorable
de los accionistas que representen por lo menos la mitad del capital social con
derecho a voto de la Sociedad.-----ARTICULO XXV. Para poder asistir a la
Asambleas, los accionistas deberan de acreditar su capacidad como tales por
medio de su registro en el Libro de Registro de Accionistas. Los Accionistas
podran ser representados en las asembleas por un apoderado que cuente con un
poder general o especial o por un apoderado designado por medio de carta poder.
- ---------------------------------------------------------------------Las
Asambleas de Accionistas seran presididas por el Administrador Unico o el
Presidente del Consejo de Administracion, segun sea el caso. En su ausencia,
dichas asembleas seran presididas por la persona que designe para tales efectos
la mayoria de los asistentes de la asamblea correspondiente. El Secretario del
Consejo de Administracion actuara como Secretario de la Asamblea de Accionistas
y, en su ausensia, la persona designada para tales efectos por los accionistas
en la asamblea correspondiente. El Presidente nombrara a uno o dos de los
asistentes como escrutadores, los tuales podran ser o no miembros del Consejo de
Administracion o accionistas, para que puedan determinar si se ha reunido el
quorum legal y para contar los votos emitidos si fuera necesario o solicitado
por el Presidente de la asamblea.-------------------------------------------
ARTICULO XXVI. Una vez legalmente instalada la asamblea, si alguno de los
puntos del orden del dia no ha sido resuelto, dicha asamblea podra ser
pospuesta y continuara el siguiente dia habil, sin necesidad de una nueva
convocatoria.------------------------------------Las actas de las Asambleas de
Accionistas seran registradas en el Libro de Actas las cuales conservara el
Secretario, junto con un juego duplicado de las actas, una lista de los
accionistas que asistieron a la asamblea, firmada por el escrutador, los
poderes, copias de la publicacion el la cual se publico la convocatoria, copias
de cualquier reporte, cuentas de la sociedad y cualesquier otro documento que
haya sido presentado en la asamblea. Cuanto las actas de una asamblea no pueden
ser registradas en el Libro de Actas, dichas actas deberan de protocolizarse
ante notario publico. Las actas de las Asambleas Extraordinarias de Accionistas
deberan protocolizarse e inscribirse en el Registro Publico de Comercio del
domicilio social. Todas las actas de asambleas de accionistas, asi como el
registro de aquellas no celebradas por falta de quorum, deberan firmarse por el
Presidente y el Secretario de la Asamblea, asi como por los Comisarios que
deberan haber asistido a cualquier asamblea.------------------------------------
- -------------------------------ARTICULO XXVII. Cualquier Asamblea Ordinaria o
Extraordinaria de accionistas estara legalmente celebrada sin necesidad de
convocatoria previa si todas las acciones representativas del capital social se
encuentran presentes al momento de la emision de los votos.---------------------
- --------------------------------------------------------------------------------
- -Las Asamblea de Accionistas determinara la remuneracion, si tal es el caso, a
los miembros del Consejo de Administracion y a los Comisarios de la sociedad.---
- -----------------------------------------------VIGILANCIA-----------------------
- --ARTICULO XXVIII. La vigilancia de la Sociedad quedara confiada a uno o mas
Comisarios, tal como sea determinado por los Accionistas en una Asamblea
Ordinaria. Un Comisario Suplente podra ser designado por cada Comisario
Propietario.------------------Los Comisarios, por regla general, ocuparan su
cargo durante un ano, contado a partir de la fecha de su designacion, debiendo
continuar en su en cargo hasta que sus sucesores
15
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tomen posesion de sus cargos.---------------------------------------------------
La remuneracion que perciban los Comisarios sera determinada por los Accionistas
en una Asamblea General.--------------------------------------------------------
ARTICULO XXIX. Los Comisarios tendran las facultades y obligaciones contenidas
en el articulo 166 de la Ley General de Sociedades Mercantiles.-----------------
EJERCICIO FISCAL Y UTILIDADES-----------------------------------ARTICULO XXX. El
ejercicio fiscal de la sociedad no excedera de un ano calendario e iniciara y
terminara en las fechas determinadas por los Accionistas en una Asamblea
ordinaria o por el Administrador Unico o el Consejo de Administracion.----------
- -------------ARTICULO XXXI. Las utilidades netas obtenidas en cada ejercicio
fiscal, se aplicaran conforme a lo siguiente:----------------------------------
- ---------------------------------------------a) La cantidad que podra ser
determinada por los accionistas debera primeramente apartarse para la creacion o
restablecimiento de la Reserva Legal, segun el caso, dicha suma no sera menor al
5% de las utilidades netas hasta que sea equivalente a una quinta parte del
capital social.-----------------------------------------------------------------
- -----------------b) La cantidad necesaria para pagar a los trabajadores y
empleados, el reparto de utilidades correspondiente confirme a la ley; y,-------
- ----------------------------------------------c) El remanente sera distribuido
conforme a lo dispuesto por los Accionistas en una Asamblea especial.-----------
- --------------------------------------------------------------------------------
- ----------------------DISOLUCION Y LIQUIDACION----------------------------------
- -----ARTICULO XXXII. La sociedad sera disuelta anticipadamente en caso de:-----
- -----------I.- Si la realizacion del ojeto social se volviese imposible;-------
- -------------------------------II.- Por resolucion de los accionistas tomada en
una Asamblea Extraordinaria de Accionistas.-------------------------------------
- ----------------------------------------------------------III.- Si el numero de
accionistas se reduce a un numero menor del minimo legal (dos);---IV.- En caso
de perdida de dos terceras partes del capital de la sociedad, salvo que los
accionistas restablezcan o reduzcan el mismo; y---------------------------------
- -------------------V.- En cualquier otro caso previsto en la ley.--------------
- ---------------------------------------En caso de disolucion, la sociedad se
colocara en liquidacion, la cual sera confiada a un liquidador designado por la
misma Asamblea Extraordinaria que resuelve de la disolucion. El liquidator podra
o no ser accionista de la sociedad y tendra las facultades y recibira la
remuneracion aprobada por la Asamblea de Accionistas. La Asamblea de Accionistas
establecera un termino para la consecucion de los encargos del liquidador, asi
como las reglas generales para la realizacion de dichas tareas.-----------------
- ------------------------------------ARTICULO XXXIII. Durante el proceso de
liquidacion, las Asambleas de Accionistas se celebraran de conformidad con los
terminos establecidos en este instrumento. Los liquidadores tendran las
facultades investidas en el Consejo de Administracion, con las limitaciones
impuesta por el proceso de liquidacion. Los Comisarios deberan realizar las
mismas funciones durante el proceso de liquidacion en funcionamiento normal de
la sociedad y mantendran la misma relacion con los liquidadores que la mantenida
con los Consejeros.-------------------------------------------------------------
- -----------------------------------ARTICULO XXXIV. En todos los asuntos que no
esten especificamente mencionados en este instrumento, aplicaran las
disposiciones de la Ley General de Sociedades Mercantiles".---------------------
- ------------------------------------------------------------------------Declara
el compareciente que las firmas que aparecen en esta acta son autenticas y
corresponden a las personas de referencia, apercibido de las penalidades que
marca el
16
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Codigo Penal en los Articulos Ciento cincuenta y siete, ciento sesenta y ocho,
ciento sesenta y nueve y ciento setenta.---------------------------------------
- --------------------------------------XV.-Que con fecha doce de noviembre de mil
novecientos novent y ocho, se publico en el Diario Oficial de la Federacion, el
acuerdo de transformacion, asi como el Balance General de la Sociedad, en los
terminos de la copia que agrego al apendice de este instrumento bajo la letra
"B".--------------------------------------------------------------------------
Expuesto lo anterior , el compareciente procede a otorgar la siguiente:---------
- ------------PROTOCOLIZACION DE ACTA DE ASAMBLEA GENERAL EXTRAORDINARIA
- ----------------------------------CLAUSULAS-------------------------------------
- ---------------------PRIMERA.--El senor ALBERTO MENA ADAME, en su caracter de
Delegato Especial del Acta de Asamblea General Extraordinaria de Accionistas de
la Sociedad Mercantil denominada "JAFRA COSMETICS, SOCIEDAD DE RESPONSABILIDAD
LIMITADA DE CAPITAL VARIABLE, celebrada el dia seis de Mayo de mil novecientos
noventa y ocho, deja debidamente P R O T O C O L I Z A D A dicha acta para todos
los efectos legales correspondientes.-------------------------------------------
- ----------SEGUNDA.--Como consecuencia de la protocolizacion contenida en la
clausula inmediata anterior, queda:---------------------------------------------
- ---------------------------------I.-Aprobada la transformacion de JAFRA
