-----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, FV2sHX7NXRm22UJ4QmnuXtD2khCdQPHUD3P5aKZ1rQ5peGuI+RkutF0dDhHlCjHu AEvAa+9cQxoJmt+igHdqPg== 0000944209-99-001027.txt : 19990628 0000944209-99-001027.hdr.sgml : 19990628 ACCESSION NUMBER: 0000944209-99-001027 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990610 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990625 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAFRA COSMETICS INTERNATIONAL INC CENTRAL INDEX KEY: 0001069031 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133998453 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-62989-01 FILM NUMBER: 99651952 BUSINESS ADDRESS: STREET 1: 2451 TOWNSGATE ROAD CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 BUSINESS PHONE: 8054493000 MAIL ADDRESS: STREET 1: 2451 TOWNSGATE ROAD CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 8-K 1 FORM 8-K DATED JUNE 10, 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 10, 1999 Commission File Number: 000-23000 Jafra Cosmetics International, Inc. (Name of Small Business Issuer in its Charter) Delaware 980185480 (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 2451 Townsgate Road Westlake Village, California 91361 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (805) 449-3000 Item 2. Acquisition or Disposition of Assets On June 10, 1999, Jafra Cosmetics International, Inc. (the "Company") completed a sale of certain assets (the "Assets") and inventory (the "Inventory") used in connection with the manufacture and packaging of certain of its cosmetic and skin care products (the "Products") to Universal Packaging Systems, Inc. (the "Contractor") for a total purchase price of approximately $3.9 million pursuant to an Asset Purchase Agreement between the Company and the Contractor. The Contractor is a contract manufacturer located in Chino, California. The purchase price was paid in the form of two secured promissory notes. The Inventory was sold for an amount equal to the lesser of Jafra's most recent cost or the cost of replacement from its vendor. The note for the Assets is secured by a first priority lien on the Assets. That note bears interest at an annual rate of 8% and is payable in 36 equal monthly installments, commencing on January 1, 2000. The note for the Inventory is secured by a first priority lien on the Inventory. That note does not bear interest and is payable in 12 equal monthly installments, commencing on October 1, 1999. The amounts due under the notes are not cross-collateralized. In connection with the sale of the Assets and Inventory, the Company entered into a Manufacturing Agreement dated as of June 10, 1999 between the Company and the Contractor (the "Manufacturing Agreement"). Pursuant to the Manufacturing Agreement, the Contractor has agreed to manufacture for the Company all of the Company's requirements for the Products for an initial term of five years, subject to the terms and conditions set forth therein. The Manufacturing Agreement provides that after the initial five-year term it will be automatically extended for additional one-year terms, unless terminated upon six months' prior written notice of either party. Since the Company will no longer be manufacturing the Products, the Company laid off approximately 75 employees who worked for the Company in related manufacturing positions. The Assets consist of machinery and other equipment used to manufacture and package the Products. The Inventory consists of raw materials and components used to manufacture and package the Products. The Company understands that the Contractor intends to use the Assets and the Inventory to manufacture Products for the Company pursuant to the Manufacturing Agreement. The Asset Purchase Agreement, the Manufacturing Agreement and the notes are filed with this report as exhibits and the brief descriptions above are qualified by reference to the text of such documents. The Company has submitted a request to the Securities and Exchange Commission for confidential treatment of certain portions of the exhibits filed with this report. Such confidential portions have been omitted from this filing. Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits (c) Exhibits The exhibits listed below are filed as part of this Current Report. 2 Exhibit Number Description of Exhibit - -------------- ---------------------- 10.1 Asset Purchase Agreement, dated as of June 10, 1999, as amended by Amendment No. 1, dated as of June 10, 1999, by and between the Company and the Contractor (portions of which have been filed under a confidentiality request). 10.2 Amendment No. 1 to Asset Purchase Agreement, dated as of June 10, 1999 (portions of which have been filed under a confidentiality request). 10.3 Manufacturing Agreement, dated as of June 10, 1999, by and between the Company and the Contractor, as amended by Amendment No. 1, dated as of June 22, 1999 (portions of which have been filed under a confidentiality request). 10.4 Form of Amendment No. 1 to Manufacturing Agreement, dated as of June __, 1999 (portions of which have been filed under a confidentiality request). 10.5 Form of Secured Note for the Assets, dated June 10, 1999, made by the Contractor in favor of the Company (portions of which have been filed under a confidentiality request). 10.6 Form of Secured Note for the Inventory, dated June 10, 1999, made by the Contractor in favor of the Company (portions of which have been filed under a confidentiality request). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: June 25, 1999 JAFRA COSMETICS INTERNATIONAL, INC. By: /s/ Gary Eshleman -------------------------------- Name: Gary Eshleman Title: Treasurer 3 EXHIBIT INDEX The exhibits listed below are filed as part of this Current Report. Exhibit Number Description of Exhibit - -------------- ---------------------- 10.1 Asset Purchase Agreement, dated as of June 10, 1999, as amended by Amendment No. 1 dated as of June 10, 1999, by and between the Company and the Contractor (portions of which have been filed under a confidentiality request). 10.2 Amendment No. 1 to Asset Purchase Agreement, dated as of June 10, 1999. (portions of which have been filed under a confidentiality request). 10.3 Manufacturing Agreement, dated as of June 10, 1999, by and between the Company and the Contractor, as amended by Amendment No. 1, dated as of June 22, 1999 (portions of which have been filed under a confidentiality request). 10.4 Form of Amendment No. 1 to Manufacturing Agreement, dated as of June __, 1999 (portions of which have been filed under a confidentiality request). 10.5 Form of Secured Note for the Assets, dated June 10, 1999, made by the Contractor in favor of the Company. (portions of which have been filed under a confidentiality request). 10.6 Form of Secured Note for the Inventory, dated June 10, 1999, made by the Contractor in favor of the Company. (portions of which have been filed under a confidentiality request). 4 EX-10.1 2 ASSET PURCHASE AGREEMENT DATED 06/10/1999 EXHIBIT 10.1 ASSET PURCHASE AGREEMENT between JAFRA COSMETICS INTERNATIONAL, INC. and UNIVERSAL PACKAGING SYSTEMS, INC. TABLE OF CONTENTS
Page ARTICLE 1 SALE AND TRANSFER OF ASSETS; CLOSING............................. 1 1.1 Purchase and Sale................................................ 1 1.1.1 Sale of Assets............................................ 1 1.1.2 Sale of Inventory......................................... 2 1.1.3 Warranty as to Assets; Inventory.......................... 2 1.2 Consideration.................................................... 2 1.2.1 Sale of Assets............................................ 2 1.2.2 Sale of Inventory......................................... 2 1.3 Closing.......................................................... 2 1.4 Closing Obligations.............................................. 3 1.4.1 Conveyance Instruments.................................... 3 1.4.2 Certificates.............................................. 3 1.5 Post-Closing Obligations To Be Assumed By Contractor............. 3 1.6 Post-Closing Obligations To Be Paid By Jafra..................... 3 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF CONTRACTOR..................... 3 2.1 Organization and Qualification................................... 3 2.2 Authority........................................................ 3 2.3 No Conflicts..................................................... 4 2.4 Consents......................................................... 4 2.5 Broker's or Finder's Fees........................................ 4 2.6 Disclosure....................................................... 4 2.7 Truth at Closing................................................. 4 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF JAFRA.......................... 4 3.1 Organization and Qualification................................... 4 3.2 Authority........................................................ 5 3.3 Disclaimer....................................................... 5 3.4 Broker's or Finder's Fees........................................ 5 3.5 Disclosure....................................................... 5 3.6 Truth at Closing................................................. 5 ARTICLE 4 COVENANTS OF CONTRACTOR AND JAFRA PRIOR TO CLOSING............... 5 4.1 Updating of Information.......................................... 5 ARTICLE 5 CONDITIONS TO JAFRA'S OBLIGATIONS................................ 6 5.1 Representations and Warranties True at Closing Date.............. 6 5.2 Litigation....................................................... 6 5.3 Consent of Lenders............................................... 6 5.4 Consents......................................................... 6
i 5.5 Investigations.................................................. 6 5.6 No Material Adverse Change...................................... 6 5.7 Documents Satisfactory in Form and Substance.................... 6 5.8 Manufacturing Agreement......................................... 6 5.9 Secured Promissory Notes........................................ 7 ARTICLE 6 CONDITIONS TO CONTRACTOR'S OBLIGATIONS.......................... 7 6.1 Representations and Warranties True at Closing Date............. 7 6.2 Performance..................................................... 7 6.3 Consents........................................................ 7 6.4 No Litigation................................................... 7 ARTICLE 7 COVENANTS OF JAFRA AND CONTRACTOR FOLLOWING CLOSING............. 7 7.1 Allocation of Purchase Price.................................... 7 7.2 Transfer Taxes.................................................. 8 7.3 Resale Certificate.............................................. 8 7.4 Maintenance of Assets........................................... 8 7.5 Further Assurances.............................................. 8 ARTICLE 8 CERTAIN TRANSACTION MATTERS..................................... 8 8.1 Adjustment to Purchase Price for Inventory...................... 8 8.2 Objection to Inventory Value Computation........................ 8 8.3 Relocating Assets and Inventory to Contractor's Facilities...... 9 ARTICLE 9 INDEMNITY....................................................... 9 9.1 Indemnification by Contractor................................... 9 9.1.1 Breach or Obligation..................................... 9 9.1.2 Post-Closing Obligations and Liabilities................. 9 9.1.3 Incidental Matters....................................... 9 9.2 Indemnification by Jafra........................................ 9 9.2.1 Breach of Obligation..................................... 10 9.2.2 Pre-Closing Obligations and Liabilities.................. 10 9.2.3 Incidental Matters....................................... 10 9.3 Notice of Claim................................................. 10 9.4 Defense......................................................... 10 9.5 Recovery of Attorney Fees For Frivolous Actions................. 11 ARTICLE 10 CONFIDENTIALITY................................................. 11 10.1 Confidentiality Obligations Prior to Closing.................... 11 10.2 Confidentiality Obligations After Closing....................... 11 10.3 Permitted Disclosures........................................... 11 10.4 Scope of Confidential Information............................... 12 10.5 Trademarks and Trade Names...................................... 12
ii ARTICLE 11 TERMINATION PRIOR TO CLOSING.................................... 12 11.1 Termination of Agreement........................................ 12 11.1.1 Mutual Consent.......................................... 12 11.1.2 Deadline................................................ 12 11.1.3 Material Breach......................................... 12 11.2 Termination of Obligations...................................... 13 ARTICLE 12 MISCELLANEOUS................................................... 13 12.1 Notices......................................................... 13 12.2 Expenses........................................................ 14 12.3 Survival........................................................ 14 12.4 Counterparts.................................................... 14 12.5 Waiver.......................................................... 14 12.6 Assignment...................................................... 14 12.7 Severability.................................................... 14 12.8 Headings........................................................ 14 12.9 Facsimile....................................................... 14 12.10 Bulk Transfer Law............................................... 14 12.11 Governing Law................................................... 15
EXHIBIT A FORM OF ASSET NOTE EXHIBIT B FORM OF INVENTORY NOTE EXHIBIT C IRS FORM 8594 iii ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT (this "Agreement") dated as of June 10, 1999, by and between Jafra Cosmetics International, Inc. a Delaware corporation ("Jafra") and Universal Packaging Systems, Inc., a California corporation ("Contractor"). W I T N E S S E T H WHEREAS, concurrently with the closing of the transactions described below Jafra and Contractor will enter into a Manufacturing Agreement (the "Manufacturing Agreement") pursuant to which Contractor will manufacture and sell to Jafra the products described therein (the "Products"); and WHEREAS, in connection with the parties entering into the Manufacturing Agreement Jafra has agreed to sell and Contractor has agreed to purchase certain assets used in the manufacture and packaging of the Products; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE 1 SALE AND TRANSFER OF ASSETS; CLOSING 1.1 Purchase and Sale. ----------------- 1.1.1 Sale of Assets. (a) Subject to the terms and conditions of this -------------- Agreement, at the Closing of the transactions contemplated by this Agreement (the "Closing"), Jafra will sell, convey, assign and transfer certain assets (the "Assets") to Contractor and Contractor will purchase the Assets from Jafra, free and clear of all liens, claims and encumbrances (collectively "Liens") of third parties. The specific items to be included in the Assets will be listed on a schedule to be agreed upon between Contractor and Jafra, and attached to this Agreement, on or before July 12, 1999. (b) Within six (6) months of the Closing Date (defined below) the parties will agree in writing on which Assets must be retained by Contractor and which ones may be sold by Contractor. The proceeds of any Assets that are sold will be paid by Contractor to Jafra, and will be applied to reduce the principal balance owing on the Asset Note (defined below). Jafra and Contractor have had preliminary discussions regarding which Assets may be sold and consequently, Jafra agrees that certain Assets may be stored at Jafra's facility for up to *** following the Closing Date, ***. Furthermore, Jafra agrees that Contractor may ***. 1.1.2 Sale of Inventory. Subject to the terms and conditions of this ----------------- Agreement, at the Closing Jafra will sell, convey, assign and transfer the inventory, raw materials and components that Jafra has in stock (the "Inventory") to Contractor and Contractor will purchase the Inventory from Jafra free and clear of all Liens of third parties. The specific items to be contained in the Inventory will be determined at the conclusion of the transfer of the Inventory, which transfer shall be concluded no later than July 12, 1999. Jafra warrants that: (i) the age of the Inventory will be such that it will not expire on or before ***, and (ii) the Inventory will be usable and used to manufacture Products for Jafra on or before ***. In the event of a breach of the foregoing warranty, Jafra agrees to credit against principal owing on the Inventory Note (defined below) an amount equal to that which Contractor paid for that portion of the Inventory that does not conform to the foregoing warranty. 1.1.3 Warranty as to Assets; Inventory. Except as otherwise expressly -------------------------------- set forth herein: (i) Jafra shall transfer the Assets and Inventory *** and *** on the Closing Date (as defined below); and (ii) *** shall be given by Jafra to Contractor with respect to the Assets or the Inventory. 1.2 Consideration. ------------- 1.2.1 Sale of Assets. In consideration of the transfer by Jafra of -------------- the Assets to Contractor, Contractor shall pay to Jafra the sum of $*** as set forth in a Secured Promissory Note bearing interest at a rate of 8.0% per annum, in substantially the form attached hereto as Exhibit A with the initial payment commencing on January 1, 2000 (the "Asset Note"). Principal and interest on the Asset Note shall be payable in 36 equal monthly installments of $***. In the event the Assets are sold back to Jafra for any reason prior to the payment of all outstanding amounts due under the Asset Note, Contractor will return all Assets not previously sold with Jafra's permission, to Jafra, in good working condition, reasonable wear and tear excepted, in accordance with and subject to the provisions of Section 11.4 of the Manufacturing Agreement. 1.2.2 Sale of Inventory. In consideration of the transfer by Jafra of ----------------- the Inventory to Contractor, Contractor shall pay to Jafra an amount equal to ***, payable in 12 equal monthly installments as set forth in a zero interest Secured Promissory Note, in substantially the form attached hereto as Exhibit B with the initial payment commencing on October 1, 1999 (the "Inventory Note"). 1.3 Closing. The Closing will take place at the offices of Jafra at 2451 ------- Townsgate Road, Westlake Village, California 91361 at 10:00 a.m. (local time) on June 10, 1999, or at such other time and place as the parties may agree (the "Closing Date"). Subject to any other provision of this Agreement to the contrary, failure to consummate the transactions provided for in this Agreement on the date and time and at the place determined pursuant to this Section 1.3 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 2 1.4 Closing Obligations. At Closing, Jafra and Contractor shall take the ------------------- following actions, in addition to such other actions as may otherwise be required under this Agreement: 1.4.1 Conveyance Instruments. Jafra shall deliver to Contractor such ---------------------- deeds, bills of sale, assignments, and other instruments of conveyance and transfer as Contractor may reasonably request to effect the transfer and assignment to Contractor of the Assets and the Inventory. 1.4.2 Certificates. Each party shall deliver the certificates as to ------------ the accuracy of the representations and warranties contained herein, the compliance with the covenants and agreements contained herein, and the satisfaction of the conditions to Closing contained herein. 1.5 Post-Closing Obligations To Be Assumed By Contractor. Contractor ---------------------------------------------------- agrees that it will pay, perform and discharge all obligations related to the Assets and the Inventory that arise from the use of or in connection with the Assets and the Inventory after the Closing Date when the same become due or are required to be performed or discharged. 