-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9d4aDWK7CVHK3lLTXP5q+5+I1ZayqVFk71rT00yeY6+K23JjM7VWi1Y34uCmwOi /HxA7sDwsB215tIJz7UYmA== 0000950148-01-000543.txt : 20010409 0000950148-01-000543.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950148-01-000543 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDRJ INVESTMENTS LUX S A CENTRAL INDEX KEY: 0001068906 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-62989 FILM NUMBER: 1592205 BUSINESS ADDRESS: STREET 1: 10 RUE ANTOINE JAN STREET 2: L1820 LUXEMBOURG CITY: LUXEMBOURG BUSINESS PHONE: 8054493000 MAIL ADDRESS: STREET 1: 10 RUE ANTOINE JAN STREET 2: L1820 LUXEMBOURG CITY: LUXEMBOURG 10-K405 1 v70623e10-k405.txt 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 333-62989 -------------------------------- CDRJ INVESTMENTS (LUX) S.A. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------------------------- LUXEMBOURG 98-0185444 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4 BOULEVARD ROYAL L-2449 LUXEMBOURG LUXEMBOURG (352) 226027 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 10, 2001, the registrant had outstanding 834,767 shares of common stock, par value $2.00 per share. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES TABLE OF CONTENTS
ITEM DESCRIPTION PAGE - ---- ----------- ---- PART I 1. Business.................................................... 1 2. Properties.................................................. 8 3. Legal Proceedings........................................... 8 4. Submission of Matters to a Vote of Security Holders......... 8 PART II Market for Registrant's Common Equity and Related 5. Stockholder Matters....................................... 9 6. Selected Financial Data..................................... 10 Management's Discussion and Analysis of Financial Condition 7. and Results of Operations................................. 12 Quantitative and Qualitative Disclosures About Market 7A. Risk...................................................... 24 8. Financial Statements and Supplementary Data................. 28 Changes in and Disagreements with Accountants on Accounting 9. and Financial Disclosure.................................. 99 PART III Directors, Executive Officers and Significant Employees of 10. the Company............................................... 99 11. Executive Compensation...................................... 102 Security Ownership of Certain Beneficial Owners and 12. Management................................................ 106 13. Certain Relationships and Related Transactions.............. 108 PART IV Exhibits, Financial Statement Schedules and Reports on Form 14. 8-K....................................................... 110 Signatures......................................................... 117
i 3 PART I ITEM 1. BUSINESS GENERAL CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme ("Parent") is a holding company that conducts all of its operations through its subsidiaries. Prior to the consummation of the acquisition (the "Acquisition") by the Parent of the Jafra Business (as defined) from The Gillette Company ("Gillette"), the terms "Company" and "Jafra" refer to the various subsidiaries and divisions of Gillette conducting the worldwide Jafra cosmetics business (the "Jafra Business"), and, following the consummation of the Acquisition, collectively to the Parent and its subsidiaries. Jafra is a manufacturer and marketer of premium skin and body care products, color cosmetics, fragrances, and other personal care products. Jafra markets its products through a direct selling, multilevel distribution system comprised of self-employed consultants (who perform the duties of sales representatives). Jafra's business is comprised of one industry segment, direct selling, with worldwide operations. Financial information relating to geographic areas is incorporated by reference to the analysis of net sales and operating income by geographic area in Note 11 to the financial statements included herein. Jafra was founded in 1956, as a California corporation, by Jan and Frank Day and was purchased by Gillette in 1973. The Company expanded into Latin America in 1977 and into Europe in 1978. On April 30, 1998, the Parent completed the Acquisition of Jafra from Gillette. The Parent was organized to effect the Acquisition. The Acquisition was sponsored by Clayton, Dubilier & Rice Fund V Limited Partnership ("CD&R Fund V"), a Cayman Islands exempted limited partnership managed by Clayton, Dubilier & Rice, Inc. ("CD&R"), a private investment firm specializing in acquisitions that involve management participation. As part of the financing for the Acquisition, CD&R Fund V, certain members of new management, certain new directors and other persons made an equity investment in the Parent of approximately $82.9 million in cash. In addition, $100.0 million of 11 3/4% Senior Subordinated Notes due 2008 ("Notes") were issued and the Company entered into a credit agreement (the "Senior Credit Agreement") with certain lenders. The Senior Credit Agreement provides for senior secured credit facilities, including a $25.0 million term loan facility (the "Term Loan Facility"), all of which was drawn at the closing of the Acquisition, and a $65.0 million revolving credit facility (the "Revolving Credit Facility"). STRATEGY The Company's strategy consists primarily of the following key initiatives: Deploy Senior Management Team with Significant Direct Selling Experience. Jafra's senior management team has an average of over 25 years of direct selling industry experience, including various senior management positions with Jafra competitors Avon Products, Inc. ("Avon") and Mary Kay Corporation ("Mary Kay"). Jafra believes that this management team will continue to provide the dynamic leadership required to attract new consultants and managerial talent, inspire new and existing consultants to greater productivity, and execute the Company's new market development strategy. Grow Consultant Base in Developed Markets. The Company plans to expand its consultant base in developed markets by (i) focusing growth efforts on targeted geographic areas and demographic groups, (ii) ensuring that the commission and compensation structure remain competitive while rewarding those who sponsor new consultants, (iii) providing more training meetings and marketing communications materials for consultant managers, and (iv) initiating enhanced recognition programs to motivate current as well as former or inactive consultants. Increase Consultant Productivity. The Company plans to continue to focus on increasing the productivity, as measured by net sales per active consultant, of its existing consultants by (i) revitalizing and upgrading the Company's product lines, (ii) offering an improved "product selling proposition" that generates excitement by linking Company products to the latest fashion trends and (iii) initiating improved marketing 1 4 activities at the point of sale, by providing consultants with enhanced product training and promotional materials that emphasize the product selling proposition. Develop New and Enhanced Products. The Company plans to continuously introduce new and enhanced products based on technological advances and consumer demand by (i) being on the "cutting edge" in development of skin care formulations by fully availing itself of raw ingredients available from manufacturers worldwide, (ii) being a leader in identification of fashion trends which the Company integrates into its development of new shades of color cosmetics, and (iii) identifying new areas for product line development that utilize the Company's selling system and brand positioning, such as baby products and spa-related products. Expand Internationally. The Company believes that its existing distribution and manufacturing capabilities provide a strong platform for expansion within and into new and developing markets, which will allow it to diversify its revenue base. The Company began distributing products through new subsidiaries formed in the Dominican Republic, Peru, and Thailand in 2000, and in Brazil and Chile in 1999. The Company presently has operations in 15 countries outside the U.S. and in a number of additional countries through distributors, although approximately 85% of the Company's sales in 2000 were in the United States and Mexico. The Company intends to focus its expansion efforts in these new and developing markets by (i) growing the consultant base, (ii) increasing consultant productivity, and (iii) increasing operational efficiency. The Company may target additional international markets in the future, if the Company believes these markets (i) have proven to be receptive to direct selling techniques, (ii) demonstrate promising economic demographics, including population size, growth of gross domestic product and an expanding middle class, and (iii) evidence demand for quality cosmetic products. Utilize the Internet and Electronic Commerce to Augment Sales and Increase Productivity. The Company plans to enhance its use of the Internet as a communications and order fulfillment tool for its consultants. The Company believes that use of the Internet as an order fulfillment tool by consultants will result in better service to both the consultants and their customers at a lower cost to the Company. During the fourth quarter of 2000, U.S. consultant websites were established on the Internet that allow new and existing Jafra customers to submit their orders to U.S. consultants via the Internet, while maintaining the integrity of the consultant lineage structure. As part of the Company's e-commerce strategy, the Company expects that during the second quarter of 2001, U.S. consultants will be able to submit orders and payments to Jafra electronically via the Internet. The Company plans to roll out its e-commerce strategy to other countries starting in late 2001 and continuing through 2002. The Company expects that the availability of Internet access, twenty-four hours a day and seven days a week, will increase the overall satisfaction level of its consultants. Improve Operating Efficiency. The Company plans to continue to improve operating efficiency through cost-cutting, better inventory management, and streamlining of marketing efforts and product lines. In June of 1999, U.S. product manufacturing functions were outsourced to a third party vendor, which has resulted in reduced product costs. In 2000, the Company repositioned its European business in order to generate additional operating efficiencies. In 2001, the Company plans to place greater marketing focus on certain types of "limited life" products (products that are only offered in the Company's catalog for a limited period), which the Company believes will lead to faster inventory turns and a reduced investment in inventories. PRODUCTS Jafra continuously introduces new and revitalized products based on changes in consumer demand and technological advances in order to enhance the quality, image and price positioning of its products. During 2000, the Company launched 26 new products, including 6 that were promotional. Research and development is conducted at the Jafra Skin, Body and Color Laboratory, located in the Westlake Village facility. Amounts incurred on research activities relating to the development of new products and improvement of existing products were $1.9 million in 2000, $2.1 million in 1999, and $3.1 million in 1998. Employees in the Research and Development Department formulate products and analyze them for chemical purity and microbial integrity. A separate pilot plant allows testing via small batch production prior 2 5 to full scale manufacture. Jafra continues to invest in the globalization and upgrading of its product lines by adding new formulations and contemporary fragrances. In addition, during 1999, the Company changed its corporate logo to build better brand awareness and a fresh image and the packaging of the products was updated accordingly. Through globalized product development, manufacturing and packaging, Jafra believes that it has enhanced the consistency and quality of its products in all geographic regions and across all product lines. The following table sets forth the sales of the Company's principal product lines for the three years ended December 31, 2000, 1999, and 1998:
2000 1999 1998 ---------------------------- ---------------------------- ---------------------------- SALES BY PERCENTAGE SALES BY PERCENTAGE SALES BY PERCENTAGE PRODUCT LINE OF TOTAL PRODUCT LINE OF TOTAL PRODUCT LINE OF TOTAL ($ IN MILLIONS) SALES ($ IN MILLIONS) SALES ($ IN MILLIONS) SALES --------------- ---------- --------------- ---------- --------------- ---------- Skin Care................. $ 65.8 21.0% $ 60.9 21.0% $ 58.4 23.5% Color Cosmetics........... 82.4 26.2 81.3 28.0 70.9 28.6 Fragrances................ 103.7 33.0 76.4 26.3 47.3 19.1 Personal Care............. 29.6 9.4 35.6 12.2 46.5 18.7 Other(1).................. 32.6 10.4 36.3 12.5 25.2 10.1 ------ ----- ------ ----- ------ ------ Subtotal before shipping and handling fees.... 314.1 100.0% 290.5 100.0% 248.3 100.0% ===== ===== ====== Shipping and handling fees.................... 10.0 8.7 7.8 ------ ------ ------ Total........... $324.1 $299.2 $256.1 ====== ====== ======
- --------------- (1) Includes sales aids (party hostess gifts, demonstration products, etc.) and promotional materials. Skin Care. Jafra sells personalized skin programs including cleansers, masks, skin fresheners and moisturizers for day and night. In addition to basic skin care products, Jafra offers a range of special care products for special needs, including its premier product, Royal Jelly Milk Balm Moisture Lotion, an Alpha Hydroxy complex (Rediscover) and products for maturing skin (Advanced Time Protector and Time Corrector), eye care (Optimeyes) and extra firming (Skin Firming Complex). All of these special care products use the most recent advances in biotech ingredients. During 2000, the Company completed a worldwide launch of its Skin Care 2000 Line, also known as "TBS", a major upgrade of its basic skin care line, which uses a unique free matrix skin care system that is totally customizable to the individual needs of the customer. Products featured within this launch were the T-Zone Mattifier, a formulation for which a patent is currently pending, and the Elasticity Recovery Firming Hydrogel, a unique product targeted at skin care elasticity. In mid-2001, the Company plans to launch a new product containing retinol in capsule form. Color. Jafra's range of color cosmetics for the face, eyes, lips, cheeks and nails contribute significantly to Company results. The Company develops internally its lipstick formulas, foundations and mascaras. In 1997, Jafra launched its Always Color lipstick line, which competes with products featuring the latest technology in long-wearing, transfer-resistant formulas and has helped to revitalize the color line. Time Protector lipsticks, launched in early 1998, feature contemporary colors with skin care benefits, including sunscreen and antioxidants, as well as moisturizers and conditioners. In 1999, the Company implemented a new color palette strategy based increasingly on local, rather than global, color preferences. In 2000, the Company continued to drive sales of color products through innovative fashion color statements in the spring and fall shade product offerings. A major redesign of the Color line is scheduled to launch at the end of 2001. Fragrance. Direct selling is a significant distribution channel for fragrances, and Jafra's new scents have enabled the Company to participate on an increasingly larger scale in this channel. In 1996, Jafra introduced Adorisse, a contemporary women's fragrance, and Fm Force Magnetique, a prestige men's fragrance. Jafra further extended its fragrance line in 1997 with Le Moire for women and Legend for Men. In 1999, Jafra introduced Chosen, a prestige fragrance for women, as well as a special 20th anniversary fragrance for the Mexico market. The fragrance category includes line extensions such as body lotions, shower gels, deodorants, after-shave lotions and shave creams for some of the most popular fragrances. During 2000, no major new 3 6 fragrances were launched, but fragrance sales became an increasingly large part of the business through increased sales of gift sets and line extensions. In 2001, two new global fragrances are planned to be introduced on a worldwide basis. Another fragrance is planned be tailored to, and marketed only within, the Mexico market. In addition, up to six new fragrances are planned for production and distribution locally within Brazil in 2001. Body Care and Personal Care. Jafra markets a broad selection of body, bath, sun and personal care products, including deodorants and shampoos. Jafra's premier body care product, Royal Jelly Body Complex, contains "royal jelly" (a substance produced by queen bees) in an oil-free deep moisturizing formula with natural botanical extracts and vitamins. Other offerings in the body care line include sunscreens, hand care lotions, contouring creams, revitalizing sprays, and bath products. While Jafra varies its product offerings and continues to develop new products, its Royal Almond and Precious Protein lines have been top sellers for nearly forty years. In the latter part of 2000 and early 2001, the Company had two major product launches of body care products: The Tender Moments Baby Line and the Home Spa Line. The Tender Moments Baby Line consists of 5 products created to encourage the bonding and nurturing of mothers and babies, while the Home Spa Line consists of aromatherapeutic oils, massage creams, and hydrotherapeutic products as well as related products such as scented candles and music. Additional body care products planned for launch in 2001 are fitness and well-being products to be used in conjunction with exercise and leisure activities. MARKETING Strategy and Product Positioning. Jafra positions its products to appeal to a relatively wide range of market categories, demographic groups and lifestyles. Jafra products generally price at the higher end of the mass market category but slightly below prestige brands such as Clinique. As compared to its direct selling competitors, Jafra prices in line with Mary Kay, but higher than Avon, which targets the lower to middle mass market. Product Strategy. Jafra's product strategy is to provide customers with exciting and prestige quality product lines that fit into Jafra's value-added demonstration sales techniques and promote the sale of multiple products per home visit. To that end, Jafra develops integrated products and actively promotes cross-selling among categories, thus encouraging multi-product sales and repeat purchases. Product variety and modernization are keys to the Company's success. The Company continues to look for ways to expand product offerings and broaden its appeal in the marketplace. This led to the development of the Tender Moments Baby Line and the Home Spa Line in late 2000. Marketing Material & Corporate Image. The Company supports its identity and corporate image through its energetic network of consultants and word-of-mouth. The Company uses a sophisticated and integrated promotional approach that includes meetings, marketing literature, and the Internet to create strong corporate imagery and support the corporate identity. In mid-1999, the Company revised its creative approach, achieving a more contemporary look and further enhancing its brand personality with the launch of a new corporate logo. Brand Enhancement. The Company is now using more traditional media, such as advertising and public relations, to complement the efforts of its consultants and enhance its brand image. In 2000, A full-time public relations agency was engaged. Public relations and media activities are being carried out based on local market initiatives in the United States, Mexico and Brazil, and accordingly, they are tailored to the specific needs of each local market. INDEPENDENT SALES FORCE Jafra's self-employed sales force is comprised of approximately 310,000 consultants worldwide as of December 31, 2000. Approximately 65,000 of these consultants are in the U.S., 185,000 are in Mexico, and 60,000 are in Europe and other markets. These consultants are not agents or employees of Jafra; they are independent contractors or dealers. They purchase products directly from the Company and sell them directly to their customers. 4 7 More seasoned senior consultants, who have experience managing their own consultant networks, recruit and train the Company's field level organization. Jafra sells substantially all of its products directly to its consultants. Each consultant conducts her Jafra sales operations as a stand-alone business, purchasing Jafra goods and reselling them to customers, as well as offering free personal care consultations. The Company's independent sales force constitutes its primary marketing contact with the general public. Selling. The primary role of a Jafra consultant is to sell Jafra products. Although the majority of the Company's sales occur as a result of person-to-person sales, the Company also encourages its consultants to arrange sales parties at customers' homes. Sales parties permit a more efficient use of a consultant's time, allowing the consultant to offer products and cosmetic advice to multiple potential customers at the same time, and provide a comfortable selling environment in which clients can learn about skin care and sample the Jafra product line. Such parties also provide an introduction to potential recruits and the opportunity for referrals to other potential clients, party hostesses and recruits. Jafra does not require consultants to maintain any inventory. The Company believes that the inventory requirements of other leading direct sellers are often onerous to consultants. Instead, Jafra consultants can wait to purchase products from the Company until they have a firm customer order to fill. Consultants generally personally deliver orders to their customers within one week of placement of an order. By delivering products directly to the customer, the Jafra consultant creates an additional sales opportunity. The short-term delivery requirements and the nature of the Company's business preclude any significant backlog. Recruiting. The Company believes that it enjoys a competitive advantage in recruiting consultants due to its lower start-up costs and its policy of providing retail discounts even on small orders. Other major attractions to prospective recruits include flexible hours, increased disposable income, an attractive incentive program (including international travel, national and regional meetings, awards and free products), personal and professional recognition, social interaction, product discounts and career development opportunities. The Company also emphasizes its commitment to consultants' personal and professional training, thereby building consultants' management and entrepreneurial skills. Consultant Management and Training. To become a manager, a consultant must sponsor a specified number of recruits and meet certain minimum sales levels. Once a consultant becomes a manager, she is eligible to earn commissions on her personal sales plus commissions on the sales of her downline consultants. A manager continues to gain seniority in the Jafra sales force by meeting the prescribed recruitment and sales requirements at each level of management. At more senior levels, managers may have several junior managers who in turn sponsor and manage other managers and consultants. The most successful managers have many such downline managers and consultants, and earn commissions on their personal sales plus commissions on their downline group's sales. Training for new consultants focuses first on the personalized selling of the Jafra product line, beginning with skin care and the administration of a Jafra business. Training is conducted primarily by the Company's consultant managers. Managers train their downline consultants at monthly meetings using materials prepared by the Company. In training managers, the Company seeks to improve leadership and management skills, while teaching managers to motivate downline consultants to higher sales levels. Income Opportunities and Recognition. Consultants earn income by purchasing products from Jafra at retail discounts and selling to consumers at suggested retail prices. Once a consultant becomes a manager, her compensation also includes commissions on the wholesale value of paid sales made by herself and her recruits. Commissions vary among markets. Jafra pays commissions directly to managers on receipt of payment for the underlying product sale. While this commission-based incentive system diminishes the Company's profit margin on individual product sales, it results in increased numbers of consultants selling Jafra products, which ultimately earns greater profits for the Company. The Company believes that its structure of discounts and commissions to consultants is one of the most generous in the direct selling business. The Company believes that public recognition of sales accomplishments serves the dual purpose of identifying successful role models and boosting consultant morale. Each year Jafra sponsors major events in each of its geographic markets to recognize and reward sales and recruiting achievements and strengthen the 5 8 bond between the independent sales force and the Company. Consultants and managers must meet certain minimum levels of sales and new consultant sponsorship in order to receive invitations to attend these events. INTERNATIONAL OPERATIONS Jafra's international operations are subject to certain customary risks inherent in carrying on business abroad, including the risk of adverse currency fluctuations, the effect of regulatory and legal restrictions imposed by foreign governments, and unfavorable economic and political conditions. Jafra's international operations are conducted primarily through subsidiaries in 15 countries outside the United States and in a number of additional countries through distributors. The Company's most important markets to date are Mexico, the United States, and Europe, which represented approximately 62%, 23% and 8%, respectively, of total 2000 sales. See Note 11 of the consolidated financial statements appearing elsewhere herein. The Company intends to increase revenues in markets other than Mexico in order to diversify its revenue base and to minimize any adverse impact that a downturn in the Mexican economy may have on the Company given the increasingly large percentage of sales attributable to the Mexican market. The Company has entered into foreign currency forward exchange contracts to mitigate the risk of potential currency devaluation in Mexico. See "Quantitative and Qualitative Disclosures About Market Risk -- Foreign Currency Risk." MANUFACTURING Jafra has a manufacturing facility in Naucalpan, Mexico, which is near Mexico City. This facility produces color cosmetics and most of Jafra's fragrances. Until June of 1999, the Company produced skin care and personal use products at its Westlake Village, California manufacturing facility. In June of 1999, the Company outsourced its U.S. product manufacturing functions to a third party contractor (the "Contractor"). The Company and the Contractor entered into a manufacturing agreement, dated as of June 10, 1999 (the "Manufacturing Agreement"). Subject to the terms and conditions of the Manufacturing Agreement, the Contractor has agreed to manufacture all of the Company's requirements for certain cosmetic and skin care products for an initial term of five years. Following the expiration of the initial five-year term, the Manufacturing Agreement will be automatically extended for additional one-year terms unless terminated by six months' prior written notice by either party. The Manufacturing Agreement provides for price renegotiations by the Contractor if the Company's quarterly or annual purchase volume falls below specified minimums. In addition, the Company is obligated to purchase materials acquired by the Contractor based upon product forecasts provided by the Company if the Contractor is unable to sell such materials to a third party. The Contractor is solely responsible for obtaining the inventories, manufacturing the inventories at its current location in Chino, California, complying with applicable laws and regulations, and performing quality assurance functions. The Company purchases from other third party suppliers certain finished goods and raw materials for use in its manufacturing operations. In general, the Company does not have written contracts with its other suppliers. Finished goods and raw materials used in the Company's products, such as glass, plastics, and chemicals, generally are available stock items or can be obtained to Company specifications from more than one potential supplier. DISTRIBUTION The Company uses fifteen distribution centers around the world, eight of which are operated by Company personnel and seven of which are outsourced. The U.S. warehouses in Bridgeport, New Jersey and Westlake Village, California currently stock the entire Jafra product line. In Mexico, the Company has outsourced virtually all of its distribution to third parties. Management believes that its facilities are adequate to meet demand in its existing markets for the foreseeable future. 6 9 Typically, owned or leased distribution centers are located in an area that allows for direct delivery to consultants by either post or carrier. Maintaining a short delivery cycle in direct selling is an important competitive advantage. COMPETITION Jafra sells all of its products in highly competitive markets. The principal bases of competition in the cosmetics direct selling industry are price, quality and range of product offerings. On the basis of information available to it from industry sources, management believes that there are over a thousand companies (including both direct sales and cosmetic manufacturing companies) that sell products that compete with Jafra's products. Several direct sales companies compete with Jafra in sales of cosmetic products, and at least two such competitors, Mary Kay and Avon, are substantially larger than Jafra in terms of total independent salespersons, sales volume and resources. In addition, Jafra's products compete with cosmetics and toiletry items manufactured by cosmetic companies that sell their products in retail or department stores. Several of such competitors are substantially larger than Jafra in terms of sales and have substantially more resources. Jafra also faces competition in recruiting independent salespersons from other direct selling organizations whose product lines may or may not compete with Jafra's products. Jafra believes that its senior management team with a strong direct selling track record, motivated and loyal direct sales force, prestige quality product lines, product development capabilities, geographic diversification, short delivery cycle, and manufacturing technology are significant factors in establishing and maintaining its competitive position. PATENTS AND TRADEMARKS Jafra's operations do not depend to any significant extent upon any single trademark other than the Jafra trademark. Some of the trademarks used by Jafra, however, are identified with and important to the sale of Jafra's products. Jafra's most important trademarks are: Adorisse (a contemporary women's fragrance), Chosen( a premium women's fragrance), Eau D'Aromes(revitalizing fragrance spray), Fm Force Magnetique (a men's prestige fragrance), Legend for Men (a men's premium fragrance), Le Moire (a contemporary women's fragrance), Optimascara (mascara), Optimeyes (eye treatment lotion), Rediscover (skin cream with Alpha Hydroxy), Royal Jelly Body Complex (body lotion), Royal Jelly Milk Balm Moisture Lotion (moisturizing lotion), Time Corrector (skin cream) and Time Protector (skin cream). Jafra's operations do not depend to any significant extent on any single or related group of patents, although the Company has applied for or received patent protection in its major markets for certain skin creams, dispensers and product containers, nor do they rely upon any single or related group of licenses, franchises or concessions. Jafra has in the past licensed know-how from Gillette relating to the design, development and manufacture of its products and is permitted to continue to use such know-how in connection with its products. In 1998, a former employee of Gillette filed applications to register the Jafra trademark in Algeria, Bangladesh, China, Cyprus, Egypt, Gambia, Ghana, Guyana, India, Kenya, Malawi, Morocco, Nigeria, OAPI, Pakistan, Sierra Leone, Syria, Sudan, Surinam, Tanzania, Tunisia, Zambia, and Zimbabwe, jurisdictions in which Jafra does not currently operate. In 1998, Gillette obtained a court order prohibiting this employee from transferring or licensing such trademark applications and registrations and requiring that the trademark applications and registrations be assigned to Gillette. The documentation has been transferred to Jafra. Jafra has filed the documents obtained from this former employee in those jurisdictions in which the documentation will be accepted in order to secure the abandonment and cancellation of this employee's applications and registrations. If Jafra is not able to secure cancellation or abandonment of the applications and registrations in these jurisdictions, Jafra may be prohibited from distributing its products in these jurisdictions. MANAGEMENT INFORMATION SYSTEMS During 2000, the Company redefined its Internet strategy and continued to develop and implement an e-commerce system. The first phase of this system became operational in the U.S. in the fourth quarter of 7 10 2000 and the remainder of the system is expected to be implemented in the U.S. in the second quarter of 2001. The Company plans to roll out its e-commerce strategy to other countries during the latter part of 2001 and in 2002. During 2001, the Company plans to modify its European information systems to support a streamlined European organization and to achieve compliance with the euro. In addition, the Company plans to implement a new business system in Brazil to enhance its financial and inventory management. The Company believes that the commercial systems currently existing in Jafra's major markets are adequate to support its business activities for the next two to three years. However, the Company is in the process of identifying a new commercial system to upgrade its technology platform and business processes in selected markets. This system will be tailored to comply with local regulatory demands as well as the unique aspects of each market. Initial implementation in Thailand will take place in the second half of 2001, with subsequent country rollouts through 2004. SEASONALITY The Company's sales in the fourth quarter of the year are typically higher than in the other three quarters of the year due to seasonal holiday purchases. Fourth quarter net sales were approximately 28% of total net sales in 2000 and 29% of net sales in 1999. Fourth quarter operating profit was 35% and 44% of total operating profit in 2000 and 1999, respectively. ENVIRONMENTAL MATTERS The Company is subject to various federal, state, local and foreign laws or regulations governing environmental, health and safety matters. The Company believes that it is in material compliance with all such laws and regulations and under present conditions the Company does not foresee that such laws and regulations will have a material adverse effect on capital expenditures, earnings or the competitive position of the Company. EMPLOYEES As of December 31, 2000, the Company had 822 full-time employees, of which 262 were employed in the U.S. and 560 in other countries. On a functional basis, 143 were in manufacturing, warehousing, distribution and technical operations, 445 were in sales and marketing, and 234 were in administration. The Company also had 222 outside contract employees. ITEM 2. PROPERTIES The Company is headquartered and maintains a warehouse and distribution facility in Westlake Village, California, 40 miles north of Los Angeles. Manufacturing is done on a global basis for the color and fragrance product lines at the Company's facility in Naucalpan, Mexico. The Westlake Village, California and Naucalpan, Mexico facilities are owned by the Company, except for a small portion of the Naucalpan facility that is leased. In addition, the Company leases certain distribution facilities, sales offices and service centers to facilitate its operations globally. The Company's properties are suitable and adequate to meet its current and anticipated requirements. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in routine legal matters incidental to its business. The Company believes that the resolution of such matters will not have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of 2000. 8 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for Parent common stock (the "Common Stock"). Prior to September 30, 1998, the only holders of the Common Stock were CD&R Fund V and Messrs. Ronald B. Clark, Gonzalo R. Rubio, and Ralph S. Mason, III. The number of holders of record of the Company's Common Stock on March 10, 2001 was 34. On September 30, 1998, certain members of management, certain directors and other persons purchased an aggregate of 40,437 shares of Common Stock for a purchase price of $100 per share, or a total of $4,043,700; on October 1, 1999, a former member of management exercised options to purchase 579 shares of Common Stock for a purchase price of $100 per share, or a total of $57,900, and then sold a total of 2,317 shares of Common Stock back to the Company at $150 per share, or a total of $347,550; on November 19, 1999, certain members of management and a director purchased an aggregate of 2,457 shares of Common Stock for a purchase price of $150 per share, or a total of $368,550; on July 11, 2000, a member of management purchased 316 shares of Common Stock for a purchase price of $150 per share, or a total of $47,400; on July 27, 2000, a former member of management exercised options to purchase 158 shares of Common Stock for a purchase price of $100 per share, or a total of $15,800, and then sold a total of 632 shares of Common Stock back to the Company at $210 per share, or a total of $132,720; on August 9, 2000, certain members of management purchased an aggregate of 4,108 shares of Common Stock for a purchase price of $210 per share, or a total of $862,860; and on November 6, 2000, a former member of management sold 316 shares of Common Stock back to the Company at $210 per share, or a total of $66,360. All of these transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, as either offerings to accredited investors under Regulation D or offerings to employees under Rule 701. See "Security Ownership of Certain Beneficial Owners and Management." No dividends have been paid by Parent on its shares of the Common Stock nor does Parent expect to pay dividends on its Common Stock in the foreseeable future. The declaration and payment of future dividends, if any, will be at the sole discretion of the Board of Directors of Parent, subject to the restrictions set forth in the Senior Credit Agreement and the indenture for its Senior Subordinated Notes (the "Indenture"), which currently restrict the payment of cash dividends to stockholders, and restrictions, if any, imposed by other indebtedness outstanding from time to time. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Liquidity and Capital Resources." 9 12 ITEM 6. SELECTED FINANCIAL DATA The following is a summary of selected financial data of the Company (amounts in millions except for consultant data). The audited financial statements as of and for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998 appear elsewhere herein, and the related selected financial data should be read in conjunction with such statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations." All other financial data presented has been derived from audited financial statements of the Company which are not included herein. The financial data prior to April 30, 1998 reflect the Jafra Business prior to the Acquisition and are referred to as the "Predecessor" operations.
PREDECESSOR --------------------------------- YEAR ENDED EIGHT MONTHS FOUR MONTHS YEAR ENDED DECEMBER 31, ENDED ENDED DECEMBER 31, ------------------- DECEMBER 31, APRIL 30, ------------------- 2000 1999 1998 1998 1997 1996 -------- -------- ------------ ----------- -------- -------- STATEMENT OF OPERATIONS DATA: Net sales(a)........................... $ 324.1 $ 299.2 $ 176.2 $ 79.9 $ 236.4 $ 231.4 Cost of sales(b)....................... 79.5 82.3 56.3 22.7 68.6 58.2 -------- -------- -------- -------- -------- -------- Gross profit........................... 244.6 216.9 119.9 57.2 167.8 173.2 Selling, general and administrative expenses(a).......................... 199.5 183.5 112.6 51.8 147.4 157.4 Restructuring and other non-recurring charges(c)........................... 2.6 4.8 -- -- 0.4 6.1 Loss (gain) on sale of assets.......... 0.1 (1.0) 0.2 -- (0.1) -- -------- -------- -------- -------- -------- -------- Income from operations................. 42.4 29.6 7.1 5.4 20.1 9.7 Other income (expense): Exchange (loss) gain................. (11.7) 3.3 (1.8) 1.4 0.3 -- Interest (expense) income, net....... (15.7) (16.9) (11.5) 0.1 0.3 0.8 Other income (expense), net.......... 1.6 0.1 (0.1) 0.1 (0.5) (0.5) -------- -------- -------- -------- -------- -------- Income (loss) before income taxes...... 16.6 16.1 (6.3) 7.0 20.2 10.0 Income taxes........................... 10.0 10.9 1.7 2.9 4.8 2.6 -------- -------- -------- -------- -------- -------- Net income (loss) before extraordinary item................................. 6.6 5.2 (8.0) 4.1 15.4 7.4 Extraordinary loss on early extinguishment of debt, net of income tax benefit of $0.2 in 2000 and $0.2 in 1999.............................. 0.3 0.6 -- -- -- -- -------- -------- -------- -------- -------- -------- Net income (loss)...................... $ 6.3 $ 4.6 $ (8.0) $ 4.1 $ 15.4 $ 7.4 ======== ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents.............. $ 5.8 $ 4.9 $ 18.4 $ 10.2 $ 8.7 Working capital........................ 19.2 34.2 22.9 22.6 24.4 Property and equipment, net............ 51.4 50.6 56.2 43.7 41.8 Total assets........................... 276.9 278.4 288.6 175.2 164.5 Total debt............................. 109.0 133.5 141.5 8.5 -- Stockholders' equity................... $ 81.2 $ 75.8 $ 75.4 $ 77.3 $ 78.6 OTHER FINANCIAL DATA: EBITDA(d).............................. $ 51.6 $ 36.8 $ 12.1 $ 6.9 $ 24.0 $ 12.5 Net cash provided by (used in) operating activities................. 32.5 (1.6) 18.1 (8.0) 26.7 2.8 Net cash provided by (used in) investing activities................. (7.2) (3.1) (211.1) 2.6 (5.8) (4.5) Net cash provided by (used in) financing activities................. (23.5) (7.4) 211.7 (8.8) (19.0) 5.0 Depreciation and amortization.......... 7.6 7.1 5.1 1.4 4.4 3.3 Amortization of deferred financing fees................................. 1.4 1.8 1.4 -- -- -- Capital expenditures................... 7.1 5.8 6.4 6.1 8.9 10.3 Total consultants...................... 310,000 292,000 247,600 220,000 220,800 208,500 Active consultants..................... 150,000 137,000 116,000 109,000 104,000 102,000 Consultant productivity(e)............. $ 2,161 $ 2,184 $ 2,208 $ 2,208 $ 2,273 $ 2,268
10 13 - --------------- (a) In the fourth quarter of 2000, the Company adopted the provisions of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires that amounts billed to customers for shipping and handling fees be classified as revenues. Reclassifications have been made to all prior periods to reflect shipping and handling fees, previously reported as reductions to selling, general and administrative expenses, in net sales. The amounts that have been reclassified as net sales are $8.7 million, $5.2 million, $2.6 million, $6.9 million, and $6.9 million for the year ended December 31, 1999, the eight-month period ended December 31, 1998, the four-month period ended April 30, 1998, and the years ended December 31, 1997 and 1996, respectively. (b) Cost of sales for the eight months ended December 31, 1998 includes a $2.7 million charge relating to the sale of certain inventories that were revalued to fair value in conjunction with the Acquisition. (c) Restructuring and other non-recurring charges include the following: for 2000, approximately $1.6 million of restructuring charges and approximately $1.0 million of asset impairment charges; for 1999, approximately $3.7 million of restructuring charges and approximately $1.1 million of asset impairment charges; for 1997, net reorganization charges of $3.5 million that were partially offset by a cash recovery of $2.3 million resulting from the settlement of a legal action brought by the Company against a computer systems contractor for which a $5.4 million charge was taken in 1996, and a gain of $0.8 million relating to the sale of a facility that had previously been written-off; and for 1996, a $5.4 million non-cash charge for the write-off of certain computer systems and related costs, and net reorganization charges of $0.7 million. (d) EBITDA is defined as income or loss before income taxes, net interest expense, exchange gains and losses, depreciation and amortization, and extraordinary items. The Company believes that EBITDA provides useful information regarding the Company's ability to service debt but should not be considered in isolation or as a substitute for the statement of operations or cash flow data prepared in accordance with generally accepted accounting principles and included elsewhere in this Form 10-K or as a measure of the Company's operating performance, profitability or liquidity. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to differences and methods of calculation. (e) In 2000, the Company re-defined consultant productivity as net sales in U.S. dollars per active consultant. In general, consultants are considered to be active if they place at least one order within four months. Full year 1998 consultant productivity is shown for comparability purposes. Previously reported consultant productivity amounts have been restated to conform to the 2000 presentation. 11 14 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations, financial condition and liquidity of the Company should be read in conjunction with the information contained in the consolidated financial statements and notes thereto included elsewhere in this Form 10-K. These statements have been prepared in conformity with accounting principles generally accepted in the United States of America and require management to make estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from these estimates. RESULTS OF OPERATIONS The following table represents selected components of the Company's results of operations, in millions of dollars and as percentages of net sales. The table reflects the operations of the Company for the years ended December 31, 2000 and 1999, and the combined operations of the Predecessor and the Company for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 2000 1999 1998(1)(2) --------------- --------------- --------------- ($ IN MILLIONS) Net sales............................... $324.1 100.0% $299.2 100.0% $256.1 100.0% Cost of sales........................... 79.5 24.5 82.3 27.5 79.0 30.8 ------ ----- ------ ----- ------ ----- Gross profit............................ 244.6 75.5 216.9 72.5 177.1 69.2 Selling, general and administrative expenses.............................. 199.5 61.6 183.5 61.3 164.4 64.2 Restructuring and impairment charges.... 2.6 0.8 4.8 1.6 -- 0.0 Loss (gain) on sale of assets........... 0.1 0.0 (1.0) (0.3) 0.2 0.1 ------ ----- ------ ----- ------ ----- Income from operations.................. 42.4 13.1 29.6 9.9 12.5 4.9 Exchange (loss) gain.................... (11.7) (3.6) 3.3 1.1 (0.4) (0.1) Interest (expense) income, net.......... (15.7) (4.9) (16.9) (5.6) (11.4) (4.5) Other income (expense), net............. 1.6 0.5 0.1 0.0 -- 0.0 ------ ----- ------ ----- ------ ----- Income before income taxes.............. 16.6 5.1 16.1 5.4 0.7 0.3 Income tax expense...................... 10.0 3.1 10.9 3.7 4.6 1.8 ------ ----- ------ ----- ------ ----- Net income (loss) before extraordinary item.................................. 6.6 2.0 5.2 1.7 (3.9) (1.5) Extraordinary loss on early extinguishment of debt, net of income tax benefit of $0.2 in 2000 and $0.2 in 1999............................... 0.3 0.1 0.6 0.2 -- 0.0 ------ ----- ------ ----- ------ ----- Net income (loss)....................... $ 6.3 1.9% $ 4.6 1.5% $ (3.9) (1.5)% ====== ===== ====== ===== ====== =====
- --------------- (1) Pursuant to the terms of the Acquisition, the Company was acquired by Parent on April 30, 1998. Accordingly, for purposes of Management's Discussion and Analysis of Financial Condition and Results of Operations, the results of operations and cash flows for the year ended December 31, 1998 are a combination of the historic results of the Predecessor for the four months ended April 30, 1998 and the Company's results of operations for the eight months ended December 31, 1998. (2) In the fourth quarter of 2000, the Company adopted the provisions of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires that amounts billed to customers for shipping and handling fees be classified as revenues. Reclassifications have been made to all prior periods to reflect shipping and handling fees, previously reported as reductions to selling, general and administrative expenses, in net sales. The amounts that have been reclassified as net sales are $8.7 million and $7.8 million for the years ended December 31, 1999 and 1998, respectively. 12 15 YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR DECEMBER 31, 1999 Net sales. Net sales for 2000 increased to $324.1 million from $299.2 million in 1999, an increase of $24.9 million, or 8.3%. Sales in local currencies for 2000 increased by 9.6% over 1999. The Company defines consultant productivity as net sales in U.S. dollars per active consultant. In general, consultants are considered to be active if they place one order within four months. The Company's average number of consultants worldwide increased to approximately 307,000 in 2000, or 11.8%, over the 1999 average. The average number of consultants in Brazil increased by approximately 11,000 in 2000, which accounts for one-third of the Company's total increase over the 1999 average. The Company's consultant productivity decreased 1.1% in 2000, as increased productivity in Mexico was not enough to offset declines in productivity in the U.S. and Europe, and consultant productivity in Brazil is below the average for the Company. In Mexico, net sales for 2000 increased to $201.7 million from $175.9 million in 1999, an increase of $25.8 million, or 14.7%. Sales in Mexico in local currency increased by 13.4% over 1999. The year-to-year increase was driven by the larger consultant base, product price increases, the introduction of new products and increased productivity of consultants. In Mexico, the average number of consultants in 2000 increased to approximately 192,000, or 6.7% over the 1999 average. Consultant productivity in Mexico increased 13.4% in 2000. In the U.S., net sales for 2000 increased to $74.7 million from $74.1 million in 1999, an increase of $0.6 million, or 0.8%. In 1999, U.S. net sales included low margin sales to a third party manufacturer of $1.2 million, and there were no such sales in 2000. In addition, during 1999, the U.S. generated $0.9 million of net sales in the Dominican Republic. The Company established a separate subsidiary in the Dominican Republic in 2000, so that territory is no longer a source of sales for the U.S. Excluding the impact of these two items, net sales in the U.S. for 2000 increased 3.8%, primarily due to increases in the number of consultants, partially offset by lower productivity. In the U.S., the average number of consultants in 2000 increased to approximately 62,000, or 10.7% above the 1999 average. The U.S. implemented a program in 2000 whereby consultants received higher discounts on their purchases, at lower order sizes than before. This stimulated growth of consultants and ordering activity, but at lower average order sizes, resulting in lower productivity per order. In Europe, net sales for 2000 decreased to $27.0 million from $33.1 million in 1999, a decrease of $6.1 million, or 18.4%. Contributing to the sales decline was an unfavorable exchange rate impact on sales of $1.9 million. Excluding the exchange rate impact, net sales decreased 12.7%, principally due to decreases in the number and productivity of consultants. In Europe, the average number of consultants in 2000 decreased to approximately 17,000, or 5.6% less than the 1999 average. Consultant productivity in Europe decreased 12.6% in 2000. Gross profit. Gross profit in 2000 increased to $244.6 million from $216.9 million in 1999, an increase of $27.7 million, or 12.8%. Gross profit as a percentage of sales (gross margin) increased to 75.5% from 72.5%. In Mexico, the margin improved due to sales price increases, a more favorable product mix, and reduced product costs. The reduced product costs for 2000 included foreign exchange gains from inventory and components purchased in dollar-denominated transactions when the peso was stronger against the U.S. dollar compared to 1999. Mexico's fourth quarter 2000 gross margin decreased compared to the fourth quarter of 1999 due to a combination of certain adjustments related to changes in cost accounting estimates, totaling $3 million, a higher promotional product mix due to the holiday season, and sales of slow moving inventory items at lower margins in the fourth quarter of 2000 as part of a plan to increase inventory turnover and reduce investment in inventory. In the U.S., the margin improvement was the result of improved gross margins on both regular and promotional products as a result of price increases and product cost reductions. The margin on non-resale items (demonstration products used by consultants, but not re-sold to clients) improved significantly from the comparable prior year period due to price increases and the reconfiguration of cases sold to first-time consultants. The reduced product costs in the U.S. and Mexico included cost reductions on skin and body products that were not achieved until the beginning of the third quarter of 1999, after the U.S. manufacturing of these products was outsourced. In Europe, margins were flat in 2000 compared to 1999, 13 16 reflecting the lower product costs discussed above offset by an increase due to the strengthening of the dollar against European currencies. Selling, general and administrative expenses. SG&A expenses in 2000 increased to $199.5 million from $183.5 million in 1999, an increase of $16.0 million, or 8.7%. SG&A as a percentage of net sales increased in 2000 to 61.6% from 61.3% for 1999. In Mexico, SG&A as a percentage of net sales for 2000 was virtually the same as in 1999. The primary drivers of the increased expenses were increased sales promotional and commission expenses, which tend to increase proportionally with sales, and increased administrative expenses, which represent additional infrastructure costs to support the higher sales volume. The U.S. incurred additional sales promotional expenses in 2000 primarily as a result of the Company's decision to hold two major promotional events within the same year, compared to just one in 1999, as part of the Company's commitment to expand business in the U.S. market. In addition, the U.S. made a change in the lineage program in May 1999 that resulted in higher commissions expense for the full year 2000 compared to only seven months' impact in 1999. In Europe, SG&A expenses in 2000 decreased compared to 1999, as a result of expense containment measures, primarily in Germany. Developing markets, particularly Brazil, incurred additional SG&A expenses in year 2000 compared to 1999. Corporate expenses decreased approximately $1.1 million in 2000 from the 1999, primarily as a result of reduced compensation expenses, partially offset by expenses incurred in connection with the development of the Company's e-commerce systems. Restructuring and impairment charges. Restructuring and impairment charges for 2000 were $2.6 million and were $4.8 million in 1999. In 2000, the Company recorded approximately $1.6 million of restructuring charges and approximately $1.0 million of asset impairment charges. The restructuring charges in 2000 related to the Company's repositioning activities in Europe, and consisted primarily of severance costs. The asset impairment charges consisted of approximately $0.3 million related to the Company's repositioning activities in Europe and approximately $0.7 million relating to the writedown of certain capitalized computer software costs in the United States. In 2000, the Company consolidated the sales support and administrative functions for Austria, Italy, and the Netherlands in the Company's Germany office. Field sales personnel continue to perform sales and marketing functions in those locations, but the requirements for local office space and resources have been significantly reduced. In addition, the Company implemented a plan to close its Poland operation, and will be serving that territory through a distributor starting in mid-2001. In 1999, the Company recorded approximately $3.7 million of restructuring charges and approximately $1.1 million of asset impairment charges. The restructuring charges consisted of approximately $2.7 million of charges related to the outsourcing of the Company's U.S. product manufacturing functions, and approximately $1.0 million of other restructuring activities in the U.S., Europe and Mexico. Substantially all of the charges related to severance costs. The asset impairment charges consisted of approximately $1.1 million relating to long-lived assets (goodwill and trademarks) owned by its German subsidiary ("Jafra Germany"). The Company performed an impairment review and concluded that Jafra Germany's future undiscounted cash flows were below the carrying value of its related long-lived assets. Accordingly, the Company recorded a non-cash impairment loss of approximately $1.1 million to adjust the carrying values of Jafra Germany's goodwill and trademarks to their estimated fair values, which were determined based on anticipated future cash flows discounted at a rate commensurate with Jafra Germany's weighted average cost of capital. Loss (gain) on sale of assets. The Company's loss on sale of assets was $0.1 million in 2000, compared to a gain of $1.0 million in 1999, a decrease of $1.1 million. In 1999, the Company recognized a $1.0 million gain on the sales of a parcel of property and an office building in the United States. Exchange (loss) gain. The Company's foreign exchange loss in 2000 was $11.7 million, compared to an exchange gain of $3.3 million in 1999, a change of $15.0 million. The Company's foreign exchange gains and losses primarily result from its operations in Mexico. In 2000, foreign exchange losses of $11.3 million were incurred in Mexico, while in 1999, there were $3.7 million of exchange gains in Mexico. The net foreign exchange loss for 2000 has three elements: gains or losses on forward currency contracts, unrealized gains or losses on the remeasurement of U.S. dollar-denominated debt, and gains or losses on transactions denominated in foreign currencies. During December 1999, the Company implemented a hedging program to protect 14 17 against potential devaluation of the Mexican peso, and purchased forward contracts selling Mexican pesos and buying U.S. dollars based upon forward exchange rates. These contracts are marked-to-market each month and the fair value of the contracts is included in current assets and liabilities, with the offsetting gain or loss included in exchange gain (loss) in the accompanying consolidated statements of operations. Throughout 2000, the forward currency contract pricing reflected the market's expectation that the peso would devalue relative to the dollar. However, in 2000, the peso to U.S. dollar exchange rate was stable, resulting in a $10.0 million exchange loss on forward contracts. The benefit of the stable peso is reflected in the Company's operating income. The remeasurement of U.S. dollar denominated-debt in 2000 resulted in an unrealized exchange loss of $0.7 million, as the peso weakened against the U.S. dollar at year-end. Net realized and unrealized losses on other foreign currency transactions were $0.6 million. The 1999 foreign exchange gains were primarily the result of remeasurement of U.S. dollar-denominated debt, as the peso strengthened against the U.S. dollar. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments and hedging activities. The derivative instruments utilized by the Company did not qualify for hedge accounting under the applicable accounting standards prior to adoption of SFAS 133, and accordingly such instruments were marked-to-market with gains and losses included as a component of exchange gain (loss) in the statements of operations for the years ended December 31, 2000 and 1999. Under SFAS 133, the Company's current mark-to-market accounting treatment will continue to be applied to certain of the Company's derivative instruments. However, under SFAS 133, the Company's use of forward contracts to hedge certain forecasted transactions will now qualify for hedge accounting. Unrealized gains and losses from such derivative instruments arising subsequent to January 1, 2001 will be deferred as a separate component of other comprehensive income, and will be recognized in income at the same time that the underlying hedged exposure is recognized in income. This accounting treatment will result in the matching of gains and losses from certain forward exchange contracts with the corresponding gains and losses generated by the underlying hedged transactions. Interest expense. Interest expense decreased to $15.7 million in 2000 from $16.9 million in 1999, a decrease of $1.2 million, or 7.1%. Approximately $0.9 million of the reduced interest expense was due to the impact of debt restructuring activities which occurred in the latter part of 1999 and early 2000, whereby the Company repurchased a portion of its Notes with a face value of $24.8 million and replaced the repurchased Notes with debt under the Revolving Credit Facility, which currently has a lower effective interest rate than the Notes. The remainder of the decrease was due to a combination of lower average debt balances and lower average interest rates. Other income (expense). Other income for 2000 was $1.6 million, which consisted primarily of income related to a recovery of the effect of inflation upon accounts receivable due from the Mexican government. Other income (expense) in 1999 was nominal. Income tax expense. Income tax expense decreased to $10.0 million in 2000 from $10.9 million in 1999, a decrease of $0.9 million, or 8.3%. The decreased income tax expense for 2000 is the result of lower taxable income generated by the Company's Mexican subsidiary in 2000 as compared to 1999. In 2000, the Company's effective income tax rate decreased to 59.9% from a 67.7% effective income tax rate in 1999, driven by a decrease in the U.S. effective income tax rate to 31.1% in 2000 from 51.5% in 1999. The decrease in the U.S. effective income tax rate is due to utilization in 2000 of certain deferred tax assets that were previously fully reserved. Valuation allowances are provided against operating losses of European and South American subsidiaries, and against tax credit carryforwards in the United States. Net income (loss). Net income increased to $6.3 million in 2000 from $4.6 million in 1999, an increase of $1.7 million, or 37.0%. The increase was primarily due to a $27.7 million increase in gross profit, a $2.2 million decrease in restructuring and impairment charges, a $1.2 million decrease in interest expense, a $1.5 million increase in other income, a $0.9 million decrease in income tax expense, and a $0.3 million decrease in extraordinary loss on early extinguishment of debt, net of tax, partially offset by a $15.0 million 15 18 increase in exchange losses, a $1.1 million decrease in loss (gain) on sale of assets, and a $16.0 million increase in SG&A expenses. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR DECEMBER 31, 1998 Net sales. Net sales for 1999 increased to $299.2 million from $256.1 million in 1998, an increase of $43.1 million, or 16.8%. Sales in local currencies for 1999 increased by 23.6% over 1998. The sales in local currencies were higher than the increase measured in U.S. dollars, primarily as a result of a weaker average exchange rate for the Mexican peso when measured against the U.S. dollar in 1999 as compared to 1998. The Company's 1999 average number of consultants worldwide increased to approximately 275,000, or 19.6%, over the 1998 average. The Company defines consultant productivity as net sales in U.S. dollars per active consultant. In general, consultants are considered to be active if they place one order within four months. The Company's consultant productivity decreased 1.1% in 1999. In Mexico, net sales for 1999 increased to $175.9 million from $122.0 million in 1998, an increase of $53.9 million, or 44.2%. Sales in Mexico in local currency increased by 53.1% over 1998. The significant year to year increase was driven by the larger consultant base, product price increases, the introduction of new products and increased productivity of consultants. In Mexico, the 1999 average number of consultants increased to approximately 180,000, or 32.7% over the 1998 average. Consultant productivity in Mexico increased 9.7% in 1999. In the U.S., net sales for 1999 decreased to $74.1 million from $77.7 million in 1998, a decrease of $3.6 million, or 4.6%. Low margin sales to a third party manufacturer in 1999 and 1998 were $1.2 million and $3.1 million, respectively. Excluding the impact of these sales, net sales in the U.S. for 1999 decreased 2.3%, primarily due to small decreases in the number and productivity of consultants. In the U.S., the 1999 average number of consultants decreased to approximately 56,000, or 2.1% below the 1998 average. Consultant productivity in the U.S. decreased 0.5% in 1999. In Europe, net sales for 1999 decreased to $33.1 million from $41.0 million in 1998, a decrease of $7.9 million, or 19.3%. Contributing to the sales decline was an unfavorable exchange rate impact on sales of $1.3 million. Excluding the exchange rate impact, net sales decreased 16.0%, also due in part to decreases in the number and productivity of consultants. In Europe, the 1999 average number of consultants decreased to approximately 18,000, or 8.7% under the 1998 average. Consultant productivity in Europe decreased 5.7% in 1999. Gross profit. Gross profit in 1999 increased to $216.9 million from $177.1 million in 1998, an increase of $39.8 million, or 22.5%. Gross profit as a percentage of sales (gross margin) increased to 72.5% from 69.2%. Cost of sales for 1998 included a $2.7 million charge related to the sale of certain inventories, primarily in Mexico, that were revalued in conjunction with the Acquisition. Additionally, low margin third party sales in the U.S. in 1999 and 1998 were $1.2 million and $3.1 million, respectively. Excluding the effects of these items, adjusted gross margin was 72.8% and 71.1% for 1999 and 1998, respectively. In Mexico, the increased margin was due to a combination of product price increases, manufacturing efficiencies related to increased volume, cost control measures and the management of product mix. In the U.S., the margin improvement was due primarily to a combination of lower discounting on promotional sales, product price increases, and a more favorable sales mix which included fewer low margin third party sales. Additionally, the cost efficiencies gained in the second half of 1999 as a result of the outsourcing of the manufacturing facility increased the U.S. gross margin for the year by approximately 100 basis points (one percent of sales). In Europe, margins improved due to product cost reductions and a more favorable sales mix in 1999. Selling, general and administrative expenses. SG&A expenses in 1999 increased to $183.5 million from $164.4 million in 1998, an increase of $19.1 million, or 11.6%. SG&A as a percentage of net sales decreased in 1999 to 61.3% from 64.2% for 1998. In Mexico, SG&A expenses increased to $79.5 million from $59.8 million in 1998, an increase of $19.7 million, or 32.9%. The increased SG&A in Mexico related primarily to sales promotions, commissions 16 19 and administrative expenses incurred to support growing sales. In addition, Mexico incurred $0.7 million of incremental expenses for amortization of goodwill and trademarks as a result of the Acquisition, representing a full year of amortization in 1999 versus eight months in 1998. In the U.S., SG&A expenses in 1999 increased to $46.3 million from $46.0 million in 1998, an increase of $0.3 million, or 0.7%. The U.S. incurred $0.5 million of incremental expenses for amortization of goodwill and trademarks in 1999 as a result of the Acquisition, representing a full year of amortization in 1999 versus eight months in 1998. Excluding those expenses, the SG&A spending in the U.S. actually declined by $0.2 million in 1999. In Europe, SG&A expenses in 1999 decreased to $26.4 million from $31.2 million in 1998, a decrease of $4.8 million, or 15.4%, due to a combination of lower variable expenses related to lower sales levels, and expense controls. Corporate expenses in 1999 increased to $17.4 million from $14.0 million, an increase of $3.4 million, or 24.3%, primarily as a result of increased personnel costs of the post-Acquisition management team. Restructuring and impairment charges. In 1999, the Company recorded approximately $3.7 million of restructuring charges and approximately $1.1 million of asset impairment charges. The restructuring charges consisted of approximately $2.7 million of charges related to the outsourcing of the Company's U.S. product manufacturing functions, and approximately $1.0 million of other restructuring activities in the U.S., Europe and Mexico. Substantially all of the charges related to severance costs. Also in 1999, the Company recognized an asset impairment charge of approximately $1.1 million relating to long-lived assets (goodwill and trademarks) owned by its German subsidiary ("Jafra Germany"). In the fourth quarter of 1999, concurrent with the Company's annual business planning process, the Company recognized that sales levels in Jafra Germany had declined more than anticipated since the Acquisition. The Company performed an impairment review and concluded that Jafra Germany's future undiscounted cash flows were below the carrying value of its related long-lived assets. Accordingly, the Company recorded a non-cash impairment loss of approximately $1.1 million to adjust the carrying values of Jafra Germany's goodwill and trademarks to their estimated fair values, which were determined based on anticipated future cash flows discounted at a rate commensurate with Jafra Germany's weighted average cost of capital. Loss (gain) on sale of assets. Gain on sale of assets increased to $1.0 million in 1999 from a loss of $0.2 million in 1998, an increase of $1.2 million. The increase was primarily due to the $1.0 million gain on sales of a parcel of property and an office building in the U.S. in the fourth quarter of 1999. Exchange gain (loss). The Company's foreign exchange gain in 1999 increased to $3.3 million from an exchange loss of $0.4 million in 1998. The 1999 exchange gain was primarily due to $3.7 million of exchange gains generated by Mexico, partially offset by exchange losses in Europe of $0.4 million. In Mexico, exchange gains during 1999 related primarily to the remeasurements and repayments of U.S. dollar-denominated debt as the peso strengthened against the dollar. During 1998, the U.S. dollar strengthened substantially against the Mexican peso. This would normally have resulted in an exchange loss for the Company due to the large amount of U.S. dollar-denominated debt at Jafra S.A. However, as Mexico was considered to be a hyperinflationary economy during 1998, the U.S. dollar was the functional currency of the Mexican subsidiary. Accordingly, gains and losses on the remeasurement of such debt were not included as a component of net income in 1998. Interest expense. During 1999, the Company incurred $16.9 million of interest expense (including amortization of certain deferred financing fees) related to the debt incurred in conjunction with the Acquisition. Prior to the Acquisition, the Company was not leveraged, and accordingly, the 1998 expense included only eight months of Acquisition-related interest expense. During 1999, the Company obtained a Consent and Waiver to the Senior Credit Agreement that allowed the Company to repurchase the Notes in the open market from time to time, up to an aggregate amount of $25.0 million, and the Company repurchased a portion of its Notes with a face value of $14.0 million prior to maturity. In the first quarter of year 2000 the Company repurchased and retired additional Notes with a face value of $10.8 million prior to maturity. The repurchased Notes were replaced with lower cost debt under the Revolving Credit Facility. Income tax expense. Income tax expense increased to $10.9 million in 1999 from $4.6 million in 1998, an increase of $6.3 million. The increased income tax expense for 1999 is primarily the result of higher taxable income generated by the Company's Mexican subsidiary in 1999 as compared to 1998. In 1999, the 17 20 Company's effective tax rate was 67.7%, while in 1998, the Company had a 657% effective tax rate due to valuation allowances recorded against operating losses in the U.S. and Europe. In 1999, the Company was able to utilize a portion of operating losses previously recorded in the U.S., and the Company expects its effective tax rate to decrease in year 2000 due to the ability to utilize additional net operating losses in the U.S. Net income (loss). Net income increased to $4.6 million in 1999 from a net loss of $3.9 million in 1998, an increase of $8.5 million. The increase was primarily due to a $39.8 million increase in gross profit, a $3.7 million increase in exchange gains, and a $1.2 million increase in loss (gain) on sale of assets, partially offset by a $19.1 million increase in SG&A expenses, the $4.8 million restructuring and impairment charges incurred in 1999, a $5.5 million increase in interest expense resulting from the Acquisition, a $6.3 million increase in income tax expense, and a $0.6 million extraordinary loss, net of tax, on early extinguishment of debt. LIQUIDITY AND CAPITAL RESOURCES The Acquisition was consummated on April 30, 1998. As part of the financing for the Acquisition, $100.0 million of Notes were issued, $41.5 million of borrowings were initially drawn down under the Senior Credit Agreement ($25.0 million under the Term Loan Facility and $16.5 million under the Revolving Credit Facility), and $82.9 million of cash was contributed as an equity investment by CD&R Fund V, certain members of management, certain directors and other persons. The purchase price for the Jafra Business, after final adjustments determined in 1999, was approximately $212.4 million (excluding $12.0 million of financing fees and expenses), consisting of $202.5 million in cash and $9.9 million of Acquisition fees. The Company's liquidity needs arise primarily from principal and interest payments under the Notes, the Term Loan Facility and the Revolving Credit Facility. The Notes represent several obligations of Jafra Cosmetics International, Inc. ("JCI") and Jafra Cosmetics International, S.A. de C.V. ("Jafra S.A.") in the initial amount of $60 million and $40 million (subsequently reduced in 1999 and 2000 by the repurchases described below), respectively, with each participating on a pro rata basis upon redemption. The Notes mature in 2008 and bear a fixed interest rate of 11.75% payable semi-annually. Borrowings under the Senior Credit Agreement are payable in quarterly installments of principal and interest through April 30, 2004. Scheduled term loan principal payments under the Term Loan Facility will be approximately $4.5 million, $5.5 million, $6.5 million, and $2.5 million for each of the years from 2001 through 2004, respectively. Borrowings under the Revolving Credit Facility ($14.5 million as of December 31, 2000) mature on April 30, 2004. Borrowings under the Senior Credit Agreement bear interest at an annual rate of LIBOR plus a margin not to exceed 1.625% or an alternate base rate (the higher of the prime rate or federal funds rate plus 0.5%, plus an applicable margin not to exceed 0.625%). The interest rates in effect at December 31, 2000 ranged from approximately 8.1% to approximately 8.3% for the LIBOR-based borrowings, and the rate for the prime-based borrowings was approximately 10.1%. Borrowings under the Senior Credit Agreement are secured by substantially all of the assets of JCI and Jafra S.A. Interest expense in 2000 was $15.7 million, including approximately $1.4 million of non-cash amortization of deferred financing fees. During 2000, cash paid for interest was approximately $15.0 million. Both the indenture (the "Indenture"), dated as of April 30, 1998, under which the Notes were issued, and the Senior Credit Agreement contain certain covenants that limit the Company's ability to incur additional indebtedness, pay cash dividends and make certain other payments. The Indenture and the Senior Credit Agreement also require the Company to maintain certain financial ratios including a minimum EBITDA to cash interest expense coverage ratio and a maximum debt to EBITDA ratio. As of December 31, 2000, the Company had two irrevocable standby letters of credit outstanding under the Revolving Credit Facility, totaling $1.8 million. The Notes are unsecured and are generally non-callable for five years. Thereafter, the Notes will be callable at premiums declining to par in the eighth year. Prior to May 1, 2001, JCI and Jafra S.A. at their option may concurrently redeem the Notes on a pro rata basis in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes. 18 21 A Consent and Waiver, dated November 19, 1999, to the Senior Credit Agreement allows the Company to repurchase the Notes in the open market from time to time, with the aggregate purchase prices for all such Notes repurchased not to exceed $25.0 million. During the fourth quarter of 1999, the Company repurchased and retired Notes with a face value of $14.0 million prior to maturity. In the first quarter of year 2000, the Company repurchased and retired additional Notes with a face value of $10.8 million prior to maturity. The repurchased debt was replaced with debt under the Revolving Credit Facility which currently has a lower effective interest rate than the Notes. The Company believes, but no assurance can be given, that its existing cash, cash flow from operations and availability under the Senior Credit Agreement will provide sufficient liquidity to meet the Company's cash requirements and working capital needs over the next year. OUTSOURCING OF MANUFACTURING FUNCTIONS The Company and the Contractor entered into a manufacturing agreement, dated as of June 10, 1999, (the "Manufacturing Agreement"). Subject to the terms and conditions of the Manufacturing Agreement, the Contractor has agreed to manufacture all of the Company's requirements for certain cosmetic and skin care products for an initial term of five years. Following the expiration of the initial five-year term, the Manufacturing Agreement will be automatically extended for additional one-year terms unless terminated by six months' prior written notice by either party. The Manufacturing Agreement provides for price renegotiations by the Contractor if the Company's quarterly or annual purchase volume falls below specified minimums. In addition, the Company is obligated to purchase materials acquired by the Contractor based upon product forecasts provided by the Company if the Contractor is unable to sell such materials to a third party. There have been no such repurchases to date. The Contractor is solely responsible for obtaining the inventories, manufacturing the inventories at its current location in Chino, California, complying with applicable laws and regulations, and performing quality assurance functions. In connection with the Company's 1999 restructuring activities related to the closure and outsourcing of its U.S. product manufacturing functions as discussed in Note 10 to the consolidated financial statements, certain fixed assets and inventories were sold to the Contractor in exchange for secured promissory notes. The promissory note for the fixed assets was for an amount of approximately $1.5 million, carried an annual interest rate of 8%, and commenced payments on January 1, 2000. The promissory note for inventories of approximately $2.2 million was non-interest bearing, and commenced payments on October 1, 1999. At December 31, 1999, approximately $2.1 million of notes from the Contractor (reflected at present value, net of discount), as well as $0.5 million of unsecured accounts receivable, were included in receivables and approximately $1.0 million of notes, representing the non-current portion of the fixed asset notes from the Contractor, were included in other assets in the accompanying consolidated balance sheets. The note for the inventories was repaid in October 2000 and the note for the fixed assets was repaid in December 2000. During the fourth quarter of 2000, the Contractor obtained $1.0 million of advances from the Company in exchange for an unsecured promissory note. The note bears interest at an annual rate of 9% and is payable in monthly installments commencing on February 15, 2001. At December 31, 2000, approximately $0.9 million of the note was included in receivables and approximately $0.1 million of the note was included in other assets in the accompanying consolidated balance sheets. RESTRUCTURING ACTIVITIES During 2000, the Company paid out approximately $2.0 million in charges related to restructuring activities. Approximately $1.0 million of the payments were for amounts accrued in 1999, consisting primarily of severance payments relating to the 1999 outsourcing of U.S. product manufacturing functions and certain other restructuring activities in Europe. An additional amount of approximately $1.0 million was paid relating to year 2000 repositioning activities in Europe, and consisted primarily of severance costs. The Company anticipates that substantially all of the remaining restructuring costs of approximately $0.7 million will be paid by the end of the third quarter of 2001. 19 22 CASH FLOWS Net cash provided by operating activities was $32.5 million in 2000, consisting of $23.2 million provided by net income adjusted for depreciation, amortization, and other non-cash items included in net income and $9.3 million provided by changes in operating assets and liabilities. The significant elements of the net cash provided by changes in operating assets and liabilities in 2000 were an increase of $12.1 million in accounts payable and a reduction in prepaid income taxes of $12.2 million, partially offset by an increase in inventories of $7.9 million and an increase in accounts receivable of $4.6 million. Net cash used by operating activities was $1.6 million in 1999, consisting of $20.7 million used by changes in operating assets and liabilities and $19.1 million provided by net income adjusted for depreciation, amortization, and other non-cash items included in net income. The significant elements of the net cash used by changes in operating assets and liabilities in 1999 were an increase in prepaid income taxes of $8.2 million, a reduction of accounts payable and accrued liabilities of $5.9 million, an increase in accounts receivable of $3.7 million, and an increase in prepaid assets of $3.0 million. Net cash used in investing activities was $7.2 million in 2000, compared to $3.1 million in 1999, an increase of $4.1 million. In 2000, investing activities consisted primarily of capital expenditures. In 1999, net cash used in investing activities consisted of capital expenditures of $5.8 million, payments of previously accrued Acquisition fees of $1.9 million and miscellaneous items totaling $1.0 million, partially offset by proceeds from the sales of a parcel of property and an office building of $5.6 million. Capital expenditures in 2001 are expected to be approximately $12.0 million, comprised of approximately $6.1 million for information technology, $3.2 million for production equipment and $2.7 million for space and facilities. These capital expenditures will be funded by cash from operations or borrowings under the revolving credit facility. Net cash used in financing activities was $23.5 million in 2000 compared to $7.4 million in 1999, an increase of $16.1 million. In 2000, the Company paid $10.6 million for repurchases of subordinated debt with a face value of $10.8 million, made net repayments of $10.5 million under the revolving credit facility, and made principal repayments of $3.5 million under the term loan facility. These debt repayment activities were partially offset by net proceeds of $0.8 million for issuances of common stock, net of repurchases, and net proceeds of $0.3 million from bank debt. In 1999, cash used in financing activities consisted primarily of $13.5 million for the repurchase of subordinated debt with a face value of $14.0 million and $2.5 million for principal repayments under the term loan facility, partially offset by net borrowings under the revolving credit facility of $8.5 million and net proceeds of $0.1 million for issuances of common stock. The effect of exchange rate changes on cash was $0.8 million for 2000 relating to fluctuations in the exchange rate of the peso and European currencies, primarily the deutschmark. The effect of exchange rate changes on cash was $1.4 million for 1999, relating primarily to fluctuations in the exchange rate of the peso. FOREIGN OPERATIONS Sales outside of the United States aggregated 77%, 76%, and 70% of the Company's total net sales for the fiscal years 2000, 1999, and 1998, respectively. In addition, as of December 31, 2000, international subsidiaries comprised approximately 75% of the Company's consolidated total assets. Accordingly, the Company has experienced and continues to be exposed to foreign exchange risk. During December 1999, the Company implemented a hedging program to protect against potential devaluation of the Mexican peso. The Company purchases forward contracts selling Mexican pesos and buying U.S. dollars based upon forward exchange rates. These contracts are marked-to-market each month and the fair value of the contracts is included in current assets and liabilities, with the offsetting gain or loss included in exchange gain (loss) in the accompanying consolidated statements of operations. In 2000, the net loss on forward exchange contracts was $10.0 million, while in 1999 there was a $0.2 million gain as the positions were only outstanding for a short period of time. The Company's subsidiary in Mexico, Jafra S.A., generated approximately 62.2% of the Company's net sales for 2000, compared to 58.8% for 1999, substantially all of which were denominated in Mexican pesos. 