COSMETICS, SOCIEDAD DE RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE, en SOCIEDAD
ANONIMA DE CAPITAL VARIABLE, asi como aprobada la reforma total de los estatutos
sociales los cuales se mencionan en el anexo "A" del acta que mediante este
instrumento se protocoliza, los cuales se tienen aqui por integra y totalmente
reproducidos como si se insertasen al pie de la letra.--------------------------
- ---------------------II.--Aprobado como consecuencia de la transformacion de la
Sociedad a una Sociedad Anonima de Capital Variable, el cambio a acciones
ordinarias, comunes, nominativas, quedando distribuido de la siguiente manera:--
- -----------------------------------------------------ACCIONISTA-----------------
NUMERO DE ACCIONES-----------TOTAL-----------------------------------------SERIE
"A"-----------------------SERIE "B"----------------------------------Jafra
Cosmetics--------49,999---------------------15,194,902----------15,244,901------
Internacional, S.A. de C.V.-----------------------------------------------------
- ------------------------Consultoria Jafra,------------------------1-------------
- -----------------------------------------1---S.A. de C.V.-----------------------
- --------------------------------------------------------------------------------
T O T A L----------------------50,000---15,194,902---15,244,902-----------------
- -----III.--Aprobado el nombramiento de los miembros del Consejo de
Administracion de la Sociedad el cual quedo integrado por las siguientes
personas:-------------------------- ------------------PROPIETARIO---------------
CARGO--------------------------------------Eugenio Lopez Barrios----------------
Presidente------------------------------------Ralph S. Mason III----------------
Vicepresidente-------------------------------Alberto Mena Adame-----------------
Secretario------------------------------------Martha Cecilia Echeverri Corre----
Vocal-----------------------------------------SUPLENTE--------------------------
Maria Dolores Sanchez Cano Gascon-----------------------------------------------
IV.-Aprobada la designacion del Contador Publico SEGIO QUEZADA, como Comisario
de la Sociedad y al Contador Publico ERNESTO VALENZUELA, como Comisario suplente
de la misma.--------------------------------------------------------------------
V.-Aprobada la renuncia de los senores DAVID A. NOVAK a su cargo de
17
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Vicepresidente y de los senores FERNANDO HOLGUIN MAILLARD y ALFONSO GALAN
JIMENEZ DE LA CUESTA, a sus cargos de Comisarios de la Sociedad.-----------
TERCERA.-El compareciente faculta al suscrito Notario, para efectuar las
diligencias necesarias a fin de obtener la inscripcion del primer testimonio de
la escritura, en el Registro Publico de la Propiedad correspondiente.-----------
- ------------------------------------------ CUARTA.--Los honorarios, impuestos y
derechos que origine el otorgamiento de la presente escritura, seran por cuenta
exclusiva de la sociedad otorgante.---------------------------------------------
- ------------------------ PERSONALIDAD-------------------------------------------
- -------------------------------El Senor ALBERTO MENA ADAME, en su caracter de
Delegado Especial, acredita su personalidad con el Acta de Asamblea General
Extraordinaria de Accionistas de la Sociedad Mercantil denominada "JAFRA
COSMETICS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, misma que ha quedado
debidamente Protocolizada y que se menciona en el decimo cuarto punto de este
mismo instrumento.------------------------------------------------------- YO, EL
NOTARIO, DOY FE:-------------------------------------------------------- I. Que
conozco al compareciente, quien en mi concepto tiene capacidad legal y por
sus generales manifesto ser de nacionalidad mexicana por nacimiento, originario
de Mexico, Distrito Federal, en donde nacio el dia diecisiete de octubre de mil
novecientos sesenta, casado, Licenciado en Derecho, con Registro Federal de
Contribuyentes"MEAA guion sesenta diez diecisiete", y con domicilio en Boulevard
Adolfo Lopez Mateos numero quinientos quince, Colonia Tlacopac, Mexico, Distrito
Federal.-----------------------------------------------II.-Que declara el
compareciente bajo protesta de decir verdad que se encuentra al corriente en el
pago del Impuesto Sobre la Renta aunque sin haberlo comprobado documentalmente
ante el suscrito Notario.-------------------------------------------------------
III.-Que lo relacionado e inserto en la prsente acta concuerda fielmente con sus
originales a los que me remito y que tuve a la vista.---------------------------
IV.-Que el compareciente se identifico en los terminos del articulo Setenta y
seis de la Ley Organica del Notariado del Estado de Mexico en vigor,
identificacion de la cual se anexa una copia al apendice de esta escritura
marcada con la letra "C", asi como una al testimonio.---------------------
V.-Que lei la presente escritura en voz alta al compareciente, mismo a quien le
explique el valor y las consecuencias legales de su contenido, me manifesto su
conformidad y la aprueba, ratifica y firma el dia, mes y ano de su otogamiento,
fecha en que Yo, el Notario AUTORIZO DEFINITIVAMENTE esta escritura.---DOY FE.--
ALBERTO MENA ADAME---Rubrica.---------------------------------------------------
Ante mi, JORGE antonio francoz garate.--Rubrica---Sello de Autorizar.-------Para
cumplir con lo prevenido en los Articulos Dos mil cuatrocientos uno, Dos mil
cuatrocientos siete, Dos mil cuatrocientos ocho, Dos mil cuatrocientos
veintiocho y Dos mil cuatrocientos cuarenta y uno, del Codigo Civil vigente en
el Estado de Mexico y sus correlativos de los Codigos Civiles del Distrito
Federal y las demas Entidades Federativas de la Republica Mexicana, se inserta
el texto integro de los mismos a continuacion:----------ARTICULO 2401.--El
contrato de madato se reputa perfecto por la aceptacion del Mandatario.---------
El mandato que implica el ejercicio de la profesion se presume aceptado cuando
es conferido a personas que ofrecen al publico el ejercicio de su profesion, por
el solo hecho de que no lo rehusen dentro de los tres dias siguientes.----------
La aceptacion puede ser expresa o tacita. Aceptacion tacita es todo acto en
ejecucion de
18
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un mandato.--------------------------------------------------------------------
- ---------------------------------------ARTICULO 2407.---El mandato puede ser
general o especial. Son generales los contenidos en los tres primeros parrafos
del Articulo 2408. Cualquier otro mandato tendra el caracter de especial.------
- --------------------------------------------------------------------ARTICULO
2408.---En todos los poderes generales para Pleitos y Cobranzas, bastara que se
diga que se ortoga con todas las facultades generales y las especiales que
requieran clausulas especiales conforme a la Ley, para que se entiendan
conferidos sin limitacion alguna.-------En todos los poderes generales para
Administrar bienes, bastara expresar que se dan con ese caracter para que el
Apoderado tenga toda clase de facultades administrativas.-----------En los
poderes generales pare ejercer Actos de Dominio bastara que se den con ese
caracter para que el Apoderado tenga toda clase de facultades de dueno, tanto en
lo relativo a los bienes, como para hacer toda clase de gestiones a fin de
defenderlos.-----------Cuando se quisieren limitar en los tres casos antes
mencionados, las facultades de los Apoderados, se consignaran las limitaciones o
los poderes seran especiales.-------------------Los Notarios insertaran este
Articulo en los testimonios de los poderes que otorguen.------ARTICULO 2428.---
El mandatario puede encomendar a un tercero el desempeno del mandato si tiene
facultades expresas para ello.--------------------------------------------------
ARTICULO 2441.---El procurador no necesita poder o clausula especial, sino en
los casos siguientes:----------------------------------------------------------
I.---Para desistirse;----------------------------------------------------------
II.---Para transigir;----------------------------------------------------------
III.---Para comprometer en arbitros;-------------------------------------------
IV.---Para absolver y articular posiciones;------------------------------------
V.--- Para hacer cesion de bienes;---------------------------------------------
VI.--- Para recusar; ----------------------------------------------------------
VII.--- Para recibir pagos;----------------------------------------------------
VIII.---Para los demas actos que expresamente determine la Ley.----------------
- ----Cuando en los poderes generales se desee conferir alguna o algunas de las
facultades acabadas de enumerar, se observara lo dispuesto en el parrafo
primero del Articulo 2408.-------------ES PRIMER TESTIMONIO DE SU ORIGINAL QUE
SE EXPIDE PARA LA SOCIEDAD MERCANTIL DENOMINADA "JAFRA COSMETIC", SOCIEDAD
ANONIMA DE CAPITAL VARIABLE, EN SU CARACTER DE INTERESADA. VA EN DIECINUEVE
FOJAS UTILES DEBIDAMENTE COTEJADAS, SELLADAS Y FIRMADAS.--- DOY FE.-----------
NAUCALPAN DE JUAREZ, ESTADO DE MEXICO, A VEINTITRES DE NOVIEMBRE DE MIL
NOVECIENTOS NOVENTA Y OCHO.------------------
[ESTAMPA OFICIAL]
EL REGISTRO PUBLICO DE COMERCIO,
EN EL FOLIO MERCANTIL NUMERO 110699
DERECHOS $504.00. REG EN CAJA :207085
NUMERO 18987 DE FECHA: 27-11-98
19
<PAGE>
REGISTO FEDERAL DE COMERCIO DIRECTOR DE EL REGISTRO
DISTRITO GOVERNAL PUBLICO DE LA
PROPIEDAD DEL COMERCIO DEL D.F.
