<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999
REGISTRATION NO. 333-73363
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
STEINER LEISURE LIMITED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COMMONWEALTH OF THE BAHAMAS 7231 98-0164731
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
LEONARD I. FLUXMAN
CT MARITIME SERVICES, L.C.
SUITE 104A SAFFREY SQUARE 1007 NORTH AMERICA WAY
NASSAU, THE BAHAMAS FOURTH FLOOR
(809) 356-0006 MIAMI, FLORIDA 33132
(Address, including zip code, and telephone number, (305) 358-9002
including (Name, address, including zip code, and telephone
area code, of Registrant's principal executive number,
offices) including area code, of agent for service)
</TABLE>
---------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT C. BOEHM, P.A. NEIL GOLD, ESQ.
KELLEY DRYE & WARREN LLP FULBRIGHT & JAWORSKI LLP
1200 19TH STREET, NW, SUITE 500 666 FIFTH AVENUE
WASHINGTON, DC 20036 NEW YORK, NEW YORK 10103-3198
TEL: (202) 955-9600 TEL: (212) 318-3000
FAX (202) 955-9792 FAX (212) 752-5958
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDER MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 22, 1999
1,500,000 SHARES
(LOGO)
STEINER LEISURE LIMITED
COMMON SHARES
------------------------
Steiner Leisure Limited is the leading worldwide provider of spa services
and skin and hair care products on board cruise ships.
Clive E. Warshaw, the selling shareholder, is selling 1,500,000 common
shares of Steiner Leisure Limited. We will not receive any of the proceeds from
the sale of shares by Mr. Warshaw.
Our common shares are traded on the Nasdaq Stock Market's National Market
under the symbol "STNR." On March 19, 1999, the last reported sale price of the
common shares on the Nasdaq Stock Market was $28.25 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU BUY THE COMMON SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PER SHARE TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C>
Public Price.......................................... $ $
Underwriting Discounts................................ $ $
Proceeds to the Selling Shareholder................... $ $
- -------------------------------------------------------------------------------
</TABLE>
The underwriters may purchase up to an additional 225,000 common shares
from the selling shareholder at the public price less underwriting discounts
solely to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters are offering the shares when, as and if delivered to and accepted
by them, subject to various prior conditions, including their right to reject
orders in whole or in part. The underwriters expect to deliver the shares
against payment in New York, New York on , 1999.
ING BARING FURMAN SELZ LLC
RAYMOND JAMES & ASSOCIATES, INC.
WILLIAM BLAIR & COMPANY
THIS PROSPECTUS IS DATED , 1999
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange
Act"). You may read and copy any of the information we file with the SEC at the
SEC's public reference rooms in Washington, D.C., New York City and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. You can also obtain copies of filed
documents at prescribed rates by mail from the Public Reference Section of the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
We file information electronically with the SEC. Our SEC filings also are
available from the SEC's Internet site at www.sec.gov, which contains reports,
proxy and information statements, and other information regarding issuers that
file electronically.
CERTAIN INFORMATION ABOUT THIS PROSPECTUS
We have filed a Registration Statement on Form S-3 with the SEC covering
the common shares being offered by means of this prospectus. As permitted by SEC
rules, this prospectus omits certain information that is included in the
Registration Statement. For further information about us and our common shares,
you should refer to our Registration Statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents. Since the
prospectus may not contain all the information that you may find important, you
should review the full text of those documents.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document we have filed separately with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, and information that we may later file with the SEC will
automatically update and supercede the information in this prospectus. This
prospectus incorporates by reference the documents set forth below that we have
previously filed with the SEC under the Exchange Act, and any future filings we
make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act,
until the offering of securities covered by this prospectus is completed. These
documents contain important information about us and our financial condition.
- Our Annual Report on Form 10-K for our fiscal year ended December 31,
1998.
- The description of our common shares contained in our registration
statement on Form 8-A filed with the SEC under Section 12 of the Exchange
Act, including any amendments or reports filed for the purpose of
updating the description.
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<PAGE> 4
We will provide a copy of the information we incorporate by reference, at
no cost, to each person, including any beneficial owner of our common shares, to
whom this prospectus is delivered. To request a copy of any or all of this
information, you should contact us at the following address and telephone
number:
Corporate Secretary
Steiner Leisure Limited
c/o CT Maritime Services, L.C.
1007 North America Way
Miami, Florida 33132
Telephone: (305) 358-9002
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act. These statements can sometimes
be identified by our use of forward-looking words such as "may," "will,"
"anticipate," "estimate," "expect" or "intend." All forward-looking statements
in this prospectus are based on information available to us on the date of this
prospectus. These forward-looking statements are subject to risks, uncertainties
and assumptions about us and our future business including, among other things,
those set forth under "Risk Factors" beginning on page 9 of this prospectus. We
cannot promise that our expectations in such forward-looking statements will
turn out to be correct. We do not undertake to update any forward-looking
statements that may be made by us in this prospectus or otherwise.
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<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common shares. You
should read the entire prospectus carefully, especially the risks of investing
in our common shares discussed under "Risk Factors." Unless the context
otherwise requires, "Steiner Leisure," "we," "us" and "our" refer to Steiner
Leisure Limited and its subsidiaries and predecessors.
STEINER LEISURE
OUR BUSINESS
Steiner Leisure is the leading worldwide provider of spa services and skin
and hair care products on board cruise ships. We strive to create a relaxing and
therapeutic environment where customers can receive body and facial treatments
and hair styling comparable in quality to the finest land-based spas and salons.
Steiner Leisure also develops and markets premium priced, high quality personal
care products that are sold primarily in connection with the services we
provide. As of March 1, 1999, we served 99 cruise ships representing 26 cruise
lines, including Carnival, Royal Caribbean, Princess, Norwegian, Celebrity and
Cunard. Our services are provided under agreements with cruise lines which range
in duration from one to six years.
Steiner Leisure provides its shipboard services in treatment and fitness
facilities located on cruise ships. On newer ships, our services are provided in
enhanced, large "spa" facilities. Many of these facilities offer enlarged
fitness and treatment areas, generally located in a single passenger activity
area. As of March 1, 1999, 37 of the 99 ships that we served had large spa
facilities. Our services include massage, hydrotherapy (water-based) treatments,
aromatherapy treatments, seaweed wraps, saunas, steam rooms, aerobic exercise,
hair styling, manicures, pedicures and a variety of other specialized body and
facial treatments. Our range of services is designed to capitalize on the
growing consumer trend towards health awareness, personal care and fitness.
Ships with large spas provided us with average weekly revenues of $35,054 in
1997 and $36,373 in 1998, as compared to average weekly revenues of $10,276 in
1997 and $10,607 in 1998 for the other ships we served.
In addition to our shipboard services, we sell a variety of beauty and hair
care products under our "Elemis" and "La Therapie" trademarks. The raw materials
for these products are produced for us by a premier French manufacturer. We also
sell a variety of hair care products under the "Steiner" name. In total, we
offer over 160 different products. These products include beauty preparations,
such as aromatherapy oils, cleansers and creams, other skin care preparations,
and accessories and hair care products, such as shampoos, moisturizers and
lotions. Steiner Leisure sells its products primarily on board the ships that we
serve. We also sell products through land-based retail and wholesale outlets,
mail order and our website at www.steinerleisure.com. During 1998, services
accounted for approximately 59% of our revenues and products accounted for
approximately 41% of our revenues.
4
<PAGE> 6
OUR BUSINESS STRATEGY
Our business strategy is directed at maintaining and enhancing our position
as the leading worldwide provider of spa services and related products on board
cruise ships. To do so, we:
- employ skilled personnel who are trained at our facilities in Steiner
Leisure's philosophy of customer care and outstanding personal service;
- utilize experienced shipboard management to implement our customer care
philosophy and empower management to make day-to-day operational
decisions, including those necessary to maximize shipboard revenues;
- develop and deliver high quality, innovative services and products that
provide a richly rewarding experience to our customers;
- effectively market our services and products, including through a variety
of pre-cruise purchase programs and shipboard promotions; and
- maintain close relationships with cruise lines, to position us to renew
our cruise line agreements as they expire and obtain cruise line
agreements for new ships as they are brought into service.
OUR GROWTH STRATEGY
Steiner Leisure's strategy for growth includes the following principal
elements:
- serve new ships introduced by our cruise line customers;
- capitalize on the trend of cruise ships to offer larger spa facilities
located in a single passenger activity area;
- increase product sales through both shipboard and land-based marketing
efforts;
- increase the productivity of our shipboard staff;
- seek land-based opportunities to sell our services and products,
including through facilities operated by us; and
- consider acquisitions compatible with our operations.
IMPLEMENTATION OF OUR STRATEGIES
We believe that we have effectively implemented our business and growth
strategies since our initial public offering in November 1996 by:
- commencing to serve 16 new cruise ships brought into service by our
cruise line customers;
- renewing all expiring cruise line agreements that we sought to renew;
- repackaging and reformulating our "Elemis" product lines to keep current
with changing consumer tastes;
- commencing operation of our first land-based facility -- the luxury spa
at the Atlantis Resort on Paradise Island in The Bahamas;
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<PAGE> 7
- granting rights for the operation of three Elemis Beautiful Skin Centres
in Hong Kong;
- training our shipboard staff on new treatment methods and on sales
techniques to maximize productivity; and
- updating our Internet website to facilitate on-line shopping by our
customers.
NEW SHIPS COMING INTO SERVICE
As of March 1, 1999, cruise lines served by Steiner Leisure were scheduled
to introduce nine new ships into service in 1999. We expect to perform services
on eight of these ships, including six that are currently covered by cruise line
agreements. Six of these eight ships will have large spa facilities.
THE OFFERING
Common shares offered........... All of the 1,500,000 shares offered by this
prospectus are being sold by the selling
shareholder. An additional 225,000 shares
may be sold by the selling shareholder if
the over-allotment option is exercised in
full by the underwriters.
The selling shareholder......... The selling shareholder, Clive E. Warshaw,
is the Chairman of the Board and Chief
Executive Officer of Steiner Leisure, and
our largest shareholder. After this
offering, the selling shareholder will
continue to own 2,971,115 shares,
constituting approximately 17.7% of our
outstanding common shares. If the
over-allotment option is exercised in full
by the underwriters, he would own 2,746,115
shares, constituting approximately 16.4% of
our outstanding common shares. Mr. Warshaw
has indicated that, after this offering, he
does not intend to sell any additional
common shares until at least January 1,
2002.
Use of proceeds................. We will not receive any of the proceeds from
the sale of shares by the selling
shareholder.
Nasdaq Stock Market symbol...... STNR
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
You should read the following summary historical financial and operating
data
together with our financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994(2) 1995 1996 1997 1998
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.............................. $25,310 $35,764 $43,122 $50,113 $59,741
Products.............................. 14,340 18,648 26,458 33,863 41,647
------- ------- ------- ------- -------
Total revenues...................... 39,650 54,412 69,580 83,976 101,388
------- ------- ------- ------- -------
Cost of sales:
Cost of services...................... 21,324 29,623 33,446 39,085 46,142
Cost of products...................... 11,867 16,309 18,699 23,110 28,227
------- ------- ------- ------- -------
Total cost of sales................. 33,191 45,932 52,145 62,195 74,369
------- ------- ------- ------- -------
Gross profit........................ 6,459 8,480 17,435 21,781 27,019
------- ------- ------- ------- -------
OPERATING EXPENSES:
Administrative........................ 1,874 3,100 3,396 3,862 4,801
Salary and payroll taxes.............. 1,785 1,925 3,973 4,344 4,979
Amortization of CTO intangibles....... 1,264 2,292 2,477 1,089 --
------- ------- ------- ------- -------
Total operating expenses............ 4,923 7,317 9,846 9,295 9,780
------- ------- ------- ------- -------
Income from operations.............. 1,536 1,163 7,589 12,486 17,239
Net income (loss)..................... $ 321 $ (563) $ 2,471 $12,247 $17,676
======= ======= ======= ======= =======
Diluted earnings (loss) per share..... $ 0.02 ($ 0.04) $ 0.17 $ 0.73 $ 1.04
Diluted weighted average shares
outstanding......................... 14,337 14,337 14,684 16,693 16,960
SELECTED OPERATING DATA:
Average number of ships served(3)..... 70 90 84 83 92
Average total number of staff on ships
served.............................. 501 655 695 756 842
Revenue per staff per day(4).......... $213 $221 $256 $286 $310
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $35,872
Total assets................................................ 53,654
Long-term debt.............................................. --
Shareholders' equity........................................ 43,691
</TABLE>
We effected a 3-for-2 split of our common shares on each of October 24,
1997 and April 28, 1998. All share and per share data in this prospectus reflect
these share splits.
- -------------------------
(1) All financial data is in U.S. dollars. See Note 2(i) of the Notes to
Consolidated Financial Statements for information concerning the
determination of exchange rates.
(2) In June 1994, Steiner Group Limited (now known as STGR Limited), our
predecessor, acquired Coiffeur Transocean (Overseas), Inc. ("CTO") in a
transaction
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<PAGE> 9
accounted for as a purchase. Accordingly, our 1994 Statement of Operations
Data and Selected Operating Data include approximately seven months of
operations of CTO.
(3) Average number of ships served takes into account that during each year
ships were brought in and taken out of service and, accordingly, the number
of ships served during a year varies. This number also takes into account
that during each year we commence serving new ships brought into service and
we cease serving older ships that are retired from service.
(4) Revenue includes all sales of services and products on board ships. Staff
includes all shipboard employees. Per day refers to each day a cruise ship
is in service.
8
<PAGE> 10
RISK FACTORS
In addition to the other information set forth, or incorporated by
reference, in this prospectus, you should carefully consider the following risk
factors relating to Steiner Leisure before purchasing our common shares.
WE ARE DEPENDENT ON OUR AGREEMENTS WITH CRUISE LINES
Our revenues are generated primarily on cruise ships. Under our agreements
with cruise lines, we provide services and products paid for by cruise
passengers. The cruise line agreements have specific terms, ranging from one to
six years, with an average remaining term per ship as of March 1, 1999, of
approximately two years. As of that date, cruise line agreements that expire
within one year, including the agreement with Royal Caribbean, covered 40 of the
99 ships served by us. These 40 ships accounted for approximately 36.1% of our
1998 revenues. We cannot assure you that any of these agreements will be renewed
after its expiration date or that any renewal will be on similar terms. These
agreements provide for termination by the cruise lines with limited or no
advance notice under certain circumstances, including, among other things,
failure of a cruise line to meet a specified passenger occupancy rate, the
withdrawal of a vessel from the cruise trade, the sale or lease of a vessel or
our failure to receive specified passenger service rankings. As of March 1,
1999, agreements for three ships provided for termination for any reason by
cruise lines on six months' notice, for eight ships on 90 days' notice and for
one ship on 60 days' notice. Our cruise line agreements may, therefore, be
terminated prior to their specified termination dates.
WE ARE DEPENDENT ON THE CRUISE INDUSTRY
Our revenues are generated principally from cruise ship passengers.
Therefore, the ability of the cruise industry to attract passengers is critical
to our results of operations and financial condition. According to Cruise Lines
International Association, a trade association, the passenger volume of cruises
marketed primarily to North American consumers increased from approximately 2.2
million passengers in 1985 to approximately 5.4 million in 1998. The cruise
industry may not continue to grow or may decrease in size in the future. A
decrease in passenger volume could adversely affect us.
The cruise industry is subject to significant risks that could affect our
results of operations. The cruise lines operate in waters and call on ports
throughout the world, including geographic regions that from time to time
experience political and civil unrest and armed hostilities. Historically, such
events have adversely affected demand for cruise vacations. The cruise industry
may be adversely affected by severe weather conditions, both at sea and at ports
of embarkation. Publicized operational difficulties or outbreaks of disease on
cruise ships also could adversely affect the cruise industry. The cruise
industry is dependent to a significant extent on airlines to transport
passengers to ports of embarkation. Any strikes or other disruptions of airline
service could adversely affect the ability of cruise passengers to reach their
ports of embarkation.
Cruise lines compete for consumer disposable leisure time dollars with
other vacation alternatives such as land-based resort hotels and sightseeing
vacations. In addition, public demand for vacation activities is influenced by
general economic conditions. A majority of cruise passengers served by us reside
in North America. Periods of general economic
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<PAGE> 11
recession, particularly in North America, could have a material adverse effect
on the cruise industry and could also materially adversely affect us.
WE ARE DEPENDENT ON CERTAIN CRUISE COMPANIES
The number of independent cruise companies has decreased in the past few
years as a result of the consolidation of the cruise industry. Industry analysts
believe that further consolidation of the cruise industry may occur. Our
revenues are dependent to a significant extent on a limited number of cruise
companies. Revenues from passengers of each of the following cruise companies
accounted for more than ten percent of our revenues in 1998: Carnival (including
Costa, Holland America, Seabourn, Windstar and Cunard) -- 34.7%; Royal Caribbean
(including Celebrity) -- 30.1%; and Peninsular and Oriental Steam Navigation
Company (including Princess, P&O and P&O European Ferries) -- 12.9%. These
companies also accounted for 66 of the 99 ships served by us as of March 1,
1999. If we cease to serve one of these cruise companies, or a substantial
number of ships operated by a cruise company, it could adversely affect our
results of operations. As a result of industry consolidation, a small number of
cruise companies, all of whom currently are our customers, dominate the cruise
industry. If any of these large cruise companies discontinues its relationship
with us or incurs economic problems, our results of operations could be
adversely affected.
WE ARE REQUIRED TO MAKE MINIMUM PAYMENTS UNDER OUR AGREEMENTS
Steiner Leisure is obligated to make minimum payments to certain cruise
lines, as well as in connection with the Atlantis Spa, regardless of the amount
of revenues we receive from customers. Accordingly, we could be obligated to pay
more than the amount collected from customers or might not receive revenues
sufficient to cover our costs. As of December 31, 1998, these minimum payments
are required by cruise line agreements covering a total of 67 ships served by us
and three additional ships not yet in service, as well as in connection with the
Atlantis Spa. As of December 31, 1998, we had guaranteed total minimum payments
(excluding payments based on passenger loads applicable to certain ships served
by us) of approximately: $20.7 million in 1999, $16.9 million in 2000, $14.4
million in 2001 and $2.9 million in 2002.
WE ARE DEPENDENT ON KEY OFFICERS AND QUALIFIED SHIPBOARD EMPLOYEES
Our continued success depends to a significant extent on our senior
officers, including Clive E. Warshaw, Chairman of the Board and Chief Executive
Officer, Leonard I. Fluxman, President and Chief Operating Officer, and Michele
Steiner Warshaw, Executive Vice President. Mr. Warshaw and Ms. Warshaw are
husband and wife. The loss of services of any of these persons or other key
management personnel could have a material adverse effect on our business.
Steiner Leisure has employment agreements with Mr. Warshaw, Mr. Fluxman and Ms.
Warshaw, and key person life insurance policies on their lives. Our continued
success is also dependent on our ability to recruit and retain personnel
qualified to perform our shipboard services. Shipboard employees typically are
employed pursuant to agreements with terms of eight months. We cannot guarantee
that we will be able to continue to attract a sufficient number of applicants
possessing the requisite skills necessary for our business. If we are unable to
attract a sufficient number of qualified applicants, our business could be
materially adversely affected.
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<PAGE> 12
WE ARE DEPENDENT ON A SINGLE PRODUCT MANUFACTURER
Almost all of the ingredients and other materials for our "Elemis" and "La
Therapie" beauty products are produced by a single manufacturer pursuant to an
agreement terminating in 2001. If this manufacturer ceased producing these
ingredients and other materials for our products, the transition to other
manufacturers could result in significant production delays. Any significant
delay or disruption in the supply of our products could have a material adverse
effect on our product sales.
POSSIBLE CHANGES IN THE TAXATION OF STEINER LEISURE
Steiner Leisure is a Bahamian international business company ("IBC") that,
directly or indirectly, owns:
- CT Maritime Services, L.C., a Florida limited liability company that
performs administrative services in connection with our maritime
operations ("Maritime Services");
- Steiner Beauty Products, Inc., a Florida corporation that sells skin and
hair care products ("Steiner Beauty"); and
- Steiner Transocean Limited, a Bahamian IBC that operates our shipboard
business ("Steiner Transocean").
Steiner Leisure also owns all, or almost all, of the shares of additional
Bahamas, United Kingdom and other subsidiaries through which we conduct our
business.
Steiner Leisure is not subject to Bahamian tax. For United States federal
tax purposes Steiner Leisure will be considered engaged in business in the
United States by virtue of its 98% membership interest in Maritime Services. As
a result Steiner Leisure will be subject to United States federal income tax at
regular corporate rates of up to 35% on its share of the United States-source
income and certain foreign-source income, if any, of Maritime Services. Steiner
Leisure may also be subject to a 30% branch profits tax on any portion of that
income that is not considered reinvested in the United States. Steiner Leisure
believes that none of our remaining income will be effectively connected with
our deemed conduct of business in the United States through Maritime Services
and, accordingly, that our remaining income will not be subject to United States
federal tax.
Steiner Beauty generally will be subject to United States federal income
tax at regular corporate rates of up to 35% on all its worldwide income,
including its share of the income of Maritime Services in which it owns a one
percent membership interest.
Steiner Transocean is a Bahamian IBC and maintains an office in The
Bahamas. Steiner Transocean is not subject to Bahamian tax. For United States
federal tax purposes Steiner Transocean will be considered engaged in business
in the United States as a result of its membership interest in Maritime
Services. As discussed above, a foreign corporation generally is subject to
United States federal corporate income tax at a rate of up to 35% on its United
States-source income and on certain of its foreign-source income that is
effectively connected to a business it conducts in the United States. In
addition, a foreign corporation conducting business in the United States may be
subject to a 30% branch profits tax on income from that business that is not
considered reinvested in the United States. Steiner Transocean may be subject to
both federal corporate income tax and the branch profits tax on its share of the
income of Maritime Services in which it owns a one percent membership interest.
We believe that Steiner Transocean's income from its
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<PAGE> 13
remaining activities will be foreign-source income, none of which will be
effectively connected to a business it conducts in the United States. This
belief is based on:
- all of Steiner Transocean's shipboard spa and salon services being
performed outside the United States and its possessions and their
respective territorial waters;
- passage of title and transfer of ownership of all beauty products sold by
Steiner Transocean taking place outside the United States; and
- the activities performed on behalf of Steiner Transocean in the United
States not being a material factor in generating income for Steiner
Transocean.
However, a portion of Steiner Transocean's income could be subject to
United States federal income tax:
- to the extent the first two activities described above were considered by
the United States Internal Revenue Service (the "IRS") to occur in the
United States, its possessions or territorial waters; or
- if the activities performed on behalf of Steiner Transocean in the United
States were considered to be a material factor in generating Steiner
Transocean's income.
In that event, Steiner Transocean would be subject to U.S. federal income tax at
a rate of up to 35% and, possibly, branch profits tax at a rate of 30% on such
income.
Maritime Services will not itself be subject to United States federal
income tax. Instead, its income will flow through and be taxed to its members,
Steiner Leisure, Steiner Beauty and Steiner Transocean, as discussed above.
Maritime Services and Steiner Beauty may be subject to additional U.S.
state and local income, franchise and other taxes. Maritime Services receives
payments from Steiner Transocean in return for certain administrative services
it provides to Steiner Transocean. The IRS may assert that transactions between
Maritime Services and Steiner Transocean and between our other direct and
indirect subsidiaries do not contain arm's length terms. In that event, income
or deductions could be reallocated among the subsidiaries in a manner that could
increase the taxable income of Maritime Services. This reallocation also could
result in the imposition of interest and penalties.
Our United Kingdom subsidiaries provide goods and services to Steiner
Transocean. The United Kingdom Inland Revenue authorities may assert that these
transactions do not contain arms' length terms. In that event, income or
deductions could be reallocated among the subsidiaries in a manner that could
increase the U.K. tax on us. This reallocation also could result in the
imposition of interest and penalties.
In 1998, Steiner Leisure paid tax at an aggregate rate of 6.8% on its
income. We cannot assure that future income will be taxed at this rate.
Coiffeur Transocean (Overseas), Inc. ("CTO"), our former subsidiary, was
liquidated for United States federal and state income tax purposes during the
fourth quarter of 1996. As a result, CTO was treated as if it sold all of its
assets for fair market value on the date of that liquidation. Based on the value
of CTO's assets, determined by an unrelated party, we calculated CTO's U.S. tax
liability resulting from its liquidation at approximately $3.2 million. This
amount was paid in January 1997. However, if the IRS were successfully to
ascribe a higher value to CTO's assets, the tax liability resulting from CTO's
liquidation could be increased.
12
<PAGE> 14
WE FACE COMPETITION ON SHIPS AND ON LAND
We compete with passenger activity alternatives on cruise ships and with
competing providers of similar services and products seeking agreements with
cruise lines. Gambling casinos, bars and a variety of shops are found on almost
all of the ships served by us. In addition, ships dock in ports which provide
opportunities for additional shopping as well as other activities that compete
with us for passenger attention and dollars. Cruise ships also typically offer
swimming pools and other recreational facilities and activities, as well as
musical and other entertainment, all without additional charge to the
passengers. A number of cruise lines currently perform the shipboard services
performed by us with their own personnel, and one or more additional cruise
lines could elect to perform these services themselves. There currently are
several other entities offering services to the cruise industry similar to those
provided by us. Additional entities, including those with significant resources,
also could compete with us in the future.
Our Atlantis Spa and the Elemis Beautiful Skin Centres compete with a
variety of other operators of land-based day spas and beauty salons, including
those with greater resources than Steiner Leisure.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT US
Steiner Leisure's advertising and product labeling practices in the United
States are subject to regulation by the Federal Trade Commission and the Food
and Drug Administration, as well as various other federal, state and local
regulatory authorities. The contents of our products that are sold in the United
States are subject to regulation in the United States. We are subject to similar
regulation under the laws of the United Kingdom and certain European Union laws.
Federal, state and local regulations in the United States and non-United States
jurisdictions, including increasing regulation by the European Union, designed
to protect consumers or the environment could adversely affect or increase the
cost of advertising, manufacturing and packaging our products.
Steiner Leisure's land-based operations, including our Atlantis Spa and the
Elemis Beautiful Skin Centres, are subject to applicable regulations in the
locations where such operations are conducted. These regulations could adversely
affect our ability to sell or could increase the cost of our services and
products. Among other things, local immigration laws could impede our ability to
obtain work permits needed for Steiner Leisure-trained employees at our
land-based facilities.
PRODUCT LIABILITY AND OTHER POTENTIAL CLAIMS COULD ADVERSELY AFFECT US
The nature and use of Steiner Leisure's products and services could give
rise to product liability or other claims if a customer were injured while
receiving one of our services or suffered adverse reactions following the use of
our products. Adverse reactions could be caused by various factors beyond our
control, including hypoallergenic sensitivity and the possibility of malicious
tampering with our products. If any of these events occurred, we could incur
substantial litigation expense, receive adverse publicity and suffer a loss of
sales.
OUR NEW LAND-BASED OPERATIONS FACE VARIOUS RISKS
In February 1999, we began operating a spa facility at the Atlantis Resort
on Paradise Island in The Bahamas. During 1998 we licensed rights to a third
party to operate three
13
<PAGE> 15
Elemis Beautiful Skin Centres. These are land-based day spas in Hong Kong. We
may, in the future, grant rights to operate day spas at other locations. Before
these operations, we had no experience in land-based spa operations or the
operation of a licensed business. In order to successfully conduct
company-operated land-based businesses such as our Atlantis Spa, we will be
dependent on our ability to hire and retain the services of qualified personnel.
We are currently operating the Atlantis Spa pursuant to agreed upon terms
pending the signing of a definitive agreement. The future success of the Elemis
Beautiful Skin Centres is also dependent on our ability to obtain area
development and license agreements with parties who can successfully operate
these facilities. To date, no agreements have been reached with any parties
outside of Hong Kong. We are not certain that any other license agreements will
be entered into in the future.
Our Atlantis Spa operations and, for the foreseeable future, all of the
Elemis Beautiful Skin Centre operations will be undertaken outside of the United
States. These operations are subject to certain risks, including adverse
developments in the foreign political and economic environment, varying
governmental regulations, foreign currency fluctuations, potential difficulties
in supervising foreign operations and potential adverse tax consequences.
Recently a number of countries in Asia, where the initial Elemis Beautiful Skin
Centres are located, have experienced economic difficulties and social unrest.
Any of these factors could have a material adverse effect on these operations.
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON US
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000s" from dates in the "1900s." These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the datefield. Our failure, or the
failure of a cruise line customer or major third party supplier of ours, to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain of our normal business activities or operations.