1.6 Post-Closing Obligations To Be Paid By Jafra. Jafra agrees that it -------------------------------------------- will be solely liable for and shall pay, perform and discharge all obligations related to the Assets and the Inventory that arise from or relate to the ownership and use of the Assets and the Inventory prior to the Closing Date when the same become due or are required to be performed or discharged, except for those obligations assumed by Contractor under this Agreement. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF CONTRACTOR Contractor hereby represents and warrants to Jafra as follows: 2.1 Organization and Qualification. Contractor is a corporation duly ------------------------------ incorporated, validly existing and in good standing under the laws of the State of California and has the requisite power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. 2.2 Authority. Contractor has all necessary corporate power and authority --------- to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement have been duly and validly authorized by all necessary corporate action and no other corporate proceedings are required on the part of the Contractor. This Agreement has been duly and validly executed and delivered by Contractor and constitutes the legal, valid and binding obligation of Contractor, enforceable against Contractor in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and to general principles of equity. 3 2.3 No Conflicts. The execution and delivery of this Agreement by ------------ Contractor does not, and the performance of this Agreement by Contractor will not (i) conflict with or violate the Articles of Incorporation or bylaws of Contractor, conflict with or violate any foreign or domestic (federal, state or local) law, statute, ordinance, rule, regulation, permit, injunction, writ, judgment, decree or order applicable to Contractor or by which any asset of Contractor is bound or (ii) conflict with, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or require any payment under, or result in the creation of a lien, claim, security interest or other charge or encumbrance on any asset of Contractor, except with respect to Contractor's lenders, Fremont Financial Corporation and El Dorado Bank, whose consents will be obtained by Contractor prior to the Closing. 2.4 Consents. The execution and delivery of this Agreement by Contractor -------- do not, and the performance of this Agreement by Contractor will not, require any consent, approval, authorization or permit of, or filing with or notification to, any United States (federal, state or local) or foreign government or governmental, regulatory or administrative authority, agency, commission, board, bureau, court or instrumentality or arbitrator of any kind. 2.5 Broker's or Finder's Fees. Contractor has not authorized any person to ------------------------- act as broker or finder or in any other similar capacity in connection with the transactions contemplated by this Agreement in any manner that may or will impose liability on Jafra. 2.6 Disclosure. No representation, warranty, or statement made by ---------- Contractor in this Agreement or in any document or certificate furnished or to be furnished to Jafra pursuant to this Agreement contains or will contain any untrue statement or omits or will omit to state any fact necessary to make the statements contained herein or therein not misleading. 2.7 Truth at Closing. All of: (a) the representations, warranties, and ---------------- agreements of Contractor contained in this Article 2 and (b) the representations, warranties and agreements of Contractor contained in the Exhibits attached hereto shall be true and correct and in full force and effect on and as of the Closing Date. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF JAFRA Jafra represents and warrants to Contractor as follows: 3.1 Organization and Qualification. Jafra is a corporation duly ------------------------------ incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. 4 3.2 Authority. Jafra has all necessary corporate power and authority to --------- execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement have been duly and validly authorized by all necessary corporate action and no other corporate proceedings are required on the part of Jafra. This Agreement has been duly and validly executed and delivered by Jafra and constitutes the legal, valid and binding obligation of Jafra, enforceable against Jafra in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and to general principles of equity. 3.3 Disclaimer. Except as expressly set forth in this Agreement or in any ---------- certificate or agreement furnished or to be furnished to Contractor pursuant to this Agreement, ***. 3.4 Broker's or Finder's Fees. Jafra has not authorized any person to act ------------------------- as broker, finder, or in any other similar capacity in connection with the transactions contemplated by this Agreement. 3.5 Disclosure. No representation, warranty, or statement made by Jafra in ---------- this Agreement or in any document or certificate furnished or to be furnished to Contractor pursuant to this Agreement contains or will contain any untrue statement or omits or will omit to state any fact necessary to make the statements contained herein or therein not misleading. 3.6 Truth at Closing. All of: (a) the representations, warranties, and ---------------- agreements of Jafra contained in this Article 3 and (b) the representations, warranties and agreements of Jafra contained in the Exhibits attached hereto shall be true and correct and in full force and effect on and as of the Closing Date. ARTICLE 4 COVENANTS OF CONTRACTOR AND JAFRA PRIOR TO CLOSING 4.1 Updating of Information. From the date of this Agreement to the ----------------------- Closing Date, each party shall deliver revised or supplementary Exhibits to this Agreement, containing accurate information as of the Closing Date, in order to enable the other party to confirm the accuracy of its representations and warranties and otherwise to give full effect to the provisions of this Agreement. Delivery of revised Exhibits by either party hereto shall not reduce or impair any of the rights the other party may have under Article 5 hereof. ARTICLE 5 CONDITIONS TO JAFRA'S OBLIGATIONS Each of the obligations of Jafra to be performed hereunder shall be subject to the satisfaction (or waiver by Jafra) at or prior to the Closing Date of each of the following conditions: 5 5.1 Representations and Warranties True at Closing Date. Contractor's --------------------------------------------------- representations and warranties contained in this Agreement shall be true on and as of the Closing Date with the same force and effect as though made on and as of such date; Contractor shall have complied with the covenants and agreements set forth herein to be performed by it on or before the Closing Date; and Contractor shall have delivered to Jafra a certificate dated the Closing Date and signed by a duly authorized officer of Contractor to such effect. 5.2 Litigation. No Litigation shall be threatened or pending against Jafra ---------- or Contractor before any court or governmental agency that, in the reasonable opinion of counsel for Jafra, could result in the restraint or prohibition of any such party, or the obtaining of damages or other relief from such party, in connection with this Agreement or the consummation of the transactions contemplated hereby. 5.3 Consent of Lenders. Jafra shall have received any consents required ------------------ pursuant to that certain credit agreement dated as of April 30, 1998 among Jafra, the several lenders from time to time parties thereto, Credit Suisse First Boston as administrative agent and Chase Securities Inc. as syndication agent. 5.4 Consents. All other required consents shall have been obtained. -------- 5.5 Investigations. Neither any investigation of Contractor by Jafra, nor -------------- the Exhibits hereto, nor any other document delivered to Jafra as contemplated by this Agreement, shall have revealed any facts or circumstances that, in the good faith judgment of Jafra, reflect in a material adverse way on the business, operations, or prospects of the Contractor and its business. 5.6 No Material Adverse Change. From the date of this Agreement until the -------------------------- Closing Date, Contractor shall not have suffered any material adverse change (whether or not such change is referred to or described in any supplement to the Exhibits), or the financial condition, operations, or prospects of Contractor's business. 5.7 Documents Satisfactory in Form and Substance. All agreements, -------------------------------------------- certificates, and other documents delivered by Contractor to Jafra hereunder shall be in form and substance satisfactory to counsel for Jafra, in the exercise of such counsel's reasonable judgment. 5.8 Manufacturing Agreement. Contractor shall have executed and delivered ----------------------- the Manufacturing Agreement, and the Manufacturing Agreement shall be in full force and effect. 5.9 Secured Promissory Notes. Contractor shall have executed and delivered ------------------------ the Asset Note and the Inventory Note, each of which shall be in full force and effect. 6 ARTICLE 6 CONDITIONS TO CONTRACTOR'S OBLIGATIONS Each of the obligations of Contractor to be performed hereunder shall be subject to the satisfaction (or the waiver by Contractor) at or prior to the Closing Date of each of the following conditions: 6.1 Representations and Warranties True at Closing Date. Jafra's --------------------------------------------------- representations and warranties contained in this Agreement shall be true on and as of the Closing Date with the same force and effect as though made on and as of such date; Jafra shall have complied with the covenants and agreements set forth herein to be performed by it on or before the Closing Date; and Jafra shall have delivered to Contractor a certificate dated the Closing Date and signed by a duly authorized officer of Jafra to such effect. 6.2 Performance. Jafra shall have performed and complied with all ----------- agreements, obligations, and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing. 6.3 Consents. All required consents have been obtained, including but not -------- limited to those from Fremont Financial Corporation and El Dorado Bank. 6.4 No Litigation. No Litigation shall be threatened or pending against ------------- Contractor or Jafra before any court or governmental agency that, in the reasonable opinion of counsel for Contractor, could result in the restraint or prohibition of any such party, or the obtaining of damages or other relief from such party, in connection with this Agreement or the consummation of the transactions contemplated hereby. 6.5 Manufacturing Agreement. Jafra shall have executed and delivered the ----------------------- Manufacturing Agreement and the Manufacturing Agreement shall be in full force and effect. ARTICLE 7 COVENANTS OF JAFRA AND CONTRACTOR FOLLOWING CLOSING 7.1 Allocation of Purchase Price. The purchase price shall be allocated to ---------------------------- the Assets in accordance with the requirements of Section 1060 of the Internal Revenue Code of 1986, as amended, based on mutual agreement between Jafra and Contractor as set forth in Exhibit C (Internal Revenue Service Form 8594), and all tax returns and reports filed or prepared by Jafra and Contractor with respect to the transactions contemplated by this Agreement shall be consistent with that allocation. 7.2 Transfer Taxes. All sales, transfer, and similar taxes and fees -------------- (including all recording fees, if any) incurred in connection with this Agreement and the transactions 7 contemplated hereby shall be borne by ***, and *** shall file all necessary documentation with respect to such taxes. 7.3 Resale Certificate. Contractor will furnish any resale certificate or ------------------ other documents reasonably requested by corporation to comply with the provisions of the sales and use tax laws of the State of California. 7.4 Maintenance of Assets. Contractor shall maintain the Assets that have --------------------- not been sold with the permission of Jafra, in good working order and condition for as long as the Manufacturing Agreement is in effect and if the Manufacturing Agreement is terminated by any party for any reason prior to the payment of all outstanding amounts due under the Asset Note, Contractor will return all Assets not previously sold with Jafra's permission, to Jafra, in good working condition, reasonable wear and tear excepted, in accordance with and subject to the provisions of Section 11.4 of the Manufacturing Agreement. 7.5 Further Assurances. Subject to the terms and conditions of this ------------------ Agreement, each party agrees to use all of its reasonable efforts to take, or cause to be taken, all actions and to do or cause to be done, all things necessary and proper or advisable to consummate and make effective the transactions contemplated by this Agreement (including the execution and delivery of such further instruments and documents) as the other party may reasonably request. ARTICLE 8 CERTAIN TRANSACTION MATTERS 8.1 Adjustment to Purchase Price for Inventory. Within thirty (30) days ------------------------------------------ following the Closing, *** shall prepare and deliver to ***, a computation of the value of the transferred Inventory, prepared on *** (the "Inventory Value Computation"). Jafra shall provide Contractor's representatives reasonable access to the books and records of Jafra and shall cause Jafra's employees to provide reasonable assistance to Contractor, both in connection with the preparation of the Inventory Value Computation, as well as any dispute with respect thereto. Jafra shall cause its auditor to coordinate with Contractor's accountants, if requested by Contractor, in connection therewith. 8.2 Objection to Inventory Value Computation. Contractor shall have the ---------------------------------------- right within five (5) business days following the delivery of the Inventory Value Computation pursuant to Section 8.1 above to object in writing, specifying in reasonable detail the basis for such objection(s). Contractor shall be deemed to have agreed with all items and amounts contained in the Inventory Value Computation, except as specifically objected to in such notice. If Contractor does so object, Contractor and Jafra shall cooperate with each other to attempt to reach a mutual agreement thereon, or, failing such agreement within five (5) business days, the determination shall be made by Deloitte & Touche LLP, the cost of which shall be shared equally by Contractor and Jafra. Contractor and Jafra shall deliver to Deloitte & Touche LLP copies of any schedules or documentation which may be reasonably required by Deloitte & Touche LLP to make its determination. Contractor and Jafra shall be 8 entitled to make presentations to Deloitte & Touche LLP in connection therewith. Contractor and Jafra shall use all reasonable efforts to cause Deloitte & Touche LLP to promptly complete such determination. The determination of Deloitte & Touche LLP shall be final and binding on the parties. 8.3 Relocating Assets and Inventory to Contractor's Facilities. Jafra ---------------------------------------------------------- shall be solely responsible for moving the Assets and Inventory to the loading area of Contractor's facilities in Chino, California, including all costs and expenses of moving. ARTICLE 9 INDEMNITY 9.1 Indemnification by Contractor. Contractor shall indemnify, defend, and ----------------------------- hold Jafra and its respective successors and assigns and the directors, officers, employees, and agents of each (collectively, the "Jafra Group"), at, and at any time after, the Closing, from and against any and all demands, claim, actions, or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts, together with interest and penalties (collectively, a "Loss" or "Losses"), asserted against, resulting to, imposed upon, or incurred by the Jafra Group, directly or indirectly, by reason of, resulting from, or arising in connection with any of the following: 9.1.1 Breach or Obligation. Any breach of any representation, -------------------- warranty, or agreement of Contractor contained in or made pursuant to this Agreement, including the agreements and other instruments contemplated hereby. 9.1.2 Post-Closing Obligations and Liabilities. Any obligations and ---------------------------------------- liabilities arising with regard to the Assets after the Closing. Except for obligations and liabilities undertaken or assumed by Contractor pursuant to the provisions of this Agreement. 9.1.3 Incidental Matters. To the extent not covered by the foregoing, ------------------ any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation and settlement amounts, together with interest and penalties, incident to the foregoing. 9.2 Indemnification by Jafra. Jafra shall indemnify, defend, and hold ------------------------ harmless Contractor and its successors and assigns and the directors, officers, employees, and agents of each (collectively, the "Contractor Group"), at, and at any time after, the Closing, from and against any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts together with interest and penalties (collectively, a "Loss" or "Losses"), asserted against, resulting to, imposed upon, or incurred by the Contractor Group, to the extent arising from any of the following: 9 9.2.1 Breach of Obligation. Any breach of any representation, -------------------- warranty, or agreement of Jafra contained in or made pursuant to this Agreement, including the agreements and other instruments contemplated hereby. 9.2.2 Pre-Closing Obligations and Liabilities. Any obligations and --------------------------------------- liabilities existing or arising with regard to the Assets prior to or on the Closing Date, except for obligations and liabilities undertaken or assumed by Contractor pursuant to the provisions of this Agreement. 9.2.3 Incidental Matters. To the extent not covered by the foregoing, ------------------ any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts, together with interest and penalties, incident to the foregoing. 9.3 Notice of Claim. The party entitled to indemnification hereunder (the --------------- "Claimant") shall promptly deliver to the party liable for such indemnification hereunder (the "Obligor") notice in writing (the "Required Notice") of any claim for recovery under Section 9.1 or Section 9.2 hereof, specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount of the liability arising therefrom (the "Claim"). The Claimant shall provide to the Obligor as promptly as practicable thereafter information and documentation reasonably requested by the Obligor to support and verify the claim asserted, provided that, in so doing, it may restrict or condition any disclosure in the interest of preserving privileges of importance in any foreseeable litigation. 