20 23 During 2000, the peso strengthened against the dollar. Net sales for 2000 would have decreased by $2.3 million, or 1.2%, from reported amounts if average exchange rates in 2000 remained the same as in 1999. Mexico has experienced periods of high inflation in the past. During 1998, Jafra S.A.'s functional currency was the U.S. dollar because Mexico was considered to be a hyperinflationary economy during that period. As of January 1, 1999, Mexico was no longer considered a hyperinflationary economy, and from that date forward, the Company has accounted for its Mexican operations using the peso as its functional currency. Because the functional currency in Mexico is no longer the U.S. dollar, gains and losses of remeasuring such debt to the U.S. dollar from the peso are now included as a component of net income. The remeasurement of U.S. dollar denominated-debt resulted in an unrealized exchange loss of $0.7 million in 2000. Jafra S.A. had $37.6 million of U.S. dollar denominated third party debt and $20.1 million of U.S. dollar-denominated intercompany debt as of December 31, 2000. EUROPEAN ECONOMIC AND MONETARY UNION On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the euro. The participating countries adopted the euro as their common legal currency on that day. The euro will trade on currency exchanges and be available for non-cash transactions during the transition period between January 1, 1999 and January 1, 2002. During this transition period, the existing currencies are scheduled to remain legal tender in the participating countries as denominations of the euro and public and private parties may pay for goods and services using either the euro or the participating countries' existing currencies. During the transition period, the Company will continue to utilize the respective country's existing currency as the functional currency. Use of the euro by the Company or its consultants is not expected to be significant and will be converted and recorded in the Company's accounting records to the existing functional currency. The Company intends to adopt the euro as its functional currency when the majority of its transactions in the member countries are conducted in the euro. The Company is currently identifying the impact the euro will have on its information systems throughout Europe. The Company has identified that its European commercial system will not support the euro, and that modifications are required in order to adapt the commercial system to support the euro. The Company plans to begin modifying its system in the second quarter of 2001, expects to complete the necessary modifications by the end of 2001, and does not expect to incur significant expenses in achieving a euro-compliant system. The Company does not expect the introduction of the euro to materially adversely affect its business, financial condition, or results of operations. BUSINESS TRENDS AND INITIATIVES The Company has experienced significant sales growth and an increased concentration of sales in Mexico over the last three years, due primarily to increases in the number of consultants. In 2000, the Company's Mexican subsidiary generated 62% of the Company's consolidated net sales, compared to 48% for 1998. Sales growth in Mexico during 1998 and 1999 was over 40% per year in local currency, but slowed to a growth rate of 13% in local currency in 2000. Assuming a continued stable economic environment, the Company expects to continue to grow its revenues and representative base in Mexico, but at rates in the range of 10-12% per year. The Company is employing a strategy to leverage diversification through growth in other markets besides Mexico. Late in 2000, the U.S. subsidiary took a strategic step to recognize the distinct elements of its General and Hispanic customer groups, and appointed separate General Managers for these distinct business divisions. Each of these divisions plans to implement programs tailored to the specific needs of its customers in 2001, and U.S. sales growth is expected to be in the high single digits. Net sales in Europe for 2000 declined at a rate of approximately 19% from the comparable period of the prior year, primarily due to declines in both the number and productivity of consultants, along with an unfavorable exchange rate impact. European sales have declined from approximately 16% of the Company's 21 24 business in 1998 to approximately 8% of the Company's business in 2000. While no assurance can be given, the Company expects to achieve approximately the same level of European sales in year 2001 as was achieved in 2000, but at higher operating profit as a result of the repositioning and restructuring activities undertaken during 2000. See "-- Results of Operations". During 1999 and 2000, the Company has made significant investments in new markets in South America. Sales in the South American region grew by over 20% in 2000 and are expected to continue to grow at even higher rates as the new markets continue to develop. In 2000, net sales generated by subsidiaries in the South American region were approximately 6% of consolidated net sales, but the Company expects the region to contribute approximately 9% of consolidated sales for 2001. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Certain of the statements contained in this report (other than the Company's consolidated financial statements and other statements of historical fact) are forward-looking statements, including, without limitation, (i) the statements in "Business -- Strategy" concerning (a) the Company's belief that the senior management team will continue to provide the dynamic leadership required to attract new consultants and managerial talent, inspire new and existing consultants to greater productivity and execute the Company's new market development strategy; (b) the Company's plans to expand its consultant base in developed markets and to increase consultant productivity; (c) the Company's plans to continuously introduce new and enhanced products based on technological advances and consumer demand; (d) the Company's belief that its existing distribution and manufacturing capabilities provide a strong platform for the Company to expand into and within new and developing markets and thereby diversify its revenue base; (e) the Company's intention to focus its expansion efforts in new and developing markets; (f) the Company's plan to enhance its use of the Internet including by enabling U.S. consultants to submit orders and payments electronically and its belief that use of the Internet by its consultants will result in better service to customers at a lower cost and increase the overall satisfaction level of its consultants; and (g) the Company's plans to continue to improve operating efficiency through cost-cutting, better inventory management, and streamlining of marketing efforts and product lines; the Company's plan to place greater marketing focus on certain types of "limited life" products and its belief that the focus on these products will lead to a faster level of inventory turns and a reduced investment in inventories; (ii) the statements in "Business -- Products" concerning (a) the Company's plan to launch a major redesign of the Color line at the end of 2001, (b) the Company's plans to launch a new product containing retinol in capsule form in mid-2001, (c) the Company's plan to introduce two new global fragrances, one fragrance for the Mexico market, and up to six new fragrances in Brazil in 2001, (d) the Company's plans to launch fitness and well-being body care products for use in conjunction with exercise and leisure activities in 2001; (iii) the statement in "Business -- International Operations" that the Company intends to increase revenues in markets other than Mexico in order to diversify its revenue base and to minimize any adverse impact that a downturn in the Mexican economy may have on the Company; (iv) the statement in "Business -- Manufacturing" that goods and raw materials used in the Company's products generally are available or can be obtained to Company specifications from more than one potential supplier; (v) the statement in "Business -- Distribution" that management believes its facilities are adequate to meet demand in its existing markets for the foreseeable future; (vi) the statements in "Business -- Management Information Systems" concerning (a) the Company's expectation that the remainder of its e-commerce system is expected to be implemented in the second quarter of 2001; (b) the Company's expectations that during 2001, European information systems will be modified to support a streamlined European organization and to achieve compliance with the euro, (c) the Company's expectation that during 2001, a new business system will be implemented in Brazil to enhance financial and inventory management, (d) the Company's belief that commercial systems currently existing in its major markets are adequate to support its business activities for the next two to three years, and (e) the Company's expectation that a new commercial system will be implemented globally in a phased approach beginning in the latter part of 2001 and continuing to 2004; (vii) the statement in "Business -- Environmental Matters" that the Company believes that environmental laws and regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position; (viii) other statements as to management's or the Company's expectations, intentions and beliefs presented in "Business"; (ix) the statement in "Properties" that the Company's properties are suitable to 22 25 meet its anticipated requirements; (x) the statement in "Legal Proceedings" that the Company believes that the resolution of the routine legal matters in which it is involved will not have a material adverse effect on the Company's business, financial condition or results of operations; (xi) the statement in "-- Liquidity and Capital Resources" that the Company believes that it will have sufficient liquidity to meet its cash requirements and working capital needs over the next year, (xii) the statement in "-- Cash Flows" that the Company expects capital expenditures in 2001 to be approximately $12.0 million, (xiii) the statements in "-- European Economic and Monetary Union" concerning the Company's expectations that (a) use of the euro by the Company or its consultants will not be significant and (b) the introduction of the euro will not materially adversely affect its business, financial condition or results of operations; (xiv) the statements in "-- Business Trends and Initiatives" that (a) assuming a continued stable economic environment, the Company expects to continue to grow its revenues and representative base in Mexico, but at rates in the range of 10 - 12% per year, (b) the Company's plans to implement programs tailored to the specific needs of the customers of each of the U.S. divisions in 2001; (c) the Company's expectation that U.S. sales growth will be in the high single digits in 2001; (d) the Company's expectation that sales in Europe in 2001 will be approximately the same level as in 2000, but at a higher operating profit, and (e) the Company's expectation that its percentage of net sales in South America will increase to approximately 9% of consolidated sales for 2001 and (xv) other statements as to management's or the Company's expectations or beliefs presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements are based upon management's current expectations and beliefs concerning future developments and their potential effects upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. The following important factors, and those important factors described elsewhere in this report (including, without limitation, those discussed in "Business -- Strategy," "-- International Operations," "-- Distribution," "-- Manufacturing," "-- Management Information Systems," "-- Environmental Matters," "Properties," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations," "-- Liquidity and Capital Resources," "-- Foreign Operations," "-- European Economic and Monetary Union" and "-- Business Trends and Initiatives"), or in other Securities and Exchange Commission filings, could affect (and in some cases have affected) the Company's actual results and could cause such results to differ materially from estimates or expectations reflected in such forward-looking statements: - The Company's high degree of leverage could have important consequences to the Company, including but not limited to the following: (i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired in the future; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for other purposes; (iii) certain of the Company's borrowings will be at variable rates of interest, which could cause the Company to be vulnerable to increases in interest rates and (iv) the Company may be more vulnerable to economic downturns and be limited in its ability to withstand competitive pressures. - The Company's ability to make scheduled payments or to refinance its obligations with respect to its indebtedness, and to comply with the covenants and restrictions contained in the instruments governing such indebtedness, will depend on its financial and operating performance, which, in turn, is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond its control, including operating difficulties, increased operating costs, market cyclicality, product prices, the response of competitors, regulatory developments, and delays in implementing strategic projects. - The Company's ability to meet its debt service and other obligations will depend in significant part on the extent to which the Company can implement successfully its business strategy. The components of the Company's strategy are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company. 23 26 - The Company's ability to conduct and expand its business outside the United States and the amount of revenues derived from foreign markets are subject to the risks inherent in international operations. The Company's international operations may be adversely affected by import duties or other legal restrictions on imports, currency exchange control regulations, transfer pricing regulations, the possibility of hyperinflationary conditions and potentially adverse tax consequences, among other things. Given the balance of payment deficits and shortages in foreign exchange reserves that many such economies, including the Mexican economy, have suffered in recent years, there can be no assurance that the governments of nations in which the Company operates, or intends to expand, will not take actions that materially adversely affect the Company and its business. - The direct selling cosmetics and personal care products business is highly competitive. A number of the Company's competitors, including Avon and Mary Kay, are significantly larger and have substantially greater resources and less leverage than the Company, which may provide them with greater flexibility to respond to changing business and economic conditions than the Company. An increase in the amount of competition faced by the Company, or the inability of the Company to compete successfully, could have a material adverse effect on the Company's business, financial condition and results of operations. - The Company's ability to anticipate changes in market and industry trends and to successfully develop and introduce new and enhanced products on a timely basis will be a critical factor in its ability to grow and to remain competitive. There can be no assurance that new products and product enhancements will be completed on a timely basis or will enjoy market acceptance following their introduction. In addition, the anticipated development schedules for new or improved products are inherently difficult to predict and are subject to delay or change as a result of shifting priorities in response to customers' requirements and competitors' new product introductions. - The Company is subject to or affected by governmental regulations concerning, among other things, (i) product formulation, (ii) product claims and advertising, whether made by the Company or its consultants, (iii) fair trade and distributor practices and (iv) environmental, health and safety matters. In addition, new regulations could be adopted or any of the existing regulations could be changed at any time in a manner that could have a material adverse effect on the Company's business and results of operations. Present or future health or safety or food and drug regulations could delay or prevent the introductions of new products into a given country or marketplace or suspend or prohibit the sale of existing products in such country or marketplace. The Company believes that it is in compliance in all material respects with such laws and regulations now in effect. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not intend to review or revise any particular forward-looking statement referenced in this report in light of future events. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks arising from transactions in the normal course of its business, and from debt incurred in connection with the Acquisition. Such risk is principally associated with interest rate and foreign exchange fluctuations, as well as changes in the Company's credit standing. During the fourth quarter of 2000, the Company received upgraded Company credit ratings from both S&P and Moody's, to current ratings of B+ and B2, respectively. 24 27 INTEREST RATE RISK The Company has U.S. dollar denominated debt obligations in both the United States and Mexico that have fixed and variable interest rates and mature on various dates. The tables below present principal cash flows and related interest rates by fiscal year of maturity: DEBT OBLIGATION INFORMATION AT DECEMBER 31, 2000 (AMOUNTS IN U.S. DOLLARS IN 000'S)
EXPECTED YEAR OF MATURITY FAIR VALUE ---------------------------------------------------------------- DECEMBER 31, 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000(1) ------ ------ ------ ------- ---- ---------- ------- ------------ Senior Subordinated Notes, Term Loan, and Revolving Credit Facility Fixed Rate (US$)................. $75,180 $75,180 $77,435 Average Interest Rate............ 11.75% Variable Rate (US$).............. $4,846 $5,500 $6,500 $17,000 -- -- 33,846 33,846 Average Interest Rate............ 8.95% 8.13% 8.13% 8.29% -- --
DEBT OBLIGATION INFORMATION AT DECEMBER 31, 1999 (AMOUNTS IN U.S. DOLLARS IN 000'S)
EXPECTED YEAR OF MATURITY FAIR VALUE ------------------------------------------------------------------ DECEMBER 31, 2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999(1) ------ ------ ------ ------ ------- ---------- ------- ------------ Senior Subordinated Notes, Term Loan, and Revolving Credit Facility Fixed Rate (US$).................. $86,000 $86,000 $83,850 Average Interest Rate............. 11.75% Variable Rate (US$)............... $3,500 $4,500 $5,500 $6,500 $27,500 -- 47,500 47,500 Average Interest Rate............. 8.89% 8.89% 8.89% 8.89% 8.89% --
- --------------- (1) The Company's estimate of the fair value of its Senior Subordinated Notes at December 31, 2000 was based on discussions with one of the Company's largest bondholders, and an analysis of current market interest rates and the Company's credit rating. The Company's estimate of the fair value of its Senior Subordinated Notes at December 31, 1999 was based upon quoted market prices. As the Company's Revolving Credit Facilities and the Term Loan are variable rate debt, and the interest rate spread paid by the Company is adjusted for changes in certain financial ratios of the Company, the fair value of the Revolving Credit Facilities and the Term Loan approximated their carrying amounts at December 31, 2000 and 1999. FOREIGN CURRENCY RISK The Company operates globally, with manufacturing facilities in Mexico and distribution facilities in various locations around the world. All intercompany product sales are denominated in U.S. dollars. In addition, 77% of the Company's 2000 revenue was generated in countries with a functional currency other than the U.S. dollar. As a result, the Company's earnings and cash flows are exposed to fluctuations in foreign currency exchange rates. The Company may reduce its primary market exposures to fluctuations in foreign exchange rates and hedge contractual foreign currency cash flows or obligations (including third-party and intercompany foreign currency transactions) by creating offsetting positions through the use of forward exchange contracts. The Company regularly monitors its foreign currency exposures and ensures that contract amounts do not exceed the amounts of the underlying exposures. The Company does not use derivative financial instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives. The tables below describe the forward contracts that were outstanding at December 31, 2000 and 1999 (dollar amounts in thousands). These foreign currency forward contracts do not qualify as hedging 25 28 transactions under the current accounting definitions and, accordingly, have been marked-to-market through income. DECEMBER 31, 2000:
WEIGHTED FORWARD AVERAGE POSITION IN MATURITY CONTRACT FAIR FOREIGN CURRENCY US DOLLARS(1) DATE RATE VALUE(1) ---------------- ------------- -------- -------- -------- Buy US Dollar/sell Mexican Peso............... $ 6,980 1/26/01 10.12 $ 6,679 Buy US Dollar/sell Mexican Peso............... 7,500 2/26/01 10.20 7,187 Buy US Dollar/sell Mexican Peso............... 7,529 3/30/01 10.36 7,162 Buy US Dollar/sell Mexican Peso............... 5,915 4/30/01 10.48 5,607 Buy US Dollar/sell Mexican Peso............... 2,828 5/31/01 10.61 2,670 Buy US Dollar/sell Mexican Peso............... 3,907 6/29/01 10.24 3,861 Buy US Dollar/sell Mexican Peso............... 2,618 7/31/01 10.31 2,588 Buy US Dollar/sell Mexican Peso............... 11,816 8/31/01 10.32 11,804 Buy US Dollar/sell Mexican Peso............... 12,125 9/28/01 10.39 12,119 Buy US Dollar/sell Mexican Peso............... 2,336 10/30/01 10.70 2,290 Buy US Dollar/sell Mexican Peso............... 10,275 10/31/01 10.71 10,078 Buy US Dollar/sell Mexican Peso............... 2,878 11/30/01 10.43 2,934 Buy US Dollar/sell Mexican Peso............... 4,110 12/27/01 10.71 4,120 ------- ------- $80,817 $79,099 ======= =======
DECEMBER 31, 1999:
WEIGHTED FORWARD AVERAGE POSITION IN MATURITY CONTRACT FAIR FOREIGN CURRENCY US DOLLARS(1) DATE RATE VALUE(1) ---------------- ------------- -------- -------- -------- Buy US Dollar/sell Mexican Peso............... $ 3,658 3/31/00 9.671 $ 3,690 Buy US Dollar/sell Mexican Peso............... 3,822 4/28/00 9.770 3,856 Buy US Dollar/sell Mexican Peso............... 2,885 5/31/00 9.900 2,907 Buy US Dollar/sell Mexican Peso............... 3,937 6/30/00 10.008 3,967 Buy US Dollar/sell Mexican Peso............... 1,947 7/31/00 10.118 1,962 Buy US Dollar/sell Mexican Peso............... 2,988 8/31/00 10.223 3,010 Buy US Dollar/sell Mexican Peso............... 3,818 9/29/00 10.326 3,846 Buy US Dollar/sell Mexican Peso............... 3,593 10/31/00 10.438 3,617 Buy US Dollar/sell Mexican Peso............... 2,814 11/30/00 10.548 2,829 ------- ------- $29,462 $29,684 ======= =======
- --------------- (1) The "Forward Position in U.S. Dollars" and the "Fair Value" presented above represent notional amounts. The net of these two amounts, an unrealized loss of $1,718,000 at December 31, 2000 and an unrealized gain of $222,000 at December 31, 1999, represents the carrying value of the forward contracts (which approximates fair value) and has been recorded as a liability and an asset in the accompanying consolidated balance sheets as of December 31, 2000 and 1999, respectively. Prior to entering into foreign currency exchange contracts, the Company evaluates the counter parties' credit ratings. Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties failed to perform as contracted. The Company does not currently anticipate non-performance by such counter parties. 26 29 Based upon the $80.8 million of outstanding forward contracts at December 31, 2000, if the peso to U.S. dollar exchange rate strengthened by 10%, a $14.4 million foreign currency loss on the settlement of forward contracts would result. However, gains would be realized on the Company's underlying hedged transactions. The Company's Mexican subsidiary, Jafra S.A., had U.S. dollar denominated debt of $57.7 million and $84.9 million at December 31, 2000 and 1999, respectively. During 2000, the value of the peso to the U.S. dollar decreased by 1.8%, and Jafra S.A. incurred a $0.7 million foreign currency transaction loss related to the remeasurement and repayment of U.S. dollar denominated debt. Based upon the $57.7 million of outstanding debt at December 31, 2000, a 10% decline in the peso to U.S. dollar exchange rate would result in a $5.8 million foreign currency transaction loss. 27 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS -- CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES
PAGE ---- Independent Auditors' Report................................ 29 Consolidated Balance Sheets -- As of December 31, 2000 and 1999...................................................... 30 Consolidated Statements of Operations -- For the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998.................................................. 31 Consolidated Statements of Stockholders' Equity -- For the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998...................................... 32 Consolidated Statements of Cash Flows -- For the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998.................................................. 33 Notes to Consolidated Financial Statements.................. 35 FINANCIAL STATEMENTS -- JAFRA COSMETICS INTERNATIONAL, INC. Independent Auditors' Report.............................. 57 Consolidated Balance Sheets as of December 31, 2000 and 1999................................................... 58 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 59 Consolidated Statements of Stockholder's Equity for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998............................ 60 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 61 Notes to Consolidated Financial Statements................ 62 FINANCIAL STATEMENTS -- JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. Independent Auditors' Report.............................. 80 Consolidated Balance Sheets as of December 31, 2000 and 1999................................................... 81 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 82 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998............................ 83 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 84 Notes to Consolidated Financial Statements................ 85 Schedule II -- Valuation and Qualifying Accounts............ 97
28 31 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of CDRJ Investments (Lux) S.A. Luxembourg We have audited the accompanying consolidated balance sheets of CDRJ Investments (Lux) S.A. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2000 and 1999 and the eight-month period ended December 31, 1998 and the combined statements of operations, divisional equity, and cash flows of Jafra Cosmetics International (the "Predecessor") for the four-month period ended April 30, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CDRJ Investments (Lux) S.A. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999 and the eight-month period ended December 31, 1998 and the combined results of operations and cash flows of the Predecessor for the four-month period ended April 30, 1998 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP March 22, 2001 Los Angeles, California 29 32 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Current assets: Cash and cash equivalents................................. $ 5,838 $ 4,906 Receivables, less allowances for doubtful accounts of $3,553 in 2000 and $3,087 in 1999...................... 35,919 31,277 Inventories............................................... 38,146 30,290 Prepaid income taxes...................................... 1,869 13,875 Prepaid expenses and other current assets (including value-added tax receivables of $5,329 in 2000 and $6,053 in 1999)........................................ 10,296 8,608 -------- -------- Total current assets.............................. 92,068 88,956 Property and equipment, net................................. 51,448 50,607 Other assets: Goodwill, net............................................. 72,260 75,323 Trademarks, net........................................... 49,375 51,605 Deferred financing fees and other, net.................... 11,793 11,886 -------- -------- Total............................................. $276,944 $278,377 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt, including current portion of long-term debt................................................... $ 4,846 $ 3,500 Accounts payable.......................................... 27,988 15,005 Accrued liabilities....................................... 34,223 33,424 Income taxes payable...................................... 426 276 Deferred income taxes..................................... 5,391 2,587 -------- -------- Total current liabilities......................... 72,874 54,792 Long-term debt.............................................. 104,180 130,000 Deferred income taxes....................................... 16,357 15,731 Other long-term liabilities................................. 2,366 2,060 -------- -------- Total liabilities................................. 195,777 202,583 -------- -------- Commitments and contingencies............................... -- -- Stockholders' equity: Common stock, par value $2.00; authorized, 1,020,000 shares; issued and outstanding, 834,293 shares in 2000 and 830,659 shares in 1999............................. 1,669 1,661 Additional paid-in capital................................ 82,194 81,381 Retained earnings (deficit)............................... 2,942 (3,393) Accumulated other comprehensive loss...................... (5,572) (3,855) -------- -------- 81,233 75,794 Less treasury stock, at cost, 316 shares.................. (66) -- -------- -------- Total stockholders' equity........................ 81,167 75,794 -------- -------- Total............................................. $276,944 $278,377 ======== ========
See accompanying notes to consolidated financial statements. 30 33 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ----------- Net sales............................... $324,140 $299,165 $176,210 $79,920 Cost of sales........................... 79,559 82,239 56,324 22,666 -------- -------- -------- ------- Gross profit....................... 244,581 216,926 119,886 57,254 Selling, general and administrative expenses.............................. 199,473 183,549 112,643 51,813 Restructuring and impairment charges.... 2,626 4,812 -- -- Loss (gain) on sale of assets........... 150 (1,043) 150 -- -------- -------- -------- ------- Income from operations............. 42,332 29,608 7,093 5,441 Other income (expense): Exchange (loss) gain.................. (11,652) 3,330 (1,742) 1,376 Interest (expense) income, net........ (15,659) (16,888) (11,431) 78 Other income (expense), net........... 1,563 24 (201) 104 -------- -------- -------- ------- Income (loss) before income taxes and extraordinary item.................... 16,584 16,074 (6,281) 6,999 Income tax expense...................... 9,934 10,874 1,760 2,899 -------- -------- -------- ------- Income (loss) before extraordinary item.................................. 6,650 5,200 (8,041) 4,100 Extraordinary loss on early extinguishment of debt, net of income tax benefit of $195 in 2000 and $177 in 1999............................... 315 552 -- -- -------- -------- -------- ------- Net income (loss)....................... $ 6,335 $ 4,648 $ (8,041) $ 4,100 ======== ======== ======== =======
See accompanying notes to consolidated financial statements. 31 34 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT FOR SHARES)
PREDECESSOR FOUR EIGHT MONTHS MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ----------------- ----------------- ----------------- ----------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT AMOUNT ------- ------- ------- ------- ------- ------- ----------- COMMON STOCK: Balance, beginning of period....................... 830,659 $ 1,661 829,940 $ 1,660 -- -- $ 49,567 Common stock issued upon formation of -- -- -- -- -- -- -- CDRJ Investments (Lux) S.A., April 30, 1998...... -- -- -- -- 789,503 $ 1,579 -- Issuance of common stock........................... 3,634 8 719 1 40,437 81 -- ------- ------- ------- ------- ------- ------- -------- Balance, end of period............................. 834,293 1,669 830,659 1,661 829,940 1,660 49,567 ------- ------- ------- ------- ------- ------- -------- ADDITIONAL PAID-IN CAPITAL: Balance, beginning of period....................... 81,381 81,275 -- 4,564 Common stock issued upon formation of -- -- -- -- CDRJ Investments (Lux) S.A., April 30, 1998...... -- -- 77,371 -- Issuance of common stock........................... 813 106 3,904 -- ------- ------- ------- ------- ------- ------- -------- Balance, end of period............................. 82,194 81,381 81,275 4,564 ------- ------- ------- ------- ------- ------- -------- RETAINED EARNINGS (DEFICIT): Balance, beginning of year......................... (3,393) (8,041) -- 77,513 Net income (loss).................................. 6,335 4,648 (8,041) 4,100 Net loss for foreign subsidiaries due to -- -- -- change in reporting period (unaudited)........... -- -- -- (1,197) Dividends paid to Gillette......................... -- -- -- (20,990) Capital contributions by Gillette.................. -- -- -- 31,735 ------- ------- ------- ------- ------- ------- -------- Balance, end of period............................. 2,942 (3,393) (8,041) 91,161 ------- ------- ------- ------- ------- ------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Balance, beginning of year......................... (3,855) 547 -- (54,340) Currency translation adjustments................... (1,717) (4,402) 547 (333) ------- ------- ------- ------- ------- ------- -------- Balance, end of period............................. (5,572) (3,855) 547 (54,673) ------- ------- ------- ------- ------- ------- -------- TREASURY STOCK, AT COST: Balance, beginning of year......................... -- -- -- -- -- -- -- Purchases of treasury stock........................ 948 (199) 2,317 (346) -- -- -- Exercise of stock options.......................... (158) 33 (579) 86 -- Issuances of common stock.......................... (474) 100 (1,738) 260 -- -- -- ------- ------- ------- ------- ------- ------- -------- Balance, end of period............................. 316 (66) -- -- -- -- -- ------- ------- ------- Total Stockholders' Equity................... 834,609 $81,167 830,659 $75,794 829,940 $75,441 $ 90,619 ======= ======= ======= ======= ======= ======= ======== COMPREHENSIVE INCOME (LOSS): Net income (loss).................................. $ 6,335 $ 4,648 $(8,041) $ 4,100 Currency translation adjustments................... (1,717) (4,402) 547 (333) ------- ------- ------- Total Comprehensive Income (Loss)............ $ 4,618 $ 246 $(7,494) $ 3,767 ======= ======= =======
- --------------- (1) Stockholders' equity of the Predecessor represents the combined stockholders' equity and divisional equity of the Predecessor entities. See accompanying notes to consolidated financial statements. 32 35 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR ----------- YEARS ENDED EIGHT MONTHS FOUR MONTHS DECEMBER 31, ENDED ENDED ------------------- DECEMBER 31, APRIL 30, 2000 1999 1998 1998 -------- -------- ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................................... $ 6,335 $ 4,648 $ (8,041) $ 4,100 Extraordinary loss on early extinguishment of debt, net of taxes........................................ 315 552 -- -- -------- -------- --------- -------- Income (loss) before extraordinary item................. 6,650 5,200 (8,041) 4,100 Adjustments to reconcile income (loss) before extraordinary item to net cash provided by (used in) operating activities: Loss (gain) on sale of property and equipment......... 150 (1,043) 150 -- Depreciation and amortization......................... 7,632 7,119 5,089 1,363 Amortization of deferred financing fees............... 1,430 1,832 1,407 -- Asset impairment charge............................... 1,019 1,084 -- -- Unrealized foreign exchange loss (gain)............... 2,918 (2,377) -- -- Deferred income taxes................................. 3,430 7,320 4,516 375 Changes in operating assets and liabilities: Receivables, net.................................... (4,578) (3,686) (4,095) (2,063) Inventories......................................... (7,856) 613 5,260 (512) Prepaid expenses and other current assets........... (1,688) (2,960) (2,313) (7,457) Other assets........................................ (927) (1,182) (760) 3,948 Accounts payable and accrued liabilities............ 12,065 (5,904) 19,699 (7,144) Income taxes payable/prepaid........................ 12,156 (8,198) (2,878) (247) Other long-term liabilities......................... 57 627 80 (408) -------- -------- --------- -------- Net cash provided by (used in) operating activities..................................... 32,458 (1,555) 18,114 (8,045) -------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Jafra Business, net of cash received of $2,339................................................ -- -- (187,226) -- Withholding taxes on purchase price..................... -- -- (12,929) -- Payments of previously accrued Acquisition fees......... -- (1,856) (7,542) -- Proceeds from sale of property and equipment............ 675 5,551 2,917 8,811 Purchases of property and equipment..................... (7,105) (5,798) (6,367) (6,124) Other................................................... (760) (991) -- (97) -------- -------- --------- -------- Net cash provided by (used in) investing activities..................................... (7,190) (3,094) (211,147) 2,590 -------- -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance (repurchase) of subordinated debt.............. (10,597) (13,490) 100,000 -- Borrowings (repayments) under term loan facility........ (3,500) (2,500) 25,000 -- Net borrowings (repayments) under revolving credit facility.............................................. (10,500) 8,500 16,500 -- Net proceeds from bank debt............................. 346 -- -- -- Capital contributions by Gillette....................... -- -- -- 5,013 Transactions with Gillette and other divisions.......... -- -- -- (13,792) Issuance of common stock................................ 954 457 82,707 -- Repurchase of common stock.............................. (199) (346) -- -- Deferred financing fees................................. -- -- (12,471) -- -------- -------- --------- -------- Net cash provided by (used in) financing activities..................................... (23,496) (7,379) 211,736 (8,779) -------- -------- --------- -------- Effect of exchange rate changes on cash................... (840) (1,424) (573) (333) Effect of accounting calendar change on cash.............. -- -- -- 6,276 -------- -------- --------- -------- Net increase (decrease) in cash and cash equivalents...... 932 (13,452) 18,130 (8,291) Cash and cash equivalents at beginning of period.......... 4,906 18,358 228 10,231 -------- -------- --------- -------- Cash and cash equivalents at end of period................ $ 5,838 $ 4,906 $ 18,358 $ 1,940 ======== ======== ========= ======== (Continued)
33 36 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
PREDECESSOR ----------- YEARS ENDED EIGHT MONTHS FOUR MONTHS DECEMBER 31, ENDED ENDED ------------------- DECEMBER 31, APRIL 30, 2000 1999 1998 1998 -------- -------- ------------ ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid (received) during the year for: Interest.............................................. $ 15,027 $ 16,656 $ 8,301 $ 501 Income taxes.......................................... (5,652) 10,541 4,402 4,135 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: In connection with the Acquisition at April 30, 1998, certain intercompany balances between Gillette and the Predecessor were forgiven. These amounts were accounted for as direct contributions to (reductions from) equity: Intercompany accounts payable......................... $ -- $ -- $ -- $ 26,722 Intercompany accounts receivable...................... -- -- -- (20,990)
During 1999, the Company sold inventories with a book value of approximately $2.3 million and equipment with a net book value of approximately $3.8 million to a third party contractor in connection with a manufacturing outsourcing agreement, in exchange for notes receivable with present values of $2.1 million and $1.5 million, respectively (see Note 14). The resulting loss of approximately $2.5 million was recorded as a charge against the restructuring accrual established in connection with the Acquisition. See accompanying notes to consolidated financial statements. 34 37 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS BASIS OF PRESENTATION CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme (the "Parent"), Jafra Cosmetics International, Inc., a Delaware corporation ("JCI"), Jafra Cosmetics International, S.A. de C.V., a sociedad anonima de capital variable organized under the laws of the United Mexican States ("Jafra S.A.") and certain other subsidiaries of the Parent were organized by Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands exempted limited partnership managed by Clayton, Dubilier & Rice, Inc. ("CD&R") to acquire (the "Acquisition") the worldwide Jafra Cosmetics business (the "Jafra Business") of The Gillette Company ("Gillette"). JCI and Jafra S.A. are indirect, wholly owned subsidiaries of the Parent. The Parent is a holding company that conducts all its operations through its subsidiaries. The Parent and its subsidiaries are collectively referred to as the "Company." On April 30, 1998, pursuant to an acquisition agreement (the "Acquisition Agreement") between the Parent, certain of its subsidiaries and Gillette, (i) Jafra Cosmetics International Inc., a California corporation, merged with and into JCI, with JCI as the surviving entity, (ii) Jafra S.A. acquired the stock of Grupo Jafra, S.A. de C.V., a Mexican Company ("Grupo Jafra"), which merged with and into Jafra S.A. following the consummation of the Acquisition, with Jafra S.A. as the surviving entity, (iii) indirect subsidiaries of the Parent purchased the stock of Gillette subsidiaries conducting the Jafra Business in Germany, Italy, the Netherlands and Switzerland; and (iv) indirect subsidiaries of the Parent acquired from various Gillette subsidiaries certain assets used in the Jafra Business in Austria, Argentina, Colombia and Venezuela. The accompanying consolidated financial statements as of and for the years ended December 31, 2000 and 1999 and for the eight-month period ended December 31, 1998 reflect the operations of the Parent and its subsidiaries. The accompanying combined financial statements for the four months ended April 30, 1998 reflect the operations of the Jafra Business prior to the Acquisition and are referred to as the "Predecessor" operations. All significant intercompany or interdivisional accounts and transactions between entities comprising the Jafra Business have been eliminated in consolidation and combination. The combined financial statements of the Predecessor included the following subsidiaries and divisions of Gillette: Jafra Cosmetics International, Inc., a California corporation; Jafra Cosmetics GmbH, a German company; Jafra Cosmetics International B.V., a Netherlands company; Jafra Cosmetics S.p.A., an Italian company; Jafra Cosmetics A.G., a Swiss company; Grupo Jafra S.A. de C.V., a Mexican company, and its subsidiaries, together with certain operating assets and the related operating profit of Gillette Braun used in the Jafra Business in Mexico (the "Braun Assets"); the Jafra-related operations of Gillette affiliates in Austria, Argentina, Colombia and Venezuela; and the assets related to the Jafra intellectual property, formerly held by Gillette, that are used in the Jafra Business. Because of the debt financing incurred in connection with the Acquisition, the exclusion of certain assets and liabilities not acquired, and the adjustments made to allocate the excess of the aggregate purchase price over the historical value of the net assets acquired, the accompanying consolidated financial statements of the Company are not directly comparable to those of the Predecessor. In 1998, the Predecessor changed the reporting period for the foreign operations from a fiscal year ending November 30 to a calendar year ending December 31. The line item denoted "Effect of accounting calendar change on cash" in the consolidated statements of cash flows represents the change in the cash balance of the Predecessor's foreign operations from November 30, 1997 to December 31, 1997. The purchase price for the Jafra Business was approximately $212.4 million (excluding $12.0 million of financing fees and expenses), consisting of $202.5 million in cash ($2.5 million of which was determined and paid subsequent to the Acquisition date) and $9.9 million of Acquisition fees. The $202.5 million cash purchase price included $187.1 million paid by the Company directly to Gillette in cash at the closing date, (net of cash of $2.3 million received as part of the Acquisition), and $12.9 million of withholding taxes paid by 35 38 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the Company on behalf of Gillette subsequent to the closing date of the Acquisition. In addition, on November 3, 1998, the Company paid Gillette an additional $2.5 million (net of a receivable from Gillette of $5.1 million) as a final adjustment of the purchase price. The Acquisition has been accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets and liabilities acquired based upon their respective fair values at the date of Acquisition based on valuations and other studies. The following sets forth the purchase price allocation (amounts in millions): Net tangible assets acquired (net of liabilities assumed of $38.2 million)............................................ $ 69.0 Allocation of excess purchase price: Property and equipment.................................... 18.4 Accrued income taxes...................................... 0.9 Deferred income tax liability............................. (0.8) Accrual of restructuring/rationalization costs (Note 10).................................................... (4.4) Inventories............................................... (2.4) Trademarks................................................ 53.8 Goodwill.................................................. 77.9 ------ Total............................................. $212.4 ======
DESCRIPTION OF BUSINESS The Company is an international manufacturer and marketer of premium skin and body care products, color cosmetics, fragrances, and other personal care products. The Company markets its products primarily in 16 countries, 15 outside the United States, and a number of additional countries through distributors, through a direct selling, multilevel distribution system comprised of self-employed salespersons (known as "consultants"). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. Cash and cash equivalents include cash, time deposits and all highly liquid debt instruments purchased with a maturity of three months or less. Inventories. Inventories are stated at the lower of cost, as determined by the first-in, first-out basis, or market. Property and Equipment. Property and equipment are stated at cost. Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets using the straight-line method. Estimated useful lives are 40 years for buildings and improvements and 5 to 15 years for machinery and equipment. Maintenance and repairs, including cost of minor replacements, are charged to operations as incurred. Costs of additions and betterments are added to property and equipment accounts provided that such expenditures increase the useful life or the value of the asset. Intangible Assets. Intangible assets principally consist of goodwill and trademarks, which are amortized using the straight-line method. Goodwill and trademarks resulting from the Company's acquisition of the Jafra Business from Gillette are being amortized over a period of 40 years, while the Predecessor's goodwill was amortized generally over a period of 37.5 years. Accumulated amortization of goodwill and trademarks at 36 39 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000 was $5,114,000 and $3,724,000, respectively. Accumulated amortization of goodwill and trademarks at December 31, 1999 was $3,160,000 and $2,303,000, respectively. Deferred Financing Costs. In connection with the acquisition of the Jafra Business, the Company incurred approximately $12.0 million of costs related to the 11.75% Senior Subordinated Notes due 2008 (the "Notes"), the Revolving Credit Facility and the Term Loan Facility (see Note 6). Such costs are being amortized on a basis that approximates the interest method over the expected term of the related debt. Accumulated amortization at December 31, 2000 and 1999 was $3,998,000 and $2,887,000, respectively. Impairment of Long-Lived Assets and Enterprise Goodwill. Long-lived assets and enterprise goodwill are reviewed for impairment, based on undiscounted cash flows, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If this review indicates that the carrying amount of the long-lived assets and goodwill is not recoverable, the Company will recognize an impairment loss, measured by the future discounted cash flow method (see Note 10). Foreign Currency Forward Contracts. During 2000 and 1999, the Company entered into foreign currency forward contracts to reduce the effect of adverse exchange rate fluctuations in Mexico. As a matter of policy, the Company does not hold or issue foreign currency forward contracts for trading or speculative purposes. These contracts have been marked-to-market each month based upon the change in the spot rate from the date of contract inception to the balance sheet date. The premium on such contracts is amortized to expense over the life of the contracts. The carrying value of the contracts is included in current assets and liabilities, with the offsetting gain or loss included in exchange (loss) gain in the accompanying consolidated statements of operations. At December 31, 2000 and 1999, the Company included $1,718,000 in accrued liabilities and $222,000 in prepaid expenses and other current assets, respectively, in the accompanying consolidated balance sheets. Fair Value of Financial Instruments. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term maturities of these instruments. The fair value of the Notes at December 31, 2000 was $77,435,000, based upon discussions with one of the Company's largest bondholders and an analysis of current market interest rates and the Company's credit rating. The fair value of the Notes at December 31, 1999 was $83,850,000, based on quoted market prices. As the Company's Revolving Credit Facilities and the Term Loan are variable rate debt, and the interest rate spread paid by the Company is adjusted for changes in certain financial ratios of the Company, the fair value of the Revolving Credit Facilities and the Term Loan approximated their carrying amounts at December 31, 2000 and 1999. The fair value of the Company's forward currency contracts at December 31, 2000 and 1999 closely approximates the carrying value, as such contracts are marked-to-market based upon changes in the spot rate from the date of contract inception to the balance sheet date. Research and Development. Research and development costs are expensed as incurred. Total research and development expense aggregated $1,901,000, $2,130,000, $1,902,000, and $1,185,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998, respectively. Income Taxes. The Company accounts for income taxes under the balance sheet approach that requires the recognition of deferred income tax assets and liabilities for the expected future consequences of events that have been recognized in the Company's financial statements or income tax returns. Management provides a valuation allowance for deferred income tax assets when it is more likely than not that a portion of such deferred income tax assets will not be realized. Foreign Currency Translation. The functional currency for foreign subsidiaries is generally the local currency. Assets and liabilities of such foreign subsidiaries are translated into U.S. dollars at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded as a component of other comprehensive income. Financial 37 40 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) results of foreign subsidiaries in countries with highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in net earnings, along with all transaction gains and losses for the period. During 1998, Jafra S.A.'s functional currency was the U.S. dollar because Mexico was considered to be a hyperinflationary economy during that period. As of January 1, 1999, Mexico was no longer considered a hyperinflationary economy, and from that date forward, the Company has accounted for its Mexican operations using the peso as its functional currency. Approximately 77%, 76%, and 70% of the Company's net sales for the years ended December 31, 2000, 1999, and 1998, respectively, were generated by operations located outside of the United States. Mexico is the Company's largest foreign operation, accounting for 62%, 59%, and 48% of the Company's net sales for the years ended December 31, 2000, 1999, and 1998, respectively. As such, the Company's results of operations are subject to fluctuations in the exchange rate of the Mexican peso to the U.S. dollar. Mexico has historically experienced periods of hyperinflation, and the value of the peso has been subject to significant fluctuations with respect to the U.S. dollar. Additionally, Jafra S.A. had outstanding U.S. dollar denominated debt of $57.7 million and $84.9 million at December 31, 2000 and 1999, respectively. This debt is remeasured at each reporting date, subjecting the Company to additional foreign exchange risk. New Accounting Standards. Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the underlying hedged item will be recognized concurrently in earnings. If the derivative is designated in a cash-flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income ("OCI") and will be recognized in the statement of operations when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized concurrently in earnings. The Company expects that in the first quarter of 2001, it will record a gain of approximately $250,000 (net of a tax effect of $100,000) as a cumulative transition adjustment to earnings relating to derivatives not designated as hedges prior to adoption of SFAS 133. This amount represents the difference between the carrying value and the fair value of such instruments at January 1, 2001. See Note 15 for a discussion of the on-going impact that SFAS 133 is expected to have on the Company's financial statements. In the fourth quarter of 2000, the Company adopted the provisions of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires that amounts billed to customers for shipping and handling fees be classified as revenues. Reclassifications have been made to all prior periods to reflect shipping and handling fees, previously reported as reductions to selling, general and administrative expenses, in net sales in the accompanying consolidated statements of operations. The amounts that have been reclassified as net sales are $8,715,000, $5,191,000 and $2,638,000 for the year ended December 31, 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998, respectively. Shipping and handling costs are included in selling, general and administrative expenses. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 ("SAB 101"), which provides the Staff's view in applying accounting principles generally accepted in the 38 41 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) United States of America to selected revenue recognition issues. SAB 101, as amended, was implemented on October 1, 2000 and did not have a material impact on the Company's consolidated financial statements. (3) INVENTORIES Inventories consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Raw materials and supplies............................... $ 6,751 $ 7,905 Finished goods........................................... 31,395 22,385 ------- ------- Total inventories........................................ $38,146 $30,290 ======= =======
(4) PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Land..................................................... $17,224 $17,418 Buildings................................................ 17,089 16,777 Machinery and equipment.................................. 25,438 21,511 ------- ------- 59,751 55,706 Less accumulated depreciation............................ 8,303 5,099 ------- ------- Property and equipment, net.............................. $51,448 $50,607 ======= =======
(5) ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Sales promotion and commissions.......................... $14,598 $11,856 Accrued restructuring charges (Note 10).................. 699 1,105 Accrued interest......................................... 1,512 1,717 Compensation and other benefit accruals.................. 5,326 8,121 State and local sales taxes and other taxes.............. 4,365 3,262 Other.................................................... 7,723 7,363 ------- ------- $34,223 $33,424 ======= =======
39 42 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) DEBT Debt consists of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 -------- -------- Subordinated Notes, unsecured, interest payable semi-annually at 11.75%, due in 2008................. $ 75,180 $ 86,000 Term Loan, principal and interest due in quarterly installments through April 30, 2004, interest rates of 8.1% and 8.6% at December 31, 2000 and 1999, respectively......................................... 19,000 22,500 Revolving Loan, due April 30, 2004, weighted average interest rates of 8.3% and 9.1% at December 31, 2000 and 1999, respectively............................... 14,500 25,000 Term Loan, principal and interest due in monthly installments through August 16, 2001, interest rate of 19.6% at December 31, 2000........................ 346 -- -------- -------- Total debt............................................. 109,026 133,500 Less current maturities................................ (4,846) (3,500) -------- -------- Long-term debt......................................... $104,180 $130,000 ======== ========
The Company's long-term debt matures as follows (in thousands): $4,500 in 2001, $5,500 in 2002, $6,500 in 2003, $17,000 in 2004, $0 in 2005 and $75,180 thereafter. In addition, Jafra S.A. entered into a one-year loan and borrowed the peso equivalent of $519,000 on August 16, 2000 at an interest rate of 19.6%. Principal and interest payments are due monthly through August 16, 2001. The remaining balance at December 31, 2000 of $346,000 is classified as short-term debt in the accompanying consolidated balance sheet. On April 30, 1998, JCI and Jafra S.A. borrowed $125 million by issuing $100 million aggregate principal amount of 11.75% Subordinated Notes due 2008 (the "Notes") pursuant to an Indenture dated April 30, 1998 (the "Indenture") and $25 million under a Senior Credit Agreement. At the date of issuance, the Notes represented the several obligations of JCI and Jafra S.A. in the amount of $60 million and $40 million, respectively, with each participating on a pro rata basis upon redemption. The Notes mature in 2008 and bear a fixed interest rate of 11.75% payable semi-annually. Each of JCI and Jafra S.A. is an indirect, wholly owned subsidiary of the Parent and has fully and unconditionally guaranteed the obligations under the Notes of the other on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. In addition, the Parent has fully and unconditionally guaranteed the Notes on a senior subordinated basis. JCI currently has no U.S. subsidiaries. Each acquired or organized U.S. subsidiary of JCI will fully and unconditionally guarantee the Notes jointly and severally, on a senior subordinated basis. Each existing subsidiary of Jafra S.A. fully and unconditionally guarantees the Notes jointly and severally, on a senior subordinated basis, and each subsequently acquired or organized subsidiary of Jafra S.A. will fully and unconditionally guarantee the Notes jointly and severally, on a senior subordinated basis. The nonguarantor entities are the Parent's indirect European subsidiaries in Austria, Germany, Italy, the Netherlands, Poland, and Switzerland; its indirect South American subsidiaries in Argentina, Brazil, Chile, Colombia, Peru, and Venezuela; and its indirect subsidiaries in the Dominican Republic and Thailand. All guarantor and nonguarantor entities are either direct or indirect wholly owned subsidiaries of the Parent. The Notes were registered in a registered exchange offer, effective as of January 25, 1999, under the Securities Act of 1933, as amended. The Notes are unsecured and are generally non-callable for five years. Thereafter, the Notes will be callable at premiums declining to par in the eighth year. Prior to May 1, 2001, JCI and Jafra S.A. at their option may concurrently redeem the Notes on a pro rata basis in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes. 40 43 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A Consent and Waiver, dated November 19, 1999, to the Senior Credit Agreement, as described below, allows the Company to repurchase the Notes in the open market from time to time, with the aggregate purchase price for all such Notes repurchased not to exceed $25 million. During 2000, the Company retired Notes of JCI and Jafra S.A., prior to maturity, with a face value of $6.5 million and $4.3 million, respectively. The debt repurchases in 2000 resulted in an extraordinary loss of $315,000, net of an income tax benefit of $195,000. During 1999, the Company retired Notes of JCI and Jafra S.A., prior to maturity, with a face value of $8.4 million and $5.6 million, respectively. The debt repurchases in 1999 resulted in an extraordinary loss of $552,000, net of an income tax benefit of $177,000. In connection with the early retirement of the Notes as described above, a portion of the unamortized deferred financing costs was written off and included in the determination of the extraordinary loss on early extinguishment of debt. Total amounts that were written off during 2000 and 1999 were $733,000 and $1,239,000, respectively. In addition, JCI and Jafra S.A. entered into a Senior Credit Agreement that provides for senior secured credit facilities in an aggregate principal amount of $90 million, consisting of a multicurrency Revolving Credit Facility of $65 million and a Term Loan Facility of $25 million. Borrowings under the Term Loan Facility are payable in quarterly installments of principal and interest over 6 years through April 30, 2004. Borrowings under the Revolving Credit Facility mature on April 30, 2004. Borrowings under the Senior Credit Agreement bear interest at an annual rate of LIBOR plus a margin not to exceed 1.625% or an alternate base rate (the higher of the prime rate or federal funds rate plus 0.5%, plus an applicable margin not to exceed 0.625%). The interest rates in effect at December 31, 2000 ranged from approximately 8.1% to approximately 8.3% for the LIBOR-based borrowings and the rate for the prime-based borrowings was approximately 10.1%. Borrowings under the Senior Credit Agreement are secured by substantially all of the assets of JCI and Jafra S.A. Both the Indenture and the Senior Credit Agreement contain certain covenants which limit the Company's ability to incur additional indebtedness, pay cash dividends and make certain other payments. These debt agreements also require the Company to maintain certain financial ratios including a minimum EBITDA to cash interest expense coverage ratio and a maximum debt to EBITDA ratio. As of December 31, 2000, the Company had two irrevocable standby letters of credit outstanding, totaling $1.8 million. These letters of credit, expiring on April 30, 2004, collateralize the Company's obligation to a third party in connection with certain lease agreements. The fair value of these letters of credit approximates their contract value. (7) INCOME TAXES The Company's income (loss) before income taxes consists of the following (amounts in thousands):
PREDECESSOR ------------ EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item: United States................................. $ 9,741 $10,917 $(4,542) $ (601) Foreign....................................... 6,843 5,157 (1,739) 7,600 ------- ------- ------- ------ $16,584 $16,074 $(6,281) $6,999 ======= ======= ======= ======
41 44 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Actual income tax expense differs from the "expected" tax expense (computed by applying the U.S. federal corporate rate of 35% to income before income taxes) as a result of the following:
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------- ----------- Provision for income taxes at federal statutory rate........................ $5,804 $ 5,626 $(2,198) $2,450 Foreign income subject to tax other than at federal statutory rate............. 2,339 2,475 36 (136) Foreign tax credits..................... (1,724) (1,784) -- -- State income taxes...................... 243 171 -- -- Valuation allowance -- domestic......... (616) 657 2,017 160 Valuation allowance -- foreign.......... 3,794 3,879 2,075 252 Other................................... 94 (150) (170) 173 ------ ------- ------- ------ Income tax expense...................... $9,934 $10,874 $ 1,760 $2,899 ====== ======= ======= ======
The Predecessor's income was included in Gillette's consolidated U.S. income tax return. For financial reporting purposes, the Predecessor has provided income taxes on a separate-company basis. The components of the provision for income taxes are as follows (in thousands):
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ----------- Current: Federal................................ $ 72 $ 60 $ -- $ -- ------ ------- ------- ------ Foreign: Mexico.............................. 6,086 3,275 (2,511) 2,524 Europe.............................. 49 99 (245) -- Other............................... 54 30 -- -- ------ ------- ------- ------ 6,189 3,404 (2,756) 2,524 State.................................. 243 90 -- -- ------ ------- ------- ------ Total current.................. 6,504 3,554 (2,756) 2,524 Deferred -- foreign...................... 2,539 7,320 4,516 375 Deferred -- domestic..................... 891 -- -- -- ------ ------- ------- ------ Total deferred................. 3,430 7,320 4,516 375 Total income taxes on income (loss) before income taxes and extraordinary item................................... 9,934 10,874 1,760 2,899 Income tax benefit on early extinguishment of debt................. (195) (177) -- -- ------ ------- ------- ------ Total income tax expense................. $9,739 $10,697 $ 1,760 $2,899 ====== ======= ======= ======
42 45 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The components of deferred income tax assets and deferred income tax liabilities at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 -------- -------- Deferred income tax assets: Accounts receivable.................................. $ 741 $ 690 Net operating loss carryforward...................... 10,279 8,326 Disallowed interest expense.......................... 1,226 2,279 Accrued bonuses...................................... 833 1,933 Foreign tax credit carryforward...................... 1,700 991 Accrued sales promotion.............................. 3,677 2,958 Other accrued liabilities............................ 1,653 947 Other................................................ 3,846 2,103 -------- -------- Total deferred income tax assets............. 23,955 20,227 Less valuation allowance............................. (11,406) (8,880) -------- -------- Net deferred income tax assets............... 12,549 11,347 Deferred income tax liabilities: Transaction and deferred financing costs............. (694) (446) Property and equipment............................... (2,344) (2,228) Trademark and goodwill............................... (19,046) (19,193) Inventories.......................................... (9,684) (7,585) Other................................................ (2,529) (213) -------- -------- Total deferred income tax liabilities (34,297) (29,665) -------- -------- Net deferred income tax liabilities.......... $(21,748) $(18,318) ======== ========
As discussed in Note 2 -- Foreign Currency Translation, the Company's Mexican subsidiary changed its functional currency from the U.S. dollar to the Mexican peso effective January 1, 1999. As a result, approximately $2.0 million of deferred income tax liabilities associated with temporary income tax differences that arose from the change in functional currency were reflected as an adjustment to the cumulative translation component of stockholders' equity. In addition, during 1999, the Company's Mexican subsidiary recorded a deferred income tax asset related to certain temporary differences incurred in connection with the Acquisition. The resulting deferred income tax asset of approximately $400,000 was reflected as an adjustment to goodwill. The Company records a valuation allowance on the deferred income tax assets to reduce the total to an amount that management believes is more likely than not to be realized. The valuation allowances at December 31, 2000 and 1999 are based upon the Company's estimates of the future realization of deferred income tax assets. Valuation allowances at December 31, 2000 and 1999 were provided principally to offset operating loss carryforwards and foreign tax credit carryforwards of the Company's U.S., European and South American subsidiaries. At December 31, 2000, the Company's deferred income tax assets for carryforwards totaled $11,979,000, comprised of U.S. foreign tax credits of $1,700,000 and tax loss carryforwards of the U.S. and certain foreign subsidiaries of $10,279,000. These deferred income tax assets were reduced by a valuation allowance of $11,406,000. The tax loss carryforwards expire in varying amounts between 2001 and 2010. Realization of the income tax carryforwards is dependent on generating sufficient taxable income prior to expiration of the carryforwards. Although realization is not assured, management believes it is more likely than not that the net carrying value of the income tax carryforwards will be realized. 43 46 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company intends to reinvest the undistributed earnings of the Mexican subsidiary, and accordingly, no deferred income taxes have been provided on these earnings. (8) BENEFIT PLANS PREDECESSOR PLANS Prior to the Company's acquisition of the Jafra Business, the Predecessor participated in The Gillette Company Retirement Plan (the "Plan") which was a defined benefit pension plan covering substantially all of Gillette's domestic employees. Benefits were based on age, years of service and the level of compensation during the final years of employment. Gillette's funding policy was to contribute annually to the Plan the amount necessary to meet the minimum funding standards established by the Employee Retirement Income Security Act. The Predecessor's share of this pension plan expense was $261,000 for the four months ended April 30, 1998. The Predecessor's share of pension expense was based on the Predecessor's payroll covered by the Plan as a percentage of total payroll covered by the Plan. The Predecessor also participated in Gillette's plans which provided certain health care and life insurance benefits to retired employees. Substantially all of the Predecessor's employees became eligible for these benefits upon retirement. The Predecessor's share of this other postretirement benefit plan expense was $37,000 for the four months ended April 30, 1998. COMPANY PLANS Certain employees of the Company's German subsidiary participate in a defined benefit pension plan covering key employees (the "Germany Plan"). Benefits are based on age, years of service and the level of compensation during the final years of employment. The Company's funding policy is to contribute annually to the Germany Plan the amount necessary to meet the minimum funding standards. The Company recognized pension income of $18,000 for the year ended December 31, 2000 due to the departure of certain employees. The total pension expense was $43,000 for the year ended December 31, 1999, $11,000 for the eight months ended December 31, 1998, and $129,000 for the four months ended April 30, 1998. Under Mexican labor laws, employees of Jafra S.A. and its subsidiaries are entitled to a payment when they leave the Company if they have fifteen or more years of service. In addition, the Company makes government mandated employee profit sharing distributions equal to ten percent of the taxable income of the subsidiary in which they are employed. Total expense under these programs was $345,000 and $391,000 for the years ended December 31, 2000 and 1999, respectively. No expense was incurred in 1998. The total liability was approximately $539,000 and $782,000 at December 31, 2000 and 1999, and is classified as a current liability in the accompanying consolidated balance sheets. The Company's U.S. subsidiary has an employee savings plan which permits participants to make voluntary contributions by salary reductions pursuant to section 401(k) of the Internal Revenue Code, which allowed employees to defer up to 15% of their total compensation, subject to statutory limitations. On January 1, 2001, the maximum employee deferral rate under this program was increased to 20%, subject to statutory limitations. Employee contributions of up to 10% of compensation are matched by the Company at the rate of 50 cents per dollar. Employees do not vest in the Company contribution until they have reached two years of service, at which time they become fully vested. The Company's expense under this program was $620,000, $628,000, and $420,000 for the years ended December 31, 2000 and 1999 and the eight months ended December 31, 1998, respectively. The Company's U.S. subsidiary also has supplemental excess benefit savings plans which permitted participants to make voluntary contributions of up to 15% of their total compensation. On January 1, 2001, participants became eligible to make voluntary contributions of up to 20% of their total compensation. 44 47 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Employee contributions are matched on the same basis as under the employee savings plan, and the vesting provisions are the same. The Company's expense under this program was $213,000, $179,000, and $17,000 for the years ended December 31, 2000 and 1999 and the eight months ended December 31, 1998, respectively. Employee and employer contributions under such plan are placed into a "rabbi" trust exclusively for the uses and purposes of plan participants and general creditors of the Company. The Company has recorded an asset and the related liability in the accompanying consolidated balance sheets of $1,472,000 and $711,000 at December 31, 2000 and 1999, respectively. (9) RELATED PARTY TRANSACTIONS In 1998, CD&R received a fee of $2.7 million, half of which was recorded as a direct acquisition cost and half of which was capitalized as deferred financing fees, for providing services related to the structuring, implementation and consummation of the Acquisition. Pursuant to a consulting agreement entered into following the Acquisition, until the 10th anniversary of the Acquisition or the date on which CD&R Fund V no longer has an investment in the Company or until the termination by either party with 30 days notice, CD&R will receive an annual fee (and reimbursement of out-of-pocket expenses) for providing advisory, management consulting and monitoring services to the Company. The annual fee was originally $500,000 and as of January 1, 1999, was reduced to $400,000. The Company and CD&R are currently discussing a proposed amendment to the consulting agreement. As proposed, the amendment would provide for an annual fee of $1,000,000, retroactive to January 1, 2001, for ongoing services provided to the Company. As required by the terms of the Company's lending arrangements, such fees are determined by arm's-length negotiation and are believed by the Company to be reasonable. In addition, the proposed amendment adds to CD&R's services under the agreement financial advisory, investment banking and similar services with respect to future proposals for an acquisition, merger, recapitalization, or other similar transaction directly or indirectly involving the Company or any of its subsidiaries. The fee for such additional services in connection with future transactions would be an amount equal to 1% of the transaction value for the transaction to which such fee relates. Such transaction fees may be increased upon approval of a majority of the members of the Company's Board of Directors who are not employees of the Company, CD&R or any affiliate of CD&R. The proposed amendment also provides that if any employee of CD&R is appointed to an executive management position (or a position of comparable responsibility) in the Company or any of its subsidiaries, the annual fee will be increased by an amount to be determined by CD&R, the amount of such increase not to exceed 100% of the existing annual fee in effect at that time. The proposed amendment has been approved by the Company's Board of Directors. The CD&R fees incurred during the years ended December 31, 2000 and 1999 and the eight months ended December 31, 1998 were $400,000, $400,000 and $333,000, respectively. In addition, certain officers and directors of CD&R or its affiliates serve as directors of the Company. In 1999, certain directors purchased an aggregate of 1,667 shares of Company common stock. During 1999, the Company engaged Guidance Solutions ("Guidance"), a corporation in which an investment fund managed by CD&R has an investment, to develop its e-commerce systems. Under the agreement entered into by the Company and Guidance, the Company agreed to pay fees of approximately $2.0 million to Guidance in connection with planning, defining, designing and consulting services performed. During the years ended December 31, 2000 and 1999, the Company paid fees to Guidance of $1,798,000 and $389,000, respectively. The Company terminated its agreement with Guidance and executed a settlement and mutual release agreement effective September 30, 2000. Upon execution of this agreement in October of 2000, Guidance paid the Company $25,000 and agreed to pay the Company an aggregate additional sum of $475,000, payable in quarterly installments plus interest at 9.5% per annum, beginning in January 2001. Members of management financed a portion of the cash purchase price of the shares of Company common stock they acquired through loans from the Chase Manhattan Bank on market terms. To help members of management obtain such terms for such financing, the Company fully and unconditionally 45 48 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) guaranteed up to 75% of the purchase price for the shares of Company common stock purchased by each such member of management. In April of 1998, the Predecessor sold land in Mexico to Gillette with a book value of approximately $6 million for $12 million. The excess of the sales price over the book value of the land, net of taxes, was recorded as a contribution of capital from Gillette to the Predecessor. Prior to the closing date of the Acquisition, intercompany accounts receivable and accounts payable between Predecessor entities and Gillette were forgiven, and as such were accounted for as direct reductions from (additions to) equity, respectively. Certain expenses were charged by Gillette to the Predecessor prior to the Acquisition. The predecessor management believes the amounts and methods of allocation were reasonable and approximated actual services provided. The allocations were based principally upon a formula using the percentage of revenues of the Predecessor to the total consolidated revenues of Gillette. The predecessor management performed regular reviews of the allocated costs and determined that the cost of these services to the Predecessor, as if it were a stand-alone entity, would be comparable to the costs allocated to it by Gillette. Such services included legal, trademark and patent support, internal audit, and other administrative costs. Total related net charges were $748,000 for the four months ended April 30, 1998. Such charges are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations. Such allocations ceased upon consummation of the Acquisition, and, as such, no amounts are included for the years ended December 31, 2000 and 1999 and the eight months ended December 31, 1998. Interest was charged and earned on intercompany receivables and payables between Gillette and the Predecessor at the LIBOR rate prior to the Acquisition. The total related interest expense was $152,000 for the four months ended April 30, 1998, and is included in interest, net, in the accompanying consolidated statements of operations. The Predecessor recognized profit on the sale of inventory to Gillette of $157,000 for the four months ended April 30, 1998. Gillette acted as a cash manager for the Predecessor prior to the Acquisition. As such, balances due to/from Gillette and other divisions consisted of amounts related to this and to the above transactions. (10) RESTRUCTURING AND IMPAIRMENT CHARGES AND RELATED ACCRUALS Current Year Restructuring and Impairment Charges. In 2000, the Company recorded approximately $1.6 million of restructuring charges and approximately $1.0 million of asset impairment charges. The restructuring charges of approximately $1.6 million related to the Company's repositioning activities in Europe, and consisted primarily of severance costs. As of December 31, 2000, payments of approximately $1.0 million have been made for these charges. The Company anticipates that substantially all of the remaining restructuring costs of approximately $0.6 million will be paid in 2001. The asset impairment charges of $1.0 million consisted of approximately $0.3 million related to the Company's repositioning activities in Europe and approximately $0.7 million relating to the write-down of certain capitalized computer software costs in the United States. Prior Year Restructuring and Impairment Charges. In 1999, the Company recorded approximately $3.7 million of restructuring charges and approximately $1.1 million of asset impairment charges. The restructuring charges consisted of approximately $2.7 million of charges related to the outsourcing of the Company's U.S. product manufacturing functions, and approximately $1.0 million of other restructuring activities in the U.S., Europe and Mexico. Substantially all of the charges related to severance costs. As the terms of such severance were not communicated to the affected employees until subsequent to the one-year anniversary of the Acquisition, such costs were expensed during 1999. As of December 31, 2000, payments of approximately $3.6 million have been made for these charges. The Company anticipates that substantially all of the remaining restructuring costs of approximately $0.1 million will be paid in the first quarter of 2001. 46 49 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Also in 1999, the Company recognized an asset impairment charge of approximately $1.1 million relating to long-lived assets (goodwill and trademarks) owned by its German subsidiary ("Jafra Germany"). In the fourth quarter of 1999, concurrent with the Company's annual business planning process, the Company recognized that sales levels in Jafra Germany had declined more than anticipated since the Acquisition. The Company performed an impairment review and concluded that Jafra Germany's future undiscounted cash flows were below the carrying value of its related long-lived assets. Accordingly, the Company recorded a non-cash impairment loss of approximately $1.1 million to adjust the carrying values of Jafra Germany's goodwill and trademarks to their estimated fair values, which were determined based on anticipated future cash flows discounted at a rate commensurate with Jafra Germany's weighted average cost of capital. Acquisition Accrual. In connection with the Acquisition in 1998, the Company initially recorded a $4.0 million accrual for restructuring and rationalization costs (the "Acquisition Accrual"). This accrual related to the planned realignment of the Company's operations subsequent to the Acquisition, and included approximately $2.9 million of severance costs and $1.1 million of costs primarily relating to closure and/or relocation of certain distribution facilities. As of the consummation of the Acquisition, senior management began formulating a plan to close certain distribution facilities and involuntarily terminate certain employees. Prior to April 30, 1999 (the one year anniversary of the Acquisition), the Company finalized plans related to the closure of certain worldwide facilities, principally the closure and outsourcing of the U.S. product manufacturing functions. These restructuring plans included the transfer of certain inventory and the sale of fixed assets at a loss to a third party contractor (the "Contractor") (see Note 14). The total finalized cost of the Acquisition Accrual was approximately $4.4 million, and resulted in a net increase to goodwill of approximately $0.4 million in 1999. The components of the Acquisition Accrual are summarized as follows (in thousands): Disposal of fixed assets.................................... $2,336 Severance................................................... 1,724 Lease termination costs..................................... 197 Other....................................................... 150 ------ $4,407 ======