We believe that our biggest risks related to the Year 2000 issue are
associated with potential concerns with cruise line customers and major third
party suppliers of services or products. The most reasonably likely source of
Year 2000 risk with respect to our cruise line customers would be the disruption
of transportation channels that deliver passengers to cruise ships. The
disruption of transportation channels could also impede our ability to deliver
our products to intended points of sale or the ability of our staff to report to
the ships to which they are assigned.
We have developed a compliance program to assess the overall impact to
Steiner Leisure of the Year 2000 issue and are in the process of developing
contingency plans that will attempt to mitigate certain of our Year 2000 risks.
We believe that our costs relating to implementation of our Year 2000 program
will not be material. However, if our Year 2000 compliance program or
contingency plans are ineffective or if the actual costs of implementing our
Year 2000 compliance program or contingency plans significantly exceed our
estimates, our business and results of operation could be materially adversely
affected.
14
<PAGE> 16
WE ARE NOT A UNITED STATES COMPANY AND, AS A RESULT, THERE ARE SPECIAL RISKS
Our corporate affairs are governed by our Memorandum of Association and
Articles of Association, which are similar to the articles of incorporation and
bylaws of a United States corporation, and the International Business Companies
Act, 1989, of The Bahamas (the "IBC Act"). The provisions of the IBC Act
resemble certain existing and repealed provisions of the Companies Acts of
England and Wales and, in some respects, the laws of certain United States
jurisdictions. Although the United Kingdom and many United States jurisdictions
have fairly well developed bodies of case law interpreting their respective
corporate statutes, there are very few reported judicial cases decided in The
Bahamas interpreting the IBC Act. For example, the rights and fiduciary
responsibilities of directors under Bahamian law are not as clearly established
as the rights and fiduciary responsibilities of directors under statutes or
judicial precedent in existence in the United Kingdom and certain United States
jurisdictions. In general, English case law is persuasive authority in The
Bahamas and decisions of the Judicial Committee of the Privy Council in the
United Kingdom (the court of final appeal for The Bahamas and other British
Commonwealth countries) on an appeal from The Bahamas Court of Appeal are
binding. Decisions of the House of Lords and rulings of the Privy Council which
relate to other Commonwealth countries are usually followed insofar as they
declare the common law of England which applies to The Bahamas, except where
this common law has been altered by Bahamian statute. Accordingly, the rights
and remedies of our public shareholders in the face of actions by our
management, directors or shareholders are less clearly established than would be
the case with a company incorporated in the United Kingdom or a United States
jurisdiction.
Certain of our directors and executive officers reside outside the United
States. A substantial portion of our assets and the assets of those persons are
located outside the United States. As a result, it may not be possible to effect
service of process within the United States upon such persons. It also may not
be possible to enforce against them or Steiner Leisure judgments obtained in
United States courts based on the civil liability provisions of the United
States federal securities laws. In the opinion of Harry B. Sands & Company, our
Bahamas counsel:
- it is unlikely that Bahamian courts would entertain original actions
against Bahamian companies or their directors or officers based solely
upon United States federal securities laws;
- judgments predicated upon any civil liability provisions of the U.S.
federal securities laws are not directly enforceable in The Bahamas;
rather, a lawsuit must be brought in The Bahamas on any such judgment;
and
- subject to considerations of private international law, in general, a
judgment obtained after due trial by a court of competent jurisdiction,
which is final and conclusive as to the issues in contention, is
actionable in Bahamian courts and is impeachable only upon the grounds of
(i) fraud, (ii) public policy and (iii) natural justice.
15
<PAGE> 17
OUR STOCK PRICE HAS FLUCTUATED AND COULD FLUCTUATE SIGNIFICANTLY
Since our common shares have commenced being publicly traded, the market
price of our shares has fluctuated over a wide range and may continue to do so
in the future. The market price of our common shares could be subject to
significant fluctuations in response to various factors and events, including,
among other things:
- the depth and liquidity of the trading market for our common shares;
- quarterly variations in our actual or anticipated operating results;
- changes in estimates of our earnings by analysts;
- market conditions in the cruise industry;
- announcements or activities by our competitors; and
- general economic or market conditions.
The stock market has from time to time experienced significant price and
volume fluctuations, which may be unrelated to the operating performance of
particular companies. Furthermore, our operating results and prospects from time
to time may be below the expectations of public market analysts and investors.
Any such event could result in a material decline in the price of our common
shares.
ANTI-TAKEOVER PROVISIONS LIMIT SHAREHOLDERS' ABILITY TO EFFECT A CHANGE IN
MANAGEMENT OR CONTROL
Our Articles of Association include certain provisions which may have the
effect of delaying or preventing a future takeover or change in control of
Steiner Leisure that shareholders may consider to be in their best interests.
Among other things, our Articles provide for a classified Board of Directors
serving staggered terms of three years, supermajority voting requirements with
respect to certain significant transactions and restrictions on certain
transactions with holders of 15% or more of the voting shares of Steiner
Leisure. We have an authorized class of 10,000,000 Preferred Shares that may be
issued in one or more series by the Board of Directors without further action by
the shareholders on such terms and with such rights, preferences and
designations as the Board of Directors may determine. Furthermore, our 1996
Share Option and Incentive Plan ("Share Option Plan") and certain of our
employment agreements provide certain rights to plan participants and our
officers in the event of a change in control of Steiner Leisure. We also intend
to present to our shareholders for their approval at our annual meeting, which
is anticipated to be held in June 1999, a proposal to amend our Memorandum of
Association to increase the number of common shares that we are authorized to
issue from 20,000,000 to 100,000,000. Such additional shares could be available
for use by us in opposing a hostile takeover attempt, or otherwise delay or
prevent changes in control or management of Steiner Leisure.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are the selected financial data for each of the years in
the five-year period ended December 31, 1998. The balance sheet data as of
December 31, 1997 and 1998, and the statement of operations data for the years
ended December 31, 1996, 1997 and 1998 have been derived from our financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this prospectus.
The balance sheet data as of December 31, 1994, 1995 and 1996, and the statement
of operations data for the years ended December 31, 1994 and 1995, are derived
from our financial statements which have been audited by Arthur Andersen LLP.
These financial statements are not included in this prospectus. The information
contained in this table should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994(1) 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.......................... $25,310 $35,764 $43,122 $50,113 $59,741
Products.......................... 14,340 18,648 26,458 33,863 41,647
------- ------- ------- ------- -------
Total revenues................. 39,650 54,412 69,580 83,976 101,388
------- ------- ------- ------- -------
Cost of sales:
Cost of services.................. 21,324 29,623 33,446 39,085 46,142
Cost of products.................. 11,867 16,309 18,699 23,110 28,227
------- ------- ------- ------- -------
Total cost of sales............ 33,191 45,932 52,145 62,195 74,369
------- ------- ------- ------- -------
Gross profit................... 6,459 8,480 17,435 21,781 27,019
------- ------- ------- ------- -------
Operating expenses:
Administrative.................... 1,874 3,100 3,396 3,862 4,801
Salary and payroll taxes.......... 1,785 1,925 3,973 4,344 4,979
Amortization of CTO intangibles... 1,264 2,292 2,477 1,089 --
------- ------- ------- ------- -------
Total operating expenses....... 4,923 7,317 9,846 9,295 9,780
------- ------- ------- ------- -------
Income from operations......... 1,536 1,163 7,589 12,486 17,239
Other income (expense).............. (305) (370) (168) 908 1,737
------- ------- ------- ------- -------
Income before provision for income
taxes and minority interest.... 1,231 793 7,421 13,394 18,976
------- ------- ------- ------- -------
Provision for income taxes:
Current........................... 940 1,356 1,750 1,147 1,296
Deferred.......................... (30) -- -- -- --
Nonrecurring...................... -- -- 3,200 -- --
------- ------- ------- ------- -------
Total provision for income
taxes........................ 910 1,356 4,950 1,147 1,296
------- ------- ------- ------- -------
Income before minority interest..... 321 (563) 2,471 12,247 17,680
Minority interest................... -- -- -- -- (4)
------- ------- ------- ------- -------
Net income (loss)................... $ 321 $ (563) $ 2,471 $12,247 $17,676
======= ======= ======= ======= =======
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994(1) 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Earnings (loss) per common share(2)
Basic............................. $ 0.02 $ (0.04) $ 0.17 $ 0.76 $ 1.08
======= ======= ======= ======= =======
Diluted........................... $ 0.02 $ (0.04) $ 0.17 $ 0.73 $ 1.04
======= ======= ======= ======= =======
Basic weighted shares
outstanding.................... 14,337 14,337 14,556 16,202 16,401
Diluted weighted average shares
outstanding.................... 14,337 14,337 14,684 16,693 16,960
BALANCE SHEET DATA:
Working capital..................... $ 2,009 $ 22 $12,595 $25,644 $35,872
Total assets........................ 16,230 13,320 26,656 37,137 53,654
Long-term debt...................... 4,775 3,020 -- -- --
Shareholders' equity................ 5,150 3,574 16,080 28,513 43,691
</TABLE>
- -------------------------
(1) In June 1994, Steiner Group acquired Coiffeur Transocean (Overseas), Inc.
("CTO") in a transaction accounted for as a purchase. Accordingly, our 1994
Statement of Operations Data includes approximately seven months of
operations of CTO.
(2) We effected a 3-for-2 split of our common shares on each of October 24, 1997
and April 28, 1998. The share and per share data above reflect these share
splits.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Steiner Leisure is the leading worldwide provider of spa services and skin
and hair care products on board cruise ships. We sell our services and products
to cruise passengers. Payments to cruise lines are based on a percentage of our
passenger revenues and, in certain cases, a minimum annual rental or a
combination of both. We also sell our services and products through land-based
channels.
Cost of sales includes:
- cost of services, including an allocable portion of wages paid to
shipboard employees, rent payments to cruise lines (which are a
percentage of services revenues or a minimum annual rent or a combination
of both) and other staff-related shipboard expenses; and
- cost of products, including an allocable portion of wages paid to
shipboard employees, rent payments to cruise lines (as noted above) and
other staff-related shipboard expenses, as well as costs associated with
development, manufacturing and distribution of products.
Cost of sales may be affected by, among other things, sales mix, production
levels, changes in supplier prices and discounts, purchasing and manufacturing
efficiencies, tariffs, duties, freight and inventory costs. Certain cruise line
agreements provide for increases in the percentages of services and products
revenues payable as rent payments and/or, as the case may be, the amount of
minimum annual rental payments over the terms of such agreements. Rent payments
may also be increased under new agreements with cruise lines that replace
expiring agreements. In general, Steiner Leisure has experienced increases in
rent payments upon entering into new agreements with cruise lines.
Cost of products includes the cost of products sold through our various
methods of distribution. To a lesser extent, cost of products also includes the
cost of products consumed in rendering services. This amount would not be a
material component of the cost of services rendered and would not be practicable
to identify separately.
Operating expenses include administrative expenses, salary and payroll
taxes. In addition, for the three year period ended June 1997, operating
expenses included goodwill amortization related to the acquisition of CTO.
Steiner Leisure is a Bahamian IBC. The Bahamas does not tax Bahamian IBCs.
We believe that income from our maritime operations will be foreign source
income that will not be subject to United States, United Kingdom or other
taxation. More than 83.7% of our income for 1998 was not subject to United
States or United Kingdom income tax. To the extent that our income from
non-maritime operations increases more rapidly than any increase in our
maritime-related income, the percentage of our income subject to tax would
increase. The income from our United States subsidiaries, Steiner Beauty and
Maritime Services, will generally be subject to U.S. federal income tax at
regular corporate rates (generally up to 35%) and may be subject to additional
U.S. federal, state and local taxes. Earnings from Steiner Training and Elemis
Limited, our United Kingdom subsidiaries which accounted for a total of 10.0% of
our pretax income for 1998, will be subject to U.K. tax rates (generally up to
31%).
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<PAGE> 21
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. Steiner Leisure adopted SOP
98-1 prospectively effective January 1, 1999. Management does not believe that
the adoption of SOP 98-1 will have a material effect on our financial position
or results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 establishes standards for the reporting and
disclosure of start-up costs, including organization costs. Steiner Leisure
adopted SOP 98-5 effective January 1, 1999. Management does not believe that the
adoption of SOP 98-5 will have a material effect on our financial position or
results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public companies report selected information about operating
segments in annual and interim financial reports to shareholders. It also
establishes standards for related disclosures about an enterprise's business
segments, products, services, geographic areas and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 requires that a public company report a measure of
segment profit or loss, certain specific revenue and expense items and segment
assets. Steiner Leisure adopted SFAS No. 131 effective December 31, 1998.
Management operates the business of Steiner Leisure as a single segment. As a
result, no additional disclosure was required.
20
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues:
Services............................................... 62.0% 59.7% 58.9%
Products............................................... 38.0 40.3 41.1
----- ----- -----
Total revenues...................................... 100.0 100.0 100.0
----- ----- -----
Cost of sales:
Cost of services....................................... 48.1 46.5 45.5
Cost of products....................................... 26.9 27.5 27.9
----- ----- -----
Total cost of sales................................. 75.0 74.0 73.4
----- ----- -----
Gross profit........................................ 25.0 26.0 26.6
----- ----- -----
Operating expenses:
Administrative......................................... 4.9 4.6 4.7
Salary and payroll taxes............................... 5.7 5.2 4.9
Amortization of CTO intangibles........................ 3.6 1.3 --
----- ----- -----
Total operating expenses............................ 14.2 11.1 9.6
----- ----- -----
Income from operations.............................. 10.8 14.9 17.0
Other income (expense)................................... (0.2) 1.1 1.7
----- ----- -----
Income before provision for income taxes................. 10.6 16.0 18.7
----- ----- -----
Provision for income taxes:
Non-recurring.......................................... 4.6 -- --
Current and deferred................................... 2.5 1.4 1.3
----- ----- -----
Total provision for income taxes.................... 7.1 1.4 1.3
----- ----- -----
Net income............................................... 3.5% 14.6% 17.4%
===== ===== =====
</TABLE>
1998 COMPARED TO 1997
REVENUES. Revenues increased approximately 20.7%, or $17.4 million, to
$101.4 million in 1998 from $84.0 million in 1997. Of this increase, $9.6
million was attributable to an increase in services revenues and $7.8 million
was attributable to an increase in products revenues. The increase in revenues
was primarily attributable to an average of six additional spa ships in service
and three additional non-spa ships in service in 1998 compared to 1997. We had
an average of 842 shipboard staff members in service in 1998 compared to an
average of 756 shipboard staff members in service in 1997. Revenues per staff
per day increased by 8.4% to $310 in 1998 from $286 in 1997.
COST OF SERVICES. Cost of services as a percentage of services revenues
decreased to 77.2% in 1998 from 78.0% in 1997. This decrease was due to an
increase in productivity of onboard staff during 1998. This decrease was
partially offset by increases in rent allocable to services on cruise ships
covered by an agreement that was renewed in December 1997.
COST OF PRODUCTS. Cost of products as a percentage of products revenues
decreased to 67.8% in 1998 from 68.2% in 1997. This decrease was due to an
increase in productivity of
21
<PAGE> 23
onboard staff that was partially offset by an increase in rent allocable to
product sales on cruise ships covered by an agreement that was renewed in
December 1997. In addition, product sales to land-based customers, which have a
greater margin than product sales on board ships, increased at a greater rate
than sales on board ships.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 9.6% in 1998 from 11.1% in 1997. This decrease was primarily
attributable to completion in June 1997 of the amortization of intangible assets
relating to the acquisition of CTO. There was no amortization of intangible
assets in 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to an
overall effective rate of 6.8% in 1998 from an overall effective rate of 8.6% in
1997 due to the impact of non-tax deductible amortization of intangibles in
1997. Without such amortization of intangibles, the overall effective rate in
1998 would have been 6.8%, compared to 7.9% in 1997. The decrease in the overall
effective rate is also partially attributable to income earned in jurisdictions
that do not tax our income increasing at a greater rate than income in
jurisdictions that tax our income.
1997 COMPARED TO 1996
REVENUES. Revenues increased approximately 20.7%, or $14.4 million, to
$84.0 million in 1997 from $69.6 million in 1996. Of this increase, $7.0 million
was attributable to an increase in services revenues and $7.4 million was
attributable to an increase in products revenues. The increase in revenues was
primarily attributable to an average of six additional spa ships in service in
1997. These six spa ships generated greater aggregate revenues to us than the
aggregate revenues generated by the average of seven non-spa ships that were in
service in 1996, but were not in service in 1997. Steiner Leisure had an average
of 756 shipboard staff members in service in 1997 compared to an average of 695
shipboard staff members in service in 1996. Revenues per staff per day increased
11.7% to $286 in 1997 from $256 in 1996.
COST OF SERVICES. Cost of services as a percentage of services revenues
increased to 78.0% in 1997 from 77.6% in 1996. This increase was due to an
increase in rent allocable to services on cruise ships covered by an agreement
renewal effective in the first quarter of 1997. This increase was partially
offset by increases in productivity of onboard staff during 1997.
COST OF PRODUCTS. Cost of products as a percentage of products revenues
decreased to 68.2% in 1997 from 70.7% in 1996. This decrease was primarily due
to lower product costs realized during 1997 compared to 1996. This was the
result of our acquisition of the "Elemis" and "La Therapie" product lines
(previously supplied to Steiner Leisure by third parties) in March 1996. Lower
product costs were partially offset by an increase in rent allocable to products
sales on cruise ships covered by an agreement renewal effective in the first
quarter of 1997.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 11.1% in 1997 from 14.2% in 1996 as a result of 1996 including a
full year of amortization of intangibles in connection with the acquisition of
CTO while 1997 included only five months of this amortization. Additionally,
operating expenses as a percentage of revenues decreased because of the increase
in revenues generated from the additional spa ships in service during 1997.
These ships generated greater aggregate revenues to us than the
22
<PAGE> 24
aggregate revenues generated from non-spa ships in service during 1996 that were
not in service during 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to an
overall effective rate of 8.6% in 1997 from an overall effective rate of 23.6%
(not giving effect to the non-recurring tax charge of approximately $3.2 million
related to the liquidation of CTO) in 1996. This was due to the impact of
greater non-tax deductible amortization of intangibles and interest expense in
1996 and certain tax benefits realized from the liquidation of CTO, which took
place during the fourth quarter of 1996. Without such amortization of
intangibles and interest expense, the overall effective rate in 1997 would have
been 6.3% compared to 17.2% in 1996.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth selected statement of operations data on a
quarterly basis for 1997 and 1998 and the percentage of revenues represented by
the line items presented. Although certain cruise lines have experienced
moderate seasonality, we believe that the introduction of cruise ships into
service throughout a year has mitigated the effect of seasonality on our results
of operations. In addition, decreased passenger loads during slower months for
the cruise industry has not had a significant impact on our revenues. However,
due to our dependence on the cruise industry, Steiner Leisure's revenues may in
the future be affected by seasonality. The quarterly selected statement of
operations data set forth below were derived from Unaudited Consolidated
Financial Statements of Steiner Leisure which, in the opinion of our management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary for the fair presentation of those statements.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $19,660 $20,080 $22,133 $22,103 $22,935 $24,335 $26,943 $27,175
Gross profit...................... 4,973 5,170 5,746 5,892 6,023 6,500 7,249 7,247
Administrative, salary and payroll
taxes........................... 1,991 2,006 2,091 2,118 2,303 2,408 2,471 2,598
Income from operations............ 2,361 2,695 3,655 3,775 3,720 4,092 4,778 4,649
Net income........................ 2,296 2,642 3,478 3,831 3,836 4,244 4,713 4,883
Diluted earnings per share........ $ 0.14 $ 0.16 $ 0.21 $ 0.23 $ 0.23 $ 0.25 $ 0.28 $ 0.29
AS A PERCENTAGE OF REVENUES:
Gross profit...................... 25.3% 25.7% 26.0% 26.7% 26.3% 26.7% 26.9% 26.7%
Administrative, salary and payroll
taxes........................... 10.1% 10.0% 9.4% 9.6% 10.0% 9.9% 9.2% 9.6%
Income from operations............ 12.0% 13.4% 16.5% 17.1% 16.2% 16.8% 17.7% 17.1%
Net income........................ 11.7% 13.2% 15.7% 17.3% 16.7% 17.4% 17.5% 18.0%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our business is operated with cash generated from operations. In November
1996, Steiner Leisure received net proceeds of approximately $9.7 million in
connection with an initial public offering of its common shares.
Cash flow from operating activities was $15.2 million in 1998, $11.6
million in 1997 and $9.0 million in 1996. These increases generally reflected
increases in net income as affected by income taxes payable in 1996 with respect
to the liquidation of CTO that were
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<PAGE> 25
paid in 1997 and by an increase in inventories in 1998. Steiner Leisure had
working capital of approximately $35.9 million at December 31, 1998 compared to
$25.6 million at December 31, 1997.
In connection with the construction of the Atlantis Spa, we spent $3.0
million in 1998. We anticipate spending approximately $1.5 million in 1999 to
reimburse the owner of the Atlantis Resort for additional construction costs for
the Atlantis Spa. These approximately $4.5 million of capital expenditures would
be amortized over the proposed ten-year term of our arrangement with the owner
of the Atlantis Resort.
During the fourth quarter of 1998, we purchased a total of 312,750 of our
common shares in the open market for an aggregate purchase price of $4.9
million. These purchases were made pursuant to a share purchase program
authorized by our Board of Directors.
We believe that cash generated from operations is sufficient to satisfy the
cash required to operate our business. Any significant acquisition may require
outside financing. We currently do not have any agreement with respect to an
acquisition.
INFLATION
Steiner Leisure does not believe that inflation has had a material adverse
effect on revenues or results of operations. However, public demand for leisure
activities, including cruises, is influenced by general economic conditions,
including inflation. Periods of economic recession or high inflation,
particularly in North America where a number of cruise passengers reside, could
have a material adverse effect on the cruise industry upon which we are
dependent.
YEAR 2000 COMPLIANCE
We have developed a plan to assess the overall impact to Steiner Leisure
with respect to the Year 2000 issue. Part of our plan is to identify areas of
risk and to develop means to mitigate these risks. This includes assessing the
Year 2000 compliance of our cruise line customers and our major third party
suppliers.
In order for us to make an assessment of the Year 2000 risks that may have
a material adverse effect on our results of operations, we have conducted a
survey of our cruise line customers and major third party suppliers of services
and products. With respect to our cruise line customers, as of March 19, 1999, a
number of those surveyed have refused to respond for liability reasons, while
others have failed to respond without providing any reason therefor. The nine
cruise lines that responded expect to be Year 2000 compliant before January 1,
2000. We are actively pursuing responses from the remaining 17 cruise lines that
have not responded.
With respect to our major third party suppliers, as of March 19, 1999, we
obtained nine responses or statements published through the Internet indicating
that they expect to be Year 2000 compliant prior to January 1, 2000. We are
actively pursuing responses for the remaining 44 major third party suppliers
that have not responded. In the absence of adequate responses, or other formal
communications from either our cruise line customers or our major third party
suppliers, we are attempting to make our own assessment as to their readiness.
We believe that our biggest risks related to the Year 2000 issue are
associated with potential concerns with cruise line customers and major third
party suppliers. The most reasonably likely source of Year 2000 risk with
respect to our cruise line customers would be the disruption of transportation
channels that deliver passengers to cruise ships. The disruption of
transportation channels could also impede our ability to deliver our
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<PAGE> 26
products to intended points of sale or the ability of our staff to report to the
ships to which they are assigned.
We do not believe that there are contingency plans that we can effect that
can mitigate the risk of cruise line passengers being unable to reach cruise
ships as a result of any transportation disruption. We are in the process of
developing a contingency plan that would allow us to have available product
inventories sufficient for distribution to our intended points of sale in the
event a transportation disruption impairs our ability to obtain delivery of our
products. In addition, we intend to develop a schedule of deployment of our
shipboard staff to minimize the effect of any transportation disruption that
could occur around January 1, 2000. These contingency plans are subject to
uncertainties. We cannot guarantee that any estimate of the level, impact or
duration of Year 2000 non-compliance by our customers or suppliers will be
accurate, or that our contingency plans will be sufficient to mitigate these
risks.
In the event that any of our cruise line customers or major third party
suppliers do not successfully achieve Year 2000 compliance for their own
operations in a timely manner, our business or operations could be adversely
affected. The magnitude of any adverse effect cannot be quantified at this time
because of variables such as the type and importance of cruise line customers or
major third party suppliers that have not responded, the unknown level and
duration of noncompliance by these customers and suppliers (and their customers
and suppliers), the possible effect on our operations, and the Company's ability
to respond to any non-compliance.
Costs related to our actions to become Year 2000 compliant are funded
through cash from operating activities. We estimate that total costs related to
becoming Year 2000 compliant will be approximately $150,000, and approximately
$100,000 of this amount will be capitalized. Through December 31, 1998, we have
expended approximately $34,000 in connection with the Year 2000 issue. We
believe that the costs related to updating or replacing existing computer
systems in order to become Year 2000 compliant will not be material. However, in
view of the uncertainties relating to the Year 2000 compliant status of our
customers and suppliers, we cannot guarantee that our cost of dealing with the
Year 2000 issue will be consistent with the foregoing estimates or that the Year
2000 issue will not materially adversely affect Steiner Leisure's future
operations.
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<PAGE> 27
BUSINESS
GENERAL
Steiner Leisure is the leading worldwide provider of spa services and skin
and hair care products on board cruise ships. We strive to create a relaxing and
therapeutic environment where customers can receive body and facial treatments
and hair styling comparable in quality to the finest land-based spas and salons.
Steiner Leisure also develops and markets premium priced, high quality personal
care products that are sold primarily in connection with the services we
provide. As of March 1, 1999, we served 99 cruise ships representing 26 cruise
lines, including Carnival, Royal Caribbean, Princess, Norwegian, Celebrity and
Cunard. Our services are provided under agreements with cruise lines which range
in duration from one to six years.
Steiner Leisure provides its shipboard services in treatment and fitness
facilities located on cruise ships. On newer ships, our services are provided in
enhanced, large "spa" facilities. Many of these facilities offer enlarged
fitness and treatment areas, generally located in a single passenger activity
area. As of March 1, 1999, 37 of the 99 ships that we served had large spa
facilities. Our services include massage, hydrotherapy (water-based) treatments,
aromatherapy treatments, seaweed wraps, saunas, steam rooms, aerobic exercise,
hair styling, manicures, pedicures and a variety of other specialized body and
facial treatments. Our range of services is designed to capitalize on the
growing consumer trend towards health awareness, personal care and fitness.
Ships with large spas provided us with average weekly revenues of $35,054 in
1997 and $36,373 in 1998, as compared to average weekly revenues of $10,276 in
1997 and $10,607 in 1998 for the other ships we served.
In addition to our shipboard services, we sell a variety of beauty and hair
care products under our "Elemis" and "La Therapie" trademarks. The raw materials
for these products are produced for us by a premier French manufacturer. We also
sell a variety of hair care products under the "Steiner" name. In total, we
offer over 160 different products. These products include beauty preparations,
such as aromatherapy oils, cleansers and creams, other skin care preparations
and accessories and hair care products, such as shampoos, moisturizers and
lotions. Steiner Leisure sells its products primarily on board the ships that we
serve. We also sell products through land-based retail and wholesale outlets,
mail order and our website at www.steinerleisure.com. During 1998, services
accounted for approximately 59% of our revenues and products accounted for
approximately 41% of our revenues.
CRUISE INDUSTRY OVERVIEW
The passenger cruise industry has experienced substantial growth over the
past 30 years. The industry has evolved from a trans-ocean carrier service into
a vacation alternative to land-based resorts and sightseeing destinations. The
cruise market is comprised of luxury, premium and volume segments which appeal
to a broad range of passenger tastes and budgets. Steiner Leisure serves ships
in all of these segments. According to Cruise Lines International Association, a
trade association ("CLIA"), the passenger volume of cruises marketed primarily
to North American consumers ("North American Cruises") grew from approximately
2.2 million in 1985 to approximately 5.4 million in 1998, representing a
compound annual growth rate of approximately 7.2%. As of March 1, 1999, we
served 99 ships, approximately 84 of which offered North American Cruises.
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<PAGE> 28
According to a study reported by CLIA in 1998, passengers ranked as their
top reason for preferring cruising to other vacation types that cruises "allow
you to be pampered." Similarly, in comparing cruise vacations to other
vacations, customers of both ranked cruise vacations higher than resort
vacations in many categories. "Being pampered" achieved the greatest positive
distinction. We believe our services offer a therapeutic and indulgent
experience to passengers, and provide a memorable highlight of their cruise
vacation. As a result, we believe our operations are an important part of the
cruise ship experience.