(firma) (firma)
LIC. J. SILVA VIDALS NEGRETE LIC. RAUL CASTELLANO
MARTINEZ -BAEZ
(ESTAMPA OFICIAL) (ESTAMPA OFICIAL)
REGISTRO PUBLICO DE COMERCIO REGISTRO PUBLICO DE LA
ESTADOS UNIDOS MEXICANOS PROPIEDAD DEL DISTRITO
FEDERAL DE GOVIERNO
20
<PAGE>
TRANSLATION
Jorge Antonio Francoz Garate
Notary Public 17 of the District of Tlanepantla
Estado de Mexico
- --WRITING NUMBER TWENTY EIGHT THOUSAND FOUR HUNDRED AND SEVENTY ONE.
- --VOLUME NUMBER SEVEN HUNDRED AND FORTY TWO
- --In the City of Naucalpan de Juarez, State of Mexico, at the 18th day of the
month of November of Nineteen Ninety eight, Me, the attorney, JORGE ANTONIO
FRANCOZ GARATE, NOTARY PUBLIC NUMBER SEVENTEEN, of the Judicial District of
Naucalpan, State of Mexico and Notary of the PATRIMONY FEDERAL BUILDING, give
constancy that before me is Mr. ALBERTO MENA ADAME, in his character of Special
Delegate of the Extraordinary General Stockholders Assembly, of the Commercial
Society called "JAFRA COSMETICS", SOCIETY OF LIMITED RESPONSIBILITY OF VARIABLE
STOCK, celebrated on May the 6th of Nineteen Ninety eight, in which was agreed
among other points the TRANSFORMATION OF THE SOCIETY TO ANONYMOUS SOCIETY OF
VARIABLE STOCK, THE ADOPTION OF SOCIAL STATUTES, THE APPOINTMENT OF THE MEMBERS
OF THE ADMINISTRATION GROUP, THE SOCIETY'S EXECUTIVES AND DESIGNATION OF THE
SOCIETY'S COMMISSARIES; is required to the writing Notary to P R O T O C O L I Z
E in the correspondent, this Statement, to the back ground and the next
clauses:---------------------
--------------------- B A C K G R O U N D----------
In the City of Mexico, Federal District, corporate domicile of Jafra
Cosmetics, S. de R. L. de C. V., at 9:00 a.m. on May 6, 1998, there met Mr.
James A. Ritch Grande Ampudia, in representation of Jafra Cosmetics
International, S. A. de C. V., and Miss Monica Rosado Reygadas, on behalf of
Consultoria Jafra, S. A. de C. V., in order to hold a GENERAL EXTRAORDINARY
PARTNERS MEETING of JAFRA COSMETICS, S. DE R. L. de C. V., to which they were
previously and timely called. Mr. Alberto Mena Adame, in his capacity as
Secretary of the Board of Directors of the Partnership, and Mr. Eugenio Lopez
Barrios, with the character of guest, were also present at the Meeting.
By unanimous designation of the persons present at the Meeting, Mr. Eugenio
Lopez Barrios acted as President of the Meeting, and the Secretary of the Board
of Directors, Mr. Alberto Mena Adame, acted as Secretary hereof.
21
<PAGE>
The President of the Meeting appointed Mr. James A. Ritch Grande Ampudia as
Teller who, having accepted his appointment and after reviewing the instruments
containing the powers of attorney granted by the partners in favor of their
representatives, as well as the Book of Registry of Shares of the Partnership,
certified that the totality of the outstanding shares of the Partnership are
represented at the Meeting, distributed as follows:
<TABLE>
<CAPTION>
PARTNER SHARES VOTES
- ------- ------ -----
<S> <C> <C>
Jafra Cosmetics International, S. A. de C. V. 1 1
Consultoria Jafra, S. A. de C. V. 1 1
- -
TOTAL: 2 2
</TABLE>
In view of the above certification made by the Teller, regarding the total
representation in the Meeting of the outstanding shares issued by the
Partnership, the President, based on article Sixteenth of the Articles of
Partnership, declared the meeting legally convened, notwithstanding the
corresponding notice was not published.
The Meeting, by unanimous vote, approved the aforesaid statement and
proceeded to deal with the issues contained in the following:
A G E N D A
I. Proposal, discussion and, as the case may be, resolution on the
transformation of the Partnership from a "Limited Liability Partnership with
Variable Capital" into a "Stock Corporation with Variable Capital".
II. Enactment of the corporate by-laws according to the new corporate
structure.
22
<PAGE>
III. Ratification of the members of the board of directors, the officers of
the Company, and appointment of the Commissioners ("Comisarios") thereof.
IV. Appointment of Delegates to formalize the resolutions adopted by this
Meeting.
The Meeting, by unanimous vote, approved the Agenda and proceeded to deal
with the issues thereof, as follows:
FIRST ISSUE. Regarding the first issue of the Agenda, Mr. Eugenio Lopez
Barrios, in his capacity as President hereof, explained the persons present at
the Meeting the convenience to modify the corporate structure of the Partnership
to adopt the legal modality of stock corporation, keeping the characteristic of
variable capital and that, as a consequence of such transformation, it will be
necessary to adjust the Partnership's share structure pursuant to the
requirements to be set forth in the new corporate by-laws, as well as those
provided for in the General Law of Mercantile Corporations.
Once the above proposal was discussed in depth, and having answered the
questions arisen, at all partners' satisfaction, the Meeting unanimously
resolved to adopt the following:
RESOLUTIONS
"1. It is hereby resolved to approve the transformation of JAFRA
COSMETICS, S. DE R. L. DE C. V. into a "Stock Corporation with Variable
Capital", based on the provisions of Articles 182, section VI, 227 and 228 of
the General Law of Mercantile Corporations."
"2. The resolutions adopted by this Meeting on the transformation of the
Partnership shall become effective as regards to the Partnership itself on the
date this Meeting takes place. Pursuant to the provisions of article 255 of the
General Law of
23
<PAGE>
Mercantile Corporations, the transformation shall become effective in connection
with third parties, on the date the corresponding resolutions are recorded in
the Public Registry of the Property and Commerce of the Federal District, since
the Partnership hereby approves the anticipated payment of all the Partnership's
debts in favor of those creditors who have not expressed their agreement with
the transformation and who so request it in writing, which debts shall become
due and payable as from March 31, 1998."
"3. As a consequence and by virtue of the decreed transformation, the
Company shall continue existing and operating under the name JAFRA COSMETICS
which, at all times, shall be followed by the words STOCK CORPORATION WITH
VARIABLE CAPITAL, or the abbreviations thereof "S. A. de C. V.".
"4. Regardless their participation in the capital once the transformation
of the Partnership becomes effective, the partners shall continue to be liable
regarding the corporate obligations up to an amount equal or equivalent to their
participation. Likewise, as a result of the Partnership transformation into a
stock corporation with variable capital, it is hereby approved that the capital
stock of the Corporation be represented by ordinary, common, registered shares,
with a par value of $1,000.00 (ONE THOUSAND PESOS 00/100ths MEXICAN CURRENCY)
each. The capital stock shall be distributed as follows:
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES
- ----------- ----------------
SERIES "A" "SERIES "B" TOTAL
---------- ----------- -----
<S> <C> <C> <C>
Jafra Cosmetics International, S. A. de 49 15,194,902 15,243,902
C. V.
Consultoria Jafra, S. A. de C. V. 1 1
-- ----------- -----------
TOTAL: 50 15,194,902 15,244,902"
</TABLE>
"5. The Board of Directors of the Partnership is hereby instructed to
proceed to the emission of the provisional or definitive share certificates
based on the new share
24
<PAGE>
ownership structure, as well as to the opening of a Book of Registry of Shares,
which must be kept pursuant to the provisions of the General Law of Mercantile
Corporations".
"6. In compliance with the provisions of articles 223 and 228 of the
General Law of Mercantile Corporations, proceed at once to formalize and record
in the Public Registry of the Property and Commerce of the Federal District, the
resolutions on the transformation of the Partnership adopted by this Meeting,
and to publish such resolutions, as well as the general balance sheet of Jafra
Cosmetics, S. de R. L. de C. V. as of April 30, 1998, in the Federal Official
Gazette."