In the eight months ended December 31, 1998, approximately $0.7 million of severance costs and $0.1 million of facilities closure costs were paid and charged against the Acquisition Accrual. During 1999, all of the remaining components of the Acquisition Accrual were incurred. At December 31, 1999, there was no remaining liability related to the Acquisition Accrual. Non-recurring Charges Prior to the Acquisition. In 1997, the Predecessor incurred net non-recurring reorganization charges of $0.4 million, comprised of reorganization costs of $3.5 million, which were offset by recovery through litigation of $2.3 million of costs relating to an improper installation of certain proprietary computer systems, and a gain of $0.8 million on the sale of a facility which had previously been written off. At the end of 1997, the remaining liability relating to these reorganization activities was approximately $0.3 million. During the four-month period ended April 30, 1998, the entire remaining liability was paid, including eight planned employee terminations at a cost of $140,000 and lease costs of $150,000. 47 50 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As discussed above, the components of the additions and/or adjustments to the aforementioned accruals include severance, lease costs, fixed asset disposals, and other exit costs, and are summarized as follows (in thousands):
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Additions -- charges to income: Severance................................... $1,210 $ 3,502 $ -- Lease costs................................. 295 57 -- Other....................................... 102 169 -- ------ ------- ------ Total additions..................... 1,607 3,728 -- Acquisition Accrual: Severance................................... -- (1,176) 2,900 Fixed asset disposals....................... -- 2,336 -- Lease costs................................. -- (903) 1,100 Other....................................... -- 150 -- ------ ------- ------ Acquisition Accrual, net................. -- 407 4,000 ------ ------- ------ $1,607 $ 4,135 $4,000 ====== ======= ======
A rollforward of the activity of the restructuring accruals is summarized as follows (in thousands):
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Opening balance............................... $ 1,105 $ 3,162 $ -- Additions..................................... 1,607 3,728 4,000 Adjustment to goodwill balance................ -- 407 -- Charges against reserves...................... (2,013) (6,192) (838) ------- ------- ------ Ending balance................................ $ 699 $ 1,105 $3,162 ======= ======= ======
The remaining costs at each year-end included in the restructuring accrual are summarized as follows (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Severance..................................... $385 $1,105 $2,154 Lease costs and other......................... 314 -- 1,008 ---- ------ ------ $699 $1,105 $3,162 ==== ====== ======
48 51 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The principal component of the restructuring accruals is severance. A summary of the severance activity is as follows (dollar amounts in thousands):
YEAR ENDED YEAR ENDED EIGHT MONTHS ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------- ------------------- ------------------ # OF # OF # OF EMPLOYEES AMOUNT EMPLOYEES AMOUNT EMPLOYEES AMOUNT --------- ------- --------- ------- --------- ------ Opening balance........................ 43 $ 1,105 47 $ 2,154 -- $ -- Planned terminations................... 35 1,210 104 3,502 85 2,900 Adjustment to planned terminations..... -- -- (39) (1,176) -- -- Actual terminations.................... (62) (1,930) (69) (3,375) (38) (746) --- ------- --- ------- --- ------ Ending balance......................... 16 $ 385 43 $ 1,105 47 $2,154 === ======= === ======= === ======
Eight planned employee terminations as of December 31, 1997 occurred during the four-month period ended April 30, 1998, at a total cost of $140,000. (11) FINANCIAL REPORTING FOR BUSINESS SEGMENTS Segment information has been prepared in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires disclosure of certain information regarding operating segments, products and services, geographic areas of operations and major customers. The Company's business is comprised of one industry segment, direct selling, with worldwide operations. The Company is organized into geographical business units that each sell the full line of Jafra cosmetics, skin care, body care, fragrances, and other products. Jafra has three reportable business segments: Mexico, the United States, and Europe. Business results for subsidiaries in South America, the Dominican Republic, and Thailand are combined and included in the following table under the caption "All Others". The Jafra Mexico business segment information for the four months ended April 30, 1998 includes the accounts of Grupo Jafra and all of its subsidiaries, which merged with and into Jafra S.A. following the Acquisition, as well certain assets and the related operating profit of Gillette entities used in the Jafra Business in Mexico. Prior to the Acquisition, Jafra's operations in Argentina, Venezuela and Colombia were not separate subsidiaries of the Company, but rather divisions of Gillette subsidiaries that also conducted operations unrelated to the Jafra Business. The accompanying business segment information for the four months ended April 30, 1998 includes only the carved out business segment information related to the Jafra Business of the South American entities, and is presented in the column denoted "All Others." The accounting policies used to prepare the information reviewed by the Company's chief operating decision makers are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on segment operating income, excluding reorganization and restructuring charges, unusual gains and losses, and amortization of goodwill and intangibles. Consistent with the information reviewed by the Company's chief operating decision makers, corporate costs, foreign exchange gains and losses, interest expense, other nonoperating income or expense, and income taxes are not allocated to operating segments. The effects of intersegment sales (net sales and related gross profit) are excluded from the computation of segment operating income. 49 52 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CORPORATE, UNITED ALL TOTAL UNALLOCATED CONSOLIDATED STATES MEXICO EUROPE OTHERS SEGMENTS AND OTHER TOTAL -------- -------- ------- ------- -------- ----------- ------------ (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, 2000 Net sales........................ $ 74,681 $201,724 $27,025 $20,710 $324,140 -- $324,140 Operating profit (loss).......... 10,709 64,364 247 (6,044) 69,276 $(26,944) 42,332 Depreciation and amortization.... 2,111 4,231 905 385 7,632 -- 7,632 Capital expenditures............. 3,662 2,262 109 1,072 7,105 -- 7,105 Segment assets................... 68,843 177,086 18,254 13,165 277,348 (404) 276,944 YEAR ENDED DECEMBER 31, 1999 Net sales........................ 74,120 175,930 33,131 15,984 299,165 -- 299,165 Operating profit (loss).......... 9,737 47,797 (954) (3,005) 53,575 (23,967) 29,608 Depreciation and amortization.... 2,569 3,276 1,022 252 7,119 -- 7,119 Capital expenditures............. 1,838 2,622 586 752 5,798 -- 5,798 Segment assets................... 68,992 179,606 19,520 9,443 277,561 816 278,377 EIGHT MONTHS ENDED DECEMBER 31, 1998 Net sales........................ 52,969 85,140 27,655 10,446 176,210 -- 176,210 Operating profit (loss).......... 8,700 23,783 (1,028) (1,782) 29,673 (22,580) 7,093 Depreciation and amortization.... 2,556 1,810 672 51 5,089 -- 5,089 Capital expenditures............. 3,807 2,052 333 175 6,367 -- 6,367 Segment assets................... 108,386 138,774 19,144 8,995 275,299 13,335 288,634 FOUR MONTHS ENDED APRIL 30, 1998 Net sales........................ 24,752 36,903 13,295 4,970 79,920 -- 79,920 Operating profit (loss).......... 3,883 8,954 306 (128) 13,015 (7,574) 5,441 Depreciation and amortization.... 740 275 236 112 1,363 -- 1,363 Capital expenditures............. 528 5,354 242 -- 6,124 -- 6,124 Segment assets................... 38,496 64,571 16,479 800 120,346 (484) 119,862
50 53 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Additional business segment information regarding product lines is as follows:
2000 1999 1998 ---------------------------- ---------------------------- ---------------------------- SALES BY PERCENTAGE SALES BY PERCENTAGE SALES BY PERCENTAGE PRODUCT LINE OF TOTAL PRODUCT LINE OF TOTAL PRODUCT LINE OF TOTAL ($ IN MILLIONS) SALES ($ IN MILLIONS) SALES ($ IN MILLIONS) SALES --------------- ---------- --------------- ---------- --------------- ---------- Skin Care................. $ 65.8 21.0% $ 60.9 21.0% $ 58.4 23.5% Color Cosmetics........... 82.4 26.2 81.3 28.0 70.9 28.6 Fragrances................ 103.7 33.0 76.4 26.3 47.3 19.1 Personal Care............. 29.6 9.4 35.6 12.2 46.5 18.7 Other(1).................. 32.6 10.4 36.3 12.5 25.2 10.1 ------ ----- ------ ----- ------ ----- Subtotal before shipping and handling fees.... 314.1 100.0% 290.5 100.0% 248.3 100.0% ===== ===== ===== Shipping and handling fees.................... 10.0 8.7 7.8 ------ ------ ------ Total........... $324.1 $299.2 $256.1 ====== ====== ======
- --------------- (1) Includes sales aids (party hostess gifts, demonstration products, etc.) and promotional materials. (12) COMMITMENTS AND CONTINGENCIES The Company leases office and warehouse facilities as well as manufacturing, transportation and data processing equipment under operating leases which expire at various dates through 2005. Future minimum lease payments under noncancelable operating leases as of December 31, 2000 are (in thousands): 2001....................................................... $ 5,926 2002....................................................... 5,714 2003....................................................... 5,564 2004....................................................... 5,546 2005....................................................... 5,895 ------- $28,645 =======
Rental expense was $5,953,000, $3,610,000, $1,973,000, and $951,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998, respectively. Other income for 2000 included approximately $1.4 million of income related to a recovery of the effect of inflation upon accounts receivable due from the Mexican government. The Company is involved from time to time in routine legal matters incidental to its business. The Company believes that the resolution of such matters will not have a material adverse effect on the Company's business, financial condition or results of operations. 51 54 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (13) MANAGEMENT INCENTIVE ARRANGEMENTS COMPANY PLAN Effective as of the closing of the Acquisition, the Company adopted a stock incentive plan (the "Stock Incentive Plan"), which provides for the sale to members of senior management of up to 52,141 shares of common stock of the Parent and the issuance of options to purchase up to 104,282 additional shares of common stock. The Company reserved 156,423 shares for issuance under the Stock Incentive Plan, and as of December 31, 2000, 42,026 shares and 84,052 options were outstanding. A summary of the status and activity of shares purchased under the Stock Incentive Plan is as follows:
NUMBER OF PRICE SHARES PER SHARE --------- --------- Shares purchased in 1998............................... 39,340 $100 ------- Shares outstanding at December 31, 1998................ 39,340 Shares purchased in 1999............................... 790 150 Options exercised in 1999.............................. 579 100 Shares repurchased in 1999............................. (2,317) 150 ------- Shares outstanding at December 31, 1999................ 38,392 Shares purchased in 2000............................... 4,424 206 Options exercised in 2000.............................. 158 100 Shares repurchased in 2000............................. (948) $210 ------- Shares outstanding at December 31, 2000................ 42,026 =======
The purchase price of shares purchased in 1998 and 1999 and sold in 1999 and 2000 represented the estimated fair value at the respective dates of purchase and sale. In 2000, 316 shares were purchased at a price below fair value, and the Company recognized compensation expense of approximately $19,000. Under certain circumstances, the management stockholders can require the Company to repurchase their shares, subject to a holding period of at least seven months from the date such shares were acquired, for an amount not to exceed fair value. During 1999 and 2000, the Company repurchased 2,317 and 948 of such shares, respectively. In connection with the purchase of common stock of the Parent, certain members of senior management were granted options to purchase two additional shares of common stock for each share purchased at an exercise price equal to the fair value at the date of grant. The options have a life of ten years from the date of grant. Fifty percent of the options granted are expected to vest in three equal installments on each of the first three anniversaries of the date of grant, subject to the continuous employment of the grantee ("Option Type 1"). The remaining fifty percent of the options become vested as follows, subject to the continuous employment of the grantee: (a) up to one-third of the options become vested as of each of the first three anniversaries of the date of grant if the Company achieves at least 85% of its EBITDA target for the immediately preceding fiscal year, (b) if less than one-third of the total number of options shall have become vested as provided in clause (a) above, the portion that has not become so vested shall become vested as of the first day of the fiscal year following the fiscal year, if any, that the Company achieves its cumulative EBITDA target, and (c) any options that do not become vested as provided above will become vested on the ninth 52 55 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) anniversary of the date of grant ("Option Type 2"). A summary of the status and activity of the options under the Stock Incentive Plan is as follows:
2000 1999 1998 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- Outstanding at beginning of year............................ 76,784 $101.03 78,680 $100.00 -- -- Granted........................... 8,848 205.71 1,580 150.00 78,680 $100.00 Exercised......................... (158) 100.00 (579) 100.00 -- -- Canceled.......................... (1,422) 122.22 (2,897) 100.00 -- -- ------ ------ ------ Outstanding at year-end........... 84,052 111.69 76,784 101.03 78,680 100.00 ====== ====== ====== Options exercisable at year-end... 37,655 $100.70 12,534 $100.00 -- -- Options available for grant....... 19,493 -- 26,919 -- 25,602 --
The following table summarizes information about options outstanding as of December 31, 2000:
OUTSTANDING EXERCISABLE ----------------------------------- --------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE OF OPTIONS LIFE (YRS.) PRICE OF OPTIONS PRICE - -------- ---------- ----------- -------- ---------- -------- $100.00 74,256 7.75 $100.00 37,128 $100.00 $150.00 1,580 8.92 150.00 527 $150.00 $210.00 8,216 9.61 210.00 -- -- ------ ---- ------- ------ ------- 84,052 7.95 $111.69 37,655 $100.70 ====== ======
The Company applies APB Opinion No. 25 and related Interpretations in accounting for these options. As the options were granted with exercise prices equal to the fair value at the date of grant, no compensation cost was recognized by the Company upon issuance of such options. The fair value of each option granted by the Company was estimated using the minimum value option pricing model. The assumptions used in this pricing model and the weighted average fair value of options granted during 2000, 1999 and 1998 are summarized as follows:
2000 1999 1998 ---------------- ---------------- ---------------- OPTION OPTION OPTION OPTION OPTION OPTION TYPE 1 TYPE 2 TYPE 1 TYPE 2 TYPE 1 TYPE 2 ------ ------ ------ ------ ------ ------ Risk-free interest rate.............. 6.30% 6.30% 6.03% 6.03% 4.20% 4.20% Expected option life (in years)...... 5.0 7.0 5.0 9.0 5.0 9.0 Expected volatility.................. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Expected dividend yield.............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Weighted average fair value per option............................. $56.00 $73.97 $38.55 $62.12 $18.88 $31.39
53 56 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PRO FORMA COMPENSATION COST Had the Company recorded compensation cost based on the fair value of options granted at the grant date, as prescribed by FASB Statement No. 123, pro forma net income (loss) would have been as follows (in thousands):
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Net income (loss), as reported............... $6,335 $4,648 $(8,041) Pro forma compensation cost.................. 680 677 148 ------ ------ ------- Pro forma net income (loss).................. $5,655 $3,971 $(8,189) ====== ====== =======
EMPLOYMENT AGREEMENTS Certain senior executive officers have employment agreements which provide for annual bonuses if the Company achieves the performance goals established under its annual incentive plan for executives. (14) MANUFACTURING AGREEMENT The Company and the Contractor entered into a manufacturing agreement, dated as of June 10, 1999, (the "Manufacturing Agreement"). Subject to the terms and conditions of the Manufacturing Agreement, the Contractor has agreed to manufacture all of the Company's requirements for certain cosmetic and skin care products for an initial term of five years. Following the expiration of the initial five-year term, the Manufacturing Agreement will be automatically extended for additional one-year terms unless terminated by six months' prior written notice by either party. The Manufacturing Agreement provides for price renegotiations by the Contractor if the Company's quarterly or annual purchase volume falls below specified minimums. In addition, the Company is obligated to purchase materials acquired by the Contractor based upon product forecasts provided by the Company if the Contractor is unable to sell such materials to a third party. There have been no such repurchases to date. The Contractor is solely responsible for obtaining the inventories, manufacturing the inventories at its current location in Chino, California, complying with applicable laws and regulations, and performing quality assurance functions. In connection with the Company's 1999 restructuring activities related to the closure and outsourcing of its U.S. product manufacturing functions as discussed in Note 10, certain fixed assets and inventories were sold to the Contractor in exchange for secured promissory notes. The promissory note for the fixed assets was for an amount of approximately $1.5 million, carried an annual interest rate of 8%, and commenced payments on January 1, 2000. The promissory note for inventories of approximately $2.2 million was non-interest bearing, and commenced payments on October 1, 1999. At December 31, 1999, approximately $2.1 million of notes from the Contractor (reflected at present value, net of discount), as well as $0.5 million of unsecured accounts receivable, were included in receivables and approximately $1.0 million of notes, representing the non-current portion of the fixed asset notes from the Contractor, were included in other assets in the accompanying consolidated balance sheets. The note for the inventories was repaid in October 2000 and the note for the fixed assets was repaid in December 2000. During the fourth quarter of 2000, the Contractor obtained $1.0 million of advances from the Company in exchange for an unsecured promissory note. The note bears interest at an annual rate of 9% and is payable in monthly installments commencing on February 15, 2001. At December 31, 2000, approximately $0.9 million of the note was included in receivables and approximately $0.1 million of the note was included in other assets in the accompanying consolidated balance sheets. 54 57 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (15) FOREIGN CURRENCY FORWARD CONTRACTS In 2000 and 1999, the Company entered into foreign currency forward contracts in Mexican pesos to reduce the effect of adverse exchange rate fluctuations in Mexico. The outstanding foreign currency forward contracts at December 31, 2000 and 1999 had notional values of $80,817,000 and $29,462,000, respectively. The contracts outstanding at December 31, 2000 mature in 2001 while the contracts outstanding at December 31, 1999 matured in 2000. Notional amounts do not quantify market or credit exposure or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under the contracts. The tables below describe the forward contracts that were outstanding at December 31, 2000 and 1999 (in thousands): DECEMBER 31, 2000:
WEIGHTED FORWARD AVERAGE POSITION IN MATURITY CONTRACT FAIR FOREIGN CURRENCY US DOLLARS(1) DATE RATE VALUE(1) ---------------- ------------- -------- -------- -------- Buy US Dollar/sell Mexican Peso............... $ 6,980 1/26/01 10.12 $ 6,679 Buy US Dollar/sell Mexican Peso............... 7,500 2/26/01 10.20 7,187 Buy US Dollar/sell Mexican Peso............... 7,529 3/30/01 10.36 7,162 Buy US Dollar/sell Mexican Peso............... 5,915 4/30/01 10.48 5,607 Buy US Dollar/sell Mexican Peso............... 2,828 5/31/01 10.61 2,670 Buy US Dollar/sell Mexican Peso............... 3,907 6/29/01 10.24 3,861 Buy US Dollar/sell Mexican Peso............... 2,618 7/31/01 10.31 2,588 Buy US Dollar/sell Mexican Peso............... 11,816 8/31/01 10.32 11,804 Buy US Dollar/sell Mexican Peso............... 12,125 9/28/01 10.39 12,119 Buy US Dollar/sell Mexican Peso............... 2,336 10/30/01 10.70 2,290 Buy US Dollar/sell Mexican Peso............... 10,275 10/31/01 10.71 10,078 Buy US Dollar/sell Mexican Peso............... 2,878 11/30/01 10.43 2,934 Buy US Dollar/sell Mexican Peso............... 4,110 12/27/01 10.71 4,120 ------- ------- $80,817 $79,099 ======= =======
DECEMBER 31, 1999:
WEIGHTED FORWARD AVERAGE POSITION IN MATURITY CONTRACT FAIR FOREIGN CURRENCY US DOLLARS(1) DATE RATE VALUE(1) ---------------- ------------- -------- -------- -------- Buy US Dollar/sell Mexican Peso............... $ 3,658 3/31/00 9.671 $ 3,690 Buy US Dollar/sell Mexican Peso............... 3,822 4/28/00 9.770 3,856 Buy US Dollar/sell Mexican Peso............... 2,885 5/31/00 9.900 2,907 Buy US Dollar/sell Mexican Peso............... 3,937 6/30/00 10.008 3,967 Buy US Dollar/sell Mexican Peso............... 1,947 7/31/00 10.118 1,962 Buy US Dollar/sell Mexican Peso............... 2,988 8/31/00 10.223 3,010 Buy US Dollar/sell Mexican Peso............... 3,818 9/29/00 10.326 3,846 Buy US Dollar/sell Mexican Peso............... 3,593 10/31/00 10.438 3,617 Buy US Dollar/sell Mexican Peso............... 2,814 11/30/00 10.548 2,829 ------- ------- $29,462 $29,684 ======= =======
- --------------- (1) The "Forward Position in US Dollars" and the "Fair Value" presented above represent notional amounts. The net of these two amounts, an unrealized loss of $1,718,000 at December 31, 2000 and an unrealized 55 58 CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) gain of $222,000 at December 31, 1999, represents the carrying value of the forward contracts (which approximates fair value) and has been recorded as a liability and an asset in the accompanying consolidated balance sheets as of December 31, 2000 and 1999, respectively. Prior to entering into foreign currency exchange contracts, the Company evaluates the counter parties' credit ratings. Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties failed to perform as contracted. The Company does not currently anticipate non-performance by such counter parties. The derivative instruments utilized by the Company did not qualify for hedge accounting under the applicable accounting standards prior to adoption of SFAS 133, and accordingly such instruments were marked-to-market with gains and losses included as a component of exchange gain (loss) in the accompanying consolidated statements of operations for the years ended December 31, 2000 and 1999. Effective January 1, 2001 the Company will adopt SFAS 133. Under SFAS 133, the Company's current mark-to-market accounting treatment will continue to be applied to certain of the Company's derivative instruments. However, under SFAS 133, the Company's use of forward contracts to hedge certain forecasted non- functional currency cash flows will now qualify for hedge accounting. Unrealized gains and losses from such derivative instruments arising subsequent to January 1, 2001 will be deferred as a separate component of other comprehensive income, and will be recognized in income at the same time that the underlying hedged exposure is recognized in income. (16) FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 2000, the Company recorded certain adjustments related to changes in cost accounting estimates, which resulted in an increase to cost of sales of approximately $3 million. 56 59 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Jafra Cosmetics International, Inc. Westlake Village, California We have audited the accompanying consolidated balance sheets of Jafra Cosmetics International, Inc. (the "Company"), an indirect, wholly owned subsidiary of CDRJ Investments (Lux) S.A. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholder's equity, and cash flows for the years ended December 31, 2000 and 1999 and the eight-month period ended December 31, 1998 and the combined statements of operations, stockholder's equity, and cash flows of Jafra Cosmetics International, Inc., a California corporation, Jafra Cosmetics GmbH, a German company, Jafra Cosmetics International B.V., a Netherlands company, Jafra Cosmetics S.p.A., an Italian company, and Jafra Cosmetics A.G., a Swiss company (collectively referred to as "the Predecessor") for the four-month period ended April 30, 1998. Our audits also included the financial statements schedule listed in the Index at Item 14(a)(2). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jafra Cosmetics International, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the year ended December 31, 2000 and 1999 and the eight-month period ended December 31, 1998 and the combined results of operations and cash flows of the Predecessor for the four-month period ended April 30, 1998 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP March 22, 2001 Los Angeles, California 57 60 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
DECEMBER 31, -------------------- 2000 1999 -------- -------- Current assets: Cash and cash equivalents................................. $ 3,382 $ 3,026 Receivables, less allowances for doubtful accounts of $536 in 2000 and $800 in 1999........................................... 6,730 7,910 Inventories............................................... 9,455 7,168 Receivables from affiliates............................... 5,078 6,087 Prepaid expenses and other current assets................. 2,398 1,975 -------- -------- Total current assets.............................. 27,043 26,166 Property and equipment, net................................. 20,144 19,283 Other assets: Goodwill, net............................................. 39,542 41,115 Notes receivable from affiliates.......................... 27,182 41,970 Deferred financing fees, net.............................. 3,632 4,724 Other..................................................... 3,599 3,287 -------- -------- Total............................................. $121,142 $136,545 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of long-term debt......................... $ 2,500 $ 2,000 Accounts payable.......................................... 6,552 4,428 Accrued liabilities....................................... 11,988 16,111 Income taxes payable...................................... 393 241 Deferred income taxes..................................... 343 -- Payables to affiliates.................................... 2,305 1,378 -------- -------- Total current liabilities......................... 24,081 24,158 Long-term debt.............................................. 68,608 87,600 Deferred income taxes....................................... 548 -- Other long-term liabilities................................. 2,367 2,459 -------- -------- Total liabilities................................. 95,604 114,217 -------- -------- Commitments and contingencies............................... -- -- Stockholder's equity: Common stock, par value $.01; authorized, issued and outstanding, 1,000 shares in 2000 and 1999............. -- -- Additional paid-in capital................................ 39,649 38,749 Retained deficit.......................................... (11,888) (14,102) Accumulated other comprehensive loss...................... (2,223) (2,319) -------- -------- Total stockholder's equity........................ 25,538 22,328 -------- -------- Total............................................. $121,142 $136,545 ======== ========
See accompanying notes to consolidated financial statements. 58 61 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ----------- Net sales............................... $117,270 $121,466 $88,517 $44,532 Cost of sales........................... 36,063 42,839 33,095 17,818 -------- -------- ------- ------- Gross profit....................... 81,207 78,627 55,422 26,714 Selling, general and administrative expenses.............................. 88,202 89,234 62,359 28,873 Management fee income from affiliates... (8,141) (5,048) (3,942) (1,926) Restructuring and impairment charges.... 2,392 4,575 -- -- Loss (gain) on sale of assets........... 147 (1,043) 150 -- -------- -------- ------- ------- Loss from operations............... (1,393) (9,091) (3,145) (233) Other income (expense): Royalty income from affiliates, net... 14,620 17,838 -- -- Exchange (loss) gain.................. (178) (421) 57 (4) Interest, net......................... (7,564) (10,323) (6,868) (279) Other, net............................ 9 (76) 86 (946) -------- -------- ------- ------- Income (loss) before income taxes and extraordinary item.................... 5,494 (2,073) (9,870) (1,462) Income tax expense (benefit)............ 3,075 2,108 (245) 375 -------- -------- ------- ------- Income (loss) before extraordinary item.................................. 2,419 (4,181) (9,625) (1,837) Extraordinary loss on early extinguishment of debt, net of income tax benefit of $120 in 2000 and $0 in 1999.................................. 205 296 -- -- -------- -------- ------- ------- Net income (loss)....................... $ 2,214 $ (4,477) $(9,625) $(1,837) ======== ======== ======= =======
See accompanying notes to consolidated financial statements. 59 62 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT FOR SHARES)
FOUR EIGHT MONTHS MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ----------------- ----------------- ---------------- --------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT AMOUNT ------ -------- ------ -------- ------ ------- --------- CAPITAL STOCK: Balance, beginning of period........ 1,000 -- 1,000 -- -- -- 29,641 Capital stock issued in conjunction with the Acquisition on April 30, 1998............................. -- -- -- -- 1,000 -- -- ----- -------- ----- -------- ----- ------- -------- Balance, end of period.............. 1,000 -- 1,000 -- 1,000 -- 29,641 ADDITIONAL PAID-IN CAPITAL: Balance, beginning of period........ $ 38,749 $ 38,374 -- -- Capital stock issued in conjunction with the Acquisition on April 30, 1998............................. -- -- $38,374 -- Gain on sale of trademark to affiliate........................ -- 375 -- -- Capital contributions by parent..... 900 -- -- -- ----- -------- ----- -------- ----- ------- -------- Balance, end of period.............. 39,649 38,749 38,374 -- ACCUMULATED DEFICIT: Balance, beginning of year.......... (14,102) (9,625) -- (3,249) Net income (loss)................... 2,214 (4,477) (9,625) (1,837) Dividends paid to Gillette.......... -- -- -- (20,990) Capital contributions by Gillette... -- -- -- 26,000 ----- -------- ----- -------- ----- ------- -------- Balance, end of year................ (11,888) (14,102) (9,625) (76) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Balance, beginning of year.......... (2,319) 896 -- (2,379) Currency translation adjustments.... 96 (3,215) 896 364 ----- -------- ----- -------- ----- ------- -------- Balance, end of year................ (2,223) (2,319) 896 (2,015) ----- -------- ----- -------- ----- ------- -------- TOTAL STOCKHOLDER'S EQUITY............ 1,000 $ 25,538 1,000 $ 22,328 1,000 $29,645 27,550 ===== ======== ===== ======== ===== ======= ======== COMPREHENSIVE INCOME (LOSS): Net income (loss)................... $ 2,214 $ (4,477) $(9,625) $ (1,837) Currency translation adjustments.... 96 (3,215) 896 364 ----- -------- ----- -------- ----- ------- -------- TOTAL COMPREHENSIVE INCOME (LOSS).................... $ 2,310 $ (7,692) $(8,729) $ (1,473) ===== ======== ===== ======== ===== ======= ========
- --------------- (1) Stockholder's equity of the Predecessor represents the combined stockholders' equity and divisional equity of the Predecessor entities. See accompanying notes to consolidated financial statements. 60 63 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR ----------- YEARS ENDED EIGHT MONTHS FOUR MONTHS DECEMBER 31, ENDED ENDED ------------------- DECEMBER 31, APRIL 30, 2000 1999 1998 1998 -------- -------- ------------ ----------- Cash flows from operating activities: Net income (loss)....................................... $ 2,214 $ (4,477) $ (9,625) $(1,837) Extraordinary loss on early extinguishment of debt, net of taxes.............................................. 205 296 -- -- -------- -------- --------- ------- Income (loss) before extraordinary item................. 2,419 (4,181) (9,625) (1,837) Adjustments to reconcile income (loss) before extraordinary item to net cash provided by (used in) operating activities: Loss (gain) on sale of property and equipment......... 147 (1,043) 150 -- Depreciation and amortization......................... 3,014 3,606 3,228 976 Amortization of deferred financing fees............... 633 840 731 -- Asset impairment charge............................... 1,019 1,084 -- -- Unrealized foreign exchange loss (gain)............... 249 -- -- -- Deferred income taxes................................. 891 -- -- -- Changes in operating assets and liabilities: Receivables, net.................................... 1,244 5,453 (768) 89 Inventories......................................... (2,287) 8,213 2,744 1,004 Prepaid expenses and other current assets........... (422) 62 (374) 483 Intercompany receivables and payables............... 1,936 (14,403) -- -- Other assets........................................ 841 (315) (194) (413) Accounts payable and accrued liabilities............ (1,999) (4,282) 588 (5,531) Income taxes payable/prepaid........................ 272 (721) (265) (882) Other long-term liabilities......................... (341) 897 110 (388) -------- -------- --------- ------- Net cash provided by (used in) operating activities..................................... 7,616 (4,790) (3,675) (6,499) -------- -------- --------- ------- Cash flows from investing activities: Purchase of Jafra Business.............................. -- -- (103,782) -- Payments of previously accrued Acquisition fees......... -- (1,856) (4,685) -- Proceeds from sale of property and equipment............ 92 5,551 2,917 -- Purchases of property and equipment..................... (4,418) (2,355) (4,140) (770) Other................................................... (760) (711) -- -- -------- -------- --------- ------- Net cash provided by (used in) investing activities..................................... (5,086) 629 (109,690) (770) -------- -------- --------- ------- Cash flows from financing activities: Issuance (repurchase) of subordinated debt.............. (6,358) (8,094) 60,000 -- Borrowings (repayments) under term loan facility........ (2,000) (1,500) 15,000 -- Net borrowings (repayments) under revolving credit facility.............................................. (10,000) 13,000 11,500 -- Capital contributions by Parent......................... 900 -- 38,374 -- Transactions with affiliates............................ 14,788 -- -- 6,138 Deferred financing fees................................. -- -- (6,832) -- -------- -------- --------- ------- Net cash provided by (used in) financing activities..................................... (2,670) 3,406 118,042 6,138 -------- -------- --------- ------- Effect of exchange rate changes on cash................... 496 (496) (576) 364 Effect of accounting calendar change on cash.............. -- -- -- (82) -------- -------- --------- ------- Net increase (decrease) in cash and cash equivalents.................................... 356 (1,251) 4,101 (849) Cash and cash equivalents at beginning of period.......... 3,026 4,277 176 2,129 -------- -------- --------- ------- Cash and cash equivalents at end of period................ $ 3,382 $ 3,026 $ 4,277 $ 1,280 ======== ======== ========= ======= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest.............................................. $ 9,669 $ 10,100 $ 4,809 $ -- Income taxes.......................................... $ 2,154 $ 1,907 $ -- $ --
See accompanying notes to consolidated financial statements. 61 64 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS BASIS OF PRESENTATION Jafra Cosmetics International, Inc., a Delaware corporation ("JCI") is a wholly owned subsidiary of CDRJ North Atlantic (Lux) S.a.r.L., a wholly owned subsidiary of CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme (the "Parent"). JCI, its subsidiaries, and certain other subsidiaries of the Parent were organized by Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands exempted limited partnership managed by Clayton, Dubilier & Rice, Inc. ("CD&R") to acquire (the "Acquisition") the worldwide Jafra Cosmetics business (the "Jafra Business") of The Gillette Company ("Gillette"). On April 30, 1998, pursuant to an acquisition agreement (the "Acquisition Agreement") between the Parent, certain of its subsidiaries and Gillette, (i) Jafra Cosmetics International Inc., a California corporation, merged with and into JCI, with JCI as the surviving entity, and (ii) indirect subsidiaries of JCI purchased the stock of Gillette subsidiaries conducting the Jafra Business in Germany, Italy, the Netherlands and Switzerland and certain assets used in the Jafra Business in Austria. The accompanying consolidated financial statements as of and for the years ended December 31, 2000 and 1999 and for the eight-month period ended December 31, 1998 reflect the operations of JCI and its subsidiaries (collectively, the "Company"). The Company is an operating subsidiary in the United States, and currently has operating subsidiaries in Austria, Germany, Italy, the Netherlands, Switzerland, the Dominican Republic, and Thailand. The accompanying combined financial statements for the four months ended April 30, 1998 reflect the operations of the Jafra Business in the United States and Europe prior to the Acquisition and are referred to as the "Predecessor" operations. All significant intercompany accounts and transactions between entities comprising the Company or Predecessor operations have been eliminated in consolidation and combination. The combined financial statements of the Predecessor include the accounts of the following subsidiaries and divisions of Gillette: Jafra Cosmetics International, Inc., a California corporation; Jafra Cosmetics GmbH, a German company; Jafra Cosmetics International B.V., a Netherlands company; Jafra Cosmetics S.p.A., an Italian company; Jafra Cosmetics A.G., a Swiss company; the Jafra-related operations of a Gillette affiliate in Austria; and the assets related to the Jafra intellectual properties, held by Gillette, that are used in the Jafra Business. In connection with the Acquisition, JCI and an affiliated company, Jafra S.A. (the indirect, wholly owned Mexican subsidiary of the Parent) issued $100 million aggregate principal amount of 11.75% Subordinated Notes due 2008 (the "Notes"). See Note 6. The Notes represent several obligations of JCI and Jafra S.A., with each participating on a pro rata basis upon redemption. JCI and Jafra S.A. have fully and unconditionally guaranteed the obligations under the Notes of the other on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. As the cross-guarantee of JCI and Jafra S.A. is subject to a 30-day standstill period, the Parent is filing these separate financial statements of JCI as a schedule to its Annual Report on Form 10-K for the year ended December 31, 2000. Because of the debt financing incurred in connection with the Acquisition and the adjustments made to allocate the excess of the aggregate purchase price over the historical value of the net assets acquired, the accompanying consolidated financial statements of the Company are not directly comparable to those of the Predecessor. In 1998, the Predecessor changed the reporting period for the foreign operations from a fiscal year ending November 30 to a calendar year ending December 31. The line item denoted "Effect of accounting calendar change on cash" in the consolidated statements of cash flows represents the change in the cash balance of the Predecessor's foreign operations from November 30, 1997 to December 31, 1997. 62 65 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DESCRIPTION OF BUSINESS The Company is an international marketer, and prior to June of 1999, was a manufacturer of premium skin and body care products, color cosmetics, fragrances, and other personal care products. The Company markets its products primarily in the United States, but also through subsidiaries in Austria, Germany, Italy, the Netherlands, Switzerland, the Dominican Republic and Thailand and in a number of additional countries through distributors, through a direct selling, multilevel distribution system comprised of self-employed salespersons (known as "consultants"). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. Cash and cash equivalents include cash, time deposits and all highly liquid debt instruments purchased with a maturity of three months or less. Inventories. Inventories are stated at the lower of cost, as determined by the first-in, first-out basis, or market. Property and Equipment. Property and equipment are stated at cost. Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets using the straight-line method. Estimated useful lives are 40 years for buildings and improvements and 5 to 15 years for machinery and computer equipment. Maintenance and repairs, including cost of minor replacements, are charged to operations as incurred. Costs of additions and betterments are added to property and equipment accounts provided that such expenditures increase the useful life or the value of the asset. Intangible Assets. Intangible assets principally consist of goodwill, which is amortized using the straight-line method. Goodwill resulting from the Company's acquisition of the Jafra Business from Gillette is being amortized over a period of 40 years, while the Predecessor's goodwill was amortized generally over a period of 37.5 years. Accumulated amortization of goodwill at December 31, 2000 and 1999 was $2,868,000 and $1,895,000, respectively. Deferred Financing Costs. In connection with the acquisition of the Jafra Business, the Company incurred approximately $7.2 million of costs related to the 11.75% Senior Subordinated Notes due 2008 (the "Notes"), the Revolving Credit Facility and the Term Loan Facility (see Note 6). Such costs are being amortized on a basis that approximates the interest method over the expected term of the related debt. Accumulated amortization at December 31, 2000 and 1999 was $1,871,000 and $1,373,000, respectively. Impairment of Long-Lived Assets and Goodwill. Long-lived assets and goodwill are reviewed for impairment, based on undiscounted cash flows, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If this review indicates that the carrying amount of the long-lived assets and goodwill is not recoverable, the Company will recognize an impairment loss, measured by the future discounted cash flow method (see Note 10). Fair Value of Financial Instruments. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term maturities of these instruments. The fair value of the Notes at December 31, 2000 was $46,461,000, based on discussions with one of the Company's largest bondholders and an analysis of current market interest rates and the Company's credit rating. The fair value of the Notes at December 31, 1999 was $50,310,000, based on quoted market prices. As the Company's Revolving Credit Facilities and the Term Loan are variable rate debt, and the 63 66 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest rate spread paid by the Company is adjusted for changes in certain financial ratios of the Company, the fair value of the Revolving Credit Facilities and the Term Loan approximated their carrying amounts at December 31, 2000 and 1999. Research and Development. Research and development costs are expensed as incurred. Total research and development expense aggregated $1,901,000, $2,130,000, $1,902,000, and $1,185,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998, respectively. The portion of the above-identified research and development expenses incurred by the Company and charged to Jafra S.A. as part of the Company's management fee income (see Note 9) aggregated $978,000, $942,000, $951,000, and $321,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998, respectively. Income Taxes. The Company accounts for income taxes under the balance sheet approach that requires the recognition of deferred income tax assets and liabilities for the expected future consequences of events that have been recognized in the Company's financial statements or income tax returns. Management provides a valuation allowance for deferred income tax assets when it is more likely than not that a portion of such deferred income tax assets will not be realized. Income tax expense of the Company is computed on a separate-company basis. Foreign Currency Translation. The functional currency for foreign subsidiaries is generally the local currency. Assets and liabilities of such foreign subsidiaries are translated into U.S. dollars at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded as a component of other comprehensive income. New Accounting Standards. Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company will adopt SFAS 133 effective January 1, 2001. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of the Company. In the fourth quarter of 2000, the Company adopted the provisions of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires that amounts billed to customers for shipping and handling fees be classified as revenues. Reclassifications have been made to all prior periods to reflect shipping and handling fees, previously reported as reductions to selling, general and administrative expenses, in net sales in the accompanying consolidated statements of operations. The amounts that have been reclassified as net sales are $4,057,000, $2,751,000 and $1,389,000 for the year ended December 31, 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998, respectively. Shipping and handling costs are included in selling, general and administrative expenses. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 ("SAB 101"), which provides the Staff's view in applying accounting principles generally accepted in the United States of America to selected revenue recognition issues. SAB 101, as amended, was implemented on October 1, 2000 and did not have a material impact on the Company's consolidated financial statements. 64 67 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (3) INVENTORIES Inventories consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------ ------ Raw materials and supplies................................. $ 44 $ 158 Finished goods............................................. 9,411 7,010 ------ ------ Total inventories.......................................... $9,455 $7,168 ====== ======
(4) PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Land..................................................... $ 6,188 $ 6,188 Buildings................................................ 5,998 5,487 Machinery and equipment.................................. 11,997 10,403 ------- ------- 24,183 22,078 Less accumulated depreciation............................ 4,039 2,795 ------- ------- Property and equipment, net.............................. $20,144 $19,283 ======= =======
(5) ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Sales promotion and commissions.......................... $ 3,553 $ 4,035 Accrued restructuring charges (Note 10).................. 516 1,105 Accrued interest......................................... 892 1,034 Compensation and other benefit accruals.................. 3,374 5,283 State and local sales taxes and other taxes.............. 846 1,305 Other.................................................... 2,807 3,349 ------- ------- $11,988 $16,111 ======= =======
(6) DEBT Debt consists of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Subordinated Notes, unsecured, interest payable semi-annually at 11.75%, due in 2008...................... $45,108 $51,600 Term Loan, principal and interest due in quarterly installments through April 30, 2004, interest rates of 8.1% and 8.6% at December 31, 2000 and 1999, respectively.............................................. 11,500 13,500 Revolving Loan, due April 30, 2004, weighted average interest rates of 8.3% and 9.1% at December 31, 2000 and 1999, respectively........................................ 14,500 24,500 Total debt.................................................. 71,108 89,600 ------- ------- Less current maturities..................................... (2,500) (2,000) ------- ------- Long-term debt.............................................. $68,608 $87,600 ======= =======
65 68 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's long-term debt matures as follows (in thousands): $2,500 in 2001, $3,000 in 2002, $4,000 in 2003, $16,500 in 2004, $0 in 2005 and $45,108 thereafter. On April 30, 1998, JCI and Jafra S.A. borrowed $125 million by issuing $100 million aggregate principal amount of 11.75% Subordinated Notes due 2008 (the "Notes") pursuant to an Indenture dated April 30, 1998 (the "Indenture") and $25 million under a Senior Credit Agreement. At the date of issuance, the Notes represented several obligations of JCI and Jafra S.A. in the amount of $60 million and $40 million, respectively, with each participating on a pro rata basis upon redemption. The Notes mature in 2008 and bear a fixed interest rate of 11.75% payable semi-annually. JCI and Jafra S.A. are indirect, wholly owned subsidiaries of the Parent and have fully and unconditionally guaranteed the obligations under the Notes of the other on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. In addition, the Parent has fully and unconditionally guaranteed the Notes on a senior subordinated basis. The Company currently has no U.S. subsidiaries. Each acquired or organized U.S. subsidiary of JCI will fully and unconditionally guarantee the Notes jointly and severally, on a senior subordinated basis. Each existing subsidiary of Jafra S.A. fully and unconditionally guarantees the Notes jointly and severally, on a senior subordinated basis, and each subsequently acquired or organized subsidiary of Jafra S.A. will fully and unconditionally guarantee the Notes jointly and severally, on a senior subordinated basis. The nonguarantor entities are the Company's indirect subsidiaries in Austria, Germany, Italy, the Netherlands, Switzerland, the Dominican Republic and Thailand, and the Parent's indirect subsidiaries in Poland, Argentina, Brazil, Chile, Colombia, Peru, and Venezuela. All guarantor and nonguarantor entities are either direct or indirect wholly owned subsidiaries of the Parent. The Notes were registered in a registered exchange offer, effective as of January 25, 1999, under the Securities Act of 1933, as amended. The Notes are unsecured and are generally non-callable for five years. Thereafter, the Notes will be callable at premiums declining to par in the eighth year. Prior to May 1, 2001, JCI and Jafra S.A. at their option may concurrently redeem the Notes on a pro rata basis in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes. A Consent and Waiver, dated November 19, 1999, to the Senior Credit Agreement, as described below, allows JCI and Jafra S.A. to repurchase the Notes in the open market from time to time, with the aggregate purchase price for all such Notes repurchased not to exceed $25 million. During 2000, JCI retired notes, prior to maturity, with a face value of $6.5 million. The debt repurchases in 2000 resulted in an extraordinary loss of $205,000, net of an income tax benefit of $120,000. During 1999, JCI retired Notes, prior to maturity, with a face value of $8.4 million. The debt repurchases in 1999 resulted in an extraordinary loss of $296,000, with no income tax benefit. In connection with the early retirement of the Notes as described above, a portion of the unamortized deferred financing costs was written off and included in the determination of the extraordinary loss on early extinguishment of debt. Total amounts that were written off during 2000 and 1999 were $459,000 and $602,000, respectively. In addition, JCI and Jafra S.A. entered into a Senior Credit Agreement that provides for senior secured credit facilities in an aggregate principal amount of $90 million, consisting of a multicurrency Revolving Credit Facility of $65 million and a Term Loan Facility of $25 million. Borrowings under the Term Loan Facility are payable in quarterly installments of principal and interest over 6 years through April 30, 2004. Borrowings under the Revolving Credit Facility mature on April 30, 2004. Borrowings under the Senior Credit Agreement bear interest at an annual rate of LIBOR plus a margin not to exceed 1.625% or an alternate base rate (the higher of the prime rate or federal funds rate plus 0.5%, plus an applicable margin not to exceed 0.625%). The interest rates in effect at December 31, 2000 ranged from approximately 8.1% to approximately 8.3% for the LIBOR-based borrowings and approximately 10.1% for the prime-based borrowings. Borrowings under the Senior Credit Agreement are secured by substantially all of the assets of JCI and Jafra S.A. 66 69 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Both the Indenture and the Senior Credit Agreement contain certain covenants which limit the Company's ability to incur additional indebtedness, pay cash dividends and make certain other payments. These debt agreements also require the Parent to maintain certain financial ratios including a minimum EBITDA to cash interest expense coverage ratio and a maximum debt to EBITDA ratio. As of December 31, 2000, the Company had one irrevocable standby letter of credit outstanding, totaling $0.1 million. This letter of credit, expiring on April 30, 2004, collateralizes the Company's obligation to a third party in connection with certain lease agreements. The fair value of this letter of credit approximates its contract value. (7) INCOME TAXES The Company's income (loss) before income taxes consists of the following (amounts in thousands):
PREDECESSOR ------------ EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item: United States................. $ 9,741 $ 3,898 $(5,764) $ (451) Foreign....................... (4,247) (5,971) (4,106) (1,011) ------- ------- ------- ------- $ 5,494 $(2,073) $(9,870) $(1,462) ======= ======= ======= =======
Actual income tax expense differs from the "expected" tax expense (computed by applying the U.S. federal corporate rate of 35% to income before income taxes) as a result of the following:
PREDECESSOR ------------ EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Provision (benefit) for income taxes at federal statutory rate.......................... $ 1,922 $ (726) $(3,454) $(512) Foreign income subject to tax other than at federal statutory rate, principally withholding taxes............. 1,298 1,186 (655) -- Foreign tax credits............. (1,724) (1,784) -- -- State income taxes.............. 243 171 -- -- Valuation allowance -- domestic......... (616) 657 2,017 160 Valuation allowance -- foreign.......... 1,911 2,686 1,847 252 Other........................... 41 (82) -- 475 ------- ------- ------- ----- Income tax expense.............. $ 3,075 $ 2,108 $ (245) $ 375 ======= ======= ======= =====
67 70 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For financial reporting purposes, the Predecessor has provided income taxes on a separate-company basis. The components of the provision for income taxes are as follows (in thousands):
PREDECESSOR ------------ EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Current: Federal....................... $ 72 $ 60 $ -- $ 1 ------ ------ ----- ---- Foreign: Foreign withholding taxes.................... 1,820 1,859 -- -- Europe..................... 49 99 (245) 374 ------ ------ ----- ---- 1,869 1,958 (245) 374 State......................... 243 90 -- -- ------ ------ ----- ---- Total current......... 2,184 2,108 (245) 375 Deferred -- foreign............. -- -- -- -- Deferred -- domestic............ 891 -- -- -- ------ ------ ----- ---- Total deferred........ 891 -- -- -- Total income taxes on income (loss) before income taxes and extraordinary item............ 3,075 2,108 (245) 375 Income tax benefit on early extinguishment of debt........ (120) -- -- -- ------ ------ ----- ---- Total income tax expense............. $2,955 $2,108 $(245) $375 ====== ====== ===== ====
The components of deferred income tax assets and deferred income tax liabilities at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 ------- ------- Deferred income tax assets: Accounts receivable....................................... $ -- $ 5 Net operating loss carryforward........................... 6,162 4,275 Disallowed interest expense............................... 1,226 2,279 Accrued bonuses........................................... 619 1,933 Transaction and deferred financing costs.................. -- 118 Foreign tax credit carryforward........................... 1,700 991 Other accrued liabilities................................. 244 -- Other..................................................... 1,266 61 ------- ------- Total deferred income tax assets.................. 11,217 9,662 Less valuation allowance.................................. (7,862) (7,257) ------- ------- Net deferred income tax assets.................... 3,355 2,405 Deferred income tax liabilities: Property and equipment.................................... (1,221) (438) Trademark and goodwill.................................... (1,866) (1,245) Inventories............................................... (851) (553) Other..................................................... (308) (169) ------- ------- Total deferred income tax liabilities............. (4,246) (2,405) ------- ------- Net deferred income tax liabilities............... $ (891) $ -- ======= =======
68 71 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company records a valuation allowance on the deferred income tax assets to reduce the total to an amount that management believes is more likely than not to be realized. The valuation allowances at December 31, 2000 and 1999 are based upon the Company's estimates of the future realization of deferred income tax assets. Valuation allowances at December 31, 2000 and 1999 were provided to offset operating loss carryforwards of $6,162,000 and foreign tax credit carryforwards of $1,700,000 resulting from the Company's U.S. and European subsidiaries. These deferred income tax assets were reduced by a valuation allowance of $7,862,000. The tax loss carryforwards expire in varying amounts between 2001 and 2010. Realization of the income tax carryforwards is dependent on generating sufficient taxable income prior to expiration of the carryforwards. (8) BENEFIT PLANS PREDECESSOR PLANS Prior to the Company's acquisition of the Jafra Business, the Predecessor participated in The Gillette Company Retirement Plan (the "Plan") which was a defined benefit pension plan covering substantially all of Gillette's domestic employees. Benefits were based on age, years of service and the level of compensation during the final years of employment. Gillette's funding policy was to contribute annually to the Plan the amount necessary to meet the minimum funding standards established by the Employee Retirement Income Security Act. The pension plan expense allocated to the predecessor to the Parent and its subsidiaries, including the Company, was $261,000 for the four months ended April 30, 1998. The Predecessor's share of pension expense was based on the Predecessor's payroll covered by the Plan as a percentage of total payroll covered by the Plan. The Predecessor also participated in Gillette's plans which provided certain health care and life insurance benefits to retired employees. Substantially all of the Predecessor's employees became eligible for these benefits upon retirement. The Predecessor's share of this other postretirement benefit plan expense allocated to the predecessor to the Parent and its subsidiaries, including the Company, was $37,000 for the four months ended April 30, 1998. COMPANY PLANS Certain employees of the Company's German subsidiary participate in a defined benefit pension plan covering key employees (the "Germany Plan"). Benefits are based on age, years of service and the level of compensation during the final years of employment. The Company's funding policy is to contribute annually to the Germany Plan the amount necessary to meet the minimum funding standards. The Company recognized pension income of $18,000 for the year ended December 31, 2000 due to the departure of certain employees. The total pension expense was $43,000 for the year ended December 31, 1999, $11,000 for the eight months ended December 31, 1998, and $129,000 for the four months ended April 30, 1998. JCI has an employee savings plan which permits participants to make voluntary contributions by salary reductions pursuant to section 401(k) of the Internal Revenue Code, which allowed employees to defer up to 15% of their total compensation, subject to statutory limitations. On January 1, 2001, the maximum employee deferral rate under this program was increased to 20%, subject to statutory limitations. Employee contributions of up to 10% of compensation are matched by the Company at the rate of 50 cents per dollar. Employees do not vest in the Company contribution until they have reached two years of service, at which time they become fully vested. The Company's expense under this program was $620,000, $628,000 and $420,000 for the years ended December 31, 2000 and 1999 and for the eight months ended December 31, 1998, respectively. JCI also has supplemental excess benefit savings plans for certain senior executives which permitted participants to make voluntary contributions of up to 15% of their total compensation. On January 1, 2001, participants became eligible to make voluntary contributions of up to 20% of their total compensation. Employee contributions are matched on the same basis as under the employee savings plan, and the vesting 69 72 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) provisions are the same. The Company's expense under this program was $ 213,000, $179,000 and $17,000 for the years ended December 31, 2000 and 1999 and for the eight months ended December 31, 1998, respectively. Employee and employer contributions under such plan are placed into a "rabbi" trust exclusively for the uses and purposes of plan participants and general creditors of the Company. The Company has recorded an asset and the related liability in the accompanying consolidated balance sheets of $1,472,000 and $711,000 at December 31, 2000 and 1999, respectively. (9) RELATED PARTY TRANSACTIONS The Company distributes skin and body products to other affiliates of the Parent ("Affiliates"). Sales to Affiliates, primarily in Mexico and South America, were $14,297,000, $14,318,000, $7,893,000, and $6,485,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998. These sales were made at cost plus a markup ranging from 0 to 11%. In addition, the Company provides certain management services, such as legal, accounting and treasury, management oversight, and other administrative functions to Affiliates. The cost of these services is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. The Company charges out a portion of these management expenses to its Affiliates based principally upon a formula using the percentage of revenues of each affiliate to the total consolidated revenues of the Parent. The Company believes the amounts and methods of allocations are reasonable and approximate the cost of the actual services provided. The management fee income, which consists of amounts billed to Affiliates in Mexico and South America, was $8,141,000, $5,048,000, $3,942,000 and $1,926,000 for the years ended December 31, 2000 and 1999, for the eight months ended December 31, 1998, and for the four months ended April 30, 1998. Certain expenses were charged by Gillette to the Predecessor prior to the Acquisition. The allocations were based principally upon a formula using the percentage of revenues of the Predecessor to the total consolidated revenues of Gillette. Such services included legal, trademark and patent support, internal audit, and other administrative costs. Total related charges were $748,000 for the four months ended April 30, 1998. Such charges are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations. Such allocations ceased upon consummation of the Acquisition, and, as such, no amounts are included for the years ended December 31, 2000 and 1999 and the eight months ended December 31, 1998. At the end of 1999, the Company sold U.S. trademarks with a net book value of $20,125,000 and German trademarks with a net book value of $4,362,000 to Jafra S.A for their respective estimated fair values of $20,500,000 and $3,500,000. The excess of the sales price over the net book value of U.S. trademarks of $375,000 was recorded as additional paid-in capital in the accompanying consolidated statements of stockholder's equity. The excess of the net book value of German trademarks over the sales price of $862,000 was recorded as an impairment loss in the accompanying consolidated statements of operations. Beginning in 2000, the Company is charged a royalty by Jafra S.A. for the right to use the Jafra trademark in the United States and Europe. The total royalty expense charged by Jafra S.A. to the Company for the year ended December 31, 2000 was $1,126,000, and is offset against royalty income from affiliates in the accompanying consolidated statements of operations. The Company owns the worldwide rights to its multi-level sales know-how (referred to as the "Jafra Way"). The Jafra Way was initially developed in the United States for lineage, training, and compensation of consultants. Starting in 1999, the Company charged Jafra S.A. a royalty for the use of the Jafra Way. The royalty fees charged by the Company in 1999 were $17,838,000 and are based upon a percentage of Jafra S.A.'s sales. The Company charged Jafra S.A. a royalty fee of $15,746,000 for use of the Jafra Way for the year ended December 31, 2000. 70 73 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has granted loans to certain Affiliates at annual interest rates ranging from 6% to 9%. Such loans are due to be repaid five years from the date of grant, with no prepayment penalty. Notes receivable from Affiliates consists primarily of amounts owed by Jafra S.A. as a result of the sale of U.S. and German trademarks as discussed above, and amounts billed to Jafra S.A. in connection with the Jafra Way royalty. In addition, the Company has made loans to an indirect subsidiary of the Parent to fund certain of the Parent's operations in South America. Net interest income from Affiliates, primarily Jafra S.A., was $2,126,000 and $121,000 for the years ended December 31, 2000 and 1999, respectively. For the eight months ended December 31, 1998, the Company incurred net interest expense of $15,000 on borrowings from Affiliates. Interest income and expense relating to Affiliates is included in interest, net, in the accompanying consolidated statements of operations. During the four months ended April 30, 1998, interest was charged and earned on intercompany receivables and payables between Gillette and the Predecessor at the LIBOR rate. The total related interest was $152,000 for the four months ended April 30, 1998, and is included in interest, net, in the accompanying consolidated statements of operations. During 2000, the Parent contributed $900,000 of capital to the Company. This capital was generated by issuances of common stock by the Parent, and was used by the Company to pay down debt. In 1998, CD&R received a fee of $2.7 million from the Parent for providing services related to the structuring, implementation and consummation of the Acquisition. Pursuant to a consulting agreement entered into following the Acquisition, until the 10th anniversary of the Acquisition or the date on which CD&R Fund V no longer has an investment in the Parent, or until termination by either party with 30 days notice, CD&R will receive an annual fee (and reimbursement of out-of-pocket expenses) for providing advisory, management consulting and monitoring services to the Parent and its subsidiaries. The annual fee was originally $500,000 and as of January 1, 1999, was reduced to $400,000. The Parent and CD&R are currently discussing a proposed amendment to the consulting agreement. As proposed, the amendment would provide for an annual fee of $1,000,000, retroactive to January 1, 2001, for ongoing services provided to the Parent and its subsidiaries. As required by the terms of the Parent's lending arrangements, such fees are determined by arm's-length negotiation and are believed by the Parent to be reasonable. In addition, the proposed amendment adds to CD&R's services under the agreement financial, advisory, investment banking and similar services with respect to future proposals for an acquisition, merger, recapitalization, or other similar transaction directly or indirectly involving the Parent or any of its subsidiaries. The fee for such additional services in connection with future transactions would be an amount equal to 1% of the transaction value for the transaction to which the fee relates. Such transaction fees may be increased upon approval of a majority of the members of the Company's Board of Directors who are not employees of the Company, CD&R or any affiliate of CD&R. The proposed amendment also provides that if any employee of CD&R is appointed to an executive management position (or a position of comparable responsibility) in the Company or any of its subsidiaries, the annual fee will be increased by an amount to be determined by CD&R, the amount of such increase not to exceed 100% of the existing annual fee in effect at that time. The proposed amendment has been approved by the Parent's Board of Directors. The CD&R fees incurred during the years ended December 31, 2000 and 1999 and the eight months ended December 31, 1998 were $400,000, $400,000 and $333,000, respectively. These fees were recorded as selling, general, and administrative expenses in the accompanying consolidated statements of operations, and a portion of the fees was allocated to Affiliates as part of the Company's management fee income from affiliates. Certain officers and directors of CD&R or its affiliates serve as directors of the Parent. During 1999, the Company engaged Guidance Solutions ("Guidance"), a corporation in which an investment fund managed by CD&R has an investment, to develop its e-commerce systems. Under the agreement entered into by both parties, the Company agreed to pay fees of approximately $2.0 million to Guidance in connection with planning, defining, designing and consulting services performed. During the years ended December 31, 2000 and 1999, the Company paid fees to Guidance of $1,798,000 and $389,000, respectively. A portion of these amounts were allocated to the Company's Affiliates. The Company terminated its agreement with Guidance 71 74 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and executed a settlement and mutual release agreement effective September 30, 2000. Upon execution of this agreement in October of 2000, Guidance paid the Company $25,000 and agreed to pay the Company an aggregate additional sum of $475,000, payable in quarterly installments plus interest at 9.5% per annum, beginning in January 2001. The Predecessor recognized profit on the sale of inventory to Gillette of $157,000 for the four months ended April 30, 1998. (10) RESTRUCTURING AND IMPAIRMENT CHARGES AND RELATED ACCRUALS Current Year Restructuring and Impairment Charges. In 2000, the Company recorded approximately $1.4 million of restructuring charges and approximately $1.0 million of asset impairment charges. The restructuring charges of approximately $1.4 million related to the Company's repositioning activities in Europe, and consisted primarily of severance costs. As of December 31, 2000, payments of approximately $1.0 million have been made for these charges. The Company anticipates that substantially all of the remaining restructuring costs of approximately $0.4 million will be paid in 2001. The asset impairment charges of $1.0 million consisted of approximately $0.3 million related to the Company's repositioning activities in Europe and approximately $0.7 million related to the write-down of certain capitalized computer software costs in the United States. Prior Year Restructuring and Impairment Charges. In 1999, the Company recorded approximately $3.5 million of restructuring charges and approximately $1.1 million of asset impairment charges. The restructuring charges consisted of approximately $2.7 million of charges related to the outsourcing of the Company's U.S. product manufacturing functions, and approximately $0.8 million of other restructuring activities in the U.S. and Europe. Substantially all of the charges related to severance costs. As the terms of such severance were not communicated to the affected employees until subsequent to the one-year anniversary of the Acquisition, such costs were expensed during 1999. As of December 31, 2000, payments of approximately $3.4 million have been made for these charges. Remaining restructuring costs of $0.1 million represent contracted severance payments and will be paid in the first quarter of 2001. Also in 1999, the Company recognized an asset impairment charge of approximately $1.1 million related to long-lived assets (goodwill and trademarks) owned by its German subsidiary ("Jafra Germany"). In the fourth quarter of 1999, concurrent with the Company's annual business planning process, the Company recognized that sales levels in Jafra Germany had declined more than anticipated since the Acquisition. The Company performed an impairment review and concluded that Jafra Germany's future undiscounted cash flows were below the carrying value of its related long-lived assets. Accordingly, the Company recorded a noncash impairment loss of approximately $1.1 million to adjust the carrying values of Jafra Germany's goodwill and trademarks to their estimated fair values, which were determined based on anticipated future cash flows discounted at a rate commensurate with Jafra Germany's weighted average cost of capital. Acquisition Accrual. In connection with the Acquisition in 1998, the Company initially recorded a $4.0 million accrual for restructuring and rationalization costs (the "Acquisition Accrual"). This accrual related to the planned realignment of the Company's operations subsequent to the Acquisition, and included approximately $2.9 million of severance costs and $1.1 million of costs primarily relating to closure and/or relocation of certain distribution facilities. As of the consummation of the Acquisition, senior management began formulating a plan to close certain distribution facilities and involuntarily terminate certain employees. Prior to April 30, 1999 (the one year anniversary of the Acquisition), the Company finalized plans related to the closure of certain worldwide facilities, principally the closure and outsourcing of the U.S. product manufacturing functions. These restructuring plans included the transfer of certain inventory and the sale of fixed assets at a loss to a third party contractor (the "Contractor") (see Note 14). The total finalized cost of the Acquisition Accrual was approximately $4.4 million, and resulted in a net increase to goodwill of 72 75 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) approximately $0.4 million in 1999. The components of the Acquisition Accrual are summarized as follows (in thousands): Disposal of fixed assets.................................... $2,336 Severance................................................... 1,724 Lease termination costs..................................... 197 Other....................................................... 150 ------ $4,407 ======
In the eight months ended December 31, 1998, approximately $0.7 million of severance costs and $0.1 million of facilities closure costs were paid and charged against the Acquisition Accrual. During 1999, all of the remaining components of the Acquisition Accrual were incurred. At December 31, 1999, there was no remaining liability related to the Acquisition Accrual. As discussed above, the components of the additions and/or adjustments to the aforementioned accruals include severance, lease costs, fixed asset disposals, and other exit costs, and are summarized as follows (in thousands):
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Additions -- charges to income: Severance.................................. $1,170 $ 3,265 $ -- Lease costs................................ 170 57 -- Other 84 169 -- ------ ------- ------ Total additions.................... 1,424 3,491 -- Acquisition Accrual: Severance.................................. -- (1,176) 2,900 Fixed asset disposals...................... -- 2,336 -- Lease costs................................ -- (903) 1,100 Other...................................... -- 150 -- ------ ------- ------ Acquisition Accrual, net........... -- 407 4,000 ------ ------- ------ $1,424 $ 3,898 $4,000 ====== ======= ======
A rollforward of the activity of the restructuring accruals is summarized as follows (in thousands):
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Opening balance.............................. $1,105 $3,162 $ -- Additions.................................... 1,424 3,491 4,000 Adjustment to goodwill balance............... -- 407 -- Charges against reserves..................... (2,013) (5,955) (838) ------ ------ ------ Ending balance..................... $ 516 $1,105 $3,162 ====== ====== ======
73 76 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The remaining costs at each year-end included in the restructuring accrual are summarized as follows (in thousands):
DECEMBER 31, ------------------------ 2000 1999 1998 ---- ------ ------ Severance.................................................. $346 $1,105 $2,154 Lease costs................................................ 170 -- 1,008 ---- ------ ------ $516 $1,105 $3,162 ==== ====== ======
The principal component of the restructuring accruals is severance. A summary of the severance activity is as follows (dollar amounts in thousands):
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 2000 1999 1998 ------------------- ------------------- ------------------ NUMBER OF NUMBER OF NUMBER OF EMPLOYEES AMOUNT EMPLOYEES AMOUNT EMPLOYEES AMOUNT --------- ------- --------- ------- --------- ------ Opening balance......... 43 $ 1,105 47 $ 2,154 -- $ -- Planned terminations.... 29 1,170 101 3,265 85 2,900 Adjustment to planned terminations.......... -- -- (39) (1,176) -- -- Actual terminations..... (62) (1,929) (66) (3,138) (38) (746) --- ------- --- ------- --- ------ Ending balance..... 10 $ 346 43 $ 1,105 47 $2,154 === ======= === ======= === ======
(11) FINANCIAL REPORTING FOR BUSINESS SEGMENTS Segment information has been prepared in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires disclosure of certain information regarding operating segments, products and services, geographic areas of operations and major customers. The Company's business is comprised of one industry segment, direct selling, with worldwide operations, principally in the United States and Europe. The Company is organized into geographical business units that each sell the full line of Jafra cosmetics, skin care, body care, fragrances, and other products. The Company has two reportable business segments: the United States, and Europe. Business results for subsidiaries in the Dominican Republic and Thailand are combined and included in the following table under the caption "All Others". The accounting policies used to prepare the information reviewed by the Company's chief operating decision makers are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on segment operating income, excluding reorganization and restructuring charges, unusual gains and losses, and amortization of goodwill and intangibles. Consistent with the information reviewed by the Company's chief operating decision makers, corporate costs, foreign exchange gains and losses, interest expense, other nonoperating income or expense, and income taxes are not allocated to operating segments. The effects of intersegment sales (net sales and related gross profit) are excluded from the computation of segment operating income. Gross profit from Affiliates (primarily in Mexico and South 74 77 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) America) is included in the following table under the caption "Corporate, Unallocated and Other". Segment assets exclude notes and accounts receivable from Affiliates.
