<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 10, 1999
Commission File Number: 000-23000
Jafra Cosmetics International, Inc.
(Name of Small Business Issuer in its Charter)
Delaware 980185480
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2451 Townsgate Road
Westlake Village, California 91361
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 449-3000
<PAGE>
Item 2. Acquisition or Disposition of Assets
On June 10, 1999, Jafra Cosmetics International, Inc. (the "Company")
completed a sale of certain assets (the "Assets") and inventory (the
"Inventory") used in connection with the manufacture and packaging of certain of
its cosmetic and skin care products (the "Products") to Universal Packaging
Systems, Inc. (the "Contractor") for a total purchase price of approximately
$3.9 million pursuant to an Asset Purchase Agreement between the Company and the
Contractor. The Contractor is a contract manufacturer located in Chino,
California. The purchase price was paid in the form of two secured promissory
notes. The Inventory was sold for an amount equal to the lesser of Jafra's most
recent cost or the cost of replacement from its vendor. The note for the Assets
is secured by a first priority lien on the Assets. That note bears interest at
an annual rate of 8% and is payable in 36 equal monthly installments, commencing
on January 1, 2000. The note for the Inventory is secured by a first priority
lien on the Inventory. That note does not bear interest and is payable in 12
equal monthly installments, commencing on October 1, 1999. The amounts due under
the notes are not cross-collateralized.
In connection with the sale of the Assets and Inventory, the Company
entered into a Manufacturing Agreement dated as of June 10, 1999 between the
Company and the Contractor (the "Manufacturing Agreement"). Pursuant to the
Manufacturing Agreement, the Contractor has agreed to manufacture for the
Company all of the Company's requirements for the Products for an initial term
of five years, subject to the terms and conditions set forth therein. The
Manufacturing Agreement provides that after the initial five-year term it will
be automatically extended for additional one-year terms, unless terminated upon
six months' prior written notice of either party. Since the Company will no
longer be manufacturing the Products, the Company laid off approximately 75
employees who worked for the Company in related manufacturing positions.
The Assets consist of machinery and other equipment used to manufacture and
package the Products. The Inventory consists of raw materials and components
used to manufacture and package the Products. The Company understands that the
Contractor intends to use the Assets and the Inventory to manufacture Products
for the Company pursuant to the Manufacturing Agreement.
The Asset Purchase Agreement, the Manufacturing Agreement and the notes are
filed with this report as exhibits and the brief descriptions above are
qualified by reference to the text of such documents. The Company has submitted
a request to the Securities and Exchange Commission for confidential treatment
of certain portions of the exhibits filed with this report. Such confidential
portions have been omitted from this filing.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) Exhibits
The exhibits listed below are filed as part of this Current Report.
2
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Exhibit Number Description of Exhibit
- -------------- ----------------------
10.1 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 (portions
of which have been filed under a confidentiality
request).
10.2 Amendment No. 1 to Asset Purchase Agreement, dated as
of June 10, 1999 (portions of which have been filed
under a confidentiality request).
10.3 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 (portions
of which have been filed under a confidentiality
request).
10.4 Form of Amendment No. 1 to Manufacturing Agreement,
dated as of June __, 1999 (portions of which have been
filed under a confidentiality request).
10.5 Form of Secured Note for the Assets, dated June 10,
1999, made by the Contractor in favor of the Company
(portions of which have been filed under a
confidentiality request).
10.6 Form of Secured Note for the Inventory, dated June 10,
1999, made by the Contractor in favor of the Company
(portions of which have been filed under a
confidentiality request).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: June 25, 1999 JAFRA COSMETICS INTERNATIONAL, INC.
By: /s/ Gary Eshleman
--------------------------------
Name: Gary Eshleman
Title: Treasurer
3
<PAGE>
EXHIBIT INDEX
The exhibits listed below are filed as part of this Current Report.
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.1 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 (portions
of which have been filed under a confidentiality
request).
10.2 Amendment No. 1 to Asset Purchase Agreement, dated as
of June 10, 1999. (portions of which have been filed
under a confidentiality request).
10.3 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 (portions
of which have been filed under a confidentiality
request).
10.4 Form of Amendment No. 1 to Manufacturing Agreement,
dated as of June __, 1999 (portions of which have been
filed under a confidentiality request).
10.5 Form of Secured Note for the Assets, dated June 10,
1999, made by the Contractor in favor of the Company.
(portions of which have been filed under a
confidentiality request).
10.6 Form of Secured Note for the Inventory, dated June 10,
1999, made by the Contractor in favor of the Company.
(portions of which have been filed under a
confidentiality request).
4
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
between
JAFRA COSMETICS INTERNATIONAL, INC.
and
UNIVERSAL PACKAGING SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 SALE AND TRANSFER OF ASSETS; CLOSING............................. 1
1.1 Purchase and Sale................................................ 1
1.1.1 Sale of Assets............................................ 1
1.1.2 Sale of Inventory......................................... 2
1.1.3 Warranty as to Assets; Inventory.......................... 2
1.2 Consideration.................................................... 2
1.2.1 Sale of Assets............................................ 2
1.2.2 Sale of Inventory......................................... 2
1.3 Closing.......................................................... 2
1.4 Closing Obligations.............................................. 3
1.4.1 Conveyance Instruments.................................... 3
1.4.2 Certificates.............................................. 3
1.5 Post-Closing Obligations To Be Assumed By Contractor............. 3
1.6 Post-Closing Obligations To Be Paid By Jafra..................... 3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF CONTRACTOR..................... 3
2.1 Organization and Qualification................................... 3
2.2 Authority........................................................ 3
2.3 No Conflicts..................................................... 4
2.4 Consents......................................................... 4
2.5 Broker's or Finder's Fees........................................ 4
2.6 Disclosure....................................................... 4
2.7 Truth at Closing................................................. 4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF JAFRA.......................... 4
3.1 Organization and Qualification................................... 4
3.2 Authority........................................................ 5
3.3 Disclaimer....................................................... 5
3.4 Broker's or Finder's Fees........................................ 5
3.5 Disclosure....................................................... 5
3.6 Truth at Closing................................................. 5
ARTICLE 4 COVENANTS OF CONTRACTOR AND JAFRA PRIOR TO CLOSING............... 5
4.1 Updating of Information.......................................... 5
ARTICLE 5 CONDITIONS TO JAFRA'S OBLIGATIONS................................ 6
5.1 Representations and Warranties True at Closing Date.............. 6
5.2 Litigation....................................................... 6
5.3 Consent of Lenders............................................... 6
5.4 Consents......................................................... 6
</TABLE>
i
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<TABLE>
<S> <C>
5.5 Investigations.................................................. 6
5.6 No Material Adverse Change...................................... 6
5.7 Documents Satisfactory in Form and Substance.................... 6
5.8 Manufacturing Agreement......................................... 6
5.9 Secured Promissory Notes........................................ 7
ARTICLE 6 CONDITIONS TO CONTRACTOR'S OBLIGATIONS.......................... 7
6.1 Representations and Warranties True at Closing Date............. 7
6.2 Performance..................................................... 7
6.3 Consents........................................................ 7
6.4 No Litigation................................................... 7
ARTICLE 7 COVENANTS OF JAFRA AND CONTRACTOR FOLLOWING CLOSING............. 7
7.1 Allocation of Purchase Price.................................... 7
7.2 Transfer Taxes.................................................. 8
7.3 Resale Certificate.............................................. 8
7.4 Maintenance of Assets........................................... 8
7.5 Further Assurances.............................................. 8
ARTICLE 8 CERTAIN TRANSACTION MATTERS..................................... 8
8.1 Adjustment to Purchase Price for Inventory...................... 8
8.2 Objection to Inventory Value Computation........................ 8
8.3 Relocating Assets and Inventory to Contractor's Facilities...... 9
ARTICLE 9 INDEMNITY....................................................... 9
9.1 Indemnification by Contractor................................... 9
9.1.1 Breach or Obligation..................................... 9
9.1.2 Post-Closing Obligations and Liabilities................. 9
9.1.3 Incidental Matters....................................... 9
9.2 Indemnification by Jafra........................................ 9
9.2.1 Breach of Obligation..................................... 10
9.2.2 Pre-Closing Obligations and Liabilities.................. 10
9.2.3 Incidental Matters....................................... 10
9.3 Notice of Claim................................................. 10
9.4 Defense......................................................... 10
9.5 Recovery of Attorney Fees For Frivolous Actions................. 11
ARTICLE 10 CONFIDENTIALITY................................................. 11
10.1 Confidentiality Obligations Prior to Closing.................... 11
10.2 Confidentiality Obligations After Closing....................... 11
10.3 Permitted Disclosures........................................... 11
10.4 Scope of Confidential Information............................... 12
10.5 Trademarks and Trade Names...................................... 12
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11 TERMINATION PRIOR TO CLOSING.................................... 12
11.1 Termination of Agreement........................................ 12
11.1.1 Mutual Consent.......................................... 12
11.1.2 Deadline................................................ 12
11.1.3 Material Breach......................................... 12
11.2 Termination of Obligations...................................... 13
ARTICLE 12 MISCELLANEOUS................................................... 13
12.1 Notices......................................................... 13
12.2 Expenses........................................................ 14
12.3 Survival........................................................ 14
12.4 Counterparts.................................................... 14
12.5 Waiver.......................................................... 14
12.6 Assignment...................................................... 14
12.7 Severability.................................................... 14
12.8 Headings........................................................ 14
12.9 Facsimile....................................................... 14
12.10 Bulk Transfer Law............................................... 14
12.11 Governing Law................................................... 15
</TABLE>
EXHIBIT A FORM OF ASSET NOTE
EXHIBIT B FORM OF INVENTORY NOTE
EXHIBIT C IRS FORM 8594
iii
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of June 10, 1999, by
and between Jafra Cosmetics International, Inc. a Delaware corporation ("Jafra")
and Universal Packaging Systems, Inc., a California corporation ("Contractor").
W I T N E S S E T H
WHEREAS, concurrently with the closing of the transactions described
below Jafra and Contractor will enter into a Manufacturing Agreement (the
"Manufacturing Agreement") pursuant to which Contractor will manufacture and
sell to Jafra the products described therein (the "Products"); and
WHEREAS, in connection with the parties entering into the
Manufacturing Agreement Jafra has agreed to sell and Contractor has agreed to
purchase certain assets used in the manufacture and packaging of the Products;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the parties
hereto agree as follows:
ARTICLE 1
SALE AND TRANSFER OF ASSETS; CLOSING
1.1 Purchase and Sale.
-----------------
1.1.1 Sale of Assets. (a) Subject to the terms and conditions of this
--------------
Agreement, at the Closing of the transactions contemplated by this Agreement
(the "Closing"), Jafra will sell, convey, assign and transfer certain assets
(the "Assets") to Contractor and Contractor will purchase the Assets from Jafra,
free and clear of all liens, claims and encumbrances (collectively "Liens") of
third parties. The specific items to be included in the Assets will be listed on
a schedule to be agreed upon between Contractor and Jafra, and attached to this
Agreement, on or before July 12, 1999.
(b) Within six (6) months of the Closing Date (defined below)
the parties will agree in writing on which Assets must be retained by Contractor
and which ones may be sold by Contractor. The proceeds of any Assets that are
sold will be paid by Contractor to Jafra, and will be applied to reduce the
principal balance owing on the Asset Note (defined below). Jafra and Contractor
have had preliminary discussions regarding which Assets may be sold and
consequently, Jafra agrees that certain Assets may be stored at Jafra's facility
for up to *** following the Closing Date, ***. Furthermore, Jafra agrees that
Contractor may ***.
<PAGE>
1.1.2 Sale of Inventory. Subject to the terms and conditions of this
-----------------
Agreement, at the Closing Jafra will sell, convey, assign and transfer the
inventory, raw materials and components that Jafra has in stock (the
"Inventory") to Contractor and Contractor will purchase the Inventory from Jafra
free and clear of all Liens of third parties. The specific items to be contained
in the Inventory will be determined at the conclusion of the transfer of the
Inventory, which transfer shall be concluded no later than July 12, 1999. Jafra
warrants that: (i) the age of the Inventory will be such that it will not expire
on or before ***, and (ii) the Inventory will be usable and used to manufacture
Products for Jafra on or before ***. In the event of a breach of the foregoing
warranty, Jafra agrees to credit against principal owing on the Inventory Note
(defined below) an amount equal to that which Contractor paid for that portion
of the Inventory that does not conform to the foregoing warranty.
1.1.3 Warranty as to Assets; Inventory. Except as otherwise expressly
--------------------------------
set forth herein: (i) Jafra shall transfer the Assets and Inventory *** and ***
on the Closing Date (as defined below); and (ii) *** shall be given by Jafra to
Contractor with respect to the Assets or the Inventory.
1.2 Consideration.
-------------
1.2.1 Sale of Assets. In consideration of the transfer by Jafra of
--------------
the Assets to Contractor, Contractor shall pay to Jafra the sum of $*** as set
forth in a Secured Promissory Note bearing interest at a rate of 8.0% per annum,
in substantially the form attached hereto as Exhibit A with the initial payment
commencing on January 1, 2000 (the "Asset Note"). Principal and interest on the
Asset Note shall be payable in 36 equal monthly installments of $***. In the
event the Assets are sold back to Jafra for any reason prior to the payment of
all outstanding amounts due under the Asset Note, Contractor will return all
Assets not previously sold with Jafra's permission, to Jafra, in good working
condition, reasonable wear and tear excepted, in accordance with and subject to
the provisions of Section 11.4 of the Manufacturing Agreement.
1.2.2 Sale of Inventory. In consideration of the transfer by Jafra of
-----------------
the Inventory to Contractor, Contractor shall pay to Jafra an amount equal to
***, payable in 12 equal monthly installments as set forth in a zero interest
Secured Promissory Note, in substantially the form attached hereto as Exhibit B
with the initial payment commencing on October 1, 1999 (the "Inventory Note").
1.3 Closing. The Closing will take place at the offices of Jafra at 2451
-------
Townsgate Road, Westlake Village, California 91361 at 10:00 a.m. (local time) on
June 10, 1999, or at such other time and place as the parties may agree (the
"Closing Date"). Subject to any other provision of this Agreement to the
contrary, failure to consummate the transactions provided for in this Agreement
on the date and time and at the place determined pursuant to this Section 1.3
will not result in the termination of this Agreement and will not relieve any
party of any obligation under this Agreement.
2
<PAGE>
1.4 Closing Obligations. At Closing, Jafra and Contractor shall take the
-------------------
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
1.4.1 Conveyance Instruments. Jafra shall deliver to Contractor such
----------------------
deeds, bills of sale, assignments, and other instruments of conveyance and
transfer as Contractor may reasonably request to effect the transfer and
assignment to Contractor of the Assets and the Inventory.
1.4.2 Certificates. Each party shall deliver the certificates as to
------------
the accuracy of the representations and warranties contained herein, the
compliance with the covenants and agreements contained herein, and the
satisfaction of the conditions to Closing contained herein.
1.5 Post-Closing Obligations To Be Assumed By Contractor. Contractor
----------------------------------------------------
agrees that it will pay, perform and discharge all obligations related to the
Assets and the Inventory that arise from the use of or in connection with the
Assets and the Inventory after the Closing Date when the same become due or are
required to be performed or discharged.
1.6 Post-Closing Obligations To Be Paid By Jafra. Jafra agrees that it
--------------------------------------------
will be solely liable for and shall pay, perform and discharge all obligations
related to the Assets and the Inventory that arise from or relate to the
ownership and use of the Assets and the Inventory prior to the Closing Date when
the same become due or are required to be performed or discharged, except for
those obligations assumed by Contractor under this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CONTRACTOR
Contractor hereby represents and warrants to Jafra as follows:
2.1 Organization and Qualification. Contractor is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of California and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted.
2.2 Authority. Contractor has all necessary corporate power and authority
---------
to execute and deliver this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
are required on the part of the Contractor. This Agreement has been duly and
validly executed and delivered by Contractor and constitutes the legal, valid
and binding obligation of Contractor, enforceable against Contractor in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
3
<PAGE>
2.3 No Conflicts. The execution and delivery of this Agreement by
------------
Contractor does not, and the performance of this Agreement by Contractor will
not (i) conflict with or violate the Articles of Incorporation or bylaws of
Contractor, conflict with or violate any foreign or domestic (federal, state or
local) law, statute, ordinance, rule, regulation, permit, injunction, writ,
judgment, decree or order applicable to Contractor or by which any asset of
Contractor is bound or (ii) conflict with, result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or require any payment under, or result in the
creation of a lien, claim, security interest or other charge or encumbrance on
any asset of Contractor, except with respect to Contractor's lenders, Fremont
Financial Corporation and El Dorado Bank, whose consents will be obtained by
Contractor prior to the Closing.