9.4 Defense. If the facts pertaining to the Loss arise out of the claim of ------- any third party (other than a member of the Jafra Group or Contractor Group, whichever is entitled to indemnification for such matter) available by virtue of the circumstances of the Loss, the Obligor may assume the defense or the prosecution thereof, including the employment of counsel or accountants, at its cost and expense. The Claimant shall have the right to employ counsel separate from counsel employed by the Obligor in any such action and to participate therein, but the fees and expenses of such counsel employed by the Claimant shall be at its expense. The Claimant shall have the right to determine and adopt (or, in the case of a proposal by Obligor, to approve) a settlement of such matter in its reasonable discretion, except that Claimant need not consent to any settlement that: (a) imposes any nonmonetary obligation or (b) Obligor does not agree to pay in full. The Obligor shall not be liable for any settlement of any such claim effected without its prior written consent, which shall not be unreasonably withheld. Whether or not the Obligor chooses to so defend or prosecute such claim, all the parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information, and testimony, and attend such conferences, discovery proceedings, hearings, trials, and appeals, as may be reasonably requested in connection therewith. 9.5 Recovery of Attorney Fees For Frivolous Actions. The Obligor shall be ----------------------------------------------- entitled to recover its reasonable out-of-pocket costs (including court costs and actual attorney 10 fees) incurred in defending any Claim brought by the Claimant on frivolous grounds or pursued for the purpose of delay or harassment. The Claimant shall be entitled to recover its reasonable out-of-pocket costs (including court costs and actual attorney fees) incurred in pursuing any Claim defended by the Obligor on frivolous grounds or opposed for the purpose of delay or harassment. A frivolous claim shall include any Claim that is not bona fide and that is not brought in good faith after consultation with counsel. ARTICLE 10 CONFIDENTIALITY 10.1 Confidentiality Obligations Prior to Closing. Until Closing (and, if -------------------------------------------- this Agreement is terminated for any reason, thereafter in perpetuity), each of Contractor and Jafra shall, and shall use its best efforts to cause its personnel and agents to, hold in strict confidence, not disclose to any person without the prior written consent of the non-disclosing party, and not use in any manner except in connection with the transactions contemplated hereby, any information concerning its respective business assets, marketing techniques and methods of operation ("Confidential Information") whether disclosed orally or in writing obtained in connection with the transactions contemplated hereby. Contractor and Jafra each agree that it will limit access to the Confidential Information of the other to those of its employees, agents or subcontractors who reasonably require the same to carry out the purposes of this Agreement. In the event of this Agreement terminates for any reason, Contractor shall return to Jafra or destroy all materials in its possession containing any such confidential information, including all copies, extracts, adaptations, and transcriptions thereof, except: (i) for records or documents that Contractor is required to keep by law, in which case Contractor will provide copies thereof to Jafra, and (ii) in the case of a dispute between Contractor and Jafra, in which case Contractor will provide copies of all such materials to Jafra, and shall not be required to return the originals to Jafra or destroy any materials, until the dispute is resolved. 10.2 Confidentiality Obligations After Closing. Upon the occurrence of ----------------------------------------- Closing, in addition to Sections 10.4, 10.5 and 10.6 of this Agreement, the provisions set forth in Sections 9.6, 10.1 and 10.2 of the Manufacturing Agreement shall govern the treatment of Trade Secrets, Confidential Information and Trademark and Trade Names obtained or disclosed hereunder or thereunder. In the event there is a conflict between the enforcement of such provisions contained in their Agreement and the Manufacturing Agreement, the relevant provisions of the Manufacturing Agreement shall govern. 10.3 Permitted Disclosures. Notwithstanding Sections 10.1 and 10.2 --------------------- hereof, either party may disclose confidential information (1) where necessary to any regulatory authorities or governmental agencies pursuant to legal process, (2) if required by court order or decree or (3) if required in the opinion of counsel to a party for that party to comply with disclosure requirements of the Securities and Exchange Commission; provided, that the party required to disclose the information given the other party written notice of such disclosure request and cooperate with the other party to prevent the disclosure to the extent legally possible. 11 10.4 Scope of Confidential Information. Notwithstanding the foregoing, --------------------------------- the obligations set out in Section 10.1 shall not apply to any Confidential Information that the recipient can establish by documentary evidence that: (a) was known to the recipient through a means not in breach of this Agreement at the time it was disclosed to the recipient; (b) was in the public domain at the time it was disclosed to the recipient; or (c) had entered into the public domain subsequent to disclosure to the recipient through no unlawful act of the recipient or breach of the recipient's obligations under this Agreement. Contractor and Jafra each acknowledge that the Confidential Information of the other constitutes unique and valuable assets of the other, and that any disclosure or use thereof except as specifically authorized herein would be wrongful and would cause the non-disclosing party irreparable harm, and that it would be difficult to compensate the non-disclosing party fully with damages for a violation of this Section 10.1. Accordingly, each of Contractor and Jafra agrees that the other shall be entitled to temporary and permanent injunctive relief to enforce Section 10.1; this provision shall not however be deemed to diminish or supplant the right of Contractor or Jafra to claim and recover money damages for any breach hereof in addition to obtaining equitable relief therefor. 10.5 Trademarks and Trade Names. -------------------------- (a) Each party hereby acknowledges that it does not have, and shall not acquire by entering into this Agreement or performing any action hereunder, any license or other interest in any of the other party's trademarks or trade names unless otherwise expressly agreed in writing. (b) Each party agrees not to use any trade names or trademarks of the other party, except as specifically authorized by the other party in writing both as to the names or marks which may be used and as to the manner and prominence of use. ARTICLE 11 TERMINATION PRIOR TO CLOSING 11.1 Termination of Agreement. This Agreement may be terminated at any ------------------------ time prior to the Closing: 11.1.1 Mutual Consent. By the mutual consent of Jafra and -------------- Contractor. 11.1.2 Deadline. By Jafra or Contractor, in writing, without -------- liability, if the Closing shall not have occurred on or before July 14, 1999; or 11.1.3 Material Breach. By Jafra or Contractor in writing, without --------------- liability, if the other party shall (1) fail to perform in any material respect its agreements contained herein required to be performed by it on or prior to the Closing Date or (2) materially breach any of its representations, warranties, agreements, or covenants contained herein, provided that such failure 12 or breach is not cured within ten (10) days after such party has been notified of the other party's intent to terminate this Agreement pursuant hereto. 11.2 Termination of Obligations. Termination of this Agreement pursuant -------------------------- to this Article 11 shall terminate all obligations of the parties hereunder, except for the obligations set forth in Article 10 and except for any damages incurred by the non-defaulting party in the event of a termination under Section 11.1.3 hereof. ARTICLE 12 MISCELLANEOUS 12.1 Notices. All notices, demands or other communications hereunder ------- shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, and on the date of receipt, if sent by facsimile transmission (with telephonic and mail confirmation) or by recognized overnight carrier service (e.g., Federal Express or United Parcel Service), and three (3) business days after mailing by United States mail, certified or registered with return receipt requested, addressed to the parties at their addresses set forth below: If to Jafra, to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, California 91361 Attn: Vice President, Manufacturing Fax: 805-449-3259 With a copy to: Office of the General Counsel Fax: 805-449-3256 If to Contractor, to: Universal Packaging Systems, Inc. 4575 Danito Court Chino, California 91710 Attn: Julio Liberal Fax: 909-590-5869 13 With a copy to: Ronald J. Grant, Esq. Tilles, Webb, Kulla & Grant, ALC 433 North Camden Drive, Suite 1010 Beverly Hills, California 90210 Fax: 310-888-3433 Any party may change its address for notices by giving notice of such change in accordance with the foregoing procedures. Any notice not sent in accordance with the foregoing, shall be deemed given on the date of actual receipt. 12.2 Expenses. Each party is responsible for its own expenses hereunder. -------- No party may impose any costs or expenses on the other party other than those explicitly set forth in this Agreement. 12.3 Survival. The representations and warranties by Jafra and Contractor -------- hereunder shall survive the termination of this Agreement for a period of three years and the covenants contained in Article 10 hereof shall survive the termination of this Agreement in perpetuity. 12.4 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which taken together constitute one instrument. 12.5 Waiver. The waiver by either party of any provision, nonperformance ------ or any breach of any provision of this Agreement will not constitute a waiver of any subsequent nonperformance or other breach of the same or any other provision. 12.6 Assignment. Contractor shall not assign any of its rights or ---------- obligations under this Agreement without the prior written consent of Jafra. 12.7 Severability. If any provision of this Agreement is held to be ------------ ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining portions hereof. 12.8 Headings. The section headings of this Agreement are for reference -------- only and shall not be of any force and effect. 12.9 Facsimile. This Agreement may be executed and delivered by --------- facsimile, which the parties agree shall have the same legal effect as if the parties had delivered copies bearing original signatures. 12.10 Bulk Transfer Law. Contractor waives compliance with the provisions ----------------- of any applicable bulk transfer law in connection with the sale of the Assets and the Inventory to Contractor hereunder; provided that Jafra shall indemnify, defend and hold Contractor free and 14 harmless from any claim, suit, damages, obligations, liabilities, losses, costs and expenses (including reasonable attorneys' fees) arising out of or related to the failure to comply with the Bulk Transfer Law. 12.11 Governing Law. This Agreement will be governed by the internal laws ------------- of the State of California without giving effect to any principles of conflicts of laws. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed on its behalf by its duly authorized representative as of the date first written above. JAFRA COSMETICS INTERNATIONAL, INC. By: /s/ Brian Chase -------------------------------- Name: Brian Chase Title: Vice President, Manufacturing UNIVERSAL PACKAGING SYSTEMS, INC. By: /s/ Julio Liberal ----------------------------- Name: Julio Liberal Title: President 15 EX-10.2 3 AMEND. NO. 1 TO ASSET PURCHASE AGREEMENT EXHIBIT 10.2 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT (this "Amendment") dated as of June 10, 1999, by and between Jafra Cosmetics International, Inc. a Delaware corporation ("Jafra") and Universal Packaging Systems, Inc., a California corporation ("Contractor"). W I T N E S S E T H WHEREAS, Jafra and Contractor are parties to an Asset Purchase Agreement, dated as of June 10, 1999, by and between Jafra and Contractor (the "Asset Purchase Agreement"); WHEREAS, the parties desire to amend the Asset Purchase Agreement to provide for certain post-closing matters as set forth below; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the parties hereto agree to amend the Asset Purchase Agreement as follows: ARTICLE I AMENDMENTS 1.1 Paragraph 1.1.1(a) of the Asset Purchase Agreement is hereby deleted in its entirety, and the following substituted in lieu thereof: 1.1.1 Sale of Assets. (a) Subject to the terms and conditions of this -------------- Agreement, at the Closing of the transactions contemplated by this Agreement (the "Closing"), Jafra will sell, convey, assign and transfer certain assets (the "Assets") to Contractor and Contractor will purchase the Assets from Jafra, free and clear of all liens, claims and encumbrances (collectively "Liens") of third parties, other than Liens created pursuant to that certain Security Agreement dated as of April 30, 1998, among Jafra (formerly known as CDRJ Acquisition Corporation), each subsidiary of Jafra listed on Schedule I thereto and Credit Suisse First Boston, as collateral agent for the secured parties named therein (the "CSFB Security Agreement"). The specific items to be included in the Assets will be listed on a schedule to be agreed upon between Contractor and Jafra, and attached to this Agreement, on or before ***. 1.2 Paragraph 1.1.2 of the Asset Purchase Agreement is hereby deleted in its entirety, and the following substituted in lieu thereof: 1.1.2 Sale of Inventory. Subject to the terms and conditions of this ----------------- Agreement, at the Closing Jafra will sell, convey, assign and transfer the inventory, raw materials and components that Jafra has in stock (the "Inventory") to Contractor and Contractor will purchase the Inventory from Jafra free and clear of all Liens of third parties, other than Liens created pursuant to the CSFB Security Agreement. The specific items to be contained in the Inventory will be determined at the conclusion of the transfer of the Inventory, which transfer shall be concluded no later than ***. Jafra warrants that: (i) the age of the Inventory will be such that it will not expire on or before ***, and (ii) the Inventory will be usable and used to manufacture Products for Jafra on or before ***. In the event of a breach of the foregoing warranty, Jafra agrees to credit against principal owing on the Inventory Note (defined below) an amount equal to that which Contractor paid for that portion of the Inventory that does not conform to the foregoing warranty. 1.3 The following paragraph shall be added to the Asset Purchase Agreement: 7.6 Release or Termination of Liens. To the extent that any of the Assets and Inventory remain subject to any Liens under the CSFB Security Agreement at or after the Closing, Jafra agrees that on or before ***, it will take, or cause to be taken, all actions necessary and proper to release and/or terminate any Liens against the Assets and the Inventory under the CSFB Security Agreement, including, without limitation: the execution and filing in the appropriate jurisdictions of UCC-3s (or such other similar filings as may be required) to provide for the release of Liens on the Assets and Inventory created by the CSFB Security Agreement. ARTICLE II MISCELLANEOUS 2.1 Notices. All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, and on the date of receipt, if sent by facsimile transmission (with telephonic and mail confirmation) or by recognized overnight carrier service (e.g., Federal Express or United Parcel Service), and three (3) business days after mailing by United States mail, certified or registered with return receipt requested, addressed to the parties at their addresses set forth below: If to Jafra, to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, California 91361 Attn: Vice President, Manufacturing Fax: 805-449-3259 With a copy to: Office of the General Counsel Fax: 805-449-3256 If to Contractor, to: Universal Packaging Systems, Inc. 4575 Danito Court Chino, California 91710 Attn: Julio Liberal Fax: 909-590-5869 With a copy to: Ronald J. Grant, Esq. Tilles, Webb, Kulla & Grant, ALC 433 North Camden Drive, Suite 1010 Beverly Hills, California 90210 Fax: 310-888-3433 Any party may change its address for notices by giving notice of such change in accordance with the foregoing procedures. Any notice not sent in accordance with the foregoing, shall be deemed given on the date of actual receipt. 2.2 Expenses. Each party is responsible for its own expenses hereunder. -------- No party may impose any costs or expenses on the other party other than those explicitly set forth in this Agreement. 2.3 Counterparts. This Amendment may be executed in one or more ------------ counterparts, all of which taken together constitute one instrument. 2.4 Waiver. The waiver by either party of any provision, nonperformance ------ or any breach of any provision of this Amendment will not constitute a waiver of any subsequent nonperformance or other breach of the same or any other provision. 2.5 Severability. If any provision of this Amendment is held to be ------------ ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining portions hereof. 2.6 Headings. The section headings of this Amendment are for reference -------- only and shall not be of any force and effect. 2.7 Facsimile. This Amendment may be executed and delivered by --------- facsimile, which the parties agree shall have the same legal effect as if the parties had delivered copies bearing original signatures. 2.8 Governing Law. This Amendment will be governed by the internal laws ------------- of the State of California without giving effect to any principles of conflicts of laws. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be signed on its behalf by its duly authorized representative as of the date first written above. JAFRA COSMETICS INTERNATIONAL, INC. By: /s/ Brian Chase --------------------------------------- Name: Brian Chase Title: Vice President, Manufacturing By: /s/ Michael DiGregorio -------------------------------------- Name: Michael DiGregorio Title: Chief Financial Officer UNIVERSAL PACKAGING SYSTEMS, INC. By: /s/ Julio Liberal --------------------------- Name: Julio Liberal Title: President By: /s/ Mark Tomberlin ---------------------------- Name: Mark Tomberlin Title: Chief Financial Officer EX-10.3 4 MANUFACTURING AGREEMENT DATED 06/10/1999 EXHIBIT 10.3 MANUFACTURING AGREEMENT between JAFRA COSMETICS INTERNATIONAL, INC. and UNIVERSAL PACKAGING SYSTEMS, INC. TABLE OF CONTENTS -----------------
Page ---- ARTICLE I - DEFINITIONS................................................. 1 1.1 "Compounding".............................................. 1 1.2 "EPA"...................................................... 1 1.3 "Facilities"............................................... 1 1.4 "FDA"...................................................... 1 1.5 "F.O.B."................................................... 1 1.6 "GAAP"..................................................... 1 1.7 "GMPs"..................................................... 1 1.8 "Jafra-unique"............................................. 1 1.9 "Manufacturing"............................................ 2 1.10 "Production"............................................... 2 1.11 "Products"................................................. 2 1.12 "Services"................................................. 2 1.13 "Specifications"........................................... 2 ARTICLE 2 - SCOPE OF SERVICES........................................... 2 2.1 General.................................................... 2 2.2 Contractor Services........................................ 2 2.3 Specifications............................................. 2 2.3.1 Completeness........................................ 2 2.3.2 Modifications....................................... 2 2.4 Place of Manufacture....................................... 3 2.5 Location of Jafra Production Within the Facilities......... 3 2.6 Compliance With Laws....................................... 3 2.7 Equipment and Tooling...................................... 3 2.8 Materials.................................................. 3 2.9 Obsolescence............................................... 3 2.10 Shipment................................................... 4 2.11 Tube Decoration............................................ 4 2.12 Printed Materials.......................................... 4 2.13 Non-Exclusive License of Intellectual Property............. 4 ARTICLE 3 - PRICES AND PAYMENT.......................................... 5 3.1 Initial Product Prices..................................... 5 3.2 Product Price Forecast..................................... 5 3.3 New Product Pricing........................................ 5 3.4 Direct Labor Rate.......................................... 5 3.5 Percentage Markups For Raw Materials and Components........ 6 3.6 Cost of Components and Raw Materials....................... 6 3.7 Raw Material Price Revisions............................... 6 3.8 Product Invoices........................................... 6 3.9 Month-End Invoice.......................................... 6