CORPORATE, UNITED ALL TOTAL UNALLOCATED CONSOLIDATED DOLLARS IN THOUSANDS STATES EUROPE OTHERS SEGMENTS AND OTHER TOTAL -------------------- -------- ------- ------ -------- ----------- ------------ Year ended December 31, 2000 Net sales........................... $ 74,681 $26,823 $1,469 $102,973 $ 14,297 $117,270 Operating profit (loss)............. 10,709 876 (790) 10,795 (12,188) (1,393) Depreciation and amortization....... 2,111 883 20 3,014 -- 3,014 Capital expenditures................ 3,662 90 666 4,418 -- 4,418 Segment assets...................... 68,843 17,650 2,102 88,595 287 88,882 Year ended December 31, 1999 Net sales........................... 74,120 33,028 -- 107,148 14,318 121,466 Operating profit (loss)............. 9,737 (302) -- 9,435 (18,526) (9,091) Depreciation and amortization....... 2,569 1,014 -- 3,583 23 3,606 Capital expenditures................ 1,838 517 2,355 -- 2,355 Segment assets...................... 68,992 19,203 -- 88,195 293 88,488 Eight months ended December 31, 1998 Net sales........................... 52,969 27,655 -- 80,624 7,893 88,517 Operating profit (loss)............. 8,700 (1,028) -- 7,672 (10,817) (3,145) Depreciation and amortization....... 2,556 672 -- 3,228 -- 3,228 Capital expenditures................ 3,807 333 -- 4,140 -- 4,140 Segment assets...................... 108,386 19,144 -- 127,530 13,335 140,865 Four months ended April 30, 1998 Net sales........................... 24,752 13,295 -- 38,047 6,485 44,532 Operating profit (loss)............. 3,883 306 -- 4,189 (4,422) (233) Depreciation and amortization....... 740 236 -- 976 -- 976 Capital expenditures................ 528 242 -- 770 -- 770 Segment assets...................... 38,496 16,479 -- 54,975 (484) 54,491
Additional business segment information regarding product lines is as follows:
2000 1999 1998 ---------------------------- ---------------------------- ---------------------------- PERCENTAGE PERCENTAGE PERCENTAGE SALES BY OF TOTAL SALES BY OF TOTAL SALES BY OF TOTAL PRODUCT LINE SALES PRODUCT LINE SALES PRODUCT LINE SALES --------------- ---------- --------------- ---------- --------------- ---------- (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) Skin Care................. $ 34.3 34.9% $ 34.5 33.5% $ 37.6 32.8% Color Cosmetics........... 17.9 18.2 18.9 18.3 21.6 18.8 Fragrances................ 20.5 20.9 14.2 13.8 13.2 11.6 Personal Care............. 12.0 12.2 20.0 19.4 22.6 19.7 Other(1).................. 13.6 13.8 15.5 15.0 19.6 17.1 ------ ----- ------ ----- ------ ----- Subtotal before shipping and handling fees and sales to Affiliates......... 98.3 100.0% 103.1 100.0% 114.6 100.0% ===== ===== ===== Shipping and handling fees.................... 4.7 4.0 4.0 Sales to Affiliates....... 14.3 14.4 14.4 ------ ------ ------ Total........... $117.3 $121.5 $133.0 ====== ====== ======
75 78 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - --------------- (1) Includes sales aids (party hostess gifts, demonstration products, etc.) and promotional materials. (12) COMMITMENTS AND CONTINGENCIES The Company leases office and warehouse facilities as well as manufacturing, transportation and data processing equipment under operating leases which expire at various dates through 2005. Future minimum lease payments under noncancelable operating leases as of December 31, 2000 are (in thousands): 2001........................................................ $1,748 2002........................................................ 1,167 2003........................................................ 675 2004........................................................ 273 2005........................................................ 150 ------ $4,013 ======
Rental expense was $1,617,000, $1,630,000, $1,328,000 and $676,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998, respectively. The Company is involved from time to time in routine legal matters incidental to its business. The Company believes that the resolution of such matters will not have a material adverse effect on the Company's business, financial condition or results of operations. (13) MANAGEMENT INCENTIVE ARRANGEMENTS COMPANY PLAN Effective as of the closing of the Acquisition, the Parent adopted a stock incentive plan (the "Stock Incentive Plan"), which provides for the sale to members of senior management of up to 52,141 shares of common stock of the Parent and the issuance of options to purchase up to 104,282 additional shares of common stock. The Parent reserved 156,423 shares for issuance under the Stock Incentive Plan, and as of December 31, 2000, 42,026 shares and 84,052 options are outstanding. A summary of the status and activity of shares purchased under the Stock Incentive Plan is as follows:
NUMBER OF PRICE SHARES PER SHARE --------- --------- Shares purchased in 1998............................... 39,340 $100 ------ Shares outstanding at December 31, 1998................ 39,340 Shares purchased in 1999............................... 790 150 Options exercised in 1999.............................. 579 100 Shares repurchased in 1999............................. (2,317) 150 ------ Shares outstanding at December 31, 1999................ 38,392 Shares purchased in 2000............................... 4,424 206 Options exercised in 2000.............................. 158 100 Shares repurchased in 2000............................. (948) $210 ------ Shares outstanding at December 31, 2000................ 42,026 ======
The purchase price of shares purchased in 1998 and 1999 and sold in 1999 and 2000 represented the estimated fair value at the respective dates of purchase and sale. In 2000, 316 shares were purchased at a price below fair value, and the Company recognized compensation expense of approximately $19,000. Under certain circumstances, the management stockholders can require the Company to repurchase their shares, subject to a 76 79 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) holding period of at least seven months from the date such shares were acquired, for an amount not to exceed fair value. During 1999 and 2000, the Company repurchased 2,317 and 948 of such shares, respectively. In connection with the purchase of common stock of the Parent, certain members of senior management were granted options to purchase two additional shares of common stock for each share purchased at an exercise price equal to the fair value at the date of grant. The option activity presented herein includes options granted to one employee of Jafra S.A. Such activity is insignificant to the Company's financial statements. The options have a life of ten years from the date of grant. Fifty percent of the options granted are expected to vest in three equal installments on each of the first three anniversaries of the date of grant, subject to the continuous employment of the grantee ("Option Type 1"). The remaining fifty percent of the options become vested as follows, subject to the continuous employment of the grantee: (a) up to one-third of the options become vested as of each of the first three anniversaries of the date of grant if the Company achieves at least 85% of its EBITDA target for the immediately preceding fiscal year, (b) if less than one-third of the total number of options shall have become vested as provided in clause (a) above, the portion that has not become so vested shall become vested as of the first day of the fiscal year following the fiscal year, if any, that the Company achieves its cumulative EBITDA target, and (c) any options that do not become vested as provided above will become vested on the ninth anniversary of the date of grant ("Option Type 2"). A summary of the status and activity of the options under the Stock Incentive Plan is as follows:
2000 1999 1998 ----------------- ----------------- ----------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- Outstanding at beginning of year....... 76,784 $101.03 78,680 $100.00 -- -- Granted................................ 8,848 205.71 1,580 150.00 78,680 $100.00 Exercised.............................. (158) 100.00 (579) 100.00 -- -- Canceled............................... (1,422) 122.22 (2,897) 100.00 -- -- ------ ------ ------ Outstanding at year-end................ 84,052 111.69 76,784 101.03 78,680 100.00 ====== ====== ====== Options exercisable at year-end........ 37,655 $100.70 12,534 $100.00 -- -- Options available for grant............ 19,493 -- 26,919 -- 25,602 --
The following table summarizes information about options outstanding as of December 31, 2000:
OUTSTANDING EXERCISABLE ------------------------------------- ---------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE OF OPTIONS LIFE (YRS.) PRICE OF OPTIONS PRICE - -------- ---------- ----------- -------- ---------- -------- $100.00 74,256 7.75 $100.00 37,128 $100.00 $150.00 1,580 8.92 150.00 527 150.00 $210.00 8,216 9.61 210.00 -- -- ------ ---- ------- ------ ------- 84,052 7.95 $111.69 37,655 $100.70 ====== ======
The Company applies APB Opinion No. 25 and related Interpretations in accounting for these options. As the options were granted with exercise prices equal to the fair value at the date of grant, no compensation cost was recognized by the Company upon issuance of such options. The fair value of each option granted by the Company was estimated using the minimum value option pricing model. The assumptions used in this 77 80 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) pricing model and the weighted average fair value of options granted during 2000, 1999 and 1998 are summarized as follows:
2000 1999 1998 --------------- --------------- --------------- OPTION OPTION OPTION OPTION OPTION OPTION TYPE 1 TYPE 2 TYPE 1 TYPE 2 TYPE 1 TYPE 2 ------ ------ ------ ------ ------ ------ Risk-free interest rate................... 6.30% 6.30% 6.03% 6.03% 4.20% 4.20% Expected option life (in years)........... 5.0 7.0 5.0 9.0 5.0 9.0 Expected volatility....................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Expected dividend yield................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Weighted average fair value per option.... $56.00 $73.97 $38.55 $62.12 $18.88 $31.39
PRO FORMA COMPENSATION COST Had the Company recorded compensation cost based on the fair value of options granted at the grant date, as prescribed by FASB Statement No. 123, pro forma net income (loss) would have been as follows (in thousands):
EIGHT MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------- Net income (loss), as reported............... $2,214 $(4,477) $(9,625) Pro forma compensation cost.................. 609 631 138 ------ ------- ------- Pro forma net income (loss).................. $1,605 $(5,108) $(9,763) ====== ======= =======
EMPLOYMENT AGREEMENTS Certain senior executive officers have employment agreements which provide for annual bonuses if the Company achieves the performance goals established under its annual incentive plan for executives. (14) MANUFACTURING AGREEMENT The Company and the Contractor entered into a manufacturing agreement, dated as of June 10, 1999, (the "Manufacturing Agreement"). Subject to the terms and conditions of the Manufacturing Agreement, the Contractor has agreed to manufacture all of the Company's requirements for certain cosmetic and skin care products for an initial term of five years. Following the expiration of the initial five-year term, the Manufacturing Agreement will be automatically extended for additional one-year terms unless terminated by six months' prior written notice by either party. The Manufacturing Agreement provides for price renegotiations by the Contractor if the Company's quarterly or annual purchase volume falls below specified minimums. In addition, the Company is obligated to purchase materials acquired by the Contractor based upon product forecasts provided by the Company if the Contractor is unable to sell such materials to a third party. There have been no such repurchases to date. The Contractor is solely responsible for obtaining the inventories, manufacturing the inventories at its current location in Chino, California, complying with applicable laws and regulations, and performing quality assurance functions. In connection with the Company's 1999 restructuring activities related to the closure and outsourcing of its U.S. product manufacturing functions as discussed in Note 10, certain fixed assets and inventories were sold to the Contractor in exchange for secured promissory notes. The promissory note for the fixed assets was for an amount of approximately $1.5 million, carried an annual interest rate of 8%, and commenced payments on January 1, 2000. The promissory note for inventories of approximately $2.2 million was non-interest bearing, and commenced payments on October 1, 1999. At December 31, 1999, approximately $2.1 million of notes from the Contractor (reflected at present value, net of discount), as well as $0.5 million of unsecured 78 81 JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accounts receivable, were included in receivables and approximately $1.0 million of notes, representing the non-current portion of the fixed asset notes from the Contractor, were included in other assets in the accompanying consolidated balance sheets. The note for the inventories was repaid as of October 2000 and the note for the fixed assets was repaid in December 2000. During the fourth quarter of 2000, the Contractor obtained $1.0 million of advances from the Company in exchange for an unsecured promissory note. The note bears interest at an annual rate of 9% and is payable in monthly installments commencing on February 15, 2001. At December 31, 2000, approximately $0.9 million of the note was included in receivables and approximately $0.1 million of the note was included in other assets in the accompanying consolidated balance sheets. 79 82 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Jafra Cosmetics International, S.A. de C.V. Mexico City, Mexico D.F. We have audited the accompanying consolidated balance sheets of Jafra Cosmetics International, S.A. de C.V. (the "Company"), an indirect, wholly owned subsidiary of CDRJ Investments (Lux) S.A. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2000 and 1999 and the eight-month period ended December 31, 1998 and the combined statements of operations, stockholders' equity, and cash flows of Grupo Jafra, S.A. de C.V. and affiliated Gillette Company entities, which were combined to form the predecessor as described in Note 2 to the financial statements ("the Predecessor"), for the four-month period ended April 30, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999 and the eight-month period ended December 31, 1998 and the combined results of operations and cash flows of the Predecessor for the four-month period ended April 30, 1998 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP March 22, 2001 Mexico City, Mexico 80 83 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
DECEMBER 31, -------------------- 2000 1999 -------- -------- Current assets: Cash and cash equivalents................................. $ 561 $ 3 Receivables, less allowances for doubtful accounts of $2,117 in 2000 and $1,956 in 1999...................... 26,712 21,454 Inventories............................................... 25,149 19,513 Receivables from affiliates............................... 4,679 2,599 Prepaid income taxes...................................... 1,846 13,525 Value-added tax receivables............................... 5,146 5,279 Prepaid expenses and other current assets................. 1,948 930 -------- -------- Total current assets.............................. 66,041 63,303 Property and equipment, net................................. 30,402 30,562 Other assets: Goodwill, net............................................. 31,550 32,960 Trademarks, net........................................... 49,082 51,280 Deferred financing fees, net.............................. 1,983 3,082 Other..................................................... 2,707 1,018 -------- -------- Total............................................. $181,765 $182,205 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt, including current portion of long-term debt................................................... $ 2,346 $ 1,500 Accounts payable.......................................... 20,266 10,086 Accrued liabilities....................................... 20,735 16,264 Payables to affiliates.................................... 2,140 2,494 Deferred income taxes..................................... 5,048 2,587 -------- -------- Total current liabilities......................... 50,535 32,931 Long-term debt.............................................. 35,572 42,400 Deferred income taxes....................................... 15,809 15,731 Notes payable to affiliates................................. 20,093 41,006 -------- -------- Total liabilities................................. 122,009 132,068 -------- -------- Commitments and contingencies............................... -- -- Stockholders' equity: Series B common stock, no par value; authorized, issued and outstanding, 151 shares in 2000 and 1999........... -- -- Additional paid-in capital................................ 34,184 34,184 Retained earnings......................................... 27,030 16,262 Accumulated other comprehensive loss...................... (1,458) (309) -------- -------- Total stockholders' equity........................ 59,756 50,137 -------- -------- Total............................................. $181,765 $182,205 ======== ========
See accompanying notes to consolidated financial statements. 81 84 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ----------- Net sales............................... $212,263 $183,158 $85,587 $36,937 Cost of sales........................... 61,208 55,323 26,050 10,018 -------- -------- ------- ------- Gross profit.......................... 151,055 127,835 59,537 26,919 Selling, general and administrative expenses.............................. 92,899 80,234 42,946 19,456 Management fee expense from affiliate... 8,164 5,293 3,742 1,926 -------- -------- ------- ------- Income from operations................ 49,992 42,308 12,849 5,537 Other income (expense): Royalty expense to affiliates, net.... (14,811) (17,965) -- -- Exchange (loss) gain.................. (11,295) 3,748 (1,799) 1,396 Interest (expense) income, net........ (7,789) (6,803) (4,841) 403 Other, net............................ 1,586 53 (348) 992 -------- -------- ------- ------- Income before income taxes and extraordinary item.................... 17,683 21,341 5,861 8,328 Income tax expense...................... 6,805 8,736 1,948 2,524 -------- -------- ------- ------- Income before extraordinary item........ 10,878 12,605 3,913 5,804 Extraordinary loss on early extinguishment of debt, net of income tax benefit of $75 in 2000 and $177 in 1999.................................. 110 256 -- -- -------- -------- ------- ------- Net income.............................. $ 10,768 $ 12,349 $ 3,913 $ 5,804 ======== ======== ======= =======
See accompanying notes to consolidated financial statements. 82 85 JAFRA COSMETICS S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT FOR SHARES)
FOUR MONTHS EIGHT MONTHS ENDED YEAR ENDED YEAR ENDED ENDED APRIL DECEMBER 31, DECEMBER 31, DECEMBER 31, 30, 2000 1999 1998 1998 ---------------- ---------------- ---------------- -------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT AMOUNT ------ ------- ------ ------- ------ ------- -------- CAPITAL STOCK: Balance, beginning of period.................... 151 -- 151 -- -- -- $ 3,811 Capital stock issued in conjunction............. -- -- -- -- -- -- -- with the Acquisition on April 30, 1998........ -- -- -- -- 151 -- -- --- ------- --- ------- --- ------- -------- Balance, end of period.......................... 151 -- 151 -- 151 -- $ 3,811 --- ------- --- ------- --- ------- -------- ADDITIONAL PAID-IN CAPITAL: Balance, beginning of period.................... $34,184 $34,184 -- -- Capital stock issued in conjunction............. -- -- -- -- with the Acquisition on April 30, 1998........ -- -- $34,184 -- --- ------- --- ------- --- ------- -------- Balance, end of period.......................... $34,184 $34,184 $34,184 -- --- ------- --- ------- --- ------- -------- RETAINED EARNING: Balance, beginning of year...................... $16,262 $ 3,913 -- $ 92,379 Net income...................................... 10,768 12,349 $ 3,913 5,804 Capital contributions by Gillette............... -- -- -- 4,091 --- ------- --- ------- --- ------- -------- Balance, end of year............................ $27,030 $16,262 $ 3,913 $102,274 --- ------- --- ------- --- ------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance, beginning of year...................... $ (309) -- -- $(52,709) Currency translation adjustments................ (1,149) $ (309) -- -- --- ------- --- ------- --- ------- -------- Balance, end of year............................ $(1,458) $ (309) -- $(52,709) --- ------- --- ------- --- ------- -------- Total Stockholders' Equity................ 151 $59,756 151 $50,137 151 $38,097 $ 53,376 === ======= === ======= === ======= ======== COMPREHENSIVE INCOME: Net income...................................... $10,768 $12,349 $ 3,913 $ 5,804 Currency translation adjustments................ (1,149) (309) -- -- --- ------- --- ------- --- ------- -------- Total Comprehensive Income................ $ 9,619 $12,040 $ 3,913 $ 5,804 === ======= === ======= === ======= ========
- --------------- (1) Stockholder's equity of the Predecessor represents the combined stockholders' equity and divisional equity of the Predecessor entities. See accompanying notes to consolidated financial statements. 83 86 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR ----------- FOUR YEARS ENDED EIGHT MONTHS MONTHS DECEMBER 31, ENDED ENDED -------------------- DECEMBER 31, APRIL 30, 2000 1999 1998 1998 -------- -------- ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 10,768 $ 12,349 $ 3,913 $ 5,804 Extraordinary loss on early extinguishment of debt, net of taxes................................................... 110 256 -- -- -------- -------- -------- -------- Income before extraordinary item.......................... 10,878 12,605 3,913 5,804 Adjustments to reconcile income before extraordinary item to net cash provided by (used in) operating activities: Loss on sale of property and equipment.................. -- -- 26 -- Depreciation and amortization........................... 4,231 3,276 1,810 275 Amortization of deferred financing fees................. 797 992 676 -- Unrealized foreign exchange loss (gain)................. 2,669 (2,377) -- -- Deferred income taxes................................... 2,539 7,320 4,460 -- Changes in operating assets and liabilities: Receivables, net...................................... (5,699) (8,800) (2,465) (1,885) Inventories........................................... (6,047) (6,829) 2,117 (7,619) Prepaid expenses and other current assets............. (1,005) (3,560) (904) (7,609) Intercompany receivables and payables................. 15 7,005 -- -- Other assets.......................................... (1,728) (779) (4,895) 6,016 Accounts payable and accrued liabilities.............. 13,581 (107) 10,155 (1,227) Income taxes payable/prepaid.......................... 11,667 (7,107) 1,334 (1,180) Other long-term liabilities........................... -- -- (1,946) -- -------- -------- -------- -------- Net cash provided by (used in) operating activities........................................ 31,898 1,639 14,281 (7,425) -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Jafra Business................................ -- -- (78,105) -- Withholding taxes on purchase price....................... -- -- (12,800) -- Payments of previously accrued Acquisition fees........... -- -- (2,857) -- Proceeds from sale of property and equipment.............. -- -- -- 5,900 Purchases of property and equipment....................... (2,262) (2,622) (2,052) (5,354) -------- -------- -------- -------- Net cash provided by (used in) investing activities........................................ (2,262) (2,622) (95,814) 546 -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance (repurchase) of subordinated debt................ (4,239) (5,398) 40,000 -- Borrowings (repayments) under term loan facility.......... (1,500) (1,000) 10,000 -- Net borrowings (repayments) under revolving credit facility................................................ (500) (4,500) 5,000 -- Other bank debt........................................... 346 -- -- -- Capital contributions by Parent........................... -- -- 34,184 -- Capital contributions by Gillette......................... -- -- -- 4,091 Transactions with affiliates.............................. (22,946) 9,320 (10,323) Deferred financing fees................................... -- -- (4,926) -- -------- -------- -------- -------- Net cash provided by (used in) financing activities........................................ (28,839) (10,898) 93,578 (6,232) -------- -------- -------- -------- Effect of exchange rate changes on cash..................... (239) (161) (181) Effect of accounting calendar change on cash................ -- -- -- 6,358 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents........ 558 (12,042) 12,045 (6,934) Cash and cash equivalents at beginning of period............ 3 12,045 -- 7,458 -------- -------- -------- -------- Cash and cash equivalents at end of period.................. $ 561 $ 3 $ 12,045 $ 524 ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid (received) during the year for: Interest................................................ $ 5,652 $ 6,526 $ 3,490 $ -- Income taxes............................................ $ (7,401) $ 10,373 $ 4,377 $ --
See accompanying notes to consolidated financial statements. 84 87 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS BASIS OF PRESENTATION Jafra Cosmetics International, S.A. de C.V., a sociedad anomina de capital variable organized under the laws of the United Mexican States ("Jafra S.A.") is owned by five indirect wholly owned subsidiaries of CDRJ Investments (Lux) S.A., a Luxembourg societe anonyme (the "Parent"). Jafra S.A., its subsidiaries, and certain other subsidiaries of the Parent were organized by Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands exempted limited partnership managed by Clayton, Dubilier & Rice, Inc. ("CD&R") to acquire (the "Acquisition") the worldwide Jafra Cosmetics business (the "Jafra Business") of The Gillette Company ("Gillette"). On April 30, 1998, pursuant to an acquisition agreement (the "Acquisition Agreement") between the Parent, certain of its subsidiaries and Gillette, Jafra S.A. acquired the stock of Grupo Jafra, S.A. de C.V., a Mexican company ("Grupo Jafra"), which merged with and into Jafra S.A. following the consummation of the Acquisition, with Jafra S.A. as the surviving entity. The accompanying consolidated financial statements as of and for the years ended December 31, 2000 and 1999 and for the eight-month period ended December 31, 1998 reflect the operations of Jafra S.A. and its subsidiaries (collectively, the "Company"). The accompanying combined financial statements for the four months ended April 30, 1998 reflect the operations of the Jafra Business in Mexico prior to the Acquisition and are referred to as the "Predecessor" operations. All significant intercompany accounts and transactions between entities comprising the Company or the Predecessor have been eliminated in consolidation and combination. The combined financial statements of the Predecessor include the accounts of the following subsidiaries and divisions of Gillette: Grupo Jafra and its subsidiaries, together with certain operating assets and the related operating profit of Gillette Braun (the "Braun Assets") used in the Jafra Business in Mexico, and the assets related to the Jafra intellectual properties, formerly held by Gillette, that are used in the Jafra Business in Mexico. In connection with the Acquisition, Jafra S.A. and an affiliated company, JCI (the indirect, wholly owned United States subsidiary of the Parent) issued $100 million aggregate principal amount of 11.75% Subordinated Notes due 2008 (the "Notes"). See Note 6. The Notes represent several obligations of Jafra S.A. and JCI, with each participating on a pro rata basis upon redemption. Jafra S.A. and JCI have fully and unconditionally guaranteed the obligations under the Notes of the other on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. As the cross-guarantee of Jafra S.A. and JCI is subject to a 30-day standstill period, the Parent is filing these separate financial statements of Jafra S.A. as a schedule to its Annual Report on Form 10-K for the year ended December 31, 2000. Because of the debt financing incurred in connection with the Acquisition and the adjustments made to allocate the excess of the aggregate purchase price over the historical value of the net assets acquired, the accompanying consolidated financial statements of the Company are not directly comparable to those of the Predecessor. In 1998, the Predecessor changed the reporting period for the foreign operations from a fiscal year ending November 30 to a calendar year ending December 31. The line item denoted "Effect of accounting calendar change on cash" in the consolidated statements of cash flows represents the change in the cash balance of the Predecessor's foreign operations from November 30, 1997 to December 31, 1997. DESCRIPTION OF BUSINESS The Company is a marketer of premium skin and body care products, color cosmetics, fragrances, and other personal care products in Mexico through a direct selling, multilevel distribution system comprised of self-employed salespersons (known as "consultants"). In addition, the Company manufactures color cosmet- 85 88 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ics and fragrance products for its own use as well as for distribution to the international subsidiaries of the Parent (referred to herein as the "Affiliates"). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. Cash and cash equivalents include cash, time deposits and all highly liquid debt instruments purchased with a maturity of three months or less. Inventories. Inventories are stated at the lower of cost, as determined by the first-in, first-out basis, or market. Property and Equipment. Property and equipment are stated at cost. Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets using the straight-line method. Estimated useful lives are 20 years for buildings and improvements and 5 to 10 years for machinery and equipment. Maintenance and repairs, including cost of minor replacements, are charged to operations as incurred. Costs of additions and betterments are added to property and equipment accounts provided that such expenditures increase the useful life or the value of the asset. Intangible Assets. Intangible assets principally consist of goodwill and trademarks, which are amortized using the straight-line method. Goodwill and trademarks resulting from the Company's acquisition of the Jafra Business from Gillette are being amortized over a period of 40 years, while the Predecessor's goodwill was amortized generally over a period of 37.5 years. Accumulated amortization of goodwill and trademarks at December 31, 2000 was $2,154,000 and $2,475,000, respectively. Accumulated amortization of goodwill and trademarks at December 31, 1999 was $1,336,000 and $1,233,000, respectively. Deferred Financing Costs. In connection with the acquisition of the Jafra Business, the Company incurred approximately $4.8 million of costs related to the 11.75% Senior Subordinated Notes due 2008 (the "Notes"), the Revolving Credit Facility and the Term Loan Facility (see Note 6). Such costs are being amortized on a basis that approximates the interest method over the expected term of the related debt. Accumulated amortization at December 31, 2000 and 1999 was $2,127,000 and $1,514,000, respectively. Impairment of Long-Lived Assets and Goodwill. Long-lived assets and goodwill are reviewed for impairment, based on undiscounted cash flows, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If this review indicates that the carrying amount of the long-lived assets and goodwill is not recoverable, the Company will recognize an impairment loss, measured by the future discounted cash flow method. Foreign Currency Forward Contracts. During 2000 and 1999, the Company entered into foreign currency forward contracts to reduce the effect of adverse exchange rate fluctuations in the exchange rate of the Mexican peso to the U.S. dollar. As a matter of policy, the Company does not hold or issue foreign currency forward contracts for trading or speculative purposes. These contracts have been marked-to-market each month based upon the change in the spot rate from the date of contract inception to the balance sheet date. The premium on such contracts is amortized to expense over the life of the contracts. The carrying value of the contracts is included in current assets and liabilities, with the offsetting gain or loss included in exchange (loss) gain in the accompanying consolidated statements of operations. At December 31, 2000 and 1999, the Company included $1,718,000 in accrued liabilities and $222,000 in prepaid expenses and other current assets, respectively, in the accompanying consolidated balance sheets. 86 89 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair Value of Financial Instruments. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term maturities of these instruments. The fair value of the Notes at December 31, 2000 was $30,974,000, based upon discussions with one of the Company's largest bondholders and an analysis of current market interest rates and the Company's credit rating. The fair value of the Notes at December 31, 1999 was $33,540,000, based on quoted market prices. As the Company's Revolving Credit Facilities and the Term Loan are variable rate debt, and the interest rate spread paid by the Company is adjusted for changes in certain financial ratios of the Company, the fair value of the Revolving Credit Facilities and the Term Loan approximated their carrying amounts at December 31, 2000 and 1999. The fair value of the Company's forward currency contracts at December 31, 2000 and 1999 closely approximates the carrying value, as such contracts are marked-to-market based upon changes in the spot rate from the date of contract inception to the balance sheet date. Income Taxes. The Company accounts for income taxes under the balance sheet approach that requires the recognition of deferred income tax assets and liabilities for the expected future consequences of events that have been recognized in the Company's financial statements or income tax returns. Management provides a valuation allowance for deferred income tax assets when it is more likely than not that a portion of such deferred income tax assets will not be realized. Income tax expense of the Company is computed on a separate-company basis. Foreign Currency Translation. The functional currency for the Company from January 1, 1999 through December 31, 2000 is the Mexican peso. For presentation purposes, assets and liabilities are translated into U.S. dollars at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded as a component of other comprehensive income. During 1998, the Company's functional currency was the U.S. dollar because Mexico was considered to be a hyperinflationary economy. As of January 1, 1999, Mexico was no longer considered a hyperinflationary economy, and from that date forward, the Company has accounted for its operations using the peso as its functional currency. Mexico has historically experienced periods of hyperinflation, and the value of the peso has been subject to significant fluctuations with respect to the U.S. dollar. The Company had outstanding U.S. dollar denominated debt of $57.7 million and $84.9 million at December 31, 2000 and 1999, respectively. This debt is remeasured at each reporting date, subjecting the Company to additional foreign exchange risk. New Accounting Standards. Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the underlying hedged item will be recognized concurrently in earnings. If the derivative is designated in a cash-flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income ("OCI") and will be recognized in the statement of operations when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized concurrently in earnings. The Company expects that in the first quarter of 2001, it will record a gain of approximately $250,000 (net of a tax effect of $100,000) as a cumulative transition adjustment to earnings related to derivatives not designated as hedges prior to adoption of SFAS 133. This amount represents the difference between the carrying value and the fair value of such instruments at January 1, 2001. See Note 13 for a discussion of the on-going impact that SFAS 133 is expected to have on the Company's financial statements. 87 90 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In the fourth quarter of 2000, the Company adopted the provisions of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires that amounts billed to customers for shipping and handling fees be classified as revenues. Reclassifications have been made to all prior periods to reflect shipping and handling fees, previously reported as reductions to selling, general and administrative expenses, in net sales in the accompanying consolidated statements of operations. The amounts that have been reclassified as net sales are $4,400,000, $2,303,000 and $1,181,000 for the year ended December 31, 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998, respectively. Shipping and handling costs are included in selling, general and administrative expenses. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 ("SAB 101"), which provides the Staff's view in applying accounting principles generally accepted in the United States of America to selected revenue recognition issues. SAB 101, as amended, was implemented on October 1, 2000 and did not have a material impact on the Company's consolidated financial statements. (3) INVENTORIES Inventories consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Raw materials and supplies............................... $ 6,443 $ 7,446 Finished goods........................................... 18,706 12,067 ------- ------- Total inventories........................................ $25,149 $19,513 ======= =======
(4) PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Land..................................................... $11,036 $11,230 Buildings................................................ 11,091 11,290 Machinery and equipment.................................. 12,146 10,170 ------- ------- 34,273 32,690 Less accumulated depreciation............................ 3,871 2,128 ------- ------- Property and equipment, net.............................. $30,402 $30,562 ======= =======
(5) ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Sales promotion and commissions.......................... $10,894 $ 7,696 Accrued interest......................................... 620 683 Compensation and other benefit accruals.................. 1,695 2,584 State and local sales taxes and other taxes.............. 3,001 1,793 Other.................................................... 4,525 3,508 ------- ------- $20,735 $16,264 ======= =======
88 91 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) DEBT Debt consists of the following at December 31, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Subordinated Notes, unsecured, interest payable semi-annually at 11.75%, due in 2008...................... $30,072 $34,400 Term Loan, principal and interest due in quarterly installments through April 30, 2004, interest rates of 8.1% and 8.6% at December 31, 2000 and 1999, respectively.............................................. 7,500 9,000 Revolving Loan, repaid in 2000, weighted average interest rate of 9.9% at December 31, 1999......................... -- 500 Term Loan, principal and interest due in monthly installments through August 16, 2001, interest rate of 19.6% at December 31, 2000................................ 346 -- ------- ------- Total debt.................................................. 37,918 43,900 Less current maturities..................................... (2,346) (1,500) ------- ------- Long-term debt.............................................. $35,572 $42,400 ======= =======
Jafra S.A.'s long-term debt matures as follows (in thousands): $2,000 in 2001, $2,500 in 2002, $2,500 in 2003, $500 in 2004, $0 in 2005 and $30,072 thereafter. In addition, Jafra S.A. entered into a one-year loan and borrowed the peso equivalent of $519,000 on August 16, 2000 at an interest rate of 19.6%. Principal and interest payments are due monthly through August 16, 2001. The remaining balance at December 31, 2000 of $346,000 is classified as short-term debt in the accompanying consolidated balance sheet. On April 30, 1998, Jafra S.A. and JCI borrowed $125 million by issuing $100 million aggregate principal amount of 11.75% Subordinated Notes due 2008 (the "Notes") pursuant to an Indenture dated April 30, 1998 (the "Indenture") and $25 million under a Senior Credit Agreement. At the date of issuance, the Notes represented several obligations of Jafra S.A. and JCI in the amount of $40 million and $60 million, respectively, participating on a pro rata basis upon redemption. The Notes mature in 2008 and bear a fixed interest rate of 11.75% payable semi-annually. Jafra S.A. and JCI are indirect, wholly owned subsidiaries of the Parent and have fully and unconditionally guaranteed the obligations under the Notes of the other on a senior subordinated basis, subject to a 30-day standstill period prior to enforcement of such guarantees. In addition, the Parent has fully and unconditionally guaranteed the Notes on a senior subordinated basis. Each existing subsidiary of Jafra S.A. fully and unconditionally guarantees the Notes jointly and severally, on a senior subordinated basis, and each subsequently acquired or organized subsidiary of Jafra S.A. will fully and unconditionally guarantee the Notes jointly and severally, on a senior subordinated basis. JCI currently has no U.S. subsidiaries. Each acquired or organized U.S. subsidiary of JCI will fully and unconditionally guarantee the Notes jointly and severally, on a senior subordinated basis. The nonguarantor entities are the Parent's indirect European subsidiaries in Austria, Germany, Italy, the Netherlands, Poland, and Switzerland; its indirect South American subsidiaries in Argentina, Brazil, Chile, Colombia, Peru, and Venezuela; and its indirect subsidiaries in the Dominican Republic and Thailand. All guarantor and nonguarantor entities are either direct or indirect wholly owned subsidiaries of the Parent. The Notes were registered in a registered exchange offer, effective as of January 25, 1999, under the Securities Act of 1933, as amended. The Notes are unsecured and are generally non-callable for five years. Thereafter, the Notes will be callable at premiums declining to par in the eighth year. Prior to May 1, 2001, Jafra S.A. and JCI at their option may concurrently redeem the Notes on a pro rata basis in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes. 89 92 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A Consent and Waiver, dated November 19, 1999, to the Senior Credit Agreement, as described below, allows Jafra S.A. and JCI to repurchase the Notes in the open market from time to time, with the aggregate purchase price for all such Notes repurchased not to exceed $25 million. During 2000, Jafra S.A. retired notes, prior to maturity, with a face value of $4.3 million. The debt repurchases in 2000 resulted in an extraordinary loss of $110,000, net of an income tax benefit of $75,000. During 1999, Jafra S.A. retired Notes, prior to maturity, with a face value of $5.6 million. The debt repurchases in 1999 resulted in an extraordinary loss of $256,000, net of an income tax benefit of $177,000. In connection with the early retirement of the Notes as described above, a portion of the unamortized deferred financing costs was written off and included in the determination of the extraordinary loss on early extinguishment of debt. Total amounts that were written off during 2000 and 1999 were $274,000 and $637,000, respectively. In addition, Jafra S.A. and JCI entered into a Senior Credit Agreement that provides for senior secured credit facilities in an aggregate principal amount of $90 million, consisting of a multicurrency Revolving Credit Facility of $65 million and a Term Loan Facility of $25 million. Borrowings under the Term Loan Facility are payable in quarterly installments of principal and interest over 6 years through April 30, 2004. Borrowings under the Revolving Credit Facility mature on April 30, 2004. Borrowings under the Senior Credit Agreement bear interest at an annual rate of LIBOR plus a margin not to exceed 1.625% or an alternate base rate (the higher of the prime rate or federal funds rate plus 0.5%, plus an applicable margin not to exceed 0.625%). The interest rates in effect at December 31, 2000 ranged from approximately 8.1% to approximately 8.3% for the LIBOR-based borrowings and approximately 10.1% for the prime-based borrowings. Borrowings under the Senior Credit Agreement are secured by substantially all of the assets of Jafra S.A. and JCI. Both the Indenture and the Senior Credit Agreement contain certain covenants which limit the Company's ability to incur additional indebtedness, pay cash dividends and make certain other payments. These debt agreements also require the Parent to maintain certain financial ratios including a minimum EBITDA to cash interest expense coverage ratio and a maximum debt to EBITDA ratio. As of December 31, 2000, Jafra S.A. had one irrevocable standby letter of credit outstanding, totaling $1.7 million. This letter of credit, expiring on April 30, 2004, collateralizes the Company's obligation to a third party in connection with certain lease agreements. The fair value of this letter of credit approximates its contract value. (7) INCOME TAXES Actual income tax expense differs from the "expected" tax expense (computed by applying the Mexican federal corporate rate of 35% to income before income taxes) as a result of the following:
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ----------- Provision for income taxes at statutory rate.................................. $6,189 $7,469 $2,052 $2,915 Permanent differences, principally effect of inflation upon taxable income................................ 616 1,267 36 (136) Other................................... -- -- (140) (255) ------ ------ ------ ------ Income tax expense...................... $6,805 $8,736 $1,948 $2,524 ====== ====== ====== ======
90 93 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For financial reporting purposes, the Predecessor has provided income taxes on a separate-company basis. The components of the provision for income taxes are as follows (in thousands):
PREDECESSOR ----------- EIGHT MONTHS FOUR MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30, 2000 1999 1998 1998 ------------ ------------ ------------ ----------- Current................................. $4,266 $1,416 $(2,512) $2,524 Deferred................................ 2,539 7,320 4,460 -- ------ ------ ------- ------ Total income taxes on income before income taxes and extraordinary item... 6,805 8,736 1,948 2,524 Income tax benefit on early extinguishment of debt................ (75) (177) -- -- ------ ------ ------- ------ Total income tax expense...... $6,730 $8,559 $ 1,948 $2,524 ====== ====== ======= ======
The components of deferred income tax assets and deferred income tax liabilities at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 -------- -------- Deferred income tax assets: Accounts receivable.................................. $ 741 $ 685 Net operating loss carryforward of subsidiaries...... 573 2,428 Accrued bonuses...................................... 214 -- Accrued sales promotion.............................. 3,677 2,958 Other accrued liabilities............................ 1,409 947 Other................................................ 2,579 2,042 -------- -------- Total deferred income tax assets............. 9,193 9,060 Deferred income tax liabilities: Transaction and deferred financing costs............. (694) (563) Property and equipment............................... (1,123) (1,790) Trademark and goodwill............................... (17,181) (17,948) Inventories.......................................... (8,833) (7,032) Other................................................ (2,219) (45) -------- -------- Total deferred income tax liabilities........ (30,050) (27,378) -------- -------- Net deferred income tax liabilities.......... $(20,857) $(18,318) ======== ========
As discussed in Note 2 -- Foreign Currency Translation, the Company changed its functional currency from the U.S. dollar to the Mexican peso effective January 1, 1999. As a result, approximately $2.0 million of deferred income tax liabilities associated with temporary income tax differences that arose from the change in functional currency were reflected as an adjustment to the cumulative translation component of stockholders' equity. In addition, during 1999, the Company recorded a deferred income tax asset related to certain temporary differences incurred in connection with the Acquisition. The resulting deferred income tax asset of approximately $400,000 was reflected as an adjustment to goodwill. At December 31, 2000, the Company's deferred income tax assets included $573,000 for an operating loss carryforward. Although realization is not assured, management believes it is more likely than not that the net carrying value of the income tax loss carryforward will be realized. 91 94 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) BENEFIT PLANS Under Mexican labor laws, employees of the Company are entitled to a payment when they leave the Company if they have fifteen or more years of service. In addition, the Company makes government mandated employee profit sharing distributions equal to ten percent of the taxable income of the subsidiary in which they are employed. Total expense under these programs was $345,000 and $391,000 for the years ended December 31, 2000 and 1999, respectively. No expense was incurred in 1998. The total liability was approximately $539,000 and $782,000 at December 31, 2000 and 1999, and is classified as a current liability in the accompanying consolidated balance sheets. (9) RELATED PARTY TRANSACTIONS Since January 1, 1999, the Company has manufactured and distributed color cosmetics and fragrance products to other affiliates of the Parent ("Affiliates"). Sales to Affiliates, primarily in the United States and Germany, were $10,538,000, and $7,228,000 for the years ended December 31, 2000 and 1999. These sales were made at cost plus a markup ranging from 0 to 11%. During 1998, the Parent contracted with a manufacturing subsidiary of Gillette for the manufacture of color cosmetics and fragrance products. As such, sales by the Company to Affiliates during 1998 were nominal. In addition, the Company is provided with certain management services, such as legal, accounting and treasury, management oversight, and other administrative functions from an Affiliate. The cost of these services is included in management fee expense from affiliate in the accompanying consolidated statements of operations. JCI charges out a portion of these management expenses to its Affiliates based principally upon a formula using the percentage of revenues of each affiliate to the total consolidated revenues of the Parent. JCI believes the amounts and methods of allocations are reasonable and approximate the cost of the actual services provided. The management fee expense charged by JCI and the Predecessor to the Company was $8,164,000, $5,293,000, $3,742,000 and $1,926,000 for the years ended December 31, 2000 and 1999, for the eight months ended December 31, 1998, and for the four months ended April 30, 1998. At the end of 1999, Jafra S.A. purchased U.S. trademarks with a net book value of $20,125,000 and German trademarks with a net book value of $4,362,000 from JCI and Jafra Germany (the German subsidiary of the Parent) for their respective estimated fair values of $20,500,000 and $3,500,000. Beginning in 2000, Jafra S.A. charged JCI and Jafra Germany a royalty for the right to use the Jafra trademark in the United States and Europe. The total royalty income charged by Jafra S.A. to JCI and Jafra Germany for the year ended December 31, 2000 was $1,126,000, and is offset against royalty expense to affiliates in the accompanying consolidated statements of operations. JCI owns the worldwide rights to its multi-level sales know-how (referred to as the "Jafra Way"). The Jafra Way was initially developed in the United States for lineage, training, and compensation of consultants. Starting in 1999, JCI charged Jafra S.A. a royalty for the use of the Jafra Way. The royalty fees charged by JCI in 1999 were $17,838,000 and are based on a percentage of Jafra S.A.'s sales. JCI charged Jafra S.A. a royalty expense of $15,746,000 for use of the Jafra Way for the year ended December 31, 2000. The Company has obtained loans from certain Affiliates at annual interest rates ranging from 6% to 9%. Such loans are due to be repaid five years from the date of grant, with no prepayment penalty. Notes payable to affiliates consist primarily of amounts owed by Jafra S.A. as a result of the purchase of U.S. and German trademarks discussed above, and amounts billed to Jafra S.A. in connection with the Jafra Way royalty. Net interest expense to Affiliates, primarily JCI, was $1,780,000, $227,000 and $150,000 for the years ended December 31, 2000 and 1999, and for the eight months ended December 31, 1998. Interest income and expense relating to Affiliates is included in interest, net, in the accompanying consolidated statements of operations. During the four months ended April 30, 1998, interest was charged and earned on intercompany receivables and payables between Gillette and the Predecessor at the LIBOR rate. The total related interest 92 95 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) income was $152,000 for the four months ended April 30, 1998, and is included in interest, net, in the accompanying consolidated statements of operations. In April of 1998, the Predecessor sold land in Mexico to Gillette with a book value of approximately $6 million for $12 million. The excess of the sales price over the book value of the land, net of taxes, was recorded as a contribution of capital from Gillette to the Predecessor. Prior to the closing date of the Acquisition, intercompany accounts receivable and accounts payable between Predecessor entities and Gillette were forgiven, and as such were accounted for as direct reductions from (additions to) equity, respectively. (10) FINANCIAL REPORTING FOR BUSINESS SEGMENTS Segment information has been prepared in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires disclosure of certain information regarding operating segments, products and services, geographic areas of operations and major customers. The Parent's business is comprised of one industry segment, direct selling, with worldwide operations. The Parent is organized into geographical business units that each sell the full line of Jafra cosmetics, skin care, body care, fragrances, and other products. The Company is one of the Parent's reportable business segments, and as such, the only additional business segment information presented is the following breakdown of sales by product lines:
2000 1999 1998 ---------------------------- ---------------------------- ---------------------------- PERCENTAGE PERCENTAGE PERCENTAGE SALES BY OF TOTAL SALES BY OF TOTAL SALES BY OF TOTAL PRODUCT LINE SALES PRODUCT LINE SALES PRODUCT LINE SALES --------------- ---------- --------------- ---------- --------------- ---------- (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) Color Cosmetics........... $ 60.8 30.9% $ 59.2 34.5% $ 45.5 38.4% Skin Care................. 25.7 13.0 22.2 12.9 15.6 13.1 Fragrances................ 79.6 40.4 59.6 34.8 34.1 28.8 Personal Care............. 14.7 7.5 13.4 7.8 14.1 11.9 Other(1).................. 16.1 8.2 17.2 10.0 9.3 7.8 ------ ----- ------ ----- ------ ----- Subtotal before shipping and handling fees and sales to Affiliates........... 196.9 100.0% 171.6 100.0% 118.6 100.0% ===== ===== ===== Shipping and handling fees.................... 4.9 4.4 3.4 Sales to Affiliates....... 10.5 7.2 0.5 ------ ------ ------ Total........... $212.3 $183.2 $122.5 ====== ====== ======
- --------------- (1) Includes sales aids (party hostess gifts, demonstration products, etc.) and promotional materials. (11) COMMITMENTS AND CONTINGENCIES The Company leases office and warehouse facilities as well as manufacturing, transportation and data processing equipment under operating leases which expire at various dates through 2005. Future minimum lease payments under noncancelable operating leases as of December 31, 2000 are (in thousands): 2001....................................................... $ 3,933 2002....................................................... 4,324 2003....................................................... 4,708 2004....................................................... 5,124 2005....................................................... 5,585 ------- $23,674 =======
93 96 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Rental expense was $3,624,000, $1,203,000, $237,000 and $94,000 for the years ended December 31, 2000 and 1999, the eight months ended December 31, 1998, and the four months ended April 30, 1998, respectively. Other income for 2000 included approximately $1.4 million of income related to a recovery of the effect of inflation upon accounts receivable due from the Mexican government. The Company is involved from time to time in routine legal matters incidental to its business. The Company believes that the resolution of such matters will not have a material adverse effect on the Company's business, financial condition or results of operations. (12) MANAGEMENT INCENTIVE ARRANGEMENTS Effective as of the closing of the Acquisition, the Company's parent adopted a stock incentive plan (the "Stock Incentive Plan"), which provides for the sale of up to 52,141 shares of common stock of the Parent and the issuance of options to purchase up to 104,282 additional shares of common stock to members of senior management of certain of the Parent's subsidiaries. One employee of the Company participates in the Stock Incentive Plan. This employee currently holds 3,476 shares of the Parent's stock, and holds options to purchase an additional 6,952 shares. The activity related to this employee's holdings under the Stock Incentive Plan is not significant to the Company. The Company applies APB Opinion No. 25 and related interpretations in accounting for these options. As the options were granted with exercise prices equal to the fair value at the date of grant, no compensation expense was recognized by the Company upon issuance of such options. Certain senior executive officers have employment agreements which provide for annual bonuses if the Company achieves the performance goals established under its annual incentive plan for executives. (13) FOREIGN CURRENCY FORWARD CONTRACTS In 2000 and 1999, the Company entered into foreign currency forward contracts in Mexican pesos to reduce the effect of adverse exchange rate fluctuations in the exchange rate of the Mexican peso to the U.S. dollar. The outstanding foreign currency forward contracts at December 31, 2000 and 1999 had notional values of $80,817,000 and $29,462,000, respectively. The contracts outstanding at December 31, 2000 mature in 2001 while the contracts outstanding at December 31, 1999 matured in 2000. Notional amounts do not quantify market or credit exposure or represent assets or liabilities of the Company, but are used in the calculation of 94 97 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) cash settlements under the contracts. The tables below describe the forward contracts that were outstanding at December 31, 2000 and 1999 (in thousands): DECEMBER 31, 2000:
WEIGHTED FORWARD AVERAGE POSITION IN MATURITY CONTRACT FAIR FOREIGN CURRENCY US DOLLARS(1) DATE RATE VALUE(1) ---------------- ------------- -------- -------- -------- Buy US Dollar/sell Mexican Peso............... $ 6,980 1/26/01 10.12 $ 6,679 Buy US Dollar/sell Mexican Peso............... 7,500 2/26/01 10.20 7,187 Buy US Dollar/sell Mexican Peso............... 7,529 3/30/01 10.36 7,162 Buy US Dollar/sell Mexican Peso............... 5,915 4/30/01 10.48 5,607 Buy US Dollar/sell Mexican Peso............... 2,828 5/31/01 10.61 2,670 Buy US Dollar/sell Mexican Peso............... 3,907 6/29/01 10.24 3,861 Buy US Dollar/sell Mexican Peso............... 2,618 7/31/01 10.31 2,588 Buy US Dollar/sell Mexican Peso............... 11,816 8/31/01 10.32 11,804 Buy US Dollar/sell Mexican Peso............... 12,125 9/28/01 10.39 12,119 Buy US Dollar/sell Mexican Peso............... 2,336 10/30/01 10.70 2,290 Buy US Dollar/sell Mexican Peso............... 10,275 10/31/01 10.71 10,078 Buy US Dollar/sell Mexican Peso............... 2,878 11/30/01 10.43 2,934 Buy US Dollar/sell Mexican Peso............... 4,110 12/27/01 10.71 4,120 ------- ------- $80,817 $79,099 ======= =======
DECEMBER 31, 1999:
WEIGHTED FORWARD AVERAGE POSITION IN MATURITY CONTRACT FAIR FOREIGN CURRENCY US DOLLARS(1) DATE RATE VALUE(1) ---------------- ------------- -------- -------- -------- Buy US Dollar/sell Mexican Peso............. $ 3,658 3/31/00 9.671 $ 3,690 Buy US Dollar/sell Mexican Peso............. 3,822 4/28/00 9.770 3,856 Buy US Dollar/sell Mexican Peso............. 2,885 5/31/00 9.900 2,907 Buy US Dollar/sell Mexican Peso............. 3,937 6/30/00 10.008 3,967 Buy US Dollar/sell Mexican Peso............. 1,947 7/31/00 10.118 1,962 Buy US Dollar/sell Mexican Peso............. 2,988 8/31/00 10.223 3,010 Buy US Dollar/sell Mexican Peso............. 3,818 9/29/00 10.326 3,846 Buy US Dollar/sell Mexican Peso............. 3,593 10/31/00 10.438 3,617 Buy US Dollar/sell Mexican Peso............. 2,814 11/30/00 10.548 2,829 ------- ------- $29,462 $29,684 ======= =======
- --------------- (1) The "Forward Position in US Dollars" and the "Fair Value" presented above represent notional amounts. The net of these two amounts, an unrealized loss of $1,718,000 at December 31, 2000 and an unrealized gain of $222,000 at December 31, 1999, represents the carrying value of the forward contracts (which approximates fair value) and has been recorded as a liability and an asset in the accompanying consolidated balance sheets as of December 31, 2000 and 1999, respectively. Prior to entering into foreign currency exchange contracts, the Company evaluates the counter parties' credit ratings. Credit risk represents the accounting loss that would be recognized at the reporting date if 95 98 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) counter parties failed to perform as contracted. The Company does not currently anticipate non-performance by such counter parties. The derivative instruments utilized by the Company did not qualify for hedge accounting under the applicable accounting standards prior to adoption of SFAS 133, and accordingly such instruments were marked-to-market with gains and losses included as a component of exchange gain (loss) in the accompanying consolidated statements of operations for the years ended December 31, 2000 and 1999. Effective January 1, 2001 the Company will adopt SFAS 133. Under SFAS 133, the Company's current mark-to-market accounting treatment will continue to be applied to certain of the Company's derivative instruments. However, under SFAS 133, the Company's use of forward contracts to hedge certain forecasted non- functional currency cash flows will now qualify for hedge accounting. Unrealized gains and losses from such derivative instruments arising subsequent to January 1, 2001 will be deferred as a separate component of other comprehensive income, and will be recognized in income at the same time that the underlying hedged exposure is recognized in income. (14) FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 2000, the Company recorded certain adjustments related to changes in cost accounting estimates, which resulted in an increase to cost of sales of approximately $3 million. 96 99 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) CDRJ INVESTMENTS (LUX) S.A. AND SUBSIDIARIES:
ADDITIONS ---------------------- CHARGED BALANCE TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER DEDUCTIONS- AT END DESCRIPTIONS OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD ------------ ------------ ---------- -------- ----------- --------- Accounts Receivable: 2000............................. $3,087 $5,958 $-- $5,492 $3,553 1999............................. 2,284 4,651 -- 3,848 3,087 May 1 - December 31, 1998........ 2,137 3,951 -- 3,804 2,284 Predecessor: January 1 - April 30, 1998....... 2,057 1,982 -- 1,902 2,137 Inventories: 2000............................. 2,442 1,973 -- 1,953 2,462 1999............................. 4,900 2,256 -- 4,714 2,442 May 1 - December 31, 1998........ 7,089(1) 922 -- 3,111 4,900 Predecessor: January 1 - April 30, 1998....... 1,628 733 -- 220 2,141
- --------------- (1) Increase in inventory reserves of $4,948 over Predecessor's balance at April 30, 1998 represents certain purchase accounting entries recorded in connection with the Acquisition. JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES:
ADDITIONS ---------------------- CHARGED BALANCE TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER DEDUCTIONS- AT END DESCRIPTIONS OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD ------------ ------------ ---------- -------- ----------- --------- Accounts Receivable: 2000............................. $ 800 $ 898 $-- $1,162 $ 536 1999............................. 547 1,359 -- 1,106 800 May 1 - December 31, 1998........ 513 3,087 -- 3,053 547 Predecessor: January 1 - April 30, 1998....... 337 1,601 -- 1,425 513 Inventories: 2000............................. 2,084 532 -- 1,212 1,404 1999............................. 3,842 1,155 -- 2,913 2,084 May 1 - December 31, 1998........ 5,674(1) 492 -- 2,324 3,842 Predecessor: January 1 - April 30, 1998....... 1,346 469 -- -- 1,815
- --------------- (1) Increase in inventory reserves of $3,859 over Predecessor's balance at April 30, 1998 represents certain purchase accounting entries recorded in connection with the Acquisition. 97 100 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES:
ADDITIONS ---------------------- CHARGED BALANCE TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER DEDUCTIONS- AT END DESCRIPTIONS OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD ------------ ------------ ---------- -------- ----------- --------- Accounts Receivable: 2000............................. $1,956 $4,956 $-- $4,795 $2,117 1999............................. 1,155 3,209 -- 2,408 1,956 May 1 - December 31, 1998........ 1,531 828 -- 1,204 1,155 Predecessor: January 1 - April 30, 1998....... 1,473 357 -- 299 1,531 Inventories: 2000............................. 269 1,337 -- 712 894 1999............................. 1,012 985 -- 1,728 269 May 1 - December 31, 1998........ 1,180 619 -- 787 1,012 Predecessor: January 1 - April 30, 1998....... 260 210 -- 312 158
- --------------- (1) Increase in inventory reserves of $1,022 over Predecessor's balance at April 30, 1998 represents certain purchase accounting entries recorded in connection with the Acquisition. 98 101 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY The names, ages and positions of the executive officers, significant employees and directors of the Company as of March 15, 2001 are set forth below.
NAME AGE POSITION ---- --- -------- Ronald B. Clark...................... 65 Chairman and Chief Executive Officer; Director Gonzalo R. Rubio..................... 57 President and Chief Operating Officer; Director Ralph S. Mason, III.................. 49 Vice Chairman, Executive Vice President and General Counsel Michael A. DiGregorio................ 46 Senior Vice President and Chief Financial Officer Jaime Lopez Guirao................... 53 President of Global Operations Alan Fearnley........................ 50 Senior Vice President of Global Marketing Joaquim Simoes....................... 48 Senior Vice President and Chief Information Officer Eugenio Lopez Barrios................ 59 President of Mexican Operations Jose Luis Peco....................... 55 President of European Operations Ademar Serodio....................... 56 President of South American Operations Beatriz Gutai........................ 40 General Manager of United States Operations -- Hispanic Division Dyan Lucero.......................... 51 General Manager of United States Operations -- General Division Donald J. Gogel...................... 52 Director Steven D. Goldstein.................. 49 Director Thomas E. Ireland.................... 51 Director Siri Marshall........................ 52 Director David A. Novak....................... 32 Director Paul Orfalea......................... 53 Director Ann Reese............................ 48 Director Edward H. Rensi...................... 56 Director Kenneth D. Taylor.................... 66 Director
None of the Company's officers has any family relationship with any director or other officer. "Family relationship" for this purpose means any relationship by blood, marriage or adoption, not more remote than first cousin. The business experience during the past five years of each of the directors and executive officers listed above is as follows: Ronald B. Clark has served as a director and the Chairman and Chief Executive Officer since joining the Company in May 1998. Mr. Clark served from 1996 to January 1998 as President, Richmont Europe (Mary Kay Holding Company). Prior to 1996, he was President of Mary Kay Europe, Executive Vice President of Primerica Corp., President of Jafra Cosmetics International, Inc., and Vice President of Avon Products, Inc. Mr. Clark's employment agreement provides that he shall be a director of Parent during the term of his employment. Gonzalo R. Rubio has served as a director and the President and Chief Operating Officer since joining the Company in May 1998. Mr. Rubio served from prior to 1996 to 1997 as Area Vice President and later President of the European operations of Mary Kay Inc. Prior to that, Mr. Rubio was employed by Avon Products Inc., serving alternately as Area Director for Europe, International Operations Director and Area Director for Latin America. Mr. Rubio's employment agreement provides that he shall be a director of Parent during the term of his employment. 99 102 Ralph S. Mason, III has served as the Vice Chairman, Executive Vice President and General Counsel since joining the Company in May 1998. For more than the prior five years, Mr. Mason was the senior and founding partner at Mason, Taylor & Colicchio, a law firm in Princeton, New Jersey. Michael A. DiGregorio has served as Senior Vice President and Chief Financial Officer of the Company since June of 1999. From May 1998 to May 1999, Mr. DiGregorio served as President of the United States Operations of the Company. From prior to 1996 to June 1998, Mr. DiGregorio served initially as Financial Director and most recently as General Manager of Jafra Mexico. Jaime Lopez Guirao has served as President, Global Operations since joining the Company in June 1998. For more than the prior five years, Mr. Guirao was employed by Avon Products, Inc., holding several operational, management and Country President positions in Europe and the Americas. Alan Fearnley has served as Senior Vice President of Global Marketing since joining the Company in June 1998. From 1997 to 1998, Mr. Fearnley served as Vice President of Marketing for Dermatologica. Prior to that, Mr. Fearnley took a year's sabbatical to attend the Sloan Fellowship Masters Program at the London Business School. During this sabbatical, Mr. Fearnley also served as consultant to various companies. Joaquim C. Simoes currently serves as Senior Vice President and Chief Information Officer of the Company. Mr. Simoes joined the Company in August 1999 as Vice President and Chief Information Officer. Prior to joining the Company, Mr. Simoes served as the Chief Information Officer, South American Theater, at PricewaterhouseCoopers. From September 1997 to February 1998, Mr. Simoes served as Senior Manager, Software & Systems at Pitney Bowes, Inc. From prior to 1996 to 1997, Mr. Simoes owned and served as President of ExecuTrain of Rhode Island. Eugenio Lopez Barrios has served as President of Mexican Operations since joining the Company in June 1998. From prior to 1996 to 1998, Mr. Barrios was President of Mary Kay Mexico. Jose Luis Peco has served as President of European Operations of the Company since joining the Company in June 1998. From prior to 1996 to 1998, Mr. Peco served as Vice President of European Operations for Mary Kay Cosmetics and President of Mary Kay Cosmetics -- Iberia. Ademar Serodio joined the Company in January 2000 and currently serves as President of South America Operations of the Company. For more than the prior five years, Mr. Serodio was employed by Avon Products, Inc., holding several Country President roles in Avon's South American markets. Beatriz Gutai has served as General Manager of the Hispanic Division of United States Operations since September of 2000. Prior to that time, Ms. Gutai served as Vice President of Sales for the Hispanic Division and in various positions in sales management, programs, and events since joining the Company in 1982. Dyan Lucero has served as General Manager of the General Division of United States Operations since September of 2000. Prior to that time, Ms. Lucero served as Vice President of Sales for the General Division and in various positions in sales management and business development since joining the Company in 1975. Donald J. Gogel has been a director of the Company since January 1998. Since 1998, Mr. Gogel has served as Chief Executive Officer of CD&R; since prior to 1996 he has served as President and a director of CD&R and since 1989 he has been a principal of CD&R. Mr. Gogel is also a limited partner of CD&R Associates V Limited Partnership ("Associates V"), the general partner of CD&R Fund V, and President and Chief Executive Officer and a shareholder and director of CD&R Investment Associates II, Inc. ("Investment Associates II"), a Cayman Islands exempted company that is the managing general partner of Associates V. Mr. Gogel is a director of Kinko's, Inc., a corporation in which Fund V has an investment, and a director of Alliant Foodservice, Inc., and its parent, Alliant Exchange, Inc., corporations in which an investment fund managed by CD&R has an investment, Global Decisions Group, LLC, a limited liability company in which an investment fund managed by CD&R has an investment, and Turbochef, Inc. Mr. Gogel serves as a member of the compensation committee of the board of directors of Turbochef, Inc. Steven D. Goldstein has been a director of the Company since July 1998. Since November of 2000, Mr. Goldstein has served as Chairman and Chief Executive Officer of More Benefits, Corp. From December 100 103 1997 to November of 2000, Mr. Goldstein served as Chairman and Chief Executive Officer of Invenet, LLC. Prior to joining Invenet, LLC, Mr. Goldstein was employed as President, Credit of Sears, Roebuck & Co. From prior to 1996 to 1996, Mr. Goldstein was employed by American Express Co., serving most recently as the Chairman and Chief Executive Officer of American Express Bank. Thomas E. Ireland has been a director of the Company since March 1998 and is a principal of CD&R, a limited partner of Associates V and a shareholder and a director of Investment Associates II. From prior to 1996 until joining CD&R in 1997, Mr. Ireland served as a senior managing director of Alvarez & Marsal, Inc. Mr. Ireland also serves on the board of directors of the Maine Coast Heritage Trust. Siri Marshall has been a director of the Company since July 1999. Ms. Marshall has been employed by General Mills since prior to 1996 and currently serves as its Senior Vice President, Corporate Affairs and General Counsel. David A. Novak has been a director of the Company since January 1998. Mr. Novak is a principal of CD&R, a limited partner of Associates V, and a shareholder of Investment Associates II. Prior to joining CD&R in 1997, Mr. Novak worked in the Merchant Banking and Investment Banking Divisions of Morgan Stanley & Co. Incorporated and for the Central European Development Corporation. Mr. Novak also serves on the board of directors of Allied Worldwide, Inc., a corporation in which Fund V has an investment. Paul Orfalea has been a director of the Company since July 1998 and is the founder and Chairman Emeritus of Kinko's, Inc., a corporation in which Fund V has an investment. From prior to 1996 to 2000, Mr. Orfalea served as Chairman of Kinko's, Inc. Mr. Orfalea is also a director of DataProse, Inc., Espresso Caffe Corp., and Glendale Federal Bank and serves as a member of the compensation committee of the board of directors of Glendale Federal Bank. Ann Reese has been a director of the Company since July 1998. From 1999 to December 2000, Ms. Reese was a professional employee of CD&R. From prior to 1996 to March 1998, Ms. Reese was Chief Financial Officer of ITT Corp., a company in the hotel and gaming businesses and previously in insurance and manufacturing. Edward H. Rensi has been a director of the Company since July 1998. For more than the prior five years, Mr. Rensi has been employed by McDonalds Corp. USA, serving most recently as President and Chief Executive Officer. Mr. Rensi also serves as a director of Snap-On Inc. and I.S.C. Corporation, and serves as a member of the compensation committee of the board of directors of Snap-On Inc. Kenneth D. Taylor has been a director of the Company since July 1998 and has been the Chairman of Global Public Affairs, Inc. since prior to 1996. Mr. Taylor is a director of Devine Entertainment Corporation, Taylor Gas Liquids Fund, McCarvill Corporation, William Resources Inc., AdvantEdge International Inc., Finsa Energeticos, Alberta Northeast Gas Limited, and J&H Marsh & McLennan Limited. At present, all directors will hold office until their successors are elected and qualified, or until their earlier removal or resignation. 101 104 ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the compensation earned by the Company's Chief Executive Officer and the four additional most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") for each of the last three fiscal years. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------- LONG-TERM OTHER COMPENSATION ALL OTHER ANNUAL SECURITIES COMPEN- COMPEN- UNDERLYING SATION NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) OPTIONS(#) ($)(1) --------------------------- ---- --------- -------- --------- ------------ --------- Ronald B. Clark................. 2000 626,218 227,610 56,811 Chairman and Chief 1999 609,288 510,000 30,273 Executive Officer 1998 406,154(2) 360,000 -- 18,328 15,692 Gonzalo R. Rubio................ 2000 521,832 189,666 47,341 President and Chief 1999 507,740 425,000 55,228 Operating Officer 1998 326,923(2) 300,000 -- 18,328 1,344 Ralph S. Mason, III............. 2000 469,672 170,712 8,517 Vice Chairman, Executive 1999 456,966 382,000 146,238(3) 1,771 Vice President and General 1998 304,616(2) 270,000 263,082(4) 14,536 -- Counsel Jaime Lopez Guirao.............. 2000 467,518 170,360 42,476 President of Global Operations 1999 455,597 382,000 47,910 1998 253,846(5) 870,000(6) -- 6,000 2,269 Michael A. DiGregorio........... 2000 312,664 94,845 1,264 18,048 Senior Vice President and 1999 304,352 212,000 22,718 Chief Financial Officer 1998 190,385(2) 150,000 79,292(7) 3,476 5,192
- --------------- (1) Amounts shown in this column constitute contributions by the Company under the Company's 401(k) and Supplemental Savings Plans. (2) Messrs. Clark, Rubio, Mason and DiGregorio joined the Company on May 1, 1998. (3) Amount includes reimbursement for expenses of $140,000 incurred by Mr. Mason in order to relocate to Company headquarters. (4) Amount includes reimbursement for expenses of $258,347 incurred by Mr. Mason in order to relocate to Company headquarters. (5) Messr. Guirao joined the Company on June 1, 1998. (6) Amount includes a $600,000 incentive bonus accrued in connection with the hiring of Mr. Guirao. (7) Amount includes reimbursement for expenses of $75,474 incurred by Mr. DiGregorio in order to relocate to Company headquarters. 102 105 OPTION GRANTS IN 2000 The following table sets forth, for the Named Executive Officers, information concerning stock options granted during the year ended December 31, 2000. No stock appreciation rights were granted to the Named Executive Officers during the year ended December 31, 2000. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------- VALUE AT ASSUMED PERCENTAGE OF ANNUAL RATES OF NUMBER OF TOTAL STOCK PRICE SECURITIES OPTIONS EXERCISE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM(1) OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------- NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10% ---- ---------- ------------- -------- -------------- -------- --------- Michael A. DiGregorio........... 632(2) 7.1% $210 August 9, 2010 83,467 211,521 Michael A. DiGregorio........... 632(3) 7.1% 210 August 9, 2010 83,467 211,521
- --------------- (1) Potential realizable value is based on an assumption that the price of the Common Stock appreciates at the annual rate shown (compounded annually) from the date of the grant until the end of the ten (10) year option term. Potential realizable value is shown net of exercise price. These amounts are calculated based on the regulations promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price growth. The actual future gains, if any, of the stock options will depend upon the future appreciation of the market price of the Common Stock. This table should not be viewed in any way as a forecast of the future performance of the Parent's stock, which will be determined by future events and unknown factors. (2) Subject to the continuous employment of the Named Executive Officer, the options become vested in three equal annual installments on each of the first three anniversaries of the date of grant, August 9, 2000. (3) Subject to the continuous employment of the Named Executive Officer, the options become vested as follows: (a) up to one-third of the options become vested as of each of the first three anniversaries of the date of grant, August 9, 2000, if the Company achieves at least 85% of its EBITDA target for the immediately preceding fiscal year, (b) if less than one-third of the total number of options shall have become vested as provided in clause (a) above, the portion that has not become so vested shall become vested as of the first day of the fiscal year following the fiscal year, if any, that the Company achieves its cumulative EBITDA target, and (c) any options that do not become vested as provided above will become vested on August 9, 2009. FISCAL YEAR-END OPTION VALUE TABLE The following table sets forth information for each Named Executive Officer with regard to the aggregate value of options held at December 31, 2000. No options were exercised by such executive officers during the year ended December 31, 2000.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 2000(#) DECEMBER 31, 2000($)(1) ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Ronald B. Clark........................... 9,164 9,164 $1,008,040 $1,008,040 Gonzalo R. Rubio.......................... 9,164 9,164 1,008,040 1,008,040 Ralph S. Mason, III....................... 7,268 7,268 799,480 799,480 Jaime Lopez Guirao........................ 3,000 3,000 330,000 330,000 Michael A. DiGregorio..................... 1,738 3,002 191,180 191,180
- --------------- (1) Calculated based on a per share price of Parent Common Stock of $210, the estimated fair market value as of December 31, 2000, less the per share exercise price. 103 106 COMPENSATION OF DIRECTORS During 2000, each outside director of the Company received a retainer of $40,000 for serving on the Board of Directors of the Company and was reimbursed for his or her out-of-pocket expenses incurred in connection with attending board meetings. The Company pays no additional remuneration to officers of the Company or the principals or employees of CD&R for serving as directors. EMPLOYMENT AGREEMENTS The Company has employment agreements with each of the Named Executive Officers. The employment agreements of Messrs. Clark, Rubio and Mason have an initial term of three years that becomes a continuous "rolling" two year term as of the first anniversary of the closing of the Acquisition (the "Closing"). The employment agreements of Messrs. Guirao and DiGregorio have a continuous "rolling" term of two years, commencing as of June 1, 1998. Pursuant to their respective agreements, as of their 2000 anniversary dates, Messrs. Clark, Rubio, Mason, Guirao and DiGregorio receive annual base salaries of $632,000, $527,000, $474,000, $473,000 and $316,000, respectively. In addition, each of Messrs. Clark, Rubio, Mason and Guirao are eligible for a target annual bonus equal to 60%, and Mr. DiGregorio is eligible for a target annual bonus equal to 50%, of such Named Executive Officer's annual base salary if the Company achieves the performance goals established under its annual incentive plan for executives and may receive a larger bonus if such goals are exceeded. The employment agreements further provide that, in the event of a termination of any such Named Executive Officer's employment by the Company without "cause" (as defined in the employment agreement) or by such executive for "good reason" (as so defined), such Named Executive Officer will be entitled to continued payments of his base salary for the remaining term of his employment agreement and to payment of a pro rata annual bonus for the year of termination provided that the Company achieves the performance objectives applicable for such year and each year thereafter. Each of the employment agreements also contains covenants regarding nondisclosure of confidential information, noncompetition and nonsolicitation. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors of the Company established a Compensation Committee to review all compensation arrangements for executive officers of the Company. The individuals serving on the Compensation Committee during 2000 were Mr. Taylor, Chairperson, Mr. Orfalea, and Mr. Gogel. Mr. Gogel is President, Chief Executive Officer and a principal and director of CD&R and a limited partner of CD&R Associates V Limited Partnership ("Associates V"), the general partner of CD&R Fund V. In addition, Mr. Gogel is President and Chief Executive Officer and a shareholder and director of CD&R Investment Associates II, Inc. ("Investment Associates II"), a Cayman Islands exempted company that is the managing general partner of Associates V. In 1998, CD&R received a fee of $2.7 million for providing services related to the structuring, implementation and consummation of the Acquisition. During the eight months ended December 31, 1998, pursuant to a consulting agreement entered into following the Acquisition, CD&R also received a fee of $333,000 (plus reimbursement of out-of-pocket expenses) for advisory, management consulting and monitoring services to the Company. The annual fee received by CD&R pursuant to this agreement was originally $500,000 and as of January 1, 1999, was reduced to $400,000 for each of the years ended December 31, 1999 and 2000. The Company and CD&R are currently discussing a proposed amendment to the consulting agreement. As proposed, the amendment would provide for an annual fee of $1,000,000, retroactive to January 1, 2001, for ongoing services provided to the Company. As required by the terms of the Company's lending arrangements, such fees are determined by arm's-length negotiation and are believed by the Company to be reasonable. In addition, the proposed amendment adds to CD&R's services under the agreement financial advisory, investment banking and similar services with respect to future proposals for an acquisition, merger, recapitalization, or other similar transaction directly or indirectly involving the Company or any of its subsidiaries. The fee for such additional services in connection with future transactions would be an amount equal to 1% of the transaction value for the transaction to which such fee relates. Such transaction fees may be increased upon approval of a majority of the members of the Company's Board of Directors who are not 104 107 employees of the Company, CD&R or any affiliate of CD&R. The proposed amendment also provides that if any employee of CD&R is appointed to an executive management position (or a position of comparable responsibility) in the Company or any of its subsidiaries, the annual fee will be increased by an amount to be determined by CD&R, the amount of such increase not to exceed 100% of the existing annual fee in effect at that time. The proposed amendment has been approved by the Company's Board of Directors. Parent has also agreed to indemnify the members of the Board employed by CD&R and CD&R against liabilities incurred under securities laws, liabilities to third parties, and liabilities relating to the provision by CD&R of advisory management, consulting and monitoring services. The Company also engaged an entity in which CD&R has an investment to develop its e-commerce business. During 2000 and 1999, the Company paid such entity fees of $1,798,000 and $389,000, respectively. The Company terminated this agreement and entered into a settlement and release agreement with such entity in 2000, pursuant to which such entity agreed to pay the Company $500,000 in quarterly installments, together with interest at 9.5% per annum. See "Certain Relationships and Related Transactions." 105 108 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Parent owns, indirectly, all of the outstanding capital stock of JCI and Jafra S.A. The table below sets forth, as of March 10, 2001, the owners of 5% or more of the Parent Common Stock and the ownership of Parent Common Stock by the directors and each Named Executive Officer, as well as by all directors and Named Executive Officers of the Company as a group.