SECOND ISSUE. Regarding the second issue of the Agenda, Mr. Eugenio Lopez
Barrios, in his capacity as President of the Meeting, informed the persons
present at the Meeting that, as a consequence of the transformation of the
Partnership, it becomes necessary to enact new by-laws in order to adequate the
Partnership agreement to the new corporate structure. Therefore, the Secretary
of the Meeting proceeded to read the corporate by-laws draft which is submitted
to the Meeting's consideration, which draft was sent in due time to the
shareholders of the Corporation for their analysis.
Having widely discussed the President's proposal on this issue, the Meeting
unanimously resolved to adopt the following:
RESOLUTIONS
"1. Effective as from May 6, 1998, JAFRA COSMETICS, S. A. DE C. V. adopts
the by-laws which text is attached to the file of the minutes of this Meeting as
LETTER "A", duly initialed by the President and by the Secretary hereof, for
their proper identification".
THIRD ISSUE. Regarding the third issue of the Agenda, Mr. Eugenio Lopez
Barrios, acting as President hereof, explained the Meeting the need to appoint
the
25
<PAGE>
members of the Board of Directors of the Corporation, to ratify in their
positions the officers acting as Executive Vice President and Vice President of
the Corporation, as well as to appoint a Commissioner ("Comisario") and an
Alternate Commissioner ("Comisario Suplente").
On this subject, the Meeting unanimously adopted the following:
RESOLUTIONS
"1. It is hereby approved that the Board of Directors of the Corporation
be composed by the same persons who used to form part of the Board of Managers
before the transformation of the Partnership took place; consequently, the Board
of Directors is integrated as follows:
PROPRIETARY MEMBERS POSITION
- ------------------- --------
Ralph S. Mason III President
Alberto Mena Adame Secretary
Martha Cecilia Echeverri Correa Member
ALTERNATE MEMBER
- ----------------
Maria Dolores Sanchez Cano Gascon"
"2. It is hereby approved the ratification of the following individuals as
officers of the Corporation: Ralph S. Mason III as Executive Vice President,
and David A. Novak as Vice President."
26
<PAGE>
"3. Public Accountant Sergio Quezada is hereby appointed Proprietary
Commissioner ("Comisario Propietario") of the Corporation, and Public Accountant
Ernesto Valenzuela is hereby designated as Alternate Commissioner ("Comisario
Suplente") thereof."
FOURTH ISSUE. In dealing with the fourth issue of the Agenda, Mr. Eugenio
Lopez Barrios, presiding over the Meeting, proposed the Meeting to appoint
Messrs. Alberto Mena Adame, James A. Ritch Grande Ampudia and Miss Monica Rosado
Reygadas as Delegates of this Meeting, so that any one of them, either jointly
or severally, indistinctly, carry out the acts and sign the documents that may
be necessary in order to comply with and formalize the resolutions adopted by
this Meeting including, among others: i) obtain the corresponding permit issued
by the Ministry of Foreign Affairs, in the event the same is required; ii)
formalize before a Notary Public, and record in the Public Registry of the
Property and Commerce of the Federal District, the transformation agreements
and, in general, the minutes of this Meeting; and iii) publish the general
balance sheet of the Partnership, as well as the notices that may be necessary
or convenient regarding the resolutions adopted by this Meeting.
On this subject, the Meeting unanimously adopted the following:
RESOLUTION
"1. Messrs. Alberto Mena Adame, James A. Ritch Grande Ampudia and Miss
Monica Rosado Reygadas are hereby appointed Delegates of this Meeting, so that
any one of them, either jointly or severally, indistinctly, carry out the acts
and sign the documents that may be necessary in order to comply with and
formalize the resolutions adopted by this Meeting including, among others: i)
obtain the corresponding permit issued by the Ministry of Foreign Affairs, in
the event the same is required; ii) formalize before a Notary Public, and
record in the Public Registry of the Property and Commerce of the Federal
District, the transformation agreements and, in general, the minutes of this
Meeting; and iii) publish the general balance sheet of the Partnership, as well
as the
27
<PAGE>
notices that may be necessary or convenient regarding the resolutions adopted by
this Meeting."
The President hereof adjourned the Meeting for the drafting of these
minutes, which were read and approved by all the participants therein, and
signed by the President and by the Secretary of the Partnership.
It is hereby certified that, at the time all and each one of the
resolutions herein contained were adopted, the totality of the Partnership
capital was represented and participated in this Meeting. The proxy letters
containing the authority granted by the partners to their representatives in
this Meeting, are attached to the file of the minutes hereof, under LETTER "B".
The Meeting was adjourned at 11:00 a.m. on May 6, 1998.
/s/Eugenio Lopez Barrios /s/Alberto Mena Adame
- ---------------------------------- ----------------------------
Mr. Eugenio Lopez Barrios Mr. Alberto Mena Adame
President Secretary
28
<PAGE>
Recorded in the Public Registry of Commerce,
under Mercantile Folio Number 110069.
Fees: $ 504.00.- Reg. In Cash: 207085
Certificate: 18987 Dated on: 27-11-98
In Mexico City, Federal District, December 1st, 1998.
Register of Commerce of Federal Director of thePublic Registry of
District Government. the Property and Commerce of
Federal District.
(signature) (signature)
Lic. J. Silva Vidals Negrete Lic. Raul Castellano Martinez-Baez
Stamp: Stamp:
Public Registry of Commerce. Public Registry of the Property
Mexican United States. of Federal District Government.
U.D. "A"
29
<PAGE>
EXHIBIT 4.18
CONSENT AND WAIVER dated as of November 19, 1999 (this
"Consent"), to the Credit Agreement dated as of April 30,
1998, as amended by Amendment No. 1 thereto dated as of
August 26, 1998 (the "Credit Agreement"), among JAFRA
COSMETICS INTERNATIONAL, INC. (formerly CDRJ Acquisition
Corporation), a Delaware corporation ("JCI"), JAFRA
COSMETICS INTERNATIONAL, S.A. de C.V., a sociedad anonima de
capital variable organized under the laws of Mexico
(together with JCI, the "Borrowers"), CDRJ INVESTMENTS (LUX)
S.A., a societe anonyme organized under the laws of
Luxembourg ("Parent"), the several banks and financial
institutions party to the Credit Agreement (the "Lenders"),
the Issuing Bank and CREDIT SUISSE FIRST BOSTON, a bank
organized under the laws of Switzerland, acting through its
New York branch, as administrative agent (in such capacity,
the "Administrative Agent").
A. Pursuant to the Credit Agreement, the Lenders and the Issuing Bank have
extended, and have agreed to extend, credit to the Borrowers.
B. Parent and the Borrowers have requested that the Required Lenders and
the Administrative Agent consent to the purchase by the Borrowers of their
Subordinated Notes in certain circumstances, and the Administrative Agent and
the Required Lenders are willing to grant such consent, on the terms and subject
to the conditions set forth herein.
C. Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein contained and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Consent and Waiver. The Required Lenders and the
Administrative Agent hereby consent to the purchase by the Borrowers of their
Subordinated Notes in the open market from time to time, and hereby waive
compliance by the Borrowers with the provisions of Section 6.10 of the Credit
Agreement to the extent (but only to the extent) necessary to permit such
purchases, in each case so long as (a) at the time of and immediately after
giving effect to each such purchase, no Default or Event of Default shall have
occurred and be continuing, and (b) the aggregate purchase price for all such
Subordinated Notes repurchased pursuant to this Consent shall not exceed
$25,000,000.
SECTION 2. Representations and Warranties. To induce the other parties
hereto to enter into this Consent, each of Parent and each Borrower represents
and warrants to each of the
1
<PAGE>
Lenders and the Administrative Agent that (a) the representations and warranties
set forth in Article III of the Credit Agreement are true and correct in all
material respects on and as of the date hereof with the same effect as though
made on and as of the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date, and (b) as of the date hereof no
Default or Event of Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Consent shall become
effective as of the date hereof upon receipt by the Administrative Agent of
counterparts of this Consent that, when taken together, bear the signatures of
Parent, the Borrowers, the Administrative Agent and the Required Lenders.
SECTION 4. Effect of Consent. Except as expressly set forth herein, this
Consent shall not by implication or otherwise limit, impair, constitute a waiver
of, or otherwise affect the rights and remedies of the Lenders, the
Administrative Agent, Parent or either Borrower under the Credit Agreement or
any other Loan Document, and shall not alter, modify, amend or in any way affect
any of the terms, conditions, obligations, covenants or agreements contained in
the Credit Agreement or any other Loan Document, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle Parent or either Borrower to a consent to, or
a waiver, amendment, modification or other change of, any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances.
After the date hereof, any reference to the Credit Agreement shall mean the
Credit Agreement as modified hereby. This Consent shall constitute a "Loan
Document" for all purposes of the Credit Agreement and the other Loan Documents.