2.4 Consents. The execution and delivery of this Agreement by Contractor
--------
do not, and the performance of this Agreement by Contractor will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any United States (federal, state or local) or foreign
government or governmental, regulatory or administrative authority, agency,
commission, board, bureau, court or instrumentality or arbitrator of any kind.
2.5 Broker's or Finder's Fees. Contractor has not authorized any person to
-------------------------
act as broker or finder or in any other similar capacity in connection with the
transactions contemplated by this Agreement in any manner that may or will
impose liability on Jafra.
2.6 Disclosure. No representation, warranty, or statement made by
----------
Contractor in this Agreement or in any document or certificate furnished or to
be furnished to Jafra pursuant to this Agreement contains or will contain any
untrue statement or omits or will omit to state any fact necessary to make the
statements contained herein or therein not misleading.
2.7 Truth at Closing. All of: (a) the representations, warranties, and
----------------
agreements of Contractor contained in this Article 2 and (b) the
representations, warranties and agreements of Contractor contained in the
Exhibits attached hereto shall be true and correct and in full force and effect
on and as of the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF JAFRA
Jafra represents and warrants to Contractor as follows:
3.1 Organization and Qualification. Jafra is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted.
4
<PAGE>
3.2 Authority. Jafra has all necessary corporate power and authority to
---------
execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings are
required on the part of Jafra. This Agreement has been duly and validly executed
and delivered by Jafra and constitutes the legal, valid and binding obligation
of Jafra, enforceable against Jafra in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and to general principles of
equity.
3.3 Disclaimer. Except as expressly set forth in this Agreement or in any
----------
certificate or agreement furnished or to be furnished to Contractor pursuant to
this Agreement, ***.
3.4 Broker's or Finder's Fees. Jafra has not authorized any person to act
-------------------------
as broker, finder, or in any other similar capacity in connection with the
transactions contemplated by this Agreement.
3.5 Disclosure. No representation, warranty, or statement made by Jafra in
----------
this Agreement or in any document or certificate furnished or to be furnished to
Contractor pursuant to this Agreement contains or will contain any untrue
statement or omits or will omit to state any fact necessary to make the
statements contained herein or therein not misleading.
3.6 Truth at Closing. All of: (a) the representations, warranties, and
----------------
agreements of Jafra contained in this Article 3 and (b) the representations,
warranties and agreements of Jafra contained in the Exhibits attached hereto
shall be true and correct and in full force and effect on and as of the Closing
Date.
ARTICLE 4
COVENANTS OF CONTRACTOR AND JAFRA PRIOR TO CLOSING
4.1 Updating of Information. From the date of this Agreement to the
-----------------------
Closing Date, each party shall deliver revised or supplementary Exhibits to this
Agreement, containing accurate information as of the Closing Date, in order to
enable the other party to confirm the accuracy of its representations and
warranties and otherwise to give full effect to the provisions of this
Agreement. Delivery of revised Exhibits by either party hereto shall not reduce
or impair any of the rights the other party may have under Article 5 hereof.
ARTICLE 5
CONDITIONS TO JAFRA'S OBLIGATIONS
Each of the obligations of Jafra to be performed hereunder shall be subject
to the satisfaction (or waiver by Jafra) at or prior to the Closing Date of each
of the following conditions:
5
<PAGE>
5.1 Representations and Warranties True at Closing Date. Contractor's
---------------------------------------------------
representations and warranties contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of such date; Contractor shall have complied with the covenants and agreements
set forth herein to be performed by it on or before the Closing Date; and
Contractor shall have delivered to Jafra a certificate dated the Closing Date
and signed by a duly authorized officer of Contractor to such effect.
5.2 Litigation. No Litigation shall be threatened or pending against Jafra
----------
or Contractor before any court or governmental agency that, in the reasonable
opinion of counsel for Jafra, could result in the restraint or prohibition of
any such party, or the obtaining of damages or other relief from such party, in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
5.3 Consent of Lenders. Jafra shall have received any consents required
------------------
pursuant to that certain credit agreement dated as of April 30, 1998 among
Jafra, the several lenders from time to time parties thereto, Credit Suisse
First Boston as administrative agent and Chase Securities Inc. as syndication
agent.
5.4 Consents. All other required consents shall have been obtained.
--------
5.5 Investigations. Neither any investigation of Contractor by Jafra, nor
--------------
the Exhibits hereto, nor any other document delivered to Jafra as contemplated
by this Agreement, shall have revealed any facts or circumstances that, in the
good faith judgment of Jafra, reflect in a material adverse way on the business,
operations, or prospects of the Contractor and its business.
5.6 No Material Adverse Change. From the date of this Agreement until the
--------------------------
Closing Date, Contractor shall not have suffered any material adverse change
(whether or not such change is referred to or described in any supplement to the
Exhibits), or the financial condition, operations, or prospects of Contractor's
business.
5.7 Documents Satisfactory in Form and Substance. All agreements,
--------------------------------------------
certificates, and other documents delivered by Contractor to Jafra hereunder
shall be in form and substance satisfactory to counsel for Jafra, in the
exercise of such counsel's reasonable judgment.
5.8 Manufacturing Agreement. Contractor shall have executed and delivered
-----------------------
the Manufacturing Agreement, and the Manufacturing Agreement shall be in full
force and effect.
5.9 Secured Promissory Notes. Contractor shall have executed and delivered
------------------------
the Asset Note and the Inventory Note, each of which shall be in full force and
effect.
6
<PAGE>
ARTICLE 6
CONDITIONS TO CONTRACTOR'S OBLIGATIONS
Each of the obligations of Contractor to be performed hereunder shall be
subject to the satisfaction (or the waiver by Contractor) at or prior to the
Closing Date of each of the following conditions:
6.1 Representations and Warranties True at Closing Date. Jafra's
---------------------------------------------------
representations and warranties contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of such date; Jafra shall have complied with the covenants and agreements set
forth herein to be performed by it on or before the Closing Date; and Jafra
shall have delivered to Contractor a certificate dated the Closing Date and
signed by a duly authorized officer of Jafra to such effect.
6.2 Performance. Jafra shall have performed and complied with all
-----------
agreements, obligations, and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing.
6.3 Consents. All required consents have been obtained, including but not
--------
limited to those from Fremont Financial Corporation and El Dorado Bank.
6.4 No Litigation. No Litigation shall be threatened or pending against
-------------
Contractor or Jafra before any court or governmental agency that, in the
reasonable opinion of counsel for Contractor, could result in the restraint or
prohibition of any such party, or the obtaining of damages or other relief from
such party, in connection with this Agreement or the consummation of the
transactions contemplated hereby.
6.5 Manufacturing Agreement. Jafra shall have executed and delivered the
-----------------------
Manufacturing Agreement and the Manufacturing Agreement shall be in full force
and effect.
ARTICLE 7
COVENANTS OF JAFRA AND CONTRACTOR FOLLOWING CLOSING
7.1 Allocation of Purchase Price. The purchase price shall be allocated to
----------------------------
the Assets in accordance with the requirements of Section 1060 of the Internal
Revenue Code of 1986, as amended, based on mutual agreement between Jafra and
Contractor as set forth in Exhibit C (Internal Revenue Service Form 8594), and
all tax returns and reports filed or prepared by Jafra and Contractor with
respect to the transactions contemplated by this Agreement shall be consistent
with that allocation.
7.2 Transfer Taxes. All sales, transfer, and similar taxes and fees
--------------
(including all recording fees, if any) incurred in connection with this
Agreement and the transactions
7
<PAGE>
contemplated hereby shall be borne by ***, and *** shall file all necessary
documentation with respect to such taxes.
7.3 Resale Certificate. Contractor will furnish any resale certificate or
------------------
other documents reasonably requested by corporation to comply with the
provisions of the sales and use tax laws of the State of California.
7.4 Maintenance of Assets. Contractor shall maintain the Assets that have
---------------------
not been sold with the permission of Jafra, in good working order and condition
for as long as the Manufacturing Agreement is in effect and if the Manufacturing
Agreement is terminated by any party for any reason prior to the payment of all
outstanding amounts due under the Asset Note, Contractor will return all Assets
not previously sold with Jafra's permission, to Jafra, in good working
condition, reasonable wear and tear excepted, in accordance with and subject to
the provisions of Section 11.4 of the Manufacturing Agreement.
7.5 Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each party agrees to use all of its reasonable efforts to take, or
cause to be taken, all actions and to do or cause to be done, all things
necessary and proper or advisable to consummate and make effective the
transactions contemplated by this Agreement (including the execution and
delivery of such further instruments and documents) as the other party may
reasonably request.
ARTICLE 8
CERTAIN TRANSACTION MATTERS
8.1 Adjustment to Purchase Price for Inventory. Within thirty (30) days
------------------------------------------
following the Closing, *** shall prepare and deliver to ***, a computation of
the value of the transferred Inventory, prepared on *** (the "Inventory Value
Computation"). Jafra shall provide Contractor's representatives reasonable
access to the books and records of Jafra and shall cause Jafra's employees to
provide reasonable assistance to Contractor, both in connection with the
preparation of the Inventory Value Computation, as well as any dispute with
respect thereto. Jafra shall cause its auditor to coordinate with Contractor's
accountants, if requested by Contractor, in connection therewith.
8.2 Objection to Inventory Value Computation. Contractor shall have the
----------------------------------------
right within five (5) business days following the delivery of the Inventory
Value Computation pursuant to Section 8.1 above to object in writing, specifying
in reasonable detail the basis for such objection(s). Contractor shall be deemed
to have agreed with all items and amounts contained in the Inventory Value
Computation, except as specifically objected to in such notice. If Contractor
does so object, Contractor and Jafra shall cooperate with each other to attempt
to reach a mutual agreement thereon, or, failing such agreement within five (5)
business days, the determination shall be made by Deloitte & Touche LLP, the
cost of which shall be shared equally by Contractor and Jafra. Contractor and
Jafra shall deliver to Deloitte & Touche LLP copies of any schedules or
documentation which may be reasonably required by Deloitte & Touche LLP to make
its determination. Contractor and Jafra shall be
8
<PAGE>
entitled to make presentations to Deloitte & Touche LLP in connection therewith.
Contractor and Jafra shall use all reasonable efforts to cause Deloitte & Touche
LLP to promptly complete such determination. The determination of Deloitte &
Touche LLP shall be final and binding on the parties.
8.3 Relocating Assets and Inventory to Contractor's Facilities. Jafra
----------------------------------------------------------
shall be solely responsible for moving the Assets and Inventory to the loading
area of Contractor's facilities in Chino, California, including all costs and
expenses of moving.
ARTICLE 9
INDEMNITY
9.1 Indemnification by Contractor. Contractor shall indemnify, defend, and
-----------------------------
hold Jafra and its respective successors and assigns and the directors,
officers, employees, and agents of each (collectively, the "Jafra Group"), at,
and at any time after, the Closing, from and against any and all demands, claim,
actions, or causes of action, assessments, losses, damages, liabilities, costs,
and expenses, including reasonable fees and expenses of counsel, other expenses
of investigation, handling, and litigation, and settlement amounts, together
with interest and penalties (collectively, a "Loss" or "Losses"), asserted
against, resulting to, imposed upon, or incurred by the Jafra Group, directly or
indirectly, by reason of, resulting from, or arising in connection with any of
the following:
9.1.1 Breach or Obligation. Any breach of any representation,
--------------------
warranty, or agreement of Contractor contained in or made pursuant to this
Agreement, including the agreements and other instruments contemplated hereby.
9.1.2 Post-Closing Obligations and Liabilities. Any obligations and
----------------------------------------
liabilities arising with regard to the Assets after the Closing. Except for
obligations and liabilities undertaken or assumed by Contractor pursuant to the
provisions of this Agreement.
9.1.3 Incidental Matters. To the extent not covered by the foregoing,
------------------
any and all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, and expenses, including reasonable fees and
expenses of counsel, other expenses of investigation, handling, and litigation
and settlement amounts, together with interest and penalties, incident to the
foregoing.
9.2 Indemnification by Jafra. Jafra shall indemnify, defend, and hold
------------------------
harmless Contractor and its successors and assigns and the directors, officers,
employees, and agents of each (collectively, the "Contractor Group"), at, and at
any time after, the Closing, from and against any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs,
and expenses, including reasonable fees and expenses of counsel, other expenses
of investigation, handling, and litigation, and settlement amounts together with
interest and penalties (collectively, a "Loss" or "Losses"), asserted against,
resulting to, imposed upon, or incurred by the Contractor Group, to the extent
arising from any of the following:
9
<PAGE>
9.2.1 Breach of Obligation. Any breach of any representation,
--------------------
warranty, or agreement of Jafra contained in or made pursuant to this Agreement,
including the agreements and other instruments contemplated hereby.
9.2.2 Pre-Closing Obligations and Liabilities. Any obligations and
---------------------------------------
liabilities existing or arising with regard to the Assets prior to or on the
Closing Date, except for obligations and liabilities undertaken or assumed by
Contractor pursuant to the provisions of this Agreement.
9.2.3 Incidental Matters. To the extent not covered by the foregoing,
------------------
any and all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, and expenses, including reasonable fees and
expenses of counsel, other expenses of investigation, handling, and litigation,
and settlement amounts, together with interest and penalties, incident to the
foregoing.
9.3 Notice of Claim. The party entitled to indemnification hereunder (the
---------------
"Claimant") shall promptly deliver to the party liable for such indemnification
hereunder (the "Obligor") notice in writing (the "Required Notice") of any claim
for recovery under Section 9.1 or Section 9.2 hereof, specifying in reasonable
detail the nature of the Loss, and, if known, the amount, or an estimate of the
amount of the liability arising therefrom (the "Claim"). The Claimant shall
provide to the Obligor as promptly as practicable thereafter information and
documentation reasonably requested by the Obligor to support and verify the
claim asserted, provided that, in so doing, it may restrict or condition any
disclosure in the interest of preserving privileges of importance in any
foreseeable litigation.
9.4 Defense. If the facts pertaining to the Loss arise out of the claim of
-------
any third party (other than a member of the Jafra Group or Contractor Group,
whichever is entitled to indemnification for such matter) available by virtue of
the circumstances of the Loss, the Obligor may assume the defense or the
prosecution thereof, including the employment of counsel or accountants, at its
cost and expense. The Claimant shall have the right to employ counsel separate
from counsel employed by the Obligor in any such action and to participate
therein, but the fees and expenses of such counsel employed by the Claimant
shall be at its expense. The Claimant shall have the right to determine and
adopt (or, in the case of a proposal by Obligor, to approve) a settlement of
such matter in its reasonable discretion, except that Claimant need not consent
to any settlement that: (a) imposes any nonmonetary obligation or (b) Obligor
does not agree to pay in full. The Obligor shall not be liable for any
settlement of any such claim effected without its prior written consent, which
shall not be unreasonably withheld. Whether or not the Obligor chooses to so
defend or prosecute such claim, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information, and
testimony, and attend such conferences, discovery proceedings, hearings, trials,
and appeals, as may be reasonably requested in connection therewith.
9.5 Recovery of Attorney Fees For Frivolous Actions. The Obligor shall be
-----------------------------------------------
entitled to recover its reasonable out-of-pocket costs (including court costs
and actual attorney
10
<PAGE>
fees) incurred in defending any Claim brought by the Claimant on frivolous
grounds or pursued for the purpose of delay or harassment. The Claimant shall be
entitled to recover its reasonable out-of-pocket costs (including court costs
and actual attorney fees) incurred in pursuing any Claim defended by the Obligor
on frivolous grounds or opposed for the purpose of delay or harassment. A
frivolous claim shall include any Claim that is not bona fide and that is not
brought in good faith after consultation with counsel.
ARTICLE 10
CONFIDENTIALITY
10.1 Confidentiality Obligations Prior to Closing. Until Closing (and, if
--------------------------------------------
this Agreement is terminated for any reason, thereafter in perpetuity), each of
Contractor and Jafra shall, and shall use its best efforts to cause its
personnel and agents to, hold in strict confidence, not disclose to any person
without the prior written consent of the non-disclosing party, and not use in
any manner except in connection with the transactions contemplated hereby, any
information concerning its respective business assets, marketing techniques and
methods of operation ("Confidential Information") whether disclosed orally or in
writing obtained in connection with the transactions contemplated hereby.