In recent years, cruise lines have been building larger ships with large
spas dedicated to the types of health, beauty and fitness services offered by
us. Generally, these large spas offer enlarged fitness and treatment facilities,
are located on higher profile decks and have enriched decor. With respect to
certain ships, we participate in the design of these facilities. As of March 1,
1999, 37 of the ships that we served offered large spa facilities. The cruise
lines served by us are scheduled to introduce nine new ships into service in
1999. Steiner Leisure expects to perform services on eight of these ships,
including six that are currently covered by cruise line agreements. Six of these
eight will have large spa facilities.
BUSINESS STRATEGY
Our business strategy is directed at maintaining and enhancing our position
as the leading worldwide provider of spa services and skin and hair care
products on board cruise ships. To do so, we:
RECRUIT AND TRAIN HIGH QUALITY SHIPBOARD PERSONNEL. Steiner Leisure
provides services to our customers on a personal basis. We employ shipboard
staff who are professional, attentive and able to continue our tradition of
catering to the needs of individual customers. We recruit our staff
primarily from the British Isles, the rest of Europe and British
Commonwealth countries. We require prospective employees to be technically
skilled and to possess a willingness to provide outstanding personal
service. We train candidates in our philosophy of customer care. Our
training emphasizes the importance of an individualized and therapeutic
experience for our customers. We believe that our success is largely
attributable to our ability to staff our operations with highly trained
personnel who provide outstanding personal service.
UTILIZE EXPERIENCED AND EMPOWERED SHIPBOARD MANAGEMENT. Steiner
Leisure's shipboard operations are supervised by experienced managers who
implement our philosophy of customer care. Our managers are selected from
the best of our shipboard staff and are trained at our facilities in
England. Managers are granted substantial authority to make day-to-day
decisions regarding shipboard operations, including those actions necessary
to maximize shipboard revenues. Our shipboard managers are responsible for
efficient scheduling of personnel, inventory management, supervision of
sales and marketing, maintenance of required shipboard discipline and
communication with our senior management.
DEVELOP AND DELIVER HIGH QUALITY SERVICES AND PRODUCTS. Steiner
Leisure strives to create an engaging and therapeutic environment where
customers can receive body and facial treatments and hair styling
comparable in quality to the finest land-based spas and salons. Many of the
techniques and products used by our personnel have been developed by us. We
conduct our own research and respond to the needs and requests of our
customers. We continually update the range of techniques, services
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<PAGE> 29
and products we offer to satisfy changing health, beauty and fitness
trends. Through our attentive and highly trained staff and our premium
quality hair and beauty products, Steiner Leisure provides cruise
passengers with what we believe is a richly rewarding experience that is a
memorable highlight of a cruise vacation.
EFFECTIVELY MARKET OUR SERVICES AND PRODUCTS. Steiner Leisure uses a
variety of marketing techniques to bring our services and products to the
attention of cruise passengers. Our personnel individually inform our
customers as to the services and products offered by us and also offer
group promotions, seminars and demonstrations. We provide incentives to our
employees to maximize sales of our services and products and train
employees to cross-market services and products offered by other personnel.
Steiner Leisure also promotes pre-cruise purchases of our shipboard
services and spa packages.
MAINTAIN CLOSE RELATIONSHIPS WITH THE CRUISE LINES. Steiner Leisure
has developed strong relationships with the cruise lines as a result of the
revenues we generate for them and the high level of customer satisfaction
with our services. These relationships are important to our future growth
and positioned us to obtain renewals of almost all of our cruise line
agreements that have expired since 1990. During 1997, Holland America Line,
with eight ships in service at March 1, 1999, renewed its agreement with us
for an additional six years. In January 1999, Princess Cruise Lines, with
ten ships in service at March 1, 1999, renewed its agreement with us for an
additional three years.
GROWTH STRATEGY
Steiner Leisure's strategy for continued growth includes the following
principal elements:
EXPAND WITH PRESENT CRUISE LINE CUSTOMERS. We believe that our
success in providing high quality services and products and generating
revenues for the cruise lines will enable us to grow as our cruise line
customers introduce new ships with large spas. From November 1996 to March
1, 1999, we commenced serving 16 new cruise ships brought into service by
our cruise line customers. As of March 1, 1999, the cruise lines served by
us were scheduled to introduce nine new ships into service in 1999. Steiner
Leisure expects to perform services on eight of these ships, including six
that are currently covered by cruise line agreements.
CAPITALIZE ON GROWTH IN SIZE AND QUALITY OF SHIPBOARD FACILITIES. An
increasing number of cruise ships offer large spa facilities. Many of these
facilities include hydrotherapy treatments and enlarged fitness and
treatment areas. Newer facilities are located on higher profile decks, have
enriched decor and offer all of our services and products in a single
passenger activity area. These enhanced facilities foster the cross-
marketing of services and products and enable us to serve a larger number
of passengers. We often assist cruise lines with the planning and design of
spa facilities on new ships. We believe that our participation in the
design of facilities has resulted in improved quality of service and
increased revenues to us and the cruise lines. As of March 1, 1999, 37 of
the ships we served had large spa facilities. In 1999, we believe we will
begin serving an additional six ships with large spa facilities.
INCREASE PRODUCT SALES. Sales of our products increased at a compound
annual growth rate of 30.5% from 1994 through 1998. Steiner Leisure's
products are sold
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<PAGE> 30
primarily to cruise ship passengers. We also sell products at our Atlantis
Spa and the Elemis Beautiful Skin Centres, and through third party,
land-based retail and wholesale channels. Our products are also offered
through mail order and our website at www.steinerleisure.com. In 1998, we
reformulated and repackaged our "Elemis" product lines to satisfy our
customers' changing tastes. We believe that there is a significant
opportunity to increase our product sales through third party, land-based
channels.
INCREASING SHIPBOARD PRODUCTIVITY. Improved staff productivity on
board ships is a significant factor contributing to our overall growth. The
gross revenue attributable to each shipboard staff member per day that a
ship is in service is expressed as a "gross per day." During 1998, ships
with large spa facilities had an average gross per day of $343 compared to
$260 for ships without large spa facilities. Steiner Leisure's average
gross per day has increased each year, from $213 in 1994 to $310 in 1998.
We believe that this increase is due to the continuous training that we
provide to our shipboard employees including instruction in maximization of
sales.
SEEK LAND-BASED OPPORTUNITIES. We believe that there are land-based
opportunities to sell our services and products. In 1999, we began
operating the luxury spa at the Atlantis Resort on Paradise Island in The
Bahamas. We sell services and products at that facility similar to those we
sell on cruise ships. In 1998, we licensed rights to operate three Elemis
Beautiful Skin Centres in Hong Kong. These day spas sell our products. We
will consider other land-based opportunities if we believe the
circumstances to be appropriate.
CONSIDER STRATEGIC ACQUISITIONS. Steiner Leisure will consider
strategic acquisitions of land-based or maritime-based businesses that are
compatible with our operations. We do not have any current agreements with
respect to any potential acquisitions.
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<PAGE> 31
CRUISE LINE CUSTOMERS
As of March 1, 1999, Steiner Leisure provided its services and products to
26 cruise lines representing a total of 99 ships, including almost all of the
major cruise lines offering North American Cruises.
The numbers of ships served as of March 1, 1999 under cruise line
agreements with the respective cruise lines are listed below:
<TABLE>
<CAPTION>
NO. OF SHIPS NO. OF SHIPS
COVERED BY COVERED BY
CRUISE LINE AGREEMENT CRUISE LINE AGREEMENT
- ----------- ------------ ----------- ------------
<S> <C> <C> <C>
Carnival(1)............... 13
Celebrity(2).............. 5 Passat.................... 1
Costa(1).................. 5 Premier................... 6
Crystal................... 2 Princess(5)............... 10
Cunard(1)................. 5 Radisson Diamond Seven
Disney.................... 1 Seas.................... 2
Fred Olsen................ 2 Renaissance............... 2
Holland America(1)........ 8 Royal Caribbean........... 12
Louis..................... 2 Saga(6)................... 1
MTC....................... 1 Seabourn(1)............... 3
Norwegian(3).............. 8 Silversea................. 2
Norwegian Unicom.................... 1
Capricorn(3)(4) ........ 1 Windstar(1)............... 1
Orient(3)................. 1 --
P&O Cruises(5)............ 3 Total................... 99
P&O European Ferries(5)... 1 ==
</TABLE>
- -------------------------
(1) Carnival Corporation, the parent company of Carnival Cruise Lines, also owns
Holland America, Costa, Windstar and a majority interest in Cunard and
Seabourn.
(2) Celebrity is owned by Royal Caribbean.
(3) Norwegian is a partner in the entity that owns Norwegian Capricorn, and owns
Orient.
(4) We are serving this ship pending execution of the applicable agreement.
(5) P&O European Ferries, P&O Cruises and Princess are subsidiaries of The
Peninsular & Oriental Steam Navigation Company.
(6) This agreement will expire on April 30, 1999. Steiner Leisure is currently
negotiating a renewal of the agreement.
As of March 1, 1999, the cruise lines served by us were scheduled to
introduce nine new ships into service in 1999. Steiner Leisure expects to
perform services on eight of these ships, including six that are currently
covered by cruise line agreements. Six of these eight will have large spa
facilities. The cruise lines for which these ships will enter service are as
follows: Carnival (one ship); Holland America (one ship); Norwegian (one ship);
Royal Caribbean (one ship); Princess (one ship); Disney (one ship); and
Renaissance (two ships).
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Since November 1996, none of our cruise line agreements has been terminated
prior to its expiration date. Historically, almost all of our cruise line
agreements that have expired have been renewed beyond their specified expiration
dates. The total number of ships we serve is affected by cruise lines removing
from service older ships as new ships are introduced.
SHIPBOARD SERVICES
Our goal is to provide our customers with a therapeutic and indulgent
experience in an atmosphere of individualized attention. Steiner Leisure
provides a range of personal services that we believe is comparable to those
offered by the finest land-based spas and salons. We believe that the prices we
charge are comparable to those charged for similar quality services and products
by land-based establishments.
MASSAGE AND OTHER BODY TREATMENTS. We offer massages and a variety of
other body treatments to women and men. Types of body treatments include seaweed
and other therapeutic wraps and aromatherapy treatments. The body treatment
techniques include those developed by us in response to the needs and requests
of cruise ship passengers. The number of private treatment rooms available for
these services ranges from one to twelve, depending on the size of the ship. The
number of our staff providing these services on a ship also ranges from one to
twelve. On several ships, Steiner Leisure provides certain specialty treatments
including a body capsule that provides a multi-sensory massage-like treatment in
an individual, self-contained environment. We regularly introduce new treatments
and products.
BEAUTY AND HAIR. On each ship we serve we operate a hair styling salon
that provides services to women, men and children and facilities for nail and
beauty treatments. Depending on the size of the ship, Steiner Leisure's
facilities offer from two to ten hair styling stations as well as stations for
facial treatments, manicures and pedicures. We staff each ship with one to seven
employees performing hair, nail and beauty services.
SPAS. Since the late 1980's, cruise lines increasingly have provided
enlarged spa facilities which, in general, allow all of our services to be
offered in a single passenger activity area. As of March 1, 1999, large spas
were found on 37 of the ships that we serve. We expect to serve an additional
six ships with large spa facilities that are anticipated to begin service later
in 1999. These spas provide enlarged fitness and treatment areas and on most
ships include hydrotherapy treatments. These facilities are generally located on
higher profile decks and have enriched decor. We believe that the location of
our operations in a spa environment enhances enjoyment of our services by
passengers, encourages increased passenger interest in our services and
facilitates cross-marketing of our services and products. We believe that most
of the ships currently under construction for our largest cruise line customers
will include large spas. In 1998, our average weekly revenues on ships with
large spas were 3.4 times our average weekly revenues on other ships.
FITNESS FACILITIES. As of March 1, 1999, we operated fitness facilities on
61 of the ships we serve. Fitness facilities typically include weightlifting
equipment, cardiovascular equipment (including treadmills, exercise bicycles and
rowing and stair machines) and facilities for fitness classes. Steiner Leisure
provides from one to three fitness instructors, depending on ship size. These
instructors are available to provide special services to passengers, such as
personal nutritional and dietary advice, body composition analysis and personal
training. Use of fitness facilities is generally available at no charge to
cruise passengers, except for fees that are typically charged for special
services.
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<PAGE> 33
SAUNAS AND STEAM ROOMS. We operate saunas and steam rooms on most of the
ships we serve. These facilities generally may be used by passengers at no
charge.
FACILITIES DESIGN. In general, facilities we operate have been designed by
the cruise lines. However, several cruise lines have requested our assistance in
the design of shipboard spas and other facilities. We have assisted or are
assisting in the design of facilities for a total of 39 ships, including 26
which have, or upon completion will have, large spas. Of these 39 ships, 30 are
currently in service, 29 of which we serve, and the remainder are under
construction. We believe that our participation has resulted in the construction
of facilities permitting improved quality of service and increased revenues to
us and the cruise lines. We believe that our involvement in the design of
shipboard facilities has enabled us to obtain additional cruise line agreements.
However, there can be no assurance that we will be able to obtain agreements for
all of the ships for which we provide design assistance.
HOURS OF OPERATION. The facilities operated by Steiner Leisure generally
are open each day during the course of a cruise from 8:00 a.m. to 8:00 p.m.,
except when a ship is in the territorial waters of a jurisdiction that would tax
our sales or income.
RECRUITING AND TRAINING
Our continued success is dependent, in part, on our ability to attract
qualified employees. Steiner Leisure's goal in recruiting and training new
employees is to constantly have available a sufficient number of skilled
personnel trained in our customer service philosophy. We hire and train
personnel who perform our shipboard services and the services at our Atlantis
Spa. Steiner Leisure recruits employees primarily from the British Isles, the
rest of Europe and British Commonwealth countries. Recruitment techniques
include advertisements in trade and other publications, appearances at beauty,
hair and fitness trade shows, meetings with students at trade schools and
recommendations from our employees. All shipboard employment candidates are
required to have received prior training in the services they are to perform for
us and are tested with respect to their skills prior to being hired. Applicants
must possess a willingness to provide outstanding personal service.
Each candidate must complete a rigorous training program at our facilities
in Stanmore, England. We can train up to approximately 60 employees at a time.
The training course for service personnel is typically conducted over a period
of two to three weeks, depending on the services to be performed by the
employee. The training course emphasizes our culture of personalized, attentive
customer care. All employees also receive supplemental training in their area of
specialization, including instruction in treatments and techniques developed by
us. Each employee is educated with respect to all of our services and products
to enable them to cross-market our services and products. We also train
shipboard management candidates. This training covers, among other things,
maximization of shipboard revenues, personnel supervision, customer service and
administrative matters, including interaction with cruise line personnel.
In November 1998, we expanded our training activities by opening a beauty
training school in Dubai, United Arab Emirates. This school is operated through
a joint venture with a local firm. The school teaches our beauty treatment
techniques and methods. It also provides vocational training to enable students
to qualify for beauty and hair care-related professional licenses. Our joint
venture partner in the school operates a large day spa in Dubai which uses and
sells our Elemis products. A primary reason for our involvement in this school
is to provide trained staff for this spa.
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PRODUCTS
Steiner Leisure sells high quality personal care products for men and
women. The products sold on ships are duty free and tax free. We also offer our
products through our Atlantis Spa, the Elemis Beautiful Skin Centres and third
party salons, retail stores and other land-based retail and wholesale outlets.
We also sell products through mail order and our website at
www.steinerleisure.com. The beauty products offered include aromatherapy oils as
well as cleansers, creams and other skin care products and cleaning accessories.
Hair care products offered include shampoos, moisturizers and lotions. Most of
the products sold by us are from our "Elemis" and "La Therapie" product lines.
As of March 1, 1999, Steiner Leisure sold 108 "Elemis" skin and hair care
products made primarily from premium quality natural ingredients and 24 premium
quality "La Therapie" skin care products. Almost all of the raw materials for
"Elemis" and "La Therapie" products are sourced from a premier French
manufacturer under an agreement that expires in 2001. Production, packaging and
distribution of our "Elemis" and "La Therapie" products are conducted at our
facilities in Taunton, England.
We recently reformulated and repackaged our "Elemis" product lines. This is
part of our continuing efforts to increase the brand awareness of our products
and to keep abreast of product trends and our customers' tastes. We are
currently updating our product manufacturing equipment to expand our production
capacity.
We also sell the products of several entities unaffiliated with Steiner
Leisure, including 18 private label products manufactured by other companies and
sold by us under the "Steiner" brand name.
MARKETING AND PROMOTION
We promote our services and products to cruise passengers through on-board
demonstrations and seminars, video presentations shown on in-cabin television,
tours of our shipboard facilities and promotional discounts on lower volume
days, such as when a ship is in a destination port. We also distribute
illustrated brochures and order forms describing our services and products to
passenger cabins and in the facilities we operate. In addition, employees
cross-market other services and products offered by us to their customers.
Steiner Leisure promotes pre-cruise purchases of our shipboard services and spa
packages. We also benefit from advertising by the cruise lines, and,
increasingly, cruise lines are featuring their spa facilities and our services
as part of their advertising campaigns.
CRUISE LINE AGREEMENTS
Our cruise line agreements give us the right to offer our services and
products on board ships. Services and products sold to passengers are billed to
them by the cruise lines. The cruise lines retain a specified percentage of our
gross receipts from such sales before remitting the remainder to us. Under the
cruise line agreements, we are required to pay for the meals and accommodations
of our employees. Most of the agreements cover all of the then operating ships
of a cruise line. New arrangements must often be negotiated between us and a
cruise line as ships enter service. The agreements have specified terms ranging
from one to six years, with an average remaining term per ship of approximately
two years as of March 1, 1999. As of that date, cruise line agreements that
expire within one year, including the agreement with Royal Caribbean, covered 40
of the 99 ships served by us. These 40 ships accounted for approximately 36.1%
of our revenues for 1998.
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<PAGE> 35
The cruise line agreements provide for termination by the cruise lines with
limited or no advance notice under certain circumstances, including, among other
things, the withdrawal of a vessel from the cruise trade, the sale or lease of a
vessel or our failure to receive specified passenger service rankings. As of
March 1, 1999, agreements for three ships provide for termination for any reason
by the cruise line on six months notice, for eight ships on 90 days' notice and
for one ship on 60 days' notice.
Steiner Leisure is obligated to make minimum payments to certain cruise
lines (as well as in connection with the Atlantis Spa) regardless of the amount
of revenues we receive from customers. As of December 31, 1998, these payments
are required by cruise line agreements covering a total of 67 ships served by us
and three additional ships not yet in service, as well as in connection with the
Atlantis Spa. As of December 31, 1998, Steiner Leisure had guaranteed total
minimum payments (excluding payments based on passenger loads applicable to
certain ships served by us) of approximately: $20.7 million in 1999, $16.9
million in 2000, $14.4 million in 2001 and $2.9 million in 2002.
RECENT LAND-BASED ACTIVITIES
Commencing in February 1999, we began operating the luxury health spa at
the Atlantis Resort on Paradise Island in The Bahamas. The Atlantis Resort has
over 2,300 guestrooms. This spa is a 25,000 square foot facility at which we
offer services and products similar to those offered to our shipboard customers.
In connection with our operation of the spa, we pay the resort owner the greater
of a minimum monthly rental and an amount based on our revenues at the spa. Fees
for our services and products at the Atlantis Spa are charged to customers'
rooms. The resort then pays us after deducting rental payments or other amounts
due to the resort from us. We are currently operating the Atlantis Spa pursuant
to agreed upon terms pending the signing of a definitive agreement.
In January 1998, Steiner Leisure acquired the intellectual property rights
(the "BSC Rights") relating to the Beautiful Skin Centres, a group of Hong Kong
day spas ("BSC"). We have begun to license the BSC concept at three former BSC
facilities in Hong Kong under the name "Elemis Beautiful Skin Centres." We
granted the right to operate these initial Elemis Beautiful Skin Centres to the
entity that sold us the BSC Rights (the "Hong Kong Operator"). This entity owns
15% of our subsidiary that licenses rights to operate Elemis Beautiful Skin
Centres. The three Elemis Beautiful Skin Centres offer a variety of high quality
skin care treatments, similar to those offered to our shipboard customers. They
also sell our Elemis products. Under our agreement with the Hong Kong Operator,
we receive a percentage of the revenues generated by the centres. We will
consider licensing rights to additional Elemis Beautiful Skin Centres outside of
Hong Kong if we believe the circumstances to be appropriate.
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<PAGE> 36
EMPLOYEES
As of March 1, 1999, Steiner Leisure had a total of 1,033 employees. Of
that number, 884 worked on cruise ships, 29 worked at the Atlantis Spa, 31 were
involved in the training of our personnel, 30 were involved in the bottling,
distributing, warehousing and shipping of our beauty products and 59 represented
management and sales personnel and support staff. Shipboard employees typically
are employed under agreements with terms of eight months. Depending on the size
of the vessel and the nature of the facilities on board, Steiner Leisure has one
to three managers on board each ship we serve. Shipboard employees' compensation
consists of salary plus a commission based on the volume of revenues generated
by the employee. A manager's compensation is based on the performance of the
team under the manager's supervision. None of our employees is covered by a
collective bargaining agreement. Steiner Leisure believes that our relations
with our employees are satisfactory.
Personnel working at the Elemis Beautiful Skin Centres are employees of the
Hong Kong Operator.
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<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of
Steiner Leisure and their respective ages and positions:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Clive E. Warshaw.................... 56 Chairman of the Board and Chief
Executive Officer
Leonard I. Fluxman.................. 40 President, Chief Operating Officer
and a Director
Michele Steiner Warshaw............. 53 Executive Vice President and a
Director
Amanda Jane Francis................. 32 Senior Vice President -- Operations
of Steiner Transocean
Sean C. Harrington.................. 32 Managing Director of Elemis Limited
Carl S. St. Philip, Jr.............. 32 Vice President and Chief Financial
Officer
Charles D. Finkelstein.............. 46 Director
Jonathan D. Mariner................. 43 Director
Steven J. Preston................... 46 Director
</TABLE>
Clive E. Warshaw has served as our Chairman of the Board and Chief
Executive Officer since November 1995. Mr. Warshaw joined Steiner Group Limited
(now known as STGR Limited), our predecessor ("Steiner Group"), in 1982. Mr.
Warshaw resides in The Bahamas. Mr. Warshaw is the husband of Michele Steiner
Warshaw.
Leonard I. Fluxman has served as our President and Chief Operating Officer
since January 1999, and as a director since November 1995. From November 1995
through December 1998, he served as Chief Operating Officer and Chief Financial
Officer of Steiner Leisure. Mr. Fluxman joined us in June 1994, in connection
with our acquisition of Coiffeur Transocean (Overseas), Inc. ("CTO"). Mr.
Fluxman served as CTO's Vice President -- Finance from January 1990 until June
1994, and as its Chief Operating Officer from June 1994 until November 1996.
Michele Steiner Warshaw has served as a director of Steiner Leisure since
November 1995 and served as our Senior Vice President -- Development from
January 1996 until March 1997, when she was named Executive Vice President. Ms.
Warshaw held a variety of positions with Steiner Group from 1967 until November
1995, including assisting in the design and development of shipboard facilities
and services. Ms. Warshaw resides in The Bahamas. Ms. Warshaw is the wife of
Clive E. Warshaw.
Amanda Jane Francis has served as Senior Vice President -- Operations of
our Steiner Transocean subsidiary since November 1995, and of Steiner Group from
June 1994 until November 1995. From 1989 until June 1994, Ms. Francis was the
Director of Training for Steiner Group. From 1982 until 1989, Ms. Francis held
other land-based and shipboard positions with Steiner Group.
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<PAGE> 38
Sean C. Harrington has served as Managing Director of our Elemis Limited
subsidiary since January 1996. Mr. Harrington also oversees our United Kingdom
operations and the Elemis Beautiful Skin Centre operations. From July 1993
through December 1995, he served as Sales Director, and from May 1991 until July
1993, as United Kingdom Sales Manager of Elemis Limited.
Carl S. St. Philip, Jr. has served as Vice President and Chief Financial
Officer of Steiner Leisure since January 1999. From July 1997 through December
1998, he served as our Vice President -- Finance. Since January 1997, Mr. St.
Philip has served as Vice President -- Finance of our CT Maritime Services, L.C.
subsidiary. Mr. St. Philip joined us in June 1994 when we acquired CTO. Mr. St.
Philip served as Assistant Controller of CTO from June 1991 until June 1993, and
as CTO's Controller from June 1993 until December 1996, when CTO was liquidated.
Mr. St. Philip, a certified public accountant, was employed by Laventhol and
Horwath from 1989 to 1991.
Charles D. Finkelstein has served as a director of Steiner Leisure since
February 1997. Since 1985, he has served as General Counsel, Secretary and a
director of Faber Coe & Gregg, Inc., which operates shops offering gifts,
sundries and newspapers and other publications in airports, train stations,
hotels and other venues in various parts of the United States.
Jonathan D. Mariner has served as a director of Steiner Leisure since
February 1997. Since January 1999 he has served as Senior Vice President and
Chief Financial Officer of the Florida Marlins Major League Baseball Club. He
had been Vice President and Chief Financial Officer since February 1992. From
February 1989 until February 1992, Mr. Mariner served as Vice President, Finance
and Administration, for the Greater Miami Convention and Visitors Bureau.
Steven J. Preston has served as a director of Steiner Leisure since April
1997. Since March 1997, Mr. Preston has served as an independent financial
consultant. From 1974 through February 1997, Mr. Preston was with Arthur
Andersen LLP ("Arthur Andersen"), including, from September 1985, as a tax
partner. Since 1995, Arthur Andersen has provided tax advice to us and has
served as our independent auditors. Mr. Preston was the partner in charge of
Arthur Andersen's engagement to provide tax advice to us prior to his departure
from that firm. Mr. Preston provides consulting services to us from time to
time.
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<PAGE> 39
TAXATION
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is the opinion of Kelley Drye & Warren LLP, a partnership
including professional associations, with respect to material United States
federal income tax ("Tax") consequences to a U.S. Holder (as defined below) of
the ownership of common shares, subject to the limitations described below. This
opinion relies on certain factual representations made by Steiner Leisure which
Kelley Drye & Warren LLP has not verified independently. This opinion is based
on the United States Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations issued or proposed thereunder, and administrative and
judicial interpretations thereof, all as currently in effect and all of which
are subject to change at any time, possibly with retroactive effect, or to
different interpretations.
The following discussion is not intended to be a complete analysis of all
potential Tax consequences to U.S. Holders, nor does it consider the effect of
any foreign, state, local or other tax laws. This discussion applies only to
U.S. Holders who hold common shares as "capital assets" within the meaning of
Code section 1221. The discussion does not address the Tax considerations
relevant to Steiner Leisure or those Tax considerations that depend upon the
facts and circumstances specific to any particular U.S. Holder. Certain types of
holders, including insurance companies, financial institutions, individual
retirement and other tax deferred accounts, tax-exempt entities and dealers in
securities, may be subject to special Tax rules not discussed below. The Tax
consequences to the aforementioned holders may differ significantly from those
summarized below.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING AND DISPOSING OF
COMMON SHARES, AS WELL AS ANY TAX CONSEQUENCES TO THEM UNDER ANY FOREIGN, STATE,
LOCAL OR OTHER TAX LAWS.
For purposes of this discussion a "U.S. Holder" means a beneficial owner of
common shares that is an individual citizen or resident of the United States, a
corporation or partnership organized under the laws of the United States or of
any state or political subdivision of the United States, an estate, trust or
other person or entity whose income is includible in gross income for Tax
purposes regardless of its source, or any other holder who is subject to Tax on
a net income basis with respect to the common shares.
DIVIDENDS. Subject to the discussion below, a distribution on common
shares paid to a U.S. Holder, if any, will be taxed as ordinary dividend income
to the extent such distribution is paid from Steiner Leisure's current or
accumulated earnings and profits, as calculated under the Tax laws.
Distributions in excess of Steiner Leisure's current or accumulated earnings and
profits will be treated as a nontaxable return of capital to the extent of the
U.S. Holder's Tax basis in his, her or its common shares and then as capital
gain. Dividends paid by Steiner Leisure, if any, generally will not be eligible
for the dividends received deduction generally available to certain United
States corporate shareholders under Code sections 243 and 245.
SALE OR EXCHANGE OF COMMON SHARES. Subject to the discussion below, any
gain or loss on the sale or exchange of common shares by a U.S. Holder will be
capital gain or loss. If the U.S. Holder has held the common shares for more
than one year at the time of sale or exchange, such gain or loss will be
long-term capital gain or loss.