SECTION 5. Counterparts. This Consent may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Delivery of any executed counterpart of a signature page of this Consent by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
SECTION 6. APPLICABLE LAW. THIS CONSENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICTS OF LAWS TO THE
EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.
SECTION 7. Notices. All notices hereunder shall be given in accordance
with the provisions of Section 9.02 of the Credit Agreement.
2
<PAGE>
SECTION 8. Headings. The headings of this Consent are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be duly
executed by their duly authorized officers, all as of the date and year first
above written.
JAFRA COSMETICS INTERNATIONAL, INC.,
by
/s/ Michael A. DiGregorio
-------------------------------------
Name: Michael A. DiGregorio
Title: Senior Vice President and Chief
Financial Officer
JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.,
by
/s/ Michael A. DiGregorio
-------------------------------------
Name: Michael A. DiGregorio
Title: Senior Vice President and Chief
Financial Officer
CDRJ INVESTMENTS (LUX) S.A.,
by
/s/ Michael A. DiGregorio
--------------------------------------
Name: Michael A. DiGregorio
Title: Senior Vice President and Chief
Financial Officer
CREDIT SUISSE FIRST BOSTON,
individually and as Administrative Agent,
by
/s/ David W. Kratovil
--------------------------
Name: David W. Kratovil
3
<PAGE>
Title: Director
4
<PAGE>
by
/s/ Chris T. Horgan
--------------------------
Name: Chris T. Horgan
Title: Vice President
HSBC BANK USA,
by
/s/ Christopher F. French
-------------------------------
Name: Christopher F. French
Title: Authorized Signatory
BANK OF AMERICA, N.A.,
by
/s/ Johns Ellington
-----------------------------
Name: Johns Ellington
Title: Vice President
THE BANK OF NEW YORK,
by
/s/ Julie Follosco
----------------------------
Name: Julie Follosco
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.,
by
/s/ Richard P. DeGrey
----------------------------
Name: Richard P. DeGrey
Title: Vice President
CITY NATIONAL BANK,
by
/s/ Steven K. Sloan
----------------------------
5
<PAGE>
Name: Steven K. Sloan
Title: Vice President
THE CHASE MANHATTAN BANK,
by
/s/ Kathryn Duncan
-------------------------
Name: Kathryn Duncan
Title: Vice President
6
<PAGE>
EXHIBIT 4.19
SUBSTITUTION OF TRUSTEE AND PARTIAL RECONVEYANCE OF DEED OF TRUST,
ASSIGNMENT OF LEASES AND RENTS, FIXTURE FILING AND SECURITY AGREEMENT,
AND RELEASE OF FINANCING STATEMENT
The undersigned, present Beneficiary under that certain Deed of Trust,
Assignment of Leases and Rents, Fixture Filing and Security Agreement (the "Deed
of Trust") executed by JAFRA COSMETICS INTERNATIONAL, INC., a Delaware
corporation, as Trustor, TITLESERV AGENCY OF NEW YORK CITY, INC., as original
Trustee, for the benefit of CREDIT SUISSE FIRST BOSTON, as Administrative and
Collateral Agent, as Beneficiary, and recorded on May 6, 1998, as Instrument No.
98-069989, in the official Records of Ventura County, State of California (the
"Records"), hereby appoints and substitutes the undersigned as the new and
substituted Trustee under the Deed of Trust in accordance with the terms and
provisions contained therein; and
As such duly appointed and substituted Trustee, the undersigned does hereby
reconvey to the person or persons legally entitled thereto, without warranty,
all the estate, right, title and interest acquired by the original Trustee and
by the undersigned as the substituted Trustee under the Deed of Trust in and to
that portion of the Trust Property described on the attached Exhibit "A", which
is incorporated herein by this reference (the "Released Property"). The
undersigned, as secured party, does also hereby release and reconvey the
Released Property from that certain Financing Statement recorded in the Records
on May 14, 1998 as Instrument No. 98-075657.
Dated as of November 29, 1999
-----------------
BENEFICIARY AND SUBSTITUTED
TRUSTEE:
CREDIT SUISSE FIRST BOSTON,
as Administrative and Collateral Agent
By: /s/ Robert Hetu /s/ Bill O'Daly
------------------------------------
Name: Robert Hetu Bill O'Daly
------------------------------------
Title: Vice President Vice President
-----------------------------------
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
On November 29, 1999 before me, Merna F. Spitzer, a Notary Public in and
------------------ ----------------
for said State, personally appeared Robert Hetu, personally known to me (or
-------------
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is /are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: /s/ Merna F. Spitzer
--------------------
Merna F. Spitzer
Notary Public, State of New York
No. 31-4786538
Qualified in New York County
Commission Expires March 30, 2001
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
On December 1, 1999 before me, Marie Giacobbe, a Notary Public in and for
---------------- ----------------
said State, personally appeared Bill O'Daly, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his /her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: /s/ Marie Giacobbe
------------------
Marie Giacobbe
Notary Public, State of New York
No. 01G16015100
Qualified in Kings County
Certificate Filed in New York County
Commission Expires Oct. 26, 2000
<PAGE>
EXHIBIT A
Parcel 2 of LD-613, in the City of Thousand Oaks, County of Ventura, State of
California, as shown on a parcel map filed in Book 52; Pages 43 and 44 of Parcel
Maps, in the office of the County Recorder of said county.
<PAGE>
EXHIBIT 4.20
PARTIAL RECONVEYANCE OF DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
FIXTURE FILING AND SECURITY AGREEMENT, AND RELEASE OF FINANCING
STATEMENT
The undersigned is the Trustee under that certain Deed of Trust, Assignment
of Leases and Rents, Fixture Filing and Security Agreement (the "Deed of Trust")
executed by JAFRA COSMETICS INTERNATIONAL, INC., a Delaware corporation, as
Trustor, TITLESERV AGENCY OF NEW YORK CITY, INC., as original Trustee, for the
benefit of CREDIT SUISSE FIRST BOSTON, as Administrative and Collateral Agent,
as Beneficiary, and recorded on May 6, 1998 as Instrument No. 98-069989, in the
official Records of Ventura County, State of California (the "Records"), and
As such duly appointed and substituted Trustee, the undersigned does hereby
reconvey to the person or persons legally entitled thereto, without warranty,
all the estate, right, title and interest acquired by the original Trustee and
by the undersigned as the substituted Trustee under the Deed of Trust in and to
that portion of the Trust Property described on the attached Exhibit "A", which
is incorporated herein by this reference (the "Released Property"). The
undersigned, as secured party, does also hereby release and reconvey the
Released Property from that certain Financing Statement recorded in the Records
on May 14, 1998 as Instrument No. 98-075657.
Dated as of November 29, 1999
----------- ----
BENEFICIARY AND SUBSTITUTED
TRUSTEE:
CREDIT SUISSE FIRST BOSTON,
as Administrative and Collateral Agent
By: /s/ Robert Hetu /s/ Bill O'Daly
------------------------------------
Name: Robert Hetu Bill O'Daly
----------------------------------
Title: Vice President Vice President
---------------------------------
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
On November 29, 1999 before me, Merna F. Spitzer, a Notary Public in and
------------------ ----------------
for said State, personally appeared Robert Hetu, personally known to me (or
-------------
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is /are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same on his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: /s/ Merna F. Spitzer
--------------------
Merna F. Spitzer
Notary Public, State of New York
No. 31-4786538
Qualified in New York County
Commission Expires March 30, 2001
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
On December 1, 1999 before me, Marie Giacobbe, a Notary Public in and
---------------- --------------
for said State, personally appeared Bill O'Daly, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: /s/ Marie Giacobbe
------------------
Marie Giacobbe
Notary Public, State of New York
No. 01G16015100
Qualified in Kings County
Certificate Filed in New York County
Commission Expires Oct. 26, 2000
<PAGE>
EXHIBIT A
Lot 5 of Tract 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.
<PAGE>
EXHIBIT 10.20
TRUST AGREEMENT
(For Use With Existing Deferred Compensation Plans)
THIS AGREEMENT is made as of the 20th day of May,1999 by and between Jafra
---- --------- -----
Cosmetics Int'l Inc. (hereinafter called "Company") and Scudder Trust Company
- ---------------------
(hereinafter called "Trustee").