Contractor and Jafra each agree that it will limit access to the Confidential
Information of the other to those of its employees, agents or subcontractors who
reasonably require the same to carry out the purposes of this Agreement. In the
event of this Agreement terminates for any reason, Contractor shall return to
Jafra or destroy all materials in its possession containing any such
confidential information, including all copies, extracts, adaptations, and
transcriptions thereof, except: (i) for records or documents that Contractor is
required to keep by law, in which case Contractor will provide copies thereof to
Jafra, and (ii) in the case of a dispute between Contractor and Jafra, in which
case Contractor will provide copies of all such materials to Jafra, and shall
not be required to return the originals to Jafra or destroy any materials, until
the dispute is resolved.
10.2 Confidentiality Obligations After Closing. Upon the occurrence of
-----------------------------------------
Closing, in addition to Sections 10.4, 10.5 and 10.6 of this Agreement, the
provisions set forth in Sections 9.6, 10.1 and 10.2 of the Manufacturing
Agreement shall govern the treatment of Trade Secrets, Confidential Information
and Trademark and Trade Names obtained or disclosed hereunder or thereunder. In
the event there is a conflict between the enforcement of such provisions
contained in their Agreement and the Manufacturing Agreement, the relevant
provisions of the Manufacturing Agreement shall govern.
10.3 Permitted Disclosures. Notwithstanding Sections 10.1 and 10.2
---------------------
hereof, either party may disclose confidential information (1) where necessary
to any regulatory authorities or governmental agencies pursuant to legal
process, (2) if required by court order or decree or (3) if required in the
opinion of counsel to a party for that party to comply with disclosure
requirements of the Securities and Exchange Commission; provided, that the party
required to disclose the information given the other party written notice of
such disclosure request and cooperate with the other party to prevent the
disclosure to the extent legally possible.
11
<PAGE>
10.4 Scope of Confidential Information. Notwithstanding the foregoing,
---------------------------------
the obligations set out in Section 10.1 shall not apply to any Confidential
Information that the recipient can establish by documentary evidence that: (a)
was known to the recipient through a means not in breach of this Agreement at
the time it was disclosed to the recipient; (b) was in the public domain at the
time it was disclosed to the recipient; or (c) had entered into the public
domain subsequent to disclosure to the recipient through no unlawful act of the
recipient or breach of the recipient's obligations under this Agreement.
Contractor and Jafra each acknowledge that the Confidential Information of the
other constitutes unique and valuable assets of the other, and that any
disclosure or use thereof except as specifically authorized herein would be
wrongful and would cause the non-disclosing party irreparable harm, and that it
would be difficult to compensate the non-disclosing party fully with damages for
a violation of this Section 10.1. Accordingly, each of Contractor and Jafra
agrees that the other shall be entitled to temporary and permanent injunctive
relief to enforce Section 10.1; this provision shall not however be deemed to
diminish or supplant the right of Contractor or Jafra to claim and recover money
damages for any breach hereof in addition to obtaining equitable relief
therefor.
10.5 Trademarks and Trade Names.
--------------------------
(a) Each party hereby acknowledges that it does not have, and shall
not acquire by entering into this Agreement or performing any action hereunder,
any license or other interest in any of the other party's trademarks or trade
names unless otherwise expressly agreed in writing.
(b) Each party agrees not to use any trade names or trademarks of
the other party, except as specifically authorized by the other party in writing
both as to the names or marks which may be used and as to the manner and
prominence of use.
ARTICLE 11
TERMINATION PRIOR TO CLOSING
11.1 Termination of Agreement. This Agreement may be terminated at any
------------------------
time prior to the Closing:
11.1.1 Mutual Consent. By the mutual consent of Jafra and
--------------
Contractor.
11.1.2 Deadline. By Jafra or Contractor, in writing, without
--------
liability, if the Closing shall not have occurred on or before July 14, 1999; or
11.1.3 Material Breach. By Jafra or Contractor in writing, without
---------------
liability, if the other party shall (1) fail to perform in any material respect
its agreements contained herein required to be performed by it on or prior to
the Closing Date or (2) materially breach any of its representations,
warranties, agreements, or covenants contained herein, provided that such
failure
12
<PAGE>
or breach is not cured within ten (10) days after such party has been notified
of the other party's intent to terminate this Agreement pursuant hereto.
11.2 Termination of Obligations. Termination of this Agreement pursuant
--------------------------
to this Article 11 shall terminate all obligations of the parties hereunder,
except for the obligations set forth in Article 10 and except for any damages
incurred by the non-defaulting party in the event of a termination under Section
11.1.3 hereof.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given on the date of
delivery, if delivered in person, and on the date of receipt, if sent by
facsimile transmission (with telephonic and mail confirmation) or by recognized
overnight carrier service (e.g., Federal Express or United Parcel Service), and
three (3) business days after mailing by United States mail, certified or
registered with return receipt requested, addressed to the parties at their
addresses set forth below:
If to Jafra, to:
Jafra Cosmetics International, Inc.
2451 Townsgate Road
Westlake Village, California 91361
Attn: Vice President, Manufacturing
Fax: 805-449-3259
With a copy to:
Office of the General Counsel
Fax: 805-449-3256
If to Contractor, to:
Universal Packaging Systems, Inc.
4575 Danito Court
Chino, California 91710
Attn: Julio Liberal
Fax: 909-590-5869
13
<PAGE>
With a copy to:
Ronald J. Grant, Esq.
Tilles, Webb, Kulla & Grant, ALC
433 North Camden Drive, Suite 1010
Beverly Hills, California 90210
Fax: 310-888-3433
Any party may change its address for notices by giving notice of such change in
accordance with the foregoing procedures. Any notice not sent in accordance with
the foregoing, shall be deemed given on the date of actual receipt.
12.2 Expenses. Each party is responsible for its own expenses hereunder.
--------
No party may impose any costs or expenses on the other party other than those
explicitly set forth in this Agreement.
12.3 Survival. The representations and warranties by Jafra and Contractor
--------
hereunder shall survive the termination of this Agreement for a period of three
years and the covenants contained in Article 10 hereof shall survive the
termination of this Agreement in perpetuity.
12.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together constitute one instrument.
12.5 Waiver. The waiver by either party of any provision, nonperformance
------
or any breach of any provision of this Agreement will not constitute a waiver of
any subsequent nonperformance or other breach of the same or any other
provision.
12.6 Assignment. Contractor shall not assign any of its rights or
----------
obligations under this Agreement without the prior written consent of Jafra.
12.7 Severability. If any provision of this Agreement is held to be
------------
ineffective, unenforceable or illegal for any reason, such decision shall not
affect the validity or enforceability of any or all of the remaining portions
hereof.
12.8 Headings. The section headings of this Agreement are for reference
--------
only and shall not be of any force and effect.
12.9 Facsimile. This Agreement may be executed and delivered by
---------
facsimile, which the parties agree shall have the same legal effect as if the
parties had delivered copies bearing original signatures.
12.10 Bulk Transfer Law. Contractor waives compliance with the provisions
-----------------
of any applicable bulk transfer law in connection with the sale of the Assets
and the Inventory to Contractor hereunder; provided that Jafra shall indemnify,
defend and hold Contractor free and
14
<PAGE>
harmless from any claim, suit, damages, obligations, liabilities, losses, costs
and expenses (including reasonable attorneys' fees) arising out of or related to
the failure to comply with the Bulk Transfer Law.
12.11 Governing Law. This Agreement will be governed by the internal laws
-------------
of the State of California without giving effect to any principles of conflicts
of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized representative as of
the date first written above.
JAFRA COSMETICS INTERNATIONAL, INC.
By: /s/ Brian Chase
--------------------------------
Name: Brian Chase
Title: Vice President, Manufacturing
UNIVERSAL PACKAGING SYSTEMS, INC.
By: /s/ Julio Liberal
-----------------------------
Name: Julio Liberal
Title: President
15
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT (this "Amendment") dated
as of June 10, 1999, by and between Jafra Cosmetics International, Inc. a
Delaware corporation ("Jafra") and Universal Packaging Systems, Inc., a
California corporation ("Contractor").
W I T N E S S E T H
WHEREAS, Jafra and Contractor are parties to an Asset Purchase
Agreement, dated as of June 10, 1999, by and between Jafra and Contractor (the
"Asset Purchase Agreement");
WHEREAS, the parties desire to amend the Asset Purchase Agreement to
provide for certain post-closing matters as set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the parties
hereto agree to amend the Asset Purchase Agreement as follows:
ARTICLE I
AMENDMENTS
1.1 Paragraph 1.1.1(a) of the Asset Purchase Agreement is hereby deleted
in its entirety, and the following substituted in lieu thereof:
1.1.1 Sale of Assets. (a) Subject to the terms and conditions of this
--------------
Agreement, at the Closing of the transactions contemplated by this
Agreement (the "Closing"), Jafra will sell, convey, assign and transfer
certain assets (the "Assets") to Contractor and Contractor will purchase
the Assets from Jafra, free and clear of all liens, claims and encumbrances
(collectively "Liens") of third parties, other than Liens created pursuant
to that certain Security Agreement dated as of April 30, 1998, among Jafra
(formerly known as CDRJ Acquisition Corporation), each subsidiary of Jafra
listed on Schedule I thereto and Credit Suisse First Boston, as collateral
agent for the secured parties named therein (the "CSFB Security
Agreement"). The specific items to be included in the Assets will be listed
on a schedule to be agreed upon between Contractor and Jafra, and attached
to this Agreement, on or before ***.
<PAGE>
1.2 Paragraph 1.1.2 of the Asset Purchase Agreement is hereby deleted in
its entirety, and the following substituted in lieu thereof:
1.1.2 Sale of Inventory. Subject to the terms and conditions of this
-----------------
Agreement, at the Closing Jafra will sell, convey, assign and transfer the
inventory, raw materials and components that Jafra has in stock (the
"Inventory") to Contractor and Contractor will purchase the Inventory from
Jafra free and clear of all Liens of third parties, other than Liens
created pursuant to the CSFB Security Agreement. The specific items to be
contained in the Inventory will be determined at the conclusion of the
transfer of the Inventory, which transfer shall be concluded no later than
***. Jafra warrants that: (i) the age of the Inventory will be such that it
will not expire on or before ***, and (ii) the Inventory will be usable and
used to manufacture Products for Jafra on or before ***. In the event of a
breach of the foregoing warranty, Jafra agrees to credit against principal
owing on the Inventory Note (defined below) an amount equal to that which
Contractor paid for that portion of the Inventory that does not conform to
the foregoing warranty.
1.3 The following paragraph shall be added to the Asset Purchase
Agreement:
7.6 Release or Termination of Liens. To the extent that any of the
Assets and Inventory remain subject to any Liens under the CSFB Security
Agreement at or after the Closing, Jafra agrees that on or before ***, it
will take, or cause to be taken, all actions necessary and proper to
release and/or terminate any Liens against the Assets and the Inventory
under the CSFB Security Agreement, including, without limitation: the
execution and filing in the appropriate jurisdictions of UCC-3s (or such
other similar filings as may be required) to provide for the release of
Liens on the Assets and Inventory created by the CSFB Security Agreement.
ARTICLE II
MISCELLANEOUS
2.1 Notices. All notices, demands or other communications hereunder shall
be in writing and shall be deemed to have been duly given on the date of
delivery, if delivered in person, and on the date of receipt, if sent by
facsimile transmission (with telephonic and mail confirmation) or by recognized
overnight carrier service (e.g., Federal Express or United Parcel Service), and
three (3) business days after mailing by United States mail, certified or
registered with return receipt requested, addressed to the parties at their
addresses set forth below:
<PAGE>
If to Jafra, to:
Jafra Cosmetics International, Inc.
2451 Townsgate Road
Westlake Village, California 91361
Attn: Vice President, Manufacturing
Fax: 805-449-3259
With a copy to:
Office of the General Counsel
Fax: 805-449-3256
If to Contractor, to:
Universal Packaging Systems, Inc.
4575 Danito Court
Chino, California 91710
Attn: Julio Liberal
Fax: 909-590-5869
With a copy to:
Ronald J. Grant, Esq.
Tilles, Webb, Kulla & Grant, ALC
433 North Camden Drive, Suite 1010
Beverly Hills, California 90210
Fax: 310-888-3433
Any party may change its address for notices by giving notice of such change in
accordance with the foregoing procedures. Any notice not sent in accordance with
the foregoing, shall be deemed given on the date of actual receipt.
2.2 Expenses. Each party is responsible for its own expenses hereunder.
--------
No party may impose any costs or expenses on the other party other than those
explicitly set forth in this Agreement.
2.3 Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together constitute one instrument.
2.4 Waiver. The waiver by either party of any provision, nonperformance
------
or any breach of any provision of this Amendment will not constitute a waiver of
any subsequent nonperformance or other breach of the same or any other
provision.
<PAGE>
2.5 Severability. If any provision of this Amendment is held to be
------------
ineffective, unenforceable or illegal for any reason, such decision shall not
affect the validity or enforceability of any or all of the remaining portions
hereof.
2.6 Headings. The section headings of this Amendment are for reference
--------
only and shall not be of any force and effect.
2.7 Facsimile. This Amendment may be executed and delivered by
---------
facsimile, which the parties agree shall have the same legal effect as if the
parties had delivered copies bearing original signatures.
<PAGE>
2.8 Governing Law. This Amendment will be governed by the internal laws
-------------
of the State of California without giving effect to any principles of conflicts
of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be signed on its behalf by its duly authorized representative as of
the date first written above.
JAFRA COSMETICS INTERNATIONAL, INC.
By: /s/ Brian Chase
---------------------------------------
Name: Brian Chase
Title: Vice President, Manufacturing
By: /s/ Michael DiGregorio
--------------------------------------
Name: Michael DiGregorio
Title: Chief Financial Officer
UNIVERSAL PACKAGING SYSTEMS, INC.
By: /s/ Julio Liberal
---------------------------
Name: Julio Liberal
Title: President
By: /s/ Mark Tomberlin
----------------------------
Name: Mark Tomberlin
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.3
MANUFACTURING AGREEMENT
between
JAFRA COSMETICS INTERNATIONAL, INC.