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Page ---- ARTICLE 4 - QUALITY CONTROL......................................... 7 4.1 Quality Assurance Tests..................................... 7 4.2 Product Defects............................................. 7 4.3 Records..................................................... 7 4.4 Retained Samples............................................ 7 4.5 Quality Performance Measurements............................ 7 4.6 Quality Control of Component Materials...................... 7 4.7 Rejected Product............................................ 8 4.8 Manufacturing Personnel..................................... 8 4.9 Subcontractors.............................................. 8 4.10 Governmental Inspections.................................... 8 ARTICLE 5 - FORECAST AND SCHEDULING................................. 8 5.1 Annual Requirement Forecast................................. 8 5.2 Planning Requirements....................................... 9 5.3 Weekly and Monthly Production Schedule...................... 9 5.4 Electronic Data Interface Process........................... 9 5.5 Schedule Performance Measurements........................... 9 5.6 Purchase Orders............................................. 9 ARTICLE 6 - SPACE AND WAREHOUSING................................... 10 6.1 Material Warehouse Space.................................... 10 6.2 Finished Goods Storage...................................... 10 ARTICLE 7 - INSURANCE AND TAXES..................................... 10 7.1 Insurance................................................... 10 7.2 Taxes....................................................... 11 ARTICLE 8 - REPRESENTATIONS AND WARRANTIES.......................... 11 8.1 By Contractor............................................... 11 8.1.1 Organization and Qualification.................... 11 8.1.2 Authority......................................... 11 8.1.3 No Conflicts...................................... 11 8.1.4 Consents.......................................... 11 8.1.5 Compliance With Jafra Pricing Structure........... 11 8.1.6 No Infringement................................... 12 8.1.7 Litigation........................................ 12 8.1.8 Environmental, Health and Safety Matters.......... 12 8.1.9 Financial Statements.............................. 12 8.1.10 No Material Adverse Change........................ 12 8.2 By Jafra.................................................... 12 8.2.1 Organization and Qualification........................ 12
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Page ---- 8.2.2 Authority........................................... 13 8.2.3 Compliance with Laws................................ 13 8.2.4 Consents............................................ 13 8.2.5 Litigation.......................................... 13 ARTICLE 9 - COVENANTS OF CONTRACTOR................................ 13 9.1 Compliance with Laws........................................ 13 9.2 Products Fit for Intended Purpose........................... 13 9.3 Good Title.................................................. 14 9.4 Financial Statements........................................ 14 9.5 Right to Inspect............................................ 14 9.6 Right to Audit.............................................. 14 9.7 Trade Secrets............................................... 14 9.8 Services to Third Parties................................... 15 9.9 Most Favorable Terms........................................ 15 9.10 Technological Advances...................................... 15 ARTICLE 10 - MUTUAL COVENANTS OF CONTRACTOR AND JAFRA.............. 15 10.1 Confidential Information................................... 15 10.2 Trademarks and Trade Names................................. 16 10.3 Independent Contractor Relationship........................ 16 ARTICLE 11 - TERM AND TERMINATION.................................. 16 11.1 Term....................................................... 16 11.2 Termination by Either Party for Breach..................... 16 11.3 Termination by Jafra....................................... 16 11.4 Cooperation................................................ 17 ARTICLE 12 - INDEMNIFICATION....................................... 18 12.1 By Contractor.............................................. 18 12.2 By Jafra................................................... 18 12.3 Notification............................................... 19 ARTICLE 13 - MISCELLANEOUS......................................... 19 13.1 Notices.................................................... 19 13.2 Expenses................................................... 20 13.3 Survival................................................... 20 13.4 Counterparts............................................... 20 13.5 Waiver..................................................... 20 13.6 Assignment................................................. 20 13.7 Arbitration................................................ 20 13.8 Entire Agreement........................................... 20 13.9 Severability............................................... 21
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Page ---- 13.10 Headings.............................................. 21 13.11 Facsimile............................................. 21 13.12 Governing Law......................................... 21
-iv- MANUFACTURING AGREEMENT This Manufacturing Agreement (this "Agreement") is made as of June 10, 1999 between Jafra Cosmetics International, Inc., a Delaware corporation ("Jafra") and Universal Packaging Systems, Inc., a California corporation ("Contractor"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Jafra is engaged in the distribution and sale of certain cosmetic and skin care products; and WHEREAS, Contractor has the capability to manufacture such products; and WHEREAS, Jafra desires Contractor to manufacture and sell the products described in Schedule A to Jafra, and Contractor desires to do so. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE 1 - DEFINITIONS 1.1 "Compounding" means the mixing of raw materials following the batch procedures required to make bulk. 1.2 "EPA" means the United States Environmental Protection Agency. 1.3 "Facilities" means Contractor's manufacturing and packaging facilities located at 4575 Danito Court in Chino, California. 1.4 "FDA" means the United States Food and Drug Administration, or any successor entity thereto. 1.5 "F.O.B." means the definition of F.O.B. set forth in Section 2319 of the California Uniform Commercial Code from time to time or any successor statute thereto. 1.6 "GAAP" means generally accepted accounting principles in the United States of America in effect from time to time. 1.7 "GMPs" means the current good manufacturing practices of the FDA, as in effect from time to time. 1.8 "Jafra-unique" means a raw material or component used by Jafra but not by other parties serviced by Contractor at the Facilities. 1.9 "Manufacturing" means all operational activities related to the supply of Products to Jafra. 1.10 "Production" means the filling of bulk in the main container of a Product and the assembly of all other components required to complete the Product. 1.11 "Products" means the products listed in Schedule A hereto, Manufactured and/or finished by Contractor to meet the Specifications (as defined below). 1.12 "Services" means the full service Manufacturing and supply of the Products in accordance with the Specifications (as defined below) and the other terms and conditions set forth herein. 1.13 "Specifications" means the specifications for raw materials, components, manufacturing and packaging procedures for Products as set forth on Schedule B hereto. ARTICLE 2 - SCOPE OF SERVICES 2.1 General. Jafra agrees to purchase and Contractor agrees to supply the ------- Services as needed to fulfill Jafra's requirements for the Products in accordance with the terms hereof and to meet the quality, service and cost criteria set forth in this Agreement. 2.2 Contractor Services. Contractor shall manufacture and package the ------------------- Products in accordance with the Specifications and all U.S. federal, state, and local laws, and international laws, rules and regulations, including the GMPs and regulations regarding the Products in effect on the date of manufacture as applicable to the place of manufacture and those places of resale set forth on Schedule C-1 attached hereto. The places of resale may be changed form time to time upon notice from Jafra and Contractor. Notwithstanding the foregoing, provided that Contractor has complied with Jafra's labeling and packaging specifications, Contractor shall not be responsible for compliance with any laws, rules or regulations applicable to labeling or packaging. Contractor shall also perform those functions described in the attached Schedule C, including, but not limited to, planning, scheduling, purchasing, warehousing, quality assurance tests on raw materials and components, bulk manufacturing, packaging and assembly, quality assurance tests on the Products, shipping, and disposing of nonconforming Products and materials in accordance with all applicable federal, state and local laws, rules and regulations. 2.3 Specifications. -------------- 2.3.1 Completeness. The Specifications shall include the total body ------------ of requirements for raw materials, components, processes, assemblies, and completed Products as described in the manuals for each Product provided to Contractor by Jafra. A complete list of such manuals is set forth on Schedule B hereto. 2.3.2 Modifications. Contractor may not modify, alter or change the ------------- Specifications or configuration of bulk production or packaging processes without Jafra's prior 2 written consent, which Jafra may withhold in its sole discretion. Jafra may amend the Specifications in its sole discretion, provided that Contractor's performance under this Agreement is not made materially more burdensome, and Jafra will promptly advise Contractor in writing of the implementation plan and schedule for the Specification change. If the Specification change will affect the cost or delivery schedule of any Product, Contractor shall provide Jafra with a written price quote identifying the portion of the cost increase or decrease associated with the Specification change and the effect on the delivery schedule, if any. The price change quote and/or delivery schedule change must be provided to, and approved by, Jafra in writing prior to Contractor committing to any raw material orders. Upon Jafra's review and approval, the prices will be mutually revised on Schedule A. The revisions to Schedule A shall be considered Contractor's authorization to implement the new price. 2.4 Place of Manufacture. Contractor shall maintain the Facilities at its -------------------- current location in ***. 2.5 Location of Jafra Production Within the Facilities. ***. -------------------------------------------------- 2.6 Compliance With Laws. Contractor shall maintain the Facilities in full -------------------- compliance with all applicable U.S. federal, state, and local laws, rules and regulations including, without limitation, those promulgated by the FDA and EPA. Contractor shall notify Jafra immediately in writing (and by telecopy in accordance with Section 14.1 hereof, to ensure Jafra's prompt receipt of such notice) of any notice of non-compliance received from any governmental agency. Contractor further agrees to correct, at its sole expense, within a reasonable period of time, any violation or other deficiency and to furnish Jafra with written evidence of such correction. 2.7 Equipment and Tooling. Concurrently herewith, Jafra and Contractor --------------------- shall enter into the Asset Purchase Agreement in substantially the form attached hereto as Exhibit A, pursuant to which Contractor shall purchase certain pieces of equipment and items, including, without limitation, plates, dies and change parts specifically required to produce the Products, on the terms and conditions set forth in the Asset Purchase Agreement. 2.8 Materials. *** shall be solely responsible for obtaining all materials --------- (including all raw materials and components) required to manufacture and deliver the Products in accordance with the Specifications. ***. Contractor shall also be responsible for performing quality assurance checks on all incoming materials to assure compliance with the Specifications. Contractor shall provide Jafra complete access to its records regarding the purchase of materials for the Products, including data regarding costs and supply conditions. In addition, Contractor shall purchase Jafra's existing inventories of those materials required to make the Products listed on Schedule A at prices established by Jafra and agreed upon by Contractor. 2.9 Obsolescence. Contractor will provide to Jafra a quarterly excess ------------ inventory report for each Jafra-unique raw material and Jafra-unique component used in connection with the Products. Such reports shall be provided within 15 calendar days of the end of the quarterly periods ending on the last day of each March, June, September and December. Such reports shall 3 identify in reasonable detail the quantities of each raw material and component that will not be used within a twelve-month period following the date of such report. Jafra will instruct Contractor to dispose of obsolete materials at Jafra's expense, plus cost of materials. 2.10 Shipment. Contractor shall ship the Products *** the Facilities or -------- Contractor's warehouse in *** to destinations specified by Jafra. Jafra will designate carriers, and freight charges will be billed to Jafra by each such carrier. Trucks should be used to at least ***% of utilization, unless otherwise agreed to by Jafra in writing. Proof of shipment should be sent by fax to Jafra in accordance with the notice provisions of Section 14.1 hereof, in the form of a bill of lading for each truck leaving the Facilities or Contractor's warehouse. 2.11 Tube Decoration. --------------- (a) Jafra hereby agrees to lease its "tube decorating machine" and the related change parts to Contractor at a cost of *** for the duration of this Agreement. Such lease shall automatically terminate without further action on the part of any person or entity upon the termination of this Agreement by either party for any reason. (b) Contractor shall decorate those tubes as required by Jafra using the tube decorating machine leased pursuant to Section 2.11(a) above. Contractor will charge Jafra a decorating fee equal to *** with a loss allowance of up to *** of the tubes decorated. At the termination of this Agreement, Contractor shall return the tube decorating machine to Jafra (or another entity designated by Jafra) at Jafra's expense. 2.12 Printed Materials. Films, separations and art work required for the ----------------- manufacture of any Product package copy, labels, and printed materials shall be provided by Jafra at its sole cost and expense or obtained by Contractor according to the Specifications and invoiced to Jafra in the month-end invoice provided pursuant to Section 3.9 hereof. Notwithstanding anything else contained in this Agreement, the content, design and appearance of any Product package copy, label and printed material are the sole responsibility of Jafra and Jafra shall provide written instructions to Contractor concerning the application of same. 2.13 ***License of Intellectual Property. Subject to the terms and ----------------------------------- conditions of this Agreement, Jafra hereby grants to Contractor a *** license to use Jafra's patents, trademarks, copyrights and trade secrets contained in the Specifications, Jafra quality procedures and other documentation provided by Jafra to Contractor (the "Intellectual Property") pursuant this Agreement (the "License"). The duration of the License shall be solely for the term of this Agreement and it shall automatically terminate without further action on the part of any person or entity upon the termination of this Agreement by either party for any reason. Contractor shall use the Intellectual Property licensed hereunder solely for the purpose of and in connection with the manufacture, packaging and sale of the Products. 4 ARTICLE 3 - PRICES AND PAYMENT 3.1 Initial Product Prices. Initial pricing for the Products will be as ---------------------- indicated in Schedule A and Manufacturing fees will be based upon the cost categories set forth in Schedule D. Such prices will be effective until ***. The present pricing parameters in the Schedules hereto are based on an annual volume of units from *** to ***. Under this pricing structure, Contractor commits to deliver up to *** units per week when and if required by Jafra. An annual volume less than or greater than the *** to *** range shall warrant a price renegotiation. In the event Jafra takes delivery of less than *** units per calendar fiscal quarter, during the term of this Agreement, within ten (10) days after the end of such three-month period, Jafra shall pay to contractor the sum of $*** multiplied by the difference between *** and the number of units Jafra accepted for the last month of such three-month period. 3.2 Product Price Forecast. Manufacturing fees will be increased not more ---------------------- than *** every twelve months beginning July 1, 2000 at a rate not more than *** for the applicable twelve-month period minus any *** (as defined hereafter) made during such applicable twelve-month period. Commencing not later than June 1st of each year of this Agreement beginning June 1, 2000, Jafra and Contractor will work together to establish pricing for the succeeding twelve-month period commencing July 1. If contractor is seeking an increase in the Manufacturing fees, it shall provide Jafra with written justification and substantiation for such increase. In the event that new twelve-month pricing has not been agreed upon by both Jafra and Contractor by June 1 of the applicable year, either party may submit the matter to arbitration pursuant to the provisions of Section 13.7 hereof. Until the matter has been agreed to or decided by arbitration, the pricing on Schedule A will continue to apply, provided, however, that any increase subsequently agreed to or determined by the arbitrator shall be retroactive to July 1 of the applicable year, and any sum owing due to a retroactive adjustment shall be paid to Contractor within ten (10) days of the determination of the increase. *** of any governmentally imposed wage increases (expressed as a percentage increase over the current minimum wage) (the "Wage Increase Adjustment") will be transferrable to the Manufacturing fee (Schedule A, column b) upon the effective date of such increase. *For additional sentence, see addendum attached hereto. 