NUMBER PERCENT NAME OF SHARES OF CLASS ---- --------- -------- Clayton, Dubilier & Rice Fund V Limited Partnership(1)...... 769,600 92.25 Donald J. Gogel(2).......................................... -- -- Steven D. Goldstein......................................... 2,000 * Thomas E. Ireland(2)........................................ -- -- Siri Marshall............................................... 1,667 * David A. Novak(2)........................................... -- -- Paul Orfalea................................................ 2,500 * Ann Reese................................................... 2,500 * Edward H. Rensi............................................. 2,500 * Kenneth D. Taylor........................................... 500 * Ronald B. Clark(3).......................................... 18,328 2.20 Gonzalo R. Rubio(4)......................................... 18,328 2.20 Ralph S. Mason, III(5)...................................... 14,536 1.74 Jaime Lopez Guirao(6)....................................... 6,000 * Michael A. DiGregorio(7).................................... 3,948 * All directors and Named Executive Officers as a group (14 persons)(8)............................................... 72,807 8.73
- --------------- The symbol "*" denotes less than 1 percent. (1) Associates V is the general partner of CD&R Fund V and has the power to direct CD&R Fund V as to the voting and disposition of shares held by CD&R Fund V. Investment Associates II is the managing general partner of Associates V and has the power to direct Associates V as to its direction of CD&R Fund V's voting and disposition of the shares held by CD&R Fund V. No person controls the voting and dispositive power of Investment Associates II with respect to the shares owned by CD&R Fund V. Each of Associates V and Investment Associates II expressly disclaims beneficial ownership of the shares owned by CD&R Fund V. The business address for each of CD&R Fund V, Associates V and Investment Associates II is c/o Investment Associates II, 1403 Foulk Road, Suite 106, Wilmington, Delaware 19803. (2) Does not include shares owned by CD&R Fund V. (3) Includes 9,164 shares as to which Mr. Clark has a right to acquire through the exercise of stock options. (4) Includes 9,164 shares as to which Mr. Rubio has a right to acquire through the exercise of stock options. (5) Includes 7,268 shares as to which Mr. Mason has a right to acquire through the exercise of stock options. (6) Includes 3,000 shares as to which Mr. Guirao has a right to acquire through the exercise of stock options. (7) Includes 1,738 shares as to which Mr. DiGregorio has a right to acquire through the exercise of stock options, and excludes 160 shares held by the trustee of subtrusts established for the benefit of Mr. DiGregorio's children. (8) Includes 30,334 shares which the directors and Named Executive Officers as a group have a right to acquire through the exercise of stock options. Messrs. Clark, Rubio and Mason purchased shares of Common Stock at the Closing. On September 30, 1998, certain members of management, certain directors and other persons purchased an aggregate of 40,437 shares of Common Stock; on October 1, 1999, a former member of management exercised 579 options to purchase Common Stock, and then sold a total of 2,317 shares of Common Stock back to the Company; on November 19, 1999, certain members of management and a director purchased an aggregate of 2,457 shares of Common Stock; on July 11, 106 109 2000, a member of management purchased 316 shares of Common Stock; on July 27, 2000, a former member of management exercised 158 options to purchase Common Stock, and then sold a total of 632 shares of Common Stock back to the Company; on August 9, 2000, certain members of management purchased an aggregate of 4,108 shares of Common Stock, and on November 6, 2000, a former member of management sold 316 shares of the Common Stock back to the Company in transactions exempt from the registration requirements of the Securities Act. Shares owned by CD&R Fund V are not included herein. Mr. Gogel is an officer, director and shareholder of Investment Associates II, Mr. Ireland is a director and shareholder of Investment Associates II, and Mr. Novak is a shareholder of Investment Associates II. 107 110 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CD&R Fund V, which is Parent's largest stockholder, is a private investment fund managed by CD&R. Amounts contributed to CD&R Fund V by its limited partners are invested at the discretion of the general partner in equity or equity-related securities of entities formed to effect leveraged buy-out transactions and in the equity of corporations where the infusion of capital, coupled with the provision of managerial assistance by CD&R, can be expected to generate returns on investments comparable to returns historically achieved in leveraged buyout transactions. The general partner of CD&R Fund V is Associates V, and the general partners of Associates V are Investment Associates II, CD&R Investment Associates, Inc. and CD&R Cayman Investment Associates, Inc., a Cayman Islands exempted company. Each of Mr. Gogel, who is President, Chief Executive Officer and a director of CD&R; President, Chief Executive Officer, and a shareholder and a director of Investment Associates II; and a limited partner of Associates V, Mr. Ireland, who is a principal of CD&R, a limited partner of Associates V and a shareholder and a director of Investment Associates II, and Mr. Novak, who is a principal of CD&R, a limited partner of Associates V, and a shareholder of Investment Associates II, is a director of Parent. See "Directors and Executive Officers of the Company." CD&R is a private investment firm that is organized as a Delaware corporation. CD&R is the manager of a series of investment funds, including CD&R Fund V. CD&R generally assists in structuring, arranging financing for and negotiating the transactions in which the funds it manages invest. After the consummation of such transactions, CD&R generally provides advisory, management consulting and monitoring services to the companies in which its investment funds have invested during the period of such fund's investment. CD&R received at the Closing of the Acquisition an initial transaction fee of $2.7 million for providing services related to the structuring, implementation and consummation of the Acquisition, in addition to the reimbursement of out-of-pocket expenses. Pursuant to a consulting agreement entered into at the closing of the Acquisition, until the tenth anniversary of the Acquisition or the date on which CD&R Fund V no longer has an investment in the Company or until the termination by either party with 30 days notice, CD&R will receive an annual fee (and reimbursement of out-of-pocket expenses) for providing advisory, management consulting and monitoring services to the Company. The annual fee was originally $500,000 and as of January 1, 1999, was reduced to $400,000. Such services include, among others, helping the Company to establish effective banking, legal and other business relationships and assisting management in developing and implementing strategies for improving the operational, marketing and financial performance of the Company. The Company and CD&R are currently discussing a proposed amendment to the consulting agreement. As proposed, the amendment would provide for an annual fee of $1,000,000, retroactive to January 1, 2001, for ongoing services provided to the Company. As required by the terms of the Company's lending arrangements, such fees are determined by arm's-length negotiation and are believed by the Company to be reasonable. In addition, the proposed amendment adds to CD&R's services under the agreement financial advisory, investment banking and similar services with respect to future proposals for an acquisition, merger, recapitalization, or other similar transaction directly or indirectly involving the Company or any of its subsidiaries. The fee for such additional services in connection with future transactions would be an amount equal to 1% of the transaction value for the transaction to which such fee relates. Such transaction fees may be increased upon approval of a majority of the members of the Company's Board of Directors who are not employees of the Company, CD&R or any affiliate of CD&R. The proposed amendment also provides that if any employee of CD&R is appointed to an executive management position (or a position of comparable responsibility) in the Company or any of its subsidiaries, the annual fee will be increased by an amount to be determined by CD&R, the amount of such increase not to exceed 100% of the existing annual fee in effect at that time. The proposed amendment has been approved by the Company's Board of Directors. CD&R, CD&R Fund V and Parent entered into an indemnification agreement, pursuant to which Parent has agreed to indemnify the members of its board of directors, as well as CD&R, CD&R Fund V, Associates V, Investment Associates II and certain of their members, partners, associates and affiliates (the "Indemnitees") to the fullest extent allowable under applicable law and to indemnify the Indemnitees against any suits, claims, damages or expenses which may be made against or incurred by them under applicable 108 111 securities laws in connection with offerings of securities of the Company, liabilities to third parties arising out of any action or failure to act by the Company, and, except in cases of gross negligence or intentional misconduct, the provision by CD&R of advisory, management consulting and monitoring services. During 1999, the Company engaged Guidance Solutions Inc. ("Guidance"), a corporation in which an investment fund managed by CD&R has an investment, to develop its e-commerce business. Under the agreement entered into by both parties, the Company agreed to pay fees of approximately $2.0 million to Guidance in connection with the planning, defining, designing and consulting services performed. During 2000 and 1999, the Company paid fees to Guidance of $1,798,000 and $389,000, respectively. The Company terminated its agreement with Guidance and executed a settlement and mutual release agreement effective September 30, 2000. Upon execution of this settlement and mutual release agreement in October of 2000, Guidance paid the Company $25,000 and agreed to pay the Company an aggregate additional sum of $475,000, payable in quarterly installments, plus interest at 9.5% per annum, beginning in January 2001. The Company has entered into employment agreements with various members of management, including each of the Named Executive Officers. See "Executive Compensation -- Employment Agreements." The employment agreements of Messrs. Clark and Rubio provide that each will be a director of Parent during the term of his employment. Under certain circumstances, stockholders can require the Company to purchase their shares of Common Stock. Management stockholders are subject to a holding period of at least seven months from the date such shares were acquired. In July 2000, a former member of management exercised options to purchase 158 shares of Common Stock, and then requested that the Company purchase his entire balance of Common Stock, consisting of 632 shares. In November 2000, a former member of management requested that the Company purchase his entire balance of Common Stock, consisting of 316 shares. In October of 1999, a former member of management exercised options to purchase 579 shares of Common Stock, then requested that the Company purchase his entire balance of Common Stock, consisting of 2,317 shares. The Company repurchased the shares in 2000 at a total cost of $199,000, or $210 per share, and the shares in 1999 at a total cost of $348,000, or $150 per share, which represented the respective estimated fair values at the time of the purchases. In November 1999, a director, Siri Marshall, and certain members of management purchased 1,667 and 790 shares of Common Stock, respectively, at a purchase price of $150.00 per share. Certain members of management were also granted options to purchase an aggregate of 1,580 shares of Common Stock. Certain members of management, including Named Executive Officers, financed a portion of the cash purchase price of the shares of Common Stock they acquired through loans from the Chase Manhattan Bank on market terms. In July 2000, a member of management purchased 316 shares of Common Stock at a purchase price of $150.00 per share, which was below the estimated fair value at the time of purchase of $210.00 per share. The Company recognized compensation expense of approximately $19,000 at the time of the purchase. In August 2000, certain members of management purchased an aggregate of 4,108 shares of the Common Stock at a purchase price of $210.00 per share, which represented the estimated fair value at the time of the purchase. During 2000, certain members of management were also granted options to purchase an aggregate of 8,848 shares of Common Stock. To help members of management obtain such terms for such financing, the Company fully and unconditionally guaranteed up to 75% of the purchase price for the shares of Common Stock purchased by each such member of management. The Company guaranteed loans for $687,300, $687,300, $545,100, $225,000 and $230,000 extended to Messrs. Clark, Rubio, Mason, Guirao, and DiGregorio, respectively, which remain outstanding. 109 112 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements. Reference is made to the Index to Financial Statements and Schedules of the Company on page 26 of this Annual Report on Form 10-K. (a)(2) Financial Statement Schedules. Reference is made to the Index to Financial Statements and Financial Statement Schedules of the Company on page 28 of this Annual Report on Form 10-K. See also the following financial statement schedules which should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K.
PAGES IN THIS ANNUAL REPORT ON FORM 10-K ------------- JAFRA COSMETICS INTERNATIONAL, INC.: Independent Auditors' Report.............................. 57 Consolidated Balance Sheets as of December 31, 2000 and 1999................................................... 58 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 59 Consolidated Statements of Stockholder's Equity for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998............................ 60 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 61 Notes to Consolidated Financial Statements................ 62 JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V.: Independent Auditors' Report.............................. 80 Consolidated Balance Sheets as of December 31, 2000 and 1999................................................... 81 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 82 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998............................ 83 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999, the eight-month period ended December 31, 1998, and the four-month period ended April 30, 1998................................... 84 Notes to Consolidated Financial Statements................ 85
110 113 (a)(3) Exhibits. The following documents are exhibits to this Annual Report on Form 10-K.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 3.1 Articles of Association (Statuts Coordonnes) of CDRJ Investments (Lux) S.A., as restated on September 30, 1998; previously filed as Exhibit 3.1 to Amendment 2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed December 23, 1998, and incorporated herein by reference. 3.2 Certificate of Incorporation of CDRJ Acquisition Corporation, dated March 31, 1998; previously filed as Exhibit 3.2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.3 Certificate of Merger of Jafra Cosmetics International, Inc. into CDRJ Acquisition Corporation, dated April 30, 1998; previously filed as Exhibit 3.3 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.4 Amended and Restated By-laws of Jafra Cosmetics International, Inc. (formerly CDRJ Acquisition Corporation), as adopted on July 21, 1998; previously filed as Exhibit 3.4 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.5 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Jafra Cosmetics International, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.5 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.6 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Dirsamex, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.7 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.7 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Jafra Cosmetics S.A. de C.V., formerly known as Jafra Cosmetics S. de R.L. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.9 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.8 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Qualifax, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.10 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.9 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Reday, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.11 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.10 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Cosmeticos Y Fragrancias, S.A. de C.V., together with an unofficial summary thereof in English. 3.11 Notarial Deed and Resolutions, together with an unofficial summary thereof in English, for the transformation of Jafra Cosmetics S. de R.L. de C.V. into Jafra Cosmetics S.A. de C.V.; previously filed as Exhibit 3.12 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 3.12 Approval, dated as of April 17, 2000, by the Public Registry of Commerce of the United Mexican States of the merger of Consultoria Jafra S.A. de C.V. and Distribuidora Venus, S.A. de C.V. with and into Reday, S.A. de C.V., together with supporting shareholders' resolutions and the unofficial English translation thereof; previously filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the second quarter ended June 30, 2000, filed on August 14, 2000, and incorporated herein by reference. 3.13 Notarial Deed and Resolutions, together with an unofficial summary thereof in English, for the changing of the corporate name from Reday, S.A. de C.V. to Distribuidora Venus, S.A. de C.V. as a consequence of the merger of Distribuidora Venus, S.A. de C.V. into Reday, S.A. de C.V. 4.1 Indenture, dated April 30, 1998, among CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A., and State Street Bank and Trust Company; previously filed as Exhibit 4.1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.2 First Supplemental Indenture, dated April 30, 1998, among Consultoria Jafra, S.A. de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V., Reday, S.A. de C.V., Qualifax S.A. de C.V., and Jafra Cosmetics S.R.L., CDRJ Acquisition Corporation and Jafra Cosmetics International, S.A. de C.V. and State Street Bank and Trust Company; previously filed as Exhibit 4.2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.3 Purchase Agreement, dated April 28, 1998, between Credit Suisse First Boston Corporation, Chase Securities Inc., CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., and CDRJ Investments (Lux) S.A.; previously filed as Exhibit 4.3 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.4 Purchase Agreement Amendment, dated April 30, 1998, executed on behalf of each of Reday, S.A. de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.R.L., Consultoria Jafra, S.A. de C.V., Credit Suisse First Boston Corporation, and Chase Securities Inc.; previously filed as Exhibit 4.4 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.5 Registration Rights Agreement, dated April 30, 1998, among CDRJ Acquisition Corporation, Jafra Cosmetics International, Inc., Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A., Reday, S.A. de C.V., Distribuidora, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.A. de C.V., Consultoria Jafra, S.A. de C.V., and Credit Suisse First Boston Corporation; previously filed as Exhibit 4.5 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.6 Credit Agreement, dated April 30, 1998, among CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A., as Guarantor and Parent of the Borrowers, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent; previously filed as Exhibit 4.6 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.7 Amendment No. 1 to the Credit Agreement, dated August 26, 1998; previously filed as Exhibit 4.7 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 4.8 Indemnity, Subrogation and Contribution Agreement, dated April 30, 1998, among Jafra Cosmetics International, S.A. de C.V. ("JCISA"), each Subsidiary of JCSI listed on Schedule I thereto and Credit Suisse First Boston; previously filed as Exhibit 4.8 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.9 JCI Guarantee Agreement, dated April 30, 1998, between CDRJ Acquisition Corporation and Credit Suisse First Boston; previously filed as Exhibit 4.9 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.10 JCISA Guarantee Agreement, dated April 30, 1998, between Jafra Cosmetics International, S.A. de C.V. and Credit Suisse First Boston; previously filed as Exhibit 4.10 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.11 JCISA Subsidiary Guarantee Agreement, dated April 30, 1998, among each of the subsidiaries of Jafra Cosmetics International, S.A. de C.V. listed on Schedule I thereto, and Credit Suisse First Boston; previously filed as Exhibit 4.11 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.12 Parent Guarantee Agreement, dated April 30, 1998, between CDRJ Investments (Lux) S.A. and Credit Suisse First Boston; previously filed as Exhibit 4.12 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.13 Pledge Agreement, dated April 30, 1998 among CDRJ Investments (Lux) S.A., CDRJ North Atlantic Sarl, CDRJ Latin America Holding Company B.V., Latin Cosmetics Holdings B.V., Regional Cosmetics Holding B.V., Southern Cosmetics Holdings B.V., and CDRJ Mexico Holding Company B.V., CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V. and Credit Suisse First Boston; previously filed as Exhibit 4.13 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.14 Security Agreement, dated April 30, 1998, among CDRJ Acquisition Corporation ("JCI"), each subsidiary of JCI listed on Schedule I thereto and Credit Suisse First Boston; previously filed as Exhibit 4.14 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.15 Deed of Trust, with Assignment of Leases and Rents, Fixture Filing and Security Agreement, dated April 30, 1998, by Jafra Cosmetics International, Inc. to TitleServ Agency of New York City, Inc., as trustee for the Benefit of Credit Suisse First Boston; previously filed as Exhibit 4.15 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.16 Acknowledgment of Obligations and Mortgage, dated April 30, 1998, granted by Reday, S.A. de C.V. in favor of Credit Suisse First Boston, together with an unofficial English translation thereof; previously filed as Exhibit 4.16 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 4.17 Notarial Deed of Pledge, dated April 30, 1998, with respect to the pledge to Credit Suisse First Boston of (i) 24 ordinary shares of the capital stock of CDRJ Europe Holding Company B.V. by Jafra Cosmetics International, Inc., and (ii) 40 ordinary shares of the capital stock of CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux) Sarl; previously filed as Exhibit 4.17 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.18 Consent and Waiver, dated as of November 19, 1999, to the Credit Agreement dated as of April 30, 1998, as amended by Amendment No. 1 thereto dated as of August 26, 1998, among Jafra Cosmetics International Inc., Jafra Cosmetics International S.A. de C.V., CDRJ Investments (Lux) S.A., the several banks and financial institutions party to the Credit Agreement, the Issuing Bank and Credit Suisse First Boston, as Administrative Agent; previously filed as Exhibit 4.18 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. 4.19 Substitution of Trustee and Partial Reconveyance of Deed of Trust, Assignment of Leases and Rents, Fixture Filing and Security Agreement, and Release of Financing Statement, dated November 29, 1999, which amends the Deed of Trust filed as Exhibit 4.15 above; previously filed as Exhibit 4.19 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. 4.20 Partial Reconveyance of Deed of Trust, Assignment of Leases and Rents, Fixture Filing and Security Agreement and Release of Financing Statement, dated November 29, 1999, which amends the Deed of Trust filed as Exhibit 4.15 above; previously filed as Exhibit 4.20 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. Items in this Section 10 constitute management contracts or compensatory plans or arrangements with the exception of Exhibits 10.1, 10.7, 10,12, 10.13, 10.14, 10.15, 10.16, 10.17, 10.18, and 10.19. 10.1 Indemnification Agreement, dated April 30, 1998, among CDRJ Investments (Lux) S.A., CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice Fund V Limited Partnership; previously filed as Exhibit 10.1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.2 Consulting Agreement, dated April 30, 1998, by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics International, Inc. and Jafra Cosmetics, S.A. de C.V., and Clayton, Dubilier & Rice, Inc.; previously filed as Exhibit 10.2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.3 Form of Employment Agreement for Messrs. Clark, Rubio, Mason, Guirao and DiGregorio; previously filed as Exhibit 10.3 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.4 Amended and Restated Jafra Cosmetics International, Inc. Stock Incentive Plan, as adopted September 3, 1998; previously filed as Exhibit 10.4 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.5 CDRJ Investments (Lux) S.A. Form of Management Stock Option Agreement; previously filed as Exhibit 10.5 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.6 Amended and Restated Stock Purchase Warrant, dated September 30, 1998, by and between CDRJ Investments (Lux) S.A. and Jafra Cosmetics International, Inc.; previously filed as Exhibit 10.6 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.7 Registration and Participation Agreement, dated April 30, 1998, among CDRJ Investments (Lux) S.A. and Clayton, Dubilier & Rice Fund V Limited Partnership and the other parties thereto; previously filed as Exhibit 10.7 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.8 CDRJ Investments (Lux) S.A. Form of Management Stock Subscription Agreement; previously filed as Exhibit 10.8 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.9 CDRJ Investments (Lux) S.A. Form of Individual Investor Stock Subscription Agreement; previously filed as Exhibit 10.9 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.10 Jafra Cosmetics International, Inc. Supplemental Savings Plan, dated October 27, 1998; previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the first quarter ended March 31, 1999, filed May 17, 1999, and incorporated herein by reference. 10.11 Jafra Cosmetics International, Inc. Special Supplemental Savings Plan for Non-United States-Source Income, dated January 20, 1999; previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the first quarter ended March 31, 1999, filed May 17, 1999, and incorporated herein by reference. 10.12 Asset Purchase Agreement, dated as of June 10, 1999, as amended by Amendment No. 1, dated as of June 10, 1999; by and between the Company and the Contractor, previously filed as Exhibit 10.1 to Form 8-K, filed on June 10, 1999, and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.13 Amendment No. 1 to Asset Purchase Agreement, dated as of June 10, 1999; previously filed as Exhibit 10.2 to Form 8-K, filed on June 10, 1999, and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.14 Manufacturing Agreement, dated as of June 10, 1999, by and between the Company and the Contractor, as amended by Amendment No. 1, dated as of June 22, 1999; previously filed as Exhibit 10.3 to Form 8-K, filed on June 10, 1999, and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.15 Form of Amendment No. 1 to Manufacturing Agreement, dated as of June 10, 1999; previously filed as Exhibit 10.4 to Form 8-K, filed on June 10, 1999 and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.16 Form of Secured Note for the Assets, dated June 10, 1999, made by the Contractor in favor of the Company; previously filed as Exhibit 10.5 to Form 8-K, filed on June 10, 1999 and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.17 Form of Secured Note for the Inventory, dated June 10, 1999, made by the Contractor in favor of the Company; previously filed as Exhibit 10.6 to Form 8-K, filed on June 10, 1999 and incorporated herein by reference (portions of which were filed under a confidentiality request).
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.18 Sale Agreement, dated as of September 29, 1999, between the Company and Townsgate Road LLC; previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1999, filed November 12, 1999, and incorporated herein by reference. 10.19 Sale Agreement, dated as of October 15, 1999, between the Company and Selvin Properties; previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1999, filed November 12, 1999, and incorporated herein by reference. 10.20 Trust Agreement dated May 26, 1999 by and between Jafra Cosmetics International, Inc. and Scudder Trust Company; previously filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. 10.21 Amendment No. 1 to Consulting Agreement, dated as of March 15, 2000, by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics International, Inc., Jafra Cosmetics International, S.A. de C.V., and Clayton, Dubilier & Rice, Inc.; previously filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. 10.22 First Amendment to Amended and Restated Jafra Cosmetics International, Inc. Stock Incentive Plan. 10.23 CDRJ Investments (Lux) S.A. Form of Management Stock Subscription Agreement, as amended. 21.1 Subsidiaries of the registrant.
(b) Reports on Form 8-K During the quarter ended December 31, 2000, the Company filed no reports on Form 8-K. 116 119 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CDRJ Investments (Lux) S.A. By: /s/ RONALD B. CLARK ------------------------------------ Name: Ronald B. Clark Title: Chief Executive Officer of the Advisory Committee and Director Date April 2, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD B. CLARK Chief Executive Officer of the April 2, 2001 - ----------------------------------------------------- Advisory Committee and Director Ronald B. Clark (Principal executive officer) /s/ MICHAEL A. DIGREGORIO Senior Vice President and Chief April 2, 2001 - ----------------------------------------------------- Financial Officer of the Advisory Michael A. DiGregorio Committee (Principal financial officer, Principal accounting officer) /s/ RALPH S. MASON, III Secretary and Executive Vice April 2, 2001 - ----------------------------------------------------- President of the Advisory Ralph S. Mason, III Committee (Representative in the U.S.) /s/ DONALD J. GOGEL Director April 2, 2001 - ----------------------------------------------------- Donald J. Gogel /s/ STEVEN D. GOLDSTEIN Director April 2, 2001 - ----------------------------------------------------- Steven D. Goldstein /s/ THOMAS E. IRELAND Director April 2, 2001 - ----------------------------------------------------- Thomas E. Ireland /s/ SIRI MARSHALL Director April 2, 2001 - ----------------------------------------------------- Siri Marshall /s/ DAVID A. NOVAK Director April 2, 2001 - ----------------------------------------------------- David A. Novak /s/ PAUL ORFALEA Director April 2, 2001 - ----------------------------------------------------- Paul Orfalea /s/ ANN REESE Director April 2, 2001 - ----------------------------------------------------- Ann Reese
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SIGNATURE TITLE DATE --------- ----- ---- /s/ EDWARD H. RENSI Director April 2, 2001 - ----------------------------------------------------- Edward H. Rensi /s/ GONZALO RUBIO Director April 2, 2001 - ----------------------------------------------------- Gonzalo Rubio /s/ KENNETH TAYLOR Director April 2, 2001 - ----------------------------------------------------- Kenneth D. Taylor
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. No annual report or proxy material has been sent to security holders. 118 121 EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 3.1 Articles of Association (Statuts Coordonnes) of CDRJ Investments (Lux) S.A., as restated on September 30, 1998; previously filed as Exhibit 3.1 to Amendment 2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed December 23, 1998, and incorporated herein by reference. 3.2 Certificate of Incorporation of CDRJ Acquisition Corporation, dated March 31, 1998; previously filed as Exhibit 3.2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.3 Certificate of Merger of Jafra Cosmetics International, Inc. into CDRJ Acquisition Corporation, dated April 30, 1998; previously filed as Exhibit 3.3 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.4 Amended and Restated By-laws of Jafra Cosmetics International, Inc. (formerly CDRJ Acquisition Corporation), as adopted on July 21, 1998; previously filed as Exhibit 3.4 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.5 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Jafra Cosmetics International, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.5 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 3.6 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Dirsamex, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.7 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.7 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Jafra Cosmetics S.A. de C.V., formerly known as Jafra Cosmetics S. de R.L. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.9 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.8 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Qualifax, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.10 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.9 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Reday, S.A. de C.V., together with a unofficial summary thereof in English; previously filed as Exhibit 3.11 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 3.10 Deed of Incorporation (acta constitutiva), including all amendments thereto, and current by-laws (estatutos sociales) of Cosmeticos Y Fragrancias, S.A. de C.V., together with an unofficial summary thereof in English. 3.11 Notarial Deed and Resolutions, together with an unofficial summary thereof in English, for the transformation of Jafra Cosmetics S. de R.L. de C.V. into Jafra Cosmetics S.A. de C.V.; previously filed as Exhibit 3.12 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 3.12 Approval, dated as of April 17, 2000, by the Public Registry of Commerce of the United Mexican States of the merger of Consultoria Jafra S.A. de C.V. and Distribuidora Venus, S.A. de C.V. with and into Reday, S.A. de C.V., together with supporting shareholders' resolutions and the unofficial English translation thereof; previously filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the second quarter ended June 30, 2000, filed on August 14, 2000, and incorporated herein by reference. 3.13 Notarial Deed and Resolutions, together with an unofficial summary thereof in English, for the changing of the corporate name from Reday, S.A. de C.V. to Distribuidora Venus, S.A. de C.V. as a consequence of the merger of Distribuidora Venus, S.A. de C.V. into Reday, S.A. de C.V. 4.1 Indenture, dated April 30, 1998, among CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A., and State Street Bank and Trust Company; previously filed as Exhibit 4.1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.2 First Supplemental Indenture, dated April 30, 1998, among Consultoria Jafra, S.A. de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V., Reday, S.A. de C.V., Qualifax S.A. de C.V., and Jafra Cosmetics S.R.L., CDRJ Acquisition Corporation and Jafra Cosmetics International, S.A. de C.V. and State Street Bank and Trust Company; previously filed as Exhibit 4.2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.3 Purchase Agreement, dated April 28, 1998, between Credit Suisse First Boston Corporation, Chase Securities Inc., CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., and CDRJ Investments (Lux) S.A.; previously filed as Exhibit 4.3 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.4 Purchase Agreement Amendment, dated April 30, 1998, executed on behalf of each of Reday, S.A. de C.V., Distribuidora Venus, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.R.L., Consultoria Jafra, S.A. de C.V., Credit Suisse First Boston Corporation, and Chase Securities Inc.; previously filed as Exhibit 4.4 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.5 Registration Rights Agreement, dated April 30, 1998, among CDRJ Acquisition Corporation, Jafra Cosmetics International, Inc., Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A., Reday, S.A. de C.V., Distribuidora, S.A. de C.V., Dirsamex, S.A. de C.V., Qualifax, S.A. de C.V., Jafra Cosmetics, S.A. de C.V., Consultoria Jafra, S.A. de C.V., and Credit Suisse First Boston Corporation; previously filed as Exhibit 4.5 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.6 Credit Agreement, dated April 30, 1998, among CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., CDRJ Investments (Lux) S.A., as Guarantor and Parent of the Borrowers, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent; previously filed as Exhibit 4.6 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.7 Amendment No. 1 to the Credit Agreement, dated August 26, 1998; previously filed as Exhibit 4.7 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 4.8 Indemnity, Subrogation and Contribution Agreement, dated April 30, 1998, among Jafra Cosmetics International, S.A. de C.V. ("JCISA"), each Subsidiary of JCSI listed on Schedule I thereto and Credit Suisse First Boston; previously filed as Exhibit 4.8 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.9 JCI Guarantee Agreement, dated April 30, 1998, between CDRJ Acquisition Corporation and Credit Suisse First Boston; previously filed as Exhibit 4.9 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.10 JCISA Guarantee Agreement, dated April 30, 1998, between Jafra Cosmetics International, S.A. de C.V. and Credit Suisse First Boston; previously filed as Exhibit 4.10 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.11 JCISA Subsidiary Guarantee Agreement, dated April 30, 1998, among each of the subsidiaries of Jafra Cosmetics International, S.A. de C.V. listed on Schedule I thereto, and Credit Suisse First Boston; previously filed as Exhibit 4.11 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.12 Parent Guarantee Agreement, dated April 30, 1998, between CDRJ Investments (Lux) S.A. and Credit Suisse First Boston; previously filed as Exhibit 4.12 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.13 Pledge Agreement, dated April 30, 1998 among CDRJ Investments (Lux) S.A., CDRJ North Atlantic Sarl, CDRJ Latin America Holding Company B.V., Latin Cosmetics Holdings B.V., Regional Cosmetics Holding B.V., Southern Cosmetics Holdings B.V., and CDRJ Mexico Holding Company B.V., CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V. and Credit Suisse First Boston; previously filed as Exhibit 4.13 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.14 Security Agreement, dated April 30, 1998, among CDRJ Acquisition Corporation ("JCI"), each subsidiary of JCI listed on Schedule I thereto and Credit Suisse First Boston; previously filed as Exhibit 4.14 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.15 Deed of Trust, with Assignment of Leases and Rents, Fixture Filing and Security Agreement, dated April 30, 1998, by Jafra Cosmetics International, Inc. to TitleServ Agency of New York City, Inc., as trustee for the Benefit of Credit Suisse First Boston; previously filed as Exhibit 4.15 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.16 Acknowledgment of Obligations and Mortgage, dated April 30, 1998, granted by Reday, S.A. de C.V. in favor of Credit Suisse First Boston, together with an unofficial English translation thereof; previously filed as Exhibit 4.16 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 4.17 Notarial Deed of Pledge, dated April 30, 1998, with respect to the pledge to Credit Suisse First Boston of (i) 24 ordinary shares of the capital stock of CDRJ Europe Holding Company B.V. by Jafra Cosmetics International, Inc., and (ii) 40 ordinary shares of the capital stock of CDRJ Latin America Holding B.V. by CDRJ North Atlantic (Lux) Sarl; previously filed as Exhibit 4.17 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 4.18 Consent and Waiver, dated as of November 19, 1999, to the Credit Agreement dated as of April 30, 1998, as amended by Amendment No. 1 thereto dated as of August 26, 1998, among Jafra Cosmetics International Inc., Jafra Cosmetics International S.A. de C.V., CDRJ Investments (Lux) S.A., the several banks and financial institutions party to the Credit Agreement, the Issuing Bank and Credit Suisse First Boston, as Administrative Agent; previously filed as Exhibit 4.18 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. 4.19 Substitution of Trustee and Partial Reconveyance of Deed of Trust, Assignment of Leases and Rents, Fixture Filing and Security Agreement, and Release of Financing Statement, dated November 29, 1999, which amends the Deed of Trust filed as Exhibit 4.15 above; previously filed as Exhibit 4.19 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. 4.20 Partial Reconveyance of Deed of Trust, Assignment of Leases and Rents, Fixture Filing and Security Agreement and Release of Financing Statement, dated November 29, 1999, which amends the Deed of Trust filed as Exhibit 4.15 above; previously filed as Exhibit 4.20 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference. Items in this Section 10 constitute management contracts or compensatory plans or arrangements with the exception of Exhibits 10.1, 10.7, 10,12, 10.13, 10.14, 10.15, 10.16, 10.17, 10.18, and 10.19. 10.1 Indemnification Agreement, dated April 30, 1998, among CDRJ Investments (Lux) S.A., CDRJ Acquisition Corporation, Jafra Cosmetics International, S.A. de C.V., Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice Fund V Limited Partnership; previously filed as Exhibit 10.1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.2 Consulting Agreement, dated April 30, 1998, by and among CDRJ Investments (Lux) S.A., Jafra Cosmetics International, Inc. and Jafra Cosmetics, S.A. de C.V., and Clayton, Dubilier & Rice, Inc.; previously filed as Exhibit 10.2 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.3 Form of Employment Agreement for Messrs. Clark, Rubio, Mason, Guirao and DiGregorio; previously filed as Exhibit 10.3 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference. 10.4 Amended and Restated Jafra Cosmetics International, Inc. Stock Incentive Plan, as adopted September 3, 1998; previously filed as Exhibit 10.4 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.5 CDRJ Investments (Lux) S.A. Form of Management Stock Option Agreement; previously filed as Exhibit 10.5 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.6 Amended and Restated Stock Purchase Warrant, dated September 30, 1998, by and between CDRJ Investments (Lux) S.A. and Jafra Cosmetics International, Inc.; previously filed as Exhibit 10.6 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.7 Registration and Participation Agreement, dated April 30, 1998, among CDRJ Investments (Lux) S.A. and Clayton, Dubilier & Rice Fund V Limited Partnership and the other parties thereto; previously filed as Exhibit 10.7 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed September 4, 1998, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 10.8 CDRJ Investments (Lux) S.A. Form of Management Stock Subscription Agreement; previously filed as Exhibit 10.8 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.9 CDRJ Investments (Lux) S.A. Form of Individual Investor Stock Subscription Agreement; previously filed as Exhibit 10.9 to Amendment No. 1 to Registration Statement No. 333-62989 under the Securities Act of 1933, as amended, filed October 27, 1998, and incorporated herein by reference. 10.10 Jafra Cosmetics International, Inc. Supplemental Savings Plan, dated October 27, 1998; previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the first quarter ended March 31, 1999, filed May 17, 1999, and incorporated herein by reference. 10.11 Jafra Cosmetics International, Inc. Special Supplemental Savings Plan for Non-United States-Source Income, dated January 20, 1999; previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the first quarter ended March 31, 1999, filed May 17, 1999, and incorporated herein by reference. 10.12 Asset Purchase Agreement, dated as of June 10, 1999, as amended by Amendment No. 1, dated as of June 10, 1999; by and between the Company and the Contractor, previously filed as Exhibit 10.1 to Form 8-K, filed on June 10, 1999, and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.13 Amendment No. 1 to Asset Purchase Agreement, dated as of June 10, 1999; previously filed as Exhibit 10.2 to Form 8-K, filed on June 10, 1999, and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.14 Manufacturing Agreement, dated as of June 10, 1999, by and between the Company and the Contractor, as amended by Amendment No. 1, dated as of June 22, 1999; previously filed as Exhibit 10.3 to Form 8-K, filed on June 10, 1999, and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.15 Form of Amendment No. 1 to Manufacturing Agreement, dated as of June 10, 1999; previously filed as Exhibit 10.4 to Form 8-K, filed on June 10, 1999 and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.16 Form of Secured Note for the Assets, dated June 10, 1999, made by the Contractor in favor of the Company; previously filed as Exhibit 10.5 to Form 8-K, filed on June 10, 1999 and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.17 Form of Secured Note for the Inventory, dated June 10, 1999, made by the Contractor in favor of the Company; previously filed as Exhibit 10.6 to Form 8-K, filed on June 10, 1999 and incorporated herein by reference (portions of which were filed under a confidentiality request). 10.18 Sale Agreement, dated as of September 29, 1999, between the Company and Townsgate Road LLC; previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1999, filed November 12, 1999, and incorporated herein by reference. 10.19 Sale Agreement, dated as of October 15, 1999, between the Company and Selvin Properties; previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1999, filed November 12, 1999, and incorporated herein by reference. 10.20 Trust Agreement dated May 26, 1999 by and between Jafra Cosmetics International, Inc. and Scudder Trust Company; previously filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended 1999, filed on March 30, 2000, and incorporated herein by reference.
EX-3.10 2 v70623ex3-10.txt EXHIBIT 3.10 1 EXHIBIT 3.10 ESCRITURA NUMERO VEINTIOCHO MIL CUATROCIENTOS SESENTA Y SIETE, VOLUMEN NUMERO SETECIENTOS CUARENTA Y DOS. En la Ciudad de Naucalpan de Juarez, Estado de Mexico, a los dieciseis dias del mes de noviembre de mil novecientos noventa y ocho, Yo, el Licenciado JORGE ANTONIO FRANCOZ GARATE, NOTARIO PUBLICO NUMERO DIECISIETE del Distrito Judicial de Tlalnepantla, Estado de Mexico, y Notario del PATRIMONIO INMUEBLE FEDERAL, actuando en el Protocolo Ordinario a mi cargo, hago constar: LA CONSTITUCION DE LA SOCIEDAD MERCANTIL denominada, "COSMETICOS Y FRAGANCIAS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, que formalizan las empresas: 1. --"JAFRA COSMETICS INTERNATIONAL", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, representada en este acto por el senor Licenciado JAMES E. RITCH GRANDE AMPUDIA. 2.--"CONSULTORIA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, representada en este acto por el senor Licenciado ALBERTO MENA ADAME. - --Al tenor de la declaracion y clausulas siguientes: DECLARACION UNICA .--Declaran los comparecientes, que para el otorgamiento de la presente escritura, la Secretaria de Relaciones Exteriores les concedio el permiso correspondiente, mismo que agrego al apendice de esta escritura marcado con la letra "A" y que a continuacion transcribo integramente: "Al margen superior izquierdo un sello con el Escudo Nacional y la siguiente leyenda: SECRETARIA DE RELACIONES EXTERIORES MEXICO.--Al margen superior derecho PERMISO 09034007.--EXPEDIENTE 9809033236.--FOLIO 34505. En atencion a la solicitud presentada por el C. FERNANDO CAMACHO SERVIN, esta Secretaria concede el permiso para constituir una S.A. DE C.V., bajo la denominacion COSMETICOS Y FRAGANCIAS, SA DE CV. Este permiso, quedara condicionada a que en le Escritura Constitutiva se inserte la clausula de exclusion de extranjeros prevista en el Articulo 30 o el convenio que senala 2 el Articulo 31, ambos del Reglamento de la Ley para Promover la Inversion Mexicana y Regular la Inversion Extranjera. El Notario o Corredor Publico ante quien se haga uso de este permiso, debera dar aviso a la Secretaria de Relaciones Exteriores dentro de los 90 dias habiles a partir de la fecha de autorizacion de la Escritura Publica correspondiente. Lo anterior se comunica con fundamento en los Articulos 27, Fraccion I, de la Constitucion Politica de los Estados Unidos Mexicanos, 15 de la Ley de Inversion Extranjera y en los terminos del Articulo 28 fraccion V de la Ley Organica de la Administracion Publica Federal. Este permiso dejara de surtir efectos si no se hace uso del mismo dentro de los 90 dias habiles siguientes a la fecha de su expedicion y se otorga sin perjuicio de los dispuesto por el articulo 91 de la Ley de la Propiedad Industrial. TLATELOLCO, D.F., a 06 de Octubre de 1998. --SUFRAGIO EFECTIVO, NO REELECCION. - -EL DIRECTOR DE PERMISOS ART. 27. LIC. JOSE FCO. CAMPOS GARCIA ZEPEDA.--UNA FIRMA ILEGIBLE.--UN SELLO CON EL ESCUDO NACIONAL Y LA SIGUIENTE LEYENDA.--SECRETARIA DE RELACIONES EXTERIORES. - --DIRECCION GENERAL DE ASUNTOS JURIDICOS. PA-1.--152417. Expuesto lo anterior, los comparecientes otorgan el siguiente: CONTRATO DE SOCIEDAD ANONIMA DE CAPITAL VARIABLE CLAUSULAS PRIMERA.--Los comparecientes, por este acto constituyen una Sociedad Mercantil, adoptando el tipo de Anonima de Capital Variable, de nacionalidad mexicana, con apego a las Leyes Mexicanas, la que se regira por los siguientes: ESTATUTOS CLAUSULAS NOMBRE, OBJETO, DOMICILIO, DURACION Y NACIONALIDAD PRIMERA.--La denominacion de la sociedad es "COSMETICOS Y FRAGANCIAS", la cual ira seguida por las palabras "SOCIEDAD ANONIMA DE CAPITAL VARIABLE", o por su abreviatura "S.A. DE C.V.". SEGUNDA.--El objeto de la Sociedad es: 3 1.--Prestacion de todo tipo de servicios, en especial servicios de manufactura o fabricacion de cosmeticos, articulos de belleza, para el cuidado y la higiene personal articulos de tocador, ornamentos y articulos de joyeria, asi como complementos y suplementos alimenticios y alimentos de naturaleza similar, a todo tipo de personas fisicas o morales, comerciantes o no. 2. --Importar, exportar, comprar, vender, distribuir, industrializar y, en general, negociar con clase de materias primas, productos terminados o semiterminados, mercaderias en general y efectos de comercio. 3.--Importar, exportar, comprar, vender y negociar en cualquier otra forma con toda clase de maquinaria, herramientas, equipo y partes y refacciones de los mismos. 4. -- Solicitar, obtener, registrar, utilizar, ceder o en cualquier otra forma disponer y adquirir marcas, nombres comerciales, derechos de autor, patentes, derechos de patentes, invenciones, procesos o cualquier otro tipo de propiedad intelectual que pueda ser necesario o conveniente para la consecucion del objeto social. 5.--Establecer, arrendar, subarrendar, operar y poseer en cualquier forma permitida por la Ley toda clase de fabricas, talleres, plantas, almacenes, oficinas, tiendas y demas establecimientos necesarios para la realizacion del objeto social, asi como adquirir toda clase de negociaciones o sociedades industriales y comerciales, incluyendo acciones, participaciones e instrumentos por ellas emitidos. 6. -- Establecer sucursales, subsidiarias, agencias y oficinas de representacion en Mexico y en el extranjero. 7.-- Representar o actuar como agente, comisionista o representante legal en la Republica Mexicana y en el extranjero, de toda clase de personas fisicas o morales, sean nacionales o extranjeras. 8.-- Adquirir, poseer, arrendar, subarrendar, comprar, vender y negociar en cualquier forma permitida por la Ley toda clase de bienes inmuebles, incluyendo la adquisicion, establecimiento y operacion de laboratorios de investigacion. 9.-- Proporcionar toda clase de servicios tecnicos, administrativos de asesoria y supervision a toda clase de empresas industriales y comerciales, tanto en Mexico como en el extranjero, y recibir dichos servicios. 4 10.--Proporcionar y recibir servicios de maquila y de fabricacion o procesamiento de materiales a y de toda clase de personas fisicas o morales, ya sean entidades y negocios industriales y comerciales. 11.-- Dar y tomar dinero en prestamo con o sin garantias de cualquier tipo, emitir bonos, obligaciones y demas titulos de credito, con la intervencion de las instituciones que en cada caso requiera de acuerdo con la Ley. 12.--Garantizar obligaciones de terceros mediante fianza o aval o en cualquier otra forma permitida por la Ley, asi como constituir garantias sobre cualquiera de sus propiedades. 13.--En general, realizar toda clase de actos y celebrar toda clase de contratos o acuerdos, sean civiles, mercantiles o de cualquier otra naturaleza, permitidos por la Ley y en general, realizar todo tipo de negocios y actividades que se relacionen de manera directa o indirecta con el objeto social. TERCERA--El domicilio de la sociedad es la ciudad de Mexico, Distrito Federal, mismo que no se considerara modificado aun cuando la Sociedad establezca agencias o sucursales en cualquier otro lugar en Mexico o en el extranjero, o designe domicilios convencionales para la celebracion de actos y contratos especificos. CUARTA--La duracion de la Sociedad sera de 99 (noventa y nueve) anos. QUINTA--La sociedad es de nacionalidad Mexicana. Todo extranjero que al momento de la constitucion o en cualquier momento posterior, adquiera un interes o participacion en la Sociedad se considerara por ese simple hecho como Mexicano con respecto a dicho interes o participacion y se entendera que conviene en no invocar la proteccion de su Gobierno, bajo la pena, en caso contrario, de perder las participaciones o intereses que hubiese adquirido en favor de la Nacion Mexicana. CAPITAL SOCIAL Y ACCIONES SEXTA.--El capital social sera variable. La parte minima fija sin derecho a retiro del capital social sera la cantidad de $50,000.00 Pesos (Cincuenta Mil Pesos 00/100 M.N.) integramente suscrita y pagada, representada por 50 (cincuenta) acciones ordinarias Serie "A", nominativas con valor nominal de $1,000.00 M.N. (Un MIL PESOS 00/100 MONEDA NACIONAL) cada una. 5 La parte variable del capital de la sociedad estara integrada por acciones ordinarias, nominativas, serie "B", con valor nominal de $1,000.00 M.N. (Un mil pesos 00/100 Moneda nacional) cada una. El capital social estara representado en su parte minima fija por acciones "Serie A" y en su parte variable por acciones "Serie B", las cuales podran ser adquiridas tanto por inversionistas mexicanos como extranjeros. SEPTIMA.--Los aumentos o las reducciones del capital variable podran realizarse en base a una resolucion de la Asamblea General Ordinaria de accionistas, cuya resolucion no requerira ser protocolizada ni inscrita en el Registro Publico de Comercio, misma que debera determinar las condiciones en las que deba realizarse dicho aumento o reduccion, tales como los terminos de suscripcion y pago de las mismas, las caracteristicas de las acciones que se emitan y cualquier otro asunto relacionado. Dichos aumentos de capital podran pagarse en dinero o en especie por los accionistas de la sociedad, tal y como haya sido acordado por los accionistas de la compania y resuelto por la asamblea de accionistas que resuelva dicho aumento de capital. Por otro lado, los futuros aumentos o reducciones del capital fijo deberan ser acordados por una Asamblea Extraordinaria de Accionistas. OCTAVA.--Los titulos de acciones y, en su caso, los certificados provisionales, contendran las menciones a que se refiere al articulo ciento veinticinco de la Ley General de Sociedades Mercantiles. La clausula quinta de estos estatutos sera de igual forma transcrita. NOVENA.--Cada accion dara derecho a un voto en las Asambleas de Accionistas; el tenedor de las acciones de la sociedad tendra derecho a votar en todos los asuntos sometidos en la asamblea cuando por ley o por estos estatutos tengan derecho a votar; todas las acciones conferiran iguales derechos y obligaciones a sus tenedores. DECIMA. - Los titulos de las acciones contendran la firma del Administrador Unico o de dos miembros del consejo de Administracion, segun el caso. La firma de los consejeros, si fuese autorizado por el Consejo de Administracion, podra ser facsimilar, sujeto a la condicion de que en tal caso los originales de las firmas respectivas seran depositadas en el Registro Publico de Comercio correspondiente. 6 A solicitud de cualquier accionista a cuyo cargo correran los gastos que deriven de ello, los titulos de las acciones podran ser intercambiados por diferentes titulos que representen un numero diferente de acciones. DECIMO PRIMERA.--La sociedad debera llevar un libro de registro de acciones en el que se inscribiran todas las operaciones de suscripcion, adquisicion o transferencia, asi como cualquier gravamen de que sean objeto las acciones representativas del capital social. La sociedad considerara como propietario de las acciones nominativas a la persona registrada como tal en el libro de registro de acciones. DECIMO SEGUNDA.--Los aumentos del capital social podran efectuarse por medio de aportaciones en efectivo o en especie, o por medio de la capitalizacion de reservas, o cualquier otro excedente. En los casos de aumento del capital social por medio de una nueva aportacion de efectivo o en especie, los accionistas tendran el derecho de preferencia, para suscribir y pagar las acciones que seran emitidas, en proporcion con su tenencia accionaria al momento de ejercitar dicho derecho de preferencia dentro de los quince dias siguientes a la fecha de publicacion del aviso correspondiente en el Diario Oficial de la Federacion o calculos a partir de la fecha en que se celebro la asamblea, en el caso de que todas las acciones representativas del capital social de la sociedad hayan estado presentes o representadas en dicha asamblea. En el caso en que despues de la terminacion del plazo durante el cual los accionistas hayan tenido el derecho de ejercitar su derecho de preferencia, algunas acciones no hayan sido suscritas, el administrador Unico o el Consejo de Administracion ofrecera dichas acciones a terceros o las guardara en la tesoreria de la sociedad, en su caso, de conformidad con el acuerdo tomado por la asamblea de accionistas en el que se haya aprobado el aumento de capital. No se podran emitir nuevas acciones hasta que las acciones previamente emitidas hayan sido integramente suscritas y pagadas. La sociedad llevara un libro de registro de variaciones de capital. ADMINISTRACION DECIMO TERCERA - La administracion de la Sociedad sera confiada a un Administrador Unico o a un Consejo de Administracion integrado por el numero de 7 Consejeros que determine la Asamblea Ordinaria de accionistas. La Asamblea Ordinaria de accionistas tambien podran designar a Consejeros Suplentes para actuar en el caso de ausencia de los Consejeros Propietarios. DECIMA CUARTA.--El Administrador Unico o los miembros del Consejo de Administracion en su caso, no necesitan ser accionistas de la Sociedad y, por regla general, duraran en su cargo un ano contado a partir de la fecha de su designacion, pudiendo ser reelectos. En todo caso, permaneceran en su encargo hasta que sus sucesores tomen posesion de sus cargos. DECIMO QUINTA.--La Asamblea de accionistas o el Consejo de Administracion en Sesion designaran de entre sus miembros a una persona que actue como Presidente del Consejo de Administracion. Tambien podra designar un Secretario quien no necesariamente debera ser Consejero. DECIMA SEXTA.--Las sesiones del Consejo de Administracion seran celebradas en el domicilio social o en cualquier otro lugar segun se determine previamente en la convocatoria respectiva. Las sesiones de Consejo podran ser llevadas a cabo en cualquier momento, pero al menos una vez al ano y seran convocadas por el Presidente o el Secretario del Consejo o por cualesquiera dos Consejeros o por los Comisarios de la Sociedad. La persona o personas que deseen convocar la sesion lo informaran al Secretario del Consejo quien inmediatamente emitira la convocatoria respectiva. Las convocatorias seran hechas por escrito y enviadas al domicilio de cada miembro del Consejo de administracion o al lugar que designen para tales efectos por telex contrasenado o telegrama o telecopia confirmados, con por lo menos quince dias naturales de anticipacion a la fecha de la sesion. Las convocatorias especificaran el objeto, la hora, fecha y lugar para la sesion y seran firmadas por el Secretario del Consejo. Sin perjuicio de lo anterior, el requisito de la Convocatoria podra renunciarse por cualquier consejero en relacion a cualquier sesion. DECIMO SEPTIMA.--Para que las sesiones del Consejo de administracion puedan celebrarse validamente, se requerira la asistencia de por lo menos la mayoria de los Consejeros o sus respectivos suplentes. Las resoluciones del Consejo de 8 administracion seran validas unicamente si fueron aprobadas por el voto favorable de la mayoria de los miembros del Consejo de Administracion presentes. Las resoluciones aprobadas unanimemente por todos los Consejeros fuera de sesion tendran, para todos los efectos legales, la misma validez que si hubieran sido adoptadas en sesion de consejo, siempre que sean confirmadas por escrito en cualquier tiempo despues de que hayan sido tomadas. DECIMO OCTAVA.--El Consejo de Administracion podra designar de entre sus miembros, uno o mas delegados para la realizacion de tareas especificas, con las facultades que le sean expresamente conferidas en cada caso. DECIMO NOVENA.--El Administrador Unico o el Consejo de Administracion, segun sea el caso, tendran las siguientes facultades: a).--Poder general para pleitos y cobranzas, con las facultades mas amplias permitidas por la Ley, en terminos del primer parrafo del articulo dos mil quinientos cincuenta y cuatro del codigo Civil para el Distrito Federal y los articulos correlativos de cualquier otro codigo civil de la Republica Mexicana (el "Codigo Civil"), con todas las facultades generales y especiales que requieran Clausula especial, incluyendo aquellas previstas en el articulo 2587 del codigo Civil, por lo que estaran facultados de una manera enunciativa pero no limitativa para: representar a la Sociedad ante autoridades federales, estatales, municipales, administrativas y judiciales, ante la Secretaria del Trabajo y ante las juntas de conciliacion y Arbitraje y para firmar los documentos que sean necesarios en el ejercicio de sus facultades; para ejercitar toda clase de derechos y acciones ante cualquier autoridad y Juntas de Conciliacion y Arbitraje; para someterse a cualquier jurisdiccion; para promover y desistirse aun del juicio de ampara; para presentar cargos y querellas penales y para comparecer como parte ofendida y coadyuvar con el Ministerio Publico y otorgar perdones; para transigir; para comprometer en arbitros; para articular y absolver posiciones; para aceptar y liberar toda clase de garantias; para hacer cesion de bienes y para llevar a cabo los demas actos que esten expresamente determinados por la Ley. b.--Poder general para actos de administracion en terminos del segundo parrafo del articulo dos mil quinientos cincuenta y cuatro del Codigo Civil entre las que se incluyen las facultades de celebrar, modificar, cumplir y rescindir toda clase de contratos y 9 convenios, obtener prestamos y en general, llevar a cabo todos los actos que esten directa o directamente relacionados con los objetos sociales. c.--Poder general para actos de dominio en terminos del tercer parrafo del articulo dos mil quinientos cincuenta y cuatro del Codigo Civil incluyendo facultades para adquirir, transferir la titularidad de, asi como gravar mediante prenda, hipoteca o de cualquier otra forma, derechos personales y reales. d.--Poder para emitir, aceptar, endosar y de cualquier otra manera subscribir titulos de credito de conformidad con el articulo noveno de la Ley General de Titulos y Operaciones de Credito. e.--Poder para conferir y revocar poderes generales y especiales dentro del ambito de las facultades anteriormente mencionadas. f.--Establecer sucursales y agencias en cualquier parte ya sea dentro o fuera de los Estados Unidos Mexicanos y cerrar dichas sucursales o agencias. g.--Establecer subsidiarias en cualquier parte ya sea dentro o fuera de los Estados Unidos Mexicanos y para liquidar y disolver dichas subsidiarias. h.--Designar y remover gerentes, funcionarios y empleados de la Sociedad y determinar sus facultades, deberes y remuneraciones. ASAMBLEAS DE ACCIONISTAS VIGESIMA.--La autoridad suprema de la sociedad es la Asamblea General Ordinaria de Accionistas, la cual podra por lo tanto adoptar toda clase de acuerdos y ratificar todos los actos y transacciones realizadas por la sociedad. Los acuerdos adoptados por la Asamblea de Accionistas seran implementados por el Administrados Unico o el Consejo de Administracion, segun sea el caso, o por la persona expresamente designada para tales efectos por la Asamblea de Accionistas. Toda Asamblea de Accionistas se celebrara en el domicilio social, salvo caso fortuito o fuerza mayor. VIGESIMA PRIMERA.-- Las Asambleas de Accionistas seran Ordinarias o Extraordinarias. Las Asambleas Ordinarias de Accionistas se celebraran por lo menos una vez al ano dentro de los primeros cuatro meses posteriores al cierre del ejercicio fiscal. Las Asamblea Extraordinarias de Accionistas tendran lugar cuando sea necesario resolver cualquiera de los asuntos contenidos en el articulo ciento ochenta y dos de la Ley General de Sociedades Mercantiles. 10 VIGESIMA SEGUNDA.--Las Asambleas de Accionistas, ya sean ordinarias o extraordinarias, se celebraran previa convocatoria del Administrador Unico o el Consejo de Administracion, o por cualquiera de los Comisarios en caso de incumplimiento del Administrador Unico o del Consejo de Administracion de conformidad con lo establecido en el articulo ciento sesenta y seis, fraccion sexta de la Ley General de Sociedades Mercantiles. Las Asambleas se celebraran tambien a solicitud de los accionistas en los terminos de los articulos ciento ochenta y cuatro y ciento ochenta y cinco de la Ley General de Sociedades Mercantiles. Las convocatorias para las asambleas de accionistas contendran el lugar, fecha y hora en la cual se celebrara la asamblea, asi como la mencion de ser la primera o subsecuente convocatoria. Las convocatorias se publicaran en uno de los periodicos de mayor circulacion en el domicilio social, con por lo menos quince (15) dias naturales anteriores a la fecha fijada para la asamblea. En caso de una segunda convocatoria, se publicara dicha convocatoria por lo menos tres (3) dias anteriores a la fecha fijada para la asamblea. Las convocatorias para cualquier Asamblea de Accionistas tambien deberan ser enviadas por telecopia a cualquier accionista extranjero para asegurar su recepcion con por lo menos quince (15) dias de anticipacion a la fecha de la asamblea. Los acuerdos unanimemente aprobados por todos los accionistas que no se hayan reunido en una asamblea, tendran, para todos los efectos legales, los mismos efectos juridicos que si hubieran tomado en una asamblea, siempre y cuando sean confirmados por escrito en cualquier momento posterior a aquel en que fueron tomados y protocolizados ante fedatario publico. VIGESIMA TERCERA.--Las Asambleas Ordinarias de Accionistas quedaran legalmente instaladas en la primera convocatoria si los accionistas tenedores de por lo menos el 50% (cincuenta por ciento) del capital social con derecho a voto de la sociedad se encuentran presentes o debidamente representados en dicha asamblea y, los acuerdos ahi tomados seran validos unicamente si son aprobados por el voto de la mayoria de los accionistas presentes de dicha asamblea. En el caso de que una Asamblea Ordinaria no se celebre en la fecha programada por la falta de quorum, una segunda convocatoria o una subsecuente convocatoria se realizara con la mencion de dicha circunstancia y, en dicho caso, las Asambleas Ordinarias de Accionistas seran 11 consideradas como legalmente instaladas independientemente del numero de las acciones presentes o representadas en la asamblea y los acuerdos adoptados seran validos si son aprobados por el voto favorable de los presentes o representados. VIGESIMA CUARTA.--Las Asambleas Extraordinarias de Accionistas quedaran legalmente instaladas en la primera convocatoria si los accionistas tenedores de por lo menos el setenta y cinco por ciento del capital social con derecho a voto de la sociedad estan presentes o debidamente representados en dicha asamblea; y en el caso de una segunda o subsecuente convocatoria, la Asamblea Extraordinaria de Accionistas quedara legalmente instalada si por lo menos el 50% (cincuenta por ciento) de los accionistas tenedores de las acciones representativas del capital social con derecho a voto se encuentran presentes o debidamente representados en cualquier asamblea. Los acuerdos tomados en Asamblea Extraordinaria de Accionistas, ya sea en primera o subsecuentes convocatorias, seran validas si son aprobados por el voto favorables de los accionistas que representen, por lo menos, la mitad del capital social con derecho a voto de la sociedad. VIGESIMA QUINTA.--Para poder asistir a las asambleas, los accionistas deberan de acreditar su capacidad como tales por medio de su registro en el libro de registro de acciones. Los accionistas podran ser representados en las asambleas por un apoderado que cuente con un poder general o especial o por un apoderado designado por medio de carta poder. Las asambleas de accionistas seran presididas por el Administrador Unico o por el Presidente del Consejo de Administracion, segun sea el caso. En su ausencia, dichas asambleas seran presididas por la persona que designe para tales electos la mayoria de los asistentes de la asamblea correspondiente. El Secretario del Consejo de Administracion actuara como Secretario de la Asamblea de Accionistas y, en su ausencia, la persona designada para tales efectos por los accionistas en la asamblea correspondiente. El Presidente nombrara a uno o dos de los asistentes como escrutadores, los cuales podran ser o no miembros del Consejo de Administracion o accionistas, para que puedan determinar si se ha reunido el quorum legal y para contar los votos emitidos si fuera necesario o solicitado por el Presidente de la Asamblea. 12 VIGESIMA SEXTA--Una vez legalmente instalada la asamblea, si alguno de los puntos del orden del dia no ha sido resuelto, dicha asamblea podra ser pospuesta y continuara el siguiente dia habil, sin necesidad de una nueva convocatoria. - --Las actas de las Asambleas de Accionistas seran registradas en el libro de actas que conservara el Secretario, junto con un juego duplicado de las actas, una lista de los accionistas que asistieron a la asamblea, firmada por el escrutador, los poderes, copias de la publicacion en la cual se publico la convocatoria, copias de cualquier reporte, cuentas de la sociedad y cualesquier otro documento que haya sido representado en la asamblea. Cuando las actas de una asamblea no puedan ser registradas en el libro de actas, deberan protocolizarse ante notario publico. Las actas de las Asambleas extraordinarias de Accionistas deberan protocolizarse e inscribirse en el Registro Publico de Comercio del domicilio social. Todas las actas de asambleas de accionistas, asi como el registro de aquellas no celebradas por falta de quorum, deberan firmarse por el Presidente y el Secretario de la Asamblea, asi como por los Comisarios que deberan haber asistido a cualquier asamblea. VIGESIMA SEPTIMA.--Cualquier Asamblea Ordinaria o Extraordinaria de accionistas estara legalmente celebrada sin necesidad de convocatoria previa si todas las acciones representativas del capital social se encuentran presentes al momento de la emision de los votos. La Asamblea de Accionistas determinara la remuneracion, si tal es el caso a los miembros del Consejo de Administracion y a los Comisario de la Sociedad. VIGILANCIA VIGESIMA OCTAVA.--La vigilancia de la sociedad quedara confiada a uno o mas Comisarios, tal como sea determinado por los Accionistas en una Asamblea Ordinaria. Un Comisario Suplente podra ser designado por cada Comisario Propietario. Los Comisarios, por regla general, ocuparan su cargo durante un ano, contado a partir de la fecha de su designacion, debiendo continuar en su cargo hasta que sus sucesores tomen posesion de sus cargos. La remuneracion que perciban los Comisarios sera determinada por los Accionistas en una Asamblea General. 13 VIGESIMA NOVENA.--Los Comisarios tendran las facultades y obligaciones contenidas en el articulo ciento sesenta y seis de la Ley general de Sociedades mercantiles. EJERCICIO FISCAL Y UTILIDADES TRIGESIMA.--El ejercicio fiscal de la sociedad no excedera de un ano calendario e iniciara y terminara en las fechas determinadas por los accionistas en una Asamblea Ordinaria o por el Administrador Unico o el Consejo de Administracion. TRIGESIMA PRIMERA.--Las utilidades netas obtenidas en cada ejercicio fiscal, se aplicaran conforme a lo siguiente: a). -- Dicha cantidad que podra ser determinada por los accionistas debera primeramente apartarse para la creacion o restablecimiento de la reserva legal, segun el caso; dicha suma no sera menor al cinco por ciento de las utilidades netas hasta que sea equivalente a una quinta parte del capital social. b).-- La cantidad necesario para pagar los trabajadores y empleados, el reparto de utilidades correspondiente conforme a la ley; y c). - El remanente sera distribuido conforme a los dispuesto por los Accionistas en una Asamblea Especial. DISOLUCION Y LIQUIDACION TRIGESIMA SEGUNDA.--La sociedad sera disuelta anticipadamente en caso de: I. -- Si la realizacion del objeto social se volviese imposible; II.--Por resolucion de los accionistas tomada en una Asamblea Extraordinaria de Accionistas; III. - Si el numero de accionistas se reduce a un numero menor del minimo legal; IV.--En caso de perdida de dos terceras partes del capital social de la sociedad, salvo que los accionistas restablezcan o reduzcan el mismo; y V.--En cualquier otro caso previsto en la Ley. En caso de disolucion, la sociedad se colocara en liquidacion, la cual sera confiada a un liquidador designado por la misma Asamblea Extraordinaria que resuelva de la disolucion. El liquidador podra o no ser accionista de la sociedad y tendra las facultades y recibira la remuneracion aprobada por la Asamblea de Accionistas. La 14 Asamblea de Accionistas establecera un termino para la consecucion de los encargos del liquidador, asi como las reglas generales para la realizacion de dichas tareas. TRIGESIMA TERCERA.--Durante el proceso de liquidacion, las Asambleas de Accionistas se celebraran de conformidad con los terminos establecidos en este instrumento. Los liquidadores tendran las facultades conferidas al Administrador Unico o al Consejo de Administracion, con las limitaciones impuestas por el proceso de liquidacion. Los Comisarios deberan realizar las mismas funciones durante el proceso de liquidacion que en funcionamiento normal de la sociedad y mantendran la misma relacion con los liquidadores que la mantenida con los Consejeros. TRIGESIMA CUARTA. - En todos los asuntos que no esten especificamente mencionados en este instrumento, aplicaran las disposiciones de la Ley General de Sociedades Mercantiles. ARTICULOS TRANSITORIOS Los accionistas de la sociedad celebran en este acto la primera Asamblea General Ordinaria de Accionistas a fin de adoptar, por unanimidad de votos, las siguientes resoluciones: 1.--La parte fija del capital social sera de $50,000 (Cincuenta Mil Pesos 00/100 M.N.) mismo que ha sido totalmente suscrito y pagado representado por 50 acciones ordinarias, Serie "A", con valor nominal de $1,000 (Un Mil Pesos 00/100 M.N.) cada una, mismo que quedo suscrito de la siguiente forma:
ACCIONISTA ACCIONES TOTAL VALOR SERIE A SERIE B JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. 49 0 49 $49,000.00 CONSULTORIA JAFRA, S.A. DE C.V. 1 0 1 $ 1,000.00 TOTAL 50 0 50 $ 50,000.00