and
UNIVERSAL PACKAGING SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS................................................. 1
1.1 "Compounding".............................................. 1
1.2 "EPA"...................................................... 1
1.3 "Facilities"............................................... 1
1.4 "FDA"...................................................... 1
1.5 "F.O.B."................................................... 1
1.6 "GAAP"..................................................... 1
1.7 "GMPs"..................................................... 1
1.8 "Jafra-unique"............................................. 1
1.9 "Manufacturing"............................................ 2
1.10 "Production"............................................... 2
1.11 "Products"................................................. 2
1.12 "Services"................................................. 2
1.13 "Specifications"........................................... 2
ARTICLE 2 - SCOPE OF SERVICES........................................... 2
2.1 General.................................................... 2
2.2 Contractor Services........................................ 2
2.3 Specifications............................................. 2
2.3.1 Completeness........................................ 2
2.3.2 Modifications....................................... 2
2.4 Place of Manufacture....................................... 3
2.5 Location of Jafra Production Within the Facilities......... 3
2.6 Compliance With Laws....................................... 3
2.7 Equipment and Tooling...................................... 3
2.8 Materials.................................................. 3
2.9 Obsolescence............................................... 3
2.10 Shipment................................................... 4
2.11 Tube Decoration............................................ 4
2.12 Printed Materials.......................................... 4
2.13 Non-Exclusive License of Intellectual Property............. 4
ARTICLE 3 - PRICES AND PAYMENT.......................................... 5
3.1 Initial Product Prices..................................... 5
3.2 Product Price Forecast..................................... 5
3.3 New Product Pricing........................................ 5
3.4 Direct Labor Rate.......................................... 5
3.5 Percentage Markups For Raw Materials and Components........ 6
3.6 Cost of Components and Raw Materials....................... 6
3.7 Raw Material Price Revisions............................... 6
3.8 Product Invoices........................................... 6
3.9 Month-End Invoice.......................................... 6
</TABLE>
-i-
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 4 - QUALITY CONTROL......................................... 7
4.1 Quality Assurance Tests..................................... 7
4.2 Product Defects............................................. 7
4.3 Records..................................................... 7
4.4 Retained Samples............................................ 7
4.5 Quality Performance Measurements............................ 7
4.6 Quality Control of Component Materials...................... 7
4.7 Rejected Product............................................ 8
4.8 Manufacturing Personnel..................................... 8
4.9 Subcontractors.............................................. 8
4.10 Governmental Inspections.................................... 8
ARTICLE 5 - FORECAST AND SCHEDULING................................. 8
5.1 Annual Requirement Forecast................................. 8
5.2 Planning Requirements....................................... 9
5.3 Weekly and Monthly Production Schedule...................... 9
5.4 Electronic Data Interface Process........................... 9
5.5 Schedule Performance Measurements........................... 9
5.6 Purchase Orders............................................. 9
ARTICLE 6 - SPACE AND WAREHOUSING................................... 10
6.1 Material Warehouse Space.................................... 10
6.2 Finished Goods Storage...................................... 10
ARTICLE 7 - INSURANCE AND TAXES..................................... 10
7.1 Insurance................................................... 10
7.2 Taxes....................................................... 11
ARTICLE 8 - REPRESENTATIONS AND WARRANTIES.......................... 11
8.1 By Contractor............................................... 11
8.1.1 Organization and Qualification.................... 11
8.1.2 Authority......................................... 11
8.1.3 No Conflicts...................................... 11
8.1.4 Consents.......................................... 11
8.1.5 Compliance With Jafra Pricing Structure........... 11
8.1.6 No Infringement................................... 12
8.1.7 Litigation........................................ 12
8.1.8 Environmental, Health and Safety Matters.......... 12
8.1.9 Financial Statements.............................. 12
8.1.10 No Material Adverse Change........................ 12
8.2 By Jafra.................................................... 12
8.2.1 Organization and Qualification........................ 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.2.2 Authority........................................... 13
8.2.3 Compliance with Laws................................ 13
8.2.4 Consents............................................ 13
8.2.5 Litigation.......................................... 13
ARTICLE 9 - COVENANTS OF CONTRACTOR................................ 13
9.1 Compliance with Laws........................................ 13
9.2 Products Fit for Intended Purpose........................... 13
9.3 Good Title.................................................. 14
9.4 Financial Statements........................................ 14
9.5 Right to Inspect............................................ 14
9.6 Right to Audit.............................................. 14
9.7 Trade Secrets............................................... 14
9.8 Services to Third Parties................................... 15
9.9 Most Favorable Terms........................................ 15
9.10 Technological Advances...................................... 15
ARTICLE 10 - MUTUAL COVENANTS OF CONTRACTOR AND JAFRA.............. 15
10.1 Confidential Information................................... 15
10.2 Trademarks and Trade Names................................. 16
10.3 Independent Contractor Relationship........................ 16
ARTICLE 11 - TERM AND TERMINATION.................................. 16
11.1 Term....................................................... 16
11.2 Termination by Either Party for Breach..................... 16
11.3 Termination by Jafra....................................... 16
11.4 Cooperation................................................ 17
ARTICLE 12 - INDEMNIFICATION....................................... 18
12.1 By Contractor.............................................. 18
12.2 By Jafra................................................... 18
12.3 Notification............................................... 19
ARTICLE 13 - MISCELLANEOUS......................................... 19
13.1 Notices.................................................... 19
13.2 Expenses................................................... 20
13.3 Survival................................................... 20
13.4 Counterparts............................................... 20
13.5 Waiver..................................................... 20
13.6 Assignment................................................. 20
13.7 Arbitration................................................ 20
13.8 Entire Agreement........................................... 20
13.9 Severability............................................... 21
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
13.10 Headings.............................................. 21
13.11 Facsimile............................................. 21
13.12 Governing Law......................................... 21
</TABLE>
-iv-
<PAGE>
MANUFACTURING AGREEMENT
This Manufacturing Agreement (this "Agreement") is made as of June 10, 1999
between Jafra Cosmetics International, Inc., a Delaware corporation ("Jafra")
and Universal Packaging Systems, Inc., a California corporation ("Contractor").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Jafra is engaged in the distribution and sale of certain
cosmetic and skin care products; and
WHEREAS, Contractor has the capability to manufacture such products;
and
WHEREAS, Jafra desires Contractor to manufacture and sell the products
described in Schedule A to Jafra, and Contractor desires to do so.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the parties
hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 "Compounding" means the mixing of raw materials following the batch
procedures required to make bulk.
1.2 "EPA" means the United States Environmental Protection Agency.
1.3 "Facilities" means Contractor's manufacturing and packaging facilities
located at 4575 Danito Court in Chino, California.
1.4 "FDA" means the United States Food and Drug Administration, or any
successor entity thereto.
1.5 "F.O.B." means the definition of F.O.B. set forth in Section 2319 of
the California Uniform Commercial Code from time to time or any successor
statute thereto.
1.6 "GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
1.7 "GMPs" means the current good manufacturing practices of the FDA, as
in effect from time to time.
1.8 "Jafra-unique" means a raw material or component used by Jafra but not
by other parties serviced by Contractor at the Facilities.
<PAGE>
1.9 "Manufacturing" means all operational activities related to the supply
of Products to Jafra.
1.10 "Production" means the filling of bulk in the main container of a
Product and the assembly of all other components required to complete the
Product.
1.11 "Products" means the products listed in Schedule A hereto,
Manufactured and/or finished by Contractor to meet the Specifications (as
defined below).
1.12 "Services" means the full service Manufacturing and supply of the
Products in accordance with the Specifications (as defined below) and the other
terms and conditions set forth herein.
1.13 "Specifications" means the specifications for raw materials,
components, manufacturing and packaging procedures for Products as set forth on
Schedule B hereto.
ARTICLE 2 - SCOPE OF SERVICES
2.1 General. Jafra agrees to purchase and Contractor agrees to supply the
-------
Services as needed to fulfill Jafra's requirements for the Products in
accordance with the terms hereof and to meet the quality, service and cost
criteria set forth in this Agreement.
2.2 Contractor Services. Contractor shall manufacture and package the
-------------------
Products in accordance with the Specifications and all U.S. federal, state, and
local laws, and international laws, rules and regulations, including the GMPs
and regulations regarding the Products in effect on the date of manufacture as
applicable to the place of manufacture and those places of resale set forth on
Schedule C-1 attached hereto. The places of resale may be changed form time to
time upon notice from Jafra and Contractor. Notwithstanding the foregoing,
provided that Contractor has complied with Jafra's labeling and packaging
specifications, Contractor shall not be responsible for compliance with any
laws, rules or regulations applicable to labeling or packaging. Contractor shall
also perform those functions described in the attached Schedule C, including,
but not limited to, planning, scheduling, purchasing, warehousing, quality
assurance tests on raw materials and components, bulk manufacturing, packaging
and assembly, quality assurance tests on the Products, shipping, and disposing
of nonconforming Products and materials in accordance with all applicable
federal, state and local laws, rules and regulations.
2.3 Specifications.
--------------
2.3.1 Completeness. The Specifications shall include the total body
------------
of requirements for raw materials, components, processes, assemblies, and
completed Products as described in the manuals for each Product provided to
Contractor by Jafra. A complete list of such manuals is set forth on Schedule B
hereto.
2.3.2 Modifications. Contractor may not modify, alter or change the
-------------
Specifications or configuration of bulk production or packaging processes
without Jafra's prior
2
<PAGE>
written consent, which Jafra may withhold in its sole discretion. Jafra may
amend the Specifications in its sole discretion, provided that Contractor's
performance under this Agreement is not made materially more burdensome, and
Jafra will promptly advise Contractor in writing of the implementation plan and
schedule for the Specification change. If the Specification change will affect
the cost or delivery schedule of any Product, Contractor shall provide Jafra
with a written price quote identifying the portion of the cost increase or
decrease associated with the Specification change and the effect on the delivery
schedule, if any. The price change quote and/or delivery schedule change must be
provided to, and approved by, Jafra in writing prior to Contractor committing to
any raw material orders. Upon Jafra's review and approval, the prices will be
mutually revised on Schedule A. The revisions to Schedule A shall be considered
Contractor's authorization to implement the new price.
2.4 Place of Manufacture. Contractor shall maintain the Facilities at its
--------------------
current location in ***.
2.5 Location of Jafra Production Within the Facilities. ***.
--------------------------------------------------
2.6 Compliance With Laws. Contractor shall maintain the Facilities in full
--------------------
compliance with all applicable U.S. federal, state, and local laws, rules and
regulations including, without limitation, those promulgated by the FDA and EPA.
Contractor shall notify Jafra immediately in writing (and by telecopy in
accordance with Section 14.1 hereof, to ensure Jafra's prompt receipt of such
notice) of any notice of non-compliance received from any governmental agency.
Contractor further agrees to correct, at its sole expense, within a reasonable
period of time, any violation or other deficiency and to furnish Jafra with
written evidence of such correction.
2.7 Equipment and Tooling. Concurrently herewith, Jafra and Contractor
---------------------
shall enter into the Asset Purchase Agreement in substantially the form attached
hereto as Exhibit A, pursuant to which Contractor shall purchase certain pieces
of equipment and items, including, without limitation, plates, dies and change
parts specifically required to produce the Products, on the terms and conditions
set forth in the Asset Purchase Agreement.
2.8 Materials. *** shall be solely responsible for obtaining all materials
---------
(including all raw materials and components) required to manufacture and deliver
the Products in accordance with the Specifications. ***. Contractor shall also
be responsible for performing quality assurance checks on all incoming materials
to assure compliance with the Specifications. Contractor shall provide Jafra
complete access to its records regarding the purchase of materials for the
Products, including data regarding costs and supply conditions. In addition,
Contractor shall purchase Jafra's existing inventories of those materials
required to make the Products listed on Schedule A at prices established by
Jafra and agreed upon by Contractor.
2.9 Obsolescence. Contractor will provide to Jafra a quarterly excess
------------
inventory report for each Jafra-unique raw material and Jafra-unique component
used in connection with the Products. Such reports shall be provided within 15
calendar days of the end of the quarterly periods ending on the last day of each
March, June, September and December. Such reports shall
3
<PAGE>
identify in reasonable detail the quantities of each raw material and component
that will not be used within a twelve-month period following the date of such
report. Jafra will instruct Contractor to dispose of obsolete materials at
Jafra's expense, plus cost of materials.
2.10 Shipment. Contractor shall ship the Products *** the Facilities or
--------
Contractor's warehouse in *** to destinations specified by Jafra. Jafra will
designate carriers, and freight charges will be billed to Jafra by each such
carrier. Trucks should be used to at least ***% of utilization, unless otherwise
agreed to by Jafra in writing. Proof of shipment should be sent by fax to Jafra
in accordance with the notice provisions of Section 14.1 hereof, in the form of
a bill of lading for each truck leaving the Facilities or Contractor's
warehouse.
2.11 Tube Decoration.
---------------
(a) Jafra hereby agrees to lease its "tube decorating machine" and
the related change parts to Contractor at a cost of *** for the duration of this
Agreement. Such lease shall automatically terminate without further action on
the part of any person or entity upon the termination of this Agreement by
either party for any reason.
(b) Contractor shall decorate those tubes as required by Jafra using
the tube decorating machine leased pursuant to Section 2.11(a) above. Contractor
will charge Jafra a decorating fee equal to *** with a loss allowance of up to
*** of the tubes decorated. At the termination of this Agreement, Contractor
shall return the tube decorating machine to Jafra (or another entity designated
by Jafra) at Jafra's expense.
2.12 Printed Materials. Films, separations and art work required for the
-----------------
manufacture of any Product package copy, labels, and printed materials shall be
provided by Jafra at its sole cost and expense or obtained by Contractor
according to the Specifications and invoiced to Jafra in the month-end invoice
provided pursuant to Section 3.9 hereof. Notwithstanding anything else contained
in this Agreement, the content, design and appearance of any Product package
copy, label and printed material are the sole responsibility of Jafra and Jafra
shall provide written instructions to Contractor concerning the application of
same.
2.13 ***License of Intellectual Property. Subject to the terms and
-----------------------------------
conditions of this Agreement, Jafra hereby grants to Contractor a *** license to
use Jafra's patents, trademarks, copyrights and trade secrets contained in the
Specifications, Jafra quality procedures and other documentation provided by
Jafra to Contractor (the "Intellectual Property") pursuant this Agreement (the
"License"). The duration of the License shall be solely for the term of this
Agreement and it shall automatically terminate without further action on the
part of any person or entity upon the termination of this Agreement by either
party for any reason. Contractor shall use the Intellectual Property licensed
hereunder solely for the purpose of and in connection with the manufacture,
packaging and sale of the Products.
4
<PAGE>
ARTICLE 3 - PRICES AND PAYMENT
3.1 Initial Product Prices. Initial pricing for the Products will be as
----------------------
indicated in Schedule A and Manufacturing fees will be based upon the cost
categories set forth in Schedule D. Such prices will be effective until ***. The
present pricing parameters in the Schedules hereto are based on an annual volume
of units from *** to ***. Under this pricing structure, Contractor commits to
deliver up to *** units per week when and if required by Jafra. An annual volume
less than or greater than the *** to *** range shall warrant a price
renegotiation. In the event Jafra takes delivery of less than *** units per
calendar fiscal quarter, during the term of this Agreement, within ten (10) days
after the end of such three-month period, Jafra shall pay to contractor the sum
of $*** multiplied by the difference between *** and the number of units Jafra
accepted for the last month of such three-month period.
3.2 Product Price Forecast. Manufacturing fees will be increased not more
----------------------
than *** every twelve months beginning July 1, 2000 at a rate not more than ***
for the applicable twelve-month period minus any *** (as defined hereafter) made
during such applicable twelve-month period. Commencing not later than June 1st
of each year of this Agreement beginning June 1, 2000, Jafra and Contractor will
work together to establish pricing for the succeeding twelve-month period
commencing July 1. If contractor is seeking an increase in the Manufacturing
fees, it shall provide Jafra with written justification and substantiation for
such increase. In the event that new twelve-month pricing has not been agreed
upon by both Jafra and Contractor by June 1 of the applicable year, either party
may submit the matter to arbitration pursuant to the provisions of Section 13.7
hereof. Until the matter has been agreed to or decided by arbitration, the
pricing on Schedule A will continue to apply, provided, however, that any
increase subsequently agreed to or determined by the arbitrator shall be
retroactive to July 1 of the applicable year, and any sum owing due to a
retroactive adjustment shall be paid to Contractor within ten (10) days of the
determination of the increase. *** of any governmentally imposed wage increases
(expressed as a percentage increase over the current minimum wage) (the "Wage
Increase Adjustment") will be transferrable to the Manufacturing fee (Schedule
A, column b) upon the effective date of such increase.
*For additional sentence, see addendum attached hereto.
3.3 New Product Pricing. Prices for any new Products shall be determined
-------------------
by placing such new Products into the applicable cost category set forth on
Schedule D hereto.
3.4 Direct Labor Rate. The direct labor rate to be charged for special
-----------------
assemblies and other manual operations required by Jafra shall be *** per direct
labor hour, for the first twelve months of the term of this Agreement, and
thereafter will ***.
3.5 Percentage *** For Raw Materials and Components. For the duration of
-----------------------------------------------
this Agreement and any extensions or renewals thereof, ***. Contractor will
provide Jafra satisfactory documentary evidence of all *** of raw materials as
part of the invoices required by Sections 3.8 and 3.9 hereof.
5
<PAGE>
3.6 Cost of Components and Raw Materials. The cost of the components (see
------------------------------------
Schedule A attached hereto) will be calculated by ***. The raw material cost ***
will be calculated by ***.
3.7 Raw Material Price Revisions. If the price of a raw material purchased
----------------------------
by Contractor increases more than ***% over the agreed upon price, Contractor
will notify Jafra (with supporting documentation) and Jafra will have *** months
to identify and approve alternative sources of supply or raw materials to be
used; otherwise, Contractor will be authorized to pass the higher cost on to
Jafra commencing at the beginning of the *** month following such increase.
Provided, however, if the increase in the cost of a material causes the cost of
all materials used in a particular formula or formulas to increase by more than
***%, Jafra will have *** months to identify and approve alternative sources of
supply or raw materials to be used; otherwise, Contractor will be authorized to
pass the higher cost on to Jafra commencing at the beginning of the *** month
following such increase.
3.8 Product Invoices. Contractor will invoice Jafra on the first working
----------------
day of every *** for the shipment of Products made during the previous ***.
Jafra will pay Contractor within *** days from date of invoice.
3.9 Month-End Invoice. Contractor will summarize all costs not covered by
-----------------
the Product invoice required by Section 3.8 above on a single invoice at the end
of each month. Such month-end invoice shall include an explanation or additional
documentation satisfactory to Jafra to substantiate each item on the invoice
(documentation may include original copies of invoices for materials purchased
by Contractor). All "extraordinary charges" will require the prior written
consent of Jafra; however, extraordinary charges shall only include charges for
operations and procedures not contemplated, required or inferred elsewhere in
this Agreement or in the Schedules hereto.