WHEREAS, Company has adopted the Jafra Cosmetics Supplemental Savings Plan,
------------------------------------------
dated 10/16/98 (hereinafter called the "Plan");
---------
WHEREAS, Company has incurred or expects to incur liability under the terms
of such Plan with respect to the individuals participating in such Plan;
WHEREAS, Company wishes to restate the trust (hereinafter called "Trust")
originally established on 10/16/98 to appoint Scudder Trust Company as the
--------
successor trustee and to contribute to the Trust assets that shall be held
therein, subject to the claims of Company's creditors in the event of Company's
insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974
(" ERISA"); and
WHEREAS, it is the intention of Company to make contributions to the Trust
to provide a source of funds to assist it in meeting its liabilities under the
Plan;
NOW, THEREFORE, the parties do hereby restate the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
Section I: Establishment of Trust
(a) Company hereby deposits with Trustee in trust an amount to be
transferred, which shall become the initial principal of the Trust to be held,
administered and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of Plan participants and general creditors of Company as
herein set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan participants and their beneficiaries
against Company. Any assets held by the Trust will be subject to the claims of
Company's general creditors under federal and state law in the event of
insolvency of Company, as defined in Section 3(a) herein.
(d) No later than 30 days following the end of each Plan year, the Company
shall be required to irrevocably deposit cash to the Trust to the extent
required for the Trust to have assets sufficient to pay each Plan participant or
beneficiary the benefits payable pursuant to the terms of the Plan as of the
close of such Plan year.
1
<PAGE>
Section 2: Payments to Plan Participants and Their Beneficiaries
(a) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as it shall
designate under the Plan, and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plan.
(b) Subsequent to the determination pursuant to Section 2(a) hereof,
Company shall direct Trustee to make payments from the Trust to such person and
in such amounts as may be specified in such directions. Trustee shall be fully
protected in relying upon the directions of Company pursuant to this Section
2(b) and shall have no responsibility to ascertain whether such directions
comply with the terms of the Plan or with any applicable law.
(c) All assets in the Trust shall be available to pay benefits to all Plan
participants and their beneficiaries. Trustee shall apply such assets to such
payments, as they become due in accordance with the directions of Company. If
the aggregate amount of benefit payable to all Plan participants and their
beneficiaries on any date exceeds the aggregate amount of assets in the Trust on
such date, the amount of the payment to each such participant and beneficiary
shall be proportionately reduced. Notwithstanding any provision elsewhere
herein to the contrary, Trustee shall not be obligated to make any benefit
payments under the Plan unless, and shall be obligated to make such payments
only to the extent that, there are assets available in the Trust to make such
benefit payments.
(d) Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan. Company
shall notify Trustee of this decision to make payment of benefits directly prior
to the time amounts are payable to participants or their beneficiaries. In
addition, if the assets of the Trust are not sufficient to make payments of
benefits in accordance with the directions of Company pursuant to Section 2(b),
Company shall make the balance of each such payment as it falls due. Trustee
shall notify Company whenever the assets of the Trust are not sufficient to make
full payment of benefits in accordance with the directions of Company.
(e) As directed by Company, Trustee shall withhold from any payment from
the Trust to a Plan participant (or beneficiary) hereunder the amount required
by law to be so withheld under federal, any state and local wage withholding
requirements or otherwise, and shall pay over to the Company the amount so
withheld. Trustee shall rely on instructions from Company as to any required
withholding and shall be fully protected in relying on such instructions. For
purposes of the preceding sentence a failure by Company to provide any
instruction as to required withholding shall be deemed by Trustee to be an
instruction by Company that no withholding is required.
Section 3: Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company is Insolvent
(a) Trustee shall cease payment of benefits to Plan participants and their
beneficiaries if the Company is insolvent. Company shall be considered
"insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(c) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer shall have
-----------------------
the duty to inform Trustee in writing of Company's insolvency. If a person
claiming to be a creditor of Company alleges in writing to Trustee that Company
has become insolvent, Trustee shall determine whether Company is insolvent and,
pending such determination, Trustee shall discontinue payment of benefits to
Plan participants or their beneficiaries.
2
<PAGE>
(2) Unless Trustee has actual knowledge of Company's insolvency, or
has received notice from Company or a person claiming to be a creditor alleging
that Company is insolvent, Trustee shall have no duty to inquire whether Company
is insolvent. Trustee may in all events rely on such evidence concerning
Company's solvency as may be furnished to Trustee and that provides Trustee with
a reasonable basis for making a determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is insolvent,
Trustee shall discontinue payments to Plan participants or their beneficiaries
and shall hold the assets of the Trust for the benefit of Company's general
creditors; provided, however, Trustee may deduct or continue its fees and
expenses and other expenses of the Trust. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan participants or their beneficiaries to
pursue their rights as general creditors of Company with respect to benefits due
under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan participants
or their beneficiaries in accordance with Section 2 of this Trust Agreement only
after Trustee has determined that Company is not insolvent (or is no longer
insolvent).
(c) Provided that there are sufficient assets if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.
Section 4: Payments to Company
Reserved
Section 5: Investment Authority
(a) Unless Company and Trustee have mutually agreed in a separate writing
that Trustee shall have and exercise investment discretion with respect to all
or a portion of the assets of the Trust, Company shall have complete discretion
with respect to the investment of such assets and shall direct Trustee
accordingly. Subject to the foregoing, Trustee shall have the power:
(i) to invest and reinvest in any property, real, personal or
mixed, wherever situated and whether or not productive of income or consisting
of wasting assets, without being limited to the classes of property in which
trustees are authorized to invest by any law or any rule of court of any state
and without regard to the proportion any such property may bear to the entire
amount of the Trust;
(ii) to retain any property at any time received by Trustee;
(iii) to vote in person or by proxy, or to refrain from voting, in
respect of any securities held by the Trust, and to give general or special
proxies or powers of attorney, with or without power of substitution, and to
exercise any conversion privileges, subscription rights or other options,
consolidations, mergers and similar transactions with respect to such
securities; and generally to exercise any of the powers of an owner with respect
to any property held by the Trust;
(iv) with respect to any investment, to consent or object to or
otherwise request any action or nonaction on the part of any corporation,
association or trust or of the directors, officers, stockholders or trustees of
any such corporation, association or trust;
(v) to settle, compromise or submit to arbitration any claims,
debts or damages due or owing to or from the Trust:
(vi) to deposit any property in any voting trust, or with any
protective, reorganization or similar committee, or with depositories designated
thereby; to delegate power thereto;
3
<PAGE>
and to pay or agree to pay part of its expenses and compensation and any
assessments levied with respect to any property so deposited;
(vii) to deposit securities with custodians or securities clearing
corporations or depositories or similar organizations, whether located within
the State of New Hampshire or elsewhere;
(viii) to commence or defend suits or legal proceedings and to
represent the Trust in all suits or legal proceedings in any court or before any
other body or tribunal; provided, however, that Trustee shall have no obligation
to take any legal action for the benefit of the Trust unless it shall be first
indemnified for all expenses in connection therewith, including without
limitation, counsel fees;
(ix) to hold uninvested any monies received by it, without liability
for interest thereon, until such monies shall be invested, reinvested or
disbursed;
(x) to register or cause to be registered any securities or other
property in its name or in the name of any nominee with or without indication of
the capacity in which the securities shall be held, or to hold securities in
bearer form;
(xi) to employ suitable agents and legal counsel, who may be counsel
for Company or Trustee, and, as a part of its reimbursable expenses under this
Trust Agreement, to pay such agent's or counsel's reasonable compensation and
expenses;
(xii) to appoint one or more individuals or corporations as a
custodian of any property and, as a part of its reimbursable expenses under this
Trust Agreement, to pay the reasonable compensation and expenses of any such
custodian;
(xiii) for the purposes of the Trust, to borrow money from others, to
issue its promissory note or notes therefor, and to secure the repayment thereof
by pledging any property held by it;
(xiv) to write or purchase call or put options;
(xv) to enter into commodity contracts and foreign exchange
contracts and to take appropriate actions in connection with such contracts; and
(xvi) generally to do all actions, exclusive of acts involving
investment management discretion, which Trustee may deem necessary or desirable
for the protection of the Trust;
provided, however, that, unless otherwise mutually agreed to in a separate
writing between Company and Trustee, the powers specified in subparagraphs (i)
through (vi) and (xiii) through (xv) above shall be exercised by Trustee only
upon the specific direction of Company, and Trustee shall not incur any
liability for acting in accordance with such directions or for failing to act in
the absence of such directions.
(b) Wherever used in this Trust Agreement, the term "securities" shall
include bonds, mortgages, notes, obligations, warrants and stocks of any class,
certificates of participation or shares of any mutual investment company, trust
or fund (including, without limitation, any mutual investment company, trust or
fund sponsored, managed or maintained by Trustee or any affiliate of Trustee),
and such other evidences of indebtedness and certificates of interest as are
usually referred to by the term "securities," and the term "property" shall
include real, personal and mixed property, tangible or intangible, of any kind
and wherever located, including without limitation, securities, depository
accounts in any bank, trust company or similar financial institution (including
depository accounts in the banking department of Trustee or an affiliate of
Trustee or any custodian or an affiliate of any custodian).