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<PAGE> 40
PASSIVE FOREIGN INVESTMENT COMPANY. A foreign corporation generally is
treated as a passive foreign investment company ("PFIC") if, after applying
certain "look-through" rules, either (i) 75% or more of its gross income is
passive income or (ii) 50% or more of the average value of its assets is
attributable to assets that produce or are held to produce passive income.
Passive income for this purpose generally includes dividends, interest, rents,
royalties and gains from securities and commodities transactions. Under the
look-through rules, a foreign corporation that directly or indirectly owns at
least 25%, by value, of the stock of another corporation (a "subsidiary") treats
its proportionate share of the subsidiary's assets and income as held or
received directly by the foreign corporation.
Steiner Leisure expects that less than 75% of its annual gross income will
be passive income and less than 50% of the value of its assets will be passive
assets. The foregoing expectation is based on (i) application of the
look-through rules, (ii) the nature of Steiner Leisure's current income and
assets and those of its subsidiaries and (iii) the manner in which Steiner
Leisure and its subsidiaries are anticipated to conduct their businesses in the
future. If Steiner Leisure's expectations are correct, Steiner Leisure would not
be a PFIC. Steiner Leisure further believes that it has not been a PFIC prior to
this offering. However, there can be no assurance that Steiner Leisure will not
be treated as a PFIC because of the potential for unanticipated changes in the
nature of its income or assets in the future.
If Steiner Leisure were to be treated as a PFIC, certain portions of
distributions made by it to U.S. Holders and any gain realized by a U.S. Holder
on the disposition of common shares would be treated as "excess distributions."
In such event, the excess distributions must be ratably allocated to each day
the U.S. Holder held the common shares. The portion of the excess distribution
allocated to the year in which the excess distribution occurs and to periods
prior to the first taxable year in which Steiner Leisure became a PFIC would be
taxed as ordinary income. The portion of the excess distribution allocated to
prior taxable years in which Steiner Leisure was a PFIC would be taxed at the
highest rate in effect for each year to which such portion is allocated. The
amount of tax so calculated would be subject to an interest charge as if it were
an underpayment of tax for the year to which that portion of the excess
distribution was allocated.
A U.S. Holder could avoid the above tax treatment by electing to include
annually in gross income his, her or its proportionate share of Steiner
Leisure's ordinary earnings and net capital gain for the year, whether or not
such amounts are actually distributed. By making this "Qualified Electing Fund"
election ("QEF Election"), a U.S. Holder could further elect to defer paying the
liability resulting from the QEF Election until Steiner Leisure actually
distributes the amounts already included in income, but would be required to pay
interest on the deferred tax liability until it is actually paid.
As an alternative to the QEF election, a U.S. Holder could avoid the excess
distribution and interest on deferred taxes rules by electing to mark the common
shares to market. If this election were made, the U.S. Holder would take into
account annually, as ordinary income or loss, the amount of any difference
between the value of the common shares at the end of the taxable year and such
Holder's adjusted basis for such shares. Losses would be allowed only to the
extent of net mark-to-market gain included in income for prior years. Such an
election would terminate if the common shares ceased to be regularly traded.
CONTROLLED FOREIGN CORPORATION. A foreign corporation generally is treated
as a controlled foreign corporation ("CFC") if more than 50% of its outstanding
shares (by
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<PAGE> 41
vote or value) are owned, directly, indirectly or constructively by United
States shareholders who each own, directly, indirectly or constructively, 10% or
more of the corporation's voting power ("10% Shareholders") on any day during
the corporation's taxable year.
Steiner Leisure believes that less than 50% of its outstanding shares are
owned by 10% Shareholders. Steiner Leisure considers it unlikely that more than
50% of its outstanding shares are, and will be immediately after this offering,
owned by 10% Shareholders. In that case Steiner Leisure would not be a CFC after
this offering. However, no assurance can be given that Steiner Leisure will not
be a CFC immediately after this offering or that Steiner Leisure will not become
a CFC as a result of future changes in its ownership. If Steiner Leisure were to
be treated as a CFC for an uninterrupted period of 30 days or more during a
taxable year, each 10% Shareholder, as of the last day of such taxable year on
which Steiner Leisure was a CFC, would be required to include in taxable income
as a constructive dividend his, her or its pro-rata share of certain types of
Steiner Leisure's undistributed income. In addition, if certain other conditions
were met, we would not be a PFIC. U.S. Holders who are not 10% Shareholders
would not suffer any adverse tax consequences if Steiner Leisure were a CFC.
FOREIGN PERSONAL HOLDING COMPANY. A foreign corporation generally is
treated as a foreign personal holding company ("FPHC") if (i) at any time during
the taxable year, five or fewer individual citizens or residents of the United
States directly or indirectly, own more than 50% of its outstanding stock (by
vote or value) and (ii) at least 50% of its gross income is "foreign personal
holding company income." Foreign personal holding company income generally
includes dividends, interest, rents, royalties and gain from the sale of stock
or securities.
Based on the current ownership of the common shares, the distribution of
common shares in this offering and Mr. Warshaw's continued ownership of common
shares after this offering, Steiner Leisure considers it unlikely that
immediately after this offering, five or fewer United States citizens or
residents who are individuals will own more than 50% of Steiner Leisure's
outstanding shares. In that case, Steiner Leisure would not be a FPHC
immediately after this offering. However, no assurance can be given that Steiner
Leisure will not be a FPHC immediately after this offering or that Steiner
Leisure will not become a FPHC as a result of future changes in its ownership.
If Steiner Leisure were to be treated as a FPHC, each U.S. Holder, regardless of
the percentage of outstanding common shares owned, would be required to include
in income as a constructive dividend his, her or its pro rata share of Steiner
Leisure's undistributed foreign personal holding company income.
BACKUP WITHHOLDING. A U.S. Holder may be subject to backup withholding at
a 31% rate on the gross proceeds of the disposition of common shares through the
United States office of a broker, unless such U.S. Holder (i) furnishes a
correct social security number or other taxpayer identification number ("TIN")
certified as correct under penalties of perjury to the person subject to the
requirement to backup withhold and complies with other applicable requirements
or (ii) establishes that he, she or it comes within a category of recipients
exempt from backup withholding, which includes corporations. In addition,
effective for dividends paid on or after January 1, 2000, backup withholding
will apply to certain dividends paid to U.S. Holders by certain foreign
corporations. Presently, however, dividends paid by foreign corporations prior
to that date are not subject to backup withholding. A U.S. Holder that does not
properly provide its TIN may be subject to
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<PAGE> 42
penalties. If backup withholding applies, the amount withheld is not an
additional tax, but is credited against the U.S. Holder's Tax liability.
FORM 5471. Any U.S. Holder who owns 10% or more of the total value or
total voting power of Steiner Leisure's shares may be required to file IRS Form
5471 to report certain acquisitions or dispositions of shares of Steiner
Leisure. Annual filing of IRS Form 5471 would be required of any U.S. Holder (i)
owning, directly or indirectly, 10% or more in value of the shares of Steiner
Leisure, if Steiner Leisure were treated as a FPHC; (ii) treated as a 10%
Shareholder of Steiner Leisure, if Steiner Leisure were characterized as a CFC
for an uninterrupted period of 30 days or more during the taxable year, or (iii)
owning more than 50% of the voting power or value of the outstanding shares of
Steiner Leisure for an uninterrupted period of 30 days or more during the
taxable year.
CERTAIN BAHAMIAN AND OTHER TAX CONSIDERATIONS
The following paragraph is the opinion of Harry B. Sands & Company, Bahamas
counsel to Steiner Leisure. This opinion addresses the material Bahamian tax
matters as they may relate to us and the holders of the common shares of Steiner
Leisure, subject to the limitations described below. The discussion is not
exhaustive and is based on Bahamian law currently in effect.
The Bahamas does not impose any income, capital gains or withholding taxes.
Neither Steiner Leisure nor its Bahamian subsidiaries will be subject to income
tax in The Bahamas on an ongoing basis. The dividends paid on the common shares,
if any, to holders thereof will not be subject to a Bahamian withholding tax.
There presently is no tax treaty between The Bahamas and the United States.
Our United Kingdom and United States subsidiaries are subject to taxation
in their respective jurisdictions, including withholding tax with respect to any
dividends paid to Steiner Leisure.
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<PAGE> 43
SELLING SHAREHOLDER
The following table sets forth information regarding the beneficial
ownership of common shares as of March 1, 1999 by Clive E. Warshaw, the selling
shareholder, immediately prior to this offering, and as adjusted to reflect the
sale of the shares offered by this prospectus.
<TABLE>
<CAPTION>
OWNERSHIP
OWNERSHIP PRIOR TO SHARES BEING OFFERED AFTER THIS
THIS OFFERING(1)(2) IN THIS OFFERING OFFERING(1)(3)
---------------------- -------------------- ----------------------
NAME NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
- ---- --------- ---------- -------------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Clive E. Warshaw..... 4,471,115 26.7% 1,500,000 2,971,115 17.7%
</TABLE>
- -------------------------
(1) Includes a total of 155,855 common shares issuable to Mr. Warshaw upon
exercise of options which are exercisable within 60 days after the date of
this prospectus.
(2) Excludes 38,145 common shares issuable to Michele Steiner Warshaw, Mr.
Warshaw's wife and the Executive Vice President of Steiner Leisure, upon
exercise of options which are exercisable within 60 days after the date of
this prospectus. Mr. Warshaw disclaims beneficial ownership of these shares.
(3) Assumes no exercise of the over-allotment option. If the over-allotment
option is exercised in full, Mr. Warshaw would own 2,746,115 common shares
after the offering, or approximately 16.4% of our outstanding common shares.
Mr. Warshaw has indicated in a Schedule 13D filed with the Securities and
Exchange Commission that he currently intends not to sell or otherwise transfer
any additional common shares until at least January 1, 2002.
Mr. Warshaw has served as the Chairman of the Board and Chief Executive
Officer of Steiner Leisure since November 1995.
From March 1, 1996, through October 1, 1996, Steiner Leisure made
non-interest bearing loans in the aggregate amount of approximately $1,340,000
to entities owned, in part, by Mr. Warshaw. These loans were repaid in 1997.
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<PAGE> 44
UNDERWRITING
ING Baring Furman Selz LLC, Raymond James & Associates, Inc. and William
Blair & Company, L.L.C. are acting as the Underwriters for this offering. The
underwriters have severally agreed to purchase from the selling shareholder the
number of common shares set forth opposite their names below, subject to the
terms and conditions contained in the underwriting agreement by and among
Steiner Leisure, the selling shareholder and the underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
ING Baring Furman Selz LLC..................................
Raymond James & Associates, Inc.............................
William Blair & Company, L.L.C..............................
---------
Total..................................................... 1,500,000
=========
</TABLE>
Under the underwriting agreement, the obligations of the underwriters to
purchase the common shares are subject to certain conditions, including the
approval by their counsel of certain legal matters. The underwriters must
purchase all the common shares offered hereby if any are purchased.
The underwriters propose initially to offer the common shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers (including the underwriters) at the public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial offering of
the common shares, the underwriters may change the public offering price and
other selling terms at any time without notice.
The selling shareholder has granted to the underwriters an option to
purchase from the selling shareholder up to 225,000 additional common shares at
the public offering price set forth on the cover page of this prospectus less
the underwriting discounts. This option is exercisable within 30 days after the
date of this prospectus. The underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent the underwriters exercise this option, each underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
common shares as is proportionate to such underwriter's underwriting commitment
as indicated in the table above.
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<PAGE> 45
The following table shows the per share and total underwriting discounts to
be paid to the underwriters by the selling shareholder. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share...............................................
Total...................................................
</TABLE>
The selling shareholder will pay all expenses of this offering (including
the registration fees and the fees of financial printers, counsel and
accountants), estimated to be approximately $424,280.
The selling shareholder and Steiner Leisure have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect thereof.
The selling shareholder has agreed that, for a period of 180 days from the
date of this prospectus, he will not, directly or indirectly, offer to sell,
sell, contract to sell or otherwise sell or dispose of any of his common shares
or options or warrants to acquire common shares without the prior written
consent of ING Baring Furman Selz LLC. Steiner Leisure also has agreed not to
sell any common shares for a period of 90 days from the date of this prospectus
without the prior written consent of ING Baring Furman Selz LLC, except that we
may, without such consent, grant options or shares pursuant to our option plans.
ING Baring Furman Selz LLC advises the Company regarding potential
acquisitions. Steiner Leisure has verbally agreed to pay ING Baring Furman Selz
LLC customary compensation if an acquisition is consummated and to reimburse ING
Baring Furman Selz LLC for their out-of-pocket expenses.
Other than in the United States, neither we nor the underwriters have taken
any action that would permit a public offering of the common shares in any
jurisdiction where action for that purpose is required. The common shares may
not be offered or sold in any other jurisdiction unless we and the underwriters
comply with the applicable rules and regulations in that jurisdiction. Persons
considering a purchase of common shares pursuant to this prospectus should
inform themselves about and comply with any restrictions relating to the
offering of the common shares and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
common shares offered hereby in any jurisdiction in which an offer or
solicitation is unlawful.
In connection with this offering, the underwriters and selling group
members (if any) who are qualified market makers on Nasdaq may engage in passive
market making transactions in the common shares on Nasdaq in accordance with
Rule 103 of Regulation M under the Securities Exchange Act of 1934 prior to the
commencement of the offering. Passive market makers must comply with applicable
volume and price limitations and must identify themselves as passive market
makers when making bids. In general, a passive market maker's bid may not exceed
the highest independent bid for the common shares. If all independent bids are
reduced below the passive market maker's bid, the passive market maker must
reduce its bid when it exceeds certain purchase limits.
The underwriters may engage in over-allotment, stabilizing transactions,
covering transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act of 1934. Over-allotment involves sales in excess of the
offering size, which creates a short position. Stabilizing transactions are bids
or purchases made for the purpose
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<PAGE> 46
of preventing or retarding a decline in the market price of the common shares
while the offering is in progress. Stabilizing bids may not exceed a specified
maximum. Covering transactions are purchases of common shares in the open market
after the distribution has been completed in order to cover short positions.
Penalty bids permit ING Baring Furman Selz LLC, on behalf of the underwriters,
to reclaim a discount from an underwriter or dealer participating in the
offering when the securities originally sold by that participant are purchased
in a covering transaction to cover short positions. Stabilizing transactions,
covering transactions and penalty bids may cause the price of the common shares
to be higher than it otherwise would be in the absence of these transactions.
These transactions may be effected on the Nasdaq Stock Market or otherwise and
may be discontinued at any time.
LEGAL MATTERS
The validity of the common shares offered hereby will be passed upon for
the selling shareholder by Harry B. Sands & Company, Nassau, The Bahamas,
Bahamas Counsel to Steiner Leisure. Certain legal matters in connection with
this offering will be passed upon for us by Kelley Drye & Warren LLP, a limited
liability partnership including professional associations, New York, New York
and Washington, D.C. Certain legal matters will be passed upon for the
underwriters by Fulbright & Jaworski L.L.P, New York, New York.
EXPERTS
The financial statements included in this prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
45
<PAGE> 47
STEINER LEISURE LIMITED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1997 and 1998.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Steiner Leisure Limited and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Steiner
Leisure Limited (a Bahamian international business company) and subsidiaries as
of December 31, 1997 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Steiner Leisure Limited and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 23, 1999.
F-2
<PAGE> 49
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $12,335,000 $10,058,000
Marketable securities..................................... 12,017,000 21,782,000
Accounts receivable....................................... 3,980,000 4,832,000
Inventories............................................... 4,949,000 8,002,000
Other current assets...................................... 958,000 1,142,000
----------- -----------
Total current assets.................................... 34,239,000 45,816,000
----------- -----------
PROPERTY AND EQUIPMENT, net............................... 2,285,000 5,840,000
----------- -----------
OTHER ASSETS:
Trademarks and product formulations, net.................. 190,000 290,000
License rights, net....................................... 31,000 740,000
Other..................................................... 392,000 968,000
----------- -----------
Total other assets...................................... 613,000 1,998,000
----------- -----------
Total assets............................................ $37,137,000 $53,654,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,901,000 $ 2,641,000
Accrued expenses.......................................... 5,941,000 6,434,000
Current portion of capital lease obligations.............. 68,000 21,000
Income taxes payable...................................... 685,000 848,000
----------- -----------
Total current liabilities............................... 8,595,000 9,944,000
----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current portion......... 29,000 --
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST......................................... -- 19,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value; 10,000,000 shares
authorized, none issued and outstanding................. -- --
Common shares, $.01 par value; 20,000,000 shares
authorized, 16,239,000 shares issued and outstanding at
December 31, 1997 and 16,603,000 shares issued at
December 31, 1998....................................... 162,000 166,000
Additional paid-in capital................................ 10,675,000 12,790,000
Accumulated other comprehensive income.................... 171,000 440,000
Retained earnings......................................... 17,505,000 35,181,000
Treasury shares, at cost, 313,000 shares in 1998.......... -- (4,886,000)
----------- -----------
Total shareholders' equity.............................. 28,513,000 43,691,000
----------- -----------
Total liabilities and shareholders' equity.............. $37,137,000 $53,654,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 50
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Services................................. $43,122,000 $50,113,000 $ 59,741,000
Products................................. 26,458,000 33,863,000 41,647,000
----------- ----------- ------------
Total revenues......................... 69,580,000 83,976,000 101,388,000
----------- ----------- ------------
COST OF SALES:
Cost of services......................... 33,446,000 39,085,000 46,142,000
Cost of products......................... 18,699,000 23,110,000 28,227,000
----------- ----------- ------------
Total cost of sales.................... 52,145,000 62,195,000 74,369,000
----------- ----------- ------------
Gross profit........................... 17,435,000 21,781,000 27,019,000
----------- ----------- ------------
OPERATING EXPENSES:
Administrative........................... 3,396,000 3,862,000 4,801,000
Salary and payroll taxes................. 3,973,000 4,344,000 4,979,000
Amortization of CTO intangibles.......... 2,477,000 1,089,000 --
----------- ----------- ------------
Total operating expenses............... 9,846,000 9,295,000 9,780,000
----------- ----------- ------------
Income from operations................. 7,589,000 12,486,000 17,239,000
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income.......................... 137,000 908,000 1,627,000
Gains on sale of marketable securities... -- 16,000 118,000
Interest expense......................... (305,000) (16,000) (8,000)
----------- ----------- ------------
Total other income (expense)........... (168,000) 908,000 1,737,000
----------- ----------- ------------
Income before provision for income
taxes and minority interest......... 7,421,000 13,394,000 18,976,000
----------- ----------- ------------
PROVISION FOR INCOME TAXES:
Current.................................. 1,750,000 1,147,000 1,296,000
Deferred................................. -- -- --
Nonrecurring............................. 3,200,000 -- --
----------- ----------- ------------
Total provision for income taxes....... 4,950,000 1,147,000 1,296,000
----------- ----------- ------------
Income before minority interest........ 2,471,000 12,247,000 17,680,000
MINORITY INTEREST........................ -- -- (4,000)
----------- ----------- ------------
Net income............................... $ 2,471,000 $12,247,000 $ 17,676,000
=========== =========== ============
EARNINGS PER COMMON SHARE:
Basic.................................... $ 0.17 $ 0.76 $ 1.08
=========== =========== ============
Diluted.................................. $ 0.17 $ 0.73 $ 1.04
=========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 51
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
NUMBER ACCUMULATED
OF ADDITIONAL OTHER
COMMON COMMON PAID-IN SUBSCRIPTION COMPREHENSIVE RETAINED
SHARES SHARES CAPITAL RECEIVABLE INCOME EARNINGS
---------- -------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.................... 14,337,000 $143,000 $ 644,100 $(100) $ -- $ 2,787,000
Net income.................................... -- -- -- -- -- 2,471,000
Foreign currency translation adjustment....... -- -- -- -- 218,000 --
Comprehensive income.......................... -- -- -- -- -- --
Collection of subscription receivable......... -- -- (100) 100 -- --
Net proceeds from sale of common shares....... 1,863,000 19,000 9,685,000 -- -- --
Share options issued to non-employees......... -- -- 113,000 -- -- --
---------- -------- ----------- ----- -------- -----------
BALANCE, DECEMBER 31, 1996.................... 16,200,000 162,000 10,442,000 -- 218,000 5,258,000
Net income.................................... -- -- -- -- -- 12,247,000
Foreign currency translation adjustment....... -- -- -- -- (80,000) --
Unrealized gain on marketable securities...... -- -- -- -- 33,000 --
Comprehensive income.......................... -- -- -- -- -- --
Issuance of common shares in connection with
exercise of share options................... 39,000 -- 226,000 -- -- --
Share options issued to non-employee.......... -- -- 7,000 -- -- --
---------- -------- ----------- ----- -------- -----------
BALANCE, DECEMBER 31, 1997.................... 16,239,000 162,000 10,675,000 -- 171,000 17,505,000
Net income.................................... -- -- -- -- -- 17,676,000
Foreign currency translation adjustment....... -- -- -- -- (1,000) --
Unrealized gain on marketable securities...... -- -- -- -- 270,000 --
Comprehensive income.......................... -- -- -- -- -- --
Issuance of common shares in connection with
exercise of share options................... 364,000 4,000 2,115,000 -- -- --
Purchases of treasury shares.................. -- -- -- -- -- --
---------- -------- ----------- ----- -------- -----------
BALANCE, DECEMBER 31, 1998.................... 16,603,000 $166,000 $12,790,000 $ -- $440,000 $35,181,000
========== ======== =========== ===== ======== ===========
<CAPTION>
TREASURY
STOCK TOTAL
----------- -----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995.................... $ -- $ 3,574,000
Net income.................................... -- 2,471,000
Foreign currency translation adjustment....... -- 218,000
-----------
Comprehensive income.......................... -- 2,689,000
Collection of subscription receivable......... -- --
Net proceeds from sale of common shares....... -- 9,704,000
Share options issued to non-employees......... -- 113,000
----------- -----------
BALANCE, DECEMBER 31, 1996.................... -- 16,080,000
Net income.................................... -- 12,247,000
Foreign currency translation adjustment....... -- (80,000)
Unrealized gain on marketable securities...... -- 33,000
-----------
Comprehensive income.......................... -- 12,200,000
Issuance of common shares in connection with
exercise of share options................... -- 226,000
Share options issued to non-employee.......... -- 7,000
----------- -----------
BALANCE, DECEMBER 31, 1997.................... -- 28,513,000
Net income.................................... -- 17,676,000
Foreign currency translation adjustment....... -- (1,000)
Unrealized gain on marketable securities...... -- 270,000
-----------
Comprehensive income.......................... -- 17,945,000
Issuance of common shares in connection with
exercise of share options................... -- 2,119,000
Purchases of treasury shares.................. (4,886,000) (4,886,000)
----------- -----------
BALANCE, DECEMBER 31, 1998.................... $(4,886,000) $43,691,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 52
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 2,471,000 $12,247,000 $17,676,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization........... 3,075,000 1,819,000 1,009,000
Accretion of debt discount.............. 177,000 -- --
Gain on sale of marketable securities... -- (16,000) (118,000)
Share options issued to nonemployees.... 113,000 7,000 --
Minority interest....................... -- -- 4,000
(Increase) decrease in
Accounts receivable.................. 434,000 (607,000) (843,000)
Inventories.......................... (1,874,000) 206,000 (3,044,000)
Other current assets................. (508,000) (148,000) (183,000)
Other assets......................... 166,000 (363,000) (572,000)
Increase (decrease) in
Accounts payable..................... 317,000 (115,000) 735,000
Accrued expenses..................... 792,000 2,217,000 381,000
Minority interest.................... -- -- 15,000
Income taxes payable................. 3,835,000 (3,670,000) 159,000
----------- ----------- -----------
Net cash provided by operating
activities.............................. 8,998,000 11,577,000 15,219,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities........ -- (33,804,000) (37,221,000)
Proceeds from maturities of marketable
securities.............................. -- 11,890,000 13,163,000
Proceeds from the sale of marketable
securities.............................. -- 9,929,000 14,681,000
Capital expenditures...................... (215,000) (800,000) (4,504,000)
Acquisition of trademarks, product
formulations and franchise rights....... -- -- (765,000)
Acquisitions, net of cash acquired........ 105,000 -- --
Advances to related parties............... (2,973,000) -- --
Collection of advances to related
parties................................. 3,164,000 -- --
----------- ----------- -----------
Net cash (used in) provided by investing
activities.............................. 81,000 (12,785,000) (14,646,000)
----------- ----------- -----------
</TABLE>
(Continued)
F-6
<PAGE> 53
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations..... $ (115,000) $ (100,000) $ (85,000)
Payments on long-term debt................ (5,679,000) (217,000) --
Payments on advances from related
parties................................. (894,000) -- --
Purchases of treasury shares.............. -- -- (4,886,000)
Net proceeds from sale of common shares... 9,704,000 -- --
Net proceeds from share option
exercises............................... -- 226,000 2,119,000
----------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 3,016,000 (91,000) (2,852,000)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH... 133,000 9,000 2,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 12,228,000 (1,290,000) (2,277,000)
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 1,397,000 13,625,000 12,335,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period.................................. $13,625,000 $12,335,000 $10,058,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for
Interest............................. $ 178,000 $ 19,000 $ 8,000
=========== =========== ===========
Income taxes......................... $ 1,080,000 $ 4,692,000 $ 1,137,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE> 54
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries where the context
requires, the "Company") provides spa services and skin and hair care products
to passengers on board cruise ships worldwide. The Company, incorporated in the
Bahamas, commenced operations effective November 1995 with the contributions of
substantially all of the assets and certain of the liabilities of the Maritime
Division (the "Maritime Division") of Steiner Group Limited, now known as STGR
Limited ("Steiner Group"), a U.K. company and an affiliate of the Company, and
all of the outstanding common stock of Coiffeur Transocean (Overseas), Inc.
("CTO"), a Florida corporation and a wholly owned subsidiary of Steiner Group.
The contributions of the net assets of the Maritime Division and CTO were
recorded at historical cost in a manner similar to a pooling of interests.
In January 1998, the Company acquired for $675,000 the intellectual
property (the "BSC Rights") relating to the Beautiful Skin Centres, a group of
Hong Kong day spas ("BSC"). The Company has begun to license the BSC concept at
three former BSC facilities in Hong Kong under the name "Elemis Beautiful Skin
Centres." The Company granted the right to operate these initial Elemis
Beautiful Skin Centres to the entity that sold the Company the BSC Rights. That
entity owns 15% of EBSC International Limited, a Bahamas subsidiary of the
Company that licenses rights to operate Elemis Beautiful Skin Centres ("EBSC").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) PRINCIPLES OF CONSOLIDATION --
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Minority interest represents
the minority shareholder's proportional share of the net assets of EBSC.
(b) CASH AND CASH EQUIVALENTS --
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of purchase to be cash equivalents.
At December 31, 1997 and 1998, cash and cash equivalents include
interest-bearing deposits of $11,530,000 and $5,113,000, respectively.
(c) MARKETABLE SECURITIES --
Marketable securities consist of investment grade commercial paper. The
Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and, accordingly, all such
instruments are classified as "available for sale" securities which are reported
at fair value, with unrealized gains and losses reported as a separate component
of shareholders' equity.
F-8
<PAGE> 55
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) INVENTORIES --
Inventories, consisting principally of beauty products, are stated at the
lower of cost (first-in, first-out) or market. Inventories consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Finished goods.......................................... $3,805,000 $6,205,000
Raw materials........................................... 1,144,000 1,797,000
---------- ----------
$4,949,000 $8,002,000
========== ==========
</TABLE>
(e) PROPERTY AND EQUIPMENT --
Property and equipment are recorded at cost. Depreciation is provided for
over the estimated useful lives of the respective assets on a straight-line
basis. Leasehold improvements are amortized on a straight-line basis over the
shorter of the terms of the respective leases and the estimated useful lives of
the respective assets.
(f) REVENUE RECOGNITION --
The Company recognizes revenues earned as services are provided and as
products are sold. License revenues consist of license fees, which are typically
collected upon execution of an area development and/or franchise agreement, and
license royalties, based upon gross sales. License fees are initially recorded
as deferred franchise fee income and are recognized in earnings when licensed
locations are opened. License revenues were $106,000 in 1998 and are included in
services revenues in the accompanying consolidated statements of operations.
(g) AMORTIZATION --
The acquired intangible assets of CTO were amortized on a straight-line
basis over a three-year period that ended on June 1, 1997. This period
represented the approximate remaining life of CTO's cruise line agreements.