2.--La Administracion de la Sociedad estara encargada a un Consejo de Administracion, el cual estara integrado de la siguiente manera: PROPIETARIOS CARGO EUGENIO LOPEZ BARRIOS PRESIDENTE RALPH S. MASON III VICE PRESIDENTE 15 ALBERTO MENA ADAME SECRETARIO MARTHA CECILIA ECHEVERRI CORREA VOCAL SUPLENTE MARIA DOLORES SANCHEZ CANO GASCON, quien podra sustituir a cualquier consejero. 3. -- Se designa al senor SERGIO QUEZADA como Comisario de la Sociedad y al senor ERNESTO VALENZUELA como Comisario Suplente. 4. -- Se designan como funcionarios de la Sociedad al senor EUGENIO LOPEZ BARRIOS como Presidente y al senor RALPH S. MASON III como Vicepresidente Ejecutivo. 5.--El primer ejercicio social comenzara en la fecha de celebracion de la presente asamblea y terminara el 31 de diciembre de 1998 y los subsecuentes ejercicios fiscales comenzaran el 1 de enero y concluiran el 31 de diciembre de cada ano. 6. - Se otorgan a los senores EUGENIO LOPEZ BARRIOS, GONZALO RUBIO, RALPH S. MASON III Y ALBERTO MENA ADAME los siguientes poderes de la sociedad para ser ejercitados en forma mancomunada o individualmente, salvo en lo referente a las facultades mencionadas en el inciso c), las cuales deberan ser ejercidas mancomunadamente por cuando menos dos apoderados: a). - Poder general para pleitos y cobranzas, con las facultades mas amplias permitidas por la Ley, en terminos del primer parrafo del articulo 2554 del Codigo Civil para el Distrito Federal y los articulos correlativos de cualquier otro codigo civil de la Republica Mexicana, con todas las facultades generales y especiales que requieran Clausula especial, incluyendo aquellas previstas en el articulo 2587 del Codigo Civil, por lo que estaran facultados de una manera enunciativa pero no limitativa para: representar a la Sociedad ante autoridades federales, estatales, municipales, administrativas y judiciales, ante la Secretaria del Trabajo y ante las juntas de conciliacion y Arbitraje y para firmar los documentos que sean necesarios en el ejercicio de sus facultades; para ejercitar toda clase de derechos y acciones ante cualquier autoridad y Juntas de Conciliacion y Arbitraje; para someterse a cualquier jurisdiccion; para promover y desistirse aun del juicio de amparo; para presentar cargos y querellas penales y para comparecer como parte ofendida y coadyuvar con el 16 Ministerio Publico y otorgar perdones; para transigir; para comprometer en arbitros; para articular y absolver posiciones; para aceptar y liberar toda clase de garantias; para hacer cesion de bienes y para llevar a cabo los demas actos que esten expresamente determinados por la Ley; b).--Poder general para actos de administracion en terminos del segundo parrafo del articulo 2554 del Codigo Civil entre las que se incluyen de manera enunciativa y no limitativa, las facultades de celebrar, modificar, cumplir y rescindir toda clase de contratos y convenios, obtener prestamos y en general, llevar a cabo todos los actos que esten directa o indirectamente relacionados con los objetos sociales; c). -- Poder general para actos de dominio, con la amplitud mencionada en el tercer parrafo del articulo 2554 del Codigo Civil para el Distrito Federal y sus correlativos contenidos en los codigos civiles de los Estados. Dicho poder sera tan amplio como en derecho se requiera para contraer obligaciones en nombre de la Sociedad. Este poder otorga todas las facultades de disposicion, incluyendo aquellas que sean necesarias para la constitucion de gravamenes, garantias y limitaciones de dominio sobre bienes y derechos de la Sociedad. d). -- Poder especial para que abran y cancelen cualquier tipo de cuenta bancaria o de inversion, con facultades para expedir cheques con cargo a dichas cuentas, y en general para girar, aceptar, endosar, negociar, librar, avalar, de cualquier otra forma suscribir titulos de credito en nombre y representacion de la Sociedad, en los terminos mas amplios que establece el articulo noveno de la Ley General de Titulos y Operaciones de Credito. e). -- La realizacion de actos que involucren las mas amplias facultades de administracion y direccion por lo que respecta a la planeacion, organizacion, mando y control del personal de Cosmeticos y Fragancias, S.A. de C.V. y, en consecuencia, por ministerio del articulo once de la Ley Federal del Trabajo, habra de tener el caracter de representante legal de Cosmeticos y Fragancias, S. A. de C.V. en sus relaciones con los trabajadores; asimismo se le otorga, sin limitacion alguna, en su caracter de representante legal, el poder general de la sociedad para pleitos y cobranzas, con todas las facultades generales y aun las especiales que de acuerdo con la Ley requieran poder o clausula especial, en los terminos del parrafo primero del articulo dos 17 mil quinientos cincuenta y cuatro de Codigo Civil para el Distrito Federal y articulos correlativos de los Codigos Civiles de las entidades que integran la federacion, pero con la excepcion de la facultad de hacer cesion de bienes a que se refiere la fraccion V del articulo 2587 del Codigo Civil para el Distrito Federal y articulos correlativos en los Codigos Civiles de las entidades que integran la Federacion. De manera enunciativa y no limitativa, se mencionan entre otras, facultades para representar a Cosmeticos y Fragancias, S. A. de C.V. i) ante toda clase de autoridades administrativas y judiciales, tanto de caracter municipal como estatal y federal, ante el Instituto del Fondo Nacional para la Vivienda de los Trabajadores, el Instituto Mexicano del Seguro Social, inclusive por lo que respecta al Sistema de Ahorro para el retiro, y ante el Fondo Nacional para el Consumo de los Trabajadores, ii) ante las juntas de Conciliacion y de conciliacion y Arbitraje, tanto locales como federales, y ante las autoridades laborales a que se refiere el articulo quinientos veintitres de la Ley Federal del Trabajo, iii) en toda clase de procedimientos, incluyendo el de amparo, y iv) compareciendo y actuando de acuerdo con lo dispuesto en los articulos once, seiscientos noventa y dos, fraccion II, ochocientos setenta y seis, setecientos ochenta y seis y demas aplicables de la Ley Federal del Trabajo, en la etapa conciliatoria, en la articulacion y absolucion de posiciones, y en toda la secuela de los juicios laborales en que Cosmeticos y Fragancias, S.A. de C.V. sea parte o tercera interesada. f). -- Poder para conferir y revocar poderes generales y especiales dentro del ambito de las facultades anteriormente senaladas. 7. -- Las personas anteriormente nombradas, aceptan sus cargos y protestan su fiel cumplimento en el desempeno de los mismos. Asi mismo la asamblea de accionistas por unanimidad de votos acordo NO EXIGIRLES FIANZA NI DEPOSITO para garantizar sus cargos, para dar cumplimiento al Articulo Ciento cincuenta y dos y Ciento cincuenta y tres de la Ley General de Sociedades Mercantiles en vigor. 8. - El senor EUGENIO LOPEZ BARRIOS, en su caracter de PRESIDENTE DEL CONSEJO DE ADMINISTRACION de la Sociedad, declara que no ha recibido a su entera conformidad el total del Capital Social. Ademas agradece a la asamblea el haber aceptado su cargo sin caucion. 18 9.- Las disposiciones de la Ley General de Sociedades Mercantiles, se regiran en todo aquello sobre lo que no haya disposicion expresa en estas Clausulas, o en caso de que algo de lo estipulado en ellas estuviere en conflicto con lo dispuesto en dicha Ley, a falta de disposicion de dicha Ley o en estas clausulas, la Asamblea General de Accionistas, determinara lo conducente. 10.- Declaran las partes en el acto de la firma del presente contrato que renuncian al fuero que por razon de su domicilio les pudiere corresponder y que para todo lo relacionado con la interpretacion y cumplimiento de esta escritura, se someten expresamente a las Leyes y Tribunales de MEXICO, DISTRITO FEDERAL. 11.-- Los comparecientes facultan al suscrito Notario, para efectuar las diligencias necesarias a fin de obtener la inscripcion del primer testimonio de la escritura, en el Registro Publico de Comercio correspondiente. 12.--Los honorarios, impuestos y derechos que se causen o devenguen con motivo del otorgamiento de esta escritura, su testimonio y registro, seran pagados por la Sociedad, con cargo a gastos de organizacion. PERSONALIDADES A. - El senor Licenciado JAMES E. RITCH GRANDE AMPUDIA, acredita la personalidad con la que se ostenta para firmar este instrumento, en representacion de la Sociedad Mercantil denominada "JAFRA COSMETICS INTERNATIONAL", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, con la escritura publica numero CINCUENTA Y TRES MIL DOSCIENTOS OCHENTA Y CINCO, libro numero MIL OCHENTA Y DOS, de fecha treinta de abril de mil novecientos noventa y ocho, otorgada ante la fe del Licenciado MIGUEL ALESSIO ROBLES, Notario numero DIECINUEVE de Mexico, Distrito Federal, misma que se encuentra debidamente inscrita en el Registro Publico de Comercio del Distrito Federal, bajo el Folio Mercantil numero DOS TRES NUEVE CUATRO CUATRO Y CUATRO SEIS NUEVE SEIS DOS, de fecha veinticuatro de julio de mil novecientos noventa y ocho, de la cual se anexa una copia al apendice de esta escritura marcada con la letra "B", asi como una al testimonio. B. - El senor Licenciado ALBERTO MENA ADAME, acredita la personalidad con la que se ostenta para firmar este instrumento en representacion de la Sociedad 19 Mercantil denominada "CONSULTORIA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, con la escritura publica numero VEINTITRES MIL SETECIENTOS UNO, Libro CUATROCIENTOS SETENTA Y SIETE, de fecha cuatro de diciembre de mil novecientos noventa y cinco, otorgada ante la fe del Licenciado CARLOS ALEJANDRO DURAN LOERA, Notario numero ONCE de Mexico, Distrito Federal, y escritura publica numero CUATRO MIL CUATROCIENTOS CINCUENTA Y CUATRO, libro numero CIENTO CUARENTA Y UNO, de fecha tres de octubre de mil novecientos noventa y seis, otorgada ante la fe del Licenciado CARLOS ANTONIO REA FIELD, Notario numero CIENTO OCHENTA Y SIETE del Distrito Federal, de las cuales se anexa una copia al apendice de esta escritura marcada con la letra "C" y "D", asi como una al testimonio. GENERALES Los comparecientes bajo protesta de decir verdad, manifestaron por sus generales ser de nacionalidad mexicana por nacimiento: El senor JAMES E. RITCH GRANDE AMPUDIA, originario de Mexico, Distrito Federal, en donde nacio el dia cinco de febrero de mil novecientos sesenta y cuatro, casado, Licenciado en Derecho, con domicilio en Amberes numero cinco, Colonia Juarez, Mexico, Distrito Federal, y con Registro Federal de Contribuyentes "RIGJ guion sesenta y cuatro cero dos cero cinco". El senor ALBERTO MENA ADAME, originario de Mexico, Distrito Federal, en donde nacio el dia diecisiete de octubre de mil novecientos sesenta, casado, Licenciado en Derecho, con Registro Federal de Contribuyentes "MEAA guion sesenta diez diecisiete, y con domicilio en Boulevard Adolfo Lopez Mateos numero quinientos quince, Colonia Tlacopac, Mexico Distrito Federal. YO, EL NOTARIO CERTIFICO: I.--Que estimo a los comparecientes con capacidad legal para otorgar este instrumento, pues no me consta nada en contrario; II.--Que lo inserto y relacionado concuerda con sus originales que doy fe de haber tenido a la vista; III. -- Que adverti a los comparecientes, de la obligacion que tienen de proporcionar al suscrito Notario, copia de la solicitud de inscripcion en el Registro Federal de 20 Contribuyentes ante la Secretaria de Hacienda y Credito Publico de la Sociedad que por medio de este instrumento constituyen, lo anterior para dar cumplimiento al Articulo Veintisiete del Codigo Fiscal de la Federacion; IV. - Que adverti a los comparecientes de los delitos y penalidades que marca el Codigo Penal del Estado de Mexico, en los Articulos Ciento cincuenta y siete, Ciento sesenta y ocho, Ciento sesenta y nueve y Ciento setenta. V.--Que se identificaron en los terminos del Articulo Setenta y seis de la Ley Organica del Notariado del Estado de Mexico en vigor, identificaciones de las cuales se anexa una copia al apendice de esta escritura marcada con la letra "E", asi como una al testimonio; y VI.--Que lei y explique integro este instrumento a los comparecientes, quienes conformes con su contenido, valor y fuerza lega, lo ratifican y otorgan firmando en comprobacion el dia, mes y ano de su otorgamiento, fecha en que Yo, el Notario, AUTORIZO DEFINITIVAMENTE esta escritura. - DOY FE. JAMES E. RITCH GRANDE AMPUDIA. -ALBERTO MENA ADAME. Rubricas. ANTE MI, JORGE ANTONIO FRANCOZ GARATE. RUBRICA. SELLO DE AUTORIZAR. Para cumplir con lo prevenido por el Articulo Dos mil cuatrocientos ocho del Codigo Civil vigente en el Estado de Mexico y sus correlativos, se inserta el texto integro del mismo a continuacion. ARTICULO 2408.--En todos los poderes generales para pleitos y cobranzas, bastara que se diga que se otorga con todas las facultades generales y las especiales que requieren clausula especiales conforme a la Ley que se entiendan conferidos sin limitacion alguna. En todos los poderes generales para administrar bienes, bastara expresar que se dan con ese caracter para que el apoderado tenga toda clase de facultades administrativas. --En los poderes generales para ejercer actos de dominio, bastara que se den con ese caracter para que el apoderado tenga toda clase de facultades de dueno, tanto en lo relativo a los bienes, como para hacer toda clase de gestiones a fin de defenderlos. 21 Cuando se quisieran limitar en los tres casos antes mencionados las facultades de los apoderados se consignaran las limitaciones o los poderes seran especiales. Los Notarios insertaran este articulo en los testimonios de los poderes que otorguen. 22 ARTICULO 2428. -El mandatario puede encomendar a un tercero el desempeno del mandato si tiene facultades expresas para ello. ARTICULO 2441.--El procurador no necesita poder o clausula especial, sino en los casos siguientes: I.--Para desistirse; II. --Para transigir; III. - Para comprometer en arbitros; IV.--Para absolver y articular posiciones; V.--Para hacer cesion de bienes; VI.--Para recusar; VII.--Para recibir pagos; VIII.--Para los demas actos que expresamente determine la Ley. Cuando en los poderes generales se desee conferir alguna o algunas de las facultades acabadas de enumerar, se observara lo dispuesto en el parrafo primero del Articulo 2408. ES PRIMER TESTIMONIO DE SU ORIGINAL QUE SE EXPIDE PARA LA SOCIEDAD MERCANTIL DENOMINADA "COSMETICOS Y FRAGANCIAS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, EN SU CARACTER DE "INTERESADA". VA EN CATORCE FOJAS UTILES DEBIDAMENTE COTEJADAS, SELLADAS Y FIRMADAS.--DOY FE. NAUCALPAN DE JUAREZ, ESTADO DE MEXICO, A DIECIOCHO DE NOVIEMBRE DE MIL NOVECIENTOS NOVENTA Y OCHO. (seal) YO, EL LICENCIADO JORGE ANTONIO FRANCOZ GARATE, NOTARIO PUBLICO NUMERO DIECISIETE DEL DISTRITO JUDICIAL DE TLALNEPANTLA, ESTADO DE MEXICO Y NOTARIO DEL PATRIMONIO INMUEBLE FEDERAL CERTIFICO QUE LA PRESENTE COPIA SIMPLE, ES FIEL REPRODUCCION DE LA ESCRITURA PUBLICA NUMERO 28,467 QUE OBRA ASENTADA EN EL PROTOCOLO NUMERO 742 ORDINARIO A MI CARGO.--DOY FE. NAUCALPAN DE JUAREZ, ESTADO DE MEXICO, A DIECIOCHO DE NOVIEMBRE DE MIL NOVECIENTOS NOVENTA Y OCHO. (seal) 23 DEED NUMBER TWENTY-EIGHT THOUSAND FOUR-HUNDRED SIXTY-SEVEN. VOLUME NUMBER SEVEN-HUNDRED FORTY-TWO. In the City of Naucalpan de Juarez, State of Mexico, at the sixteen days of November nineteen ninety-eight, I, Lawyer JORGE ANTONIO FRANCOZ GARATE, NOTARY PUBLIC NUMBER SEVENTEEN of the Judicial District of Tlalnepantla, State of Mexico, and Notary of the Federal Real Estate Patrimony, acting in the Ordinary Protocol at my charge, I witness: THE CONSTITUTION OF THE MERCANTILE SOCIETY named, "COSMETICOS Y FRAGANCIAS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, that formalize the companies: 1. "JAFRA COSMETICS INTERNATIONAL", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, represented in this act by Lawyer JAMES E. RITCH GRANDE AMPUDIA. 2. "CONSULTORIA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, represented in this act by Lawyer ALBERTO MENA ADAME. According to the following statements and clauses: STATEMENTS UNIQUE. The ones who present themselves before me declare that for the granting of the present deed, the Ministry of Foreign Affairs granted them the corresponding permit, same which I add to the appendix of this deed with letter "A", and that I completely transcribe as follows: ""At the superior left margin a seal with the national escutcheon and the following inscription: MINISTRY OF FOREIGN AFFAIRS MEXICO. At the superior right margin PERMIT 09034007. FILE 9809033236. FOLIO 34505. In attention to the application presented by C. FERNANDO CAMACHO SERVIN, this Ministry grants the permit to 24 -2- constitute a S.A. DE C.V. (anonymous society of variable capital initials in Spanish), under the denomination of COSMETICOS Y FRAGANCIAS, S.A. DE C.V. This permit will be conditioned that in the Articles of Incorporation the clause of exclusion of foreigners foreseen in Article 30 or the agreement stated in Article 31, both of the Regulation of the Law to Promote Mexican Investment and Regulate Foreign Investment are inserted. The Notary or Public Broker before whom this permit is officially registered, will have to advise the Ministry of Foreign Affairs within the 90 natural days from the date of authorization of the corresponding Public Deed. The above mentioned is communicated based in Article 27 Constitutional Fraction I, of the Political Constitution of the United Mexican States, 15 of the Law of Foreign Investment and in the terms of Article 28 fraction V of the Organic Law of the Federal Public Administration. This permit will stop having effects if it not used within the next 90 working days after its date of issuance and is granted without prejudice of what is foreseen in article 91 of the Law of Industrial Property. TLATELOLCO, F.D. 6 OF OCTOBER 1998. EFFECTIVE SUFFRAGE. NO REELECTION. THE DIRECTOR OF PERMITS ART. 27. LAWYER JOSE FCO. CAMPOS GARCIA ZEPEDA. ONE ILLEGIBLE SIGNATURE. ONE SEAL WITH THE NATIONAL ESCUTCHEON AND THE FOLLOWING INSCRIPTION. MINISTRY OF FOREIGN AFFAIRS. GENERAL DIRECTION OF LEGAL AFFAIRS. PA-1. 152417. Having the above been exposed the ones who present before me grant the following: CONTRACT OF ANONYMOUS SOCIETY OF VARIABLE CAPITAL CLAUSES FIRST. The ones who present before me by this act constitute a Mercantile Society, adopting the type of Anonymous of Variable 25 -3- Capital, of Mexican nationality, according to the Mexican Laws, which will be ruled by the following: BYLAWS NAME, PURPOSE, ADDRESS, DURATION AND NATIONALITY. FIRST. The denomination of the society is "COSMETICOS Y FRAGANCIAS", which will be followed by the words "SOCIEDAD ANONIMA DE CAPITAL VARIABLE", or its abbreviation "S.A. de C.V." SECOND. The purpose of the company is: 1. Rendering of all type of services, specially services of manufacturing or fabrication of cosmetics, beauty articles, for care and personal hygiene, bath articles, ornaments and articles or jewelry, as well as food complements and supplements and food products of similar nature, to all type of natural persons or companies, traders or not. 2. To import, export, purchase, sell, distribute, industrialize and, in general, negotiate with all type of raw materials, finished or semi-finished products, products in general and trade effects. 3. To import, export, purchase, sell and negotiate in any other way with all type of machinery, tools, equipment and parts and repair articles for the same. 4. To request, obtain, register, use, transfer or in any other manner dispose and acquire trademarks, commercial names, copyrights, patents, rights of patents, inventions, processes or any other type of intellectual property that can be necessary or convenient for the consecution of its social purpose. 5. To establish, lease, sublease, operate and own in any way permitted by the law all type of factories, workshops, plants, warehouses, offices, stores and other 26 -4- establishment necessary for the realization of the social purpose, as well as to acquire all type of negotiations or industrial and commercial companies, including shares, participation and instruments issued by them. 6. To establish branches, subsidiaries, agencies and representation offices in Mexico and abroad. 7. To represent or act as agent, or commission agent or legal representative in the Mexican Republic or abroad, for all type of natural persons or companies, national or foreign. 8. To acquire, own, lease, sublease, purchase, sell and negotiate in any type permitted by the Law all type of real estate, including the acquisition, establishment and operation of investigation laboratories. 9. To render all type of technical, administrative, consulting or supervision services to commercial or industrial companies, in Mexico or abroad and receive such services; 10. To give and offer co-packing services and of fabrication or processing of materials to and from any type of natural persons or companies, being them entities and industrial and commercial businesses. 11. Give or take money in loans with or without guaranties of any type, issue bonds, obligations and any other credit title with the intervention of the institutions that in each case is required according to the law. 12. To guarantee obligations of third parties by means of bonds or surety or in any other way permitted by the Law, as well as to constitute guaranties on any of its properties. 13. In general, to make all type of acts and celebrate all type of contracts or agreements, civil, mercantile or of any other nature, permitted by the Law and in 27 -5- general, to make all type of businesses and activities that are related directly or indirectly with the social purpose. THIRD. The address of the company is Mexico City, Federal District, same which will not be considered as modified even though the Company establishes agencies or branches in any other place in Mexico or abroad, or designates conventional addresses for the celebration of specific acts or contracts. FOURTH. The duration of the company will be 99 (ninety-nine) years. FIFTH. The company is of Mexican nationality. Every foreigner that in the moment of the constitution or in any ulterior moment, acquires an interest or participation in the company, will be considered by this simple act as Mexican with respect to said interest or participation and will be understood that it is convenient not to invoke the protection of his Government, under the penalty, on the contrary, of losing, in favor of the Mexican nation, the participation or interests he might have acquired. CAPITAL STOCK AND SHARES SIXTH. The capital stock is variable. The minimum fixed part without right of withdrawal of the capital stock will be the amount of $50,000.00 pesos (Fifty-thousand Pesos 00/100 N.C.) fully subscribed and paid, represented by 50 (fifty) ordinary shares Series "A", nominative with nominal value of $1,000.00 N.C. (ONE THOUSAND PESOS 00/100 NATIONAL CURRENCY) each one. The variable part of the capital stock of the company will be integrated by ordinary nominative shares, series "B", with nominal value of $1,000.00 N.C. (One thousand pesos 00/100 National Currency) each one. 28 -6- The capital stock will be represented in its minimum fixed part by shares "Series A" and in its variable part with shares "Series B", which can be acquired by Mexican or foreign investors. SEVENTH. The increases or decreases of the variable capital stock can be made based on a resolution of the General Ordinary Shareholders Meeting, which resolution does not require to be officially registered nor inscribed in the Public Registry of Property, same that will have to determine the conditions in which said increase or decrease has to be made, such as the terms of subscription and payment of the same, the characteristics of the shares that are emitted and any other related matter. Said capital increases can be paid in money on in species by the shareholders of the company and resolved by the shareholders meeting resolving said capital increase. On the other side, future increases or decreases of the fixed capital have to be agreed by an Extraordinary Shareholders Meeting. EIGHTH. Shares titles and, in its case, the provisional certificates will contain the indications referred to in article one-hundred twenty-five of the General Law of Mercantile Societies. Clause fifth of these by-laws will be equally transcribed. NINTH. Each share will give the right to one vote in the Shareholders Meetings; the holder of the shares of the company will have the right to vote in all the matters submitted in the meeting when by law or by these by-laws they have right to vote; all shares will confer equal right to vote; all shares will confer equal rights and obligations to their holders. TENTH. The shares titles will contain the signature of the Sole Administrator or of two members of the board of 29 -7- directors, as the case might be. The signature of the advisors, if it is authorized by the Board of Directors, can be printed by fax, subject to the condition that in such case the original of the respective signatures has to be deposited in the corresponding Public Registry of Commerce. At the request of any shareholders, to which charge the expenses derived from it will be made, the shares titles can be exchanged by different titles representing a different number of shares. ELEVENTH. The company will keep a registry book of shares in which all the subscription, acquisition or transference operations will be inscribed, as well as any encumbrance to be placed on the shares representative of the capital stock. The company will consider as proprietary of the nominative shares the person who is registered as such in the registry book of shares. TWELVETH. The capital increases can be made by means of contributions in cash or in species, or by means of capitalization of reserves, or any other surplus. In the cases of capital increase by means of a new contribution in cash or in species, shareholders will obtain the preferred right, to subscribe and pay the shares that will be emitted, in proportion with their share property at the moment of exercising said preferred right within the next fifteen days after the date of publication of the corresponding notification in the Official Gazette of the Federation or calculated from the date in which the meeting was held, considering all the shares representative of the capital stock of the company had been present or represented in said meeting. 30 -8- In case that after the termination of the term during which shareholder has had the right to exercise his preferred right, some shares had not been subscribed, the Sole Administrator or the Board of Directors will offer said shares to third parties or will keep them in the treasury of the company, if the case, according with the agreement taken by the shareholders meeting that had approved the capital increase. No new shares can be issued until the shares previously emitted have been fully subscribed and paid. The company will keep a registry book of the variations of capital. ADMINISTRATION THIRTEENTH. The administration of the company will be entrusted to a Sole Administrator or to a Board of Directors integrated by the number of Advisors determined by the Ordinary Shareholders Meeting. The Ordinary Shareholders Meeting can also designate Substitute Advisors to act in case of absence of the Proprietary Advisors. FOURTEENTH. The Sole Administrator or the members of the Board of Directors in its case, do not need to be shareholders of the Company and, by general rule, they will last in their charge one year counted from the date of their designation, and they can be reelected. In every case, they will remain in their charges until their successors take possession of their posts. FIFTEENTH. The Shareholders Meeting or the Board of Directors in session can designate among their members one person to act as President of the Board of 31 -9- Directors, can also designate a Secretary who does not need to be Advisor. SIXTEENTH. The sessions of the Board of Directors will be celebrated in the social address or in any other place when it is previously determined in the respective convocation. The sessions of the Board can be effected in any moment, but at least once a year and will be convoked by the President or the Secretary of the Board or by any two Advisors or by the Commissaries of the Company. The person or persons that wish to convoke the session will inform it to the Secretary of the Board who immediately will emit the respective convocation. The convocations will be made by writing and sent to the address of each member of the Board of Directors or to the place designated for such purposes by telex or telegram or confirmed telecopy with at least fifteen natural days in anticipation to the date of the session. The convocations will specify the purpose, hour, date and place of the session and will be signed by the Secretary of the Board. Without prejudice of the above mentioned, the requirement of the Convocation can be waived by any advisor in relation to any session. SEVENTEENTH. In order that the session of the Board of Directors can be validly celebrated, the assistance of at least the majority of the Advisors or their respective substitutes is required. The resolutions of the Board of Directors will be valid only if they were approved by the favorable vote of the majority of the attending members of the Board of Directors. The resolutions approved unanimously by all the Advisors out of the session will have, for all legal purposes, the same validity as if they were adopted in 32 -10- a session of the board, whenever they are confirmed by written anytime after they have been taken. EIGHTEENTH. The Board of Directors can designate among their members, one or more delegates for the performance of specific tasks, with the powers that are expressly conferred in each case. NINETEENTH. The Sole Administrator or the Board of Directors, as the case might be, will have the following powers: a). General power for litigation and collection, with the most ample powers permitted by the Law, in terms of the first paragraph of article two-thousand fifty-four of the Civil Code for the Federal District, and the correlative articles of any other civil code of the Mexican Republic (the "Civil Code"), with all the general powers and the special ones that require special clause, including those foreseen in article 2587 of the Civil Code, for which they will be empowered in an enunciation but not limitation way to: represent the Company before federal, from the state, municipal, administrative and legal authorities, before the Ministry of Labor and before the meetings of conciliation and arbitrage and to sign the documents that are necessary in the exercise of their powers; to exercise all type of rights and actions before any authority and meetings of Conciliation and Arbitrage; to submit to any jurisdiction; to promote and desist even from the judge of amparo; to present charges and criminal litigation and to present themselves as the offended party and assist the Department of Justice and grant pardon; to settle; to compromise in arbiters; to articulate and absolve positions; to accept and issue all type of guaranties; to make transference of 33 -11- goods and to perform all the other acts that are expressly determined by the Law. b). General Power for acts of administration in terms of the second paragraph of article two-thousand five-hundred fifty-four of the Civil Code among which they are included the powers to celebrate, modify, fulfill and rescind every type of contracts and agreements, to obtain loans and in general, to perform all the acts that are directly or indirectly related with the social purposes. c). General Power for acts of dominion in terms of the third paragraph of article two-thousand five-hundred fifty-four of the Civil Code including powers to acquire, transfer the ownership of, as well as to encumber by means of pledge, mortgage or any other way, personal and real rights. d). Power to issue, accept, indorse and in any other way subscribe credit titles according with article ninth of the General Law of Titles and Credit Operations. e). Power to confer and revoke general and special powers within the scope of the powers mentioned before. f). To establish branches and agencies in any part in or outside the United Mexican States and close said branches or agencies. g). To establish subsidiaries in any part in or outside the United Mexican States and to liquidate and dissolve said subsidiaries. h). To designate and remove managers, officers and employees of the Company and determine their powers, duties and remuneration. SHAREHOLDERS MEETINGS 34 -12- TWENTIETH. The supreme authority of the company is the General Ordinary Shareholders Meeting, that can adopt all type of agreements and ratify all the acts and transactions made by the company. The agreements adopted by the Shareholders Meeting will be implemented by the Sole Administrator or the Board of Directors, as the case might be, or by the person expressly designated for such purposes by the Shareholders Meeting. Every Shareholders Meeting will be celebrated in the social address, unless fortuitous case or major force. TWENTY-FIRST. The Shareholders Meetings will be Ordinary or Extraordinary. Ordinary Shareholders Meetings will be celebrated at least once a year within the first four months after the closing of the fiscal year. The Extraordinary Shareholders Meetings will be made when it is necessary to resolve any of the matters contained in article one-hundred eighty-two of the General Law of Mercantile Societies. TWENTY-SECOND. The Shareholders Meetings, Ordinary or Extraordinary, will be celebrated with the previous convocation of the Sole Administrator or the Board of Directors, or by any of the Commissaries in case of non-fulfillment of the Sole Administrator or the Board of Directors according to what is foreseen in article one-hundred sixty-six, fraction sixth of the General Law of Mercantile Societies. The Meetings will be celebrated also at the request of the shareholders in terms of articles one-hundred eighty-four and one-hundred eighty-five of the General Law of Mercantile Societies. The convocations for the shareholders meetings will contain the place, date and hour in which the meeting is going to take place, as well as the indication of being the first or subsequent convocation. The convocation will be published in one of the 35 -13- newspapers of more circulation in the social address, at least fifteen (15) natural days before the date fixed for the meeting. In case of a second convocation, said convocation will be published at least three (3) days before the date fixed for the meeting. The convocations for any Shareholders Meeting will have to be sent by telecopy to any foreign shareholder to assure its reception with at least fifteen (15) days in anticipation to the date of the meeting. The agreements unanimously approved by all the shareholders who had not gathered in a meeting, will have, for all legal effects, the same legal effects as if they were taken in a meeting, whenever they are confirmed by written in any moment ulterior to that in which they were taken and officially registered before public notary. TWENTY-THIRD. Ordinary Shareholders Meetings will be legally installed in the first convocation if the shareholders holders of at least 50% (fifty per cent) of the capital stock with right to vote of the company are present or duly represented in said meeting, and the agreements there taken will be valid only if they are approved by the vote of the majority of the shareholders present in said meeting. In case an Ordinary Meeting is not celebrated in the programmed date due to lack of quorum, a second convocation or an ulterior convocation will be made mentioning that circumstance and in said case, the Ordinary Shareholders Meetings will be considered as legally installed notwithstanding the number of shares present or represented in the meeting and the agreements adopted will be valid if they are approved by the favorable vote of the present or represented ones. 36 -14- TWENTY-FOURTH. The Extraordinary Shareholders Meetings will be legally installed in the first convocation if the shareholders holding at least seventy-five per cent of the capital stock with right to vote of the company are present or duly represented in said meeting; and in the case of a second or ulterior convocation, the Extraordinary Shareholders Meeting will be legally installed if at least the 50% (fifty per cent) of the shareholders holding the shares representative of the capital stock with right to vote are present or duly represented in any meeting. The agreements taken in Extraordinary Shareholders Meeting, taken in first or ulterior convocations, will be valid if they are approved by the favorable vote of the shareholders that represent, at least, half of the capital stock with right to vote of the company. TWENTY-FIFTH. In order to attend the meetings, shareholders will have to prove their capacity as such by means of their registry in the registry book of shares. Shareholders can be represented in the meetings by an attorney who has a general power or a special one or by an attorney designated by means of power of attorney. Shareholders meetings will be presided by the Sole Administrator or by the President of the Board of Directors, as the case might be. In his absence, said meetings will be presided by the person that for such purpose the majority of the attendants in the corresponding meeting designates. The Secretary of the Board of Directors will act as Secretary of the Shareholders Meeting, and in his absence, the person designated for such purposes by the shareholders in the corresponding meeting. The President will nominate one or two of the 37 -15- attendants as scrutinizers, who can be members of the Board or shareholders or not, so that they can determine if the legal quorum has been gathered and to count the votes issued if it is necessary or requested by the President of the Board. TWENTY-SIXTH. Once the meeting is legally installed, if any of the points of the agenda has not been resolved, said meeting can be adjourned and will continue the next working day, without need of new convocation. The acts of the Shareholders Meetings will be registered in the book of acts that the Secretary will keep, along with a duplicated set of acts, a list of the shareholders who attended the meeting signed by the scrutinizer, the powers, copies of the publication in which the convocation was published, copies of any report, accounts of the company and any other document that had been represented in the meeting. When the acts of a meeting can not be registered in the book of acts, they will be officially registered before a notary public. The acts of the Extraordinary Shareholders Meetings will be officially registered and inscribed in the Public Registry of Property of the social address. All the acts of the shareholders meetings, as well as the registry of those not celebrated due to lack of quorum, will be signed by the President and the Secretary of the Meeting, as well as by the Commissaries who would have attended any meeting. TWENTY-SEVENTH. Any Ordinary or Extraordinary Shareholders Meeting will be legally celebrated without need of previous convocation if all the shares representative of the capital stock are present at the moment of emitting the votes. 38 -16- The Shareholders Meeting will determine the remuneration, if any, of the members of the Board of Directors and of the Commissaries of the Company. SURVEILLANCE TWENTY-EIGHTH The surveillance of the company will be entrusted to one or two Commissaries, as determined by the Shareholders in an Ordinary Meeting. One Substitute Commissary can be designated for each Commissary Proprietary. Commissaries, by general rule, will occupy their charges during one year, counted from the date of their designation, having to continue their commission until their successors take possession of their charges. The remuneration that the Commissaries receive will be determined by the Shareholders in a General Meeting. TWENTY-NINTH. Commissaries will have the powers and obligations established in article one-hundred sixty-six of the General Law of Mercantile Societies. FISCAL YEAR AND PROFITS THIRTIETH. The fiscal year of the company will not exceed one calendar year and will begin and end in the dates determined by the shareholders in an Ordinary Meeting or by the Sole Administrator or by the Board of Directors. THIRTY-FIRST. The net profits obtained in each fiscal year, will be applied according to the following: a). Said amount which can be determined by the shareholders will be separated at first for the creation or reestablishment of the legal reserve, as the case might be; said amount will not be less that five per cent of the net profits until it is equivalent to one fifth of the capital stock. b). The amount necessary to pay workers and employees, the corresponding profit participation according to the law; and 39 -17- c). The remainder will be distributed according to what is decided by the Shareholders in a Special Meeting. DISSOLUTION AND LIQUIDATION THIRTY-SECOND. The company will be dissolved in an anticipated manner in case of: I. If the realization of the social purpose would become impossible; II. By resolution of the shareholders taken in an Extraordinary Shareholders Meeting; III. If the number of shareholders is reduced to a number less than the legal minimum; IV. In case of loss of two third parts of the capital stock of the company, unless shareholders reestablish or reduce the same; and V. In any other case foreseen in the Law. In case of dissolution, the company will be placed in liquidation, same which will be entrusted to a liquidator designated by the same Extraordinary Meeting that resolves the dissolution. The liquidator can be shareholder of the company or not, and will have the powers and will receive the remuneration approved by the Shareholders Meeting. The Shareholders Meeting will establish a term for the consecution of the commission of the liquidator, as well as the general rules for the realization of said tasks. THIRTY-THIRD. During the process of liquidation, the Shareholders Meetings will be celebrated according with the terms established in this instrument. Liquidators will have the powers conferred to the Sole Administrator or to the Board of Directors, with the limitations imposed by the process of liquidation. Commissaries will have to perform the same functions during the process of liquidation as in the normal operation of the company and will maintain the same 40 -18- relationship with the liquidators than the one maintained with the Advisors. THIRTY-FOURTH. In all the matters that are not specifically mentioned in this instrument, the dispositions of the General Law of Mercantile Societies will apply. TRANSITORY ARTICLES The shareholders of the company celebrate in this act the first General Ordinary Shareholders Meeting in order to adopt, by unanimity of votes, the following resolutions: 1. The fixed part of the capital stock will be of $50,000 (Fifty thousand pesos 00/100 N.C.) same which has been fully subscribed and paid represented by 50 ordinary shares, Series "A", with nominal value of $1,000 (One thousand pesos 00/100 N.C.) each one, same which was subscribed in the following manner:
SHARES SHAREHOLDER SERIES 1 SERIES B TOTAL VALUE JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. 49 0 49 $49,000.00 CONSULTORIA JAFRA, S.A. DE C.V. 1 0 1 $ 1,000.00 TOTAL 50 0 50 $ 50,000.00
2. The administration of the company will be entrusted to a Board of Directors, which will be integrated in the following manner: PROPRIETORS CHARGE EUGENIO LOPEZ BARRIOS PRESIDENT RALPH S. MASON III VICE PRESIDENT ALBERTO MENA ADAME SECRETARY MARTHA CECILIA ECHEVERRI CORREA VOCAL SUBSTITUTE 41 -19- MARIA DOLORES SANCHEZ CANO GASCON, who can substitute any advisor. 3. Mr. SERGIO QUEZADA is designated as Commissary of the Company and Mr. ERNESTO VALENZUELA as Substitute Commissary. 4. They are designated as officers of the company Mr. EUGENIO LOPEZ BARRIOS as President and Mr. RALPH S. MASON III as Executive Vice-president. 5. The first fiscal year will begin on the date of celebration of the present meeting and will end the 31 of December 1998 and the subsequent fiscal years will begin the 1st. of January and will end the 31 of December of each year. 6. They are granted to Messrs. EUGENIO LOPEZ BARRIOS, GONZALO RUBIO, RALPH S. MASON III and ALBERTO MENA ADAME the following powers of the company to be exercised in a jointly or separately manner, except in the matters related to the powers mentioned in letter c), which will be exercised jointly at least by two attorneys: a). General power for litigation and collection, with the most ample powers permitted by the Law, in terms of the first paragraph of article 2554 of the Civil Code for the Federal District and correlative articles of any other civil code of the Mexican Republic, with all the general powers and the special ones that require Special Clause, including those foreseen in article 2587 of the Civil Code, for which they will be empowered in an enunciation but not limitation way to: represent the company before federal, state, municipal, administrative and legal authorities, before the Ministry of Labor and before the meetings of conciliation and arbitrage and to sign the documents that are necessary in the exercise of their 42 -20- powers; to exercise all type of rights and actions before any authority and Meetings of Conciliation and Arbitrage; to submit to any jurisdiction; to promote and desist even from the judgement of amparo; to present charges and criminal litigation and to present themselves as the offended party and assist the Department of Justice and grant pardons; to settle; to compromise in arbiters, to articulate and absolve positions, to accept and offer all type guaranties; to effect transference of goods and to perform all the other acts that are expressly determined by the Law; b). General Power for acts of administration in terms of the second paragraph of article 2554 of the Civil Code among which there are in an enunciation but not limitation way, the powers to celebrate, modify, fulfill and rescind all type of contracts and agreements, to obtain loans and in general, to perform all the acts that are directly or indirectly related with the social purposes; c). General Power for acts of dominion, with the fullness mentioned in the third paragraph of article 2554 of the Civil Code for the Federal District and its correlative contained in the civil codes of the States. Said power will be as ample as the law requires to acquire obligations on behalf of the Company. This power grants all the powers of disposition, including those that are necessary for the constitution of encumbrances, guaranties and limitations of dominion over the goods and rights of the Company. d). Special power to open and cancel any type of bank or investment account, with powers to draw checks against said accounts, and in general, to draw, accept, indorse, negotiate, issue, be surety of, certify and in any other way subscribe credit 43 -21- titles on the name and representation of the Company, in the most ample terms established by article ninth of the General Law of Titles and Credit Operations. e). The realization of acts that involve the most ample powers of administration and direction regarding the planning, organization, commandment and control of the personnel of Cosmeticos y Fragancias, S.A. de C.V., and consequently, based on article eleven of the Federal Labor Law, they will have to have the character of legal representative of Cosmeticos y Fragancias, S.A. de C.V. in their relationship with workers; likewise it is granted to them, without limitations, in their character of legal representatives, the general power of the company for litigation and collection, with all the general powers and the special ones that according to the Law require special power or clause, in terms of article first of article two-thousand five-hundred fifty-four of the Civil Code for the Federal District and correlative articles of the Civil Codes for the entities that integrate the Federation, except for the power of transferring goods referred to in fraction V of article 2587 of the Civil Code for the Federal District and correlative articles in the Civil Codes of the entities that integrate the Federation. In an enunciation but not limitation manner, they are mentioned among others, powers to represent Cosmeticos y Fragancias, S.A. de C.V. i) before all type of administrative and legal authorities, municipal, from the state and federal, before the Institute of the National Fund for the Housing of Workers, the Mexican Institute of Social Security, including that regarding the Savings System for the Retirement, and before the National Fund for the Consumption of Workers, ii) before the Meetings of Conciliation and of Conciliation and Arbitrage, local 44 -22- and federal, and before the labor authorities referred to in article five-hundred twenty-three of the Federal Labor Law, iii) in all type of procedures, including that of amparo, and iv) presenting themselves and acting according to what is foreseen in articles eleven, six-hundred ninety-two, fraction II, eight-hundred seventy-six, seven-hundred eighty-six and other applicable of the Federal Labor Law, in the conciliation phase, in the articulation and absolution of positions, and in all the sequence of the labor judgements in which Cosmeticos y Fragancias, S.A. de C.V. is part on or third interested party. f). Power to confer and revoke general and special powers within the scope of the powers mentioned before. 7. The persons mentioned before, accept their charges and protest their faithful fulfillment in the performance of the same. Likewise the shareholders meeting by unanimous votes agreed NOT TO REQUEST BOND NOR DEPOSIT to guarantee their charges, to fulfil article one-hundred fifty-two and one-hundred fifty-three of the General Law of Mercantile Societies in force. 8. Mr. EUGENIO LOPEZ BARRIOS, in his character of PRESIDENT OF THE BOARD OF DIRECTORS of the company, declares that he has received at his full consent the total Capital Stock. In addition he thanks the meeting for having accepted his charge without caution. 9. The dispositions of the General Law of Mercantile Societies, will rule for all for which there is no express disposition in these clauses, or in case something of what is stipulated in them has conflict with that foreseen in said Law, at the lack of disposition in said Law or 45 -23- in these clauses, the General Shareholders Meeting, will determine that which may proceed. 10. The parties declare in the act of signing the present contract that they waive to the jurisdiction that in reason of their addresses may correspond to them and that for all what is related with the interpretation and fulfillment of this deed, they expressly submit themselves to the Law and Courts of MEXICO, FEDERAL DISTRICT. 11. The ones who present themselves before me empower the subscribed Notary, to effect the necessary procedures in order to obtain the inscription of the first testimony of the deed, in the corresponding Public Registry of Commerce. 12. The honorarium, taxes and fees caused or resulting from the granting of this deed, its testimony and registry, will paid by the Company, with charge to organization's expenses. PERSONALITIES A. Mr. Lawyer JAMES E. RITCH GRANDE AMPUDIA, credit the personality he manifests to sign this instrument, in representation of the Mercantile Society denominated "JAFRA COSMETICS INTERNATIONAL", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, with public deed number FIFTY-THREE THOUSAND TWO-HUNDRED EIGHTY-FIVE, book number ONE-THOUSAND EIGHTY-TWO, dated April thirty, nineteen ninety-eight, granted before the faith of Lawyer MIGUEL ALESSIO ROBLES, Notary number NINETEEN of Mexico, Federal District, same which is duly inscribed in the Public Registry of Commerce of the Federal District, under Mercantile Folio number TWO THREE NINE FOUR FOUR and FOUR SIX NINE SIX TWO, dated July twenty-four, nineteen ninety-eight, of which a copy is annexed to the appendix of this deed with letter "B", as well as one to the testimony. 46 -24- B. Mr. Lawyer ALBERTO MENA ADAME, credits the personality he manifests to sign this instrument, in representation of the Mercantile Society denominated "CONSULTORIA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, with public deed number TWENTY-THREE THOUSAND SEVEN-HUNDRED AND ONE, Book FOUR-HUNDRED SEVENTY-SEVEN, dated December four, nineteen ninety-five, granted before the faith of Lawyer CARLOS ALEJANDRO DURAN LOERA, Notary number ELEVEN of Mexico, Federal District, and public deed number FOUR-THOUSAND FOUR-HUNDRED FIFTY-FOUR, book number ONE-HUNDRED FORTY-ONE, dated October three, nineteen ninety-six, granted before the faith of Lawyer CARLOS ANTONIO REA FIELD, Notary number ONE-HUNDRED EIGHTY-SEVEN of the Federal District, same from which a copy is annexed to the appendix of this deed marked with letter "C" and "D", as well as one to the testimony. GENERAL DATA The ones who presented themselves before me under protest of speaking truth, declare for their general data to be of Mexican nationality by birth: Mr. JAMES E. RITCH GRANDE AMPUDIA, native from Mexico, Federal District, where he was born on the five of February nineteen sixty-four, married, Lawyer, with address in Amberes number five, Colonia Juarez, Mexico, Federal District, and with Federal Contributors Registry "RIGJ dash sixty-four zero two zero five". Mr. ALBERTO MENA ADAME, native from Mexico, Federal District, where he was born on the seventeen of October nineteen sixty, married, Lawyer, with Federal Contributors Registry "MEAA dash sixty ten seventeen, and with address in Boulevard Adolfo Lopez Mateos 47 -25- number five-hundred fifteen, Colonia Tlacopac, Mexico, Federal District. I, THE NOTARY CERTIFY: I. That I consider the ones who present themselves before me with legal capacity to grant this instrument, as I know nothing in contrary; II. That what is inserted and related agrees with its originals which I witness I had at sight; III. That I warned the ones who present before me, about the obligation they have to give to the subscribed Notary, copy of the application for inscription in the Federal Contributors Registry before the Ministry of Finance and Public Credit, the above mentioned to fulfill Article twenty-seven of the Fiscal Code of the Federation; IV. That I warned the ones who present before me about the crimes and penalties stated in the Criminal Code of the State of Mexico establish, in Article one-hundred fifty-seven, one-hundred sixty-eight, one-hundred sixty-nine and one-hundred seventy. V. That they identified themselves in terms of Article seventy-six of the Organic Law of Notaries of the State of Mexico in force, identifications from which a copy is added to the appendix of this deed with letter "E", as well as one to the testimony; and VI. That I read and fully explained this instrument to the ones who present before me, who in agreement with its contents, value and legal force, they ratified it and signed it in agreement the day, month and year of its granting, date in which I, the Notary, DEFINITELY AUTHORIZE this deed. I WITNESS. JAMES E. RITCH GRANDE AMPUDIA. ALBERTO MENA ADAME. Rubrics.- BEFORE ME, JORGE ANTONIO FRANCOZ GARATE. SEAL OF AUTHORIZATION. 48 -26- To fulfill what is stated by Article Two-thousand four-hundred eight of the Civil Code in force in the State of Mexico and its correlatives, the full text of the same is inserted as follows: ARTICLE 2408. In all the general powers for litigation and collection it will be enough to state that they are granted with all the general powers and the special ones that require special clause according to the Law so that they are understood to be conferred without limitations. In all the general powers to administer goods, it will be enough to state that they are given with this character so that the attorney has all type of administrative powers. In all the general powers, to exercise acts of dominion, it will be enough that they are given with this character so that the attorney has all type of powers of owner, regarding the goods, as well as to make all type of procedures so as to defend them. When it is wanted that the powers of the attorneys are limited, in the three cases mentioned before, the limitations will be consigned, or the powers will be special. ARTICLE 2428. The mandatary can entrust to a third party the development of the mandate if he has expressed powers to do it. ARTICLE 2441. The attoney does not need special power or clause, but in the following cases: I. To desist; - II. To settle; IV. To compromise in arbiters; V. To absolve and articulate positions; VI. To effect transference of goods; VII. To recuse; 49 -27- VII. To receive payments; VIII. For all the other acts expressly determined by the Law. When in the General powers one of some of the mentioned powers are liked to be conferred, it will be observed what is considered in the first paragraph of Article 2408. THIS IS FIRST TESTIMONY OF ITS ORIGINAL THAT IS ISSUED FOR THE MERCANTILE SOCIETY DENOMINATED "COSMETICOS Y FRAGANCIAS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, IN ITS CHARACTER OF "INTERESTED PARTY". IT CONTAINS FOURTEEN USEFULL SHEETS DULY COLLATED, SEALED AND SIGNED. I WITNES. NAUCALPAN DE JUAREZ, STATE OF MEXICO, EIGHTEEN OF NOVEMBER NINETEEN NINETY-EIGHT. (seal) (rubric) I, LAWYER JORGE ANTONIO FRANCOZ GARATE, NOTARY PUBLIC NUMBER SEVENTEEN OF THE LEGAL DISTRICT OF TLALNEPANTLA, STATE OF MEXICO AND NOTARY OF THE FEDERAL REAL ESTATE PATRIMONY CERTIFY THAT THE PRESENT SIMPLE COPY, IS A TRUE REPRODUCTION OF PUBLIC DEED NUMBER 28,467 WHICH IS REGISTERED IN PROTOCOL NUMBER 742 ORDINARY AT MY CHARGE. I WITNESS. NAUCALPAN DE JUAREZ, STATE OF MEXICO, EIGHTEEN OF NOVEMBER NINETEEN NINETY-EIGHT. (seal) (rubric) MA. LUISA RAMIREZ SALAS PERITO TRADUCTOR AUTORIZADO POR EL TRIBUNAL SUPERIOR DE JUSTICIA DEL DISTRITO FEDERAL BOLETIN No. 26 DEL 07-FEB-97 50 (seal) MINISTRY OF FOREIGN AFFAIRS PERMIT 09034007 MEXICO FILE 9809033236 FOLIO 34505 In attention to the request presented by C. FERNANDO CAMACHO SERVIN this Ministry grants the permit to constitute a SA DE CV under the denomination of COSMETICOS Y FRAGANCIAS SA DE CV This permit, will be conditioned that in the Incorporation Deed it is inserted the clause of exclusion of foreigners foreseen in Article 30 or the agreement stated in Article 31, both of the Regulation of the Law for Promoting Mexican Investment and Regulate Foreign Investment. The Notary or Public Broker before whom this permit is used, will notify the Ministry of Foreign Affairs within the next 90 working days beginning from the date of authorization of the corresponding Public Deed. The above mentioned is communicated based in articles 27, Fraction I, of the Political Constitution of the United Mexican States, 15 of the Law of Foreign Investment and in terms of Article 28, fraction V, of the Organic Law of the Public Federal Administration. This permit will be null if it is not use within the next 90 working days after its issuance and it is granted without prejudice of what is foreseen by article 91 of the Law of Industrial Property. TLATELOLCO, F.D., 6 of October 1998. EFFECTIVE SUFFRAGE, NO REELECTION (seal) THE DIRECTOR MINISTRY OF FOREIGN OF PERMITS ART. 27 AFFAIRS (rubric) GENERAL DIRECTION OF LAWYER JOSE FCO. CAMPOS GARCIA ZEPEDA LEGAL AFFAIRS 152417 MA. LUISA RAMIREZ SALAS PERITO TRADUCTOR AUTORIZADO POR EL TRIBUNAL SUPERIOR DE JUSTICIA DEL DISTRITO FEDERAL BOLETIN No. 26 DEL 07-FEB-97 51 (seal) UNITED MEXICAN STATES TYPE DEPARTMENT OF THE FEDERAL DISTRICT A MINISTRY OF TRANSPORT AND PUBLIC ROADS DRIVING LICENCE JAMES ENRIQUE RITCH GRANDE AMPUDIA (photo) FRESNOS 28 LOMAS DE PALO ALTO 05110 CUAJIMALPA ISSUANCE: 07/AUG/97 VALID UNTIL: 07/AUG/02 RESTRICTIONS: MODULE: 00 BLOOD TYPE: ANTIQUITY: 85 NAT: MEX RIGJ 640205 (rubric) COO148492 LAWYER JORGE F. RAMIREZ DE AGUILAR SECRETARY OF TRANSPORT AND PUBLIC ROADS THIS LICENCE IS GRANTED BASED IN WHAT IS FORESEEN IN ARTICLE 53 OF THE TRANSIT REGULATION IN FORCE IN THE FEDERAL DISTRICT (rubric) SIGNATURE FINGERPRINT MA. LUISA RAMIREZ SALAS PERITO TRADUCTOR AUTORIZADO POR EL TRIBUNAL SUPERIOR DE JUSTICIA DEL DISTRITO FEDERAL BOLETIN No. 26 DEL 07-FEB-97 EX-3.13 3 v70623ex3-13.txt EXHIBIT 3.13 1 EXHIBIT 3.13 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --ESCRITURA NUMERO TREINTA MIL TRESCIENTOS CUARENTA Y OCHO - --VOLUMEN NUMERO OCHOCIENTOS CUATRO----------------------------------- - --En la Ciudad de Naucalpan de Juarez, Estado de Mexico, a los diez dias del mes de Enero del dos mil, Yo, el Licenciado JORGE ANTONIO FRANCOZ GARATE, Notario Publico numero Diecisiete, del Distrito Judicial de Tlalnepantla, Estado de Mexico y Notario del Patrimonio Inmueble Federal, actuando en el Protocolo Ordinario a mi cargo, hago constar que ante mi comparece el senor JOSE ERNESTO BECERRIL MIRO, en su caracter de Delegado Especial del Acta de Asamblea General Extraordinaria de Accionistas, de la Sociedad Mercantil denominada "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, celebrada el dia treinta de noviembre de mil novecientos noventa y nueve, en la que se acordo entre otros puntos EL CAMBIO DE DENOMINACION DE LA SOCIEDAD, y solicita del suscrito Notario PROTOCOLICE, parcialmente dicha Acta, al tenor de los antecedentes y clausulas siguientes.----------------------------------------------------------- - -------------------------------ANTECEDENTES------------------------------------- - --Declara el compareciente con la representacion que ostenta y bajo protesta de decir verdad:-------------------------------------------------- - --I.--CONSTITUCION DE SOCIEDAD. -Que por escritura publica numero veintinueve mil seiscientos siete, de fecha dos de enero de mil novecientos noventa y uno, otorgada ante la fe del Licenciado Roberto Nunez y Bandera, Notario Publico numero Uno, de Mexico, Distrito Federal, cuyo primer testimonio 2 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO quedo debidamente INSCRITO en el Registro Publico de Comercio de Mexico, Distrito Federal, bajo el Folio Mercantil numero CIENTO CINCUENTA MIL TRESCIENTOS TRECE, de fecha veinticuatro de octubre de mil novecientos noventa y uno, previo permiso concedido por la Secretaria de Relaciones Exteriores, numero cero cuarenta y siete mil setecientos cuarenta y tres, Expediente numero cero nueve diagonal cincuenta y tres mil setecientos cincuenta y dos diagonal noventa, se constituyo la Sociedad Mercantil denominada "Reday", Sociedad Anonima de Capital Variable, con duracion de noventa y nueve anos, domicilio social en Mexico, Distrito Federal, Capital Social de Diez Mil Pesos, Moneda Nacional, clausula de Admision de Extranjeros y el objeto social que se menciona mas adelante.-------------------- II.--AUMENTOS DE CAPITAL SOCIAL EN SU PARTE VARIABLE.--Que por diversas escritura se aumento el Capital de la Sociedad en la Parte Variable siendo que por escritura publica numero treinta y un mil seiscientos noventa y seis, de fecha catorce de enero de mil novecientos noventa y dos, otorgada ante la fe del Licenciado Roberto Nunez y Bandera, Notario Publico numero Uno, de Mexico, Distrito Federal, se protocolizo parcialmente el Acta de Asamblea General Extraordinaria celebrada el dia veinte de septiembre de mil novecientos noventa y uno, en la que se acordo el aumento de Capital Social en su parte variable en la cantidad de Quince Millones de Pesos, Moneda Nacional, quedando con un Capital Social en su parte variable en la cantidad de Veinticinco Millones Ciento Cincuenta y Dos Mil Ciento Cincuenta y Cuatro Pesos, Moneda Nacional.--------------------------------------------------------- 3 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --III.--DESIGNACION DEL GERENTE JURIDICO Y OTORGAMIENTO DE PODERES.-- Que por escritura Publica numero treinta y cuatro mil cuarenta y tres, de fecha once de marzo de mil novecientos noventa y tres, otorgada ante la fe del Licenciado Roberto Nunez y Bandera, Notario Publico numero Uno, de Mexico, Distrito Federal, cuyo primer testimonio quedo debidamente INSCRITO en el Registro Publico de la Propiedad y de Comercio de Mexico, Distrito Federal, bajo el Folio Mercantil numero CIENTO CINCUENTA MIL TRESCIENTOS TRECE, de fecha dos de julio de mil novecientos noventa tres, se hizo constar la protocolizacion parcial de un acta de Asamblea General Ordinaria Anual, celebrada el dia veintinueve de septiembre de mi novecientos noventa y dos, en la que se acordo la designacion del senor Gerardo Mariano Mendoza Bazan, como Gerente Juridico de la Sociedad.---------------------------- - --IV.--NOMBRAMIENTO DEL ADMINISTRADOR UNICO Y PROTOCOLIZACION DE LOS NUEVOS ESTATUTOS SOCIALES. -Que por escritura publica numero tres mil cuatrocientos cuarenta y nueve, de fecha dos de mayo de mil novecientos noventa y cinco, otorgada ante la fe del Licenciado Carlos Antonio Rea Fiel, Notario Publico numero Ciento ochenta y siete, de Mexico, Distrito Federal, cuyo primer testimonio quedo debidamente INSCRITO en el Registro Publico de la Propiedad y de Comercio de Mexico, Distrito Federal, bajo el Folio Mercantil numero CIENTO CINCUENTA MIL TRESCIENTOS TRECE, se protocolizo parcialmente el Acta de Asamblea 4 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO General Ordinaria Anual y Extraordinaria celebrada el dia primero de agosto de mil novecientos noventa y cuatro, en la que se acordo nombrar como Administrador Unico de la Sociedad al senor Julio Pedro Cepeda Rebollo, y se modificaron integramente los estatutos de la sociedad.-------------------------- - --De dicha escritura compulso a continuacion en la conducente lo siguiente.----- - --"ARTICULO III --- La sociedad tendra por objeto: 1) Adquirir, establecer, disponer de dar y tomar en arrendamiento o subarrendamiento, en comodato o subcomodato; administrar, operar, o poseer en cualquier forma permitida por la ley fabricas, planta industriales, talleres, laboratorios, almacenes o bodegas, oficinas tiendas y otros establecimientos y bienes inmuebles con el fin de otorgar gratuita u onerosamente su uso y gozo a terceros en virtud de contratos de arrendamiento, subarrendamiento, comodato o subcomodato, o cualquier otro titulo juridico; 2) Construir, edificar, reparar, reconstruir, demoler, planear y disenar toda clase de casas de habitacion, edificios, estructuras, fabricas, plantas industriales, talleres, laboratorios, almacenes o bodegas, oficinas, tiendas y otros establecimientos y bienes inmuebles; 3) Adquirir, enajenar, importar, exportar, gravar, dar o tomar en arrendamiento y negociar en cualquier forma con toda clase de bienes muebles; 4) prestar y recibir servicios de construccion, diseno y consultoria, asi como servicios administrativos y de supervision: 5) Prestar toda clase de o industriales en Mexico o en el extranjero y recibir tales servicios; 6) Solicitar, comprar, vender, dar o tomar en uso, ceder, registrar y adquirir marcas industriales y de servicios, nombres comerciales, derechos de autor, patentes, invenciones y procesos, asi como disponer de 5 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO ellos; 7) Actuar como contratista, subcontratista, agente o representante y designar subcontratistas, agentes o representantes; 8) Adquirir acciones, participaciones, partes de interes y obligaciones de toda clase de empresas o sociedades, sean civiles o mercantiles negociaciones comerciales o industriales nacionales o extranjeras; 10) Dar o tomar dinero en prestamo con o sin garantia, emitir bonos, valores, hipotecarios, obligaciones y cualquiera otros titulos de credito con la intervencion de las instituciones senaladas por la ley y otorgar fianzas o garantias de cualquier clase respecto de obligaciones contraidas o de titulos emitidos o aceptados por la propia sociedad o por terceros; 11) Emitir, suscribir, aceptar y negociar en cualquier forma con titulos de credito; 12) Ejecutar toda clase de contratos permitidos por la ley. - --V.--LA REVOCACION DE PODERES Y EL OTORGAMIENTO DE PODERES GENERALES.--Que por escritura Publica numero tres mil seiscientos veintinueve, volumen ciento seis, de fecha veintinueve de agosto de mil novecientos noventa y cinco, otorgada ante la fe de Licenciado Carlos Antonio Rea Field, Notario Publico numero Ciento ochenta y siete, de Mexico, Distrito Federal, cuyo primer testimonio quedo debidamente INSCRITO en el Registro Publico de la Propiedad y de Comercio de Mexico, Distrito Federal, bajo el Folio Mercantil numero CIENTO CINCUENTA MIL TRESCIENTOS TRECE, se hizo constar la Protocolizacion del acta de Asamblea General ordinaria Anual y Extraordinaria, de fecha cuatro de mayo de mil novecientos noventa y cinco, en la que se acordo entre otros puntos la revocacion de poderes y el otorgamiento de poderes generales.----------------------------------------------------------- 6 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --VI.--DESIGNACION DE DIRECTOR DE FINANZAS--Que por escritura publica numero veintiseis mil ochocientos cuarenta y dos, volumen numero seiscientos ochenta y siete, de fecha dieciocho de septiembre de mil novecientos noventa y siete, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra debidamente INSCRITO en el Registro Publico de Comercio del Distrito Federal, bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, de fecha siete de enero de mil novecientos noventa y ocho, la Sociedad protocolizo el Acta de Asamblea en la que se acordo la designacion del senor Ernesto Omar Cavassuto, como Director de Finanzas, y como consecuencia el otorgamiento de poderes al mismo.-------------------------- - --VII.--RENUNCIA DE DIRECTOR GENERAL Y NOMBRAMIENTO DE PRESIDENTE DE LA SOCIEDAD. -Que por escritura publica numero veintiseis mil ochocientos setenta y cinco, volumen numero seiscientos ochenta y ocho, de fecha veinticuatro de septiembre de mil novecientos noventa y siete, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra debidamente INSCRITO en el Registro Publico de Comercio del Distrito Federal, bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, la Sociedad protocolizo el Acta de Asamblea en la que se acordo la renuncia del senor Alfredo Munda Tabusso, al cardo de Director General de la Sociedad, mismo a quien se le designo como Presidente de la misma, y el otorgamiento de poderes en su favor. ------------------------------------------------------------------- - --VIII.--RENUNCIA DEL DIRECTOR DE FINANZAS DE LA SOCIEDAD Y DESIGNACION DE DIRECTOR GENERAL DE LA MISMA.--Que por escritura 7 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO publica numero veintiseis mil ochocientos setenta y seis, volumen numero seiscientos ochenta y ocho, de fecha veinticuatro de septiembre de mil novecientos noventa y siete, cuyo primer testimonio se encuentra debidamente INSCRITO en el Registro Publico de Comercio del Distrito Federal, bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, de fecha trece de enero de mil novecientos noventa y ocho, la Sociedad protocolizo el Acta de Asamblea en la que se acordo la renuncia del senor Michael Anthony DiGregorio Dimaio, al cargo de Director de Finanzas de la Sociedad, mismo a quien se le designo Director General de la misma, y el otorgamiento de poderes en su favor. - --IX.--REVOCACION DE PODERES, DESIGNACION DE LOS MIEMBROS DEL CONSEJO DE ADMINISTRACION DE LA SOCIEDAD Y RATIFICACION DE COMISARIO Y COMISARIO SUPLENTE DE LA MISMA. -Que por escritura publica numero veintiseis mil ochocientos setenta y siete, volumen numero seiscientos ochenta y ocho, de fecha veinticuatro de septiembre de mil novecientos noventa y siete, cuyo primer testimonio se encuentra debidamente INSCRITO en Registro Publico de Comercio del Distrito Federal, bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, de fecha trece de enero de mil novecientos noventa y ocho, la Sociedad Protocolizo el Acta de Asamblea en la que se acordo la revocacion de poderes otorgados en favor del senor Dario Macias Ruelas, la designacion de los miembros del Consejo de Administracion de la Sociedad, y la Ratificacion del nombramiento de los senores Fernando Holgin Maillard, como Comisario y Alfonso Galan Jimenez de la Cuesta, como Comisario Suplente, de la Sociedad.----------------------------- 8 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --X.--INFORME DE LOS ESTADOS FINANCIEROS PRESENTADOS POR EL CONSEJO DE ADMINISTRACION Y COMISARIO DE LA SOCIEDAD, RESPECTO DE LOS EJERCICIOS TERMINADOS AL TREINTA Y UNO DE DICIEMBRE DE MIL NOVECIENTOS NOVENTA Y SEIS, Y APLICACION DE LOS ESTADOS OBTENIDOS.-- Que por escritura publica numero veintiseis mil trescientos diez, volumen numero setecientos seis, de fecha dieciocho de febrero de mil novecientos noventa y ocho, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra debidamente INSCRITO en el Registro Publico de Comercio del Distrito Federal bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, de fecha veintidos de abril de mil novecientos noventa y ocho, la Sociedad protocolizo el Acta de Asamblea en la que se acordo el informe y aprobacion de los estados financieros presentados por el Consejo de Administracion y Comisario de la Sociedad, respecto de los ejercicios sociales terminados al treinta y uno de diciembre de mil novecientos noventa y seis, y la aplicacion de los resultados obtenidos.-------------------- - --XI.--DESIGNACION DE LA SENORA DELIA MARGARITA CHAVEZ RODRIGUEZ COMO DIRECTORA DE RELACIONES INDUSTRIALES, Y OTORGAMIENTO DE PODERES EN SU FAVOR.--Que por escritura publica numero veintisiete mil trescientos doce, volumen numero setecientos seis, de fecha dieciocho de febrero de mil novecientos noventa y ocho, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra debidamente INSCRITO en el Registro Publico de Comercio del Distrito Federal, bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, de fecha veintidos de 9 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO abril de mil novecientos noventa y ocho, la Sociedad protocolizo el Acta de Asamblea en al que se acordo la designacion de la senora Delia Margarita Chavez Rodriguez, como Directora de Relaciones Industriales, y otorgamiento de poderes en su favor.--------------------------------------------------------- - --XII.---DESIGNACION DE NUEVO CONSEJO DE ADMINISTRACION DE COMISARIO Y COMISARIO SUPLENTE, RENUNCIA DEL SENOR SERGIO RENE APARICIO GONZALEZ, AL CARGO DE DIRECTOR DE RELACIONES INDUSTRIALES, Y LA REVOCACION DE LOS PODERES OTORGADOS EN SU FAVOR.--Que por escritura publica numero veintisiete mil trescientos once, volumen numero setecientos seis, de fecha dieciocho de febrero de mil novecientos noventa y ocho, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra debidamente INSCRITO en el Registro Publico de Comercio del Distrito Federal bajo el Folio Mercantil numero UNO CINCO CERO TRES UNO TRES, de fecha veintidos de abril de mil novecientos noventa y ocho, la Sociedad protocolizo el Acta de Asamblea en la que se acordo la designacion de nuevo Consejo de Administracion, Comisario y Comisario Suplente, la renuncia del senor Sergio Rene Aparicio Gonzalez, al cargo de Director de Relaciones Industriales y la revocacion de poderes otorgados en su favor.------------------------------------------------------------------------- - --XIII.--OTORGAMIENTO DE PODER ESPECIAL.--Que por escritura publica numero veintisiete mil quinientos ochenta, volumen numero setecientos catorce, de fecha seis de abril de mil novecientos noventa y ocho, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra en tramite de inscripcion 10 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO en el Registro Publico de Comercio correspondiente, se protocolizo el Acta de Asamblea General Ordinaria de Accionistas de fecha cuatro de febrero de mil novecientos noventa y ocho, en la que se acordo el otorgamiento de poderes en favor de los senores Alfredo Munda Tabusso, Ernesto Omar Cavassuto, Alfredo Munda Tabusso, Ernesto Omar Cavassuto, Alberto Mena Adame, Michael Anthony DiGregorio Dimaio, y Delia Margarita Chavez Rodriguez.------------------ - --XIV.--OTORGAMIENTO DE PODERES.--Que por escritura publica numero veintinueve mil setecientos treinta y uno, volumen numero setecientos ochenta y tres, de fecha diecinueve de agosto de mil novecientos noventa y nueve, otorgada ante la fe del suscrito Notario, cuyo primer testimonio se encuentra en tramite de inscripcion en el Registro Publico de Comercio correspondiente, se protocolizo el Acta de Asamblea General Ordinaria Anual de Accionistas de la Sociedad, celebrada el dia primero de septiembre de mil novecientos noventa y ocho, en la que se acordo entre otros puntos el otorgamiento de poderes.-------- - --XV.--FUSION.--Que por escritura publica numero treinta mil doscientos cincuenta y cuatro, de fecha dieciseis de diciembre de mil novecientos noventa y nueve, otorgada ante el suscrito Notario, aun no inscrita en el Registro Publico de Comercio correspondiente dada su reciente fecha, se hizo constar la Protocolizacion del Acta de Asamblea General Extraordinaria de Accionistas de "CONSULTORIA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE como Fusionada y "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, como Fusionante desapareciendo la primera y subsistiendo la ultima aumentando su capital social en la parte variable en la suma de Diez mil pesos, 11 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO moneda nacional, quedando el capital social de Veinticinco millones doscientos veintidos mil ciento cincuenta y cuatro pesos, moneda nacional.----------------- - --XVI. -FUSION. -- Que por escritura publica numero treinta mil doscientos cincuenta y seis, de fecha dieciseis de Diciembre de mil novecientos noventa y nueve, otorgada ante el Suscrito Notario, aun no inscrita en el Registro Publico del Comercio correspondiente dada su reciente fecha, se hizo constar la Protocolizacion del Acta de Asamblea General Extraordinaria de Accionistas de la empresa denominada "DISTRIBUIDORA VENUS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE como Fusionada y "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, como Fusionante desapareciendo la primera y subsistiendo la ultima.--------------------------------------------------------- - --XVII.--FUSION.--Que por escritura publica numero treinta mil doscientos treinta y dos, de fecha diecisiete de diciembre de mil novecientos noventa y nueve, otorgada ante el suscrito Notario, aun no inscrita en el Registro Publico del Comercio correspondiente dada su reciente fecha, se hizo constar la Protocolizacion del Acta de Asamblea General Extraordinaria de Accionistas de la empresa denominada "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE como Fusionante y "DISTRIBUIDORA VENUS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, como Fusionada desapareciendo la segunda y subsistiendo la primera.---------------------------------------------- - --XVIII.--Declara el senor JOSE ERNESTO BECERRIL MIRO, en su caracter de Delegado Especial que la Sociedad que representa no ha sufrido ninguna otra modificacion en su escritura constitutiva.-------------------------------------- 12 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --XIX.--PERMISO DE RELACIONES EXTERIORES.--Declara el compareciente que para el otorgamiento de la presente escritura, la Secretaria de Relaciones Exteriores le concedio el permiso correspondiente, mismo que agrego al apendice de esta escritura marcado con la letra "A" y que a continuacion transcribo integramente:-------------------------------------------------------- - --"Al margen superior izquierdo un sello con el Escudo Nacional y la siguiente leyenda: SECRETARIA DE RELACIONES EXTERIORES MEXICO .---Al margen superior derecho PERMISO 09000134.--EXPEDIENTE 9009053752.-- FOLIO 39771.-------------------------------------------------------------------- - --En atencion a la solicitud presentada por el C. JORGE ANTONIO FRANCOZ GARATE, en representacion de REDAY SA DE CV.------------------------------------ - --Esta Secretaria concede el permiso para cambiar la denominacion, ------------- DE: REDAY SA DE CV.------------------------------------------------------------ A: DISTRIBUIDORA VENUS SA DE CV.----------------------------------------------- - --Habiendose CONCEDIDO a la solicitante permiso para reformar sus Estatutos Sociales en los terminos arriba especificados, de conformidad con lo que establecen los articulos 16 de la ley de Inversion Extranjera y 15 del Reglamento de la Ley de Inversion Extranjera y del Registro Nacional de Inversiones Extranjeras.-------------------------------------------------------- - --El interesado, debera dar aviso del uso de este permiso a la Secretaria de Relaciones Exteriores dentro de los seis meses siguientes a la expedicion del mismo, de conformidad con lo que establece el articulo 18 del Reglamento de la Ley de Inversion Extranjera y del Registro Nacional de Inversiones Extranjeras. 13 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --Lo anterior se comunica con fundamento en los articulos: 27 fraccion 1 de la Constitucion Politica de los Estados Unidos Mexicanos; 28 fraccion V de la Ley Organica de la Administracion Publica Federal; 15 de la Ley de Inversion Extrajera y 13, 14 y 18 del Reglamento de la Ley de Inversion Extranjera y del Registro Nacional de Inversiones Extranjeras.----------------------------------- - --Este permiso quedara sin efectos si dentro de los noventa dias habiles siguientes a la fecha de otorgamiento del mismo, los interesados no acuden a otorgar ante fedatario publico el instrumento correspondiente a la constitucion de la sociedad de que se trata, de conformidad con lo que establece el articulo 17 del Reglamento de la Ley de Inversion Extranjera y del Registro Nacional de Inversiones Extranjeras; asi mismo se otorgan sin perjuicio de los dispuestos por el articulo 91 de la Ley de la Propiedad Industrial.------------------------ - --TLATELOLCO, D.F., a 05 de Enero de 2000. -SUFRAGIO EFECTIVO, NO REELECCION. -EL DIRECTOR DE PERMISOS ART. 27 CONST.--UNA FIRMA ILEGIBLE.--LIC. JOSE FRANCISCO CAMPOS GARCIA ZEPEDA.--AL MARGEN INFERIOR DERECHO UN SELLO CON EL ESCUDO NACIONAL Y LA SIGUIENTE LEYENDA. -SECRETARIA DE RELACIONES EXTERIORES. - DIRECCION GENERAL DE ASUNTOS JURIDICOS. - PA-2-2248. ------------------ - --XX.--ACTA DE ASAMBLEA.-------------------------------------------------------- El compareciente presenta al suscrito Notario el Acta de Asamblea General Extraordinaria de Accionistas de la Sociedad, integrada por doce hojas tamano carta escritas por una sola cara debidamente firmadas, de la cual se anexa una copia al apendice de esta escritura marcada con la letra "B" y que mediante este 14 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO instrumento se protocoliza y la cual a continuacion transcribo parcialmente. - --Asi mismo se acordo anexar a la presente acta la lista de asistencia de todos los accionistas de la sociedad.------------------------------------------------- - ----------------------------REDAY, S.A. DE C.V.--------------------------------- - ---------------ASAMBLEA GENERAL EXTRAORDINARIA DE ACCIONISTAS------------------- - ---------------ASAMBLEA GENERAL EXTRAORDINARIA DE ACCIONISTAS------------------- - ----------------------------30 de noviembre de 1999----------------------------- - --En la Ciudad de Mexico, Distrito Federal, siendo las 14:00 horas del dia 30 de noviembre de 1999, se reunieron en el domicilio social de la sociedad, los accionistas y representantes de accionistas de Reday, S.A. de C.V., que se senalan en la Lista de Asistencia que firmada por el Presidente, Secretario y Comisario, se adjunta a la presente Acta, con el objeto de celebrar la Asamblea General Extraordinaria de Accionistas.