3.10 Materials Freight Cost. ***.
ARTICLE 4 - QUALITY CONTROL
4.1 Quality Assurance Tests. Contractor shall perform such quality
-----------------------
assurance tests and procedures on materials and Products as are currently
performed by Jafra at its Westlake Village facility. Such quality procedures are
set forth in Schedule E.
4.2 Product Defects. If a Product lot should present a proportion of
---------------
defects higher than the acceptable quality levels set forth in its
Specifications or Jafra quality procedures Jafra may, *** defective Product and
*** to take place within the earliest practicable period of either (a) ***, or
(b) the ***are returned. Jafra has the right to inspect all of the Production at
any time to determine its quality fitness and compliance with the requirements
hereunder.
4.3 Records. Contractor will prepare and maintain records to comply with
all applicable regulatory requirements, including, but not limited to, those of
the FDA, the Bureau of Alcohol, Tobacco and Firearms, the Toxic Substance
Control Act of 1976, as amended, and the
6
<PAGE>
European Union Cosmetics Directive and amendments thereto, as well as reports
required thereunder. Contractor shall retain all books and records that relate
to the Services for a minimum of four (4) years from the date that any related
Product was manufactured or one (1) year beyond the expiration date of such
Product, whichever is later. Upon the termination of this Agreement for any
reason, including the expiration of the term set forth in Section 12.1 hereof,
Contractor shall, at Jafra's written request, promptly ship copies of all such
records to Jafra.
4.4 Retained Samples. Contractor shall maintain and retain samples and
----------------
manufacturing records for each batch or lot of Products produced for Jafra for a
period of four (4) years from the date that any related Product was manufactured
or one (1) year beyond the expiration date of such Product, whichever is later.
At the end of such period the retained samples shall be disposed of in
accordance with the then applicable law regarding such disposal. Upon the
termination of this Agreement for any reason, including the expiration of the
term set forth in Section 12.1 hereof, Contractor shall, at Jafra's written
request and expense, promptly ship representative samples of such retained
Products to Jafra.
4.5 Quality Performance Measurements. Contractor's quality performance
--------------------------------
will be measured in the areas and to the levels described in the Specifications
on Schedule B attached hereto, and in Jafra's quality procedures. If performance
falls below the stated level in any area (either materially or repeatedly),
Jafra may consider such failure as cause for termination of Contractor's
Services. Contractor will diligently monitor and measure its quality performance
and will provide Jafra a monthly summary of quality issues encountered in the
production of the Products and the resolution of such issues.
4.6 Quality Control of Component Materials. Contractor shall notify Jafra
--------------------------------------
of rejections of incoming Jafra materials that may occur, within a maximum of
three (3) business days from the date of their receipt at the Facilities or
Contractor's warehouse. Contractor will promptly follow Jafra's directions to
return any such components to the supplier or rework any such materials at the
supplier's expense as instructed by Jafra in writing.
4.7 Rejected Product. In the event any Product does not meet the
----------------
applicable Specifications, or is rejected by Jafra or Contractor, or recalled by
Jafra ("Rejected Product") due to information, formulations or materials
supplied by Jafra, and Contractor has complied with all applicable written
procedures, Jafra shall bear *** percent (***%) of all costs directly related to
and invoiced for Rejected Product, including the cost of recalling, destroying
or otherwise disposing of such Rejected Product. In the event that Rejected
Product is due to Contractor's failure (or failure of any permitted
subcontractor) to comply with applicable Specifications or Jafra quality
procedures, Contractor shall bear *** percent (***%) of all costs directly
related to and invoiced for Rejected Product, including the cost of recalling,
destroying or otherwise disposing of such Rejected Product. In the event that
any Product does not meet the applicable Specifications, but such failure is not
due to either (a) information supplied by Jafra or (b) Contractor's failure to
follow applicable written procedures, Jafra shall bear all materials costs, with
Contractor bearing all labor costs related to such Rejected Product. In each
case where Rejected Product occurs, the recall, destruction and/or disposal of
such Rejected Product shall be conducted by Contractor, in accordance with all
applicable laws, rules and regulations.
7
<PAGE>
Contractor shall provide to Jafra all manifests and other applicable evidence of
proper destruction as may be required by applicable law. Contractor shall
indemnify Jafra for any liability, costs or expenses, including reasonable
attorney's fees and court costs, relating to a failure to dispose of any
Rejected Product in accordance with applicable laws, rules and regulations or to
provide satisfactory documentary evidence of such disposal.
***
4.9 Subcontractors. Any use of subcontractors to render any of the
--------------
Services must be approved in writing in advance by Jafra's Vice President of
Manufacturing and Jafra shall have the right in its sole discretion not to
permit Contractor to use subcontractors at all and to reject any particular
subcontractor even if Jafra has agreed that a particular function may be
assigned to a subcontractor. Any permitted subcontractor shall render Services
in conformity with all standards applicable to Contractor.
4.10 Governmental Inspections. Contractor will promptly advise Jafra if an
------------------------
authorized agent of the FDA or other governmental agency visits the Facilities
or requests or requires information or changes in manufacturing procedures
directly pertaining to the Products.
ARTICLE 5 - FORECAST AND SCHEDULING
5.1 Annual Requirement Forecast. Jafra will provide Contractor with an
---------------------------
estimate of the quantity of each Product needed for the following calendar year
during the month of January of each year. Such annual requirements forecast is
for production planning and capacity planning purposes and negotiations with
materials vendors only and is not otherwise a binding commitment by Jafra to
purchase the Product in the amounts estimated.
5.2 Planning Requirements. On a monthly basis (by the 20th day of each
---------------------
month), Jafra will provide Contractor with a ***month rolling production
forecast, which will constitute authorization for Contractor to purchase the
materials required to produce Products for the initial *** month period of such
*** month schedule. Jafra shall be liable for any materials which are purchased
by Contractor in reliance upon the forecast provided for the initial *** month
period of the rolling *** month forecasts which cannot be used by Contractor due
to changes in Jafra's forecast unless Contractor is able to reasonably cover its
expenditures for such materials by using such materials for any other customer
or selling such materials to another party. This *** month period will be
reduced over time by mutual agreement of the parties hereto.
5.3 Weekly and Monthly Production Schedule. Once a week, Jafra and
--------------------------------------
Contractor will meet to approve the production plan for the following rolling
*** week period. In addition, Jafra and Contractor will meet at least once a
week to firm up the shipping schedule for the following week, incorporating any
previously unplanned production requirements that arise due to extraordinary
business demands. The weekly unplanned requirements will always be accepted and
production delivered in the following week by Contractor, provided that
Contractor has sufficient materials available to cover such extraordinary demand
in accordance with the ***-month materials availability agreement. Contractor
will provide Jafra with a production schedule
8
<PAGE>
showing weekly production plans for each Product for a minimum period of two
calendar months. Such production schedule is for informational purposes only and
will not serve to revise any annual requirement forecast provided pursuant to
Section 5.1 or any requirement schedule provided pursuant to Section 5.2.
5.4 Electronic Data Interface Process. Jafra and Contractor will implement
---------------------------------
the electronic data interface necessary to communicate requirements for
production of, invoicing and payment for Products and shipping confirmation.
5.5 Schedule Performance Measurements. Jafra and Contractor will measure
---------------------------------
Contractor's schedule adherence performance for on-time delivery and quantity
accuracy in accordance with the standards set forth on Schedule F hereto. In the
event that performance for a particular period falls below the standards set
forth on Schedule F hereto, Jafra may terminate this Agreement as specified in
Section 11.3 hereof or, in the alternative, at Jafra's sole discretion and at
Jafra's direction, Contractor will prepare an action plan identifying corrective
measures for schedule adherence subject to Jafra's approval. This action plan
will be provided at the same time the schedule adherence report is published and
made available to Jafra.
5.6 Purchase Orders. Jafra will establish a blanket purchase order for
---------------
each Product to be supplied by Contractor. Required releases against the blanket
purchase orders will be communicated by the monthly production plan.
ARTICLE 6 - SPACE AND WAREHOUSING
6.1 Material Warehouse Space. Contractor will provide sufficient warehouse
------------------------
space to accommodate the normal flow of materials and work in process for any
production level at ***.
6.2 Finished Goods Storage. Contractor will provide sufficient storage
----------------------
space to coordinate and consolidate shipments to Jafra distribution centers at
no cost to Jafra. Any Product produced per Jafra's *** week rolling forecast and
not shipped within two weeks of the date such Product is produced will be
invoiced to Jafra and may remain in storage for up to *** months at ***.
ARTICLE 7 - INSURANCE AND TAXES
7.1 Insurance. For the duration of this Agreement and for a period of not
---------
less than *** (except for product liability insurance which shall be *** years)
following the termination of this Agreement, Contractor will carry the following
types of insurance: *** Contractor shall deliver , a Certificate of Insurance,
issued by the insurance carrier, evidencing the above coverage and shall notify
Jafra in writing of any change or cancellation thereof within 24 hours of such
change or cancellation.
7.2 Taxes. Contractor shall be responsible for, and shall pay, all taxes
-----
related to, arising out of or in connection with the Services rendered pursuant
to this Agreement.
9
<PAGE>
ARTICLE 8 - REPRESENTATIONS AND WARRANTIES
8.1 By Contractor. Contractor represents and warrants to Jafra as follows:
-------------
8.1.1 Organization and Qualification. Contractor is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of California and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted.
8.1.2 Authority. Contractor has all necessary corporate power and
---------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings are required on the part of the Contractor. This Agreement has been
duly and validly executed and delivered by Contractor and constitutes the legal,
valid and binding obligation of Contractor, enforceable against Contractor in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
8.1.3 No Conflicts. The execution and delivery of this Agreement by
------------
Contractor does not, and the performance of this Agreement by Contractor will
not (i) conflict with or violate the Articles of Incorporation or bylaws of
Contractor, conflict with or violate any foreign or domestic (federal, state or
local) law, statute, ordinance, rule, regulation, permit, injunction, writ,
judgment, decree or order applicable to Contractor or by which any asset of
Contractor is bound or (ii) conflict with, result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or require any payment under, or result in the
creation of a lien, claim, security interest or other charge or encumbrance on
any asset of Contractor.
8.1.4 Consents. The execution and delivery of this Agreement by
--------
Contractor do not, and the performance of this Agreement by Contractor will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any United States (federal, state or local) or foreign
government or governmental, regulatory or administrative authority, agency,
commission, board, bureau, court or instrumentality or arbitrator of any kind.
8.1.5 Compliance With Jafra Pricing Structure. Contractor has
---------------------------------------
reviewed and is familiar with Jafra's procedures and can comply with such
procedures within the pricing structure set forth herein.
8.1.6 No Infringement. Contractor's processes and technical data
---------------
furnished or utilized by Contractor hereunder do not, infringe any patent or
other proprietary rights of any third party.
10
<PAGE>
8.1.7 Litigation. No claim, action, suit, proceeding, inquiry,
----------
hearing, arbitration, administrative proceeding, or investigation (collectively,
"Litigation") is pending, or, to Contractor's best knowledge threatened against
Contractor, its present or former directors, officers, or employees. Contractor
knows of no facts that could reasonably be expected to serve as the basis for
litigation against itself, its present or former directors, officers, or
employees, which litigation would have a materially adverse effect on
Contractor's business and its ability to perform under this Agreement.
8.1.8 Environmental, Health and Safety Matters. (a) Contractor has
----------------------------------------
obtained and complied with, and is in compliance with, all material permits,
licenses and other authorizations that are required pursuant to environmental,
health, and safety laws, rules and regulations for the occupation of its
facilities. Contractor has not received any written or oral notice, report or
other information regarding any actual or alleged material violation of any
environmental, health, and safety regulations, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to any
of them or its facilities arising under environmental, health, and safety laws,
rules and regulations.
8.1.9 Financial Statements. Contractor shall provide the following
--------------------
financial statements (the "Financial Statements"): (a) no later than three
business days prior to the Closing Date, income statements, balance sheets, and
statements of cash flow for the Contractor's business for (i) the fiscal year
ended December 31, 1998 (which shall be a reviewed statement); (ii) an income
statement and balance sheet for the three-month period ended March 31, 1999
(which may be unaudited); and (iii) an income statement and balance sheet for
the month ended April 30, 1999 (which may be unaudited). The Financial
Statements, including the notes thereto (for the reviewed statement), will
properly reflect all assets and assumed liabilities as then in existence. The
Financial Statements, including the notes thereto (for the reviewed statement),
will fairly present the results of operation and the financial position of
Contractor as of the dates thereof and the periods then ended in conformity with
GAAP consistently applied with the principles and procedures employed in prior
periods by Contractor.
8.1.10 No Material Adverse Change. Since December 31, 1998, there has
--------------------------
been no material adverse change in Contractor's business or in the financial
condition, operations, or prospects of the Contractor's business.
8.2 By Jafra. Jafra represents and warrants to Contractor as follows:
8.2.1 Organization and Qualification. Jafra is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted.
8.2.2 Authority. Jafra has all necessary corporate power and
---------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement have been duly and
validly authorized by all necessary corporate
11
<PAGE>
action and no other corporate proceedings are required on the part of Jafra.
This Agreement has been duly and validly executed and delivered by Jafra and
constitutes the legal, valid and binding obligation of Jafra, enforceable
against Jafra in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
8.2.3 Compliance with Laws. The Products, their manufacture, sale and
--------------------
use, including but not limited to the technology and know how incorporated in
each Product and its delivery system, including, without limitation, all
formulations, processes and Specifications, all other proprietary rights
pertaining to such Product including, without limitation, its dress of goods,
labeling, decoration, trademarks and trade names are owned by Jafra and comply
with all applicable laws, rules and regulations and are not in violation of the
rights of any persons not a party to this Agreement.
8.2.4 Consents. The execution and delivery of this Agreement by Jafra
--------
do not, and the performance of this Agreement by Jafra will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any United States (federal, state or local) or foreign government or
governmental, regulatory or administrative authority, agency, commission, board,
bureau, court or instrumentality or arbitrator of any kind.
8.2.5 Litigation. No claim, action, suit, proceeding, inquiry,
----------
hearing, arbitration, administrative proceeding, or investigation (collectively,
"Litigation") is pending, or, to Jafra's best knowledge threatened against
Jafra, its present or former directors, officers, or employees. Jafra knows of
no facts that could reasonably be expected to serve as the basis for litigation
against itself, its present or former directors, officers, or employees, which
litigation would have a materially adverse effect on Jafra's business and its
ability to perform under this Agreement.
ARTICLE 9 - COVENANTS OF CONTRACTOR
9.1 Compliance with Laws. Contractor shall comply with all applicable
--------------------
federal, state and local laws, rules and regulations and relevant laws of other
countries and jurisdictions, including, without limitation, those of the FDA and
EPA, relating to the manufacture, packaging and shipping of the Products or any
component thereof, for the place of manufacture of the Products. Notwithstanding
the foregoing, provided that Contractor has complied with Jafra's labeling and
packaging specifications, Contractor shall not be responsible for compliance
with any laws, rules or regulations related to such labeling or packaging. The
Facilities shall comply with all applicable federal, state and local laws, rules
and regulations, including, without limitation, those of the FDA, EPA and the
Occupational Safety and Health Act of 1970 as amended.
9.2 Products Fit for Intended Purpose. The Products shall be of
---------------------------------
merchantable quality, fit for their intended purpose, free from defects in
material and workmanship and will conform in all respects to the Specifications
and all applicable laws, rules and regulations, including GMPs in effect at the
time of delivery to Jafra.
12
<PAGE>
9.3 Good Title. Contractor shall convey to Jafra good title to the
----------
Products and the Products will be delivered free from any security interest,
lien or other encumbrance.
9.4 Financial Statements. Contractor shall furnish to Jafra:
--------------------
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Contractor, a copy of the *** balance sheet of
Contractor as at the end of such year and the related *** statements of income
and retained earnings and of cash flows for such year, setting forth in each
case in comparative form the figures for the previous year; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal year
of the Contractor, the *** consolidated balance sheet of Contractor as at the
end of such quarter and the related *** statement of income for such quarter and
the portion of the fiscal year through the end of such quarter, certified by the
Chief Financial Officer of Contractor as being fairly stated in all material
respects when considered in relation to the financial statements of Contractor
(subject to normal year-end audit adjustments);
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by Contractor's accountants or Chief Financial
Officer, as the case may be, and disclosed therein).