Other assets include the cost of trademark registrations and product
formulations in connection with the Company's investment in Elemis Limited, and
the intellectual property represented by rights acquired by the Company in
connection with its investment in the BSC Rights. Costs relating to such
trademark registrations, product formulations and rights are amortized on the
straight-line method over the estimated lives of those respective costs (ranging
from 15 to 30 years). Amortization of the license rights acquired in connection
with the EBSC investment commenced in April 1998, the month of the effective
date of the first area development agreement entered into by EBSC.
(h) INCOME TAXES --
The Company files separate tax returns for its U.S. subsidiaries. In
addition, the Company's foreign subsidiaries file income tax returns in their
respective countries of
F-9
<PAGE> 56
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incorporation, where required. The Company follows Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted tax laws. SFAS No. 109 permits the recognition of deferred tax assets.
Deferred income tax provisions and benefits are based on the changes to the
asset or liability from period to period.
In November 1996, the Company liquidated CTO. As a result, CTO's functions
were assumed by the Company and its cruise line agreements were assigned to the
Company. The liquidation of CTO was a taxable transaction. CTO was treated as if
it had sold all of its assets at fair value on the date of distribution of these
assets to the Company. Based on the value of the assets of CTO as determined by
an independent appraiser, CTO's U.S. income tax liability resulting from the
liquidation was approximately $3.2 million. This amount has been reflected as a
nonrecurring component of the provision for income taxes in the Company's 1996
consolidated statement of operations. The entire $3.2 million estimated tax
liability was paid during the first quarter of 1997.
(i) TRANSLATION OF FOREIGN CURRENCIES --
Assets and liabilities of foreign subsidiaries are translated at the rate
of exchange in effect at the balance sheet date; income and expenses are
translated at the average rates of exchange prevailing during the year. The
related translation adjustments are reflected in the accumulated other
comprehensive income section of the consolidated balance sheets. Foreign
currency gains and losses resulting from transactions, including intercompany
transactions, are included in results of operations.
F-10
<PAGE> 57
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) EARNINGS PER SHARE --
Basic earnings per share is computed by dividing the net income available
to shareholders by the weighted average number of outstanding common shares. The
calculation of diluted earnings per share is similar to basic earnings per share
except that the denominator includes dilutive common share equivalents such as
share options. The computation of weighted average common and common equivalent
shares used in the calculation of basic and diluted earnings per share is as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding used in
calculating basic earnings per share....... 14,556,000 16,202,000 16,401,000
Dilutive common share equivalents............ 128,000 491,000 559,000
---------- ---------- ----------
Weighted average common and common equivalent
shares used in calculating diluted earnings
per share.................................. 14,684,000 16,693,000 16,960,000
========== ========== ==========
Options outstanding which are not included in
the calculation of diluted earnings per
share because their impact is
antidilutive............................... -- 369,000 189,000
========== ========== ==========
</TABLE>
(k) USE OF ESTIMATES --
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS --
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents, other
current assets, other assets, accrued expenses and accounts payable are
reflected in the accompanying consolidated financial statements at cost, which
approximates fair value.
(m) STOCK-BASED COMPENSATION --
The Company follows the provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") in
accounting for stock-based transactions with nonemployees and, accordingly,
records compensation expense in the consolidated statements of operations for
such transactions. The Company continues to apply the provisions of APB 25 for
transactions with employees, as permitted by SFAS 123.
F-11
<PAGE> 58
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS --
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. The Company adopted SOP 98-1
prospectively effective January 1, 1999. Management does not believe that the
adoption of SOP 98-1 will have a material effect on the Company's financial
position or results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 establishes standards for the reporting and
disclosure of start-up costs, including organization costs. The Company adopted
SOP 98-5 effective January 1, 1999. Management does not believe that the
adoption of SOP 98-5 will have a material effect on the Company's financial
position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public companies report selected information about operating
segments in annual and interim financial reports to shareholders. It also
establishes standards for related disclosures about an enterprise's business
segments, products, services, geographic areas and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 requires that a public company report a measure of
segment profit or loss, certain specific revenue and expense items and segment
assets. The Company adopted SFAS No. 131 effective December 31, 1998. Management
operates the business of the Company as a single segment. As a result, no
additional disclosure was required.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE -------------------------
IN YEARS 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Furniture and fixtures...................... 5-7 $ 307,000 $ 350,000
Computers and equipment..................... 3-8 1,635,000 2,829,000
Leasehold improvements...................... 3-5 3,119,000 6,340,000
--- ----------- -----------
5,061,000 9,519,000
Less: Accumulated depreciation and
amortization.............................. (2,776,000) (3,679,000)
----------- -----------
$ 2,285,000 $ 5,840,000
=========== ===========
</TABLE>
F-12
<PAGE> 59
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Operative commissions................................... $1,059,000 $1,387,000
Guaranteed minimum rentals.............................. 2,235,000 2,144,000
Bonuses................................................. 769,000 910,000
Staff shipboard accommodations.......................... 227,000 326,000
Other................................................... 1,651,000 1,667,000
---------- ----------
$5,941,000 $6,434,000
========== ==========
</TABLE>
(5) CAPITAL LEASE OBLIGATIONS:
Assets under capital leases include office equipment and onboard massage
and exercise equipment. The future minimum lease payments under capital leases
and the present value of the net minimum lease payments become due in 1999.
(6) SHAREHOLDERS' EQUITY:
In November 1996, the Company completed an initial public offering of
11,468,790 of its common shares of which 1,863,000 shares were sold by the
Company and 9,605,790 shares were sold by a shareholder of the Company. The
offering price was $5.778 per share and the proceeds to the Company, net of the
underwriters' discount and other direct costs, were approximately $9,704,000.
Effective October 24, 1997 and April 28, 1998, the Board of Directors of
the Company approved three-for-two share splits of the Company's common shares,
effected as share dividends, effective for shareholders of record as of October
13, 1997 and April 14, 1998, respectively. These share splits have been
retroactively reflected in the accompanying consolidated financial statements
for all periods presented.
(7) INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Federal................................. $3,816,000 $ 447,000 $ 484,000
U.S. State................................... 332,000 57,000 75,000
U.K.......................................... 802,000 643,000 737,000
---------- ---------- ----------
$4,950,000 $1,147,000 $1,296,000
========== ========== ==========
</TABLE>
F-13
<PAGE> 60
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the difference between the expected provision for
income taxes using the U.S. federal tax rate and the Company's actual provision
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Provision using statutory U.S. federal tax
rate....................................... $2,597,000 $4,688,000 $6,640,000
Income earned in jurisdictions not subject to
income taxes............................... (1,600,000) (3,990,000) (5,318,000)
Amortization of intangibles.................. 753,000 381,000 --
Nonrecurring provision related to the
liquidation of CTO......................... 3,200,000 -- --
Meals and entertainment...................... 3,000 5,000 --
Effect of state income taxes................. 46,000 38,000 50,000
Other........................................ (49,000) 25,000 (76,000)
---------- ---------- ----------
$4,950,000 $1,147,000 $1,296,000
========== ========== ==========
</TABLE>
(8) COMPREHENSIVE INCOME:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. SFAS No. 130 establishes standards for reporting and
disclosure of comprehensive income and its components in financial statements.
The components of the Company's comprehensive income are as follows:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAINS ON OTHER
TRANSLATION MARKETABLE COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME
------------ ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1996................ $218,000 $ -- $218,000
Current-period activity................... (80,000) 33,000 (47,000)
-------- -------- --------
Balance, December 31, 1997................ 138,000 33,000 171,000
Current-period activity................... (1,000) 270,000 269,000
-------- -------- --------
Balance, December 31, 1998................ $137,000 $303,000 $440,000
======== ======== ========
</TABLE>
Amounts reclassified are as follows:
<TABLE>
<S> <C>
Unrealized holding gains arising during 1997 $ 49,000
Less: reclassification adjustment for gains included in net
income.................................................... (16,000)
--------
Unrealized gains on marketable securities................... $ 33,000
========
Unrealized holding gains arising during 1998................ $421,000
Less: reclassification adjustment for gains included in net
income.................................................... (118,000)
--------
Unrealized gains on marketable securities................... $303,000
========
</TABLE>
F-14
<PAGE> 61
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES:
(a) CRUISE LINE AGREEMENTS --
The Company has entered into agreements of varying terms with the cruise
lines. These agreements provide for the Company to pay the cruise lines rent for
use of their shipboard facilities as well as for staff shipboard meals and
accommodations. Rental amounts are based on a percentage of revenue, a minimum
annual rental or a combination of both. Some of the minimum annual rentals are
calculated as a flat dollar amount on an annual basis while others are based
upon minimum passenger per diems for passengers actually embarked on each cruise
of the respective vessel. Staff shipboard meals and accommodations are charged
by the cruise lines on a per staff per day basis. The Company recognizes all
expenses related to cruise line rents, minimum guarantees and staff shipboard
meals and accommodations, generally at the completion of a cruise, as they are
incurred. For cruises in process at period end, accrual is made to record such
expenses in a manner that approximates a pro-rata basis. In addition,
staff-related expenses such as shipboard employee commissions are recognized in
the same manner. Pursuant to agreements that provide for minimum annual rentals,
the Company has guaranteed the following amounts as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -----------
<S> <C>
1999........................................................ $20,682,000
2000........................................................ 16,937,000
2001........................................................ 14,388,000
2002........................................................ 2,894,000
2003........................................................ 400,000
Thereafter.................................................. 2,050,000
-----------
$57,351,000
===========
</TABLE>
(b) OPERATING LEASES --
The Company leases office and warehouse space as well as office equipment
and automobiles under operating leases. The Company incurred approximately
$367,000, $334,000 and $403,000 in rental expense under noncancelable operating
leases in 1996, 1997 and 1998, respectively.
F-15
<PAGE> 62
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum annual commitments under operating leases at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -----------
<S> <C>
1999........................................................ $ 324,000
2000........................................................ 214,000
2001........................................................ 164,000
2002........................................................ 134,000
2003........................................................ 76,000
Thereafter.................................................. 271,000
-----------
$ 1,183,000
===========
</TABLE>
(c) EMPLOYMENT AND CONSULTING AGREEMENTS --
The Company entered into employment agreements, effective as of January 1,
1996 and as amended in December 1997 and March 1998, with its executive
officers. The agreements provide for minimum annual base salaries and annual
incentive bonuses in amounts up to the base salaries based on the Company's
attainment of certain targeted earnings levels. The earnings levels are required
to be approved for such purpose by the Compensation Committee of the Board of
Directors of the Company. The Company incurred approximately $1,514,000,
$1,621,000 and $1,865,000 in compensation expense under these employment
agreements in 1996, 1997 and 1998, respectively.
Future minimum annual commitments under the Company's employment and
consulting agreements at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
1999........................................................ $1,210,000
2000........................................................ 1,110,000
2001........................................................ 965,000
2002........................................................ 30,000
2003........................................................ 30,000
Thereafter.................................................. 83,000
----------
$3,428,000
==========
</TABLE>
The Company had a consulting agreement with the former shareholder of CTO
which provided for annual payments of $150,000 for a period of three years,
commencing June 3, 1994. The 1997 obligation with respect to the final annual
payment of $150,000 was paid by Steiner Group.
(d) PRODUCT SUPPLY AGREEMENT --
The Company has an agreement, which extends to 2001, with its principal
supplier of raw materials for its products pursuant to which the Company will
purchase its raw materials requirements. Such agreement provides for no specific
minimum commitments.
F-16
<PAGE> 63
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) CONSTRUCTION COMMITMENT --
The Company has committed to spend approximately $1.5 million in 1999 in
connection with the construction of the spa at the Atlantis Resort.
(f) PRODUCT LIABILITY --
The nature and use of the Company's products and services could give rise
to product liability or other claims if a customer were injured while receiving
one of the Company's services or suffered adverse reactions following the use of
its products. Adverse reactions could be caused by various factors beyond the
Company's control, including hypoallergenic sensitivity and the possibility of
malicious tampering with its products. If any of these events occurred, the
Company could incur substantial litigation expense, receive adverse publicity
and suffer a loss of sales.
(10) RELATED PARTY TRANSACTIONS:
Effective December 1995, the Company's principal shareholder contributed
certain rights with respect to formulations for lines of products sold by the
Company. The rights were purchased from an unrelated third party by that
shareholder. The formulations were used exclusively in the manufacture of the
Company's products. The contribution of these product formulation rights was
recorded at their historical cost of $219,000, the negotiated purchase price of
said product formulation rights between the unrelated parties. These other
assets are being amortized over a period of 15 years, the estimated life of the
underlying assets, representing the estimated period over which the related
products will be sold by the Company.
Notes Payable to Related Parties were non-interest bearing and were repaid
during 1997.
F-17
<PAGE> 64
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SHARE OPTIONS:
The Company has reserved 1,620,000 of its common shares for issuance under
its 1996 Share Option and Incentive Plan and 185,625 of its common shares for
issuance under its Non-Employee Directors' Share Option Plan (the "Plans").
Under the Plans, incentive share options are available to employees and
nonqualified share options may be granted to consultants, directors or employees
of the Company. The terms of each option agreement are determined by the
Compensation Committee of the Board of Directors. The exercise price of
incentive share options may not be less than fair market value at the date of
grant and their terms may not exceed ten years. The exercise price of
nonqualified share options is determined by the Compensation Committee of the
Board of Directors and their terms may not exceed ten years. The following table
presents a summary of share option activity as of December 31:
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE
NUMBER ------------------------
OF SHARES LOW HIGH WEIGHTED
--------- ----- ----- --------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1996................ 767,373 5.78 5.78 5.78
---------
Granted..................................... 569,257 8.72 25.73 18.34
Exercised................................... (39,227) 5.78 5.78 5.78
Canceled.................................... (750) 10.56 10.56 10.56
---------
Outstanding, December 31, 1997................ 1,296,653 5.78 25.73 11.29
---------
Granted..................................... 274,040 25.00 34.54 31.99
Exercised................................... (374,650) 5.78 10.61 6.54
Canceled.................................... (7,980) 10.56 34.54 30.03
---------
Outstanding, December 31, 1998................ 1,188,063 5.78 34.54 17.44
---------
</TABLE>
F-18
<PAGE> 65
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional information regarding options outstanding at December 31, 1998
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF -------------------------------------- -----------------------
EXERCISABLE NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
PRICES OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
- ---------------- AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
LOW HIGH 12/31/98 LIFE PRICE 12/31/98 PRICE
--- ------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 5.78 $ 5.78 412,956 7.86 $ 5.78 175,953 $ 5.78
8.72 8.72 2,682 8.12 8.72 2,682 8.72
10.56 10.56 126,750 8.22 10.56 3,450 10.56
12.22 12.22 8,439 8.43 12.22 8,439 12.22
12.42 12.42 675 8.58 12.42 75 12.42
20.58 25.73 324,001 8.93 23.17 81,000 20.58
18.13 18.13 45,000 8.98 18.13 11,250 18.13
34.54 34.54 188,775 9.24 34.54 -- --
29.92 29.92 9,189 9.49 29.92 -- --
25.50 25.50 12,625 9.88 25.50 -- --
25.00 25.00 56,971 9.91 25.00 -- --
- ------ ------ --------- ---- ------ ------- ------
$ 5.78 $34.54 1,188,063 8.59 $17.44 282,849 $10.79
====== ====== ========= ==== ====== ======= ======
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for options granted to employees. Accordingly, no compensation cost
has been recognized related to such grants. Had compensation cost for the
Company's shares been based on fair value at the grant dates for awards under
the Plans consistent with the methodologies of SFAS 123, the Company's 1997 net
income and income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C> <C>
Net income................................ As reported $12,247,000 $17,676,000
Pro forma $11,442,000 $14,106,000
Diluted earnings per share................ As reported $ .73 $ 1.04
Pro forma $ .69 $ .83
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions: expected volatility of
37.8% and 61.0% for 1997 and 1998, respectively, risk-free interest rate of
6.0%, expected dividends of $0 and expected term of 5 years.
In 1996, the Company recorded expense of $113,000 related to 37,500 share
options granted to a nonemployee of the Company. In determining the expense to
be recorded, the Company applied the Black-Scholes model using the following
assumptions: expected volatility of 25%, risk-free interest rate of 6%, expected
dividends of $0 and expected term of 5 years.
F-19
<PAGE> 66
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO BUY ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More
Information....................... 2
Certain Information About This
Prospectus........................ 2
Cautionary Note Regarding Forward-
Looking Statements................ 3
Prospectus Summary.................. 4
Risk Factors........................ 9
Selected Consolidated Financial
Data.............................. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 19
Business............................ 26
Management.......................... 36
Taxation............................ 38
Selling Shareholder................. 42
Underwriting........................ 43
Legal Matters....................... 45
Experts............................. 45
Financial Statements................ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES
(LOGO)
STEINER LEISURE LIMITED
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
ING BARING FURMAN SELZ LLC
RAYMOND JAMES &
ASSOCIATES, INC.
WILLIAM BLAIR & COMPANY
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses expected to be incurred by Steiner
Leisure (on behalf of the selling shareholder) in connection with this offering.
All the amounts have been estimated except for the Securities and Exchange
Commission registration fee and the NASD filing fee. All of the expenses will be
payable by the selling shareholder.
<TABLE>
<CAPTION>
NATURE OF FEES AND EXPENSES AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
SEC Registration Fee........................................ $ 11,600
NASD Filing Fee............................................. 5,180
Accounting Fees and Expenses................................ 60,000
Legal Fees and Expenses..................................... 200,000
Blue Sky Expenses........................................... 2,500
Printing Expenses........................................... 125,000
Miscellaneous............................................... 20,000
----------
Total............................................. $ 424,280
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Association of Steiner Leisure (the "Articles") provide
that the directors and officers of Steiner Leisure, as well as certain other
individuals, shall be indemnified by Steiner Leisure to the fullest extent
authorized by Bahamian law as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of Steiner Leisure or any subsidiary of Steiner
Leisure.
Section 56 of the International Business Companies Act, 1989 of The Bahamas
provides:
56.(1) Subject to subsection (2) and any limitations in its Memorandum or
Articles or in any unanimous shareholder agreement, a company incorporated under
this Act may indemnify against all expenses, including legal fees, and against
all judgements, fines and amounts paid in settlement and reasonably incurred in
connection with legal, administrative or investigative proceedings any person
who -
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person is
or was a director, an officer or a liquidator of the company; or
(b) is or was, at the request of the company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting for,
another company or a partnership, joint venture, trust or other enterprise.
(2) Subsection (1) only applies to a person referred to in that subsection
if the person acted honestly and in good faith with a view to the best interests
of the company
II-1
<PAGE> 68
and, in the case of criminal proceedings, the person had no reasonable cause to
believe that his conduct was unlawful.
(3) The decision of the directors as to whether the person acted honestly
and in good faith and with a view to the best interests of the company and as to
whether the person had no reasonable cause to believe that his conduct was
unlawful is, in the absence of fraud, sufficient for the purposes of this
section, unless a question of law is involved.
(4) The termination of any proceedings by any judgement, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself, create a
presumption that the person did not act honestly and in good faith and with a
view to the best interests of the company or that the person had reasonable
cause to believe that his conduct was unlawful.
(5) If a person referred to in subsection (1) has been successful in
defence of any proceedings referred to in subsection (1), the person is entitled
to be indemnified against all expenses, including legal fees, and against all
judgements, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
The Articles also provide that expenses of directors and/or officers of
Steiner Leisure incurred in defending civil or criminal proceedings be paid by
Steiner Leisure in advance of final disposition of such proceedings upon such
director or officer undertaking to reimburse any such expense which it is
ultimately determined he or she is not entitled to be indemnified against by
Steiner Leisure.
The Articles also provide that the right of directors and officers to
indemnification is not exclusive of any other right to which such directors or
officers may be entitled under any law, agreement, vote of shareholders or
directors or otherwise. The Articles contain a provision that eliminates the
liability of directors and officers of Steiner Leisure and certain other persons
in connection with the performance of their respective functions, provided that
any such person has acted honestly and in good faith with a view to the best
interests of Steiner Leisure and has exercised the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
Steiner Leisure also maintains insurance on behalf of any person who is or was a
director or officer of Steiner Leisure or is or was serving at the request of
Steiner Leisure as a director or officer of another entity against any liability
asserted against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such.
ITEM 16. EXHIBITS
(a) The exhibits listed in the following table have been filed as part of
this registration statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- ------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement
5.1 -- Opinion of Harry B. Sands & Company
8.1 -- Opinion of Kelley Drye & Warren LLP
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Harry B. Sands & Company, included in Exhibit
5.1
23.3 -- Consent of Kelley Drye & Warren LLP, included in Exhibit
8.1
24.1 -- Powers of attorney executed by certain officers and
directors of the Registrant* (included on signature page)
27 -- Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed.
II-2
<PAGE> 69
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, and has duly caused this Amendment
No. 1 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Nassau, The Bahamas, on March 21,
1999.
STEINER LEISURE LIMITED
By: /s/ CLIVE E. WARSHAW
----------------------------------------
Clive E. Warshaw
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) AND CAPACITIES DATE
--------- ---------------------------- -------------------
<C> <S> <C>
/s/ CLIVE E. WARSHAW Chairman of the Board and March 22, 1999
- ------------------------------------------------ Chief Executive Officer
Clive E. Warshaw (Principal Executive
Officer)
/s/ CARL S. ST. PHILIP, JR. Vice President and Chief March 22, 1999
- ------------------------------------------------ Financial Officer and
Carl S. St. Philip, Jr. Authorized Representative in
the United States (Principal
Financial and Accounting
Officer)
/s/ LEONARD I. FLUXMAN Director March 22, 1999
- ------------------------------------------------
Leonard I. Fluxman
/s/ MICHELE STEINER WARSHAW Director March 21, 1999
- ------------------------------------------------
Michele Steiner Warshaw
/s/ CHARLES D. FINKELSTEIN Director March 22, 1999
- ------------------------------------------------
Charles D. Finkelstein
/s/ JONATHAN D. MARINER Director March 22, 1999
- ------------------------------------------------
Jonathan D. Mariner
/s/ STEVEN J. PRESTON Director March 22, 1999
- ------------------------------------------------
Steven J. Preston
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1.1
1,500,000 SHARES
STEINER LEISURE LIMITED
COMMON SHARES
PAR VALUE (U.S.) $.01 PER SHARE
UNDERWRITING AGREEMENT
March __, 1999
ING BARING FURMAN SELZ LLC
RAYMOND JAMES & ASSOCIATES, INC.,
WILLIAM BLAIR & COMPANY, L.L.C.
c/o ING Baring Furman Selz LLC
55 East 52nd Street
New York, New York 10055
Dear Sirs:
1. INTRODUCTION. Clive E. Warshaw (the "Selling Shareholder") proposes
to issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), for which ING Baring Furman Selz LLC, Raymond James &
Associates, Inc. and William Blair & Company, L.L.C. are acting as
representatives (the "Representatives"), an aggregate of 1,500,000 Common
Shares, par value (U.S.) $.01 per share (the "Common Shares") of Steiner
Leisure Limited, a Bahamas international business company (the "Company"). The
1,500,000 Common Shares to be sold by the Selling Shareholder are referred to
herein as the "Firm Shares." The Selling Shareholder also proposes to sell to
the several Underwriters an aggregate of not more than 225,000 additional Common
Shares (the "Additional Shares") if requested by the Underwriters in accordance
with Section 9 hereof. The Firm Shares and the Additional Shares are
collectively referred to herein as the "Shares." The words "you" and "your"
refer to the Representatives of the Underwriters. If you are the only
Underwriters, all references herein to the Representatives shall be deemed to be
to the Underwriters.
The Company and the Selling Shareholder hereby agree with the several
Underwriters as follows:
<PAGE> 2
(xxv) Except as set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no outstanding loans, advances or guarantees of
indebtedness by the Company or any of its subsidiaries to or for the
benefit of any of their officers, directors, partners or controlling
persons, or any of the members of the families of any of them.
(xxvi) The acquisition of the Company's interests in
each of its subsidiaries has been consummated in accordance with the
terms of the applicable purchase documents, and the Company is not
and, to the Company's knowledge, no other party to such documents is,
in default thereunder and no event has occurred which, with notice or
lapse of time or both, would constitute a default by the Company or
any other parties thereto under such purchase documents, except for
defaults which, singly or in the aggregate, would not have a Material
Adverse Effect.
(xxvii) After considering the nature of the historical,
current and projected income and assets of the Company and its
subsidiaries and the continuing ownership of Common Shares by Clive E.
Warshaw following the Closing Date, the Company reasonably believes
that it has not been, is not and, immediately after the Closing Date,
will not become a "controlled foreign corporation" for purposes of
Sections 951 through 964 of the United States Internal Revenue Code of
1986, as amended (the "Code"), a "foreign personal holding company"
for purposes of Sections 551 through 559 of the Code (a "FPHC") or a
"passive foreign investment company" for purposes of Sections 1291
through 1298 of the Code (a "PFIC"). In addition, the Company will
endeavor to conduct its affairs and cause its subsidiaries to conduct
their affairs so that the Company will not become a PFIC. The Company
is aware of the effect on its shareholders that would result from its
being deemed an FPHC and, in the conduct of its affairs, it will
consider such effect in determining whether its actions are in the
best interests of its shareholders.
(xxviii) Neither the Company nor any of its officers,
directors or affiliates (within the meaning of the Rules and
Regulations) has since the initial filing of the Registration
Statement (A) sold, bid for, purchased, attempted to induce any person
to purchase, or paid anyone any compensation for soliciting purchases
of, Common Shares, or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the
Company (except for the sale of the Shares to be sold by the Selling
Shareholder pursuant to this Agreement and except as otherwise
permitted by law).
(xxix) The Company has made all filings required to be
made by it under the Exchange Act.
(xxx) The three-for-two splits of the Common Shares
effected on October 24, 1997 and April 28, 1998, respectively (the
"Share Splits"), were made in compliance with the Company's Memorandum
of Association and Articles of Association and
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<PAGE> 3
claims and, to the best knowledge of such counsel, except for the
shares of each of the subsidiaries of the Company owned by the Company
or any such subsidiaries, neither the Company nor any such subsidiary
owns any shares or any other equity securities of any company or
corporation or has any equity interest in any firm, partnership,
association or other entity, except as described in or contemplated by
the Prospectus;
(iii) The U.K. Subsidiaries have the corporate power
and authority to own, lease and operate each of their respective
properties and to conduct their respective businesses as described in
the Prospectus, and the conduct of such businesses do not violate the
provisions of their respective Memoranda and Articles of Association
or any applicable law, regulation, order or decree of England and
Wales;
(iv) No U.K. Subsidiary is currently prohibited,
directly or indirectly, from paying any dividends to the Company
(subject to the provisions of the corporate laws of England and Wales
governing dividends), from making any other distribution on such
subsidiary's share capital, from repaying to the Company any loans or
advances to such subsidiary from the Company or from transferring any
of such subsidiary's property (subject to the respective landlord's
consent with respect to real property) or assets to the Company or any
other subsidiary of the Company, except as described in or
contemplated by the Prospectus; and
(v) To the best of such counsel's knowledge, there are
no legal or governmental proceedings pending or threatened to which
any of the U.K. Subsidiaries is a party or to which any of the U.K.
Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described.
References to the Registration Statement and the Prospectus
in this paragraph (f) shall include any amendment or supplement thereto at the
date of such opinion.
(g) On or prior to the Closing Date, counsel to the
Underwriters shall have been furnished such documents, certificates and
opinions as they may reasonably require in order to evidence the accuracy,
completeness or satisfaction of any of the representations or warranties of the
Company or the Selling Shareholder, or conditions herein contained.
(h) At the time that this Agreement is executed by the
Company, the Underwriters shall have received from Arthur Andersen LLP a
letter, as of the date this Agreement is executed by the Company, in form and
substance satisfactory to you (the "Original Letter"), and on the Closing Date
the Underwriters shall have received from such firm a letter dated the Closing
Date stating that, as of a specified date not earlier than five (5) days prior
to the Closing Date, nothing has come to the attention of such firm to suggest
that the statements made in the Original Letter are not true and correct.