(c) In order to permit Company to make timely and informed decisions
regarding the management of the assets in the Trust, Trustee shall forward to
Company for appropriate action any and all proxies, proxy statements, notices,
requests, advice or other communications received by Trustee (or its nominee) as
the record owner of such assets.
4
<PAGE>
(d) Notwithstanding any provision to the contrary elsewhere herein,
Company shall have the right, at any time and from time to time, in its sole
discretion to substitute assets of equal fair market value for any asset held by
the Trust.
Section 6: Disposition of Income
During the term of this Trust, all income received by the Trust, net of
expenses and taxes (to the extent not paid by the Company), shall be accumulated
and reinvested.
Section 7: Accounting by Trustee
(a) Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 30 days following the close of each calendar year
and within 60 days after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth such information as is
mutually agreed upon by Company and Trustee. Upon the expiration of 90 days
from the date of filing such annual or other account, Trustee shall be forever
released and discharged from all liability and accountability to anyone with
respect to the propriety of all acts and transactions shown in such account,
except with respect to any such acts or transactions as to which Company shall
within such 90 day period file with Trustee written objections.
(b) Notwithstanding the foregoing Section 7(a), Trustee shall have the
right to apply at any time to a court of competent jurisdiction for the judicial
settlement of Trustee's account, and in any such case it shall be necessary to
join as parties thereto only Trustee and Company; and any judgment or decree
which may be entered therein shall be conclusive upon all persons having or
claiming to have any interest in the Trust or under a Plan.
Section 8: Responsibility of Trustee
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person (i) for any action taken pursuant to a direction,
request or approval given by Company which is contemplated by the terms of this
Trust Agreement and is given in writing by Company or (ii) for any failure to
take any action in the absence of such a direction, request or approval. The
duties of Trustee shall only be those specifically undertaken pursuant to this
Trust Agreement. In the event of a dispute between Company or Company and a
party, Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
(b) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder,
and shall be fully protected in acting or refraining from acting in accordance
with the advice of such counsel.
(c) Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(d) Trustee shall hold, manage, invest and otherwise administer the Trust
pursuant to the terms of this Trust Agreement. Trustee shall be responsible
only for contributions actually received by it hereunder. The amount of each
contribution made by Company to the Trust shall be determined in the sole
discretion of Company, and Trustee shall have no duty or responsibility with
respect thereto. Trustee shall
5
<PAGE>
not have any authority or obligation to determine the adequacy of or to enforce
the collection from the Company of any contribution to the Trust. Except as
otherwise specifically agreed to by Trustee, Trustee shall not be responsible
for the administration of the Plan.
(e) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(f) Company hereby agrees to indemnify and hold harmless Trustee from and
against any and all losses, costs, damages, claims or expenses, including
without limitation, reasonable attorneys' fees and expenses, which Trustee may
incur or pay out in connection with, or otherwise arising out of, the
performance by Trustee of its duties hereunder. Any amount payable to Trustee
under Section 9 or this Section 8(f) and not previously paid by Company pursuant
to this Trust Agreement shall be paid by Company promptly upon demand therefor
by Trustee or, if Trustee so chooses in its sole discretion from the Trust. In
the event that payment is made hereunder to Trustee from the Trust, Trustee
shall promptly notify Company in writing of the amount of such payment. Company
agrees that, upon receipt of such notice, it will deliver to Trustee to be held
in the Trust an amount in cash (or marketable securities having a fair market
value equal to such amount, or some combination thereof) equal to any payments
made from the Trust to Trustee pursuant to Section 9 or this Section 8(f). The
failure of Company to transfer any such amount shall not in any way impair
Trustee's right to indemnification, reimbursement and payment pursuant to
Section 9 or this Section 8(f).
(g) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9: Compensation and Expenses of Trustee
Company shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
Section 10: Resignation and Removal of Trustee
(a) Trustee may resign at any time by written notice to Company, which
resignation shall be effective 30 days after receipt of such notice unless
Company and Trustee agree otherwise. Trustee may be removed at any time by
Company upon written notice from Company to Trustee, which removal shall be
effective 30 days after receipt of such notice unless Company and Trustee agree
otherwise.
(b) Upon a Change of Control, as defined herein, the Trustee may not be
removed by the Company for one year.
(c) Upon resignation or removal of Trustee and appointment of a successor
trustee, all assets shall subsequently be transferred to the successor trustee.
The transfer shall be completed within 60 days after receipt of notice of
resignation, removal or transfer, unless Company extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraph (c) of this section. If no such appointment has been
made, Trustee may apply to a court of competent jurisdiction for appointment of
a successor or for instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
Section 11: Appointment of Successor
(a) If Trustee resigns or is removed in accordance with Section 10(a)
hereof, Company may appoint any third party, such as a bank trust department or
other party that may be granted corporate trustee
6
<PAGE>
powers under the state law, as a successor to replace Trustee upon resignation
or removal. The appointment shall be effective when accepted in writing by the
new trustee who shall have all of the rights and powers of the former trustee,
including ownership rights in the Trust assets. The former trustee shall execute
any instrument necessary or reasonably requested by Company or the successor
trustee to evidence the transfer.
(b) The successor trustee need not examine the records and acts of any
prior trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor trustee shall not be responsible for and
the Company shall indemnify and defend the successor trustee from any claim or
liability resulting from any action or inaction of any prior trustee or from any
other past event, or any condition existing at the time it becomes successor
trustee.
Section 12: Amendment or Termination
(a) This Trust may be amended by a written instrument executed by Trustee
and Company. Notwithstanding the foregoing, no such amendment shall conflict
with the terms of the Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the earlier of (i) the date on
which Plan participants and their beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plan or (ii) the first date on which the
Trust has no assets. Upon termination of the Trust any assets remaining in the
Trust shall be returned to the Company. Trustee shall be entitled to rely upon
a certification by Company that all benefits payable under the Plans have been
paid in full.
(c) Notwithstanding the foregoing the Trust shall terminate in any event
upon the expiration of 21 years after the death of the last survivor of the
group of persons consisting of all employees of Company who are living on the
date of execution of this Trust Agreement.
Section 13: Miscellaneous
(a) Any provisions of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of New Hampshire.
(d) For purposes of this Trust, a "Change of Control" will be deemed to
occur (i) upon any Person becoming an Acquiring Person if the Board of Directors
has not recommended that stockholders of the Company tender or otherwise sell
their common stock to such Acquiring Person; (ii) upon the approval by the
stockholders of the Company of a reorganization, merger or consolidation, in
each case, with respect to which persons who were stockholders of the Company
immediately prior to such reorganization, merger or consolidation, do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
consolidated or merged Company's then outstanding securities; or (iii) upon a
liquidation or dissolution of the Company or the sale of all or substantially
all of the Company's assets. An "Acquiring Person" is any Person, who or which,
together with all Affiliates and Associates of such Person, is the Beneficial
Owner of shares of common stock of the Company constituting more than 20 percent
of the common stock then outstanding. "Affiliate" and "Associate" shall have
the meaning ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (the "Act"). "Beneficial
Owner" will have the meaning ascribed to such term in Rule 13d-3 of the Act.
"Person" shall mean any individual, firm,
7
<PAGE>
corporation or other entity, and will include any "group" as that term is used
in Rule 13d-5(b) of the Act. "Board of Directors" will mean the Board of
Directors of the Company.
(e) Company shall maintain and furnish Trustee with such reports,
documents and information as shall be required by Trustee to perform its duties
and discharge its responsibilities under this Trust Agreement, including without
limitation a certified copy of the Plan and any and all amendments thereto.
Trustee shall be entitled to rely on the most recent reports, documents and
information furnished to it by Company.
(f) After the execution of this Trust Agreement, Company shall promptly
file with Trustee a list of the names and specimen signatures of the officers of
the Company and any delegee authorized to act for it. Company shall promptly
notify Trustee of the addition or deletion of any person's name to or from such
list, respectively. Until receipt by Trustee of notice that any person is no
longer authorized so to act, Trustee may continue to rely on the authority of
the person. All certifications, notices and directions by any such person or
persons to Trustee shall be in writing (which may include facsimile or other
similar electronic transmissions) signed by such person or persons. Trustee may
rely on any certification notice or direction of Company that Trustee believes
to have been signed by an authorized officer or other delegee of Company.
Trustee shall have no responsibility for acting or not acting in reliance upon
any notification believed by Trustee to have been so signed by a duly authorized
officer or other delegee of Company. If at any time there is no person
authorized to act under this Agreement on behalf of Company, the Board of
Directors of Company (or if the Board has ceased to exist, the individuals who
last served as Directors) shall have the authority to act hereunder.
