<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-13379
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
REXALL SUNDOWN, INC.
(Exact name of Registrant as Specified in its Charter)
---------------------
<TABLE>
<S> <C>
FLORIDA 59-1688986
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
851 BROKEN SOUND PARKWAY, NW
BOCA RATON, FLORIDA 33487
(561) 241-9400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
RICHARD WERBER, ESQ.
VICE PRESIDENT-LEGAL AFFAIRS,
GENERAL COUNSEL AND SECRETARY
REXALL SUNDOWN, INC.
851 BROKEN SOUND PARKWAY, NW
BOCA RATON, FLORIDA 33487
(561) 241-9400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
PAUL BERKOWITZ, ESQ. JEFFREY M. STEIN, ESQ.
GREENBERG, TRAURIG, HOFFMAN, KING & SPALDING
LIPOFF, ROSEN & QUENTEL, P.A. 191 PEACHTREE STREET
1221 BRICKELL AVENUE ATLANTA, GEORGIA 30303-1763
MIAMI, FLORIDA 33131 (404) 572-4600
(305) 579-0500
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, 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. / /
---------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 11, 1996
4,000,000 SHARES
REXALL LOGO
COMMON STOCK
------------------------
Of the 4,000,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, 2,000,000 shares are being issued and sold by
Rexall Sundown, Inc. (the "Company") and 2,000,000 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders." The Common Stock
is listed on the Nasdaq National Market under the symbol "RXSD." On October 10,
1996, the last reported sale price of the Common Stock on the Nasdaq National
Market was $31.25 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING PROCEEDS
PRICE To DISCOUNTS AND PROCEEDS T0 TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
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Total(3)..................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company and the Selling
Shareholders of $350,000 and $40,000, respectively.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 600,000 additional shares of Common Stock on
the same terms and conditions as the securities offered hereby, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to certain other conditions including the right of the
Underwriters to withdraw, cancel, modify or reject any order in whole or in
part. It is expected that delivery of the shares will be made on or about
, 1996, at the offices of Raymond James & Associates, Inc., St.
Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
The date of this Prospectus is , 1996
<PAGE> 3
INSIDE FRONT COVER -- PICTURES OF SUNDOWN PRODUCTS.
CAPTION -- SUNDOWN VITAMINS AND NUTRITIONAL SUPPLEMENTS ARE SOLD TO FOOD, DRUG
AND MASS MERCHANDISER RETAIL OUTLETS.
GATEFOLD - PART 1 -- PICTURES OF REXALL SHOWCASE PRODUCTS, A REXALL SHOWCASE
CONVENTION AND A REXALL SHOWCASE IN-HOME PRESENTATION.
CAPTION: REXALL SHOWCASE, THE COMPANY'S NETWORK MARKETING SUBSIDIARY, SELLS ITS
HEALTH AND WELLNESS PRODUCTS THROUGH A SALES FORCE OF INDEPENDENT
DISTRIBUTORS.
GATEFOLD - PART 2 -- PICTURES OF REXALL, THOMPSON, REXALL MANAGED CARE AND SDV
PRODUCTS.
CAPTIONS: REXALL OVER-THE-COUNTER DRUGS, VITAMINS AND NUTRITIONAL SUPPLEMENTS
ARE SOLD PRIMARILY TO WHOLESALERS, CONVENIENCE STORES AND INDEPENDENT
DRUG STORES.
THOMPSON VITAMINS AND NUTRITIONAL SUPPLEMENTS ARE SOLD THROUGH HEALTH
FOOD STORES.
REXALL MANAGED CARE MARKETS AND SELLS VITAMINS, NUTRITIONAL SUPPLEMENTS
AND OVER-THE-COUNTER DRUGS TO HMOS, HOSPITALS AND LONG-TERM CARE
FACILITIES.
SDV MARKETS AND SELLS VITAMINS AND NUTRITIONAL SUPPLEMENTS DIRECTLY TO
CONSUMERS THROUGH CATALOGS AND DIRECT MAILINGS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including notes thereto
(the "Consolidated Financial Statements"), appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share, per share and financial
information set forth herein assumes no exercise of the Underwriters'
over-allotment option, and reflects the two-for-one stock split effected in
October 1993 and the three-for-two stock split effected in April 1996. Investors
should carefully consider the information set forth under the heading "Risk
Factors." As used herein, the "Company" means Rexall Sundown, Inc. and its
subsidiaries, except where the context indicates otherwise.