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<PAGE> 4
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or the Prospectus or any Preliminary Prospectus,
or any amendment or supplement thereto, or any blue sky application or other
document executed by the Company specifically for the purpose of qualifying, or
based upon written information furnished by the Company or the Selling
Shareholder filed in any state or other jurisdiction in order to qualify, any
or all of the Shares under the securities or blue sky laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading in light of the
circumstances under which they were made and will reimburse, on a monthly
basis, such Underwriter or such controlling persons for any legal or other
expenses incurred by such Underwriter or such controlling persons in connection
with investigating, defending or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action; provided,
HOWEVER, that the Company and the Selling Shareholder will not be liable in any
such case to the extent that any such loss, claim, damage, liability or action
arises out of or is based upon any such untrue statement or alleged untrue
statement or such omission or alleged omission made in any of such documents in
reliance upon and in conformity with information furnished in writing to the
Company on behalf of such Underwriter through the Representatives expressly for
use therein, and PROVIDED, FURTHER, that such indemnity with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any person controlling such Underwriter) from whom the person
asserting any such loss, claim, damage, liability or action purchased Shares
which are the subject thereof to the extent that any such loss, claim, damage,
liability or action (i) results from the fact that such Underwriter failed to
send or give a copy of the Prospectus (as amended or supplemented) to such
person at or prior to the confirmation of the sale of such Shares to such
person in any case where such delivery is required by the Act and (ii) arises
out of or is based upon an untrue statement or omission of a material fact
contained in such Preliminary Prospectus that was corrected in the Prospectus
(as amended and supplemented), unless such failure resulted from non-compliance
by the Company with Section 5(a)(viii) hereof. Notwithstanding the foregoing,
the Selling Shareholder shall have no liability under this Section 8(a) for
losses, claims, damages or liabilities in an amount in excess of the total net
proceeds (before deducting expenses) received by the Selling Shareholder for
all Shares sold by it. The indemnity agreement in this paragraph (a) shall be
in addition to any liability which the Company and the Selling Shareholder may
otherwise have.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, the Selling Shareholder and
each person, if any, who controls the Company or the Selling Shareholder within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any and all losses, claims, damages or liabilities (and actions in respect
thereof) to which the Company, the Selling Shareholder or such director,
officer or controlling person may become subject, under the Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, or arise out of or are based upon the omission or the alleged
omission to state
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<PAGE> 5
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents, warrants and agrees with each of
the Underwriters that:
(i) A registration statement on Form S-3 (File No.
333-73363) under the Securities Act of 1933, as amended (the "Act"),
with respect to the Shares, including a form of prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder (the
"Rules and Regulations"). The Company meets the requirements for use
of Form S-3 under the Act and the Rules and Regulations. Such
registration statement has been filed with the Commission under the
Act, and one or more amendments to such registration statement may
also have been so filed. After the execution of this Agreement, the
Company shall file with the Commission either (A) if such registration
statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (1) if the Company
relies on Rule 434 under the Act, a Term Sheet (as hereinafter
defined) relating to the Shares, that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements and containing
such information as is required by Rules 434 and 430A under the Act or
permitted by Rule 424(b) under the Act or (2) if the Company does not
rely on Rule 434 under the Act, a prospectus in the form most recently
included in an amendment to such registration statement filed with the
Commission (or, if no such amendment shall have been filed, in such
registration statement), with such insertions and changes as are
required by Rule 430A under the Act or permitted by Rule 424(b) under
the Act, and in the case of either clause (A)(1) or (A)(2) of this
sentence as shall have been provided to and approved by the
Representatives prior to the filing thereof, or (B) if such
registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the
Representatives prior to the filing thereof. As used in this
Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and
all documents incorporated therein by reference; the Registration
Statement shall be deemed to include any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion contained in such registration
statement or any amendment thereto (including the prospectus subject
to completion, if any, included in the Registration Statement or any
amendment thereto or filed pursuant to Rule 424(a) under the Act at
the time it was or is declared effective); the term "Prospectus"
means: (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Shares that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements; (B) if the
Company does not rely on Rule 434 under the Act, the prospectus first
filed with the Commission pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if
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<PAGE> 6
no prospectus is required to be filed pursuant to Rule 424(b) under
the Act, the prospectus included in the Registration Statement; and
the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Act. Any reference to the "date" of
a Prospectus that contains a Term Sheet shall mean the date of such
Term Sheet. To the extent the Company relies on Rule 462(b) under the
Act ("Rule 462(b)") to increase the maximum aggregate offering price,
the Company shall have made in a timely manner any filing required
under Rule 462(b) and such filing shall be in compliance with such
Rule. References herein to any document or other information
incorporated by reference in the Registration Statement shall include
documents or other information incorporated by reference in the
Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus). Reference made herein to any
Preliminary Prospectus or the Prospectus shall be deemed to include
all documents and information incorporated by reference therein and
shall be deemed to refer to and include any documents and information
filed after the date of such Preliminary Prospectus or Prospectus, as
the case may be, and so incorporated by reference, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(ii) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus and has not
instituted or threatened to institute any proceedings with respect to
such an order. When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the Rules and Regulations and (B) did
not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto
was or is declared effective, it (A) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the Rules and Regulations and (B) did not or will not,
as the case may be, include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus and when any amendment or
supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement and when any
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and at all times subsequent
thereto up to and including the Closing Date (as defined in Section 3
hereof) and the Option Closing Date (as defined in Section 9 hereof),
the Prospectus, as amended or supplemented at any such time, including
any amendment or supplement effected by a Term Sheet, (A) contained or
will contain, as the case may be, all statements required to be stated
therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the Rules and
Regulations and (B) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (ii) shall not apply to
statements or omissions made in any Preliminary Prospectus,
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<PAGE> 7
the Registration Statement or any amendment thereto or the Prospectus
or any amendment or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by or
on behalf of the Underwriters through the Representatives expressly
for use therein. The documents which are incorporated by reference in
any Preliminary Prospectus or the Prospectus or from which information
is so incorporated by reference, when they became effective or were
filed with the Commission, as the case may be, complied in all
material respects with the requirements of the Act and the Rules and
Regulations or the Exchange Act and the rules and regulations
thereunder, as applicable, and did not, when such documents were so
filed, contain any untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading, and any documents so filed and
incorporated by reference subsequent to the effective date of the
Registration Statement shall, when they are filed with the Commission,
conform in all material respects with the requirements of the Act and
the Rules and Regulations and the Exchange Act and the rules and
regulations thereunder, as applicable.
(iii) Each of the Company and its subsidiaries (A) is a
duly incorporated or formed, as the case may be, and validly existing
corporation or limited liability company, as the case may be, in good
standing under the laws of its jurisdiction of incorporation or
formation, with full power and authority (corporate and other) to own
or lease its properties and to conduct its business as described in
the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus); and (B)
is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction (x) in which the conduct of its
business requires such qualification (except for those jurisdictions
in which the failure to be so qualified has not had and will not have
a Material Adverse Effect (as hereinafter defined)) and (y) in which
it owns or leases property. "Material Adverse Effect" means, when used
in connection with the Company or its subsidiaries, any development,
change or effect that is materially adverse to the business,
properties, assets, net worth, condition (financial or other), results
of operations or prospects of the Company and its subsidiaries taken
as a whole.
(iv) The Company has the duly authorized and validly
outstanding capitalization set forth in the consolidated balance
sheets of the Company included in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus). The securities of the Company conform to the descriptions
thereof contained in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). The outstanding
Common Shares have been duly authorized and validly issued by the
Company and are fully paid and nonassessable, have been issued in
compliance with all Bahamian and U.S. federal and state securities
laws and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities.
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<PAGE> 8
Except as created hereby or referred to in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no outstanding options, warrants, rights or
other arrangements requiring the Company or any subsidiary at any time
to issue any capital stock. No holders of outstanding shares of capital
stock of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Shares and neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any securities of the Company. All the outstanding
shares of capital stock of each subsidiary of the Company that is a
corporation have been duly authorized and validly issued, are fully
paid and, with respect to the subsidiaries organized under the laws of
a United States jurisdiction, are nonassessable and, with respect to
the subsidiaries organized under the laws of The Bahamas and the United
Kingdom, are not subject to call for additional payments of any kind;
the subsidiary of the Company that is a limited liability company has
been duly formed under the laws of the State of Florida, and its
members are the Company, Steiner Transocean Limited and Steiner Beauty
Products, Inc.; all the outstanding shares of capital stock or
membership interests of each subsidiary of the Company are owned
directly, or indirectly through one or more subsidiaries of the
Company, by the Company (except (i) EBSC International Limited, 85% of
which is owned by the Company and 15% of which is owned by Eagleview
Investments Ltd., a British Virgin Islands company and (ii) Steiner Spa
Resorts Limited, 4,999 common shares of which are held by the Company
and one common share of which is held by an attorney of Harry B. Sands
& Company) free and clear of any lien, encumbrance, security interest,
claim or other restriction whatsoever; the subsidiary of the Company
that is incorporated under the laws of the Netherlands, upon issuance
of its capital shares as currently proposed, will be wholly owned by
EBSC International Limited and has not engaged in any business activity
from the date of its incorporation to the date hereof. The Company has
received approval to have the Shares quoted on the Nasdaq Stock Market
and the Company knows of no reason or set of facts which is likely to
adversely affect such approval.
(v) The consolidated financial statements of the
Company and its subsidiaries and the related notes and schedules
thereto included in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present the consolidated financial condition,
results of operations, stockholders' equity and cash flows of the
Company and its subsidiaries at the dates and for the periods
specified therein. Such financial statements and the related notes and
schedules thereto have been prepared in accordance with United States
generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise noted therein)
and such financial statements as are audited have been examined by
Arthur Andersen LLP, who are independent public accountants within the
meaning of the Act and the Rules and Regulations, as indicated in
their reports filed therewith. The selected financial information and
statistical data set forth under the captions "Prospectus
Summary--Summary Consolidated Financial and Operating Data," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
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<PAGE> 9
Preliminary Prospectus) have been prepared on a basis consistent with
the consolidated financial statements or the books and records of the
Company and its subsidiaries.
(vi) The Company and each of its subsidiaries have
filed all necessary Bahamian, United Kingdom and United States
federal, state and local income, franchise and other material tax
returns and have paid all taxes shown as due thereunder, and the
Company has no knowledge of any tax deficiency which might be assessed
against the Company or any subsidiary which, if so assessed, may have
a Material Adverse Effect.
(vii) The Company and each of its subsidiaries maintain
insurance of the types and in amounts which they reasonably believe to
be adequate for their business in such amounts and with such
deductibles as is customary for companies in the same or similar
business, all of which insurance is in full force and effect.
(viii) Except as disclosed in the Registration
Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there is no
pending action, suit, proceeding or investigation or threatened
action, suit, proceeding or investigation before or by any court,
regulatory body or administrative agency or any other governmental
agency or body, domestic or foreign, which (A) questions the validity
of the capital stock of the Company or this Agreement or of any action
taken or to be taken by the Company pursuant to or in connection with
this Agreement, (B) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings, if any, as
are summarized in the Registration Statement are accurately summarized
in all material respects), or (C) may have a Material Adverse Effect.
(ix) The Company has full legal right, power and
authority to enter into this Agreement and to consummate the
transactions provided for herein. This Agreement has been duly
authorized, executed and delivered by the Company and, assuming it is
a binding agreement of yours, constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general application relating to or affecting the
enforcement of creditors' rights and the application of equitable
principles relating to the availability of remedies and except as
rights to indemnity or contribution may be limited by federal or state
securities laws and the public policy underlying such laws), and none
of the Company's execution or delivery of this Agreement, its
performance hereunder, its consummation of the transactions
contemplated herein or the conduct of its business as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), conflicts or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under,
causes or will cause (or permits or will permit) the maturation or
acceleration of any liability or obligation or the termination of any
right under, or result in the creation or imposition of any lien,
charge, or encumbrance upon, any property or assets of the Company or
any of its subsidiaries pursuant to the terms
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<PAGE> 10
of (A) the respective Memorandum of Association, Articles of
Association, Articles of Organization, certificate of incorporation,
by-laws or other governing instruments of the Company or any of its
subsidiaries, (B) any indenture, mortgage, deed of trust, voting trust
agreement, shareholders' agreement, note agreement or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which any of them are or may be bound or to which any of
their respective property is or may be subject or (C) any statute,
judgment, decree, order, rule or regulation applicable to the Company
or any of its subsidiaries of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body, domestic or foreign, having jurisdiction over the Company,
any of its subsidiaries or any of their respective activities or
properties.
(x) All executed agreements or copies of executed
agreements filed as exhibits to the Registration Statement to which
the Company or any of its subsidiaries is a party or by which any of
them are or may be bound or to which any of their assets, properties
or businesses is or may be subject have been duly and validly
authorized, executed and delivered by the Company or such subsidiary,
as the case may be, and constitute the legal, valid and binding
agreements of the Company or such subsidiary, as the case may be,
enforceable against each of them in accordance with their respective
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating
to enforcement of creditors' rights generally, and general equitable
principles relating to the availability of remedies, and except as
rights to indemnity or contribution may be limited by federal or state
securities laws and the public policy underlying such laws). The
descriptions in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by the Act and
the Rules and Regulations, and there are no contracts or other
documents which are required by the Act or the Rules and Regulations
to be described in the Registration Statement or filed as exhibits to
the Registration Statement or incorporated therein by reference which
are not described or filed or incorporated by reference as required,
and the exhibits which have been filed or incorporated by reference
are complete and correct copies of the documents of which they purport
to be copies.
(xi) Subsequent to the most recent respective dates as
of which information is given in the Registration Statement or
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and except as expressly contemplated therein,
neither the Company nor any of its subsidiaries has incurred, other
than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent, purchased any of its outstanding
capital stock, paid or declared any dividends or made any other
distributions on its capital stock or entered into any material
transactions not in the ordinary course of business, and there has
been no material change in capital stock or debt or any change in the
business, properties, assets, net worth, condition (financial or
other), or results of operations or prospects of the Company and its
subsidiaries taken as a whole which would have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries (or the manner
in which any of them conducts its business) is in breach or violation
of, or in default under, any
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<PAGE> 11
term or provision of (A) its respective Memorandum of Association,
Articles of Association, Articles of Organization, certificate of
incorporation, bylaws or other governing instruments, (B) any
indenture, mortgage, deed of trust, voting trust agreement,
shareholders' agreement, note agreement or other agreement or
instrument to which it is a party or by which it is or may be bound or
to which any of its property is or may be subject, or any
indebtedness, the effect of which breach or default singly or in the
aggregate may have a Material Adverse Effect, or (C) any statute,
judgment, decree, order, rule or regulation applicable to the Company
or any of its subsidiaries of any arbitrator, court, regulatory body,
administrative agency or any other governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of
its subsidiaries or any of their respective activities or properties
and the effect of which breach or default singly or in the aggregate
may have a Material Adverse Effect.
(xii) No labor disturbance by the employees of the
Company or any of its subsidiaries exists or, to the Company's
knowledge, is imminent which may have a Material Adverse Effect.
(xiii) Since its inception, the Company has not
incurred any material liability arising under or as a result of the
application of the provisions of the Act.
(xiv) Each of the Company and its subsidiaries owns, or
is licensed or otherwise has sufficient right to use, the proprietary
knowledge, inventions, patents, trademarks, service marks, trade
names, logo marks and copyrights used in or necessary for the conduct
of its business (collectively, "Rights") as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No claims have been asserted against the
Company or any of its subsidiaries by any person with respect to the
use of any such Rights or challenging or questioning the validity or
effectiveness of any such Rights. The use, in connection with the
business and operations of the Company and its subsidiaries, of the
Rights does not, to the Company's best knowledge, infringe on the
rights of any person.
(xv) No consent, approval, authorization or order of or
filing with any court, regulatory body, administrative agency or any
other governmental agency or body, domestic or foreign, is required
for the performance of this Agreement or the consummation of the
transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or
Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Shares.
(xvi) There are no contracts, agreements or
understandings between the Company and any person granting such person
the right to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities under the Registration Statement (other than this Agreement
and those that have been disclosed in the
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<PAGE> 12
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), that have not been waived with respect to the
Registration Statement.
(xvii) Neither the Company nor any of its officers,
directors or affiliates (within the meaning of the Rules and
Regulations) has taken, directly or indirectly, any action designed to
stabilize or manipulate the price of any security of the Company, or
which has constituted or which might in the future reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale
of the Shares or otherwise.
(xviii) Each of the Company and its subsidiaries has
good and marketable title to, or valid and enforceable leasehold
interests in, all properties and assets owned or leased by it, free
and clear of all liens, encumbrances, security interests, claims,
restrictions, equities, claims and defects, except (A) such as are
described in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), or such as do not materially adversely affect the value
of any of such properties or assets taken as a whole and do not
materially interfere with the use made and proposed to be made of any
of such properties or assets, and (B) liens for taxes not yet due and
payable as to which appropriate reserves have been established and
reflected in the financial statements included in the Registration
Statement or incorporated therein by reference. The Company owns or
leases all such properties as are necessary to its operations as now
conducted as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus); and the properties and business of the
Company and its subsidiaries conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All the leases and subleases of the Company
and its subsidiaries, and under which the Company or any subsidiary
holds properties or assets as lessee or sublessee, constitute valid
leasehold interests of the Company or such subsidiary free and clear
of any lien, encumbrance, security interest, restriction, equity,
claim or defect, are in full force and effect, and neither the Company
nor any subsidiary is in default in respect of any of the material
terms or provisions of any such leases or subleases, and neither the
Company nor any subsidiary has notice of any claim which has been
asserted by anyone adverse to the Company's or any of its subsidiary's
rights as lessee or sublessee under any lease or sublease, or
affecting or questioning the Company's or any subsidiary's right to
the continued possession of the leased or subleased premises under any
such lease or sublease, which may have a Material Adverse Effect.
(xix) Neither the Company nor any subsidiary has
violated any applicable foreign exchange control, environmental,
safety, health or similar law applicable to the business of the
Company, nor any Bahamian, United Kingdom or United States federal or
state law relating to discrimination in the hiring, promotion, or pay
of employees, nor any applicable Bahamian, United Kingdom or United
States federal or state wages and hours law, nor any provisions of the
Employee Retirement Income Security Act of 1974, as amended,
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<PAGE> 13
or the rules and regulations promulgated thereunder or any similar
statute or rules in the Bahamas or the United Kingdom, the
consequences of which violation may have a Material Adverse Effect.
(xx) Each of the Company and its subsidiaries holds all
franchises, licenses, permits, approvals, certificates and other
authorizations from Bahamian, United Kingdom and United States federal
and state and other governmental or regulatory authorities necessary
to the ownership, leasing and operation of its properties or required
for the present conduct of its business, and such franchises,
licenses, permits, approvals, certificates and other governmental
authorizations are in full force and effect and the Company and its
subsidiaries are in compliance therewith in all material respects
except where the failure so to obtain, maintain or comply with would
not have a Material Adverse Effect.
(xxi) No subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any dividends to the
Company, from making any other distribution on such subsidiary's
capital stock, from repaying to the Company any loans or advances to
such subsidiary from the Company or from transferring any of such
subsidiary's property (subject to the respective lessor's consent, if
applicable) or assets to the Company or any other subsidiary of the
Company, except as described in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and
except for Steiner Spa Resorts Limited, whose distributions are
subject to approval by the Central Bank of The Bahamas.
(xxii) The Company has conducted its operations in a
manner that does not subject it to registration as an investment
company under the Investment Company Act of 1940, as amended, and will
not conduct its operations in a manner that will cause the Company to
become an investment company subject to registration under such Act.
(xxiii) The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specific authorizations; (2)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with United States generally
accepted accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with management's
general or specific authorization; and (4) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(xxiv) Under the laws of the Commonwealth of The
Bahamas, the submission by the Company to the jurisdiction of any U.S.
federal or state court sitting in the State of New York and the
designation of the law of the State of New York to apply to this
Agreement will be binding upon the Company and, if properly brought to
the attention of the appropriate court or administrative body in
accordance with the laws of the Commonwealth of The Bahamas, would be
enforceable in any judicial or administrative proceeding in the
Commonwealth of The Bahamas.
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<PAGE> 14
in compliance with (A) all Bahamian and United States federal, state
or local corporate, securities or other laws and (B) the requirements
of the Nasdaq Stock Market.
(b) The Selling Shareholder represents and warrants to, and
agrees with, the several Underwriters that:
(i) The Selling Shareholder has full legal right, power
and authority to enter into this Agreement. This Agreement has been
duly executed and delivered by the Selling Shareholder, and (assuming
this Agreement is a binding agreement of yours) constitutes the valid
and binding agreement of the Selling Shareholder, enforceable against
the Selling Shareholder in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of creditor's
rights and the application of equitable principles relating to the
availability of remedies, and except as rights to indemnity or
contribution may be limited by federal or state securities law and the
public policy underlying such laws).
(ii) None of the execution, delivery or performance of
this Agreement and the consummation of the transactions herein
contemplated will conflict with or result in a breach of, or default
under, any indenture, mortgage, deed of trust, voting trust agreement,
shareholders' agreement, note agreement, or other agreement or
instrument to which the Selling Shareholder is a party or by which the
Selling Shareholder is or may be bound or to which any of his property
is or may be subject, or any statute, judgment, decree, order, rule or
regulation applicable to the Selling Shareholder of any government,
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction
over the Selling Shareholder or any of his activities or properties.
(iii) At the date hereof the Selling Shareholder has,
and at the time of delivery of the Shares to be sold by the Selling
Shareholder to the several Underwriters, the Selling Shareholder will
have, full right, power and authority to sell, assign, transfer and
deliver the Shares to be sold by the
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<PAGE> 15
Selling Shareholder hereunder. At the date hereof the Selling
Shareholder is, and at the time of delivery of the Shares to be sold by
the Selling Shareholder, the Selling Shareholder will be, the lawful
owner of and has and will have, good and marketable title to such
Shares free and clear of any liens, encumbrances, security interests,
claims, community property rights, restrictions on transfer or other
defects in title. Assuming the several Underwriters acquire the Shares
in good faith and without notice of any adverse claim (within the
meaning of the Uniform Commercial Code), upon delivery of and payment
for the Shares to be sold by the Selling Shareholder hereunder, good
and marketable title to such Shares will pass to the Underwriters, free
and clear of any liens, encumbrances, security interests, claims,
community property rights, restrictions on transfer or other defects in
title. Except as described in the Registration Statement and the
Prospectus (or, if there is no Prospectus, the most recent Preliminary
Prospectus) or created hereby, there are no outstanding options,
warrants, rights or other agreements or arrangements requiring the
Selling Shareholder at any time to transfer any Common Shares to be
sold hereunder by the Selling Shareholder.
(iv) At the time when the Registration Statement
becomes or became effective, and at all times subsequent thereto up to
and including the Closing Date and the Option Closing Date, the
Registration Statement and any amendments thereto will not contain any
untrue statement of a material fact regarding the Selling Shareholder
or omit to state a material fact regarding the Selling Shareholder
required to be stated therein or necessary in order to make the
statements therein regarding the Selling Shareholder not misleading,
and the Prospectus (and any supplements thereto) (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) will not contain any untrue statement of a material fact
regarding the Selling Shareholder or omit to state a material fact
regarding the Selling Shareholder required to be stated therein or
necessary in order to make the statements therein regarding the
Selling Shareholder, in light of the circumstances under which they
were made, not misleading, and the Selling Shareholder is unaware of
any material misstatement in or omission from the Registration
Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) or of any material
adverse information regarding the business or operations of the
Company or its subsidiaries which is not set forth in the Registration
Statement and the Prospectus (or, if the Prospectus is not then in
existence, in the most recent Preliminary Prospectus).
(v) The Selling Shareholder has not taken, directly or
indirectly, any action designed to stabilize or manipulate the price
of any security of the Company, or which has constituted or which
might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of the Shares or otherwise.
(vi) The Selling Shareholder has no knowledge that any
of the Company's representations and warranties contained in this
Agreement are inaccurate. The sale by the Selling Shareholder of the
Shares pursuant hereto is not prompted by any adverse information
concerning the Company that is not set forth in the Registration
Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(vii) There is not pending or threatened against the
Selling Shareholder any action, suit or proceeding which (A) questions
the validity of this Agreement, or of any action taken or to be taken
by the Selling Shareholder pursuant to or in connection with this
Agreement or (B) is required to be disclosed in the Registration
Statement which is not so
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<PAGE> 16
disclosed, and such actions, suits or proceedings as are summarized in
the Registration Statement, if any, are accurately summarized in all
material respects.
(viii) Under the laws of the jurisdiction where the
Selling Shareholder resides, the submission by the Selling Shareholder
to the jurisdiction of any U.S. federal or state court sitting in the
State of New York and the designation of the law of the State of New
York to apply to this Agreement will be binding upon the Selling
Shareholder and, if properly brought to the attention of the court or
administrative body in accordance with the laws where the Selling
Shareholder resides, would be enforceable in any jurisdiction or
administrative proceeding in such jurisdiction.
(ix) The Selling Shareholder does not have any
registration rights or other similar rights with respect to any
securities of the Company; and the Selling Shareholder does not have
any right of first refusal or other similar right to purchase any
securities of the Company upon the issuance or sale thereof by the
Company or upon the sale thereof by any other shareholder of the
Company.
(x) The Selling Shareholder has not since the initial
filing of the Registration Statement (A) sold, bid for, purchased,
attempted to induce any person to purchase, or paid anyone any
compensation for soliciting purchases of, Common Shares, or (B) paid
or agreed to pay to any person any compensation for soliciting another
to purchase any securities of the Company (except for the sale of the
Shares to be sold by the Selling Shareholder pursuant to this
Agreement and except as otherwise permitted by law).
(xi) The Selling Shareholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on his
part to be complied with or satisfied pursuant to this Agreement at or
prior to the Closing Date, and will advise the Company and the
Underwriters prior to the Closing Date if any statement to be made on
behalf of the Selling Shareholder in the certificate contemplated by
Section 7(m) hereof would be inaccurate if made as of the Closing
Date.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of
the representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Selling Shareholder
agrees to sell to each Underwriter, and each Underwriter, severally and not
jointly, agrees to purchase from the Selling Shareholder at a purchase price
per Share of $____ the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto.
Delivery of certificates, and payment of the purchase price, for the
Firm Shares shall be made at the offices of Fulbright & Jaworski L.L.P. at 666
Fifth Avenue, New York, New York 10103, or such other location as shall be
agreed upon by the Company and the Representatives. Such delivery and payment
shall be made at 9:30 a.m., New York City time, on March __, 1999 or at such
other time and date
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<PAGE> 17
as shall be agreed upon by the Representatives and the Company. The time and
date of such delivery and payment are herein called the "Closing Date."
Delivery of the certificates for the Firm Shares shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the purchase
price for the Firm Shares by wire transfer of federal funds to the Selling
Shareholder. The certificates for the Firm Shares to be so delivered will be in
definitive, fully registered form, will bear no restrictive legends and will be
in such denominations and registered in such names as the Representatives shall
request, not less than two full business days prior to the Closing Date. The
certificates for the Firm Shares will be made available to the Representatives
at such office or such other place as the Representatives may designate for
inspection, checking and packaging not later than 9:30 a.m., New York time on
the business day prior to the Closing Date.
4. PUBLIC OFFERING OF THE SHARES. It is understood that the
Underwriters propose to make a public offering of the Shares at the price and
upon the other terms set forth in the Prospectus.
5. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDER.
(a) The Company covenants and agrees with each of the
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of
this Agreement, and any amendments thereto, to become effective as
promptly as practicable. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission
in the manner and within the time period required by Rules 424(b) and
434 under the Act. During any time when a prospectus relating to the
Shares is required to be delivered under the Act, the Company (A) will
comply with all requirements imposed upon it by the Act and the Rules
and Regulations and the Exchange Act and the rules and regulations
thereunder to the extent necessary to permit the continuance of sales
of or dealings in the Shares in accordance with the provisions hereof
and of the Prospectus, as then amended or supplemented, and (B) will
not file with the Commission the Prospectus, Term Sheet or the
amendment referred to in the third sentence of Section 2(a)(i) hereof,
any amendment or supplement to the Prospectus, Term Sheet or any
amendment to the Registration Statement of which the Representatives
shall not previously have been advised and furnished with a copy a
reasonable period of time prior to the proposed filing and as to which
filing the Representatives shall not have given their consent. In the
event that the Registration Statement is effective at the time of
execution of this Agreement but the total number of Shares subject to
this Agreement exceeds the number of Shares covered by the
Registration Statement, the Company will promptly file with the
Commission on the date hereof a registration statement pursuant to
Rule 462(b) in accordance with the requirements of such Rule and will
make payment of the filing fee therefor in accordance with the
requirements of Rule 111(b) under the Act.