3.3 New Product Pricing. Prices for any new Products shall be determined ------------------- by placing such new Products into the applicable cost category set forth on Schedule D hereto. 3.4 Direct Labor Rate. The direct labor rate to be charged for special ----------------- assemblies and other manual operations required by Jafra shall be *** per direct labor hour, for the first twelve months of the term of this Agreement, and thereafter will ***. 3.5 Percentage *** For Raw Materials and Components. For the duration of ----------------------------------------------- this Agreement and any extensions or renewals thereof, ***. Contractor will provide Jafra satisfactory documentary evidence of all *** of raw materials as part of the invoices required by Sections 3.8 and 3.9 hereof. 5 3.6 Cost of Components and Raw Materials. The cost of the components (see ------------------------------------ Schedule A attached hereto) will be calculated by ***. The raw material cost *** will be calculated by ***. 3.7 Raw Material Price Revisions. If the price of a raw material purchased ---------------------------- by Contractor increases more than ***% over the agreed upon price, Contractor will notify Jafra (with supporting documentation) and Jafra will have *** months to identify and approve alternative sources of supply or raw materials to be used; otherwise, Contractor will be authorized to pass the higher cost on to Jafra commencing at the beginning of the *** month following such increase. Provided, however, if the increase in the cost of a material causes the cost of all materials used in a particular formula or formulas to increase by more than ***%, Jafra will have *** months to identify and approve alternative sources of supply or raw materials to be used; otherwise, Contractor will be authorized to pass the higher cost on to Jafra commencing at the beginning of the *** month following such increase. 3.8 Product Invoices. Contractor will invoice Jafra on the first working ---------------- day of every *** for the shipment of Products made during the previous ***. Jafra will pay Contractor within *** days from date of invoice. 3.9 Month-End Invoice. Contractor will summarize all costs not covered by ----------------- the Product invoice required by Section 3.8 above on a single invoice at the end of each month. Such month-end invoice shall include an explanation or additional documentation satisfactory to Jafra to substantiate each item on the invoice (documentation may include original copies of invoices for materials purchased by Contractor). All "extraordinary charges" will require the prior written consent of Jafra; however, extraordinary charges shall only include charges for operations and procedures not contemplated, required or inferred elsewhere in this Agreement or in the Schedules hereto. 3.10 Materials Freight Cost. ***. ARTICLE 4 - QUALITY CONTROL 4.1 Quality Assurance Tests. Contractor shall perform such quality ----------------------- assurance tests and procedures on materials and Products as are currently performed by Jafra at its Westlake Village facility. Such quality procedures are set forth in Schedule E. 4.2 Product Defects. If a Product lot should present a proportion of --------------- defects higher than the acceptable quality levels set forth in its Specifications or Jafra quality procedures Jafra may, *** defective Product and *** to take place within the earliest practicable period of either (a) ***, or (b) the ***are returned. Jafra has the right to inspect all of the Production at any time to determine its quality fitness and compliance with the requirements hereunder. 4.3 Records. Contractor will prepare and maintain records to comply with all applicable regulatory requirements, including, but not limited to, those of the FDA, the Bureau of Alcohol, Tobacco and Firearms, the Toxic Substance Control Act of 1976, as amended, and the 6 European Union Cosmetics Directive and amendments thereto, as well as reports required thereunder. Contractor shall retain all books and records that relate to the Services for a minimum of four (4) years from the date that any related Product was manufactured or one (1) year beyond the expiration date of such Product, whichever is later. Upon the termination of this Agreement for any reason, including the expiration of the term set forth in Section 12.1 hereof, Contractor shall, at Jafra's written request, promptly ship copies of all such records to Jafra. 4.4 Retained Samples. Contractor shall maintain and retain samples and ---------------- manufacturing records for each batch or lot of Products produced for Jafra for a period of four (4) years from the date that any related Product was manufactured or one (1) year beyond the expiration date of such Product, whichever is later. At the end of such period the retained samples shall be disposed of in accordance with the then applicable law regarding such disposal. Upon the termination of this Agreement for any reason, including the expiration of the term set forth in Section 12.1 hereof, Contractor shall, at Jafra's written request and expense, promptly ship representative samples of such retained Products to Jafra. 4.5 Quality Performance Measurements. Contractor's quality performance -------------------------------- will be measured in the areas and to the levels described in the Specifications on Schedule B attached hereto, and in Jafra's quality procedures. If performance falls below the stated level in any area (either materially or repeatedly), Jafra may consider such failure as cause for termination of Contractor's Services. Contractor will diligently monitor and measure its quality performance and will provide Jafra a monthly summary of quality issues encountered in the production of the Products and the resolution of such issues. 4.6 Quality Control of Component Materials. Contractor shall notify Jafra -------------------------------------- of rejections of incoming Jafra materials that may occur, within a maximum of three (3) business days from the date of their receipt at the Facilities or Contractor's warehouse. Contractor will promptly follow Jafra's directions to return any such components to the supplier or rework any such materials at the supplier's expense as instructed by Jafra in writing. 4.7 Rejected Product. In the event any Product does not meet the ---------------- applicable Specifications, or is rejected by Jafra or Contractor, or recalled by Jafra ("Rejected Product") due to information, formulations or materials supplied by Jafra, and Contractor has complied with all applicable written procedures, Jafra shall bear *** percent (***%) of all costs directly related to and invoiced for Rejected Product, including the cost of recalling, destroying or otherwise disposing of such Rejected Product. In the event that Rejected Product is due to Contractor's failure (or failure of any permitted subcontractor) to comply with applicable Specifications or Jafra quality procedures, Contractor shall bear *** percent (***%) of all costs directly related to and invoiced for Rejected Product, including the cost of recalling, destroying or otherwise disposing of such Rejected Product. In the event that any Product does not meet the applicable Specifications, but such failure is not due to either (a) information supplied by Jafra or (b) Contractor's failure to follow applicable written procedures, Jafra shall bear all materials costs, with Contractor bearing all labor costs related to such Rejected Product. In each case where Rejected Product occurs, the recall, destruction and/or disposal of such Rejected Product shall be conducted by Contractor, in accordance with all applicable laws, rules and regulations. 7 Contractor shall provide to Jafra all manifests and other applicable evidence of proper destruction as may be required by applicable law. Contractor shall indemnify Jafra for any liability, costs or expenses, including reasonable attorney's fees and court costs, relating to a failure to dispose of any Rejected Product in accordance with applicable laws, rules and regulations or to provide satisfactory documentary evidence of such disposal. *** 4.9 Subcontractors. Any use of subcontractors to render any of the -------------- Services must be approved in writing in advance by Jafra's Vice President of Manufacturing and Jafra shall have the right in its sole discretion not to permit Contractor to use subcontractors at all and to reject any particular subcontractor even if Jafra has agreed that a particular function may be assigned to a subcontractor. Any permitted subcontractor shall render Services in conformity with all standards applicable to Contractor. 4.10 Governmental Inspections. Contractor will promptly advise Jafra if an ------------------------ authorized agent of the FDA or other governmental agency visits the Facilities or requests or requires information or changes in manufacturing procedures directly pertaining to the Products. ARTICLE 5 - FORECAST AND SCHEDULING 5.1 Annual Requirement Forecast. Jafra will provide Contractor with an --------------------------- estimate of the quantity of each Product needed for the following calendar year during the month of January of each year. Such annual requirements forecast is for production planning and capacity planning purposes and negotiations with materials vendors only and is not otherwise a binding commitment by Jafra to purchase the Product in the amounts estimated. 5.2 Planning Requirements. On a monthly basis (by the 20th day of each --------------------- month), Jafra will provide Contractor with a ***month rolling production forecast, which will constitute authorization for Contractor to purchase the materials required to produce Products for the initial *** month period of such *** month schedule. Jafra shall be liable for any materials which are purchased by Contractor in reliance upon the forecast provided for the initial *** month period of the rolling *** month forecasts which cannot be used by Contractor due to changes in Jafra's forecast unless Contractor is able to reasonably cover its expenditures for such materials by using such materials for any other customer or selling such materials to another party. This *** month period will be reduced over time by mutual agreement of the parties hereto. 5.3 Weekly and Monthly Production Schedule. Once a week, Jafra and -------------------------------------- Contractor will meet to approve the production plan for the following rolling *** week period. In addition, Jafra and Contractor will meet at least once a week to firm up the shipping schedule for the following week, incorporating any previously unplanned production requirements that arise due to extraordinary business demands. The weekly unplanned requirements will always be accepted and production delivered in the following week by Contractor, provided that Contractor has sufficient materials available to cover such extraordinary demand in accordance with the ***-month materials availability agreement. Contractor will provide Jafra with a production schedule 8 showing weekly production plans for each Product for a minimum period of two calendar months. Such production schedule is for informational purposes only and will not serve to revise any annual requirement forecast provided pursuant to Section 5.1 or any requirement schedule provided pursuant to Section 5.2. 5.4 Electronic Data Interface Process. Jafra and Contractor will implement --------------------------------- the electronic data interface necessary to communicate requirements for production of, invoicing and payment for Products and shipping confirmation. 5.5 Schedule Performance Measurements. Jafra and Contractor will measure --------------------------------- Contractor's schedule adherence performance for on-time delivery and quantity accuracy in accordance with the standards set forth on Schedule F hereto. In the event that performance for a particular period falls below the standards set forth on Schedule F hereto, Jafra may terminate this Agreement as specified in Section 11.3 hereof or, in the alternative, at Jafra's sole discretion and at Jafra's direction, Contractor will prepare an action plan identifying corrective measures for schedule adherence subject to Jafra's approval. This action plan will be provided at the same time the schedule adherence report is published and made available to Jafra. 5.6 Purchase Orders. Jafra will establish a blanket purchase order for --------------- each Product to be supplied by Contractor. Required releases against the blanket purchase orders will be communicated by the monthly production plan. ARTICLE 6 - SPACE AND WAREHOUSING 6.1 Material Warehouse Space. Contractor will provide sufficient warehouse ------------------------ space to accommodate the normal flow of materials and work in process for any production level at ***. 6.2 Finished Goods Storage. Contractor will provide sufficient storage ---------------------- space to coordinate and consolidate shipments to Jafra distribution centers at no cost to Jafra. Any Product produced per Jafra's *** week rolling forecast and not shipped within two weeks of the date such Product is produced will be invoiced to Jafra and may remain in storage for up to *** months at ***. ARTICLE 7 - INSURANCE AND TAXES 7.1 Insurance. For the duration of this Agreement and for a period of not --------- less than *** (except for product liability insurance which shall be *** years) following the termination of this Agreement, Contractor will carry the following types of insurance: *** Contractor shall deliver , a Certificate of Insurance, issued by the insurance carrier, evidencing the above coverage and shall notify Jafra in writing of any change or cancellation thereof within 24 hours of such change or cancellation. 7.2 Taxes. Contractor shall be responsible for, and shall pay, all taxes ----- related to, arising out of or in connection with the Services rendered pursuant to this Agreement. 9 ARTICLE 8 - REPRESENTATIONS AND WARRANTIES 8.1 By Contractor. Contractor represents and warrants to Jafra as follows: ------------- 8.1.1 Organization and Qualification. Contractor is a corporation ------------------------------ duly incorporated, validly existing and in good standing under the laws of the State of California and has the requisite power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. 8.1.2 Authority. Contractor has all necessary corporate power and --------- authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement have been duly and validly authorized by all necessary corporate action and no other corporate proceedings are required on the part of the Contractor. This Agreement has been duly and validly executed and delivered by Contractor and constitutes the legal, valid and binding obligation of Contractor, enforceable against Contractor in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and to general principles of equity. 8.1.3 No Conflicts. The execution and delivery of this Agreement by ------------ Contractor does not, and the performance of this Agreement by Contractor will not (i) conflict with or violate the Articles of Incorporation or bylaws of Contractor, conflict with or violate any foreign or domestic (federal, state or local) law, statute, ordinance, rule, regulation, permit, injunction, writ, judgment, decree or order applicable to Contractor or by which any asset of Contractor is bound or (ii) conflict with, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or require any payment under, or result in the creation of a lien, claim, security interest or other charge or encumbrance on any asset of Contractor. 8.1.4 Consents. The execution and delivery of this Agreement by -------- Contractor do not, and the performance of this Agreement by Contractor will not, require any consent, approval, authorization or permit of, or filing with or notification to, any United States (federal, state or local) or foreign government or governmental, regulatory or administrative authority, agency, commission, board, bureau, court or instrumentality or arbitrator of any kind. 8.1.5 Compliance With Jafra Pricing Structure. Contractor has --------------------------------------- reviewed and is familiar with Jafra's procedures and can comply with such procedures within the pricing structure set forth herein. 8.1.6 No Infringement. Contractor's processes and technical data --------------- furnished or utilized by Contractor hereunder do not, infringe any patent or other proprietary rights of any third party. 10 8.1.7 Litigation. No claim, action, suit, proceeding, inquiry, ---------- hearing, arbitration, administrative proceeding, or investigation (collectively, "Litigation") is pending, or, to Contractor's best knowledge threatened against Contractor, its present or former directors, officers, or employees. Contractor knows of no facts that could reasonably be expected to serve as the basis for litigation against itself, its present or former directors, officers, or employees, which litigation would have a materially adverse effect on Contractor's business and its ability to perform under this Agreement. 8.1.8 Environmental, Health and Safety Matters. (a) Contractor has ---------------------------------------- obtained and complied with, and is in compliance with, all material permits, licenses and other authorizations that are required pursuant to environmental, health, and safety laws, rules and regulations for the occupation of its facilities. Contractor has not received any written or oral notice, report or other information regarding any actual or alleged material violation of any environmental, health, and safety regulations, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them or its facilities arising under environmental, health, and safety laws, rules and regulations. 8.1.9 Financial Statements. Contractor shall provide the following -------------------- financial statements (the "Financial Statements"): (a) no later than three business days prior to the Closing Date, income statements, balance sheets, and statements of cash flow for the Contractor's business for (i) the fiscal year ended December 31, 1998 (which shall be a reviewed statement); (ii) an income statement and balance sheet for the three-month period ended March 31, 1999 (which may be unaudited); and (iii) an income statement and balance sheet for the month ended April 30, 1999 (which may be unaudited). The Financial Statements, including the notes thereto (for the reviewed statement), will properly reflect all assets and assumed liabilities as then in existence. The Financial Statements, including the notes thereto (for the reviewed statement), will fairly present the results of operation and the financial position of Contractor as of the dates thereof and the periods then ended in conformity with GAAP consistently applied with the principles and procedures employed in prior periods by Contractor. 8.1.10 No Material Adverse Change. Since December 31, 1998, there has -------------------------- been no material adverse change in Contractor's business or in the financial condition, operations, or prospects of the Contractor's business. 8.2 By Jafra. Jafra represents and warrants to Contractor as follows: 8.2.1 Organization and Qualification. Jafra is a corporation duly ------------------------------ incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. 8.2.2 Authority. Jafra has all necessary corporate power and --------- authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement have been duly and validly authorized by all necessary corporate 11 action and no other corporate proceedings are required on the part of Jafra. This Agreement has been duly and validly executed and delivered by Jafra and constitutes the legal, valid and binding obligation of Jafra, enforceable against Jafra in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and to general principles of equity. 