(g) Company represents and agrees that the Trust established under this
Trust Agreement does not fund and is not intended to fund the Plan or any other
employee benefit plan or program of Company. Such Trust is and is intended to
be a depository arrangement with Trustee for the setting aside of cash and other
assets of Company as and when it so determines in its sole discretion for the
meeting of part or all of its future benefit payment obligations to the Plan
participants and their beneficiaries. Contributions by Company to the Trust
shall be in amounts determined solely by Company. Company shall make its
contributions to Trust in accordance with appropriate corporate action and
Trustee shall have no responsibility with respect thereto, except to add such
contributions to Trust.
(h) Company further represents that the Plan is either an unfunded
deferred compensation arrangement for a select group of highly-compensated and
management employees, an excess benefit plan within the meaning of Section 3(36)
of ERISA or a plan not covering any employees, and as the Plan is exempt from
the application of ERISA, except for the limited disclosure requirements
applicable to such plans (other than excess benefit and non-employee plans) for
which Company bears full responsibility as to compliance with any disclosure
requirements under ERISA. Company further represents that the Plan is not
qualified under Section 401 of the Code, and therefore that the Plan is not
subject to any of the Code requirements applicable to tax-qualified plans.
(i) Plan participants and their beneficiaries shall have the rights under
this Trust Agreement of unsecured general creditors of Company and shall not
have any preferred claim on, or any beneficial ownership interest in, the Trust
prior to the time amounts in the Trust are paid to such Plan participants or
beneficiaries as benefits under Section 2 hereof.
Section 14. Effective Date
The effective date of this Trust Agreement shall be 5/20/99.
--------
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed and their respective corporate seals to be hereto affixed this
20th day of May,1999.
- ---- ---------
8
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Jafra Cosmetics Int'l Inc.
-----------------------------------------
(Company)
By: /s/ Terry Grayson
-----------------------------------------
Title: Director of Human Resources
SCUDDER TRUST COMPANY
-----------------------------------------
By: /s/ Karen A. Gill
-----------------------------------------
Title: Vice President
9
<PAGE>
EXHIBIT 10.21
AMENDMENT NO. 1 TO CONSULTING AGREEMENT
AMENDMENT NO. 1, dated as of March 15, 2000 (the "Amendment"), to the
---------
CONSULTING AGREEMENT, dated as of April 30, 1998, by and among CDRJ Investments
(Lux) S.A., a Luxembourg societe anonyme ("Lux SA"), Jafra Cosmetics
------
International, Inc., a Delaware corporation ("JCI"), Jafra Cosmetics
---
International, S.A. de C.V., a sociedad anonima de capital variable ("JCISA" and
collectively with Lux SA and JCI, the "Company Group"), and Clayton, Dubilier &
-------------
Rice, Inc., a Delaware corporation ("CD&R").
----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto have entered into a Consulting Agreement,
dated as of April 30, 1998 (the "Consulting Agreement"); and
--------------------
WHEREAS, the parties hereto wish to amend certain provisions of the
Consulting Agreement as herein provided;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereby agree as follows:
1. AMENDMENT TO SECTION 3. Section 3(b) of the Consulting Agreement is
hereby amended to read in its entirety as follows:
"(b) The Company Group jointly and severally agree to pay to CD&R, as
compensation for Continuing Services rendered and to be rendered by CD&R
hereunder, a fee of $400,000 per year (the "Continuing Services Fee"), one-
-----------------------
twelfth of which shall be payable on the first day of each month commencing on
the first day of the month following the date of the closing of the Acquisition.
Such Continuing Services Fee may, in the sole discretion of a majority of the
members of the Company's Board of Directors who are not affiliated with CD&R, be
increased but may not be decreased without the prior written consent of CD&R.
If any employee of CD&R shall be elected to serve on the Board of Directors of
any member of the Acquisition Group or any of their affiliates (a "Designated
----------
Director"), in consideration of the Continuing Services Fee being paid to CD&R,
- --------
CD&R shall cause such Designated Director to waive any and all fees to which
such director would otherwise be entitled as a director for any period for which
the Fee or any installment thereof is paid."
1
<PAGE>
2. EFFECTIVE DATE. This Amendment shall be effective as of January 1,
1999.
3. CONFIRMATION OF CONSULTING AGREEMENT. Except as set forth in this
Amendment, the Consulting Agreement is in all respects hereby ratified and
confirmed and shall continue in full force and effect as amended hereby.
4. MISCELLANEOUS. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument. This Amendment shall in all
respects be construed in accordance with and governed by the substantive laws of
the State of New York without regard to conflict of laws principles.
2
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
the date first above written.
CLAYTON, DUBILIER & RICE, INC.
By: /s/ Donald J. Gogel
-------------------------
Name: Donald J. Gogel
Title: President and Chief Executive Officer,
Assistant Secretary and Assistant Treasurer
CDRJ INVESTMENTS (LUX) S.A.
By: /s/ Ralph S. Mason, III
-----------------------------
Name: Ralph S. Mason, III
Title: Vice Chairman, Executive Vice President and
General Counsel
JAFRA COSMETICS INTERNATIONAL, INC.
By: /s/ Ralph S. Mason, III
-----------------------------
Name: Ralph S. Mason, III
Title: Executive Vice President
JAFRA COSMETICS INTERNATIONAL,
S.A. de C.V.
By: /s/ Ralph S. Mason, III
-----------------------------
Name: Ralph S. Mason, III
Title: Executive Vice President and General Counsel
3
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF CDRJ INVESTMENTS (LUX) S.A.
1. CDRJ Europe Holding Company B.V. (The Netherlands)
2. CDRJ Europe Holding Company GmbH (Germany)
3. CDRJ German Holding Company GmbH (Germany)
4. CDRJ North Atlantic (Lux) S.a.r.L. (Luxembourg)
5. CDRJ Latin America Holding Company B.V. (The Netherlands)
6. CDRJ Latin America Holding Company GmbH (Germany)
7. CDRJ Mexico Holding Company B.V. (The Netherlands)
8. CDRJ Worldwide (Lux) S.a.r.L. (Luxembourg)
9. Consultoria Jafra, S.A. de C.V. (Mexico)
10. Cosmeticos y Fragrancias, S.A. de C.V. (Mexico)
11. Dirsamex, S.A. de C.V. (Mexico)
12. Distribuidora Venus, S.A. de C.V. (Mexico)
13. Importadora y Distribuidora Jafra Chile Limitada (Chile)
14. Jafra Cosmeticos do Brasil Ltda. (Brazil)
15. Jafra Cosmetics A.G. (Switzerland)
16. Jafra Cosmetics de Colombia, S.A. (Colombia)
17. Jafra Cosmetics Dominicana S.A. (Dominican Republic)
18. Jafra Cosmetics GmbH & Co. KG (Germany)
19. Jafra Cosmetics Handelsgesellschaft mbH (Austria)
20. Jafra Cosmetics International B.V. (The Netherlands)
21. Jafra Cosmetics International, Inc. (Delaware)
22. Jafra Cosmetics International, S.A. de C.V. (Mexico)
23. Jafra Cosmetics, S.A. de C.V. (Mexico)
24. Jafra Cosmetics S.p.A. (Italy)
25. Jafra Cosmetics S.R.L. (Argentina)
26. Jafra Cosmetics Venezuela, S.A. (Venezuela)
27. Jafra Poland Sp. z o.o. (Poland)
28. Latin Cosmetics Holdings B.V. (The Netherlands)
29. Qualifax, S.A. de C.V. (Mexico)
30. Reday, S.A. de C.V. (Mexico)
31. Regional Cosmetics Holdings B.V. (The Netherlands)
32. Southern Cosmetics Holdings B.V. (The Netherlands)
74
<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 DECEMBER 31, 1999 AND 1998 AND
FOR THE YEARS THEN ENDED INCLUDED IN THE FORM 10-K AS OF DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,906
<SECURITIES> 0
<RECEIVABLES> 34,364
<ALLOWANCES> 3,087
<INVENTORY> 30,290
<CURRENT-ASSETS> 88,956
<PP&E> 55,706
<DEPRECIATION> 5,099
<TOTAL-ASSETS> 278,377
<CURRENT-LIABILITIES> 54,792
<BONDS> 130,000
0
0
<COMMON> 1,661
<OTHER-SE> 74,133
<TOTAL-LIABILITY-AND-EQUITY> 278,377
<SALES> 290,450
<TOTAL-REVENUES> 290,450
<CGS> 82,239
<TOTAL-COSTS> 82,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,888
<INCOME-PRETAX> 16,074
<INCOME-TAX> 10,874
<INCOME-CONTINUING> 5,200
<DISCONTINUED> 0
<EXTRAORDINARY> 552
<CHANGES> 0
<NET-INCOME> 4,648
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