(ii) As soon as the Company is advised or obtains
knowledge thereof, the Company promptly will advise the
Representatives (A) when the Registration Statement, as amended, has
become effective; if the provisions of Rule 430A promulgated under the
Act
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<PAGE> 18
will be relied upon, when the Prospectus has been filed in accordance
with said Rule 430A and when any post-effective amendment to the
Registration Statement becomes effective; (B) of any request made by
the Commission for amending the Registration Statement, for
supplementing any Preliminary Prospectus or the Prospectus or for
additional information, or (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or the institution
or threat of any investigation or proceeding for that purpose, and
will use its best efforts to prevent the issuance of any such order
and, if issued, to obtain the lifting thereof as soon as possible.
(iii) The Company will (A) use its best efforts to
arrange for the qualification of the Shares for offer and sale under
the state securities or blue sky laws of such jurisdictions as the
Representatives may designate, (B) continue such qualifications in
effect for as long as may be necessary to complete the distribution of
the Shares, and (C) make such applications, file such documents and
furnish such information as may be required for the purposes set forth
in clauses (A) and (B); PROVIDED, HOWEVER, that the Company shall not
be required to qualify as a foreign corporation or file a general or
unlimited consent to service of process in any such jurisdiction.
(iv) The Company consents to the use of the Prospectus
(and any amendment or supplement thereto) by the Underwriters and all
dealers to whom the Shares may be sold, in connection with the
offering or sale of the Shares and for such period of time thereafter
as the Prospectus is required by law to be delivered in connection
therewith. If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result
of which the Prospectus, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it
becomes necessary at any time to amend or supplement the Prospectus to
comply with the Act or the Rules and Regulations or the Exchange Act
or the rules and regulations thereunder, the Company promptly will so
notify the Representatives and, subject to Section 5(a)(i) hereof,
will prepare and file with the Commission an amendment to the
Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect such
compliance, each such amendment or supplement to be reasonably
satisfactory to counsel to the Underwriters.
(v) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (90 days in the
event that the end of such fiscal quarter is the end of the Company's
fiscal year), the Company will make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules
and Regulations, and to the Representatives, an earnings statement
which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a)
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<PAGE> 19
of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act or the Rules
and Regulations, covering a period of at least 12 consecutive months
after the effective date of the Registration Statement.
(vi) During a period of five years after the date
hereof, the Company will furnish to its shareholders, as soon as
practicable, annual reports (including financial statements audited by
independent public accountants) and unaudited quarterly reports of
earnings, and will deliver to the Representatives:
(A) as soon as practicable after filing with the
Commission, all such reports, forms or other documents as may
be required from time to time under the Act, the Rules and
Regulations, the Exchange Act and the rules and regulations
thereunder;
(B) as soon as practicable after they are
available, copies of all information (financial or other)
mailed to shareholders;
(C) as soon as practicable after they are
available, copies of all reports and financial statements
furnished to or filed with the Commission, the National
Association of Securities Dealers, Inc. ("NASD") or any
securities exchange;
(D) every press release which was released or
prepared by the Company; and
(E) any additional information of a public nature
concerning the Company or its business which the
Representatives may reasonably request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the
Company and its subsidiaries are consolidated, and will be
accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(vii) The Company will maintain a transfer agent and,
if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for its
Common Shares.
(viii) The Company will furnish, without charge, to the
Representatives or on the Representatives' order, at such place as the
Representatives may designate, copies of the Registration Statement
and any pre-effective or post-effective amendments thereto, and any
registration statement filed pursuant to Rule 462(b) (two of which
copies will be signed and will include all financial statements and
exhibits) and each Preliminary Prospectus and the
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<PAGE> 20
Prospectus, and all amendments and supplements thereto, including any
Term Sheet, in each case as soon as available and in such quantities
as the Representatives may reasonably request.
(ix) The Company will not, directly or indirectly,
without the prior written consent of ING Baring Furman Selz LLC, on
behalf of the Underwriters, issue, offer, sell, grant any option to
purchase or otherwise dispose (or announce any issuance, offer, sale,
grant of any option to purchase or other disposition) of any Common
Shares or any securities convertible into, or exchangeable or
exercisable for, Common Shares for a period of 90 days after the date
hereof, except pursuant to this Agreement, except for issuances
pursuant to the Company's 1996 Share Option and Incentive Plan and the
Company's Non-Employee Directors' Share Option Plan, the exercise of
share options outstanding on or granted subsequent to the date hereof,
pursuant to a share option or other employee benefit plan in existence
on the date hereof and except as described in the Prospectus.
(x) Neither the Company nor any of its officers or
directors, nor affiliates of any of them (within the meaning of the
Rules and Regulations), will take, directly or indirectly, any action
designed to, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
securities of the Company.
(x) The Company will timely file all such reports,
forms or other documents as may be required from time to time, under
the Act, the Rules and Regulations, the Exchange Act, and the rules
and regulations thereunder, and all such reports, forms and documents
filed will comply as to form and substance with the applicable
requirements under the Act, the Rules and Regulations, the Exchange
Act and the rules and regulations thereunder.
(b) The Selling Shareholder covenants and agrees with each of
the Underwriters that:
(i) The Selling Shareholder will not, directly or
indirectly, without the prior written consent of ING Baring Furman
Selz LLC, on behalf of the underwriters, offer, sell, grant any option
to purchase or otherwise dispose (or announce any offer, sale, grant
of any option to purchase or other disposition) of any Common Shares
or any securities convertible into, or exchangeable or exercisable
for, Common Shares for a period of 180 days after the date hereof,
except pursuant to this Agreement, and will not take, directly or
indirectly, any action designed to, or which might in the foreseeable
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(ii) The Selling Shareholder consents to the use of the
Prospectus and any amendment or supplement thereto by the Underwriters
and all dealers to whom the Shares may be sold, both in connection
with the offering or sale of the Shares and for such period
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<PAGE> 21
of time thereafter as the Prospectus, as amended or supplemented, is
required by law to be delivered in connection therewith.
(iii) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Code with respect
to the transactions herein contemplated, the Selling Shareholder
agrees to deliver to the Representatives prior to or on the Firm
Closing Date a properly completed and executed United States Treasury
Department Form W-8 or W-9 (or other applicable form or statement
specified by the Treasury Department regulations in lieu thereof).
6. EXPENSES.
(a) Regardless of whether the transactions contemplated in
this Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated, the Company and the Selling Shareholder will pay, and
hereby agree to indemnify each Underwriter against, all fees and expenses
incident to the performance of the obligations of the Company and the Selling
Shareholder under this Agreement, including, but not limited to, (i) fees and
expenses of accountants and counsel for the Company and the Selling
Shareholder, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, filing, delivery and shipping of copies of
the Registration Statement and any pre-effective or post-effective amendments
thereto, any Preliminary Prospectus and the Prospectus and any amendments or
supplements thereto (including postage costs related to the delivery by the
Underwriters of any Preliminary Prospectus or Prospectus, or any amendment or
supplement thereto), this Agreement, the Agreement Among Underwriters, any
Selected Dealer Agreement, Underwriters' Questionnaire, Underwriters' Power of
Attorney and all other documents in connection with the transactions
contemplated herein, including the cost of all copies thereof, (iii) fees and
expenses relating to qualification of the Shares under state securities or blue
sky laws, including the cost of preparing and mailing the preliminary and final
blue sky memoranda and filing fees and disbursements and fees of counsel and
other related expenses, if any, in connection therewith, (iv) filing fees of
the Commission and the NASD relating to the Shares, (v) any fees and expenses
in connection with the quotation of the Shares on the Nasdaq Stock Market, and
(vi) costs and expenses incident to the preparation, issuance and delivery to
the Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees and any applicable transfer taxes incurred in
connection with the delivery to the Underwriters of the Shares to be sold by
the Selling Shareholder pursuant to this Agreement.
(b) If the purchase of the Shares as herein contemplated is
not consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of Section 11(a), the Company and the Selling
Shareholder shall be jointly and severally liable to reimburse the several
Underwriters for their out-of-pocket expenses (including reasonable counsel
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<PAGE> 22
fees and disbursements) in connection with any investigation made by them, and
any preparation made by them in respect of marketing of the Shares or in
contemplation of the performance by them of their obligations hereunder.
(c) This Section 6 shall not affect or modify any separate
agreement relating to the allocation of payment of expenses between the Company
and the Selling Shareholder.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Shares set forth opposite the name of
such Underwriter in Schedule I is subject to the continuing accuracy of the
representations and warranties in all material respects of the Company and the
Selling Shareholder herein as of the date hereof and as of the Closing Date as
if they had been made on and as of the Closing Date; the accuracy on and as of
the Closing Date of the statements of officers of the Company and the Selling
Shareholder made pursuant to the provisions hereof; the performance by the
Company and the Selling Shareholder on and as of the Closing Date of their
respective covenants and agreements hereunder; and the following additional
conditions:
(a) If the Company has elected to rely on Rule 430A under the
Act, the Registration Statement shall have been declared effective, and the
Prospectus (containing the information omitted pursuant to Rule 430A) shall
have been filed with the Commission not later than the Commission's close of
business on the second business day following the date hereof or such later
time and date to which the Representatives shall have consented; if the Company
does not elect to rely on Rule 430A, the Registration Statement shall have been
declared effective not later than 11:00 A.M., New York time, on the date hereof
or such later time and date to which the Representatives shall have consented;
if required, in the case of any changes in or amendments or supplements to the
Prospectus in addition to those contemplated above, the Company shall have
filed such Prospectus as amended or supplemented with the Commission in the
manner and within the time period required by Rules 424(b) and 434 under the
Act; no stop order suspending the effectiveness of the Registration Statement
or any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Representatives, shall be contemplated by the Commission; and
the Company shall have complied with any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise).
(b) The Representatives shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representatives' opinion, is material, or omits
to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein
not misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material,
or omits to state a fact which, in the Representatives' opinion, is material
and is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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<PAGE> 23
(c) On or prior to the Closing Date, the Representatives shall
have received from counsel to the Underwriters, such opinion or opinions with
respect to the issuance and sale of the Firm Shares, the Registration Statement
and the Prospectus and such other related matters as the Representatives
reasonably may request and such counsel shall have received such documents and
other information as they request to enable them to pass upon such matters. In
rendering such opinion, such counsel may rely as to all matters of Bahamian law
upon the opinion of Harry B. Sands & Company.
(d) On the Closing Date the Underwriters shall have received
the opinion, dated the Closing Date, of Kelley Drye & Warren LLP, counsel to
the Company, addressed to the Underwriters (and stating that it may be relied
upon by counsel for the Underwriters), to the effect set forth below:
(i) To the best of our knowledge, Steiner Beauty
Products, Inc. ("Steiner Beauty") and CT Maritime Services, L.C.
("Maritime Services," and together with Steiner Beauty, the "U.S.
Subsidiaries") are the only subsidiaries of the Company organized under
the laws of a United States jurisdiction. Steiner Beauty (A) is a duly
incorporated and validly existing corporation in good standing under
the laws of its jurisdiction of incorporation with full power and
authority (corporate and other) to own or lease its properties and to
conduct its business as described in the Prospectus, and (B) to the
best of our knowledge, is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction (x) in which
the conduct of its business requires such qualification (except for
those jurisdictions in which the failure so to qualify can be cured
without having a Material Adverse Effect) and (y) in which it owns or
leases property; and Maritime Services (A) is a duly formed and validly
existing limited liability company in good standing under the laws of
its jurisdiction of formation with full power and authority (company
and other) to own or lease its properties and to conduct its business
as described in the Prospectus, and (B) to the best of our knowledge,
is duly qualified to do business as a foreign company and is in good
standing in each jurisdiction (x) in which the conduct of its business
requires such qualification (except for those jurisdictions in which
the failure so to qualify can be cured without having a Material
Adverse Effect) and (y) in which it owns or leases property;
(ii) The issued and outstanding shares of capital
stock of Steiner Beauty have been duly authorized and validly issued,
are fully paid and nonassessable and are owned of record, and to our
knowledge beneficially, by the Company, directly or indirectly through
one or more subsidiaries of the Company, free and clear of any
perfected security interests or, to the best knowledge of such counsel,
any other security interests, liens, encumbrances, equities or claims;
and Maritime Services has been duly formed under the laws of the State
of Florida and its membership interests are owned beneficially by the
Company, directly or indirectly through one or more subsidiaries of the
Company, free and clear of any perfected security interests or, to the
best knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims;
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<PAGE> 24
(iii) The Shares have been duly authorized for
quotation on the Nasdaq Stock Market;
(iv) The Registration Statement is effective under the
Act; any required filing of a registration statement pursuant to Rule
462(b) has been made in the manner and within the time period required
by Rule 462(b); any required filing of the Prospectus pursuant to Rule
424(b) and Rule 434 has been made in the manner and within the time
period required by Rule 424(b) and Rule 434; and, based on a telephone
conversation with the Commission on the date hereof, no stop order
suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best knowledge of such
counsel, are threatened or contemplated under the Act; the registration
statement originally filed with respect to the Shares and each
amendment thereto and the Prospectus and, if any, each amendment and
supplement thereto (except for the financial statements, schedules and
other financial data included therein, as to which such counsel need
not express any opinion), complied as to form in all material respects
with the requirements of the Act and the Rules and Regulations; the
descriptions contained and summarized in the Registration Statement and
the Prospectus of contracts and other documents, are accurate and
fairly represent in all material respects the information required to
be shown by the Act and the Rules and Regulations; to the best
knowledge of such counsel, there are no contracts or documents which
are required by the Act to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration
Statement or to be incorporated by reference therein which are not
described or filed or incorporated by reference as required by the Act
and the Rules and Regulations with respect thereto; to the best
knowledge of such counsel, there is not pending or threatened against
the Company any action, suit, proceeding or investigation before or by
any court, regulatory body, or administrative agency or any other
governmental agency or body, domestic or foreign, of a character
required to be disclosed in the Registration Statement or the
Prospectus which is not so disclosed therein; and the statements set
forth under the heading "Taxation - Certain United States Federal
Income Tax Considerations" ("Taxation") in the Prospectus and, to the
best knowledge of such counsel, under the heading "Legal Proceedings"
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein,
provide an accurate summary of such legal matters, documents and
proceedings and present fairly the information required by the Act and
the Rules and Regulations to be shown in such documents (provided that,
with respect to "Taxation", such opinion is based solely on the opinion
attached to the Registration Statement as Exhibit 8.1);
(v) Assuming compliance with the laws of the
Commonwealth of the Bahamas, this Agreement has been duly authorized,
executed and delivered by the Company; none of the Company's execution
or delivery of this Agreement, its performance hereof or its
consummation of the transactions contemplated herein, conflicts or
will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, causes or will cause (or permits or will
permit) the maturation or acceleration of any liability or obligation
or termination of any right under, or result in the creation or
imposition of any lien, charge or encumbrance upon, any property
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<PAGE> 25
or assets of the Company or any of its subsidiaries pursuant to the
terms of (A) the respective Articles of Incorporation, Articles of
Organization, by-laws or other governing instruments of the U.S.
Subsidiaries; (B) to the best of such counsel's knowledge, any
indenture, mortgage, deed of trust, voting trust agreement,
shareholders' agreement, note agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of its subsidiaries is or may be bound or to
which any of their respective properties may be subject; (C) any
United States statute, rule or regulation of any regulatory body or
administrative agency or other governmental agency or body, domestic
or foreign, having jurisdiction over the U.S. Subsidiaries or, to the
best of such counsel's knowledge, the Company and any of its other
subsidiaries, or any of their respective activities or properties; or
(D) to the best of such counsel's knowledge, (1) any judgment, decree
or order of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic
or foreign, having such jurisdiction, and (2) no consent, approval,
authorization or order of any court, regulatory body or administrative
agency or other governmental agency or body, domestic or foreign, has
been or is required for the Company's performance of this Agreement or
the consummation of the transactions contemplated hereby, except such
as have been obtained under the Act or may be required under state
securities or blue sky laws in connection with the purchase and
distribution by the Underwriters of the Shares;
(vi) To the best of such counsel's knowledge, (A) the
conduct of the businesses of the Company and its subsidiaries is not
in violation of any United States federal, state or local statute,
administrative regulation or other law, which violation is likely to
have a Material Adverse Effect; and (B) each of the Company and its
subsidiaries has obtained all licenses, permits, franchises,
certificates and other authorizations from United States state,
federal and other regulatory authorities as are necessary or required
for the ownership, leasing and operation of its properties and the
conduct of its business as presently conducted and as contemplated in
the Prospectus, except where the failure to obtain any such license,
permit, franchise, certificate or other authorization would not be
likely to have a Material Adverse Effect;
(vii) To the best of such counsel's knowledge, assuming
no relevant prohibitions exist under the respective Articles of
Association, Memorandum of Association or laws or judgments, orders or
decrees of judicial, administrative or governmental agencies of the
jurisdiction of organization of each of the Company's subsidiaries
that are not the U.S. Subsidiaries, no subsidiary of the Company is
currently prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on such
subsidiary's capital stock, from repaying to the Company any loans or
advances to such subsidiary from the Company or from transferring any
of such subsidiary's property (subject to the respective lessor's
consent, if applicable) or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by
the Prospectus and except with respect to laws or regulations setting
forth solvency or other requirements for the paying of such dividends
or making of such other distributions;
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<PAGE> 26
(viii) To the best of such counsel's knowledge, except
as described in the Prospectus, no claims have been asserted against
the Company or any of its subsidiaries by any person to the use of any
Rights or challenging or questioning the validity or effectiveness of
any Rights;
(ix) Each of the Company and its subsidiaries owns, or
is licensed or otherwise has sufficient rights to use, the "Steiner"
and "Elemis" trademarks (the "Trademarks") as used in, or necessary
for, the conduct of its business as described in the Prospectus in the
territories identified in the schedules to such opinion. Upon
appropriate transfer of the "La Therapie" trademark to the Company or
any of its subsidiaries and upon an application for the registration
of such transfer being made to the trademark registration authorities,
each of the Company and its subsidiaries will have sufficient rights
to use the "La Therapie" trademark in the conduct of its business as
described in the Prospectus in the territories identified in the
schedules to such opinion. To the best of such counsel's knowledge,
except as described in the Prospectus, no claims have been asserted
against the Company or any of its subsidiaries by any person to the
use of any such Trademarks or challenging or questioning the validity
or effectiveness of any such Trademarks. The use, in connection with
the business and operations of the Company and its subsidiaries, of
such Trademarks in the territories identified in the schedules to such
opinion does not, to the best of such counsel's knowledge, infringe on
the rights of any person;
(x) The Company is not an "investment company" under
the Investment Company Act of 1940, as amended;
(xi) With respect to judicial proceedings arising out of
or relating to this Agreement, each of the Company and the Selling
Shareholder has validly and irrevocably submitted to the jurisdiction
of any United States state or federal court of competent jurisdiction
located in the State of New York, has validly and irrevocably waived
any objection to the venue of a proceeding in any such court, and has
validly and irrevocably appointed CT Corporation as its or his
authorized agent for the purpose described in Section 16 of this
Agreement; and service of process in the manner set forth in Section 16
of this Agreement will be effective to confer valid personal
jurisdiction over the Company and the Selling Shareholder; and
(xii) The Share Splits were effected in compliance with
(A) all applicable United States federal, state and local securities
or other laws and (B) the requirements of the Nasdaq Stock Market.
In addition, such counsel shall state that in the course of
the preparation of the Registration Statement and the Prospectus, such counsel
has participated in conferences with officers and representatives of the
Company and with the Company's independent public accountants, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Registration Statement and the
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Prospectus and (without taking any further action to verify independently the
statements made in the Registration Statement and the Prospectus and, except as
stated in the foregoing opinion, without assuming responsibility for the
accuracy, completeness or fairness of such statements) nothing has come to such
counsel's attention that causes such counsel to believe that either the
Registration Statement as of the date it is declared effective and as of the
Closing Date or the Prospectus as of the date thereof and as of the Closing
Date contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need not express any opinion with respect to the financial statements,
schedules and other financial data included in the Registration Statement or
the Prospectus).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and of governmental and public officials
and, as to intellectual property (to the extent satisfactory in form and scope
to counsel for the Underwriters) such counsel may rely upon or substitute the
opinion of Wildbore & Gibbons.
References to the Registration Statement and the Prospectus
in this paragraph (d) shall include any amendment or supplement thereto at the
date of such opinion.
(e) On the Closing Date the Underwriters shall have received
the opinion, dated the Closing Date, of Harry B. Sands & Company, Nassau, The
Bahamas, counsel for the Company, addressed to the Underwriters (and stating
that it may be relied upon by counsel for the Underwriters), to the effect set
forth below.
(i) Each of Cosmetics Limited, Steiner Transocean
Limited, Steiner Spa Resorts Limited, EBSC International Limited and
Spa Resources Limited, the subsidiaries of the Company organized under
the laws of The Bahamas (the "Bahamian Subsidiaries"), is a duly
incorporated and validly existing corporation in good standing under
the laws of its jurisdiction of incorporation with full power and
authority (corporate and other) to own or lease its properties and to
conduct its business as described in the Prospectus;
(ii) The issued shares of capital stock of each of the
Bahamian Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned beneficially by the
Company, directly or indirectly through one or more subsidiaries of
the Company, free and clear of any perfected security interests or, to
the best knowledge of such counsel, any other security interest,
liens, encumbrances, equities or claims; and, to the best knowledge of
such counsel, except for the shares of stock of each of the
subsidiaries of the Company owned by the Company or any such
subsidiaries, neither the Company nor any such subsidiary owns any
shares of stock or any other equity securities of any corporation or
has any equity interest in any firm, partnership, association or other
entity, except as described in or contemplated by the Prospectus;
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<PAGE> 28
(iii) The Company has been duly incorporated and is
validly existing as a corporation and is validly existing and in good
standing under the International Business Companies Act, 1989, of The
Bahamas, is duly qualified to do business as a foreign corporation and
has full corporate power and authority to own its properties and
conduct its business as described in the Registration Statement;
(iv) The Company has authorized capital stock as set
forth in the Prospectus; the securities of the Company conform in all
material respects to the description thereof contained in the
Prospectus; the outstanding Common Shares have been duly authorized and
validly issued by the Company, are fully paid and nonassessable, and
are free of any preemptive or other rights to subscribe for any of the
Shares; the certificate(s) evidencing the Common Shares to be delivered
by the Selling Shareholder hereunder are in due and proper form under
Bahamian law; neither the Memorandum of Association nor Articles of
Association of the Company, nor, to such counsel's knowledge, any
agreement to which the Company is a party, contains any restriction
upon the voting or transfer of any of the shares of capital stock of
the Company (including the Shares) except such restrictions as may be
imposed by federal and state securities laws or as may be expressly
described in the Prospectus; except for the shares of stock of each of
the subsidiaries of the Company owned by the Company or any such
subsidiaries, neither the Company nor any such subsidiary owns any
shares of stock or any other equity securities of any corporation or
has any equity interest in any firm, partnership, association or other
entity, except as described in or contemplated by the Prospectus; and
there are no shares of preferred stock of any series issued and
outstanding;
(v) The Company has the corporate power and authority
to enter into and perform its obligations under this Agreement; this
Agreement has been duly and validly authorized by all necessary
corporate action by the Company, has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and
binding Agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that (i) the validity
and binding effect and enforcement of this Agreement may be limited by
any applicable bankruptcy, reorganization, moratorium or similar laws
of general application, (ii) availability of equitable remedies may be
limited by principles of equity, whether considered in a proceeding at
law or in equity and (iii) the terms hereof may be limited by
applicable United States securities law and policies embodied therein;
and no approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any Bahamian court,
regulatory, administrative or other Bahamian governmental body is
required for the execution and delivery of this Agreement by the
Company or the consummation of the transactions contemplated by this
Agreement;
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<PAGE> 29
(vi) None of the execution, delivery or performance of
this Agreement by the Company and the consummation of the transactions
contemplated herein, conflicts or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under,
causes or will cause (or permits or will permit) the maturation or
acceleration of any liability or obligation or termination of any
right under, or result in the creation or imposition of any lien,
charge or encumbrance upon, any property or assets of the Company or
any of its subsidiaries pursuant to the terms of (A) the respective
Memorandum of Association, Articles of Association, Articles of
Organization, certificate of incorporation or by-laws or other
governing instruments of the Company or any of the Bahamian
Subsidiaries; (B) to the best of such counsel's knowledge, any
indenture, mortgage, deed of trust, voting trust agreement,
shareholders' agreement, note agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of its subsidiaries is or may be bound or to
which any of their respective properties may be subject; (C) any
Bahamian statute, rule or regulation of any regulatory body or
administrative agency or other governmental agency or body, domestic
or foreign, having jurisdiction over the Company or the Bahamian
Subsidiaries or, to the best of such counsel's knowledge, any of its
other subsidiaries, or any of their respective activities or
properties; or (D) to the best of such counsel's knowledge, (1) any
judgment, decree or order of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body, domestic or foreign, having such jurisdiction, and (2) no
consent, approval, authorization or order of any court, regulatory
body or administrative agency or other governmental agency or body,
domestic or foreign, has been or is required for the Company's
performance of this Agreement or the consummation of the transactions
contemplated hereby (other than pursuant to United States federal
securities, state securities or blue sky laws or regulations, as to
which such counsel need not express any opinion);
(vii) The choice of New York law to govern this
Agreement constitutes a valid choice of law insofar as the law of The
Bahamas is concerned. The submission by the Company to the
non-exclusive jurisdiction of any federal or state court in the
Borough of Manhattan, New York, New York is a valid submission insofar
as the law of The Bahamas is concerned; and a judgment granted by a
foreign court against the Company may be enforced in The Bahamas
without a retrial on the merits of the matter;
(viii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus, and the conduct of such
business does not violate the provisions of its Memorandum of
Association or Articles of Association or any applicable law,
regulation, order or decree in The Bahamas;
(ix) No Bahamian Subsidiary is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets
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<PAGE> 30
to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Prospectus;
(x) Neither the Memorandum of Association or Articles
of Association of the Company nor any applicable Bahamian law,
regulation or decree imposes any preemptive or similar rights on the
issuance and sale of Common Shares by the Company;
(xi) The certificates evidencing the Common Shares are
in due and proper form and comply with all applicable statutory
requirements of The Bahamas;
(xii) To the best of such counsel's knowledge, there
are no legal or governmental proceedings pending in The Bahamas to
which the Company is a party or by which any of its property is
subject;
(xiii) The statements in the Prospectus under "Risk
Factors -- Possible Changes in the Taxation of Steiner Leisure," "Risk
Factors -- We are Not a United States Company and, as a Result, There
are Special Risks" and "Taxation -- Certain Bahamian and Other Tax
Considerations," to the extent that they constitute a description of
the laws and regulations of The Bahamas, or its respective agencies,
authorities or other governmental bodies, or documents, or proceedings
or conclusions of Bahamian law, are correct in all material respects;
(xiv) No filing with, or consent, approval,
authorization, order, registration, qualification or decree of, any
court or governmental authority or body in The Bahamas is necessary or
required to be obtained by the Company in connection with its
obligations under this Agreement or the performance of the
transactions contemplated hereby;
(xv) Under the laws of The Bahamas, no holder of any of
the Shares or Common Shares of the Company outstanding after
completion of the offering contemplated by this Agreement is or will
be subject to any liability in The Bahamas in respect of any liability
of the Company by virtue of holding any such Shares or Common Shares.
There are no restrictions under Bahamian law on (i) transfer of any of
the Shares or Common Shares or (ii) the rights of any holders of the
Shares or Common Shares of the Company to vote their shares in
accordance with the Memorandum of Association or Articles of
Association of the Company; and
(xvi) The Share Splits were effected in compliance with
the provisions of the Company's Memorandum of Association and Articles
of Association and in compliance with all applicable Bahamian federal,
state or local corporate, securities and other laws.
In addition, such counsel shall state that in the course of
the preparation of the Registration Statement and the Prospectus, such counsel
has participated in conferences with officers and representatives of the
Company and with the Company's independent public accountants, at
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<PAGE> 31
which conferences such counsel made inquiries of such officers, representatives
and accountants and discussed the contents of the Registration Statement and
the Prospectus and (without taking any further action to verify independently
the statements made in the Registration Statement and the Prospectus and,
except as stated in the foregoing opinion, without assuming responsibility for
the accuracy, completeness or fairness of such statements) nothing has come to
such counsel's attention that causes such counsel to believe that either the
Registration Statement as of the date it is declared effective and as of the
Closing Date or the Prospectus as of the date thereof and as of the Closing
Date contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need not express any opinion with respect to the financial statements,
schedules and other financial data included in the Registration Statement or
the Prospectus).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
References to the Registration Statement and the Prospectus
in this paragraph (e) shall include any amendment or supplement thereto at the
date of such opinion.