------------------------------------------ - --Por designacion unanime de los de los presentes fungio como Presidente de la Asamblea el senor Eugenio Lopez Barrios. Actuo como Secretario de la misma, el Secretario del Consejo de Administracion de la Sociedad, senor Alberto Mena Adame.-------------------------------------------------------------------------- - --El Presidente designo al Sr. Jose Ernesto Becerril Miro, quien, despues de aceptar el cargo, examino el Libro de Registro de Accionistas de la Sociedad y la Lista de Asistencia, con base en lo cual hizo constar que estuvieron presentes o debidamente representados en a Asamblea, de los accionistas tenedores de 10,000 acciones comunes de la Serie A y 25, 202, 154 de la Serie B, que representan el 100.00% del capital social suscrito y pagado de Reday, S.A. de 15 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO C.V. a la fecha de la presente Asamblea.---------------------------------------- - --El Presidente, con base en la certificacion del Escrutador y con fundamento en lo establecido por el Articulo 188 de la Ley General de Sociedades Mercantiles y en el Articulo Vigesimo Noveno de los estatutos sociales, declaro legalmente instalada la Asamblea General Extraordinaria, en virtud de estar presentes o debidamente representados los accionistas tenedores de acciones comunes representativas del 100.00% del capital social. Acto seguido, el Presidente sometio a la consideracion de los accionistas el siguiente: -------------------- - --------------------------------ORDEN DEL DIA----------------------------------- - --III.--Propuesta de cambio de denominacion como consecuencia de la fusion de la Sociedad con Distribuidora Venus, S.A. de C.V., resoluciones al respecto.-- - --IV.--Propuesta de nombramiento de delegados especiales, resoluciones al respecto.----------------------------------------------------------------------- - --Los accionistas, por unanimidad de votos, aprobaron tanto la declaracion del Presidente como el Orden del Dia de la Asamblea Extraordinaria, cuyos puntos procedieron a desahogar como sigue:--------------------------------------------- - --III.--En relacion con el tercer punto del orden del dia de la Asamblea Extraordinaria, el Presidente explico a los senores accionistas que como consecuencia de la Fusion de Reday, S.A. de C.V. con Distribuidora Venus S.A. de C.V., una vez que esta surta efectos a partir del 1(0) de diciembre de 1999, se modificara su denominacion y se reformara el Articulo Primero de sus estatutos sociales para adecuar tal cambio.------------------------------------- - --Indico que la reforma propuesta estaba plasmada en el texto de los nuevos 16 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO estatutos, distribuido previamente entre los accionistas para su analisis.------ - --Una vez escuchado lo manifestado por el Presidente y haber analizado detenidamente, tomo las siguientes:--------------------------------------------- - --------------------------------RESOLUCIONES------------------------------------ - --1. -Se aprueba el cambio de denominacion de Reday, a Distribuidora Venus, segun permiso otorgado por la Secretaria de Relaciones Exteriores.-------------- - --2--Se aprueba la reforma de Articulo Primero de los Estatutos Sociales con efectos a partir del 1(0) de diciembre de 1999, para que en lo sucesivo quede redactado en el siguiente termino:---------------------------------------------- - ----------------------------------CAPITULO 1------------------------------------ - --ARTICULO PRIMERO--La denominacion de la sociedad es DISTRIBUIDORA VENUS, denominacion que ira siempre seguida de las palabras SOCIEDAD ANONIMA DE CAPITAL VARIABLE, o de sus abreviaturas S.A. DE C.V.----------- - --IV.--En relacion con el ultimo punto del Orden del Dia de la Asamblea Extraordinaria, los accionistas por unanimidad de votos, adoptaron la siguiente. - ----------------------------------RESOLUCION------------------------------------ - --"1. Se designan como delegados de esta Asamblea a los senores Eugenio Lopez Barrios, Alberto Mena Adame y Ernesto Becerril Miro o a las personas que ellos designen, a fin de que, individual o conjuntamente:------------------- - --a) Concurran ante el notario publico de su eleccion para protocolizar la presente acta, total o parcialmente.-------------------------------------------- - --b) para que expidan, de ser necesario, los certificados de las resoluciones adoptadas en esta Asamblea.----------------------------------------------------- - --c) Lleven a cabo las publicaciones que sean necesarias conforme a la Ley.--- 17 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --d) Realicen acciones necesarias para inscribir el testimonio respectivo ante el registro Publico de la Propiedad y del Comercio del Distrito Federal, asi como todos los actos juridicos y materiales necesarios para dar cumplimiento a estas resoluciones."------------------------------------------------------------ - --Acto seguido, se suspendio la Asamblea por el tiempo necesario para redactar la presente Acta la cual una vez leida, fue aprobada por los presentes y firmada por el Presidente, el Secretario y el Comisario.-------------------------------- - --Se dio por terminada la Asamblea a las 15:00 horas del dia su fecha.--------- - --Eugenio Lopez Barrios.--Presidente.--Alberto Mena Adame.--Secretario.-- Ernesto Valenzuela Espinoza.--Comisario.--Rubricas.----------------------------- - --Declara el compareciente que las firmas que aparecen en esta acta son autenticas y corresponden a las personas de referencia, apercibido de las penalidades que marca el Codigo Penal en los Articulos Ciento cincuenta y siete, ciento sesenta y ocho, ciento sesenta y nueve y ciento setenta.---------- - --XIX.--El compareciente me exhibe en este acto un ejemplar del Diario Oficial de la Federacion de fecha catorce de Diciembre de mil novecientos noventa y nueve, en el que a fojas ciento tres a ciento seis, se hizo la publicacion a que refiere el Articulo doscientos veintitres de la Ley General de Sociedades Mercantiles, de la que agrego al apendice de este instrumento marcada con la letra "C", una copia.----------------------------------------------------------- - --Expuesto lo anterior, el compareciente procede a otorgar la siguiente:-------- - ---------------------------PROTOCOLIZACION PARCIAL------------------------------ - -------------------ACTA DE ASAMBLEA GENERAL EXTRAORDINARIA---------------------- 18 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - ---------------------------------DE ACCIONISTAS--------------------------------- - -------------------------------------CLAUSULAS---------------------------------- - --PRIMERA.--El senor JOSE ERNESTO BECERRIL MIRO, en su caracter de Delegado Especial del Acta de Asamblea General Extraordinaria de Accionistas de la Sociedad Mercantil denominada `REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, celebrada el dia treinta de noviembre de mil novecientos noventa y nueve, deja parcialmente PROTOCOLIZADA dicha acta para todos los efectos legales correspondientes.-------------------------------- - --SEGUNDA.--Como consecuencia de la protocolizacion parcial contenida en la clausula inmediata anterior, queda:--------------------------------------------- - --1--Aprobado el cambio de denominacion de la Sociedad de "REDAY", a DISTRIBUIDORA VENUS, SOCIEDAD ANONIMA DE CAPITAL VARIABLE, modificandose para tal efecto el Articulo Primero de sus estatutos sociales para que en lo sucesivo quede redactado como se expresa en el documento protocolizado con efectos a partir del dia primero de diciembre de mil novecientos noventa y nueve. --------------------------------------------------- - --TERCERA.--El compareciente faculta al suscrito Notario, para efectuar las diligencias necesarias a fin de obtener la inscripcion del primer testimonio de la escritura, en el Registro Publico de Comercio correspondiente.--------------- - --CUARTA.--Los honorarios, impuestos y derechos que origine el otorgamiento de la presente escritura, seran por cuenta exclusiva de la sociedad otorgante.-- - ---------------------------------PERSONALIDAD----------------------------------- - --El senor JOSE ERNESTO BECERRIL MIRO, en su caracter de Delegado 19 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO Especial, acredita su personalidad con el Acredita de Asamblea General Extraordinaria de Accionistas de la Sociedad Mercantil denominada "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, misma que ha quedado debidamente Protcolizada, y que se menciona en el Decimo Octavo punto de este mismo instrumento.--------------------------------------------------------- - -----------------------------YO, EL NOTARIO, DOY FE:---------------------------- - --1.--Que conozco al compareciente, quien en mi concepto tiene capacidad legal y por sus generales manifesto ser de nacionalidad mexicana por nacimiento, originario de Mexico, Distrito Federal, en donde nacio el dia siete de Mayo de novecientos sesenta y siete, casado, Licenciado en Derecho, con Registro Federal de Contribuyentes "BEME guion sesenta y siete cero cinco cero siete", con domicilio en Boulevard Adolfo Lopez Mateos numero quinientos quince, Colonia Tlacopac, Mexico, Distrito Federal.----------------------------- - --II.--Que declara el compareciente bajo protesta de decir verdad que se encuentra al corriente en el pago del impuesto Sobre la Renta aunque sin haberlo comprobado documentalmente ante el suscrito Notario.-------------------- - --II.--Que lo relacionado e inserto en la presente acta concuerda fielmente con sus originales a los que me remito y que tuve a la vista.----------------------- - --IV.--Que el compareciente se identifico en los terminos del articulo Setenta y seis de la Ley Organica del Notariado del Estado de Mexico en vigor, de dicha identificacion agrego una copia al apendice de esta escritura marcada con la letra "D", asi mismo al testimonio.--------------------------------------------- 20 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO - --V.--Que el compareciente me mostro las Cedulas de Identificacion Fiscal con la respectiva clave del Registro Federal de Contribuyentes de los accionistas, de las cuales anexo una copia al apendice de esta escritura marcada con la letra "E", lo anterior en cumplimiento a lo dispuesto en el parrafo octavo del Articulo Veintisiete del Codigo Fiscal de la Federacion.------------------------ - --VI.--Que lei la presente escritura en voz alta al compareciente, mismo a quien le explique el valor y las consecuencias legales de su contenido, me manifesto su conformidad y la aprueba, ratifica y firma el dia, mes y ano de su otorgamiento, fecha en que Yo, el Notario AUTORIZO DEFINITIVAMENTE esta escritura.--DOY FE.------------------------------------------------------------- - --JOSE ERNESTO BECERRIL MIRO.--Rubrica------------------------------------------ - --ALBERTO MENA ADAME.--Rubrica-------------------------------------------------- - --Ante mi, JORGE ANTONIO FRANCOZ GARATE.--Rubrica.--Sello de Autorizar.---------------------------------------------------------------------- - --Para cumplir con lo prevenido en los Articulos Dos mil cuatrocientos uno, Dos mil cuatrocientos siete, Dos mil cuatrocientos ocho, Dos mil cuatrocientos veintiocho y Dos mil cuatrocientos cuarenta y uno, del Codigo Civil vigente en el Estado de Mexico y sus correlativos de los Codigos Civiles del Distrito Federal y las demas Entidades Federativas de la Republica Mexicana, se inserta el texto integro de los mismos a continuacion:---------------------------------- - --ARTICULO 2401.--El contrato de mandato se reputa perfecto por la aceptacion del Mandatario.------------------------------------------------------ - --El mandato que implica el ejercicio de la profesion se presume aceptado 21 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO cuando es conferido a personas que ofrecen al publico el ejercicio de su profesion, por el solo hecho de que no lo rehusen dentro de los tres dias siguientes.--------------------------------------------------------------------- - --La aceptacion puede ser expresa o tacita. Aceptacion tacita es todo acto en ejecucion de un mandato.-------------------------------------------------------- ARTICULO 2407.--El mandato puede ser general o especial. Son generales los contenidos en los tres primeros parrafos del Articulo 2408. Cualquier otro mandato tendra el caracter de especial.----------------------------------------- - --ARTICULO 2408.--En todos los poderes generales para Pleitos y Cobranzas, bastara que se diga que se otorga con todas las facultades generales y las especiales que requieran clausulas especiales conforme a la Ley, para que se entiendan conferidos sin limitacion alguna. - --En todos los poderes generales para Administrar bienes, bastara expresar que se dan con ese caracter para que el Apoderado tenga toda clase de facultades administrativas.---------------------------------------------------------------- - --En los poderes generales para ejercer Actos de Dominio bastara que se den con ese caracter para que el Apoderado tenga toda clase de facultades de dueno, tanto en lo relativo a los bienes, como para hacer toda clase de gestiones a fin de defenderlos. ------------------------------------------------ - --Cuando se quisieren limitar en los tres casos antes mencionados, las facultades de los Apoderados se consignaran las limitaciones o los poderes seran especiales.--------------------------------------------------------------- Los Notarios insertaran este Articulo en los testimonios de los poderes que 22 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO otorguen.----------------------------------------------------------------------- - --ARTICULO 2428.--El mandatario puede encomendar a un tercero el desempeno del mandato si tiene facultades expresas para ello.------------------- - --ARTICULO 2441--El procurador no necesita poder o clausula especial, sino en los casos siguientes:-------------------------------------------------------- - --I.--Para desistirse;---------------------------------------------------------- - --II.--Para transigir;---------------------------------------------------------- - --III.--Para comprometer en arbitros;------------------------------------------- - --IV.--Para absolver y articular posiciones;------------------------------------ - --V.--Para hacer cesion de bienes;---------------------------------------------- - --VI.--Para recusar;------------------------------------------------------------ - --VII.--Para recibir pagos;----------------------------------------------------- - --VII.--Para los demas actos que expresamente determine la Ley.----------------- - --Cuando en los poderes generales se desee conferir alguna o algunas de las facultades acabadas de enumerar, se observara lo dispuesto en el parrafo primero del Articulo 2408.------------------------------------------------------ - --ES PRIMER TESTIMONIO DE SU ORIGINAL QUE SE EXPIDE PARA LA SOCIEDAD MERCANTIL DENOMINADA "DISTRIBUIDORA VENUS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, EN SU CARACTER DE INTERESADA. VA EN OCHO FOJAS UTILES DEBIDAMENTE COTEJADAS, SELLADAS Y FIRMADAS.--DOY FE.--------------------------------------------------- - --NAUCALPAN DE JUAREZ, ESTADO DE MEXICO, A DOCE DE ENERO DEL DOS MIL.------------------------------------------------------------------------ 23 JORGE ANTONIO FRANCOZ GARATE NOTARIO PUBLICO 17 DEL DISTRITO DE TLALNEPANTLA ESTADO DE MEXICO (seal) INSCRITA EN LA DIRECCION GENERAL DEL REGISTRO PUBLICO DE COMERCIO EN EL FOLIO MERCANTIL NUMERO: 150313 DERECHOS: $675.00 REG EN CAJA: 207084 PTDA: 3341 DE FECHA: 22-3-2000 EN MEXICO, D.F., A 17 DE ABRIL DEL 2000 REGISTRADOR LIC. J. SILVIA VIDALS NEGRETE (seal) Licenciado Hernando Castellanos Ruiseco, Director de Comercio, Personas y Morales y Bienes Muebles de la Direccion General del Registro Publico de la Propiedad y de Comercio, con fundamento en el articulo 20 fraccion IV del Reglamento Interior de la Administracion Publica del Distrito Federal y al Acuerdo delegatorio de facultades publicado en la Gaceta Oficial del Distrito Federal de fecha 19 de diciembre de 1997. (seal) 24 REDAY, S.A. DE C.V. ASAMBLEA GENERAL EXTRAORDINARIA DE ACCIONISTAS 30 DE NOVIEMBRE DE 1999 En la Ciudad de Mexico, Distrito Federal, siendo las 14:00 horas del dia 30 de noviembre de 1999, se reunieron en el domicilio social de la Sociedad, los accionistas y representantes de accionistas de Reday, S.A. de C.V., que se senalan en la Lista de Asistencia que, firmada por el Presidente, Secretario y Comisario, se adjunta a la presente Acta, con el objeto de celebrar la Asamblea General Extraordinaria de Accionistas. Por designacion unanime de los presentes fungio como Presidente de la Asamblea el senor Eugenio Lopez Barrios. Actuo como Secretario de la misma, el Secretario del Consejo de Administracion de la Sociedad, senor Alberto Mena Adame. El Presidente designo Escrutador al Sr. Jose Ernesto Becerril Miro, quien, despues de aceptar el cargo, examino el Libro de Registro de Accionistas de la Sociedad y la Lista de Asistencia, con base en lo cual hizo constar que estuvieron presentes o debidamente representados en la Asamblea, los accionistas tenedores de 10,000 acciones comunes de la Serie A y 25,202,154 de la Serie B, que representan el 100.00% del capital social suscrito y pagado de Reday, S.A. de C.V. a la fecha de la presente Asamblea. El Presidente, con base en la certificacion del Escrutador y con fundamento en lo establecido por el Articulo 188 de la Ley General de Sociedades Mercantiles y en el Articulo Vigesimo Noveno de los estatutos sociales, declaro legalmente instalada la Asamblea General Extraordinaria, en virtud de estar presentes o debidamente representados los accionistas tenedores de acciones comunes representativas del 100.00% del capital social. Acto seguido, el Presidente sometio a la consideracion de los accionistas el siguiente: ORDEN DEL DIA I. Propuesta respecto de la fusion de la Sociedad, como fusionante, con Distribuidora Venus, S.A. de C.V., como fusionada; discusion y, en su caso, aprobacion del balance general de la Sociedad al 31 de octubre de 1999, con base en el cual se pretende llevar a cabo la fusion; 25 2 discusion y, en su caso, aprobacion del convenio de fusion que se celebrara con Distribuidora Venus, S.A. de C.V.; y discusion y, en su caso, aprobacion de la propuesta relativa a que la Sociedad pacte expresamente pagar a su vencimiento las deudas de la sociedad fusionada, resoluciones al respecto. II. Propuesta de aumento del capital de la Sociedad como consecuencia de la fusion de la Sociedad con Distribuidora Venus, S.A. de C.V.; resoluciones al respecto. III. Propuesta de cambio de Denominacion como consecuencia de la fusion de la Sociedad con Distribuidora Venus, S.A. de C.V.; resoluciones al respecto. IV. Propuesta de nombramiento de delegados especiales; resoluciones al respecto. Los accionistas, por unanimidad de votos, aprobaron tanto la declaracion del Presidente como el Orden del Dia de la Asamblea Extraordinaria, cuyos puntos procedieron a desahogar como sigue: I. En relacion con el primer punto del Orden del Dia, el Presidente senalo las diversas razones que hacen conveniente el que la sociedad se fusione con Distribuidora Venus, S.A. de C.V., subsistiendo Reday, S.A. de C.V., como sociedad fusionante y extinguiendose Distribuidora Venus, S.A. de C.V., como sociedad fusionada. El Presidente senalo que en caso de aprobarse la fusion, esta se llevaria a cabo con base en las cifras que muestran los balances generales de cada una de las sociedades a fusionarse al 31 de octubre de 1999, mismos que los accionistas recibieron con anterioridad para su detallado analisis. A continuacion, el Presidente se refirio a los acuerdos de fusion contenidos en el Convenio de Fusion que celebraron anteriormente Distribuidora Venus, S.A. de C.V., como sociedad fusionada, y Reday, S.A. de C.V. como sociedad fusionante, cuya validez y efectos se encuentran sujetos, entre otros, a que la Asamblea General Extraordinaria de Accionistas de Distribuidora Venus, S.A. de C.V., asi como la presente Asamblea los apruebe. Acto seguido, el Presidente solicito al Secretario procediera a dar lectura al Convenio de Fusion celebrado por la Sociedad. 26 3 Una vez escuchado lo manifestado por el Presidente, de haber analizado detenidamente los balances generales de cada sociedad y el Convenio de Fusion celebrado por la sociedad y despues de que los accionistas formularon todas las preguntas que consideraron necesarias, la Asamblea Extraordinaria, por unanimidad de votos, adopto las siguientes: RESOLUCIONES "1. Se tiene por presentado y se aprueba en sus terminos el balance general de la Sociedad al 31 de octubre de 1999, mismo que servira de base para llevar a cabo la fusion a que se refieren las resoluciones siguientes. Agreguese un ejemplar de dicho balance al expediente de la presente Acta". "2. Se aprueba expresamente en este acto el Convenio de Fusion celebrado en esta misma fecha entre la Sociedad y Distribuidora Venus, S.A. de C.V., en los terminos del cual debera llevarse a cabo la fusion entre dichas sociedades, subsistiendo Reday, S.A. de C.V. como sociedad fusionante y extinguiendose Distribuidora Venus, S.A. de C.V. como sociedad fusionada. En consecuencia, se acuerda y aprueba expresamente en este acto la fusion antes mencionada, de conformidad con el Convenio de Fusion, el cual se transcribe en su integridad a continuacion: "CONVENIO DE FUSION QUE CELEBRAN POR UNA PARTE, COMO SOCIEDAD FUSIONANTE, REDAY, S.A. DE C.V. (EN LO SUCESIVO DENOMINADA COMO "REDAY"), REPRESENTADA POR EL SENOR ERNESTO BECERRIL MIRO Y, POR LA OTRA, COMO SOCIEDAD FUSIONADA, DISTRIBUIDORA VENUS, S.A. DE C.V. (EN LO SUCESIVO DENOMINADA COMO "DISTRIBUIDORA"), REPRESENTADA POR EL SENOR EUGENIO LOPEZ BARRIOS Y EL SENOR ALBERTO MENA ADAME, AL TENOR DE LAS SIGUIENTES DECLARACIONES Y CLAUSULAS: DECLARACIONES I. Declara "REDAY", a traves de su representante: 27 4 a) Que es una sociedad anonima de capital variable de nacionalidad mexicana, debidamente constituida de conformidad con la Ley General de Sociedades Mercantiles, segun consta en la Escritura publica No. 29,607, otorgada el 2 de enero de 1991, ante la fe del licenciado Roberto Nunez y Bandera, Notario Publico No. 1 del Distrito Federal e inscrita en el Registro Publico de Comercio del Distrito Federal, bajo el folio mercantil No. 150,313. b) Que a la fecha del presente Convenio su capital social asciende a la suma de $25,212,154.00 (VEINTICINCO MILLONES DOSCIENTOS DOCE MIL CIENTO CINCUENTA Y CUATRO PESOS 00/10 M.N.) representado por 10,000 acciones ordinarias, nominativas Serie "A" y 25,202,154 acciones ordinarias, nominativas Serie "B" con valor nominal de $1.00 M.N.(UNO PESO 00/100 M.N.) cada una. c) Que esta interesada en que, sujeto a la aprobacion del presente Convenio por su Asamblea General Extraordinaria de Accionistas y por la Asamblea General Extraordinaria de Accionistas de "DISTRIBUIDORA" que al efecto se celebren, se acuerde la fusion de DISTRIBUIDORA en REDAY, subsistiendo esta ultima como sociedad fusionante y extinguiendose DISTRIBUIDORA como sociedad fusionada. d) Que su representante tiene facultades suficientes para la celebracion de este acto, mismas que no le han sido revocadas o modificadas en forma alguna. II. Declara DISTRIBUIDORA, a traves de sus representantes: a) Ser una sociedad anonima de capital variable de nacionalidad mexicana, debidamente constituida de conformidad con la Ley General de Sociedades Mercantiles, segun consta en la Escritura Publica No. 29,610, otorgada el 2 de enero de 1991, ante la fe del licenciado Roberto Nunez y Bandera Notario Publico No. 1 del Distrito Federal, e inscrita en el Registro Publico de Comercio del Distrito Federal bajo el folio mercantil No. 152539. b) Que a la fecha del presente Convenio su capital social asciende a la cantidad de $10,000.00 (DIEZ MIL PESOS 00/100 M.N.), representado por 10,000 acciones ordinarias, 28 5 nominativas Serie "A" con valor nominal de $1.00 (UN PESO 00/100 M.N.) cada una. c) Que esta interesada en que, sujeto a la aprobacion del presente Convenio por su Asamblea General Extraordinaria de Accionistas y por la Asamblea General Extraordinaria de Accionistas de REDAY se acuerde la fusion de DISTRIBUIDORA en REDAY, subsistiendo REDAY como sociedad fusionante y extinguiendose DISTRIBUIDORA como sociedad fusionada. d) Que sus representantes tienen facultades suficientes para la celebracion de este acto, mismas que no les han sido revocadas ni modificadas en forma alguna. De conformidad con las Declaraciones que anteceden, las partes convienen en otorgar las siguientes CLAUSULAS PRIMERA. REDAY y DISTRIBUIDORA convienen en celebrar cada una de ellas una Asamblea General Extraordinaria de Accionistas, a efecto de que se someta a la consideracion de las mismas la aprobacion del presente Convenio de Fusion y, por lo tanto, acuerden expresamente la fusion de DISTRIBUIDORA en REDAY, subsistiendo REDAY con caracter de fusionante y extinguiendose DISTRIBUIDORA con caracter de fusionada. SEGUNDA. La celebracion de las Asambleas Generales Extraordinarias de Accionistas de REDAY y DISTRIBUIDORA a que se refiere la Clausula anterior deberan llevarse a cabo a mas tardar el 30 de noviembre de 1999. TERCERA. La fusion surtira plenos efectos entre las partes a partir del dia en que se celebren las Asambleas Generales Extraordinarias de Accionistas de REDAY y de DISTRIBUIDORA que acuerden la fusion y, ante terceros, surtira plenos efectos a partir de la fecha en que queden inscritos los acuerdos de fusion en el Registro Publico de la Propiedad y del Comercio del Distrito Federal en virtud de que las sociedades a fusionarse acuerdan pagar todos los pasivos y deudas que tuvieran a su cargo a favor de acreedores que no hubiesen consentido la fusion. 29 6 CUARTA. Las cifras que serviran de base para la fusion, sujeto a la aprobacion de las Asambleas de Accionistas antes senaladas, son las que se reflejan en los balances de REDAY y de DISTRIBUIDORA al 31 de octubre de 1999. QUINTA. Como consecuencia de la fusion, y una vez que esta haya surtido sus efectos entre las partes, todos los activos, acciones y derechos, asi como todos los pasivos, obligaciones y responsabilidades de cualquier indole y, en general, el patrimonio de DISTRIBUIDORA sin reserva ni limitacion alguna, se transmitira a titulo universal a REDAY como sociedad fusionante y, por lo mismo, REDAY hara suyos y asumira en su totalidad los pasivos y obligaciones de cualquier indole a cargo de DISTRIBUIDORA, quedando obligada expresamente al pago de los mismos; en la inteligencia de que aquellos pasivos y correlativos derechos que existan entre las partes de este Convenio (si los hubieran), quedaran extinguidos por confusion al consolidarse estos en REDAY como consecuencia de la fusion. SEXTA. Como consecuencia de la fusion de DISTRIBUIDORA en REDAY, el capital social de REDAY en su parte variable se incrementara en la cantidad de $10,000.00 (DIEZ MIL PESOS 00/100 M.N.), con lo cual el monto del capital social de REDAY ascendera al surtir efectos la fusion entre las partes, a la cantidad de $25,222,154.00 (VEINTICINCO MILLONES DOSCIENTOS VEINTIDOS MIL CIENTO CINCUENTA Y CUATRO PESOS 00/100 M.N.). Considerando que los accionistas de REDAY tambien son los accionistas de CONSULTORIA, al surtir efectos la fusion entre las partes los titulares de acciones de REDAY recibiran por cada accion Serie A de DISTRIBUIDORA de que son titulares, 1 (una) accion (es) Serie B de REDAY. SEPTIMA. Con motivo de la fusion no se realizara cambio alguno en la integracion de los organos de administracion y de vigilancia de REDAY. OCTAVA. En cumplimiento de lo dispuesto por el Articulo 223 de la Ley General de Sociedades Mercantiles, inmediatamente despues de celebradas las Asambleas Extraordinarias de Accionistas previstas en la Clausula Primera, se publicaran en el periodico oficial del domicilio 30 7 de las sociedades, los acuerdos de fusion materia del presente Convenio, asi como los ultimos balances generales de las dos sociedades aprobadas por las Asambleas que ratifiquen la fusion, al igual que el sistema que DISTRIBUIDORA utilizara para la extincion de sus pasivos. Ademas, una vez aprobado el presente Convenio de Fusion, y acordada la fusion por las Asambleas Extraordinarias de Accionistas a que se refiere la Clausula Primera, se procedera de inmediato a inscribir en el Registro Publico de la Propiedad y del Comercio del Distrito Federal, los acuerdos de fusion tomados por dichas Asambleas. NOVENA. En todo lo no expresamente previsto en el presente Convenio se regira por las disposiciones de la Ley General de Sociedades Mercantiles y supletoriamente por las disposiciones del Codigo de Comercio y del Codigo Civil para el Distrito Federal. DECIMA. Para todo lo relacionado con la interpretacion, cumplimiento y ejecucion del presente Convenio, las partes se someten expresamente a la jurisdiccion de los tribunales competentes de Mexico, Distrito Federal, renunciando expresamente a cualquier otro fuero que pudiera corresponderles por razon de sus domicilios presentes o futuros o por cualquier otra causa. El presente Convenio se firma en dos ejemplares en la Ciudad de Mexico, Distrito Federal, el dia 30 del mes de noviembre de 1999. REDAY, S.A. DE C.V. DISTRIBUIDORA VENUS, S.A. DE C.V. Senor Ernesto Becerril Miro Senor Eugenio Lopez Barrios Representante Legal Senor Alberto Mena Adame "Rubrica" Representantes Legales "Rubricas" "3. Se hace expresamente constar que, una vez que la fusion de Reday, S.A. de C.V. con Distribuidora Venus, S.A. de C.V., haya sido aprobada por la Asamblea General Extraordinaria de Accionistas de Distribuidora Venus, 31 8 S.A. de C.V. y de Reday, S.A. de C.V., en los terminos acordados en el Convenio de Fusion, esta surtira efectos entre las partes a partir de la fecha de la presente Asamblea y, ante terceros, la fusion surtira plenos efectos a partir de la fecha en que queden inscritos en el Registro Publico de Comercio del Distrito Federal los acuerdos de fusion tomados por las Asambleas Generales Extraordinarias de Accionistas de las sociedades a fusionarse, en virtud de lo que se establece en la Resolucion numero 4 siguiente." "4. Para que la fusion surta efectos frente a terceros a partir de la fecha de inscripcion de los acuerdos respectivos en el Registro Publico de la Propiedad y del Comercio del Distrito Federal, las sociedades partes de la fusion acuerdan pagar en forma anticipada todos aquellos creditos cuyos acreedores no hubieren dado su consentimiento." "5. Se hace constar expresamente que, como consecuencia de la fusion, todos los activos, acciones y derechos, asi como todos los pasivos, obligaciones y responsabilidades de cualquier indole y, en general todo el patrimonio de Distribuidora Venus, S.A. de C.V. se transmite sin reserva ni limitacion y a titulo universal a Reday, S.A. de C.V., en su caracter de sociedad fusionante, a partir de la fecha en que la fusion surta efectos. En consecuencia, Reday, S.A. de C.V. hara suyos y asumira en su totalidad a partir de la fecha en que surta efectos, los pasivos y obligaciones de cualquier indole que existieren a cargo de Distribuidora Venus, S.A. de C.V., quedando expresamente obligada como causahabiente universal al pago de los mismos; en la inteligencia de que aquellos pasivos y correlativos derechos que existieren entre las sociedades que se fusionan (si los hubiere), quedan a partir de la presente fecha extinguidos por confusion, al haberse consolidado estos en Reday, S.A. de C.V." "6. Se hace, asimismo, expresamente constar que, como consecuencia de los acuerdos contenidos en el Convenio de Fusion, los accionistas de Reday S.A. de C.V. 32 9 recibiran por cada accion Serie A de la que son titulares en Distribuidora Venus, S.A. de C.V., 1 (una) accion (es) Serie B de Reday, S.A. de C.V." II. En relacion con el segundo punto del Orden del Dia de la Asamblea Extraordinaria, el Presidente explico a los senores accionistas que como consecuencia de la fusion de Reday, S.A. de C.V. con Distribuidora Venus, S.A. de C.V., una vez que esta surta efectos, se aumentaria el capital social de la Sociedad en la cantidad de $10,000.00 (DIEZ MIL PESOS 00/100 M.N.) Una vez escuchado lo manifestado por el Presidente, y despues de que los accionistas formularon todas las preguntas que consideraron necesarias, la Asamblea, por unanimidad de votos, adopto la siguiente RESOLUCION "1. Se acuerda aumentar el capital social de Reday, S.A. de C.V., con efectos a partir de la fecha de eficacia de la fusion, en la cantidad de $10,000.00 (DIEZ MIL PESOS 00/100 M.N.), como consecuencia de la fusion con Distribuidora Venus, S.A. de C.V., por lo que el capital social, en su parte fija, se mantendra en la cantidad de $10,000.00 (DIEZ MIL PESOS 00/100), y en su parte variable se aumentara a la cantidad de $25,212,154 (VEINTICINCO MILLONES DOSCIENTOS DOCE MIL CIENTO CINCUENTA Y CUATRO PESOS 00/100), quedando el mismo en $25,222,154 (VEINTICINCO MILLONES DOSCIENTOS VEINTIDOS MIL CIENTO CINCUENTA Y CUATRO PESOS 00/100 M.N.), representado por 10,000 (DIEZ MIL) acciones Serie A y 25,212,154 (VEINTICINCO MILLONES DOSCIENTOS DOCE MIL CIENTO CINCUENTA Y CUATRO) acciones Serie B, por lo que el capital social de Reday, S.A. de C.V., quedara distribuido de la siguiente forma: ACCIONISTAS ACCIONES SERIE "A" SERIE "B" Jafra Cosmetics 9,999 25,211,153 International, S.A 33 10 De C.V. Eugenio Lopez Barrios 1 1,001 Total: 10,000 25,212,154" "2. Se acuerda la emision de titulos definitivos representativos de las acciones Serie B correspondientes al aumento de capital, los cuales deberan cumplir con los requisitos establecidos en los estatutos sociales." III. En relacion con el tercer punto del Orden del Dia de la Asamblea Extraordinaria, el Presidente explico a los senores accionistas que como consecuencia de la Fusion de Reday, S.A. de C.V., con Distribuidora Venus, S.A. de C.V., una vez que esta surta efectos a partir del 1(degree)de diciembre de 1999, se modificara su denominacion y se reformara el Articulo Primero de sus Estatutos Sociales para adecuar tal cambio. Indico que la reforma propuesta estaba plasmada en el texto de los nuevos estatutos, distribuido previamente entre los accionistas para su analisis. Una vez escuchado lo manifestado por el Presidente y haber analizado detenidamente tomo las siguientes: RESOLUCIONES "1. Se aprueba el cambio de denominacion de REDAY a "DISTRIBUIDORA VENUS", segun permiso otorgado por la Secretaria de Relaciones Exteriores." "2. Se aprueba la reforma del Articulo Primero de los Estatutos Sociales con efectos a partir del 1(degree) de diciembre de 1999, para que en lo sucesivo quede redactado en el siguiente termino: CAPITULO 1 ARTICULO PRIMERO.- La denominacion de la Sociedad es "DISTRIBUIDORA VENUS", denominacion que ira siempre seguida 34 11 de las palabras "SOCIEDAD ANONIMA DE CAPITAL VARIABLE" o de sus abreviaturas "S.A. DE C.V."" IV. En relacion con el ultimo punto del Orden del Dia de la Asamblea Extraordinaria, los Accionistas por unanimidad de votos, adoptaron la siguiente: RESOLUCION "1. Se designan como delegados de esta Asamblea a los senores Eugenio Lopez Barrios, Alberto Mena Adame y Ernesto Becerril Miro, o a las personas que ellos designen, a fin de que, individual o conjuntamente: a) Concurran ante el notario publico de su eleccion para protocolizar la presente acta, total o parcialmente. b) Para que expidan, de ser necesario, los certificados de las resoluciones adoptadas en esta Asamblea. c) Lleven a cabo las publicaciones que sean necesarias conforme a la ley. d) Realicen acciones necesarias para inscribir el testimonio respectivo ante el registro Publico de la propiedad y del Comercio del Distrito Federal, asi como todos los actos juridicos y materiales necesarios para dar cumplimiento a estas resoluciones." Acto seguido, se suspendio la Asamblea por el tiempo necesario para redactar la presente Acta la cual una vez leida, fue aprobada por los presentes y firmada por el Presidente, el Secretario y el Comisario. Se dio por terminada la Asamblea a las 15:00 horas del dia de su fecha. 35 12 - ----------------------- --------------------- Eugenio Lopez Barrios Alberto Mena Adame Presidente Secretario ------------------------------ Ernesto Valenzuela Espinoza Comisario 36 13 LISTA DE ASISTENCIA ACCIONISTA ACCIONES - ---------- -------- SERIE A SERIE B JAFRA COSMETICS INTERNATIONAL, 9,999 25,201,154 S.A. de C.V., representada por El senor Ernesto Becerril Miro - --------------------------- Eugenio Lopez Barrios 1 1,000 Por su propio derecho - --------------------------- TOTAL: 10,000 25,202,154 El 100.00% de las acciones en que se divide el capital de la Sociedad se hallaban debidamente representadas. - --------------------------- ------------------------ Senor Eugenio Lopez Barrios Senor Alberto Mena Adame Presidente Secretario - --------------------------- ------------------------ Senor Ernesto Becerril Miro Senor Ernesto Valenzuela Escrutador Espinoza Comisario Mexico D.F. a 30 de noviembre de 1999. 37 JORGE ANTONIO FRANCOZ GARATE NOTARY PUBLIC 17 OF THE DISTRICT OF TLALNEPANTLA STATE OF MEXICO - - - DEED NUMBER THIRTY-THOUSAND THREE-HUNDRED FORTY-EIGHT - - - - - - - - - - - - - - - VOLUME NUMBER EIGHT-HUNDRED FOUR. - - - - - - - - - - - - - - - In Naucalpan de Juarez, State of Mexico, at the ten days of January year two-thousand, I, lawyer JORGE ANTONIO FRANCOZ GARATE, Notary Public number Seventeen, of the Judicial District of Tlalnepantla, State of Mexico and Notary of the Federal Real Estate Patrimony, acting in the Ordinary Protocol at my charge, I witness that Mr. JOSE ERNESTO BECERRIL MIRO, presents himself before me in his character of Special Delegate of the Act of the General Extraordinary Shareholders Meeting of the company named "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, celebrated the thirty of November nineteen ninety-nine, in which it was agreed among other points THE CHANGE OF DENOMINATION OF THE COMPANY, and requests the subscribed Notary to OFFICIALLY REGISTER, said act partially, according to the following background and the following clauses: - - - - - - - - - - - - - - - - - - - - - B A C K G R O U N D - - - - - - - - - - - - - - The one who presents before me declares with the representation he manifests and under protest of speaking truth: - - - - - - - - - - - - - - - I.- CONSTITUTION OF THE COMPANY.- That the public deed number twenty-nine thousand six-hundred seven, dated two of January nineteen ninety-one, granted before the faith of lawyer Roberto Nunez y Bandera, Notary Public number One, of Mexico, Federal District, which first testimony was duly INSCRIBED in the Public Registry of Commerce of Mexico, Federal District, under the Mercantile Folio number ONE-HUNDRED FIFTY-THOUSAND THREE-HUNDRED THIRTEEN, dated twenty-four of October nineteen ninety-one, with the previous permit granted by the Ministry of Foreign Affairs, number zero forty-seven thousand forty-three, File number zero, nine dash fifty-three thousand seven-hundred fifty-two dash ninety, it was constituted the mercantile society denominated "Reday", Sociedad Anonima de Capital Variable, with duration of ninety-nine years, social address in Mexico, Federal District, Capital Stock of ten thousand pesos, national currency, clause of Admission of Foreigners and the social purpose that is mentioned ahead. - - - - - - - - - - - - - - - - - - - - II.- INCREASES OF CAPITAL STOCK IN ITS VARIABLE PART.- That by several deeds the capital stock of the company was increased in the variable part - - - - - - - - - - - - - - - - - - - - - - - - - - - - 38 - 2 - being that by public deed number thirty-one thousand six-hundred ninety-six, dated fourteen of January nineteen ninety-two, granted before the faith of lawyer Roberto Nunez y Bandera, Notary Public number One, of Mexico, Federal District, it was partially officially registered the Act of the General Extraordinary Meeting celebrated on the twenty of September nineteen ninety-one, in which it was agreed the increase of the Capital Stock in its variable part in the amount of fifteen million pesos, national currency, remaining with a capital stock in its variable part in the amount of twenty-five million one-hundred fifty-two thousand one-hundred fifty-four pesos, national currency. - - - - - - - - - - - - - - - III.- DESIGNATION OF THE LEGAL MANAGER AND GRANTING OF POWERS.- That by public deed number thirty-four thousand forty-three dated eleven of March nineteen ninety-three, granted before the faith of lawyer Roberto Nunez y Bandera, Notary Public number One, of Mexico, Federal District, which first testimony was duly INSCRIBED in the Public Registry of Property and Commerce and Mexico, Federal District, under the Mercantile Folio number ONE-HUNDRED FIFTY-THOUSAND THREE-HUNDRED THIRTEEN, dated two of July nineteen ninety-three, it was evidenced the partial officially registration of one act of the General Ordinary Annual Meeting, celebrated the twenty-nine of September nineteen ninety-two, in which it was agreed the designation of Mr. Gerardo Mariano Mendoza Bazan, as Legal Manager of the Company. - - - - - - - - - - - - - - - - - - - - - - - IV.- NOMINATION OF THE SOLE ADMINISTRATOR AND OFFICIAL REGISTRATION OF THE NEW SOCIAL BY-LAWS.- - That by public deed number three-thousand four-hundred forty-nine, dated two of May nineteen ninety-five, granted before the faith of lawyer Carlos Antonio Rea Fiel, Notary Public number one-hundred eighty-seven, of Mexico, Federal District, which first testimony was duly INSCRIBED in the Public Registry of Property and Commerce of Mexico, Federal District, under the Mercantile Folio number ONE HUNDRED FIFTY-THOUSAND THREE-HUNDRED THIRTEEN, it was partially officially registered the Act of the General Ordinary and Extraordinary Annual Meeting celebrated the fist of August nineteen ninety-four, in which it was agreed to nominate as Sole Administrator of the Company Mr. Julio Pedro Cepeda Rebollo, and the by-laws of the company were fully modified. - - - - - - - - - - - - 39 - 3 - - - - From said deed I reproduce in the conducing matter the following: -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ARTICLE III.- The company will have as purpose: 1) To acquire, establish, dispose of, give or take in lease or sublease, in commodatum or sub-commodatum, administer, operate, or own in any way permitted by the law factories, industrial plants, workshops, laboratories, storehouses or warehouses, offices, stores and other establishments and real estate with the purpose of granting freely or in an onerous manner its use and enjoyment to third parties in virtue of leasing, sub-leasing, commodatum or sub-commodatum contracts, or any other hierarchical title: 2) To construct, build, repair, reconstruct, demolish, plan and design all type of houses, buildings, structures, factories, industrial plants, workshops, laboratories, storehouses or warehouses, offices, stores and other establishments and real estate; 3) To acquire, transfer, import, export, encumber, give or take in lease and negotiate in any way with all type of real estate; 4) To lend and receive services of building, design and advisory, as well as administrative and supervision services; 5) To render all type of technical, administrative or supervision services to commercial or industrial negotiations in Mexico or abroad and receive such services; 6) To request, purchase, sale, give or take in use, transfer, register and acquire industrial trademarks and of services, commercial names, copyrights, patents, inventions and processes, as well as to dispose them; 7) To act as contractor, sub-contractor, agent or representative and designate sub-contractors, agents or representatives; 8) To acquire shares, participations, parts of interest and obligations of all type of enterprises or companies, civil or mercantile, and be part of them; 9) To represent or be agent or commission agent of commercial or industrial negotiations national or foreign; 10) To give or take money in loans with or without guaranty, to issue bonuses, values, mortgages, obligations and any other credit titles with the intervention of the institutions established by the law and to grant bonds or guaranties of any type with respect to the obligations contracted or the titles issued or accepted by the company itself or by third parties; 11) To issue, subscribe, accept and negotiate in any way credit titles; 12) To execute all type of contracts permitted by the law. - - - - - - - - - - - - - - - - - - - - - - - V.-- REVOCATION OF POWERS AND GRANTING OF GENERAL POWERS.- That by Public Deed number three-thousand six-hundred twenty-nine, volume one-hundred six, dated twenty-nine of August nineteen - - - - - - - - - - 40 - 4 - ninety-five, granted before the faith of lawyer Carlos Antonio Rea Field, Notary Public number One-hundred eighty-seven, of Mexico, Federal District, which first testimony was duly INSCRIBED in the Public Registry of Property and Commerce of Mexico, Federal District, under the Mercantile Folio number ONE-HUNDRED FIFTY-THOUSAND THREE-HUNDRED THIRTEEN, it was evidenced the official registry of the act of the General Annual Ordinary and Extraordinary Meeting, of the four of May nineteen ninety-five, in which it was agreed among other points the revocation of powers and the granting of general powers. - - - - - - - - - - - VI.- DESIGNATION OF THE DIRECTOR OF FINANCE.- - That by public deed number twenty-six thousand eight-hundred forty-two, volume number six-hundred eighty-seven, dated eighteen of September nineteen ninety-seven, granted before the faith of the undersigned Notary, which first testimony is duly INSCRIBED in the Public registry of Commerce of the Federal District, under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, dated seven of January nineteen ninety-eight, the Company officially registered the Act of the Meeting in which it was agreed the designation of Mr. Ernesto Omar Cavassuto, as Director of Finance, and consequently, the granting of powers of him. - - - - - - - - - - - VII.- RENUNCIATION OF THE DIRECTOR GENERAL AND NOMINATION OF THE PRESIDENT OF THE COMPANY.-- That by public deed number twenty-six thousand eight-hundred seventy-five, volume number six-hundred eighty-eight, dated twenty-four of September nineteen ninety-seven, granted before the faith of the subscribed Notary, which first testimony is duly INSCRIBED in the Public Registry of Commerce of the Federal District, under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, the Company officially registered the Act of the Meeting in which it was agreed the renunciation of Mr. Alfredo Munda Tabusso, to the charge of Director General of the Company, same who was designated as President of the same, and the granting of powers in his favor. - - - - - - - - VIII.- RENUNCIATION OF THE DIRECTOR OF FINANCE OF THE COMPANY AND DESIGNATION OF THE DIRECTOR GENERAL OF THE SAME.- - That by public deed number twenty-six thousand eight-hundred seventy-six, volume number six-hundred eighty-eight, dated twenty-four of September nineteen ninety-seven, which first testimony is duly - - - - - - - - - - - - - - - 41 - 5 - INSCRIBED in the Public Registry of Commerce of the Federal District, under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, dated thirteen of January nineteen ninety-eight, the Company officially registered the Act of the Meeting in which it was agreed the renunciation of Mr. Michael Anthony Digregorio Dimaio, at the charge of Director of Finance of the Company, same who was designated Director General of the same, and the granting of powers in his favor. - - - - - - - - - - - - - - IX.- REVOCATION OF POWERS, DESIGNATION OF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY AND RATIFICATION OF COMMISSARY AND SUBSTITUTE COMMISSARY OF THE SAME.- - That by public deed number twenty-six thousand eight-hundred seventy-seven, volume number six-hundred eighty-eight, dated twenty-four of September nineteen ninety-seven, which first testimony is duly INSCRIBED in the Public Registry of Commerce of the Federal District, under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, dated thirteen of January nineteen ninety-eight, the Company officially registered the Act of the Meeting it which it was agreed the revocation of powers granted in favor of Mr. Dario Macias Ruelas, the designation of the members of the Board of Directors of the Company, and the Ratification of the nomination of Messrs. Fernando Holgin Maillard, as Commissary and Alfonso Galan Jimenez de la Cuesta, as Substitute Commissary of the Company. - - - - - - - - - - - - - - - - - - - - - - - - - X.- REPORT OF THE FINANCIAL STATEMENTS PRESENTED BY THE BOARD OF DIRECTORS AND COMMISSARY OF THE COMPANY, WITH RESPECT TO THE FISCAL YEARS ENDED THE THIRTY-ONE OF DECEMBER NINETEEN NINETY-SIX, AND APPLICATION OF THE OBTAINED STATEMENTS.- - That by pubic deed number twenty-seven thousand three-hundred ten, volume number seven-hundred six, dated eighteen of February nineteen ninety-eight, granted before the faith of the undersigned Notary, which first testimony is duly INSCRIBED in the Public Registry of Commerce of the Federal District under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, dated twenty-two of April nineteen ninety-eight, the Company officially registered the Act of the Meeting in which it was agreed the report and approval of the financial statements presented by the Board of Directors and Commissary of the Company, with respect to the - - - - - - - - - - - - - - - - - - - - - - 42 - 6 - fiscal years ended the thirty-one of December nineteen ninety-six, and the application of the results obtained. - - - - - - - - - - - - - - - - - - - XI.- - DESIGNATION OF MRS. DELIA MARGARITA CHAVEZ RODRIGUEZ AS DIRECTOR OF INDUSTRIAL RELATIONS AND GRANTING OF POWERS IN HER FAVOR.- - That by public deed number twenty-seven thousand three-hundred twelve, volume number seven-hundred six, dated eighteen of February nineteen ninety-eight, granted before the faith of the subscribed Notary, which first testimony is duly INSCRIBED in the Public Registry of Commerce of the Federal District under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, dated twenty-two of April nineteen ninety-five, the Company officially registered the Act of the Meeting in which it was agreed the designation of Mrs. Delia Margarita Chavez Rodriguez, as Director of Industrial Relations, and granting of powers in her favor. - - - - XII.- DESIGNATION OF THE NEW BOARD OF DIRECTORS, COMMISSARY AND SUBSTITUTE COMMISARY, RENUNCIATION OF MR. SERGIO RENE APARICIO GONZALEZ, TO THE CHARGE OF INDUSTRIAL RELATIONS, AND THE REVOCATION OF POWERS GRANTED IN HIS FAVOR. - - That by public deed number twenty-seven thousand three-hundred eleven, volume number seven-hundred six, dated eighteen of February nineteen ninety-eight, granted before the faith of the subscribed Notary, which first testimony is duly INSCRIBED in the Public Registry of Commerce of the Federal District under the Mercantile Folio number ONE FIVE ZERO THREE ONE THREE, dated twenty-two of April nineteen ninety-eight, the Company officially registered the Act of the Meeting in which it was agreed the designation of the new Board of Directors, Commissary and Substitute Commissary, the renunciation of Mr. Sergio Rene Aparicio Gonzalez, to the charge of Director of Industrial Relations and the revocation of powers granted in his favor. - - - - - - - - - XIII.- GRANTING OF SPECIAL POWER.- - That by public deed number twenty-seven thousand five-hundred eighty, volume number seven-hundred fourteen, dated six of April nineteen ninety-eight, granted before the faith of the subscribed Notary, which first testimony is in the procedure of inscription in the corresponding Public Registry of Commerce, it was officially registered the Act of the General Ordinary Shareholders Meeting of the four of February nineteen - - - - - - - - - - - - - - - - 43 - 7 - ninety-eight, in which it was agreed the granting of powers in favor of Messrs. Alfredo Munda Tabusso, Ernesto Omar Cavassuto, Alfredo Munda Tabusso, Ernesto Omar Cavassut, Alberto Mena Adame, Michael Anthony Digregorio Dimaio, and Delia Margarita Chavez Rodriguez. - - - - - - - - - - XIV.- GRANTING OF POWERS. - - That by public deed number twenty-nine thousand seven-hundred thirty-one, volume number seven-hundred eighty-three, dated nineteen of August nineteen ninety-nine, granted before the faith of the subscribed Notary, which first testimony is in the procedure of inscription in the corresponding Public Registry of Commerce, it was officially registered the Act of the General Ordinary Annual Shareholders of the Company, celebrated the first of September nineteen ninety-eight, in which it was agreed among other points the granting of powers. - - - - - - - - - - - - - - - - - - - - - - - - - - - - XV.- MERGE.- That by public deed number thirty-thousand two-hundred fifty-four, dated sixteen of December nineteen ninety-nine, granted before the subscribed Notary, not yet inscribed in the corresponding Public Registry of Commerce due to its recent date, it was evidenced the official registry of the Act of the General Extraordinary Shareholders Meeting of "CONSULTORIA JAFRA", SOCIEDAD ANONIMA DE CAPITAL VARIABLE as merged company and "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, as merging company disappearing the first one and the latter subsisting increasing its capital stock in the variable capital in the amount of ten-thousand pesos, national currency, the capital stock remaining in twenty-five million two-hundred twenty-two thousand one-hundred fifty-four pesos, national currency. -- - - - - - - - - - - - - - - - - - XVI.- MERGE.- That by public deed number thirty-thousand two- hundred fifty-six, dated sixteen of December nineteen ninety-nine, granted before the Subscribed Notary, not yet inscribed in the corresponding Public Registry of Commerce due to its recent date, it was evidenced the official registry of the Act of the General Extraordinary Shareholders Meeting of the company named "DISTRIBUIDORA VENUS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE as merged company and "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, as merging company disappearing the first one and the latter subsisting. - - - - - - - - - - - - - - - - - - - - - - - XVII. - - MERGE.- That by public deed thirty-thousand two-hundred thirty-two, dated seventeen of December nineteen ninety-nine, granted before the subscribed Notary, not yet inscribed in the corresponding Public Registry - - - - - - - - - - - - - - - - - - - - - - - - - - - - 44 - 8 - due to its recent date, it was evidenced the official registry of the Act of the General Extraordinary Shareholders Meeting of the company named "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE as merging company and "DISTRIBUIDORA VENUS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, as merged company disappearing the second and subsisting the first one. - - - - - - - - - XVIII.- Mr. JOSE ERNESTO BECERRIL MIRO, declares, in his character of Special Delegate that the company he represents has not suffered any other modification in its incorporation deed. - - - - - - - - - - - - - - - - - XIX.- PERMIT OF THE MINISTRY OF FOREIGN AFFAIRS.- The one who presents before me declares that for the granting of the present deed, the Ministry of Foreign Affairs granted him the corresponding permit, same which I add to the appendix of this deed with letter "A" and that I fully transcribed as follows: - - - - - - - - - - - - - - - - - - - - - - - "" At the left superior margin a seal with the national escutcheon and the following legend: MINISTRY OF FOREIGN AFFAIRS M E X I C O.- - At the right superior margin PERMIT 09000134.- FILE 9009053752. - - FOLIO 39771. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - In attention to the request presented by C. JORGE ANTONIO FRANCOZ GARATE, in representation of REDAY S.A. DE C.V.- - - - - - - - - - - - This Ministry grants the permit to change the denomination, - - - FROM: REDAY SA DE CV. - - - - - - - - - - - - - - - - - - - - - - - - - TO: DISTRIBUIDORA VENUS SA DE CV. - - - - - - - - - - - - - - - - - - - - - Having been GRANTED to the applicant the permit to reform its social by-laws in the terms above mentioned, according to what is established by articles16 of the Law of Foreign Investment and 15 of the Regulation of the Law of Foreign Investment and the National Registry of Foreign Investments. - - - - - - - - -- - - - - - - -- - - - - - - - - - - - - - - - - The interested party, will notify the use of this permit to the Ministry of Foreign Affairs within the next six months after its issuance, according to what is established by article 18 of the Regulation of the Law of Foreign Investment and the National Registry of Foreign Investments. - - - - - - - - - - - - - - - - - - - - - - - - - 45 - 9 - - - - The above mentioned is communicated based in articles: 27 fraction I of the Political Constitution of the United Mexican States; 28 fraction V of the Organic Law of the Public Federal Administration; 15 of the Law of Foreign Investment and 13, 14 and 18 of the Regulation of the Law of Foreign Investment and of the National Registry of Foreign Investments. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This permit will be null if within the next ninety working days after the date of its granting, the interested party does not attend to grant before public notary the instrument corresponding to the constitution of the company in question, according to what is established in article 17 of the Regulation of the Law of Foreign Investment and the National Registry of Foreign Investments; likewise it is granted without prejudice of what is foreseen by article 91 of the Law of Industrial Property. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - TLATELOLCO, F.D., 5 of January 2000.- EFFECTIVE SUFFRAGE, NO REELECTION.- THE DIRECTOR OF PERMITS ART. 27 CONST. - -ONE ILLEGIBLE SIGNATURE. - - LAWYER JOSE FRANCISCO CAMPOS GARCIA ZEPEDA.- - AT THE RIGHT INFERIOR MARGIN A SEAL WITH THE NATIONAL ESCUTCHEON AND THE FOLLOWING LEGEND. - - MINISTRY OF FOREIGN AFFAIRS. - - GENERAL DIRECTION OF LEGAL AFFAIRS. - PA-2.- 2248.- - - - - - - - - - - - - -- - - - - - - - - - XX.- ACT OF THE MEETING. - - - - - - - - - - - - - - - - - - - - - - - - The one who presents before me presents to the subscribed Notary the Act of the General Extraordinary Shareholders Meeting of the Company, contained in twelve letter-size sheets written in one front duly signed, from which a copy is enclosed to the appendix of this deed with letter "B" and that by means of this instrument is officially registered and which I partially transcribe as follows. - - - - - - - - - - - - - - - - - - - Likewise, it was agreed to enclose to the present act the list of attendants of all the shareholders of the company. - - - - - """"""" - - - - - - - - - - REDAY, S.A. DE C.V. - - - - - - - - - - - - - - - - - - - - GENERAL EXTRAORDINARY SHAREHOLDERS MEETING. - - - - - - - - - - - - - - - - - - - - - - 30 of November 1999 - - - - - - - - - - - - - - - - In Mexico City, Federal District, being the 14:00 hours of the 30 of November 1999, they gathered in the social address of the company, the shareholders and representatives of the shareholders of Reday, S.A. de C.V., which are - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 46 - 10 - mentioned in the List of Attendance that, signed by the President, Secretary and Commissary, it is added to the present Act, with the purpose of celebrating the General Extraordinary Shareholders Meeting. - - - - - - - - - - - - - - - -- - - - - - - - - - - - -- - - - - - - - - - - - - By unanimous decision of the present ones he acted as President of the Meeting Mr. Eugenio Lopez Barrios. Acted as Secretary of the same, the Secretary of the Board of Directors of the Company, Mr. Alberto Mena Adame. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The President designated as Scrutinizer Mr. Jose Ernesto Becerril Miro, who after accepting the charge, examined the Registry of Shareholders of the Company and the List of Attendance, based in which he evidenced that they were present or duly represented in the Meeting, the shareholders of the 10,000 common shares of Series A and 25,202,154 of Series B, that represent the 100.00% of the subscribed and paid capital stock of Reday, S.A. de C.V., at the date of the present Meeting. - - - - - - - The President, based in the certification of the Scrutinizer and based in what is established by Article 188 of the General Law of Mercantile Societies and in Article Twenty-ninth of the social by-laws, declared the General Extraordinary Shareholders Meeting legally installed, in virtue they were present or duly represented the shareholders of common shares representative of the 100.00% of the capital stock. Next, the President submitted to the consideration of the shareholders the following: - - - - - - - - -- - - - - - - - - -- - - - - - - - - - - - - - - - - - A G E N D A - - - - - - - - - - - - - - - - - - - - - III.- Proposal of change of denomination as consequence of the merge of the Company with Distribuidora Venus, S.A. DE C.V., resolutions at this respect. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - IV.- Proposal of the nomination of special delegates; resolutions to this respect. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Shareholders by unanimity of votes, approved the declaration of the President as well as the Agenda of the Extraordinary Meeting, which points they proceed to review as follows: - - - - - - - - - - - - - - - - - - III.- In relation with the third point of the agenda of the Extraordinary Meeting, the President explained to the shareholders that as a consequence of the merge of Reday, S.A. de C.V. with Distribuidora Venus, S.A. de C.V., once this is effective beginning the first of December 1999, its denomination will be modified and Article First of its social by-laws will be reformed to adequate said change. - - - - - - - - 47 - 11 - - - - He declared that the proposed reform was stated in the text of the new by-laws, previously distributed among the shareholders for its analysis. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Once the statement of the President was listened and carefully analyzed, he took the following: - - - - - - - - - - - - - - - - - - - - - R E S O L U T I O N S - - - - - - - - - - - - - - - - - 1.- The change of denomination of Reday, to Distribuidora Venus, is approved according to the permit granted by the Ministry of Foreign Affairs. - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - 2.- The reform to Article First of the Social By-laws is approved effective the first of December 1999, so that in the future it remains in the following terms: - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - CHAPTER 1 - - - - - - - - - - - - - - - - - - - ARTICLE FIRST.- The denomination of the company is DISTRIBUIDORA VENUS, denomination that will always be followed by the words SOCIEDAD ANONIMA DE CAPITAL VARIABLE, or its abbreviation S.A. DE C.V. - - - -- - - - - IV.- In relation to the last point of the Agenda of the Extraordinary Meeting, shareholders by unanimity of votes, adopted the following: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - R E S O L U T I O N - - - - - - - - - - - - - - - - "1. They are designated as delegates of this Meeting Messrs. Eugenio Lopez Barrios, Alberto Mena Adame and Ernesto Becerril Miro, or the persons they designate, so that individually or jointly: - - - - - - - - - a) They present themselves before the notary public of their choice to officially register the present act, totally or partially. - - - - - - - - - b) to issue, if necessary, the certificates of the resolutions adopted in this Meeting. - - - - - - - - - - - - - - - - - - - - - - - - - - - c) to effect the publications that are necessary according to the Law. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - d) to effect the necessary actions to inscribe the respective testimony in the Public Registry of Property and Commerce of the Federal District, as well as all the legal and material acts necessary to accomplish these resolutions." - - - - - - - - - - - - - - - - - - - - - - - - Next, the Meeting was adjourned for the time necessary to write the present Act same which once it was read, it was approved by the attendants and signed by the President, Secretary and Commissary. - - - - - The Meeting was ended at the 15:00 hours of the day in which it was celebrated. - - - - - - - - - -- - - - - - - - - - - - - - - -- - - - - - - - - Eugenio Lopez Barrios.- - President.- - Alberto Mena Adame.- - Secretary.- - Ernesto Valenzuela Espinoza.- - Commissary.- - - - - - - - Rubrics.""""" - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 48 - 12 - - - - The one who presents before me declares that the signatures that appear in this act are authentic and correspond to the referred persons, being warned about the penalties established in the Criminal Code in Articles one-hundred fifty-seven, one-hundred sixty-eight, one-hundred sixty-nine and one-hundred seventy. - - - - - - - - - - - - - - - - - - - - - - XIX.- The one who presents before me exhibits to me in this act an issue of the Official Gazette of the Federation of the fourteen of December nineteen ninety-nine, in which in sheets one-hundred three to one-hundred six, the publication referred to in Article two-hundred twenty-three of the General Law of Mercantile Societies was made, of which I add a copy to the appendix of this instrument with letter "C". - - - - Having the above been exposed, the one who presents before me proceeds to grant the following: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PARTIAL OFFICIAL REGISTRY - - - - - - - - - - - - - - - - - - - - - - ACT OF THE GENERAL EXTRAORDINARY - - - - - - - - - - - - - - - - - - - - - - SHAREHOLDERS MEETING - - - - - - - - - - - - - - - - - - - - - - - - - - - C L A U S E S -- - - - - - - - - - - - - - - - - - - FIRST.- Mr. JOSE ERNESTO BECERRIL MIRO, in his character of Special Delegate of the Act of the General Extraordinary Shareholders Meeting of the Mercantile Society named "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, celebrated the thirty of November nineteen ninety-nine, leaves said act partially OFFICIALLY REGISTERED for all the corresponding legal effects. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - SECOND.- As consequence of the partial official registry contained in the above clause, it remains: - - - - - - - - - - - - - - - - - - - - - - - - - I.- Approved the change of denomination of the company from "REDAY", to DISTRIBUIDORA VENUS, SOCIEDAD ANONIMA DE CAPITAL VARIABLE, being modified for such purpose Article First of its social by-laws so that in the future it is written as it is mentioned in the officially registered document effective the first of December nineteen ninety-nine. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - THIRD.- The one who presents before me empowers the subscribed Notary, to make all the necessary acts to obtain the inscription of the first testimony of the deed, in the corresponding Public Registry of Commerce. - - - - - - - - - - - - - - - - - - - - - - - - - FOURTH.- The honorarium, taxes and fees originating from the granting of the present deed, will be exclusively on the account of the granting company. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - P E R S O N A L I T Y - - - - - - - - - - - - 49 - 13 - - - - Mr. JOSE ERNESTO BECERRIL MIRO, in his character of Special Delegate, credits his personality with the Act of the General Extraordinary Shareholders Meeting of the Mercantile Society named "REDAY", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, same which has been duly officially registered, and that is mentioned in point Eighteenth of this same instrument. - - - - - - - - - - - - - - - - - - - - - - -- -- - - - - - - - - - - - - - - - - I, THE NOTARY, WITNESS: - - - - - - - - - - - - I.- That I know the one who presents before me, who in my opinion has legal capacity and that for his general data he declared to be Mexican by birth, native from Mexico, Federal District, where he was born the seven of May nineteen sixty-seven, married, Lawyer, with Federal Contributors Registry "BEME dash sixty-seven zero five zero seven", with address in Boulevard Adolfo Lopez Mateos number five-hundred fifteen, Colonia Tlacopac, Mexico, Federal District. - - - - - - - - - - - - - - - - - II.- That the one who presents before me declares under protest of speaking truth that he is up-to-date in the payment of the Income Tax although he did not prove it before the subscribed Notary. - - - - - - - - - - III.- That what is related and inserted in the present deed faithfully agrees with its originals to which I remit myself and I had at sight.- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - IV.- That the one who presents before me identified himself in terms of article sixty-six of the Organic Law of Notaries of the State of Mexico in force, from said identification a copy was added to the appendix of this deed with letter "D", and also to the testimony. - - - - - - - V.- That the one who presents before me showed me the Credentials of Fiscal Identification with the respective code of the Federal Contributors Registry of the shareholders, from which I add a copy to the appendix of this deed with letter "E", this in accomplishment of what is foreseen in the eighth paragraph of Article Twenty-seven of the Fiscal Code of the Federation. - - - - - - - - - - - - - - - - - - - - - - VI.- That I read aloud the present deed to the one who presents before me, to whom I explained the value and the legal consequences of its contents, he manifested to me his agreement and approves it, ratifies it and signs it the day, month and year of its granting, date in which I, the Notary DEFINITIVELY AUTHORIZE this deed. I WITNESS. - - - - - - - - - - - - - - - - - - JOSE ERNESTO BECERIL MIRO. - - Rubric. - - - - - - - - - - - - - - - - - - - -ALBERTO MENA ADAME. - - Rubric. - - - - - - - - - 50 - 14 - - - - Before me, JORGE ANTONIO FRANCOZ GARATE.- - Rubric. Seal of Authorization. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - To accomplish what is foreseen in Articles two-thousand four-hundred one, two-thousand four-hundred seven, two-thousand four-hundred eight, two-thousand four-hundred twenty-eight and two-thousand four-hundred forty-one, of the Civil Code in force in the State of Mexico and its correlatives in the Civil Codes of the Federal District and other Federative Entities of the Mexican Republic, the full text of the same in inserted as follows: - - - - - - - - - - - - - - - - - - - ARTICLE 2401.- The mandate contract is considered perfect by the acceptance of the Mandatary. - - - - - - - - - - - - - - - - - - - - - - - - - The mandate that implies the exercise of the profession is presumed accepted when it is conferred to persons who offer to the public the exercise of their profession, for the sole fact that they do not refuse it within the next three days. - - - - - -- - - - - - - - - - - - - - - - - - The acceptance can be express or tacit. Tacit acceptance is every act in executing a mandate. - - - - - - - - - - - - - - - - - - - - - - - - - ARTICLE 2407.- The mandate can be general or special. They are general the ones contained in the first three paragraphs of Article 2408. Any other mandate will have the character of special. - - - - - - - - - - - - - ARTICLE 2408.- In all the general powers for Litigation and Collection, it will be enough to mention that they are granted with all the general powers and the special ones that require special clause according with the Law, so that they are understood to be conferred without limitations. - - - - - - - - - - - - - - - - - - - - - - - - - - - - In all the general powers to administer goods, it will be enough to mention that they are given with this character to that the Attorney has all type of administrative powers. - - - - - - - - - - - - - - - - - - - - - - In the general powers to exercise Act of Dominion it will be enough that they are given with this character so that the Attorney has all type of powers of owner, regarding the goods, as well as to make all type of acts so as to defend them. - - - - - - - - - - - - - - - - - - - - - - - - - - When the powers of the Attorneys are liked to be limited in the three cases mentioned above, the limitations will be consigned in the powers or the powers will be special. - - - - - - - - - - - - - - - - - - - - - Notaries will insert this Article in the testimonies of the powers they grant. - - - - - - - - - - - - - - - - - - - - - - - - 51 - 15 - - - - ARTICLE 2428. - - The Mandatary can entrust to a third party the fulfillment of the mandate if he has express powers for it. - - - - - - - - - ARTICLE 2441. - - The attorney does not need power or special clause, but in the following cases: - - - - - - - - - - - - - - - - - - - - - I.- To desist; - - - - - - - - - - - - - - - - - - - - - - - - - - - - II.- To settle; - - - - - - - - - - - - - - - - - - - - - - - - - - - - III.- To compromise in arbiters; - -- - - - - - - - - - - - - - - - - - IV.- To absolve and articulate positions; - - - - - - - - - - - - - - - V.- To make transference of goods; - - - - - - - - - - - - - - - - - - VI.- To recuse; - - - - - - - - - - - - - - - - - - - - - - - - - - - - VII.- To receive payments; - - - - - - - - - - - - - - - - - - - - - - VIII.- For all the other acts expressly determined by the Law. - - - - When in the general powers one or some of the powers above mentioned are to be conferred, what is foreseen in the fist paragraph of Article 2408 will be observed. - - - - - - - - - - - - - - - - - - - - - - THIS IS FIRST TESTIMONY OF ITS ORIGINAL THAT IS ISSUED FOR THE MERCANTILE SOCIETY NAMED "DISTRIBUIDORA VENUS", SOCIEDAD ANONIMA DE CAPITAL VARIABLE, IN ITS CHARACTER OF INTERESTED PARTY. IT CONTAINS EIGHT USEFUL SHEETS DULY COLLATED, SEALED AND SIGNED.- I WITNESS. - - - - - - - - - - NAUCALPAN DE JUAREZ, STATE OF MEXICO, TWELVE OF JANUARY YEAR TWO-THOUSAND. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (seal) INSCRIBED IN THE GENERAL DIRECTION OF THE PUBLIC REGISTRY OF COMMERCE IN THE MERCANTILE FOLIO NUMBER: 150313 RIGHTS: $675.00 REG. IN CASHIER: 207084 PTDA: 3341 DATED 22-3-2000 IN MEXICO, FEDERAL DISTRICT, 15 OF APRIL 2000 REGISTRER: J. SILVIA VIDALS NEGRETE (seal) Lawyer Hernando Castellanos Ruiseco, Director of Commerce, Companies and Real Estate of the General Direction of the Public Registry of Property and Commerce, based in article 20 fraction IV of the Interior Regulation of the Public Administration of the Federal District and the Agreement for delegation of powers published in the Official Gazette of the Federal District on the 19 of December 1997. (seal) MA. LUISA RAMIREZ SALAS PERITO TRADUCTOR AUTORIZADO POR EL TRIBUNAL SUPERIOR DE JUSTICIA DEL DISTRITO FEDERAL BOLETIN No. 26 DEL 07-FEB-97 52 (seal) MINISTRY OF FOREIGN AFFAIRS PERMIT 09000134 MEXICO FILE 9009053752 FOLIO 39771 In attention to the request presented by C. JORGE ANTONIO FRANCOZ GARATE in representation of REDAY SA DE CV. This Ministry grants the permit to change the denomination of: REDAY SA DE CV to: DISTRIBUIDORA VENUS SA DE CV Having been GRANTED to the applicant permit to reform its Social By-laws in the terms above specified, according to what is established by articles 16 of the Law of Foreign Investment and 15 of the Law of Foreign Investment and the National Registry of Foreign Investments. The interested party, will notify the use of this permit to the Ministry of Foreign Affairs within the next six months after its issuance, according to what is established by article 18 of the Regulation o the Law of Foreign Investment and of the National Registry of Foreign Investments. The above mentioned is communicated based in articles 27 Fraction I, of the Political Constitution of the United Mexican States, 28 fraction V, of the Organic Law of the Federal Public Administration; 16 of the Law of Foreign Investment, and 15 and 18 of the Regulation of the Law of Foreign Investment and the National Registry of Foreign Investments. This permit will be null if within the next ninety working days after its issuance, the interested parties do not present to grant before public notary the instrument corresponding to the reform of the by-laws of the company in question, according to what is established by article 17 of the Regulation of the Law of Foreign Investment and the National Registry of Foreign Investments; likewise it is granted without prejudice of what is foreseen by article 91 of the Law of Industrial Property. TLATELOLCO, F.D., 05 of January 2000. EFFECTIVE SUFFRAGE, NO REELECTION (seal) THE DIRECTOR MINISTRY OF FOREIGN OF PERMITS ART. 27 CONST. AFFAIRS (rubric) GENERAL DIRECTION OF LAWYER JOSE FCO. CAMPOS GARCIA ZEPEDA LEGAL AFFAIRS PA-2 2248 MA. LUISA RAMIREZ SALAS PERITO TRADUCTOR AUTORIZADO POR EL TRIBUNAL SUPERIOR DE JUSTICIA DEL DISTRITO FEDERAL BOLETIN No. 26 DEL 07-FEB-97 53 REDAY, S.A. DE C.V. GENERAL EXTRAORDINARY SHAREHOLDERS MEETING November 30, 1999 In Mexico City, Federal District, being the 14:00 hours of the 30 of November 1999, they gathered in the social address of the company, the shareholders and representatives of shareholders of Reday, S.A. de C.V., that are mentioned in the List of Attendance that, signed by the President, Secretary and Commissary, is enclosed to the present act, with the purpose of celebrating the General Extraordinary Shareholders Meeting. By unanimous designation of the present ones he acted as President of the Board Mr. Eugenio Lopez Barrios. Acted as Secretary of the same, the Secretary of the Board of Directors of the company, Mr. Alberto Mena Adame. The President designated as Scrutinizer, Mr. Jose Ernesto Becerril Miro, who, after accepting the charge, examined the Registry Book of Shareholders of the Company and the List of Attendance, based in which he evidenced that they were present or duly represented in the Meeting, the shareholders of the 10,000 common shares of Series A and 25,202,154 of Series B, that represent the 100.00% of the subscribed and paid capital stock of Reday, S.A. de C.V. at the date of the present Meeting. The President, based in the certification of the Scrutinizer and based in what is established by Article 188 of the General Law of Mercantile Societies and in Article Twenty-ninth of the social by-laws, declared legally installed the General Extraordinary Meeting, in virtue they were present or duly represented the shareholders of common shares representative of the 100.00% of the capital stock. Next, the President submitted to the consideration of the shareholders the following: AGENDA I. Proposal with respect to the merge of the Company, as merging company, with Distribuidora Venus, S.A. de C.V. as merged company; discussion and, if the case, approval of the general balance of the company to the 31 of October 1999, based in which the merge is planned to be effected; discussion and, if the case, approval of the merge agreement that will be celebrated with Distribuidora Venus, S.A. de 54 2 C.V.; and discussion and, if the case, approval of the proposal in regards that the company expressly pacts to pay at its maturity the debts of the merged company, resolutions to this respect. II. Proposal of increase to the capital stock of the company as consequence of the merge of the company with Distribuidora Venus, S.A. de C.V.; resolutions to this respect. III. Proposal of change of denomination as consequence of the merge of the company with Distribuidora Venus, S.A. de C.V.; resolutions to this respect. IV. Proposal of nomination of special delegates; resolutions to this respect. Shareholders, by unanimity of votes, approved the declaration of the President as well as the Agenda of the Extraordinary Meeting, which points they proceed to review as follows: I. In relation to the first point of the Agenda, the President mentioned the several reasons that make it convenient the company to merge with Distribuidora Venus, S.A. de C.V., subsisting Reday, S.A. de C.V., as merging company and extinguishing Distribuidora Venus, S.A. de C.V., as merged company. The President mentioned that in case of approving the merge, this will be effected based in the figures shown by the general balances of each one of the companies to be merged at the 31 of October 1999, same that the shareholders previously received for their detailed analysis. Next, the President referred to the agreements of merge contained in the Merge Agreement that Distribuidora Venus, S.A. de C.V., as merged company, and Reday, S.A. de C.V., as merging company previously celebrated, which validity and effects are subject, among others, to the approval of the General Extraordinary Shareholders Meeting of Distribuidora Venus, S.A. de C.V. and of the present Meeting. Next, the President requested the Secretary to read the Merge Agreement effected by the company. Once the declaration of the President was listened, after carefully analyzing the general balances of each 55 3 company and the Merge Agreement celebrated by the company and after the shareholders made all the questions they deemed necessary, the Extraordinary Meeting, by unanimity of votes, adopted the following: RESOLUTIONS "1. It is taken as presented and is approved in its terms the general balance of the company to the 31 of October 1999, same which will serve as base to effect the merge referred to in the following resolutions. Add an issue of said balance to the file of the present Act". "2. It is expressly approved in this act the Merge Agreement celebrated in this same date between the company and Distribuidora Venus, S.A. de C.V., in terms of which the merge between said companies will be effected, subsisting Reday, S.A. de C.V. as merging company and extinguishing Distribuidora Venus, S.A. de C.V. as merged company. Consequently, it is agreed and expressly approved in this act the merge mentioned before, according with the Merge Agreement, which is fully transcribed as follows: "MERGE AGREEMENT THAT CELEBRATE IN ONE SIDE, AS MERGING COMPANY, REDAY, S.A. DE C.V. (HEREINAFTER DENOMINATED "REDAY"), REPRESENTED BY MR. ERNESTO BECERRIL MIRO AND, ON THE OTHER SIDE, AS MERGED COMPANY, DISTRIBUIDORA VENUS, S.A. DE C.V. (HEREINAFTER DENOMINATED "DISTRIBUIDORA"), REPRESENTED BY MR. EUGENIO LOPEZ BARRIOS AND MR. ALBERTO MENA ADAME, ACCORDING TO THE FOLLOWING STATEMENTS AND CLAUSES: STATEMENTS I. "REDAY" declares, by means of its representative: a) That it is an anonymous company of variable capital of Mexican nationality, duly constituted according to the General Law of Mercantile Societies, as it is evidenced in public deed number 29,607, granted the 2 of January 56 4 1991, before the faith of lawyer Roberto Nunez y Bandera, Notary Public number 1 of the Federal District and inscribed in the Public Registry of Commerce of the Federal District, under the mercantile folio number 150,313. b) That up to the date of the present Agreement its capital stock represents the amount of $25,212,154.00 (TWENTY-FIVE MILLION TWO-HUNDRED TWELVE THOUSAND ONE-HUNDRED FIFTY-FOUR PESOS 00/100 N.C.) represented by 10,000 ordinary shares, nominative Series "A" and 25,202,154 ordinary shares, nominative Series "B" with nominal value of $1.00 N.C. (ONE PESO 00/100 N.C.) each one. c) That is interested in tat, subject to the approval of the present Agreement by the General Extraordinary Shareholders Meeting and by the General Extraordinary Shareholders meeting of "DISTRIBUIDORA" that for that purpose are celebrated, the merge of DISTRIBUIDORA in REDAY is agreed, subsisting the latter as merging company and DISTRIBUIDORA extinguishing as merged company. d) That its representative has enough powers for the celebration of this act, same which have not been revoked nor modified in any way. II. DISTRIBUIDORA declares, by means of its representatives: a) To be an anonymous society of variable capital of Mexican nationality, duly constituted according to the General Law of Mercantile Societies, as it is evidenced in public deed number 29,610, granted the 2 of January 1991, before the faith of lawyer Roberto Nunez y Bandera, Notary Public number 1 of the Federal District , and inscribed in the Public Registry of Commerce of the Federal District under the mercantile folio number 152539. b) That up to the date of the present agreement its capital stock represents the amount of $10,000.00 (TEN THOUSAND PESOS 00/100 N.C.), represented by 10,000 ordinary shares, 57 5 nominative Series "A" with nominal value of $1.00 (ONE PESO 00/100 N.C.) each one. c) That is interested in that, subject to the approval of the present agreement by its General Extraordinary Shareholders Meeting and by the General Extraordinary Shareholders Meeting of REDAY the merge of DISTRIBUIDORA in REDAY is agreed, subsisting REDAY as merging company and DISTRIBUIDORA extinguishing as merged company. d) That its representatives have enough powers for the celebration of this act, same which have not been revoked nor modified in any way. According with the above Statements, the parties agree to grant the following CLAUSES FIRST. REDAY and DISTRIBUIDORA agree in celebrating each one of them a General Extraordinary Shareholders Meeting, for the purpose of submitting to the consideration of the same the approval of the present Merge Agreement and, consequently, expressly agree to the merge of DISTRIBUIDORA in REDAY, subsisting REDAY with the character of merging company and DISTRIBUIDORA extinguishing with the character of merged company. SECOND.