8.2.3 Compliance with Laws. The Products, their manufacture, sale and -------------------- use, including but not limited to the technology and know how incorporated in each Product and its delivery system, including, without limitation, all formulations, processes and Specifications, all other proprietary rights pertaining to such Product including, without limitation, its dress of goods, labeling, decoration, trademarks and trade names are owned by Jafra and comply with all applicable laws, rules and regulations and are not in violation of the rights of any persons not a party to this Agreement. 8.2.4 Consents. The execution and delivery of this Agreement by Jafra -------- do not, and the performance of this Agreement by Jafra will not, require any consent, approval, authorization or permit of, or filing with or notification to, any United States (federal, state or local) or foreign government or governmental, regulatory or administrative authority, agency, commission, board, bureau, court or instrumentality or arbitrator of any kind. 8.2.5 Litigation. No claim, action, suit, proceeding, inquiry, ---------- hearing, arbitration, administrative proceeding, or investigation (collectively, "Litigation") is pending, or, to Jafra's best knowledge threatened against Jafra, its present or former directors, officers, or employees. Jafra knows of no facts that could reasonably be expected to serve as the basis for litigation against itself, its present or former directors, officers, or employees, which litigation would have a materially adverse effect on Jafra's business and its ability to perform under this Agreement. ARTICLE 9 - COVENANTS OF CONTRACTOR 9.1 Compliance with Laws. Contractor shall comply with all applicable -------------------- federal, state and local laws, rules and regulations and relevant laws of other countries and jurisdictions, including, without limitation, those of the FDA and EPA, relating to the manufacture, packaging and shipping of the Products or any component thereof, for the place of manufacture of the Products. Notwithstanding the foregoing, provided that Contractor has complied with Jafra's labeling and packaging specifications, Contractor shall not be responsible for compliance with any laws, rules or regulations related to such labeling or packaging. The Facilities shall comply with all applicable federal, state and local laws, rules and regulations, including, without limitation, those of the FDA, EPA and the Occupational Safety and Health Act of 1970 as amended. 9.2 Products Fit for Intended Purpose. The Products shall be of --------------------------------- merchantable quality, fit for their intended purpose, free from defects in material and workmanship and will conform in all respects to the Specifications and all applicable laws, rules and regulations, including GMPs in effect at the time of delivery to Jafra. 12 9.3 Good Title. Contractor shall convey to Jafra good title to the ---------- Products and the Products will be delivered free from any security interest, lien or other encumbrance. 9.4 Financial Statements. Contractor shall furnish to Jafra: -------------------- (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Contractor, a copy of the *** balance sheet of Contractor as at the end of such year and the related *** statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Contractor, the *** consolidated balance sheet of Contractor as at the end of such quarter and the related *** statement of income for such quarter and the portion of the fiscal year through the end of such quarter, certified by the Chief Financial Officer of Contractor as being fairly stated in all material respects when considered in relation to the financial statements of Contractor (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by Contractor's accountants or Chief Financial Officer, as the case may be, and disclosed therein). 9.5 Right to Inspect. *** Contractor shall permit Jafra or its authorized ---------------- representatives to observe and inspect the Facilities, including, without limitation, a Product acceptance inspection all Manufacturing processes, including Compounding and Production, for compliance with the GMPs, state or local, Jafra quality standards and Specifications. 9.6 Right to Audit. *** Contractor shall permit Jafra or its authorized -------------- representative to examine all of Contractor's books and records as they relate the performance of Services for Jafra. Jafra shall have the right to perform periodic audits of each location within the Facilities where Products are being manufactured. 9.7 Trade Secrets. Contractor acknowledges that all information that Jafra ------------- may disclose to Contractor, in writing or orally, about the Products relating to formulas, Specifications and methods of manufacture constitutes trade secrets of Jafra. All information about the Products, either individually or in the aggregate, derived or collected by Contractor pursuant to the performance of its obligations under this Agreement is the sole property of Jafra and also constitutes trade secrets of Jafra. Contractor shall treat the trade secrets of Jafra as confidential and shall not disclose the same to any other person, or use the same except in connection with the performance of its obligations under this Agreement. Contractor agrees that it will limit access to the trade secrets of Jafra to those of its employees, agents or subcontractors who reasonably require the same to carry out the purposes of this Agreement. Contractor acknowledges that the trade secrets of Jafra constitute unique and valuable assets, and that any disclosure or use thereof except as specifically authorized herein would be wrongful and would 13 cause irreparable harm to Jafra, and that it would be difficult to compensate Jafra fully with damages for a violation of this Section 9.6. Accordingly, Contractor agrees that Jafra shall be entitled to temporary and permanent injunctive relief to enforce this Section 9.6; this provision shall not however be deemed to diminish or supplant the right of Jafra to claim and recover money damages for any breach hereof in addition to obtaining equitable relief therefor. 9.8 Services to Third Parties. ***. *** ARTICLE 10 - MUTUAL COVENANTS OF CONTRACTOR AND JAFRA 10.1 Confidential Information. In connection with the performance of their ------------------------ respective obligations under this Agreement, each of Contractor and Jafra may disclose to the other, in writing or orally, information concerning its respective business, marketing techniques and methods of operation (the "Confidential Information"). Information contained in or relating to the Products shall constitute Confidential Information. Each of Contractor and Jafra shall treat the Confidential Information of the other as confidential and shall not disclose the same to any other person, or use the same except in connection with the performance of this Agreement. Contractor and Jafra each agree that it will limit access to the Confidential Information of the other to those of its employees, agents or subcontractors who reasonably require the same to carry out the purposes of this Agreement. Notwithstanding the foregoing, the obligations set out in this Section 10.1 shall not apply to any Confidential Information that the recipient can establish by documentary evidence: (a) was known to the recipient through a means not in breach of this Agreement at the time it was disclosed to the recipient; (b) was in the public domain at the time it was disclosed to the recipient; or (c) had entered into the public domain subsequent to disclosure to the recipient through no unlawful act of the recipient or breach of the recipient's obligations under this Agreement. Contractor and Jafra each acknowledge that the Confidential Information of the other constitutes unique and valuable assets of the other, and that any disclosure or use thereof except as specifically authorized herein would be wrongful and would cause the non-disclosing party irreparable harm, and that it would be difficult to compensate the non-disclosing party fully with damages for a violation of this Section 10.1. Accordingly, each of Contractor and Jafra agrees that the other shall be entitled to temporary and permanent injunctive relief to enforce this Section 10.1; this provision shall not however be deemed to diminish or supplant the right of Contractor or Jafra to claim and recover money damages for any breach hereof in addition to obtaining equitable relief therefor. 10.2 Trademarks and Trade Names. -------------------------- (a) Each party hereby acknowledges that it does not have, and shall not acquire by entering into this Agreement or performing any action hereunder, any license or other interest in any of the other party's trademarks or trade names unless otherwise expressly agreed in writing. 14 (b) Each party agrees not to use any trade names or trademarks of the other party, except as specifically authorized by the other party in writing both as to the names or marks which may be used and as to the manner and prominence of use. 10.3 Independent Contractor Relationship. The relationship of Contractor ----------------------------------- and Jafra shall be that of independent contractors and in no event shall either party, its employees, agents or representatives be considered agents, representatives or employees of the other. Jafra will have no contractual relationship with any of Contractor's employees or contractors. Contractor shall indemnify and defend Jafra for any claims asserted against Jafra by any employee, contractor or subcontractor of Contractor for any claim arising from Jafra's relationship with Contractor. ARTICLE 11 - TERM AND TERMINATION 11.1 Term. Unless otherwise provided, this Agreement shall remain in full ---- force and effect for a period commencing June 10, 1999 and ending on ***. Thereafter, this Agreement shall automatically renew for successive *** terms unless *** months, prior written notice of either party's intention not to renew is provided. 11.2 Termination by Either Party for Breach. Either party may terminate -------------------------------------- this Agreement due to a failure by the other party to comply with their obligations herein, which failure is not cured within 30 days after receiving written notice thereof; provided that this Section 11.2 shall not limit Jafra's rights to terminate this Agreement pursuant to Section 11.3 hereof. 11.3 Termination by Jafra. Jafra has the right to terminate this Agreement -------------------- without notice or further liability if any of the following occur: (a) Contractor's current owners cease to own at least ***% of Contractor; (b) Contractor fails to deliver at least ***% of Jafra's weekly requirement as set forth in the weekly production schedule delivered pursuant to Section 5.3 hereof for *** consecutive weeks, or *** weeks within a single rolling *** week period; (c) Contractor fails to adhere to the requirements of Paragraphs 2.4 and 4.5 hereof, or in the event, ***, conditions at the Facilities are unsatisfactory or Contractor's actions generate adverse or unfavorable publicity; (d) Contractor fails to deliver a finished goods quality level of at least ***% lot acceptance rate; or (e) Contractor violates any provision of Sections 9.6, 10.1 or 10.2 hereof, including, without limitation, using Jafra's formulas, Specifications, Products or any samples thereof for any purpose other than as expressly contemplated by this Agreement, ***; or 15 (f) ***. (g) (i) Contractor shall (A) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its property, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent, (E) file a voluntary petition in bankruptcy or petition or answer seeking a reorganization or an arrangement with its creditors, (F) take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute or file an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or (G) ***; or (ii) an order, judgment or decree shall be entered, without the application, approval or consent of Contractor, by any court of competent jurisdiction, approving a petition seeking reorganization of Contractor or all or a substantial part of the assets of the Company, or appointing a receiver, trustee or liquidator of Contractor, and such order, judgment or decree shall continue unstayed and in effect for any period of 60 days. 11.4 Cooperation. ----------- (a) Upon termination of this Agreement for any reason, Contractor shall assemble and make available to Jafra for pickup, as soon as practicable, but in no event later than *** from the time of such termination, all books, records, data, programs, files and other documents and materials (and all copies or extracts thereof) (collectively "Materials") provided by Jafra to Contractor or developed or derived therefrom by Contractor in connection with the transactions contemplated by or Services rendered pursuant to this Agreement and all equipment and other assets owned by Jafra and located at the Facilities, except: (i) for Materials that Contractor is required to keep by law, in which case Contractor will provide copies thereof to Jafra, and (ii) in the case of a dispute between Contractor and Jafra, in which case Contractor will provide copies of all such Materials to Jafra, and shall not be required to return the originals to Jafra until the dispute is resolved. Contractor shall use its best efforts to assist Jafra in moving all such Materials to Jafra's headquarters or to another location specified by Jafra (which may be another manufacturer) at Jafra's expense. (b) In addition, Contractor shall sell to Jafra and Jafra shall purchase, ***. (c) Furthermore, ***, Contractor shall sell back to Jafra and Jafra shall purchase, all Assets (as defined in the Asset Purchase Agreement) purchased by Contractor from Jafra pursuant to the Asset Purchase Agreement (and not previously sold with Jafra's permission) at the price *** shall be responsible for all sales, use and transfer taxes in connection with such repurchase by ***. *** and the balance shall be paid ***. Contractor shall use its best efforts to ensure that all such materials, inventory, bulk and components, equipment and assets are delivered to Jafra *** from the date of such termination. In addition, Contractor shall return the tube decorating machine to Jafra in accordance with Section 2.11 hereof. The undertakings contained in this Article XI shall survive the early termination of this Agreement. 16 ARTICLE 12 - INDEMNIFICATION 12.1 By Contractor. Contractor agrees to defend and indemnify Jafra, its ------------- officers, directors, agents, employees, affiliates, successors and assigns against any and all claims, suits, actions, expenses or losses, including reasonable attorney's fees, caused by, related to or arising from the negligence or willful misconduct of Contractor, its officers, employees, contractors and agents in the manufacture, packaging or shipping of the Products, the failure of the Products to conform to the Specifications, the infringement of any patent, trademark, copyright, trade name, license or other property rights relating to or arising from Contractor's patents, trademarks, copyrights or trade secrets or the use of Jafra's patents, trademarks, copyrights or trade secrets other than in accordance with this Agreement, or any breach by Contractor of its obligations hereunder. 12.2 By Jafra. Jafra agrees to defend and indemnify Contractor, its -------- officers, directors, agents, employees, affiliates, successors and assigns against any and all claims, suits, actions, expenses or losses, including reasonable attorneys' fees, caused by, related to or arising from the negligence or willful misconduct of Jafra, its officers, employees, contractors and agents, Jafra's breach of its obligations hereunder or any infringement of any trademark, copyright, patent, license or other proprietary right of a third party arising out of Contractor's use of Jafra's patents, trademarks, copyrights or trade secrets in accordance with this Agreement. 12.3 Notification. When either party seeks indemnity hereunder, it agrees ------------ to promptly notify the other in writing and to cooperate fully in the defense of the claim. The indemnification provision shall survive any termination of this Agreement. ARTICLE 13 - MISCELLANEOUS 13.1 Notices. All notices, demands or other communications hereunder shall ------- be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, and on the date of receipt, if sent by facsimile transmission (with telephonic and mail confirmation) or by recognized overnight carrier service (e.g., Federal Express or United Parcel Service), and three (3) business days after mailing by United States mail, certified or registered with return receipt requested, addressed to the parties at their addresses set forth below: If to Jafra, to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, California 91361 Attn: Vice President, Manufacturing Fax: 805-449-3259 17 With a copy to: Office of the General Counsel Fax: 805-449-3256 If to Contractor, to: Universal Packaging Systems, Inc. 4575 Danito Court Chino, California 91710 Attn: Julio Liberal Fax: 909-590-5869 With a copy to: Ronald J. Grant, Esq. Tilles, Webb, Kulla & Grant, ALC 433 North Camden Drive, Suite 1010 Beverly Hills, California 90210 Fax: (310) 888-3433 Any party may change its address for notices by giving notice of such change in accordance with the foregoing procedures. Any notice not sent in accordance with the foregoing, shall be deemed given on the date of actual receipt. 13.2 Expenses. Each party is responsible for its own expenses hereunder. No -------- party may impose any costs or expenses on the other party other than those explicitly set forth in this Agreement. 13.3 Survival. The provisions of Sections 9.2, 9.3, 9.6, 10.1 and 10.2, -------- 10.3, 11.4, 12.1, 12.2,12.3, 13.1 and 13.7 shall survive the termination of this Agreement in perpetuity. 13.4 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which taken together constitute one instrument. 13.5 Waiver. The waiver by either party of any provision, nonperformance ------ or any breach of any provision of this Agreement will not constitute a waiver of any subsequent nonperformance or other breach of the same or any other provision. 13.6 Assignment. Contractor shall not assign any of its rights or ---------- obligations under this Agreement without the prior written consent of Jafra. 13.7 Arbitration. The parties shall submit any dispute arising out of this ----------- Agreement, including the interpretation of or the enforcement of rights and duties under this Agreement, to final and binding arbitration pursuant to the Commercial Arbitration Rules of the American 18 Arbitration Association in Los Angeles, California. At the request of any party, the arbitrators, attorneys, parties to the arbitration, witnesses, experts, court reporters, or other persons present at the arbitration shall agree in writing to maintain the strict confidentiality of the arbitration proceedings. Arbitration shall be conducted by a single, neutral arbitrator, or, at the election of any party, three neutral arbitrators, appointed in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator(s) shall be attorneys in practice for at least ten years, and experienced in the matter(s) being arbitrated. In any such arbitration, California Code of Civil Procedure Section 1283.05 (Right to Discovery; Procedure and Enforcement) shall be applicable. The award of the arbitrator(s) shall be enforceable according to the applicable provisions of the California Code of Civil Procedure. The arbitrator(s) shall have the same powers as those of a judge of the superior court of the State of California, and shall render a decision as would a judge of a superior court of the State of California. Notwithstanding the foregoing, either party shall have the right to seek injunctive relief or other equitable remedies against the other for any violation or breach by such party of its obligations hereunder pending a decision by the arbitrator(s). If proper notice of any hearing has been given, the arbitrator(s) will have full power to proceed to take evidence or to perform any other acts necessary to arbitrate the matter in the absence of any party who fails to appear. ***. 