(f) On the Closing Date the Underwriters shall have received
the opinion, dated the Closing Date, of SPR Avery, Midgen & Co., United Kingdom
counsel for the Company, addressed to the Underwriters (and stating that it may
be relied upon by counsel for the Underwriters), to the effect set forth below.
(i) Each of Elemis Limited, Steiner Training Limited,
E.J. Contracts Limited, Emma Steiner Limited and Steiner Group Limited
(the "U.K. Subsidiaries") has been duly incorporated, is validly
existing as a company under the laws of England and Wales, has full
power and authority (corporate or other) to own or lease its
properties (if any) and to conduct its business as described in the
Prospectus, and is in good standing in each jurisdiction:
(A) in which the conduct of its business or its
ownership or leasing of property requires such qualification
(except for those jurisdictions in which the failure so to
qualify can be cured without having a Material Adverse
Effect) and
(B) in which it owns or leases property;
(ii) The issued share capital of each of the U.K.
Subsidiaries has been duly authorized and validly issued, is fully
paid and not subject to calls for additional payments of any kind, and
is beneficially owned by the Company, directly or indirectly through
one or more subsidiaries of the Company, free and clear of any
perfected security interests or, to the best knowledge of such
counsel, any other security interests, liens, encumbrances, equities
or
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<PAGE> 32
(i) On the Closing Date, the Underwriters shall have received
a certificate, dated the Closing Date, of the principal executive officer, the
principal operating officer and the principal financial or accounting officer
of the Company to the effect that each of such persons has carefully examined
the Registration Statement and the Prospectus and any amendments or supplements
thereto and this Agreement, and that:
(i) The representations and warranties of the Company
in this Agreement are true and correct in all material respects, as if
made on and as of the Closing Date, and the Company has complied with
all agreements and covenants and satisfied all conditions contained in
this Agreement on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best knowledge
of each of such persons, are contemplated or threatened under the Act
and any and all filings required by Rule 424, Rule 430A, Rule 434 and
Rule 462(b) have been timely made;
(iii) The Registration Statement and Prospectus and, if
any, each amendment and each supplement thereto, contain all
statements and information required to be included therein, and
neither the Registration Statement nor any amendment thereto includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and neither the Prospectus (or any supplement
thereto) or any Preliminary Prospectus includes or included any untrue
statement of a material fact or omits or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
up to and including the Closing Date, neither the Company nor any of
its subsidiaries has incurred, other than in the ordinary course of
its business, any material liabilities or obligations, direct or
contingent; neither the Company nor any of the subsidiaries has
purchased any of its outstanding capital stock or paid or declared any
dividends or other distributions on its capital stock; neither the
Company nor any of the subsidiaries has entered into any transactions
not in the ordinary course of business; and there has not been any
change in the capital stock or consolidated long-term debt or any
increase in the consolidated short-term borrowings (other than any
increase in short-term borrowings in the ordinary course of business)
of the Company or any change to the business properties, assets, net
worth, condition (financial or other), results of operations or
prospects of the Company and its subsidiaries taken as a whole which
would have a Material Adverse Effect; neither the Company nor any of
its subsidiaries has sustained any material loss or damage to its
property or assets, whether or not insured; there is no litigation
which is pending or threatened against the Company or any of its
subsidiaries which is required under the Act or
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<PAGE> 33
the Rules and Regulations to be set forth in an amended or
supplemented Prospectus which has not been set forth; and there has
not occurred any event required to be set forth in an amended or
supplemented Prospectus which has not been set forth therein, and
there has been no document required to be filed under the Exchange Act
and the rules and regulations thereunder that upon such filing would
be deemed incorporated by reference into the Prospectus that has not
been filed; and
(v) Neither the Company nor any of the Bahamian
Subsidiaries transact any business, except for written or oral
agreements with parties outside of The Bahamas, or own any real or
other property outside of The Bahamas, other than the capital shares
or membership interests of the Company's subsidiaries, and except as
related to the Company's maritime operations as described in the
Prospectus.
References to the Registration Statement and the Prospectus
in this paragraph (i) are to such documents as amended and supplemented at the
date of the certificate.
(j) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any change or decrease specified in the
letter or letters referred to in paragraph (h) of this Section 7 or (ii) any
change, or any development involving a prospective change, in the business or
properties of the Company or its subsidiaries which change or decrease in the
case of clause (i) or change or development in the case of clause (ii) makes it
impractical or inadvisable in the Representatives' judgment to proceed with the
public offering or the delivery of the Shares as contemplated by the
Prospectus.
(k) No order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
(l) On the Closing Date, the Underwriters shall have received the
opinion, dated the Closing Date, of Harry B. Sands & Company in its capacity as
counsel for the Selling Shareholder, addressed to the Underwriters (and stating
that it may be relied upon by counsel for the Underwriters), to the effect set
forth below:
(i) The Selling Shareholder has full legal right, power
and authority to enter into this Agreement and to sell, assign,
transfer and deliver the Shares in the manner provided herein; this
Agreement has been duly executed and delivered by the Selling
Shareholder; and this Agreement, assuming due authorization, execution
and delivery by each other party hereto and further assuming it is a
valid and binding agreement of each of the Underwriters, is a valid
and binding agreement of the Selling Shareholder enforceable against
the Selling Shareholder in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect
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<PAGE> 34
relating to or affecting creditors' rights generally and by general
principles of equity relating to the availability of remedies and
except as rights to indemnity and contribution may be limited by
federal or state securities laws and the public policy underlying such
laws);
(ii) None of the execution, delivery or performance of
this Agreement by the Selling Shareholder and the consummation by the
Selling Shareholder of the transactions herein contemplated, conflict
with or result in a breach of, or default under any indenture,
mortgage, deed of trust, voting trust agreement, shareholders'
agreement, note agreement or other agreement or other instrument known
to such counsel to which the Selling Shareholder is a party or by
which the Selling Shareholder is bound or to which any of the property
of the Selling Shareholder is subject, and nothing has come to such
counsel's attention which causes such counsel to believe that such
actions will result in any violation of any law, rule, administrative
regulation or court decree applicable to the Selling Shareholder
(other than state securities or blue sky laws or regulations, as to
which such counsel need not express any opinion);
(iii) Upon the delivery of the Shares to be sold
hereunder by the Selling Shareholder and payment therefor in accordance
with the terms of this Agreement and assuming that each of the
Underwriters that has severally purchased such Shares acquires such
Shares without notice of any adverse claim (within the meaning of the
Uniform Commercial Code), such Underwriter will have acquired all of
the rights of the Selling Shareholder to the Shares sold by the Selling
Shareholder hereunder, and in addition will have acquired title to such
Shares free and clear of any adverse claim; and
(iv) The provisions as to the submission to
jurisdiction, waiver or any objection to venue and appointment of
agents for service of process, in each case by the Selling Shareholder
as set forth in this Agreement, are valid and binding under the law of
the jurisdiction where the Selling Shareholder resides.
References to the Registration Statement and the
Prospectus in this paragraph (l) shall include any amendment or
supplement thereto at the date of such opinion.
(m) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, from the Selling Shareholder to the effect
that the Selling Shareholder has carefully examined the Registration Statement
and the Prospectus and this Agreement, and that:
(A) The representations and warranties of the Selling
Shareholder in this Agreement are true and correct, as if made at and
as of the Closing Date, and the Selling Shareholder has complied with
all the agreements and satisfied all the conditions to be performed or
satisfied by the Selling Shareholder at or prior to the Closing Date;
and
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<PAGE> 35
(B) The Registration Statement and Prospectus and, if any,
each amendment and each supplement thereto, contain all statements
required to be included therein regarding the Selling Shareholder, and
none of the Registration Statement nor any amendment thereto includes
any untrue statement of a material fact regarding the Selling
Shareholder or omits to state any material fact regarding the Selling
Shareholder required to be stated therein or necessary to make the
statements therein regarding the Selling Shareholder not misleading,
and neither the Prospectus (and any supplements thereto) or any
Preliminary Prospectus includes or included any untrue statement of a
material fact regarding the Selling Shareholder or omits or omitted to
state a material fact regarding the Selling Shareholder required to be
stated therein or necessary in order to make the statements therein
regarding the Selling Shareholder, in light of the circumstances under
which they were made, not misleading.
(n) The Company and the Selling Shareholder shall have furnished the
Underwriters with such further opinions, letters, certificates or documents as
you or counsel for the Underwriters may reasonably request. All opinions,
certificates, letters and documents to be furnished by the Company and the
Selling Shareholder will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and to
counsel for the Underwriters. The Company and the Selling Shareholder shall
furnish the Underwriters with conformed copies of such opinions, certificates,
letters and documents in such quantities as you reasonably request. The
certificates delivered under this Section 7 shall constitute representations,
warranties and agreements of the Company and the Selling Shareholder, as the
case may be, as to all matters set forth therein as fully and effectively as if
such matters had been set forth in Section 2 of this Agreement.
(o) The Shares have been duly authorized for quotation on the Nasdaq
Stock Market.
(p) The Representatives shall have received instructions of the
Selling Shareholder with respect to payment of the net proceeds from the sale
of Common Shares by the Selling Shareholder.
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which such
Underwriter or such controlling person may become subject, under the Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement made by the
Company or the Selling Shareholder in Section 2 of this Agreement or
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<PAGE> 36
therein a material fact required to be stated therein or necessary to make the
statements not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing by that Underwriter through the Representatives to the Company
expressly for use therein; and will reimburse, as incurred, all legal or other
expenses reasonably incurred by the Company and/or, as the case may be, the
Selling Shareholder, director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The Company and the Selling Shareholder acknowledge that the statements with
respect to the public offering of the Shares set forth in the third paragraph
under the heading "Underwriting" and the first sentence of the third paragraph
from the end of such section, to the extent that it relates to the
Underwriters, and the last paragraph on the cover page of the Prospectus have
been furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus. The indemnity agreement contained
in this subsection (b) shall be in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) of this Section 8 or to the
extent that the indemnifying party was not adversely affected by such omission.
In case any such action is brought against an indemnified party and it notifies
an indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; PROVIDED, HOWEVER, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
has reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses (other than the reasonable costs of investigation)
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party has employed such counsel in
connection with the assumption of such different or additional legal defenses
in accordance with the proviso to the immediately preceding sentence, (ii) the
indemnifying party has not employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, or (iii) the indemnifying party has
authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party.
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<PAGE> 37
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) (i) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing parties, on
the one hand, and the party to be indemnified, on the other hand, from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of each of the contributing parties, on the one hand, and
the party to be indemnified, on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. In any
case where the Company and/or the Selling Shareholder are contributing parties
and the Underwriters are the indemnified party, the relative benefits received
by the Company and/or the Selling Shareholder, on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
proceeds from the offering of the Shares (before deducting expenses) bear to
the total underwriting discounts received by the Underwriters hereunder, in
each case as set forth on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Shareholder or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this paragraph (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by the Underwriters hereunder. The
Underwriters' obligations to contribute pursuant to this paragraph (d) are
several in proportion to their respective underwriting obligations, and not
joint. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter and (ii) each director of
the Company, each officer of the Company who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and the Selling
Shareholder shall have the same rights to contribution as the Company, subject
in each case to this paragraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this paragraph (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation (x) it or they may have
hereunder or otherwise than under this paragraph (d) or (y) to the extent that
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<PAGE> 38
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may otherwise have.
9. RIGHT TO INCREASE OFFERING. At any time during a period of 30 days
from the date of the Prospectus, the Underwriters, by no less than two business
days prior notice to the Selling Shareholder and the Company, may designate a
closing (which may be concurrent with, and part of the closing on the Closing
Date with respect to the Firm Shares or may be a second closing held on a date
subsequent to the Closing Date, in either case such date shall be referred to
herein as the "Option Closing Date") at which the Underwriters may purchase all
or less than all of the Additional Shares in accordance with the provisions of
this Section 9 at the purchase price per share to be paid for the Firm Shares.
In no event shall the Option Closing Date be later than 10 business days after
written notice of the election to purchase Additional Shares is given.
The Selling Shareholder agrees to sell to the several Underwriters
on the Option Closing Date the number of Additional Shares specified in such
notice and the Underwriters agree severally, and not jointly, to purchase such
Additional Shares on the Option Closing Date. Such Additional Shares shall be
purchased for the account of each Underwriter in the same proportion as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I bears to the total number of Firm Shares (subject to adjustment by
you to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Shares.
No Additional Shares shall be sold or delivered unless the Firm
Shares previously have been, or simultaneously are, sold and delivered. The
right to purchase the Additional Shares or any portion thereof may be
surrendered and terminated at any time upon notice by you to the Selling
Shareholder.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the
Closing Date for the sale of the Firm Shares shall apply, MUTATIS MUTANDIS, to
the Option Closing Date for the sale of the Additional Shares.
10. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, the Selling Shareholder and
the Underwriters, respectively, set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by
or on behalf of the Underwriters, and will survive delivery of, and payment
for, the Shares. Any successors to the Underwriters and successors to other
indemnified parties shall be entitled to the indemnity, contribution and
reimbursement agreements contained in this Agreement.
11. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 11:00 A.M., New
York time on the first business day following the date hereof, or at
such earlier time after the Registration Statement
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<PAGE> 39
becomes effective as the Representatives, in their sole discretion, shall
release the Shares for the sale to the public unless prior to such time the
Representatives shall have received written notice from the Company that they
elect that this Agreement shall not become effective, or the Representatives
shall have given written notice to the Company that the Representatives on
behalf of the Underwriters elect that this Agreement shall not become
effective; PROVIDED, HOWEVER, that the provisions of this Section 11 and of
Section 6 and Section 8 hereof shall at all times be effective. For purposes of
this Section 11(a), the Shares to be purchased hereunder shall be deemed to
have been so released upon the earlier of notification by the Representatives
to securities dealers releasing such Shares for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
(b) This Agreement (except for the provisions of Sections 6
and 8 hereof) may be terminated by the Representatives by notice to the Company
in the event that the Company or the Selling Shareholder has failed to comply
in any material respect with any of the provisions of this Agreement required
on their respective parts to be performed at or prior to the Closing Date or
the Option Closing Date, or if any of the representations or warranties of the
Company or the Selling Shareholder are not accurate in any material respect or
if the covenants, agreements or conditions of, or applicable to the Company or
the Selling Shareholder herein contained have not been complied with in any
material respect or materially satisfied within the time specified on the
Closing Date or the Option Closing Date, respectively, or if prior to the
Closing Date or the Option Closing Date:
(i) the Company or any of its subsidiaries shall have
sustained a loss by strike, fire, flood, accident or other calamity of
such a character as to interfere materially with the conduct of the
business and operations of the Company and its subsidiaries taken as a
whole regardless of whether or not such loss was insured;
(ii) trading in the Common Shares shall have been
suspended by the Commission, the Nasdaq Stock Market or trading in
securities generally on the New York or American Stock Exchange or the
Nasdaq Stock Market shall have been suspended or a material limitation
on such trading shall have been imposed or minimum or maximum prices
shall have been established on any such exchange or market system;
(iii) a banking moratorium shall have been declared by
Bahamian, New York or United States authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an
outbreak or escalation of any other insurrection or armed conflict
involving the United States; or
(v) there shall have been a material adverse change in
(A) general economic, political or financial conditions or (B) the
present or prospective business or condition (financial or other) of
the Company and its subsidiaries taken as a whole that, in each case,
in the Representatives' judgment makes it impracticable or inadvisable
to make or
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<PAGE> 40
consummate the public offering, sale or delivery of the Shares on the
terms and in the manner contemplated in the Prospectus and the
Registration Statement.
(c) Termination of this Agreement under this Section 11 or
Section 12 after the Firm Shares have been purchased by the Underwriters
hereunder shall be applicable only to the Additional Shares. Termination of
this Agreement shall be without liability of any party to any other party other
than as provided in Sections 6 and 8 hereof.
12. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof)
to purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender
to you of such Firm Shares in accordance with the terms hereof or (b) in the
case of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Shares shall not exceed 10% of the Firm Shares or Additional Shares required to
be purchased on the Closing Date or the Option Closing Date, as the case may
be, then, each of the non-defaulting Underwriters shall purchase and pay for
(in addition to the number of such Shares which it has severally agreed to
purchase hereunder) that proportion of the number of Shares which the
defaulting Underwriter or Underwriters shall have so failed or refused to
purchase on such Closing Date or Option Closing Date, as the case may be, which
the number of Shares agreed to be purchased by such non-defaulting Underwriter
bears to the aggregate number of Shares so agreed to be purchased by all such
non-defaulting Underwriters on such Closing Date or Option Closing Date, as the
case may be. In such case, you shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, to a date not exceeding
seven full business days after the date originally fixed as such Closing Date
or the Option Closing Date, as the case may be, pursuant to the terms hereof in
order that any necessary changes in the Registration Statement, the Prospectus
or any other documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the
case of the Closing Date, the number of Firm Shares agreed to be purchased by
such Underwriter or Underwriters upon tender to you of such Firm Shares in
accordance with the terms hereof or (b) in the case of the Option Closing Date,
the number of Additional Shares agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Additional Shares in accordance with
the terms hereof, and the number of such Shares shall exceed 10% of the Firm
Shares or Additional Shares required to be purchased by all the Underwriters on
the Closing Date or the Option Closing Date, as the case may be, then (unless
within 48 hours after such default arrangements to your satisfaction shall have
been made for the purchase of the defaulted Shares by an Underwriter or
Underwriters) and subject to the provisions of Section 11(b) hereof, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriter or on the part of the Company or the Selling Shareholder except as
otherwise provided in Sections 6 and 8 hereof. As used in this Agreement, the
term "Underwriter" includes any person substituted
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<PAGE> 41
for an Underwriter under this paragraph. Nothing in this Section 12, and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
13. NOTICES. All communications hereunder shall be in writing and if
sent to the Representatives shall be mailed or delivered or sent by facsimile
and confirmed by letter c/o ING Baring Furman Selz LLC at 55 East 52nd Street,
New York, New York 10055, Attention: Syndicate Department (facsimile number
(212) 309-8274), with a copy to Fulbright & Jaworski L.L.P., 666 Fifth Avenue,
New York, New York 10103, Attention: Neil Gold, Esq. (facsimile number (212)
752-5958), or, if sent to the Company, shall be mailed or delivered or sent by
facsimile and confirmed by letter to the Company at Suite 104A, Saffrey Square,
P.O. Box N-9306, Nassau, The Bahamas, Attention: Clive E. Warshaw (facsimile
number (809) 356-6260), with a copy to Kelley Drye & Warren LLP, 1200 19th
Street NW, Suite 500, Washington, DC 20036, Attention: Robert C. Boehm, P.A.
(facsimile number (202) 955-9792), or if sent to the Selling Shareholder, shall
be mailed or delivered or sent by facsimile and confirmed by letter to Clive E.
Warshaw, c/o Steiner Leisure Limited, Suite 104A, Saffrey Square, P.O. Box
N-9306, Nassau, The Bahamas (facsimile number (809) 356-6260), with a copy to
Kelley Drye & Warren LLP, 1200 19th Street NW, Suite 500, Washington, DC 20036,
Attention: Robert C. Boehm, P.A. (facsimile number (202) 955-9792).
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company, the Selling Shareholder and each Underwriter and the
Company's, the Selling Shareholder's and each Underwriter's respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person,
except that the representations, warranties, indemnities and contribution
agreements of the Company and the Selling Shareholder contained in this
Agreement shall also be for the benefit of any person or persons, if any, who
control any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and except that the Underwriters' indemnity and
contribution agreements shall also be for the benefit of the directors of the
Company, the officers of the Company who have signed the Registration
Statement, the Selling Shareholder and any person or persons, if any, who
control the Company or the Selling Shareholder within the meaning of Section 15
of the Act or Section 20 of the Exchange Act. No purchaser of Shares from the
Underwriters will be deemed a successor because of such purchase.
15. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to the choice of law or conflict of law principles thereof. Each
party hereto consents to the jurisdiction of each court in which any action is
commenced seeking indemnity or contribution pursuant to Section 8 above and
agrees to accept, either directly or through an agent, service of process of
each such court.
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<PAGE> 42
16. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. In addition to the
provisions of Section 15, all judicial proceedings arising out of or relating
to this Agreement may be brought in any state or federal court of competent
jurisdiction in the State of New York, and by execution and delivery of this
Agreement, each of the Company and the Selling Shareholder accepts for itself
and himself and in connection with its or his properties, generally,
unconditionally and irrevocably, the nonexclusive jurisdiction of the aforesaid
courts and irrevocably waives any objection to the venue of a proceeding in any
such court or any defense of forum non conveniens and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. Each
of the Company and the Selling Shareholder designates and appoints CT
Corporation System, 1633 Broadway, New York, New York 10019, and such other
persons located in the United States as may hereafter be selected by the
Company or the Selling Shareholder, as the case may be, agreeing in writing to
so serve, as its or his agent to receive on its or his behalf service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by the Company and the Selling Shareholder to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to the Company or the Selling Shareholder, as the
case may be, as provided in Section 13 hereof; PROVIDED, HOWEVER, that, unless
otherwise provided by applicable law, any failure to mail such copy shall not
affect the validity of service of such process. If any agent appointed by the
Company or the Selling Shareholder refuses to accept service, the Company and
the Selling Shareholder hereby agree that service of process sufficient for
personal jurisdiction in any action against the Company or the Selling
Shareholder, as the case may be, in the State of New York may be made by
registered or certified mail, return receipt requested, to the Company or the
Selling Shareholder, as the case may be, as provided in Section 13 hereof, and
each of the Company and the Selling Shareholder hereby acknowledges that such
service shall be effective and binding in every respect. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of any Underwriter to bring proceedings against the Company or
the Selling Shareholder in the courts of any other jurisdiction.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
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<PAGE> 43
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
STEINER LEISURE LIMITED
By: _______________________________
Name: Leonard I. Fluxman
Title: President and
Chief Operating Officer
SELLING SHAREHOLDER
By: _______________________________
Clive E. Warshaw
Accepted as of the date first above written:
ING BARING FURMAN SELZ LLC
RAYMOND JAMES & ASSOCIATES, INC.
WILLIAM BLAIR & COMPANY, L.L.C.
By: ING Baring Furman Selz LLC
Acting on its own behalf and as one of
the several Underwriters referred to in
the foregoing Agreement
By: _______________________________
Name:
Title:
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<PAGE> 44
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated March __, 1999
Number of Firm
Shares to be
Purchased from
the Selling
Shareholder
---------------
NAME AND ADDRESS
- ----------------
ING Baring Furman Selz LLC..................................
Raymond James & Associates, Inc.............................
William Blair & Company, L.L.C..............................
---------
Total....................................................... 1,500,000
=========
<PAGE> 1
EXHIBIT 5.1
Harry B. Sands & Co.
P.O. Box N-624
Nassau, Bahamas
22 March 1999
Steiner Leisure Limited
Suite 104A,
Saffrey Square,
Nassau, The Bahamas
Dear Sirs,
RE: FORM S-3 REGISTRATION STATEMENT
We have acted as Bahamian counsel to Steiner Leisure Limited, a company
incorporated under the laws of the Commonwealth of The Bahamas ("the Company"),
in connection with a Registration Statement on Form S-3 (No. 333-73363) ("the
Registration Statement") filed with the Securities and Exchange Commission under
the Securities Act of 1933 ("the Act"), as amended, for the registration of up
to 1,725,000 common shares of $.01 par value, of the Company being sold by the
Selling Shareholder (as defined in the Registration Statement) ("the Selling
Shareholder Shares"). Pursuant to an underwriting agreement ("the Underwriting
Agreement") by and among the Company, the Selling Shareholder and the
underwriters named in the Registration Statement ("the Underwriters") the
Underwriters have agreed to purchase the Selling Shareholder Shares from the
Selling Shareholder.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purpose of this
opinion, including the current Memorandum and Articles of Association of the
Company.
Based on the forgoing, we are of the opinion, as follows:
1. The Company is a validly existing corporation under the laws of the
Commonwealth of The Bahamas; and
2. The Selling Shareholder Shares have been validly issued to the
Selling Shareholder as fully paid and non-assessable.
<PAGE> 2
OPINION LETTER 22 MARCH, 1999
Page 2
This opinion is limited to the laws of the Commonwealth of The Bahamas at the
date of this opinion, and no opinion is expressed to the laws of any other
jurisdiction other than that of the Commonwealth of The Bahamas.
We hereby consent to the filing of this opinion as part of the Registration
Statement and to the use of our name therein and in the Prospectus under the
captions "Risk Factors--We are not a United States Company and, as a Result,
There are Special Risks," "Taxation--Certain Bahamian and Other Tax
Considerations" and "Legal Matters".
Yours faithfully,
HARRY B. SANDS & COMPANY
/s/ ARTHUR SELIGMAN
------------------------
Arthur Seligman
<PAGE> 1
EXHIBIT 8.1
KELLEY DRYE & WARREN LLP
A LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL ASSOCIATIONS
101 PARK AVENUE NEW YORK, NY 10178
TELEPHONE (212) 808-7800
FAX (212) 808-7897
March 22, 1999
Steiner Leisure Limited
Suite 104A
Saffrey Square
Nassau, The Bahamas
Re: Steiner Leisure Limited
Offering of Common Shares
-------------------------
Ladies and Gentlemen:
We have acted as United States counsel to Steiner Leisure
Limited, a Bahamian international business company (the "Company"), in
connection with the Registration Statement on Form S-3 (the "Registration
Statement") relating to the sale of Common Shares, U.S. $.01 par value per
share, of the Company (the "Common Shares"). The Common Shares will be offered
(the "Offering") by a prospectus (the "Prospectus") contained in Amendment No. 1
to the Registration Statement of which this exhibit forms a part.
In our capacity as such counsel we have assumed, with your
consent, that the following representations made on behalf of the Company by
Carl S. St. Philip, Jr., Vice
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KELLEY DRYE & WARREN LLP
Steiner Leisure Limited
March ___, 1999
Page Two
President and Chief Financial Officer of the Company, and, where applicable, the
legal basis for such representations, are true and correct, and have made no
independent investigation thereof:
1. For purposes of sections 1291 through 1298 of the United States
Internal Revenue Code of 1986, as amended (the "Code"), relating to passive
foreign investment companies:
(a) less than 75% of the Company's annual gross income will be passive
income;
(b) less than 50% of the average value of the Company's assets will be
attributable to assets that produce or are held to produce passive income; and
(c) the Company has not been a passive foreign investment company prior
to the Offering.
2. For purposes of Code sections 951 through 964 relating to controlled
foreign corporations:
(a) less than 50% of the outstanding shares of the Company, by vote or
value, are owned by United States shareholders who, on any day in the Company's
taxable year, each own, directly, indirectly or constructively, 10% or more of
the voting power of the Company ("10% Shareholders"); and
(b) it is unlikely that more than 50% of the outstanding shares of the
Company, by vote or value, will be owned by 10% Shareholders immediately after
the Offering.
3. For purposes of Code sections 551 through 558 relating to foreign
personal holding companies, it is unlikely that immediately after the Offering
five or fewer individuals who are United States citizens or residents will own,
directly or indirectly, more than 50%, by vote or value, of the Company's
outstanding shares.
On the basis of and subject to the foregoing, we hereby confirm our
opinion, as set forth in the Prospectus under the heading "Taxation - Certain
United States Federal Income Tax Considerations", regarding certain material
United States federal income tax consequences to a United States Holder (as
defined in the Prospectus under such heading) of holding Common Shares, subject
to the conditions and qualifications set forth therein.
This opinion is limited solely to the issues expressly referred to above.
We express no opinion with respect to any other issues, including any other
issues discussed in the Prospectus (including, but not limited to, issues
discussed under the heading "Risk Factors - Possible Changes in the Taxation of
Steiner Leisure") or any issues of fact.
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KELLEY DRYE & WARREN LLP
Steiner Leisure Limited
March ___, 1999
Page Three
This opinion is based upon the Code, Treasury Regulations issued
thereunder and administrative and judicial interpretations thereof, all as in
effect on the date hereof. Subsequent developments in these areas could have a
material effect on the opinion.
We are aware that we are referred to in the Prospectus under the headings
"Taxation - Certain United States Federal Income Tax Considerations" and "Legal
Matters" and we hereby consent to (i) that use of our name in the Prospectus,
(ii) the filing of this opinion letter as an exhibit to the related Registration
Statement and (iii) the incorporation by reference of this opinion in a
subsequent registration statement file by the Company pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, relating to the offering of Common
Shares covered by the Registration Statement. This opinion is rendered solely to
you in connection with the Offering and may not be relied upon by you for any
other purpose or furnished to or relied upon by any other person or entity
without our prior written consent.
Sincerely yours,
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Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report (and to all references to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 22, 1999.