- The celebration of the General Extraordinary Shareholders Meetings of REDAY and DISTRIBUIDORA referred to in the above clause will have to be made at the latest the 30 of November 1999. THIRD.- The merge will be effective between the parties beginning the day in which the General Extraordinary Shareholders Meetings of REDAY and DISTRIBUIDORA are celebrated in which they agree the merge, and before third parties, it will be effective beginning the date in which the merge agreements are inscribed in the Public Registry of Property and Commerce of the Federal District in virtue that the companies to be merged agree to pay all the 58 6 liabilities and debts they have against them in favor of creditors that have not approved the merge. FOURTH.- The figures that will serve as base for the merge, subject to the approval of the Shareholders Meetings mentioned before, are the ones that are reported in the balances of REDAY and DISTRIBUIDORA to the 31 of October 1999. FIFTH.- As consequence of the merge, and once it is effective between the parties, all the assets, shares and rights, as well as all the liabilities, obligations and responsibilities of any type and, in general, the patrimony of DISTRIBUIDORA without reserves nor any limitation, will be transferred universally to REDAY as merging company and for the same, REDAY will own and assume in its totality the liabilities and obligations of any type at the charge of DISTRIBUIDORA, being expressly obliged to the payment of the same; in the intelligence that said liabilities and correlative rights that exist between the parties of this Agreement (if any), will extinguish by confusion when they are consolidated in REDAY as consequence of the merge. SIXTH.- As consequence of the merge of DISTRIBUIDORA in REDAY, the capital stock of REDAY in its variable part will be increased in the amount of $10,000.00 (TEN THOUSAND PESOS 00/100 N.C.), with which the amount of the capital stock of REDAY will be increased effective the merge between the parties, to the amount of $25,222,154.00 (TWENTY-FIVE MILLION TWO-HUNDRED TWENTY-TWO THOUSAND ONE-HUNDRED FIFTY-FOUR PESOS 00/100 N.C.). Considering the shareholders of REDAY are also the shareholders of CONSULTORIA, effective the merge between the parties the shareholders of REDAY will also receive for each share Series A of DISTRIBUIDORA they hold, 1 (one) share (s) Series B of REDAY. 59 7 SEVENTH.- In reason of the merge there will be made no change in the integration of the administration and surveillance organs of REDAY. EIGHTH.- In accomplishing what is foreseen by Article 223 of the General Law of Mercantile Societies, immediately after the Extraordinary Shareholders Meetings foreseen in Clause First is celebrated, they will be published in the official newspaper of the address of the companies, the merge agreements matters of the present Contract, as well as the last general balances of the two companies approved by the Meetings that ratify the merge, likewise the system that DISTRIBUIDORA will use for the extinction of its liabilities. Furthermore, once the present Merge Agreement is approved, and the merge agreed by the Extraordinary Shareholders Meetings referred to in Clause First, it will be proceeded immediately to inscribe in the Public Registry of Property and Commerce of the Federal District, the merge agreements taken by said Meetings. NINTH.- In all what is no expressly foreseen in the present Agreement, it will be ruled by the dispositions of the General Law of Mercantile Societies and additionally by the dispositions of the Code of Commerce and the Civil Code for the Federal District. TENTH.- For all what is related with the interpretation, fulfillment and execution of the present Agreement, the parties expressly submit themselves to the jurisdiction of the competent courts of Mexico, Federal District, expressly waiving to any other jurisdiction that might correspond to them in reason of their present or future addresses or by any other cause. The present Agreement is signed in two issues in Mexico City, Federal District, the 30 of November 1999. 60 8 REDAY, S.A. DE C.V. DISTRIBUIDORA VENUS, S.A. DE C.V. Mr. Ernesto Becerril Miro Mr. Eugenio Lopez Barrios Legal Representative Mr. Alberto Mena Adame "Rubric" Legal Representatives "Rubrics" "3. It is expressly evidenced that, once the merge of Reday, S.A. de C.V. with Distribuidora Venus, S.A. de C.V, had been approved by the General Extraordinary Shareholders Meeting of Distribuidora Venus, S.A. d e C.V. and of Reday, S.A. de C.V., in the terms agreed in the Merge Agreement, this will be effective between the parties beginning the date of the present Meeting, and, before third parties, the merge will be effective beginning the date in which they are inscribed in the Public Registry of Commerce of the Federal District the merge agreements taken by the General Extraordinary Shareholders Meetings of the companies to be merged, in virtue of what is established in Resolution number 4 that follows." "4. In order that the merge is effective before third parties beginning from the date of inscription of the respective agreements in the Public Registry of Property and Commerce of the Federal District, the companies part of the merge agree to pay in anticipation all those credits to those creditors who had not given their approval." "5. It is expressly evidenced that, as consequence of the merge, all the assets, shares and rights, as well as all the liabilities, obligations and responsibilities of all type and, in general, all the patrimony of Distribuidora Venus, S.A. de C.V., is transferred without reserve nor limitation and universally to Reday, S.A. de C.V., in its character of merging company, from the date in which the merge is effective. Consequently, Reday, S.A. de C.V. will own and assume in its totality beginning from the date in which it is effective, the liabilities and obligations of any type that might exist at the charge of Distribuidora 61 9 Venus, S.A. de C.V., remaining expressly obliged as universal assignee to the payment of the same; in the intelligence that said liabilities and correlative rights that might exist (if any) between the companies that are merged, will remain extinguished from the present date because of confusion, since these have been consolidated in Reday, SA.. de C.V." "6. Likewise, it is expressly evidenced that as consequence of the agreements contained in the Merge Agreement, shareholders of Reday, S.A. d e C.V. will receive for each share Series A of which they are holders in Distribuidora Venus, S.A. de C.V., 1 (one) share (s) Series B of Reday, S.A. de C.V." II. In relation with the second point of the Agenda of the Extraordinary Meeting, the President explained to the shareholders that as consequence of the merge of Reday, S.A. de C.V. with Distribuidora Venus, S.A. de C.V., once it is effective, the capital stock of the company will be increased in the amount of $10,000.00 (TEN THOUSAND PESOS 00/100 N.C.). Once the declaration of the President was listened, and after the shareholders made all the questions they deemed necessary, the Meeting, by unanimity of votes, adopted the following RESOLUTION "1. It is agreed to increase the capital stock of Reday, S.A. de C.V., effective the date in which the merge is in force, in the amount of $10,000.00 (TEN THOUSAND PESOS 00/100 N.C.), as consequence of the merge with Distribuidora Venus, S.A. de C.V., for which the capital stock, in its fixed part, will be maintained in the amount of $10,000.00 (TEN THOUSAND PESOS 00/100 N.C.), and in its variable part it will be increased to the amount of $25,212,154.00 (TWENTY-FIVE MILLION TWO-HUNDRED TWELVE-THOUSAND ONE-HUNDRED FIFTY-FOUR PESOS 00/100 N.C.), represented by 10,000 (TEN THOUSAND) shares Series A and 25,212,154 (TWENTY-FIVE MILLION TWO-HUNDRED TWELVE THOUSAND ONE-HUNDRED FIFTY-FOUR) shares Series B, for which the 62 10 capital stock of Reday, S.A. de C.V., will be distributed in the following manner: SHAREHOLDERS SHARES SERIES "A" SERIES "B" Jafra Cosmetics 9,999 25,212,154 International, S.A. de C.V. Eugenio Lopez Barrios 1 Total: 10,000 25,212,154" "2. It is agreed the emission of definitive titles representative of the shares Series B corresponding to the capital increase, which have to fulfill the requirements established in the social by-laws." III. In relation with the third point of the Agenda of the Extraordinary Meeting, the President explained to the shareholders that as consequence of the merge of Reday, S.A. de C.V., with Distribuidora Venus, S.A. de C.V., once it is effective from the 1st. of December 1999, its denomination will be modified and Article First of its Social By-laws will be reformed to adequate such change. He declared that the proposed reform was stated in the text in the new by-laws, previously distributed among the shareholders for its analysis. Once the declaration of the President was listened and after carefully analyzing it they were taken the following: RESOLUTIONS "1. It is approved the change of denomination of REDAY to "DISTRIBUIDORA VENUS", according to the permit granted by the Ministry of Foreign Affairs." "2. It is approved the reform to Article First of the Social By-laws effective the 1st. of December 1999, so that it is written in the following term: 63 11 CHAPTER 1 ARTICLE FIRST.- The denomination of the company is "DISTRIBUIDORA VENUS", denomination that will always be followed by the words "SOCIEDAD ANONIMA DE CAPITAL VARIABLE" or its abbreviation "S.A. DE C.V." IV. In relation with the last point of the Agenda of the Extraordinary Meeting, the shareholders by unanimity of votes, took the following: RESOLUTION "1. They are designated as delegates of this Meeting Messrs. Eugenio Lopez Barrios, Alberto Mena Adame and Ernesto Becerril Miro, or the persons whom they designate , so that individually or jointly: a) Present themselves to the notary public of their choice to officially register the present act, totally or partially. b) To issue, if necessary, the certificates of the resolutions adopted in this Meeting. c) To effect the publications that are necessary according to the Law. d) To make the necessary actions to inscribe the respective testimony before the Public Registry of Property and Commerce of the Federal District, as well as all the legal and material acts necessary to accomplish these resolutions." Next, the Meeting was adjourned for the time necessary to write the present Act same which once it was read, it was approved by the attendants and signed by the President, the Secretary and the Commissary. The Meeting was ended at the 15:00 hours of the date of its celebration. 64 12 (rubric) (rubric) Eugenio Lopez Barrios Alberto Mena Adame President Secretary (rubric) Ernesto Valenzuela Espinoza Commissary 65 13 LIST OF ATTENDANCE SHAREHOLDER SHARES - ----------- ------ SERIES A SERIES B JAFRA COSMETICS INTERNATIONAL, 9,999 25,201,154 S.A. de C.V., represented by Mr. Ernesto Becerril Miro (rubric) Eugenio Lopez Barrios 1 1,000 By his own right (rubric) TOTAL: 10,000 25,202,154 The 100.00% of the shares in which the capital stock of the company is divided were duly represented. (rubric) (rubric) Mr. Eugenio Lopez Barrios Mr. Alberto Mena Adame President Secretary (rubric) (rubric) Mr. Ernesto Becerril Miro Mr. Ernesto Valenzuela Scrutinizer Espinoza Commissary Mexico, Federal District, 30 of November 1999. MA. LUISA RAMIREZ SALAS PERITO TRADUCTOR AUTORIZADO POR EL TRIBUNAL SUPERIOR DE JUSTICIA DEL DISTRITO FEDERAL BOLETIN No. 26 DEL 07-FEB-97 EX-10.22 4 v70623ex10-22.txt EXHIBIT 10.22 1 EXHIBIT 10.22 FIRST AMENDMENT TO AMENDED AND RESTATED JAFRA COSMETICS INTERNATIONAL, INC. STOCK INCENTIVE PLAN This First Amendment (this "Amendment") to Amended and Restated Jafra Cosmetics International, Inc. Stock Incentive Plan (the "Plan") is made effective as of March 1, 2001 (the "Amendment Date"). Capitalized terms used and not otherwise defined in this Amendment shall have the meanings given such terms in the Plan. WHEREAS, the Board and the Holding Board previously adopted and approved the Plan which provides for, among other things, the issuance and sale, and the granting of options to purchase, Common Stock to select members of management of the Company and its subsidiaries; WHEREAS, Section 2.1(ii) of the Plan provides that the terms and conditions of any purchase of Common Stock under the Plan shall be set forth in a Subscription Agreement between Holding and the applicable Participant and that each Subscription Agreement shall be substantially in the form attached to the Plan as Exhibit B (the "Plan Subscription Agreement"), unless the Board, in consultation with the Holding Board, determines otherwise; WHEREAS, Section 6(a) of the Plan Subscription Agreement provides for certain rights of Holding, CD&R Fund, and the Participant with respect to the repurchase of Common Stock in the event of termination of the Participant's employment with the Company or its subsidiary, and Section 7 of the Plan Subscription Agreement sets forth the time for repurchase and the manner in which the repurchase price is to be determined; and WHEREAS, the Board, in consultation with the Holding Board, has determined to amend the Plan by amending Section 6(a) and Section 7(a)(i) of the Plan Subscription Agreement to provide that, in the event of termination of the Participant's employment other than for Cause (as defined in the Plan Subscription Agreement), (x) the sixty-day period within which Holding may elect under Section 6(a) to repurchase the Common Stock (as more particularly described below, the "First Option Period") shall not begin until at least seven months after the date on which the Participant acquired the Common Stock and (y) the repurchase price shall be determined and repurchase shall occur, if at all, at least seven months after the date on which the Participant acquired the Common Stock that is to be repurchased, all as hereinbelow more particularly set forth; 2 NOW THEREFORE, in consideration of the foregoing, the Plan is amended as follows: 1. Amendment to Section 6(a) of Plan Subscription Agreement (Exhibit B to the Plan). The Plan Subscription Agreement (Exhibit B to the Plan) is hereby amended by restating the first two sentences of Section 6(a) thereof in their entirety as follows: "(a) Termination of Employment. If the Purchaser's active employment with Holding or any Subsidiary thereof that employs the Purchaser is terminated for any reason whatsoever, Holding shall have an option to purchase all or a portion of the Shares then held by the Purchaser (or, if his or her employment was terminated by his or her death, his or her estate) and shall have 60 days from the later of the date of termination of Purchaser's employment or the date that is seven months after the date of the Purchaser's acquisition of the Shares pursuant to this Agreement (such date, the "Option Start Date" and, such 60-day period, the "First Option Period") during which to give notice in writing to the Purchaser (or his estate) of its election to exercise or not to exercise such option, in whole or in part; provided that, if such Purchaser is terminated for Cause, the Option Start Date shall be the date of termination of such Purchaser's employment. Holding hereby undertakes to use reasonable efforts to act as promptly as practicable following the Option Start Date to make such election." 2. Amendment to Section 7(a)(i) of Plan Subscription Agreement (Exhibit B to the Plan). The Plan Subscription Agreement (Exhibit B to the Plan) is hereby amended by restating Section 7(a)(i) thereof in its entirety as follows: "Purchase Price. (i) For the purposes of any purchase of the Shares pursuant to Section 6, and subject to Section 11(c), the purchase price per Share to be paid to the Purchaser (or his estate) for each Share (the "Purchase Price") shall be the Fair Market Value (determined in accordance with paragraph (ii) below) of such Share as of the later of seven months after the date of the Purchaser's acquisition of such Share or the effective date of the termination of employment or determination of financial hardship, as the case may be, that gives rise to the right or obligation to repurchase (such date, the "Determination Date"), provided that if the Purchaser's employment is terminated by Holding or any Subsidiary thereof that employs the Purchaser for Cause, the Purchase Price for such Shares shall be the lesser of (i) the Fair Market Value of such Shares as of the effective date of such termination of employment and (ii) the price at which the Purchaser purchased such Shares from Holding." 2 3 3. Subscription Agreements entered into after the Amendment Date. Unless the Board, in consultation with the Holding Board, determines otherwise and notwithstanding the form of Subscription Agreement initially attached to the Plan as Exhibit B, or any other term or provision of the Plan, any Subscription Agreement entered into after the Amendment Date shall incorporate the amended and restated provisions of Section 6(a) and Section 7(a)(i) of the Plan Subscription Agreement set forth in Sections 1 and 2 above. 4. No Further Modification. Except as expressly amended hereby, the Plan remains unmodified and in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed effective as of the Amendment Date. Jafra Cosmetics International, Inc. By: /s/ RALPH S. MASON, III -------------------------------------- Name: Ralph S. Mason, III Title: Executive Vice President and General Counsel 3 EX-10.23 5 v70623ex10-23.txt EXHIBIT 10.23 1 EXHIBIT 10.23 MANAGEMENT STOCK SUBSCRIPTION AGREEMENT MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, dated as of ________, 2001, between CDRJ Investments (Lux), S.A., a Luxembourg societe anonyme ("Holding"), and the Purchaser whose name appears on the signature page hereof (the "Purchaser"). W I T N E S S E T H : WHEREAS, the Board of Directors (the "Board") of Jafra Cosmetics International, Inc., a Delaware corporation (formerly known as CDRJ Acquisition Corporation) and an indirect wholly-owned Subsidiary of Holding ("JCI") has, in consultation with the Board of Directors of Holding (the "Holding Board"), adopted the Amended and Restated Jafra Cosmetics International Stock Incentive Plan (as the same may be amended from time to time, the "Stock Incentive Plan"); WHEREAS, JCI (the "Employer"), and the Purchaser have entered into an Employment Agreement, dated as of _________ (as the same may be amended from time to time, the "Employment Agreement"); WHEREAS, the Board, in consultation with the Holding Board, has determined that it is in the best interest of Holding and its shareholders to sell to the Purchaser the shares of the Class A voting shares, par value $2.00 per share, of Holding (the "Common Stock") herein described; WHEREAS, pursuant to the Stock Incentive Plan, Holding and JCI have approved the issuance and sale of shares of Common Stock to the Purchaser; WHEREAS, the terms of the offering of the shares of Common Stock to the Purchaser (the "Offering") are set forth in a Confidential Offering Memorandum, dated ________, 2001 (the "Offering Memorandum"), a copy of which has been furnished to the Purchaser; WHEREAS, the Purchaser desires to subscribe for and purchase from Holding the aggregate number of shares of Common Stock set forth on the signature page hereof (each a "Share" and, collectively, the "Shares"), at a purchase price of $_____ per share; WHEREAS, Holding desires to sell the Shares to the Purchaser on the terms and subject to the conditions set forth herein. 2 NOW, THEREFORE, to implement the foregoing and in consideration of the mutual promises, covenants and agreements contained herein, the parties hereto hereby agree as follows: 1. Purchase and Sale of Common Stock. (a) Purchase of Common Stock. Subject to all of the terms and conditions of this Agreement, the Purchaser hereby subscribes for and shall purchase, and Holding shall sell to the Purchaser, the Shares, at a purchase price of $______ per Share, at the Closing provided for in Section 2(a) hereof. Notwithstanding anything in this Agreement to the contrary, Holding shall have no obligation to sell any shares of Common Stock (including the Shares) to (x) any person who will not be an employee of Holding or its Subsidiary immediately following the Closing at which such shares of Common Stock are to be sold or (y) any person who is a resident of a jurisdiction in which the sale of Common Stock to such person would constitute a violation of the securities, "blue sky" or other laws of such jurisdiction. (b) Consideration. Subject to all of the terms and conditions of this Agreement, the Purchaser shall deliver to Holding at the Closing referred to in Section 2(a) hereof, immediately available funds in an amount equal to the aggregate purchase price for the Shares to be purchased at such Closing set forth on the signature page hereof. 2. Closing. (a) Time and Place. Except as otherwise mutually agreed by Holding and the Purchaser, the closing of the purchase and sale of the Shares pursuant to this Agreement shall be held at the offices of Jafra Cosmetics International, Inc., 2451 Townsgate Road, Westlake Village, California at 10:00 a.m. (California time) on or about [ ], 2001 (the "Closing") (b) Delivery by the Purchaser. At the Closing, the Purchaser shall deliver to Holding the consideration referred to in Section 1(b) hereof. (c) Delivery by Holding. At the Closing, Holding shall deliver to the Purchaser (i) a receipt for the consideration received from the Purchaser and (ii) a stock certificate or an undertaking by Holding to obtain the issuance of a stock certificate registered in the Purchaser's name and representing the Shares following the completion 2 3 of the actions to be taken under Section 2(d), which certificate shall bear the legends set forth in Section 3(b). (d) Actions Under Luxembourg Law. Holding shall cause its duly authorized representatives to record the capital increase represented by the purchase of the Shares by the Purchaser in accordance with Luxembourg law and enter the issuance of Purchaser's Shares in the share register of Holding as of the date of the Closing. 3. Purchaser's Representations, Warranties and Covenants. (a) Investment Intention. The Purchaser represents and warrants that the Purchaser is acquiring the Shares solely for the Purchaser's own account for investment and not with a view to or for sale in connection with any distribution thereof. The Purchaser agrees that the Purchaser will not, directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise dispose of any of the Shares (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of any Shares), except in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder, and in compliance with applicable state securities or "blue sky" laws and foreign securities laws, if any. The Purchaser further understands, acknowledges and agrees that none of the Shares may be transferred, sold, pledged, hypothecated or otherwise disposed of (i) unless the provisions of Sections 4 through 8 hereof, inclusive, shall have been complied with or have expired, (ii) unless (A) such disposition is pursuant to an effective registration statement under the Securities Act, (B) the Purchaser shall have delivered to Holding an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Holding, to the effect that such disposition is exempt from the provisions of Section 5 of the Securities Act or (C) a no-action letter from the Commission, reasonably satisfactory to Holding, shall have been obtained with respect to such disposition and (iii) unless such disposition is pursuant to registration under any applicable state or foreign securities laws or an exemption therefrom. (b) Legends. The Purchaser acknowledges that the certificate or certificates representing the Shares shall bear the following legends: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED AS OF ___________, 2001, AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT 3 4 STOCK SUBSCRIPTION AGREEMENT, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF THE CURRENT FORM OF WHICH IS ON FILE WITH THE SECRETARY OF THE ADVISORY COMMITTEE OF HOLDING. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFITS OF AND ARE BOUND BY THE OBLIGATIONS SET FORTH IN A REGISTRATION AND PARTICIPATION AGREEMENT, DATED AS OF APRIL 30, 1998, AMONG HOLDING AND CERTAIN STOCKHOLDERS OF HOLDING, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF THE CURRENT FORM OF WHICH IS ON FILE WITH THE SECRETARY OF THE ADVISORY COMMITTEE OF HOLDING." "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE OR NON-U.S. SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (A) SUCH DISPOSITION IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO HOLDING AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO HOLDING, TO THE EFFECT THAT SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SUCH ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR HOLDING, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND (ii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION UNDER ANY APPLICABLE STATE AND NON-U.S. SECURITIES LAWS OR AN EXEMPTION THEREFROM. IF THE PURCHASER IS A CITIZEN OR RESIDENT OF ANY JURISDICTION OTHER THAN THE UNITED STATES, OR THE PURCHASER DESIRES TO EFFECT ANY TRANSFER IN ANY SUCH JURISDICTION, THEN, IN ADDITION TO THE FOREGOING, COUNSEL FOR THE PURCHASER (WHICH COUNSEL SHALL BE REASONABLY SATISFACTORY TO HOLDING) SHALL HAVE FURNISHED HOLDING WITH AN OPINION OR OTHER ADVICE REASONABLY SATISFACTORY TO HOLDING TO THE EFFECT THAT SUCH TRANSFER WILL COMPLY WITH THE SECURITIES LAWS OF SUCH JURISDICTION." 4 5 (c) Securities Law Matters. The Purchaser acknowledges receipt of advice from Holding that (i) the offer and sale of the Shares hereby have not been registered under the Securities Act or any state or foreign securities or "blue sky" laws, (ii) it is not anticipated that there will be any public market for the Shares, (iii) the Shares must be held indefinitely and the Purchaser must continue to bear the economic risk of the investment in the Shares unless there is a public market for the Shares and, to the extent required under the Securities Act, the Shares are registered for resale under the Securities Act and such state laws or an exemption from registration is available, (iv) Rule 144 promulgated under the Securities Act ("Rule 144") is not presently available with respect to sales of any securities of Holding, and Holding has made no covenant to make Rule 144 available, (v) when and if the Shares may be disposed of without registration in reliance upon Rule 144, such disposition by an affiliate of Holding, within the meaning of Rule 405, can be made only in limited amounts in accordance with the terms and conditions of Rule 144, (vi) Holding does not plan to file reports with the Commission or make public information concerning Holding available unless required to do so by law or the terms of its Financing Agreements (as defined below), (vii) if the exemption afforded by Rule 144 is not available, sales of the Shares may be difficult to effect because of the absence of public information concerning Holding, (viii) a restrictive legend in the form heretofore set forth shall be placed on the certificates representing the Shares and (ix) a notation shall be made in the appropriate records of Holding indicating that the Shares are subject to restrictions on transfer set forth in this Agreement and, if Holding should in the future engage the services of a stock transfer agent, appropriate stop-transfer restrictions will be issued to such transfer agent with respect to the Shares. (d) Compliance with Rule 144. If any of the Shares are to be disposed of in accordance with Rule 144, the Purchaser shall transmit to Holding an executed copy of Form 144 (if required by Rule 144) no later than the time such form is required to be transmitted to the Commission for filing and such other documentation as Holding may reasonably require to assure compliance with Rule 144 in connection with such disposition. (e) Ability to Bear Risk. The Purchaser represents and warrants that (i) the financial situation of the Purchaser is such that the Purchaser can afford to bear the economic risk of holding the Shares for an indefinite period and (ii) the Purchaser can afford to suffer the complete loss of the Purchaser's investment in the Shares. (f) Questionnaire. The Purchaser agrees to furnish such documents and to comply with such reasonable requests of Holding as may be necessary to substantiate the Purchaser's status as a qualifying investor in connection with this private 5 6 offering of Shares of Common Stock to the Purchaser. The Purchaser represents and warrants that all information contained in such documents and any other written materials concerning the status of the Purchaser furnished by the Purchaser to Holding in connection with such request will be true, complete and correct in all material respects. (g) Access to Information. The Purchaser represents and warrants that (i) the Purchaser has carefully reviewed the Offering Memorandum and the other materials furnished to the Purchaser in connection with the transaction contemplated hereby, (ii) the Purchaser has been granted the opportunity to ask questions of, and receive answers from, representatives of Holding concerning the terms and conditions of the purchase of the Shares and to obtain any additional information that the Purchaser deems necessary to verify the accuracy of the information contained in such materials and (iii) the Purchaser's knowledge and experience in financial and business matters is such that the Purchaser is capable of evaluating the risks of an investment in the Shares. (h) Registration and Participation Agreement. The Purchaser acknowledges and agrees that the Purchaser shall be entitled to the rights and subject to the obligations created under the Registration and Participation Agreement, dated as of April 30, 1998, among Holding and certain other shareholders of Holding (as the same may be amended from time to time, the "Registration and Participation Agreement"), and the Shares shall be deemed to be "registrable securities," as defined in the Registration and Participation Agreement, in each case, to the extend provided therein. (i) Restrictions on Sale upon Public Offering. The Purchaser acknowledges and agrees that, in the event that Holding files a registration statement under the Securities Act with respect to an underwritten public offering of any shares of its capital stock, the Purchaser will not effect any public sale or distribution of any shares of Common Stock (other than as part of such underwritten public offering), including but not limited to, pursuant to Rule 144 or Rule 144A under the Securities Act, during the 20 days prior to and the 180 days after the effective date of such registration statement. The Purchaser further understands and acknowledges that any sale, transfer or other disposition of the Shares by him following any underwritten public offering of the Common Stock will be subject to compliance with, and may be limited under, the federal securities laws and/or state "blue sky" or non-U.S. securities laws. (j) Section 83(b) Election. The Purchaser agrees that, within 20 days after a Closing, the Purchaser shall give notice to Holding indicating whether the Purchaser has made or intends to make an election pursuant to section 83(b) of the Internal Revenue Code of 1986, as amended with respect to the Shares purchased at such Closing. The Purchaser further acknowledges and agrees that, in all circumstances, the 6 7 Purchaser will be solely responsible for any and all tax liabilities payable by the Purchaser in connection with the Purchaser's purchase or receipt of the Shares or, if the Purchaser is subject to United States federal income tax, attributable to the Purchaser's making or failing to make such an election under section 83(b) of the Code. 4. Restrictions on Disposition of Shares. Neither the Purchaser nor any of the Purchaser's heirs or representatives shall sell, assign, transfer, pledge or otherwise directly or indirectly dispose of or encumber any of the Shares to or with any other person, firm, trust, association, corporation or entity (including, without limitation, transfers to any other holder of Holding's capital stock, dispositions by gift, by will, by a corporation as a distribution in liquidation or by operation of law other than a transfer of Shares upon the death of the Purchaser by operation of law to the estate of the Purchaser or by will to the beneficiary named therein, provided that such estate or beneficiary, whichever is applicable, shall be bound by all of the provisions of this Agreement) except as provided in Sections 5 through 8 hereof, inclusive. The restrictions contained in this Section 4 (x) shall terminate on the first date sales of Common Stock are made to the public pursuant to an underwritten public offering of the Common Stock led by one or more underwriters at least one of which is an underwriter of nationally recognized standing ( a "Public Offering") and (y) shall not apply to a sale as part of the Public Offering or to a sale as part of a "qualifying sale" within the meaning of Section 4 of the Registration and Participation Agreement. 5. Options of Holding and the CD&R Fund Upon Proposed Disposition. (a) Rights of First Refusal. If the Purchaser desires to accept an offer (which must be in writing and for cash, be irrevocable by its terms for at least 60 days and be a bona fide offer as determined in good faith by the Holding Board) from any prospective purchaser to purchase all or any part of the Shares at any time owned by the Purchaser, the Purchaser shall give notice in writing to Holding and the Clayton, Dubilier & Rice Fund V Limited Partnership (together with any successor investment vehicle managed by Clayton, Dubilier & Rice, Inc., the "CD&R Fund") (i) designating the number of Shares proposed to be sold (the "Offer Shares"), (ii) naming the prospective purchaser of such Shares and (iii) specifying the price (the "Offer Price") at and terms (the "Offer Terms") upon which the Purchaser desires to sell the same. During the 30-day period following receipt of such notice by Holding and the CD&R Fund (the "First Refusal Period"), Holding shall have the right to purchase from the Purchaser the Offer Shares, at the Offer Price and on the Offer Terms. Holding hereby undertakes to use reasonable efforts to act as promptly as practicable following such notice to determine whether it shall elect to exercise such right. If Holding fails to exercise its right to 7 8 purchase the Offer Shares within the First Refusal Period, the CD&R Fund shall have the right to purchase the Offer Shares, at the Offer Price and on the Offer Terms, at any time during the period beginning on the earlier of (x) the end of the First Refusal Period and (y) the date of receipt by the CD&R Fund of written notice that Holding has elected not to exercise its right to purchase the Offer Shares and ending 30 days thereafter (the "Second Refusal Period"). The rights provided hereunder shall be exercised by irrevocable written notice to the Purchaser given at any time during the applicable period. If such right to purchase the Offer Shares is exercised, Holding or the CD&R Fund, as the case may be, shall deliver to the Purchaser a certified or bank check for the Offer Price, payable to the order of the Purchaser, against delivery of certificates or other instruments representing the Offer Shares so purchased, appropriately endorsed by the Purchaser. If such right shall not have been exercised prior to the expiration of the Second Refusal Period, then at any time during the 30 days following the expiration of the Second Refusal Period, the Purchaser may sell the Offer Shares to (but only to) the intended purchaser named in the Purchaser's notice to Holding and the CD&R Fund at the Offer Price and on the Offer Terms specified in such notice, free of all restrictions or obligations imposed by, and free of any rights or benefits set forth in this Agreement, provided that such intended purchaser shall have agreed in writing, pursuant to an instrument of assumption satisfactory in substance and form to Holding, to make and be bound by the representations, warranties and covenants set forth in Section 3 hereof, other than those set forth in Section 3 (f) (i), 3 (f) (iii) and 3 (i) and other than references to Sections 4 through 8 of this Agreement contained in Sections 3 (a) (i). The right of the Purchaser to sell the Offer Shares set forth in this Section 5 (a), subject to the rights of first refusal set forth in this Section 5 (a), shall be suspended during the Option Periods referred to in Section 6 hereof, but the provisions of Section 6 shall not otherwise restrict the ability of the Purchaser to sell the Offer Shares, whether before or after such Option Periods, pursuant to the terms and subject to the restrictions set forth in this Section 5 (a). (b) Public Offering. In the event that a Public Offering has been consummated, the Purchaser may sell his Shares without complying with Section 5 (a) and this Section 5 shall not apply to a sale to the underwriters as part of the Public Offering or at any time thereafter. 6. Options Effective on Termination of Employment or Unforeseen Personal Hardship of the Purchaser. (a) Termination of Employment. If the Purchaser's active employment with Holding or any Subsidiary thereof that employs the Purchaser is terminated for any reason whatsoever, Holding shall have an option to purchase all or a portion of the Shares then held by the Purchaser (or, if his or her employment was terminated by his or her 8 9 death, his or her estate) and shall have 60 days from the later of the date of termination of Purchaser's employment or the date that is seven months after the date of the Purchaser's acquisition of the Shares pursuant to this Agreement (such date, the "Option Start Date" and, such 60-day period, the "First Option Period") during which to give notice in writing to the Purchaser (or his estate) of its election to exercise or not to exercise such option, in whole or in part; provided that, if such Purchaser is terminated for Cause, the Option Start Date shall be the date of termination of such Purchaser's employment. Holding hereby undertakes to use reasonable efforts to act as promptly as practicable following the Option Start Date to make such election. If Holding fails to give notice that it intends to exercise such option within the First Option Period or Holding gives notice that it does not intend to exercise such option or that it intends to exercise such option with respect to only a portion of the Shares, the CD&R Fund shall have an option to purchase all or a portion of the Shares then held by the Purchaser (or his estate) that will not be repurchased by Holding and shall have until the expiration of the earlier of (x) 60 days following the end of the First Option Period or (y) 60 days from the date of receipt by the CD&R Fund of written notice from Holding indicating whether it will exercise its option to purchase any of the Shares (such 60-day period being hereinafter referred to as the "Second Option Period"), to give notice in writing to the Purchaser (or his estate) of the CD&R Fund's exercise of its option to purchase all or a portion of the Shares that will not be repurchased by Holding. If Holding and the CD&R Fund do not exercise their respective options to purchase, collectively, all of the shares pursuant to this subsection, (i) the Purchaser (or his estate) shall be entitled to retain any Shares which will not be acquired by Holding or the CD&R Fund, subject to all of the provisions of this Agreement (including without limitation Section 4) and (ii) if the Purchaser's active employment with Holding and each of its Subsidiaries that employs the Purchaser is terminated (A) by such employer or employers without Cause, (B) by the Purchaser by Retirement at Normal Retirement Age, (C) by reason of the Disability or death of the Purchaser or (D) by the Purchaser for Good Reason, then on notice from the Purchaser (or his estate) in writing and delivered to Holding within 30 days following the earlier of (i) the last day of the Second Option Period and (ii) the date the CD&R Fund delivers written notice to the Purchaser indicating whether the CD&R Fund will exercise its option to purchase any of the Shares, Holding shall purchase all (but not less than all) of the Shares then held by the Purchaser (or his estate). All purchases pursuant to this Section 6 (a) by Holding or the CD&R Fund shall be for a purchase price and in the manner prescribed by Section 7 hereof. (b) Unforeseen Personal Hardship. In the event that the Purchaser, while in the employment of Holding or one of its Subsidiaries, experiences Unforeseen Personal Hardship, the Holding Board will carefully consider any request by the Purchaser that Holding repurchase the Purchaser's Shares at a price determined in 9 10 accordance with Section 7 hereof, but Holding shall have no obligation to repurchase such Shares. The Holding Board shall consider such request with respect to Unforeseen Personal Hardship as soon as practicable after receipt by Holding of a written request by the Purchaser, such request to include sufficient details of the Purchaser's Unforeseen Personal Hardship to permit the Holding Board to review the request and the circumstances in an informed manner. (c) Certain Definitions. As used in this Agreement the following terms shall have the following meanings: (i) "Cause" shall have the meaning assigned to such term in the Employment Agreement. (ii) "Good Reason" shall have the meaning assigned to such term in the Employment Agreement. (iii) "Disability" shall have the meaning assigned to such term in the Employment Agreement. (iv) "Retirement at Normal Retirement Age" shall mean retirement from employment with Holding and any Subsidiary thereof that employs the Purchaser at age 65 or later. (v) "Unforeseen Personal Hardship" shall mean financial hardship arising from (x) extraordinary medical expenses or other expenses directly related to illness or disability of the Purchaser, a member of the Purchaser's immediate family or one of the Purchaser's parents or (y) payments necessary or required to prevent the eviction of the Purchaser from the Purchaser's principal residence or foreclosure on the mortgage on that residence. The Holding Board's reasoned and good faith determination of Unforeseen Personal Hardship shall be binding on Holding and the Purchaser. (d) Notice of Termination. Holding shall give written notice of any termination of the Purchaser's employment to the CD&R Fund, except that if such termination (if other than as a result of death) is by the Purchaser, the Purchaser shall give written notice of such termination to Holding and Holding shall give written notice of such termination to the CD&R Fund. (e) Public Offering. In the event that a Public Offering has been consummated, neither Holding nor the CD&R Fund shall have any right to purchase the 10 11 Shares pursuant to this Section 6 and this Section 6 shall not apply to a sale as part of the Public Offering. 7. Determination of the Purchase Price; Manner of Payment. (a) Purchase Price. (i) For the purposes of any purchase of the Shares pursuant to Section 6, and subject to Section 11(c), the purchase price per Share to be paid to the Purchaser (or his estate) for each Share (the "Purchase Price") shall be the Fair Market Value (determined in accordance with paragraph (ii) below) of such Share as of the later of seven months after the date of the Purchaser's acquisition of such Share or the effective date of the termination of employment or determination of financial hardship, as the case may be, that gives rise to the right or obligation to repurchase (such date, the "Determination Date"), provided that if the Purchaser's employment is terminated by Holding or any Subsidiary thereof that employs the Purchaser for Cause, the Purchase Price for such Shares shall be the lesser of (i) the Fair Market Value of such Shares as of the effective date of such termination of employment and (ii) the price at which the Purchaser purchased such Shares from Holding. (ii) Whenever determination of the Fair Market Value of the Shares is required to be determined under the terms of this Agreement, such Fair Market Value shall be such amount as is determined in good faith by the Holding Board in accordance with this subsection (ii). In making a determination of Fair Market Value, the Holding Board shall give due consideration to such factors as it deems appropriate, provided that such factors shall include, without limitation, the earnings and certain other financial and operating information of Holding and its Subsidiaries in recent periods, the potential value of Holding and its Subsidiaries as a whole, the future prospects of Holding and its Subsidiaries and the industries in which they compete, the history and management of Holding and its Subsidiaries, the general condition of the securities markets, the fair market value of securities of companies engaged in businesses similar to those of Holding and its Subsidiaries and the Applicable Share Valuation (as defined below). The determination of Fair Market Value will not give effect to any restrictions on transfer of the Shares or the fact that such Shares would represent a minority interest in Holding. For purposes of this Agreement, the term "Applicable Share Valuation" shall mean the annual valuation of the Common Stock performed as of the last day of the last fiscal year of Holding ending prior to the Determination Date by an independent valuation firm chosen by the Holding Board, except that, in the case of a Determination Date occurring during the fourth fiscal quarter of any fiscal year of Holding beginning with the fourth quarter of the 2001 fiscal year of Holding, the term "Applicable Share Valuation" shall mean the annual valuation of the Common Stock performed as of the last day of such fourth fiscal quarter by an independent valuation firm chosen by the Holding Board. 11 12 Such annual valuations shall be performed as promptly as practicable following the end of each fiscal year of Holding, beginning with the 2001 fiscal year of Holding. The Fair Market Value as reasonably determined in good faith by the Holding Board and in the absence of fraud shall be binding and conclusive upon all parties hereto and the CD&R Fund. If Holding subdivides (by any stock split, stock dividend or otherwise) the Common Stock into a greater number of shares, or combines (by reverse stock split or otherwise) the Common Stock into a smaller number of shares after the Holding Board shall have determined the Purchase Price for the Shares (without taking into consideration such subdivision or combination) and prior to the consummation of the purchase, the Purchase Price (including any minimum or maximum Purchase Price specified herein or in effect as a result of a prior adjustment) shall be appropriately adjusted to reflect such subdivision or combination and the Holding Board's determination as to any such adjustment shall be binding and conclusive on all parties hereto and the CD&R Fund. (b) Closing of Purchase; Payment of Purchase Price. Subject to Section 11, the closing of a purchase pursuant to this Section 6 shall take place at the principal office of Holding on the tenth business day following whichever of the following is applicable: (i) the receipt by the Purchaser (or his estate) of the notice of Holding or the CD&R Fund, as the case may be, of its exercise of its option to purchase any of the Shares pursuant to Section 6 (a) or (ii) Holding's receipt of notice from the Purchaser (or his estate) requiring Holding to purchase all of the Shares pursuant to Section 6 (a) or (iii) the Holding Board's determination (which shall be delivered to the Purchaser) that Holding is authorized to purchase Shares as a result of Unforeseen Personal Hardship pursuant to Section 6 (b). At the closing, (i) subject to the proviso below, Holding or the CD&R Fund, as the case may be, shall pay to the Purchaser (or his estate) cash or immediately available funds in an amount equal to the Purchase Price and (ii) the Purchaser (or his estate) shall deliver to Holding such certificates or other instruments representing the Shares so purchased, appropriately endorsed by the Purchaser (or his estate), as Holding may reasonably require; provided, however, that if the Determination Date occurs during the first or last fiscal quarter of any fiscal year of Holding, Holding or the CD&R fund, as the case may be, may elect to pay the Purchase Price in two installments. In any such event, (i) at the closing of the purchase of the Shares, Holding or the CD&R Fund, as the case may be, shall pay to the Purchaser (or his estate) an amount (the "First Installment Amount") equal to 80% of the Fair Market Value of the Shares, determined pursuant to Section 7 (a) hereof on the basis of the most recent available valuation of the Shares, and (ii) no later than the tenth business day following receipt by Holding of the Applicable Share Valuation, Holding or the CD&R Fund, as the case may be, shall pay an additional amount to the Purchaser (or his estate) equal to the sum of (1) the excess (the "Excess Payment"), if any, of (A) the Purchase Price for the Shares, over (B) the First Installment Amount and (2) interest on the Excess 12 13 Payment for the period commencing on the closing date of the purchase of the Shares and ending on the date of payment of such additional amount pursuant to this clause (ii) at the average annual cost to Holding and its Subsidiaries of its bank indebtedness obligations outstanding during such period or, if there are no such obligations outstanding, one percentage point greater than the average annual prime rate charged during such period by The Chase Manhattan Bank in New York, New York ("Chase Bank") or such other nationally recognized bank designated by Holding. (c) Application of the Purchase Price to Certain Loans. The Purchaser agrees that Holding and the CD&R Fund shall be entitled to apply any amounts to be paid by Holding or the CD&R Fund, as the case may be, to repurchase Shares pursuant to Section 5 or 6 hereof to discharge any indebtedness of the Purchaser to Holding or any Subsidiary thereof, including, without limitation, indebtedness of the Purchaser incurred to purchase the Shares or indebtedness to a third party that is guaranteed by Holding or any such Subsidiary. 8. Drag-Along Rights. (a) Drag-Along Notice. If the CD&R Fund intends to effect a sale of 51% or more of its shares of common stock of Holding to a third party (a "Third Party Buyer") and the CD&R Fund elects to exercise its rights under this Section 8, the CD&R Fund shall deliver written notice (a "Drag-Along Notice") to the Purchaser, which notice shall (a) state (i) that the CD&R Fund wishes to exercise its rights under this Section 8 with respect to such sale, (ii) the name and address of the Third Party Buyer, (iii) the per share amount and form of consideration the CD&R Fund proposes to receive for its shares of common stock of Holding and (iv) the terms and conditions of payment of such consideration and all other material terms and conditions of such sale, (b) contain an offer (the "Drag-Along Offer") by the Third Party Buyer to purchase from the Purchaser a percentage of his Shares equal to the percentage of the shares of common stock of Holding owned by the CD&R Fund that are to be sold to the Third Party Buyer (such percentage, the "Applicable Percentage") on and subject to the same terms and conditions offered to the CD&R Fund and (c) state the anticipated time and place of the closing of the purchase and sale of the Applicable Percentage of the Shares (a "Section 8 Closing"), which (subject to such terms and conditions) shall occur not fewer than five (5) days nor more than ninety (90) days after the date such Drag-Along Notice is delivered, provided that if such Section 8 Closing shall not occur prior to the expiration of such 90-day period, the CD&R Fund shall be entitled to deliver additional Drag-Along Notices with respect to such Drag-Along Offer. 13 14 (b) Conditions to Drag-Along. Upon delivery of a Drag-Along Notice, the Purchaser shall have the obligation to transfer the Applicable Percentage of the Purchaser's Shares pursuant to the Drag-Along offer, as the same may be modified from time to time, provided that the CD&R Fund transfers the Applicable Percentage of its shares of common stock of Holding to the Third Party Buyer at the Section 8 Closing. Within 10 days of receipt of the Drag-Along Notice, the Purchaser shall (i) execute and deliver to the CD&R Fund a power of attorney and a letter of transmittal and custody agreement appointing, and in form and substance reasonable satisfactory to, the CD&R Fund or one or more of its affiliates designated by the CD&R Fund (the "Custodian"), the true and lawful attorney-in-fact and custodian for the Purchaser, with full power of substitution, and authorizing the Custodian to take such actions as the Custodian may deem necessary or appropriate to effect the sale and transfer of the Applicable Percentage of the Shares to the Third Party Buyer, upon receipt of the purchase price therefor at the Section 8 Closing, free and clear of all security interests, liens, claims, encumbrances, charges, options, restrictions on transfer, proxies and voting and other agreements of whatever nature, and to take such other action as may be necessary or appropriate in connection with such sale, including consenting to any amendments, waivers, modifications or supplements to the terms of the sale (provided that the CD&R Fund also so consents, and, to the extent applicable, sells and transfers the Applicable Percentage of its shares of common stock of Holding on the same terms as so amended, waived, modified or supplemented) and (ii) deliver to the Custodian certificates representing the Applicable Percentage of the Shares, together with all necessary duly executed stock powers. The Custodian shall hold the Applicable Percentage of the Shares and other documents in trust for the Purchaser pending completion or abandonment of such sale. If, within 90 days after the CD&R Fund delivers the Drag-Along Notice, the CD&R Fund has not completed the sale of the Applicable Percentage of the Shares and of its shares of common stock of Holding to the Third Party Buyer and another Drag-Along Notice with respect to such Drag-Along Offer has not been sent to the Purchaser, the Custodian shall return to the Purchaser all certificates representing the Applicable Percentage of the Shares and all other documents that the Purchaser delivered in connection with such sale. Promptly after the Section 8 Closing, the Custodian shall give notice thereof to the Purchaser, shall remit to the Purchaser the total consideration for the Applicable Percentage of the Shares sold pursuant thereto (reduced by any required withholding or other similar taxes and by any amount required to be held in escrow pursuant to the terms of the purchase and sale agreement and a pro rata portion of any expenses incurred in connection with such sale), and shall furnish such other evidence of the completion and time of completion of such sale and the terms thereof as may reasonably be requested by the Purchaser. 14 15 (c) Reincorporation, Merger, Etc. . If the CD&R Fund shall determine that Holding should reincorporate in another jurisdiction, merge with or into another entity, transfer substantially all of its assets to another entity or participate in any other corporate reorganization or readjustment (any such transaction a "Reorganization"), Purchaser shall take such actions as may be requested by Holding to effect such a Reorganization; provided that Purchaser shall not be required to take such actions unless Purchaser's proportionate interest in the assets and earnings of any entity that results from such Reorganization is the same (except for de minimis differences) as such Purchaser's interest in the assets and earnings of Holding immediately prior to such Reorganization. (d) Remedies. The Purchaser acknowledges that the CD&R Fund would be irreparably damaged in the event of a breach or a threatened breach by the Purchaser of any of its obligations under this Section 8 and the Purchaser agrees that, in the event of a breach or a threatened breach by the Purchaser of any such obligation, the CD&R Fund shall, in addition to any other rights and remedies available to it in respect of such breach, be entitled to an injunction from a court of competent jurisdiction (without any requirement to post bond) granting specific performance by the Purchaser of its obligations under this Section 8. In the event that the CD&R Fund shall file suit to enforce the covenants contained in this Section 8 (or obtain any other remedy in respect of any breach thereof), the prevailing party in the suit shall be entitled to recover, in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, including reasonable attorney's fees and expenses. In the event that, following a breach or a threatened breach by the Purchaser of the provisions of this Section 8, the CD&R Fund does not obtain an injunction granting it specific performance of the Purchaser's obligations under this Section 8 in connection with such proposed sale prior to the time the CD&R Fund completes the sale of the Applicable Percentage of its shares of common stock of Holding or, in its sole discretion, abandons such sale, then Holding shall have the option to purchase all of the Shares from the Purchaser at a purchase price per Share equal to the price at which the Purchaser purchased such shares of Common Stock from Holding or, if less, the per share consideration payable pursuant to the Drag-Along Offer. Upon notification by Holding to the Purchaser of Holding's decision to purchase such Shares, including the price to be paid therefor, the sale and transfer to Holding shall be considered complete and ownership of such Shares shall pass to Holding. (e) Public Offering. In the event that a Public Offering has been consummated, the provisions of this Section 8 shall terminate and cease to have further effect. 15 16 9. Representations and Warranties of Holding. Holding represents and warrants to the Purchaser that (a) Holding has been duly incorporated and validly exists under the laws of Luxembourg, (b) this Agreement has been duly authorized, executed and delivered by Holding and constitutes a valid and legally binding obligation of Holding enforceable against Holding in accordance with its terms and (c) the Shares, when issued, delivered and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, and free and clear of any liens or encumbrances other than those created pursuant to this Agreement, or otherwise in connection with the transactions contemplated hereby. 10. Covenants of Holding. (a) Rule 144. Holding agrees that at all times after it has filed a registration statement after the date hereof pursuant to the requirements of the Securities Act or Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to any class of equity securities of Holding (other than (i) the registration of equity securities of Holding and/or options or interests in respect thereof to be offered primarily to directors and/or members of management or employees, sales agents or similar representatives of Holding or its Subsidiaries, or directors or senior executives or corporations in which entities managed or sponsored by Clayton, Dubilier & Rice, Inc. ("CD&R") have made equity investments and/or other persons with whom CD&R has consulting or other advisory relationships, or (ii) the registration of equity securities and/or options or other interests in respect thereof solely on Form S-4 or S-8 or any successor form), it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, if Holding is not required to file such reports, it will, upon the request of the Purchaser, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), to the extent required from time to time to enable the Purchaser to sell the Shares without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, as such Rule may be amended from time to time, or (ii) any successor rule or regulation hereafter adopted by the Commission. (b) State and Non-U.S. Securities Laws. Holding agrees to use its best efforts to comply with all state securities or "blue sky" laws and foreign securities laws, if any, applicable to the sale of the Shares to the Purchaser, provided that Holding shall not be obligated to qualify or register the Shares under any such law or to qualify as a foreign corporation or file any consent to service of process under the laws of any jurisdiction or subject itself to taxation as doing business in any such jurisdiction. 16 17 11. Certain Restrictions on Repurchases. (a) Financing Agreements, etc. Notwithstanding any other provision of this Agreement, Holding shall not be obligated or permitted to repurchase any Shares from the Purchaser if (i) such repurchase would result in a violation of the terms or provisions of, or results in a default or an event of default by Holding or any of its Subsidiaries under, (A) the Credit Agreement, dated as of April 30, 1998 (as amended from time to time, the "Credit Agreement"), among JCI, the other borrowers thereto, Credit Suisse First Boston, as administrative agent, and the lenders party thereto from time to time, (B) the Indenture, dated as of April 30, 1998, among JCI, the other borrowers thereto and guarantors thereof, and State Street Bank and Trust Company, as trustee (the "Indenture") or (C) any other guarantee, financing or security agreement or document entered into (I) by Holding or any Subsidiary thereof prior to date hereof, or (II) otherwise from time to time in connection with the operations of Holding or its Subsidiaries (the Credit Agreement, the Indentures and such other agreements and documents, as each may be amended, modified or supplemented from time to time, are referred to herein as the "Financing Agreements"), in each case as the same may be amended, modified or supplemented from time to time, (ii) such repurchase would violate any of the terms or provisions of the Articles of Incorporation of Holding or the laws of Luxembourg or (iii) Holding has no funds legally available therefor under the laws of Luxembourg. (b) Delay of Repurchase. In the event that the repurchase of any of the Shares by Holding otherwise permitted or required under Section 6 (a) is prevented solely by the terms of Section 11 (a), Holding shall provide written notice thereof to the Purchaser and (i) such repurchase will be postponed and will take place without the application of further conditions or impediments (other than as set forth in Section 7 hereof or in this Section 11) at the first opportunity thereafter when Holding has funds legally available therefor and when such repurchase will not result in any default, event of default or violation under any of the Financing Agreements or in a violation of any term or provision of the Articles of Incorporation of Holding or any law of Luxembourg and (ii) such repurchase obligation shall rank against other similar repurchase obligations with respect to shares of Common Stock or options in respect thereof according to priority in time of the effective date of the termination of employment or, if applicable, determination of financial hardship giving rise to such repurchase obligation; provided that (A) repurchase obligations arising pursuant to the exercise of a Purchaser's right to require a repurchase under Section 6 (a) and repurchase obligations arising under Section 6 (b) by reason of an approved financial hardship shall take precedence over repurchase obligations arising pursuant to Holding's exercise of its right to repurchase the Shares under Section 6 (a) (unless the Purchaser had given written notice to Holding of such 17 18 Purchaser's intent to require Holding to repurchase the Shares under Section 6 (a) in the event that Holding does not exercise its right to do so, in which case, solely for the purpose of this clause (A), such repurchase shall be treated as pursuant to such right of the Purchaser) and (B) repurchase obligations as to which a common date determines priority shall be of equal priority and shall share pro rata in any repurchase payments made pursuant to clause (i) above. In the event that the repurchase of any of the Shares by Holding otherwise required under Section 6 (a) is prevented by reason of clause (iii) of Section 11 (a), and a Subsidiary of Holding has cash and legally available distributable reserves sufficient to enable Holding to effect such repurchase (and the distribution of such cash can be accomplished without the imposition of any withholding or other tax or other cost and without adversely affecting the business affairs of such Subsidiary) so that such repurchase would not be prevented by reason of such clause (iii), Holding will use commercially reasonable efforts to cause such Subsidiary to so distribute such funds, subject in all cases to any restrictions or other limitations in any of the Financing Agreements. (c) Purchase Price Adjustment. In the event that a repurchase of Shares from the Purchaser is delayed pursuant to this Section 11, the purchase price per Share when the repurchase of such Shares eventually takes place as contemplated by Section 11 (b) shall be equal to the Purchase Price per Share determined under Section 7 as of the date of the termination or determination of financial hardship giving rise to such repurchase, increased by interest on such Purchase Price for the period from the date such repurchase would have taken place but for a delay of such repurchase pursuant to Section 11 (a) to the date on which the repurchase actually takes place (the "Delay Period"), at an annual rate of interest equal to the average annual cost to Holding and its Subsidiaries of its bank indebtedness obligations outstanding during the Delay Period or, if there are no such obligations outstanding, one percentage point greater than the average annual prime rate charged during the Delay Period by Chase Bank or such other nationally recognized bank designated by Holding. 12. Miscellaneous. (a) Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by certified or express mail, return receipt requested, postage prepaid, or by any recognized international equivalent of such mail delivery, to Holding, the CD&R Fund or the Purchaser, as the case may be, at the following addresses or to such other address as Holding, the CD&R Fund or the Purchaser, as the case may be, shall specify by notice to the others: 18 19 (i) if to Holding, to Holding at: CDRJ Investments (Lux) S.A. 3 Boulevard Royal L-2449 Luxembourg Luxembourg Attention: Secretary of the Advisory Committee with a copy to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, California 91361 Attention: General Counsel (ii) if to the Purchaser, to the Purchaser at the address set forth on the signature page hereof, with a copy to: Stephan G. Bachelder & Associates, P.A. 22 Free Street, Suite 201 Portland, ME 04101 Attention: Stephan G. Bachelder, Esq. (iii) if to the CD&R Fund, to: Clayton, Dubilier & Rice Fund V Limited Partnership Foulkstone Plaza, Suite 102 1403 Foulk Road Wilmington, Delaware 19803 Attention: Joseph L. Rice, III All such notices and communication shall be deemed to have been received on the date of delivery if delivered personally or on the third business day after the mailing thereof. Copies of any notice or other communication given under this Agreement shall also be given to: Clayton Dubilier & Rice, Inc. 375 Park Avenue New York, New York 10152 19 20 Attention: Donald J. Gogel and Debevoise and Plimpton 875 Third Avenue New York, New York 10022 Attention: Paul S. Bird, Esq. The CD&R Fund also shall be given a copy of any notice or other communication between the Purchaser and Holding under this Agreement at its address as set forth above. (b) Binding Effect; Benefits. This Agreement shall be binding upon the parties to this Agreement and their respective successors and assigns and shall inure to the benefit of the parties to this Agreement, the CD&R Fund and their respective successors and assigns. Except as provided in Sections 4 through 8, inclusive, nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement, the CD&R Fund or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or provision contained herein. (c) Waiver, Amendment. (i) Waiver. Any party hereto or beneficiary hereof may by written notice to the other parties (A) extend the time for the performance of any of the obligations or other actions of the other parties under this Agreement, (B) waive compliance with any of the conditions or covenants of the other parties contained in this Agreement and (C) waive or modify performance of any of the obligations of the other parties under this Agreement, provided that any waiver of the provisions of Sections 4 through 8, inclusive, must be consented to in writing by the CD&R Fund. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party or beneficiary shall be deemed to constitute a waiver by the party or beneficiary taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto or beneficiary hereof of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and 20 21 no failure by a party to exercise any right or privilege hereunder shall be deemed a waiver of such party's or beneficiary's rights or privileges hereunder or shall be deemed a waiver of such party's or beneficiary's rights to exercise the same at any subsequent time or times hereunder. (ii) Amendment. This Agreement may not be amended, modified or supplemented orally, but only by a written instrument executed by the Purchaser and Holding, and, in the case of any amendment, modification or supplement to or affecting any of Sections 4 through 8 inclusive or that adversely affects the rights of the CD&R Fund hereunder consented to by the CD&R Fund in writing. The parties hereto acknowledge that Holding's consent to an amendment or modification of this Agreement may be subject to the terms and provisions of the Financing Agreements. (d) Assignability. Except as provided herein, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by Holding or the Purchaser without the prior written consent of the other party hereto and the CD&R Fund; provided that this Agreement and the rights, remedies, obligations and liabilities of Holding shall be assignable by Holding to any Successor of Holding. Holding and the CD&R Fund may assign from time to time all or any portion of its rights under Section 4 though 8 hereof to one or more Affiliates designated by it. (e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS WHICH WOULD REQUIRE APPLICATION OF THE LAW OF ANOTHER JURISDICTION. (f) Jurisdiction. The Purchaser hereby irrevocably and unconditionally submits, for him or her self and his or her property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that Holding may otherwise have to bring any action or proceeding 21 22 relating to this Agreement against the Purchaser or his or her properties in the courts of any jurisdiction. The Purchaser hereby irrevocably and unconditionally waives, to the fullest extent he or she may legally and effectively do so, any objection that he or she may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (g) Section and Other Headings, etc. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (h) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. (i) Certain Definitions. "Affiliate": with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including but not limited to a Subsidiary of the first Person, a Person of which the first Person is a Subsidiary, or another Subsidiary of a Person of which the first Person is also a Subsidiary. "Control": with respect to any Person, means the possession, directly or indirectly, severally or jointly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. "Person": any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. "Subsidiary": with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing 50% or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person. "Successor": of a Person means a Person that succeeds to the first Person's assets and liabilities by merger, liquidation, dissolution or otherwise by 22 23 operation of law, or a Person to which all or substantially all the assets and/or business of the first Person are transferred. 23 24 IN WITNESS WHEREOF, Holding and the Purchaser have executed this Agreement as of the date first above written. CDRJ INVESTMENTS (LUX) S.A. By: ----------------------------------------- Name: Title: THE PURCHASER: By: ----------------------------------------- Name: as Attorney-in-Fact Address of the Purchaser: Total Number of Shares of Common Stock of CDRJ Investments (Lux) S.A. (RC Luxembourg B 63 119) to be Purchased Total Cash Purchase Price 24 EX-21.1 6 v70623ex21-1.txt EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF CDRJ INVESTMENTS (LUX) S.A. 1. CDRJ Asia Pacific, Inc. (Delaware) 2. CDRJ Europe Holding Company B.V. (The Netherlands) 3. CDRJ Europe Holding Company Gmbh (Germany) 4. CDRJ German Holding Company Gmbh (Germany) 5. CDRJ North Atlantic (Lux) S.a.r.L. (Luxembourg) 6. CDRJ Latin America Holding Company B.V. (The Netherlands) 7. CDRJ Latin America Holding Company GmbH (Germany) 8. CDRJ Mexico Holding Company B.V. (The Netherlands) 9. CDRJ Worldwide (Lux) S.a.r.L. (Luxembourg) 10. Cosmeticos y Fragrancias, S.A. de C.V. (Mexico) 11. Dirsamex, S.A. de C.V. (Mexico) 12. Distribuidora Venus, S.A. de C.V. (Mexico) 13. Importadora y Distribuidora Jafra Chile Limitada (Chile) 14. Jafra Cosmeticos do Brasil Ltda. (Brazil) 15. Jafra Cosmetics A.G. (Switzerland) 16. Jafra Cosmetics de Colombia, S.A. (Colombia) 17. Jafra Cosmetics Dominicana S.A. (Dominican Republic) 18. Jafra Cosmetics Gmbh & Co. KG (Germany) 19. Jafra Cosmetics Handelsgesellschaft mbH (Austria) 20. Jafra Cosmetics International B.V. (The Netherlands) 21. Jafra Cosmetics International (Peru) S.A.C. (Peru) 22. Jafra Cosmetics International, Inc. (Delaware) 23. Jafra Cosmetics International, S.A. de C.V. (Mexico) 24. Jafra Cosmetics, S.A. de C.V. (Mexico) 25. Jafra Cosmetics, S.p.A. (Italy) 26. Jafra Cosmetics, S.R.L. (Argentina) 27. Jafra Cosmetics Venezuela, S.A. (Venezuela) 28. JafraFin, S.A. de C.V. (Mexico) 29. Jafra International (Thailand) Limited (Thailand) 30. Jafra Poland Sp. Z.o.o. (Poland) 31. Latin Cosmetics Holdings B.V. (The Netherlands) 32. Qualifax, S.A. de C.V. (Mexico) 33. Regional Cosmetics Holding B.V. (The Netherlands) 34. Southern Cosmetics Holdings B.V. (The Netherlands) -----END PRIVACY-ENHANCED MESSAGE-----