13.8 Entire Agreement. This Agreement together with its Exhibits and ---------------- Schedules and the Asset Purchase Agreement contains the entire agreement between the parties hereto, supersedes all prior agreements, whether written or oral, express or implied, between the parties and may not be modified, altered, terminated or discharged in any manner except by an instrument in writing signed by a duly authorized representative of both parties. Without limiting the foregoing, no modification or amendment shall be effected by or result from the receipt, acceptance, signing or acknowledgments, invoices, shipping documents or other business forms containing terms or conditions in addition to or different from the terms and conditions set forth herein. 13.9 Severability. If any provision of this Agreement is held to be ------------ ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining portions hereof. 13.10 Headings. The section headings of this Agreement are for reference -------- only and shall not be of any force and effect. 13.11 Facsimile. This Agreement may be executed and delivered by facsimile, --------- which the parties agree shall have the same legal effect as if the parties had delivered copies bearing original signatures. 13.12 Governing Law. This Agreement will be governed by the internal laws ------------- of the State of California without giving effect to any principles of conflicts of laws. 19 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed on its behalf by its duly authorized representative as of the date first written above. JAFRA COSMETICS INTERNATIONAL, INC. By: /s/ Brian Chase ----------------------------------------- Name: Brian Chase Title: Vice President, Manufacturing UNIVERSAL PACKAGING SYSTEMS, INC. By: /s/ Julio Liberal ------------------------------------ Name: Julio Liberal Title: President By: /s/ Mark Tomberlin ------------------------------------ Name: Mark Tomberlin Title: Chief Financial Officer 20 ADDENDUM TO THE MANUFACTURING AGREEMENT DATED JUNE 10, 1999 ARTICLE 3.1. For every month that Jafra takes delivery of less than *** units, the *** corresponding for that month ($***) will be deferred until the end of the note, the term of which note shall be extended for one month. ARTICLE 3.2 *** JAFRA COSMETICS INTERNATIONAL, INC. /s/ Brian Chase - ------------------------------------ Brian Chase Vice President, Manufacturing UNIVERSAL PACKAGING SYSTEMS, INC. /s/ Julio Liberal - ------------------------------------ Julio Liberal President EX-10.4 5 AMEND. NO. 1 TO MANUFACTURING AGREEMENT EXHIBIT 10.4 FORM OF AMENDMENT NO. 1 TO MANUFACTURING AGREEMENT AMENDMENT NO. 1 TO MANUFACTURING AGREEMENT (this "Amendment") dated as of June __, 1999, by and between Jafra Cosmetics International, Inc. a Delaware corporation ("Jafra") and Universal Packaging Systems, Inc., a California corporation ("Contractor"). W I T N E S S E T H WHEREAS, Jafra and Contractor are parties to a Manufacturing Agreement, dated as of June10, 1999, by and between Jafra and Contractor (the "Manufacturing Agreement"); WHEREAS, the parties desire to amend the Manufacturing Agreement to provide for certain post-closing matters as set forth below; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the parties hereto agree to amend the Manufacturing Agreement as follows: ARTICLE I AMENDMENTS 1.1 Paragraph 2.11 of the Manufacturing Agreement is hereby deleted in its entirety, and the following substituted in lieu thereof: 2.11 Decoration. ---------- (a) Tube Decoration --------------- (i) Jafra hereby agrees to lease its "tube decorating machine" and the related change parts to Contractor at a cost of $*** per year for the duration of this Agreement. Such lease shall automatically terminate without further action on the part of any person or entity upon the termination of this Agreement by either party for any reason. (ii) Contractor shall decorate those tubes as required by Jafra using the tube decorating machine leased pursuant to Section 2.11(a) above. Contractor will charge Jafra a decorating fee equal to $*** per unit with a loss allowance of up to ***% of the tubes decorated. At the termination of this Agreement, Contractor shall return the tube decorating machine to Jafra (or another entity designated by Jafra) at Jafra's expense. (b) Jar Decoration --------------- (i) Jafra hereby agrees to lease one "jar decorating machine" and per machine, the related change parts to Contractor at a cost of $*** per year, per machine, for the duration of this Agreement. Such lease shall automatically terminate without further action on the part of any person or entity upon the termination of this Agreement by either party for any reason. (ii) Contractor shall decorate those jars as required by Jafra using the jar decorating machine leased pursuant to Section 2.11(b) above. Contractor will charge Jafra a decorating fee equal to $*** per unit with a loss allowance of up to ***% of the jars decorated. At the termination of this Agreement, Contractor shall return the jar decorating machine to Jafra (or another entity designated by Jafra) at Jafra's expense. (c) Bottle Decoration ------------------ (i) Jafra hereby agrees to lease two "bottle decorating machines" and the related change parts to Contractor at a cost of $*** per year, per machine, for the duration of this Agreement. Such lease shall automatically terminate without further action on the part of any person or entity upon the termination of this Agreement by either party for any reason. (ii) Contractor shall decorate those bottles as required by Jafra using the bottle decorating machine leased pursuant to Section 2.11(c) above. Contractor will charge Jafra a decorating fee equal to $*** per unit with a loss allowance of up to ***% of the bottles decorated. At the termination of this Agreement, Contractor shall return the bottle decorating machine to Jafra (or another entity designated by Jafra) at Jafra's expense. 1.2 The second to last sentence of Paragraph 11.4(c) of the Manufacturing Agreement is hereby deleted in its entirety, and the following sentence substituted in lieu thereof: In addition, Contractor shall return the tube, jar and bottle decorating machines to Jafra in accordance with Section 2.11 hereof. ARTICLE II MISCELLANEOUS 2.1 Notices. All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, and on the date of receipt, if sent by facsimile transmission (with telephonic and mail confirmation) or by recognized overnight carrier service (e.g., Federal Express or United Parcel Service), and three (3) business days after mailing by United States mail, certified or registered with return receipt requested, addressed to the parties at their addresses set forth below: If to Jafra, to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, California 91361 Attn: Vice President, Manufacturing Fax: 805-449-3259 With a copy to: Office of the General Counsel Fax: 805-449-3256 If to Contractor, to: Universal Packaging Systems, Inc. 4575 Danito Court Chino, California 91710 Attn: Julio Liberal Fax: 909-590-5869 With a copy to: Ronald J. Grant, Esq. Tilles, Webb, Kulla & Grant, ALC 433 North Camden Drive, Suite 1010 Beverly Hills, California 90210 Fax: 310-888-3433 Any party may change its address for notices by giving notice of such change in accordance with the foregoing procedures. Any notice not sent in accordance with the foregoing, shall be deemed given on the date of actual receipt. 2.2 Expenses. Each party is responsible for its own expenses hereunder. -------- No party may impose any costs or expenses on the other party other than those explicitly set forth in this Agreement. 2.3 Counterparts. This Amendment may be executed in one or more ------------ counterparts, all of which taken together constitute one instrument. 2.4 Waiver. The waiver by either party of any provision, nonperformance or ------ any breach of any provision of this Amendment will not constitute a waiver of any subsequent nonperformance or other breach of the same or any other provision. 2.5 Severability. If any provision of this Amendment is held to be ------------ ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining portions hereof. 2.6 Headings. The section headings of this Amendment are for reference -------- only and shall not be of any force and effect. 2.7 Facsimile. This Amendment may be executed and delivered by facsimile, --------- which the parties agree shall have the same legal effect as if the parties had delivered copies bearing original signatures. 2.8 Governing Law. This Amendment will be governed by the internal laws ------------- of the State of California without giving effect to any principles of conflicts of laws. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be signed on its behalf by its duly authorized representative as of the date first written above. JAFRA COSMETICS INTERNATIONAL, INC. By: -------------------------------------- Name: Brian Chase Title: Vice President of Manufacturing By:_______________________________________ Name: Title: UNIVERSAL PACKAGING SYSTEMS, INC. By: ------------------------------- Name: Julio Liberal Title: President By: ------------------------------- Name: Mark Tomberlin Title: Chief Financial Officer EX-10.5 6 FORM OF SECURED NOTE FOR ASSETS DATED 6/10/1999 EXHIBIT 10.5 FORM OF UNIVERSAL PACKAGING SYSTEMS, INC. SECURED NOTE $__________ June 10, 1999 Section 1. General. ------- a. UNIVERSAL PACKAGING SYSTEMS, INC., a California corporation the "Company"), for value received, hereby promises to pay Jafra Cosmetics ------- International, Inc., a Delaware corporation (the "Holder") (or such person's ------ permitted transferees), the aggregate principal amount of______Dollars ($________) (the "Principal Amount") plus interest as set forth below. ---------------- Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Asset Purchase Agreement dated as of June 10, 1999 between the Holder and the Company (the "Asset Purchase Agreement"). ------------------------ b. This Note (this "Note") shall accrue interest at a rate per annum of eight percent (8%) with respect to the unpaid Principal Amount plus any accrued but unpaid interest thereon (the "Interest"). Interest shall be paid, -------- together with principal, in 36 equal monthly installments of $_____ commencing on January 1, 2000, in such coin or currency of the United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts. The Company agrees to pay additional interest at the rate of____% per annum on any overdue principal ten days after due date and (to the full extent permitted by applicable law) on any overdue Interest from the due date thereof until the obligation of the Company with respect to the payment thereof shall be discharged. Interest shall be calculated on the basis of a 365 (or 366, as applicable)-day year and the actual number of days elapsed. Section 2. Prepayments. Company may, at its sole discretion, at any ----------- time prepay this Note, without penalty or premium, in whole or in part, together with all accrued and unpaid interest on the principal amount so prepaid to the date of such prepayment. Section 3. Grant of Security Interest. As collateral security for the -------------------------- prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations (defined below), the Company hereby grants to the Holder a security interest in all of the Assets (collectively "Collateral"), and all products and proceeds of the foregoing ---------- Collateral. For the purposes of this Note, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including return premiums, with respect to any insurance relating thereto. For the purpose of this Note, "Obligations" means the collective reference to all obligations and liabilities of the Company in respect of the unpaid Principal Amount of, and Interest on (including, without limitation, interest accruing after the maturity of this Note and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), this Note. Section 4. Power of Attorney. Only after the occurrence of and during ----------------- the continuation of an Event of Default, the Company shall irrevocably appoint the Holder as the Company's attorney-in-fact to exercise such rights and powers as the Company might exercise with respect to the Collateral, including, without limitation, the right to (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to its own or its nominee's name; and (e) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral. The Company agrees to reimburse the Holder upon demand for any costs and expenses, including, without limitation, attorneys' fees, the Holder may incur while acting as the Company's attorney-in-fact hereunder, all of which costs and expenses are included in the Obligations secured hereby. Section 5. Further Documents. The Company agrees to execute and ----------------- deliver or to cause to be executed and delivered to the Holder from time to time such UCC-1 financing statements as the Holder may request, and such confirmatory or supplementary security agreements, financing statements and other documents, instruments or agreements as the Holder may reasonably request, which are in the Holder's judgment necessary or desirable to obtain for the Holder the benefit of the this Note and the Collateral. Section 6. Covenants. --------- For as long as any amounts are owing to the Holder under this Note: a. The Company shall maintain the assets to be sold to the Company pursuant to the Asset Purchase Agreement (the "Assets") and not sold by ------ the Company with the permission of Jafra, in good working order and condition, reasonable wear and tear excepted; b. The Company shall use the Assets for the manufacture, packaging and sale of only the Holder's products, and not for or in connection with the manufacture, packaging or sale of products of any other person or entity or for any other purpose; if it should interfere with Holder's requirements. c. The Company shall promptly give notice to the Holder of: (i) the occurrence of any Event of Default (defined below) under Section 9 hereof; (ii) any default or event of default under any contractual obligation of the Company or any litigation, investigation or proceeding between the Company any other party which, in either case, if not cured or adversely determined would have a material adverse effect on the business, operations, property 2 or condition (financial or otherwise) of the Company or the enforceability of this Note (a "Material Adverse Effect"); or (iii) the occurrence of any event ----------------------- having a Material Adverse Effect; d. The Company shall keep and maintain at its own cost and expense reasonably satisfactory and complete records of the Collateral, including, without limitation, records of all payments received and all credits granted with respect to the Collateral, and shall mark such records to evidence this Note and the liens and the security interests created hereby. For the Holder's further security, the Holder shall have a security interest in all of the Company's books and records pertaining to the Collateral; e. The Company shall, upon reasonable written advance notice to the Company and at reasonable intervals, or at any time and from time to time after the occurrence and during the continuation of an Event of Default (as defined below), give the Holder reasonable access during normal business hours to all the books, correspondence and records of the Company relating to the Assets, and the Holder and its representatives may examine the same, and to the extent reasonable take extracts therefrom and make photocopies thereof. The Company agrees to render to the Holder, at the Company's reasonable cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Holder and its representatives shall also have the right, upon reasonable advance notice to the Company to enter during normal business hours into and upon any premises where any of the Assets are located for the purpose of inspecting the same, observing their use or otherwise protecting the Holder's interests therein. f. The Company shall not create, incur, assume or suffer to exist any lien upon any of the Assets (other than the liens of the Holder as permitted have under and under the Asset Purchase Agreement); and g. The Company shall not convey, sell, lease, assign, transfer or otherwise dispose of any of the Assets without the prior written consent of the Holder, which the Holder may withhold in its sole discretion. Section 7. Replacement of Note. ------------------- Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it, or, in the case of mutilation or at the request of the Holder, upon surrender and cancellation of this Note, and in all cases upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company will make and deliver a new Note of like tenor in lieu of this Note. A holder, through the Holder, may also request that this Note be exchanged for one or more Notes of like tenor in the same aggregate principal amount as such Note being exchanged and appropriate notation on any newly issued Note to indicate which holders have an interest therein. 3 Section 8. Amendments and Waivers. ---------------------- No covenant, agreement or condition contained in this Note may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) without the prior written consent of the Holder (in its sole discretion) and the Company. Any such amendment or waiver shall be binding upon each of the Holder, each future holder of this Note and the Company. Upon the request of the Company, the Holder or any holder of this Note shall submit this Note to the Company so that this Note may be marked to indicate such amendment or waiver, and any Note issued thereafter shall bear a similar notation referring to any such amendment or continuing waiver. Section 9. Events of Default. ----------------- a. In case of the occurrence of any of the following events (an "Event of Default"): ---------------- i. default shall be made in the payment of the principal of or interest on this Note, when and as the same shall become due and payable, whether at the due date thereof or by acceleration thereof or otherwise and such default, in the case of interest due, shall continue unremedied for ten (10) Business Days after written notice from the holder of this Note to the Company of such default; ii. the Company shall (A) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its property, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent, (E) file a voluntary petition in bankruptcy or petition or answer seeking a reorganization or an arrangement with its creditors, (F) take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute or file an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or (G) take any corporate definitive action for the purpose of effecting any of the foregoing; iii. an order, judgment or decree shall be entered, without the application, approval or consent of the Company, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company or all or a substantial part of the assets of the Company, or appointing a receiver, trustee or liquidator of the Company, and such order, judgment or decree shall continue unstayed and in effect for any period of 60 days; iv. any material breach by the Company of any material provision of this Note (other than those described in subpart (i) of this Section 6(a)), the Asset Purchase Agreement or that certain Manufacturing Agreement dated as of June 10, 1999 between the Holder and the Company, and the failure to cure such breach within the 4 applicable grace period, or if none is specified, within thirty (30) days after written notice from the Holder to the Company of such default; or v. the Company shall default in any payment of principal or interest of any indebtedness or contingent obligation of the Company beyond the period of grace provided in the instrument or agreement under which such indebtedness or contingent obligation was created; then, the Holder may declare this Note to be forthwith due and payable, whereupon this Note shall become forthwith due and payable, both as to principal and interest, without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived; provided that in the case of any such -------- declaration based upon a default in the payment of the principal of this Note, the Holder shall provide the Company with not less than five (5) Business Days' prior written notice thereof. b. In case any one or more of the Events of Default shall have occurred and be continuing, the holder of this Note may proceed to protect and enforce its rights either by suit in equity and/or by action at law, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of a holder of this Note. c. No remedy conferred hereunder is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or hereafter existing at law or in equity or by statute or otherwise. No course of dealing between the Company and the holder of this Note or any delay on the part of the holder of this Note in exercising its rights hereunder shall operate as a waiver of any rights of such holder. d. The Company hereby waives notice of protest, dishonor, intent to accelerate, acceleration and all other notices of any type or character, demand, presentment for payment, protest, diligence in collecting or bringing suit and notice, other than required service, with respect to the filing of suit for the purpose of fixing liability. Section 10. Extension of Maturity. --------------------- Should the principal of and interest on this Note become due and payable on other than a Business Day, the maturity hereof shall be extended to the next succeeding Business Day, and principal and interest shall be payable thereon at the rate per annum herein specified during such extension. 