9.5 Right to Inspect. *** Contractor shall permit Jafra or its authorized
----------------
representatives to observe and inspect the Facilities, including, without
limitation, a Product acceptance inspection all Manufacturing processes,
including Compounding and Production, for compliance with the GMPs, state or
local, Jafra quality standards and Specifications.
9.6 Right to Audit. *** Contractor shall permit Jafra or its authorized
--------------
representative to examine all of Contractor's books and records as they relate
the performance of Services for Jafra. Jafra shall have the right to perform
periodic audits of each location within the Facilities where Products are being
manufactured.
9.7 Trade Secrets. Contractor acknowledges that all information that Jafra
-------------
may disclose to Contractor, in writing or orally, about the Products relating to
formulas, Specifications and methods of manufacture constitutes trade secrets of
Jafra. All information about the Products, either individually or in the
aggregate, derived or collected by Contractor pursuant to the performance of its
obligations under this Agreement is the sole property of Jafra and also
constitutes trade secrets of Jafra. Contractor shall treat the trade secrets of
Jafra as confidential and shall not disclose the same to any other person, or
use the same except in connection with the performance of its obligations under
this Agreement. Contractor agrees that it will limit access to the trade secrets
of Jafra to those of its employees, agents or subcontractors who reasonably
require the same to carry out the purposes of this Agreement. Contractor
acknowledges that the trade secrets of Jafra constitute unique and valuable
assets, and that any disclosure or use thereof except as specifically authorized
herein would be wrongful and would
13
<PAGE>
cause irreparable harm to Jafra, and that it would be difficult to compensate
Jafra fully with damages for a violation of this Section 9.6. Accordingly,
Contractor agrees that Jafra shall be entitled to temporary and permanent
injunctive relief to enforce this Section 9.6; this provision shall not however
be deemed to diminish or supplant the right of Jafra to claim and recover money
damages for any breach hereof in addition to obtaining equitable relief
therefor.
9.8 Services to Third Parties. ***.
***
ARTICLE 10 - MUTUAL COVENANTS OF CONTRACTOR AND JAFRA
10.1 Confidential Information. In connection with the performance of their
------------------------
respective obligations under this Agreement, each of Contractor and Jafra may
disclose to the other, in writing or orally, information concerning its
respective business, marketing techniques and methods of operation (the
"Confidential Information"). Information contained in or relating to the
Products shall constitute Confidential Information. Each of Contractor and Jafra
shall treat the Confidential Information of the other as confidential and shall
not disclose the same to any other person, or use the same except in connection
with the performance of this Agreement. Contractor and Jafra each agree that it
will limit access to the Confidential Information of the other to those of its
employees, agents or subcontractors who reasonably require the same to carry out
the purposes of this Agreement. Notwithstanding the foregoing, the obligations
set out in this Section 10.1 shall not apply to any Confidential Information
that the recipient can establish by documentary evidence: (a) was known to the
recipient through a means not in breach of this Agreement at the time it was
disclosed to the recipient; (b) was in the public domain at the time it was
disclosed to the recipient; or (c) had entered into the public domain subsequent
to disclosure to the recipient through no unlawful act of the recipient or
breach of the recipient's obligations under this Agreement. Contractor and Jafra
each acknowledge that the Confidential Information of the other constitutes
unique and valuable assets of the other, and that any disclosure or use thereof
except as specifically authorized herein would be wrongful and would cause the
non-disclosing party irreparable harm, and that it would be difficult to
compensate the non-disclosing party fully with damages for a violation of this
Section 10.1. Accordingly, each of Contractor and Jafra agrees that the other
shall be entitled to temporary and permanent injunctive relief to enforce this
Section 10.1; this provision shall not however be deemed to diminish or supplant
the right of Contractor or Jafra to claim and recover money damages for any
breach hereof in addition to obtaining equitable relief therefor.
10.2 Trademarks and Trade Names.
--------------------------
(a) Each party hereby acknowledges that it does not have, and shall
not acquire by entering into this Agreement or performing any action hereunder,
any license or other interest in any of the other party's trademarks or trade
names unless otherwise expressly agreed in writing.
14
<PAGE>
(b) Each party agrees not to use any trade names or trademarks of the
other party, except as specifically authorized by the other party in writing
both as to the names or marks which may be used and as to the manner and
prominence of use.
10.3 Independent Contractor Relationship. The relationship of Contractor
-----------------------------------
and Jafra shall be that of independent contractors and in no event shall either
party, its employees, agents or representatives be considered agents,
representatives or employees of the other. Jafra will have no contractual
relationship with any of Contractor's employees or contractors. Contractor shall
indemnify and defend Jafra for any claims asserted against Jafra by any
employee, contractor or subcontractor of Contractor for any claim arising from
Jafra's relationship with Contractor.
ARTICLE 11 - TERM AND TERMINATION
11.1 Term. Unless otherwise provided, this Agreement shall remain in full
----
force and effect for a period commencing June 10, 1999 and ending on ***.
Thereafter, this Agreement shall automatically renew for successive *** terms
unless *** months, prior written notice of either party's intention not to renew
is provided.
11.2 Termination by Either Party for Breach. Either party may terminate
--------------------------------------
this Agreement due to a failure by the other party to comply with their
obligations herein, which failure is not cured within 30 days after receiving
written notice thereof; provided that this Section 11.2 shall not limit Jafra's
rights to terminate this Agreement pursuant to Section 11.3 hereof.
11.3 Termination by Jafra. Jafra has the right to terminate this Agreement
--------------------
without notice or further liability if any of the following occur:
(a) Contractor's current owners cease to own at least ***% of
Contractor;
(b) Contractor fails to deliver at least ***% of Jafra's weekly
requirement as set forth in the weekly production schedule delivered pursuant to
Section 5.3 hereof for *** consecutive weeks, or *** weeks within a single
rolling *** week period;
(c) Contractor fails to adhere to the requirements of Paragraphs 2.4
and 4.5 hereof, or in the event, ***, conditions at the Facilities are
unsatisfactory or Contractor's actions generate adverse or unfavorable
publicity;
(d) Contractor fails to deliver a finished goods quality level of at
least ***% lot acceptance rate; or
(e) Contractor violates any provision of Sections 9.6, 10.1 or 10.2
hereof, including, without limitation, using Jafra's formulas, Specifications,
Products or any samples thereof for any purpose other than as expressly
contemplated by this Agreement, ***; or
15
<PAGE>
(f) ***.
(g) (i) Contractor shall (A) apply for or consent to the appointment
of a receiver, trustee or liquidator for itself or all or a substantial part of
its property, (B) admit in writing its inability to pay its debts as they
mature, (C) make a general assignment for the benefit of creditors, (D) be
adjudicated a bankrupt or insolvent, (E) file a voluntary petition in bankruptcy
or petition or answer seeking a reorganization or an arrangement with its
creditors, (F) take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute or file an
answer admitting the material allegations of a petition filed against it in any
proceeding under any such law or (G) ***; or (ii) an order, judgment or decree
shall be entered, without the application, approval or consent of Contractor, by
any court of competent jurisdiction, approving a petition seeking reorganization
of Contractor or all or a substantial part of the assets of the Company, or
appointing a receiver, trustee or liquidator of Contractor, and such order,
judgment or decree shall continue unstayed and in effect for any period of 60
days.
11.4 Cooperation.
-----------
(a) Upon termination of this Agreement for any reason, Contractor
shall assemble and make available to Jafra for pickup, as soon as practicable,
but in no event later than *** from the time of such termination, all books,
records, data, programs, files and other documents and materials (and all copies
or extracts thereof) (collectively "Materials") provided by Jafra to Contractor
or developed or derived therefrom by Contractor in connection with the
transactions contemplated by or Services rendered pursuant to this Agreement and
all equipment and other assets owned by Jafra and located at the Facilities,
except: (i) for Materials that Contractor is required to keep by law, in which
case Contractor will provide copies thereof to Jafra, and (ii) in the case of a
dispute between Contractor and Jafra, in which case Contractor will provide
copies of all such Materials to Jafra, and shall not be required to return the
originals to Jafra until the dispute is resolved. Contractor shall use its best
efforts to assist Jafra in moving all such Materials to Jafra's headquarters or
to another location specified by Jafra (which may be another manufacturer) at
Jafra's expense.
(b) In addition, Contractor shall sell to Jafra and Jafra shall
purchase, ***.
(c) Furthermore, ***, Contractor shall sell back to Jafra and Jafra
shall purchase, all Assets (as defined in the Asset Purchase Agreement)
purchased by Contractor from Jafra pursuant to the Asset Purchase Agreement (and
not previously sold with Jafra's permission) at the price *** shall be
responsible for all sales, use and transfer taxes in connection with such
repurchase by ***. *** and the balance shall be paid ***. Contractor shall use
its best efforts to ensure that all such materials, inventory, bulk and
components, equipment and assets are delivered to Jafra *** from the date of
such termination. In addition, Contractor shall return the tube decorating
machine to Jafra in accordance with Section 2.11 hereof. The undertakings
contained in this Article XI shall survive the early termination of this
Agreement.
16
<PAGE>
ARTICLE 12 - INDEMNIFICATION
12.1 By Contractor. Contractor agrees to defend and indemnify Jafra, its
-------------
officers, directors, agents, employees, affiliates, successors and assigns
against any and all claims, suits, actions, expenses or losses, including
reasonable attorney's fees, caused by, related to or arising from the negligence
or willful misconduct of Contractor, its officers, employees, contractors and
agents in the manufacture, packaging or shipping of the Products, the failure of
the Products to conform to the Specifications, the infringement of any patent,
trademark, copyright, trade name, license or other property rights relating to
or arising from Contractor's patents, trademarks, copyrights or trade secrets or
the use of Jafra's patents, trademarks, copyrights or trade secrets other than
in accordance with this Agreement, or any breach by Contractor of its
obligations hereunder.
12.2 By Jafra. Jafra agrees to defend and indemnify Contractor, its
--------
officers, directors, agents, employees, affiliates, successors and assigns
against any and all claims, suits, actions, expenses or losses, including
reasonable attorneys' fees, caused by, related to or arising from the negligence
or willful misconduct of Jafra, its officers, employees, contractors and agents,
Jafra's breach of its obligations hereunder or any infringement of any
trademark, copyright, patent, license or other proprietary right of a third
party arising out of Contractor's use of Jafra's patents, trademarks, copyrights
or trade secrets in accordance with this Agreement.
12.3 Notification. When either party seeks indemnity hereunder, it agrees
------------
to promptly notify the other in writing and to cooperate fully in the defense of
the claim. The indemnification provision shall survive any termination of this
Agreement.
ARTICLE 13 - MISCELLANEOUS
13.1 Notices. All notices, demands or other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given on the date of
delivery, if delivered in person, and on the date of receipt, if sent by
facsimile transmission (with telephonic and mail confirmation) or by recognized
overnight carrier service (e.g., Federal Express or United Parcel Service), and
three (3) business days after mailing by United States mail, certified or
registered with return receipt requested, addressed to the parties at their
addresses set forth below:
If to Jafra, to:
Jafra Cosmetics International, Inc.
2451 Townsgate Road
Westlake Village, California 91361
Attn: Vice President, Manufacturing
Fax: 805-449-3259
17
<PAGE>
With a copy to:
Office of the General Counsel
Fax: 805-449-3256
If to Contractor, to:
Universal Packaging Systems, Inc.
4575 Danito Court
Chino, California 91710
Attn: Julio Liberal
Fax: 909-590-5869
With a copy to:
Ronald J. Grant, Esq.
Tilles, Webb, Kulla & Grant, ALC
433 North Camden Drive, Suite 1010
Beverly Hills, California 90210
Fax: (310) 888-3433
Any party may change its address for notices by giving notice of such change in
accordance with the foregoing procedures. Any notice not sent in accordance with
the foregoing, shall be deemed given on the date of actual receipt.
13.2 Expenses. Each party is responsible for its own expenses hereunder. No
--------
party may impose any costs or expenses on the other party other than those
explicitly set forth in this Agreement.
13.3 Survival. The provisions of Sections 9.2, 9.3, 9.6, 10.1 and 10.2,
--------
10.3, 11.4, 12.1, 12.2,12.3, 13.1 and 13.7 shall survive the termination of this
Agreement in perpetuity.
13.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together constitute one instrument.
13.5 Waiver. The waiver by either party of any provision, nonperformance
------
or any breach of any provision of this Agreement will not constitute a waiver of
any subsequent nonperformance or other breach of the same or any other
provision.
13.6 Assignment. Contractor shall not assign any of its rights or
----------
obligations under this Agreement without the prior written consent of Jafra.
13.7 Arbitration. The parties shall submit any dispute arising out of this
-----------
Agreement, including the interpretation of or the enforcement of rights and
duties under this Agreement, to final and binding arbitration pursuant to the
Commercial Arbitration Rules of the American
18
<PAGE>
Arbitration Association in Los Angeles, California. At the request of any party,
the arbitrators, attorneys, parties to the arbitration, witnesses, experts,
court reporters, or other persons present at the arbitration shall agree in
writing to maintain the strict confidentiality of the arbitration proceedings.
Arbitration shall be conducted by a single, neutral arbitrator, or, at the
election of any party, three neutral arbitrators, appointed in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator(s) shall be attorneys in practice for at least ten years, and
experienced in the matter(s) being arbitrated. In any such arbitration,
California Code of Civil Procedure Section 1283.05 (Right to Discovery;
Procedure and Enforcement) shall be applicable. The award of the arbitrator(s)
shall be enforceable according to the applicable provisions of the California
Code of Civil Procedure. The arbitrator(s) shall have the same powers as those
of a judge of the superior court of the State of California, and shall render a
decision as would a judge of a superior court of the State of California.
Notwithstanding the foregoing, either party shall have the right to seek
injunctive relief or other equitable remedies against the other for any
violation or breach by such party of its obligations hereunder pending a
decision by the arbitrator(s). If proper notice of any hearing has been given,
the arbitrator(s) will have full power to proceed to take evidence or to perform
any other acts necessary to arbitrate the matter in the absence of any party who
fails to appear. ***.
13.8 Entire Agreement. This Agreement together with its Exhibits and
----------------
Schedules and the Asset Purchase Agreement contains the entire agreement between
the parties hereto, supersedes all prior agreements, whether written or oral,
express or implied, between the parties and may not be modified, altered,
terminated or discharged in any manner except by an instrument in writing signed
by a duly authorized representative of both parties. Without limiting the
foregoing, no modification or amendment shall be effected by or result from the
receipt, acceptance, signing or acknowledgments, invoices, shipping documents or
other business forms containing terms or conditions in addition to or different
from the terms and conditions set forth herein.
13.9 Severability. If any provision of this Agreement is held to be
------------
ineffective, unenforceable or illegal for any reason, such decision shall not
affect the validity or enforceability of any or all of the remaining portions
hereof.
13.10 Headings. The section headings of this Agreement are for reference
--------
only and shall not be of any force and effect.
13.11 Facsimile. This Agreement may be executed and delivered by facsimile,
---------
which the parties agree shall have the same legal effect as if the parties had
delivered copies bearing original signatures.
13.12 Governing Law. This Agreement will be governed by the internal laws
-------------
of the State of California without giving effect to any principles of conflicts
of laws.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized representative as of
the date first written above.
JAFRA COSMETICS INTERNATIONAL, INC.
By: /s/ Brian Chase
-----------------------------------------
Name: Brian Chase
Title: Vice President, Manufacturing
UNIVERSAL PACKAGING SYSTEMS, INC.
By: /s/ Julio Liberal
------------------------------------
Name: Julio Liberal
Title: President
By: /s/ Mark Tomberlin
------------------------------------
Name: Mark Tomberlin
Title: Chief Financial Officer
20
<PAGE>
ADDENDUM TO THE MANUFACTURING AGREEMENT
DATED JUNE 10, 1999
ARTICLE 3.1. For every month that Jafra takes delivery of less than *** units,
the *** corresponding for that month ($***) will be deferred until the end of
the note, the term of which note shall be extended for one month.
ARTICLE 3.2 ***
JAFRA COSMETICS INTERNATIONAL, INC.
/s/ Brian Chase
- ------------------------------------
Brian Chase
Vice President, Manufacturing
UNIVERSAL PACKAGING SYSTEMS, INC.
/s/ Julio Liberal
- ------------------------------------
Julio Liberal
President
<PAGE>
EXHIBIT 10.4
FORM OF
AMENDMENT NO. 1 TO
MANUFACTURING AGREEMENT
AMENDMENT NO. 1 TO MANUFACTURING AGREEMENT (this "Amendment") dated as
of June __, 1999, by and between Jafra Cosmetics International, Inc. a Delaware
corporation ("Jafra") and Universal Packaging Systems, Inc., a California
corporation ("Contractor").
W I T N E S S E T H
WHEREAS, Jafra and Contractor are parties to a Manufacturing
Agreement, dated as of June10, 1999, by and between Jafra and Contractor (the
"Manufacturing Agreement");
WHEREAS, the parties desire to amend the Manufacturing Agreement to
provide for certain post-closing matters as set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the parties
hereto agree to amend the Manufacturing Agreement as follows:
ARTICLE I
AMENDMENTS
1.1 Paragraph 2.11 of the Manufacturing Agreement is hereby deleted in its
entirety, and the following substituted in lieu thereof:
2.11 Decoration.
----------
(a) Tube Decoration
---------------
(i) Jafra hereby agrees to lease its "tube decorating
machine" and the related change parts to Contractor at a cost of
$*** per year for the duration of this Agreement. Such lease
shall automatically terminate without further action on the part
of any person or entity upon the termination of this Agreement by
either party for any reason.
(ii) Contractor shall decorate those tubes as required by
Jafra using the tube decorating machine leased pursuant to
Section 2.11(a) above. Contractor will charge Jafra a decorating
fee equal to $*** per unit with a loss allowance of
<PAGE>
up to ***% of the tubes decorated. At the termination of this
Agreement, Contractor shall return the tube decorating machine to
Jafra (or another entity designated by Jafra) at Jafra's expense.
(b) Jar Decoration
---------------
(i) Jafra hereby agrees to lease one "jar decorating machine" and per
machine, the related change parts to Contractor at a cost of $*** per year,
per machine, for the duration of this Agreement. Such lease shall
automatically terminate without further action on the part of any person or
entity upon the termination of this Agreement by either party for any
reason.
(ii) Contractor shall decorate those jars as required by
Jafra using the jar decorating machine leased pursuant to Section
2.11(b) above. Contractor will charge Jafra a decorating fee
equal to $*** per unit with a loss allowance of up to ***% of the
jars decorated. At the termination of this Agreement, Contractor
shall return the jar decorating machine to Jafra (or another
entity designated by Jafra) at Jafra's expense.
(c) Bottle Decoration
------------------
(i) Jafra hereby agrees to lease two "bottle decorating
machines" and the related change parts to Contractor at a cost of
$*** per year, per machine, for the duration of this Agreement. Such lease
shall automatically terminate without further action on the part of any
person or entity upon the termination of this Agreement by either party for
any reason.
(ii) Contractor shall decorate those bottles as required by
Jafra using the bottle decorating machine leased pursuant to
Section 2.11(c) above. Contractor will charge Jafra a decorating
fee equal to $*** per unit with a loss allowance of up to ***% of
the bottles decorated. At the termination of this Agreement,
Contractor shall return the bottle decorating machine to Jafra
(or another entity designated by Jafra) at Jafra's expense.
1.2 The second to last sentence of Paragraph 11.4(c) of the Manufacturing
Agreement is hereby deleted in its entirety, and the following sentence
substituted in lieu thereof:
In addition, Contractor shall return the tube, jar and bottle decorating
machines to Jafra in accordance with Section 2.11 hereof.
ARTICLE II
MISCELLANEOUS
<PAGE>
2.1 Notices. All notices, demands or other communications hereunder shall
be in writing and shall be deemed to have been duly given on the date of
delivery, if delivered in person, and on the date of receipt, if sent by
facsimile transmission (with telephonic and mail confirmation) or by recognized
overnight carrier service (e.g., Federal Express or United Parcel Service), and
three (3) business days after mailing by United States mail, certified or
registered with return receipt requested, addressed to the parties at their
addresses set forth below:
If to Jafra, to:
Jafra Cosmetics International, Inc.
2451 Townsgate Road
Westlake Village, California 91361
Attn: Vice President, Manufacturing
Fax: 805-449-3259
With a copy to:
Office of the General Counsel
Fax: 805-449-3256
If to Contractor, to:
Universal Packaging Systems, Inc.
4575 Danito Court
Chino, California 91710
Attn: Julio Liberal
Fax: 909-590-5869
With a copy to:
Ronald J. Grant, Esq.
Tilles, Webb, Kulla & Grant, ALC
433 North Camden Drive, Suite 1010
Beverly Hills, California 90210
Fax: 310-888-3433
Any party may change its address for notices by giving notice of such change in
accordance with the foregoing procedures. Any notice not sent in accordance
with the foregoing, shall be deemed given on the date of actual receipt.
2.2 Expenses. Each party is responsible for its own expenses hereunder.
--------
No party may impose any costs or expenses on the other party other than those
explicitly set forth in this Agreement.
<PAGE>
2.3 Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together constitute one instrument.
2.4 Waiver. The waiver by either party of any provision, nonperformance or
------
any breach of any provision of this Amendment will not constitute a waiver of
any subsequent nonperformance or other breach of the same or any other
provision.
2.5 Severability. If any provision of this Amendment is held to be
------------
ineffective, unenforceable or illegal for any reason, such decision shall not
affect the validity or enforceability of any or all of the remaining portions
hereof.
2.6 Headings. The section headings of this Amendment are for reference
--------
only and shall not be of any force and effect.
2.7 Facsimile. This Amendment may be executed and delivered by facsimile,
---------
which the parties agree shall have the same legal effect as if the parties had
delivered copies bearing original signatures.
<PAGE>
2.8 Governing Law. This Amendment will be governed by the internal laws
-------------
of the State of California without giving effect to any principles of conflicts
of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be signed on its behalf by its duly authorized representative as of
the date first written above.
JAFRA COSMETICS INTERNATIONAL, INC.
By:
--------------------------------------
Name: Brian Chase
Title: Vice President of Manufacturing
By:_______________________________________
Name:
Title:
UNIVERSAL PACKAGING SYSTEMS, INC.
By:
-------------------------------
Name: Julio Liberal
Title: President
By:
-------------------------------
Name: Mark Tomberlin
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.5
FORM OF
UNIVERSAL PACKAGING SYSTEMS, INC.
SECURED NOTE
$__________ June 10, 1999
Section 1. General.
-------
a. UNIVERSAL PACKAGING SYSTEMS, INC., a California corporation
the "Company"), for value received, hereby promises to pay Jafra Cosmetics
-------
International, Inc., a Delaware corporation (the "Holder") (or such person's
------
permitted transferees), the aggregate principal amount of______Dollars
($________) (the "Principal Amount") plus interest as set forth below.
----------------
Capitalized terms used herein and not otherwise defined shall have the meanings
given to such terms in the Asset Purchase Agreement dated as of June 10, 1999
between the Holder and the Company (the "Asset Purchase Agreement").
------------------------
b. This Note (this "Note") shall accrue interest at a rate per
annum of eight percent (8%) with respect to the unpaid Principal Amount plus any
accrued but unpaid interest thereon (the "Interest"). Interest shall be paid,
--------
together with principal, in 36 equal monthly installments of $_____ commencing
on January 1, 2000, in such coin or currency of the United States of America as
at the time of payment shall be legal tender therein for the payment of public
and private debts. The Company agrees to pay additional interest at the rate
of____% per annum on any overdue principal ten days after due date and (to the
full extent permitted by applicable law) on any overdue Interest from the due
date thereof until the obligation of the Company with respect to the payment
thereof shall be discharged. Interest shall be calculated on the basis of a 365
(or 366, as applicable)-day year and the actual number of days elapsed.
Section 2. Prepayments. Company may, at its sole discretion, at any
-----------
time prepay this Note, without penalty or premium, in whole or in part, together
with all accrued and unpaid interest on the principal amount so prepaid to the
date of such prepayment.
Section 3. Grant of Security Interest. As collateral security for the
--------------------------
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations (defined below), the
Company hereby grants to the Holder a security interest in all of the Assets
(collectively "Collateral"), and all products and proceeds of the foregoing
----------
Collateral. For the purposes of this Note, the term "proceeds" includes
whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged or otherwise disposed of, whether such disposition is
voluntary or involuntary, and includes, without limitation, all rights to
payment, including return premiums, with respect to any insurance relating
thereto. For the purpose of this Note, "Obligations" means the collective
reference to all obligations and liabilities of the Company in respect of the
unpaid Principal Amount of, and Interest on (including, without limitation,
interest accruing after the maturity of this Note and
<PAGE>
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Company, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), this Note.
Section 4. Power of Attorney. Only after the occurrence of and during
-----------------
the continuation of an Event of Default, the Company shall irrevocably appoint
the Holder as the Company's attorney-in-fact to exercise such rights and powers
as the Company might exercise with respect to the Collateral, including, without
limitation, the right to (a) collect by legal proceedings or otherwise and
endorse, receive and receipt for all dividends, interest, payments, proceeds and
other sums and property now or hereafter payable on or on account of the
Collateral; (b) enter into any extension, reorganization, deposit, merger,
consolidation or other agreement pertaining to, or deposit, surrender, accept,
hold or apply other property in exchange for the Collateral; (c) insure, process
and preserve the Collateral; (d) transfer the Collateral to its own or its
nominee's name; and (e) make any compromise or settlement, and take any action
it deems advisable, with respect to the Collateral. The Company agrees to
reimburse the Holder upon demand for any costs and expenses, including, without
limitation, attorneys' fees, the Holder may incur while acting as the Company's
attorney-in-fact hereunder, all of which costs and expenses are included in the
Obligations secured hereby.
Section 5. Further Documents. The Company agrees to execute and
-----------------
deliver or to cause to be executed and delivered to the Holder from time to time
such UCC-1 financing statements as the Holder may request, and such confirmatory
or supplementary security agreements, financing statements and other documents,
instruments or agreements as the Holder may reasonably request, which are in the
Holder's judgment necessary or desirable to obtain for the Holder the benefit of
the this Note and the Collateral.
Section 6. Covenants.
---------
For as long as any amounts are owing to the Holder under this Note:
a. The Company shall maintain the assets to be sold to the
Company pursuant to the Asset Purchase Agreement (the "Assets") and not sold by
------
the Company with the permission of Jafra, in good working order and condition,
reasonable wear and tear excepted;
b. The Company shall use the Assets for the manufacture,
packaging and sale of only the Holder's products, and not for or in connection
with the manufacture, packaging or sale of products of any other person or
entity or for any other purpose; if it should interfere with Holder's
requirements.
c. The Company shall promptly give notice to the Holder of: (i)
the occurrence of any Event of Default (defined below) under Section 9 hereof;
(ii) any default or event of default under any contractual obligation of the
Company or any litigation, investigation or proceeding between the Company any
other party which, in either case, if not cured or adversely determined would
have a material adverse effect on the business, operations, property
2
<PAGE>
or condition (financial or otherwise) of the Company or the enforceability of
this Note (a "Material Adverse Effect"); or (iii) the occurrence of any event
-----------------------
having a Material Adverse Effect;
d. The Company shall keep and maintain at its own cost and
expense reasonably satisfactory and complete records of the Collateral,
including, without limitation, records of all payments received and all credits
granted with respect to the Collateral, and shall mark such records to evidence
this Note and the liens and the security interests created hereby. For the
Holder's further security, the Holder shall have a security interest in all of
the Company's books and records pertaining to the Collateral;
e. The Company shall, upon reasonable written advance notice to
the Company and at reasonable intervals, or at any time and from time to time
after the occurrence and during the continuation of an Event of Default (as
defined below), give the Holder reasonable access during normal business hours
to all the books, correspondence and records of the Company relating to the
Assets, and the Holder and its representatives may examine the same, and to the
extent reasonable take extracts therefrom and make photocopies thereof. The
Company agrees to render to the Holder, at the Company's reasonable cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto. The Holder and its representatives shall also have the right,
upon reasonable advance notice to the Company to enter during normal business
hours into and upon any premises where any of the Assets are located for the
purpose of inspecting the same, observing their use or otherwise protecting the
Holder's interests therein.
f. The Company shall not create, incur, assume or suffer to
exist any lien upon any of the Assets (other than the liens of the Holder as
permitted have under and under the Asset Purchase Agreement); and
g. The Company shall not convey, sell, lease, assign, transfer
or otherwise dispose of any of the Assets without the prior written consent of
the Holder, which the Holder may withhold in its sole discretion.
Section 7. Replacement of Note.
-------------------
Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note and, in case of loss, theft
or destruction, of indemnity reasonably satisfactory to it, or, in the case of
mutilation or at the request of the Holder, upon surrender and cancellation of
this Note, and in all cases upon reimbursement to the Company of all reasonable
expenses incidental thereto, the Company will make and deliver a new Note of
like tenor in lieu of this Note. A holder, through the Holder, may also request
that this Note be exchanged for one or more Notes of like tenor in the same
aggregate principal amount as such Note being exchanged and appropriate notation
on any newly issued Note to indicate which holders have an interest therein.
3
<PAGE>
Section 8. Amendments and Waivers.
----------------------
No covenant, agreement or condition contained in this Note may be
amended or waived (either generally or in a particular instance and either
retroactively or prospectively) without the prior written consent of the Holder
(in its sole discretion) and the Company. Any such amendment or waiver shall be
binding upon each of the Holder, each future holder of this Note and the
Company. Upon the request of the Company, the Holder or any holder of this Note
shall submit this Note to the Company so that this Note may be marked to
indicate such amendment or waiver, and any Note issued thereafter shall bear a
similar notation referring to any such amendment or continuing waiver.
Section 9. Events of Default.
-----------------
a. In case of the occurrence of any of the following events (an
"Event of Default"):
----------------
i. default shall be made in the payment of the principal
of or interest on this Note, when and as the same shall become due and
payable, whether at the due date thereof or by acceleration thereof or
otherwise and such default, in the case of interest due, shall continue
unremedied for ten (10) Business Days after written notice from the holder
of this Note to the Company of such default;
ii. the Company shall (A) apply for or consent to the
appointment of a receiver, trustee or liquidator for itself or all or a
substantial part of its property, (B) admit in writing its inability to pay
its debts as they mature, (C) make a general assignment for the benefit of
creditors, (D) be adjudicated a bankrupt or insolvent, (E) file a voluntary
petition in bankruptcy or petition or answer seeking a reorganization or an
arrangement with its creditors, (F) take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute or file an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law or (G) take any corporate definitive action for the purpose of
effecting any of the foregoing;
iii. an order, judgment or decree shall be entered, without
the application, approval or consent of the Company, by any court of
competent jurisdiction, approving a petition seeking reorganization of the
Company or all or a substantial part of the assets of the Company, or
appointing a receiver, trustee or liquidator of the Company, and such
order, judgment or decree shall continue unstayed and in effect for any
period of 60 days;
iv. any material breach by the Company of any material
provision of this Note (other than those described in subpart (i) of this
Section 6(a)), the Asset Purchase Agreement or that certain Manufacturing
Agreement dated as of June 10, 1999 between the Holder and the Company, and
the failure to cure such breach within the
4
<PAGE>
applicable grace period, or if none is specified, within thirty (30) days
after written notice from the Holder to the Company of such default; or
v. the Company shall default in any payment of principal
or interest of any indebtedness or contingent obligation of the Company
beyond the period of grace provided in the instrument or agreement under
which such indebtedness or contingent obligation was created;
then, the Holder may declare this Note to be forthwith due and payable,
whereupon this Note shall become forthwith due and payable, both as to principal
and interest, without presentment, demand, protest, or other notice of any kind,
all of which are hereby expressly waived; provided that in the case of any such
--------
declaration based upon a default in the payment of the principal of this Note,
the Holder shall provide the Company with not less than five (5) Business Days'
prior written notice thereof.
b. In case any one or more of the Events of Default shall have
occurred and be continuing, the holder of this Note may proceed to protect and
enforce its rights either by suit in equity and/or by action at law, whether for
the specific performance of any covenant or agreement contained in this Note or
in aid of the exercise of any power granted in this Note, or proceed to enforce
the payment of this Note or to enforce any other legal or equitable right of a
holder of this Note.
c. No remedy conferred hereunder is intended to be exclusive of
any other remedy and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or hereafter existing at law
or in equity or by statute or otherwise. No course of dealing between the
Company and the holder of this Note or any delay on the part of the holder of
this Note in exercising its rights hereunder shall operate as a waiver of any
rights of such holder.
d. The Company hereby waives notice of protest, dishonor,
intent to accelerate, acceleration and all other notices of any type or
character, demand, presentment for payment, protest, diligence in collecting or
bringing suit and notice, other than required service, with respect to the
filing of suit for the purpose of fixing liability.