5 Section 11. Successors and Assigns. ---------------------- The provisions of this Note shall be binding upon and inure to the benefit of the Company and its successors and permitted assigns, and to the holder and its successors and permitted assigns and their respective heirs, executors, administrators and duly appointed legal representatives who shall succeed to the holder's rights and obligations in, to and under this Note. Section 12. Notices. ------- All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, and on the date of receipt, if sent by facsimile transmission (with telephonic and mail confirmation) or by recognized overnight carrier service (e.g., Federal Express or United Parcel Service), and three (3) business days after mailing by United States mail, certified or registered with return receipt requested, postage prepaid, addressed to the parties at their addresses set forth below: (i) if to Holder to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, CA 91361 Attn: Vice President, Manufacturing Fax: 805-449-3259 with a copy to: Office of the General Counsel Fax: 805-449-3256 (ii) if to the Company: Universal Packaging Systems, Inc. 4575 Danito Court Chino, CA 91710 Attn: Julio Liberal Fax: 909-590-5869 with a copy to: Ronald J. Grant, Esq. Tilles, Webb, Kulla & Grant, ALC 433 North Camden Drive, Suite 1010 Beverly Hills, California 90210 6 Fax: 310-888-3433 Either party may change its address from time to time for purposes of notice or other communication hereunder by giving notice to the other party in accordance with this section. Section 13. Governing Law. ------------- THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. Section 14. Interest Deficit. ---------------- If the provisions of this Note would at any time require payment by the Company to the holder of any amount of interest in excess of the maximum amount then permitted by applicable law, the interest payments to the holder shall be reduced but only to the extent necessary so that such holder shall not receive interest in excess of such maximum amount. If, as a result of the foregoing, a holder shall receive interest payments under the Note in an amount less than the amount otherwise provided hereunder, such deficit (hereinafter called the "Interest Deficit") will, to the fullest extent permitted by ---------------- applicable law, cumulate and will be carried forward (without interest) until the payment in full of this Note or such earlier time as it may be paid. Interest otherwise payable to the holder under the Note for any subsequent period shall be increased by the maximum amount of the Interest Deficit that may be so added without causing such holder to receive interest in excess of the maximum amount then permitted by the law applicable thereto. 7 IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the date first written above. UNIVERSAL PACKAGING SYSTEMS, INC. By:______________________ Name: Title: By:______________________ Name: Title: 8 EX-10.6 7 FORM OF SECURED NOTE FOR INVENTORY EXHIBIT 10.6 FORM OF UNIVERSAL PACKAGING SYSTEMS, INC. SECURED NOTE $___________ June 10, 1999 Section 1. General. UNIVERSAL PACKAGING SYSTEMS, INC., a California ------- corporation (the "Company"), for value received, hereby promises to pay Jafra ------- Cosmetics International, Inc., a Delaware corporation (the "Holder") (or such ------ person's permitted transferees), the aggregate principal amount of _______ (the "Principal Amount"). Principal shall be paid in 12 equal monthly installments ---------------- of $______ commencing on October 1, 1999, in such coin or currency of the United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts. The Company agrees to pay additional interest at the rate of _____% per annum on any overdue principal ten days after due date. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Asset Purchase Agreement dated as of June 10, 1999 between the Holder and the Company (the "Asset Purchase Agreement"). ------------------------ Section 2. Prepayments. Company may, at its sole discretion, at any time ----------- prepay this Note, without penalty or premium, in whole or in part, together with all accrued and unpaid interest on the principal amount so prepaid to the date of such prepayment. Section 3. Grant of Security Interest. As collateral security for the -------------------------- prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations (defined below), the Company hereby grants to the Holder a security interest in all of the Inventory (defined below) (collectively "Collateral"), and all products and proceeds of ---------- the foregoing Collateral. For the purposes of this Note, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including return premiums, with respect to any insurance relating thereto. For the purpose of this Note, "Obligations" means the collective reference to all obligations and liabilities of the Company in respect of the unpaid Principal Amount of (including, without limitation, interest accruing after the maturity of this Note and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), this Note. Section 4. Power of Attorney. Only after the occurrence of and during the ----------------- continuation of an Event of Default, the Company shall irrevocably appoint the Holder as the Company's attorney-in-fact to exercise such rights and powers as the Company might exercise with respect to the Collateral, including, without limitation, the right to (a) collect by legal 1 proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to its own or its nominee's name; and (e) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral. The Company agrees to reimburse the Holder upon demand for any costs and expenses, including, without limitation, attorneys' fees, the Holder may incur while acting as the Company's attorney-in-fact hereunder, all of which costs and expenses are included in the Obligations secured hereby. Section 5. Further Documents. The Company agrees to execute and deliver or ----------------- to cause to be executed and delivered to the Holder from time to time such UCC-1 financing statements as the Holder may request, and such confirmatory or supplementary security agreements, financing statements and other documents, instruments or agreements as the Holder may reasonably request, which are in the Holder's judgment necessary or desirable to obtain for the Holder the benefit of the this Note and the Collateral. Section 6. Covenants. --------- For as long as any amounts are owing to the Holder under this Note: a. The Company shall maintain the inventory to be sold to the Company pursuant to the Asset Purchase Agreement (the "Inventory") in good and --------- usable condition; b. The Company shall use the Inventory for the manufacture, packaging and sale of only the Holder's products, and not for or in connection with the manufacture, packaging or sale of products of any other person or entity or for any other purpose; c. The Company shall promptly give notice to the Holder of: (i) the occurrence of any Event of Default (defined below) under Section 9 hereof; (ii) any default or event of default under any contractual obligation of the Company or any litigation, investigation or proceeding between the Company any other party which, in either case, if not cured or adversely determined would have a material adverse effect on the business, operations, property or condition (financial or otherwise) of the Company or the enforceability of this Note (a "Material Adverse Effect"); or (iii) the occurrence of any event having ------------------------ a Material Adverse Effect; d. The Company shall keep and maintain at its own cost and expense reasonably satisfactory and complete records of the Collateral, including, without limitation, records of all payments received and all credits granted with respect to the Collateral, and shall mark such records to evidence this Note and the liens and the security interests created hereby. For the Holder's further security, the Holder shall have a security interest in all of the Company's books and records pertaining to the Collateral; 2 e. The Company shall, upon reasonable written advance notice to the Company and at reasonable intervals, or at any time and from time to time after the occurrence and during the continuation of an Event of Default (as defined below), give the Holder reasonable access during normal business hours to all the books, correspondence and records of the Company relating to the Inventory, and the Holder and its representatives may examine the same, and to the extent reasonable take extracts therefrom and make photocopies thereof. The Company agrees to render to the Holder, at the Company's reasonable cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Holder and its representatives shall also have the right, upon reasonable advance notice to the Company to enter during normal business hours into and upon any premises where any of the Inventory is located for the purpose of inspecting the same, observing its use or otherwise protecting the Holder's interests therein. f. The Company shall not create, incur, assume or suffer to exist any lien upon any of the Inventory (other than the liens of the Holder as permitted have under and under the Asset Purchase Agreement); and g. The Company shall not convey, sell, lease, assign, transfer or otherwise dispose of any of the Inventory (other than using such Inventory for the manufacture, packaging and sale of the Holder's products) without the prior written consent of the Holder, which the Holder may withhold in its sole discretion. Section 7. Replacement of Note. ------------------- Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note and, in case of loss, theft or destruction, of indemnity reasonably satisfactory to it, or, in the case of mutilation or at the request of the Holder, upon surrender and cancellation of this Note, and in all cases upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company will make and deliver a new Note of like tenor in lieu of this Note. A holder, through the Holder, may also request that this Note be exchanged for one or more Notes of like tenor in the same aggregate principal amount as such Note being exchanged and appropriate notation on any newly issued Note to indicate which holders have an interest therein. Section 8. Amendments and Waivers. ---------------------- No covenant, agreement or condition contained in this Note may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) without the prior written consent of the Holder (in its sole discretion) and the Company. Any such amendment or waiver shall be binding upon each of the Holder, each future holder of this Note and the Company. Upon the request of the Company, the Holder or any holder of this Note shall submit this Note to the Company so that this Note may be marked to indicate such amendment or waiver, and any Note issued thereafter shall bear a similar notation referring to any such amendment or continuing waiver. 3 Section 9. Events of Default. ----------------- a. In case of the occurrence of any of the following events (an "Event of Default"): ---------------- i. default shall be made in the payment of the principal of or interest on this Note, when and as the same shall become due and payable, whether at the due date thereof or by acceleration thereof or otherwise and such default, in the case of interest due, shall continue unremedied for ten (10) Business Days after written notice from the holder of this Note to the Company of such default; (For the purpose of this Note, "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in the State of California are authorized or required by law to be closed. ) ii. the Company shall (A) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its property, (B) admit in writing its inability to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent, (E) file a voluntary petition in bankruptcy or petition or answer seeking a reorganization or an arrangement with its creditors, (F) take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute or file an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or (G) take any corporate definitive action for the purpose of effecting any of the foregoing; iii. an order, judgment or decree shall be entered, without the application, approval or consent of the Company, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company or all or a substantial part of the assets of the Company, or appointing a receiver, trustee or liquidator of the Company, and such order, judgment or decree shall continue unstayed and in effect for any period of 60 days; iv. any material breach by the Company of any material provision of this Note (other than those described in subpart (i) of this Section 9(a)), the Asset Purchase Agreement or that certain Manufacturing Agreement dated as of June 10, 1999 between the Holder and the Company, and the failure to cure such breach within the applicable grace period, or if none is specified, within thirty (30) days after written notice from the Holder to the Company of such default; or v. the Company shall default in any payment of principal or interest of any indebtedness or contingent obligation of the Company beyond the period of grace provided in the instrument or agreement under which such indebtedness or contingent obligation was created; 4 then, the Holder may declare this Note to be forthwith due and payable, whereupon this Note shall become forthwith due and payable, both as to principal and interest, without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived; provided that in the case of any such -------- declaration based upon a default in the payment of the principal of this Note, the Holder shall provide the Company with not less than five (5) Business Days' prior written notice thereof. b. In case any one or more of the Events of Default shall have occurred and be continuing, the holder of this Note may proceed to protect and enforce its rights either by suit in equity and/or by action at law, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of a holder of this Note. c. No remedy conferred hereunder is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or hereafter existing at law or in equity or by statute or otherwise. No course of dealing between the Company and the holder of this Note or any delay on the part of the holder of this Note in exercising its rights hereunder shall operate as a waiver of any rights of such holder. d. The Company hereby waives notice of protest, dishonor, intent to accelerate, acceleration and all other notices of any type or character, demand, presentment for payment, protest, diligence in collecting or bringing suit and notice, other than required service, with respect to the filing of suit for the purpose of fixing liability. Section 10. Extension of Maturity. --------------------- Should the principal of and interest on this Note become due and payable on other than a Business Day, the maturity hereof shall be extended to the next succeeding Business Day, and principal and interest shall be payable thereon at the rate per annum herein specified during such extension. Section 11. Successors and Assigns. ---------------------- The provisions of this Note shall be binding upon and inure to the benefit of the Company and its successors and permitted assigns, and to the holder and its successors and permitted assigns and their respective heirs, executors, administrators and duly appointed legal representatives who shall succeed to the holder's rights and obligations in, to and under this Note. 5 Section 12. Notices. ------- All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, and on the date of receipt, if sent by facsimile transmission (with telephonic and mail confirmation) or by recognized overnight carrier service (e.g., Federal Express or United Parcel Service), and three (3) business days after mailing by United States mail, certified or registered with return receipt requested, addressed to the parties at their addresses set forth below: (i) if to Holder to: Jafra Cosmetics International, Inc. 2451 Townsgate Road Westlake Village, CA 91361 Attn: Vice President, Manufacturing Fax: 805-449-3259 with a copy to: Office of the General Counsel Fax: 805-449-3256 (ii) if to the Company: Universal Packaging Systems, Inc. 4575 Danito Court Chino, CA 91710 Attn: Julio Liberal Fax: 909-590-5869 with a copy to: Ronald J. Grant, Esq. Tilles, Webb, Kulla & Grant, ALC 433 North Camden Drive, Suite 1010 Beverly Hills, California 90210 Fax: 310-888-3433 Either party may change its address from time to time for purposes of notice or other communication hereunder by giving notice to the other party in accordance with this section. 6 Section 13. Governing Law. ------------- THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. Section 14. Interest Deficit. ---------------- If the provisions of this Note would at any time require payment by the Company to the holder of any amount of interest in excess of the maximum amount then permitted by applicable law, the interest payments to the holder shall be reduced but only to the extent necessary so that such holder shall not receive interest in excess of such maximum amount. If, as a result of the foregoing, a holder shall receive interest payments under the Note in an amount less than the amount otherwise provided hereunder, such deficit (hereinafter called the "Interest Deficit") will, to the fullest extent permitted by ---------------- applicable law, cumulate and will be carried forward (without interest) until the payment in full of this Note or such earlier time as it may be paid. Interest otherwise payable to the holder under the Note for any subsequent period shall be increased by the maximum amount of the Interest Deficit that may be so added without causing such holder to receive interest in excess of the maximum amount then permitted by the law applicable thereto. 7 IN WITNESS WHEREOF, the Company has duly executed and delivered this Note as of the date first written above. UNIVERSAL PACKAGING SYSTEMS, INC. By:________________________ Name: Title: By:________________________ Name: Title: 8 -----END PRIVACY-ENHANCED MESSAGE-----