Section 10. Extension of Maturity.
---------------------
Should the principal of and interest on this Note become due and
payable on other than a Business Day, the maturity hereof shall be extended to
the next succeeding Business Day, and principal and interest shall be payable
thereon at the rate per annum herein specified during such extension.
5
<PAGE>
Section 11. Successors and Assigns.
----------------------
The provisions of this Note shall be binding upon and inure to the
benefit of the Company and its successors and permitted assigns, and to the
holder and its successors and permitted assigns and their respective heirs,
executors, administrators and duly appointed legal representatives who shall
succeed to the holder's rights and obligations in, to and under this Note.
Section 12. Notices.
-------
All notices, demands or other communications hereunder shall be in
writing and shall be deemed to have been duly given on the date of delivery, if
delivered in person, and on the date of receipt, if sent by facsimile
transmission (with telephonic and mail confirmation) or by recognized overnight
carrier service (e.g., Federal Express or United Parcel Service), and three (3)
business days after mailing by United States mail, certified or registered with
return receipt requested, postage prepaid, addressed to the parties at their
addresses set forth below:
(i) if to Holder to:
Jafra Cosmetics International, Inc.
2451 Townsgate Road
Westlake Village, CA 91361
Attn: Vice President, Manufacturing
Fax: 805-449-3259
with a copy to:
Office of the General Counsel
Fax: 805-449-3256
(ii) if to the Company:
Universal Packaging Systems, Inc.
4575 Danito Court
Chino, CA 91710
Attn: Julio Liberal
Fax: 909-590-5869
with a copy to:
Ronald J. Grant, Esq.
Tilles, Webb, Kulla & Grant, ALC
433 North Camden Drive, Suite 1010
Beverly Hills, California 90210
6
<PAGE>
Fax: 310-888-3433
Either party may change its address from time to time for purposes of
notice or other communication hereunder by giving notice to the other party in
accordance with this section.
Section 13. Governing Law.
-------------
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT
OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF CALIFORNIA OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF CALIFORNIA.
Section 14. Interest Deficit.
----------------
If the provisions of this Note would at any time require payment by
the Company to the holder of any amount of interest in excess of the maximum
amount then permitted by applicable law, the interest payments to the holder
shall be reduced but only to the extent necessary so that such holder shall not
receive interest in excess of such maximum amount. If, as a result of the
foregoing, a holder shall receive interest payments under the Note in an amount
less than the amount otherwise provided hereunder, such deficit (hereinafter
called the "Interest Deficit") will, to the fullest extent permitted by
----------------
applicable law, cumulate and will be carried forward (without interest) until
the payment in full of this Note or such earlier time as it may be paid.
Interest otherwise payable to the holder under the Note for any subsequent
period shall be increased by the maximum amount of the Interest Deficit that may
be so added without causing such holder to receive interest in excess of the
maximum amount then permitted by the law applicable thereto.
7
<PAGE>
IN WITNESS WHEREOF, the Company has duly executed and delivered this
Note as of the date first written above.
UNIVERSAL PACKAGING SYSTEMS, INC.
By:______________________
Name:
Title:
By:______________________
Name:
Title:
8
<PAGE>
EXHIBIT 10.6
FORM OF
UNIVERSAL PACKAGING SYSTEMS, INC.
SECURED NOTE
$___________ June 10, 1999
Section 1. General. UNIVERSAL PACKAGING SYSTEMS, INC., a California
-------
corporation (the "Company"), for value received, hereby promises to pay Jafra
-------
Cosmetics International, Inc., a Delaware corporation (the "Holder") (or such
------
person's permitted transferees), the aggregate principal amount of _______ (the
"Principal Amount"). Principal shall be paid in 12 equal monthly installments
----------------
of $______ commencing on October 1, 1999, in such coin or currency of the United
States of America as at the time of payment shall be legal tender therein for
the payment of public and private debts. The Company agrees to pay additional
interest at the rate of _____% per annum on any overdue principal ten days after
due date. Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Asset Purchase Agreement dated as of June
10, 1999 between the Holder and the Company (the "Asset Purchase Agreement").
------------------------
Section 2. Prepayments. Company may, at its sole discretion, at any time
-----------
prepay this Note, without penalty or premium, in whole or in part, together with
all accrued and unpaid interest on the principal amount so prepaid to the date
of such prepayment.
Section 3. Grant of Security Interest. As collateral security for the
--------------------------
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations (defined below), the
Company hereby grants to the Holder a security interest in all of the Inventory
(defined below) (collectively "Collateral"), and all products and proceeds of
----------
the foregoing Collateral. For the purposes of this Note, the term "proceeds"
includes whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged or otherwise disposed of, whether such disposition is
voluntary or involuntary, and includes, without limitation, all rights to
payment, including return premiums, with respect to any insurance relating
thereto. For the purpose of this Note, "Obligations" means the collective
reference to all obligations and liabilities of the Company in respect of the
unpaid Principal Amount of (including, without limitation, interest accruing
after the maturity of this Note and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Company, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding), this Note.
Section 4. Power of Attorney. Only after the occurrence of and during the
-----------------
continuation of an Event of Default, the Company shall irrevocably appoint the
Holder as the Company's attorney-in-fact to exercise such rights and powers as
the Company might exercise with respect to the Collateral, including, without
limitation, the right to (a) collect by legal
1
<PAGE>
proceedings or otherwise and endorse, receive and receipt for all dividends,
interest, payments, proceeds and other sums and property now or hereafter
payable on or on account of the Collateral; (b) enter into any extension,
reorganization, deposit, merger, consolidation or other agreement pertaining to,
or deposit, surrender, accept, hold or apply other property in exchange for the
Collateral; (c) insure, process and preserve the Collateral; (d) transfer the
Collateral to its own or its nominee's name; and (e) make any compromise or
settlement, and take any action it deems advisable, with respect to the
Collateral. The Company agrees to reimburse the Holder upon demand for any costs
and expenses, including, without limitation, attorneys' fees, the Holder may
incur while acting as the Company's attorney-in-fact hereunder, all of which
costs and expenses are included in the Obligations secured hereby.
Section 5. Further Documents. The Company agrees to execute and deliver or
-----------------
to cause to be executed and delivered to the Holder from time to time such UCC-1
financing statements as the Holder may request, and such confirmatory or
supplementary security agreements, financing statements and other documents,
instruments or agreements as the Holder may reasonably request, which are in the
Holder's judgment necessary or desirable to obtain for the Holder the benefit of
the this Note and the Collateral.
Section 6. Covenants.
---------
For as long as any amounts are owing to the Holder under this Note:
a. The Company shall maintain the inventory to be sold to the
Company pursuant to the Asset Purchase Agreement (the "Inventory") in good and
---------
usable condition;
b. The Company shall use the Inventory for the manufacture,
packaging and sale of only the Holder's products, and not for or in connection
with the manufacture, packaging or sale of products of any other person or
entity or for any other purpose;
c. The Company shall promptly give notice to the Holder of: (i)
the occurrence of any Event of Default (defined below) under Section 9 hereof;
(ii) any default or event of default under any contractual obligation of the
Company or any litigation, investigation or proceeding between the Company any
other party which, in either case, if not cured or adversely determined would
have a material adverse effect on the business, operations, property or
condition (financial or otherwise) of the Company or the enforceability of this
Note (a "Material Adverse Effect"); or (iii) the occurrence of any event having
------------------------
a Material Adverse Effect;
d. The Company shall keep and maintain at its own cost and expense
reasonably satisfactory and complete records of the Collateral, including,
without limitation, records of all payments received and all credits granted
with respect to the Collateral, and shall mark such records to evidence this
Note and the liens and the security interests created hereby. For the Holder's
further security, the Holder shall have a security interest in all of the
Company's books and records pertaining to the Collateral;
2
<PAGE>
e. The Company shall, upon reasonable written advance notice to
the Company and at reasonable intervals, or at any time and from time to time
after the occurrence and during the continuation of an Event of Default (as
defined below), give the Holder reasonable access during normal business hours
to all the books, correspondence and records of the Company relating to the
Inventory, and the Holder and its representatives may examine the same, and to
the extent reasonable take extracts therefrom and make photocopies thereof. The
Company agrees to render to the Holder, at the Company's reasonable cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto. The Holder and its representatives shall also have the right,
upon reasonable advance notice to the Company to enter during normal business
hours into and upon any premises where any of the Inventory is located for the
purpose of inspecting the same, observing its use or otherwise protecting the
Holder's interests therein.
f. The Company shall not create, incur, assume or suffer to exist
any lien upon any of the Inventory (other than the liens of the Holder as
permitted have under and under the Asset Purchase Agreement); and
g. The Company shall not convey, sell, lease, assign, transfer or
otherwise dispose of any of the Inventory (other than using such Inventory for
the manufacture, packaging and sale of the Holder's products) without the prior
written consent of the Holder, which the Holder may withhold in its sole
discretion.
Section 7. Replacement of Note.
-------------------
Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note and, in case of loss, theft
or destruction, of indemnity reasonably satisfactory to it, or, in the case of
mutilation or at the request of the Holder, upon surrender and cancellation of
this Note, and in all cases upon reimbursement to the Company of all reasonable
expenses incidental thereto, the Company will make and deliver a new Note of
like tenor in lieu of this Note. A holder, through the Holder, may also request
that this Note be exchanged for one or more Notes of like tenor in the same
aggregate principal amount as such Note being exchanged and appropriate notation
on any newly issued Note to indicate which holders have an interest therein.
Section 8. Amendments and Waivers.
----------------------
No covenant, agreement or condition contained in this Note may be
amended or waived (either generally or in a particular instance and either
retroactively or prospectively) without the prior written consent of the Holder
(in its sole discretion) and the Company. Any such amendment or waiver shall be
binding upon each of the Holder, each future holder of this Note and the
Company. Upon the request of the Company, the Holder or any holder of this Note
shall submit this Note to the Company so that this Note may be marked to
indicate such amendment or waiver, and any Note issued thereafter shall bear a
similar notation referring to any such amendment or continuing waiver.
3
<PAGE>
Section 9. Events of Default.
-----------------
a. In case of the occurrence of any of the following events (an
"Event of Default"):
----------------
i. default shall be made in the payment of the principal of
or interest on this Note, when and as the same shall become due and
payable, whether at the due date thereof or by acceleration thereof or
otherwise and such default, in the case of interest due, shall continue
unremedied for ten (10) Business Days after written notice from the holder
of this Note to the Company of such default; (For the purpose of this Note,
"Business Day" shall mean a day other than a Saturday, Sunday or other day
on which commercial banks in the State of California are authorized or
required by law to be closed. )
ii. the Company shall (A) apply for or consent to the
appointment of a receiver, trustee or liquidator for itself or all or a
substantial part of its property, (B) admit in writing its inability to pay
its debts as they mature, (C) make a general assignment for the benefit of
creditors, (D) be adjudicated a bankrupt or insolvent, (E) file a voluntary
petition in bankruptcy or petition or answer seeking a reorganization or an
arrangement with its creditors, (F) take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute or file an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law or (G) take any corporate definitive action for the purpose of
effecting any of the foregoing;
iii. an order, judgment or decree shall be entered, without the
application, approval or consent of the Company, by any court of competent
jurisdiction, approving a petition seeking reorganization of the Company or
all or a substantial part of the assets of the Company, or appointing a
receiver, trustee or liquidator of the Company, and such order, judgment or
decree shall continue unstayed and in effect for any period of 60 days;
iv. any material breach by the Company of any material
provision of this Note (other than those described in subpart (i) of this
Section 9(a)), the Asset Purchase Agreement or that certain Manufacturing
Agreement dated as of June 10, 1999 between the Holder and the Company, and
the failure to cure such breach within the applicable grace period, or if
none is specified, within thirty (30) days after written notice from the
Holder to the Company of such default; or
v. the Company shall default in any payment of principal or
interest of any indebtedness or contingent obligation of the Company beyond
the period of grace provided in the instrument or agreement under which
such indebtedness or contingent obligation was created;
4
<PAGE>
then, the Holder may declare this Note to be forthwith due and payable,
whereupon this Note shall become forthwith due and payable, both as to principal
and interest, without presentment, demand, protest, or other notice of any kind,
all of which are hereby expressly waived; provided that in the case of any such
--------
declaration based upon a default in the payment of the principal of this Note,
the Holder shall provide the Company with not less than five (5) Business Days'
prior written notice thereof.
b. In case any one or more of the Events of Default shall have
occurred and be continuing, the holder of this Note may proceed to protect and
enforce its rights either by suit in equity and/or by action at law, whether for
the specific performance of any covenant or agreement contained in this Note or
in aid of the exercise of any power granted in this Note, or proceed to enforce
the payment of this Note or to enforce any other legal or equitable right of a
holder of this Note.
c. No remedy conferred hereunder is intended to be exclusive of
any other remedy and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or hereafter existing at law
or in equity or by statute or otherwise. No course of dealing between the
Company and the holder of this Note or any delay on the part of the holder of
this Note in exercising its rights hereunder shall operate as a waiver of any
rights of such holder.
d. The Company hereby waives notice of protest, dishonor, intent
to accelerate, acceleration and all other notices of any type or character,
demand, presentment for payment, protest, diligence in collecting or bringing
suit and notice, other than required service, with respect to the filing of suit
for the purpose of fixing liability.
Section 10. Extension of Maturity.
---------------------
Should the principal of and interest on this Note become due and
payable on other than a Business Day, the maturity hereof shall be extended to
the next succeeding Business Day, and principal and interest shall be payable
thereon at the rate per annum herein specified during such extension.
Section 11. Successors and Assigns.
----------------------
The provisions of this Note shall be binding upon and inure to the
benefit of the Company and its successors and permitted assigns, and to the
holder and its successors and permitted assigns and their respective heirs,
executors, administrators and duly appointed legal representatives who shall
succeed to the holder's rights and obligations in, to and under this Note.
5
<PAGE>
Section 12. Notices.
-------
All notices, demands or other communications hereunder shall be in
writing and shall be deemed to have been duly given on the date of delivery, if
delivered in person, and on the date of receipt, if sent by facsimile
transmission (with telephonic and mail confirmation) or by recognized overnight
carrier service (e.g., Federal Express or United Parcel Service), and three (3)
business days after mailing by United States mail, certified or registered with
return receipt requested, addressed to the parties at their addresses set forth
below:
(i) if to Holder to:
Jafra Cosmetics International, Inc.
2451 Townsgate Road
Westlake Village, CA 91361
Attn: Vice President, Manufacturing
Fax: 805-449-3259
with a copy to:
Office of the General Counsel
Fax: 805-449-3256
(ii) if to the Company:
Universal Packaging Systems, Inc.
4575 Danito Court
Chino, CA 91710
Attn: Julio Liberal
Fax: 909-590-5869
with a copy to:
Ronald J. Grant, Esq.
Tilles, Webb, Kulla & Grant, ALC
433 North Camden Drive, Suite 1010
Beverly Hills, California 90210
Fax: 310-888-3433
Either party may change its address from time to time for purposes of
notice or other communication hereunder by giving notice to the other party in
accordance with this section.
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Section 13. Governing Law.
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THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT
OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF CALIFORNIA OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF CALIFORNIA.
Section 14. Interest Deficit.
----------------
If the provisions of this Note would at any time require payment by
the Company to the holder of any amount of interest in excess of the maximum
amount then permitted by applicable law, the interest payments to the holder
shall be reduced but only to the extent necessary so that such holder shall not
receive interest in excess of such maximum amount. If, as a result of the
foregoing, a holder shall receive interest payments under the Note in an amount
less than the amount otherwise provided hereunder, such deficit (hereinafter
called the "Interest Deficit") will, to the fullest extent permitted by
----------------
applicable law, cumulate and will be carried forward (without interest) until
the payment in full of this Note or such earlier time as it may be paid.
Interest otherwise payable to the holder under the Note for any subsequent
period shall be increased by the maximum amount of the Interest Deficit that may
be so added without causing such holder to receive interest in excess of the
maximum amount then permitted by the law applicable thereto.
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IN WITNESS WHEREOF, the Company has duly executed and delivered this
Note as of the date first written above.
UNIVERSAL PACKAGING SYSTEMS, INC.
By:________________________
Name:
Title:
By:________________________
Name:
Title:
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