THE COMPANY
Rexall Sundown, Inc. (the "Company") develops, manufactures, markets and
sells vitamins, nutritional supplements and consumer health products through
three channels of distribution: sales to retailers; direct sales through
independent distributors; and mail order. The Company offers a broad line of
approximately 1,500 products consisting of approximately 1,900 stock keeping
units ("SKUs"), including vitamins in both multivitamin and single-entity
formulas, minerals, herbals, homeopathic remedies, weight management products,
skin care products and over-the-counter ("OTC") pharmaceuticals. The Company has
experienced significant growth in recent years as net sales have grown from
$74.2 million in fiscal 1992 to $187.8 million in fiscal 1996, representing a
compound annual growth rate ("CAGR") of 26%.
The Company's recent growth has been driven significantly by sales of its
Sundown(R) brand of vitamins and nutritional supplements, which currently
represent approximately 76% of the Company's sales to retailers. The Sundown
brand offers a broad selection of approximately 290 high quality products at
prices lower than comparable-quality branded vitamins, thereby creating value
for consumers as well as higher rates of shelf inventory turnover for retailers.
According to data from Information Resources, Inc. ("IRI"), a retail information
gathering service, in the broadline vitamin category, Sundown is currently the
number two brand in dollar and unit sales across all food, drug and mass
merchandiser retail outlets and generates the highest rate of dollar and unit
sales per share of all commodity volume ("ACV") distribution. The Company
believes that Sundown's high sales velocity is a result of its value pricing
strategy and its high quality products, most of which are unique. The Company
also believes that there are significant opportunities for continued growth
because Sundown products are currently available in outlets representing only
35% of ACV sales. In fiscal 1995, the Company commenced nationwide distribution
of Sundown products to all Kmart stores. Since May 1996, the Company has begun
nationwide distribution of Sundown products to all WalMart stores and
Thrifty-Payless and Eckerd drug stores. The Company's net sales of Sundown
products have increased from $42.1 million in fiscal 1992 to $71.4 million in
fiscal 1996.
Another important factor contributing to the Company's recent growth has
been the Company's network marketing subsidiary, Rexall Showcase International,
Inc. ("Rexall Showcase"). Rexall Showcase develops, markets and sells health and
wellness products through a sales force of independent distributors. Rexall
Showcase products include weight management products, homeopathic medicines,
personal care products, health and nutritional supplements and water filtration
systems. Rexall Showcase products are specially formulated and packaged only for
this distribution channel and are not available through retailers. The Company
believes that Rexall Showcase has several competitive advantages over other
direct sales organizations including: (i) the Rexall(R) brand name under which
health products have been marketed since 1903; (ii) Rexall Showcase's commission
plan which the Company believes is financially attractive to its independent
distributors; (iii) its broad product mix which includes approximately 40
innovative products that are unique to Rexall Showcase; and (iv) Rexall
Showcase's ability to attract, support and motivate distributors. The Company
intends to further expand its direct sales business by continuing to develop and
offer innovative products, add independent distributors and provide sales
support. In addition, the Company seeks to educate and motivate its existing and
prospective distributors through comprehensive sales aids and regularly
scheduled regional and national conventions and local meetings. Rexall
Showcase's independent distributors are not required to make any inventory
purchases and, to become a distributor, must only purchase a $49.50 distributor
kit. Rexall Showcase recently initiated its international expansion by
commencing operations in Mexico in February 1996 and South Korea in April 1996
and intends to commence
3
<PAGE> 5
operations in selected other countries in the future. Rexall Showcase's net
sales have increased from $10.4 million in fiscal 1992 to $76.5 million in
fiscal 1996.
The Company believes that it is well-positioned to capitalize on the
expected growth and consolidation in the highly fragmented vitamin and
nutritional supplement industry. The Company believes that no company controls
more than 10% of this market. As reported by industry sources, the annual
domestic retail market for vitamins and nutritional supplements grew from $3.3
billion in 1991 to $4.9 billion in 1995, representing a CAGR of 10%. The Company
believes that growth in the vitamin and nutritional supplement market is being
driven by several factors, including: (i) the general public's heightened
awareness and understanding of the connection between diet and health; (ii) the
increase in baby-boomer and senior-aged population groups, which are more likely
to consume vitamins; (iii) product introductions in response to new scientific
research; and (iv) the nationwide trend toward preventative medicine. Based on a
national survey indicating that only 33% of Americans consumed vitamins and
nutritional supplements on a regular basis in 1995, the Company believes that
there is a large untapped domestic market for vitamins and nutritional
supplements.
The Company's objective is to achieve profitable sales growth and maximize
market share in its targeted domestic and international markets. To achieve its
growth objectives, the Company intends to employ the following strategies: (i)
leverage the success of the Sundown brand to increase its market share in mass
merchandisers, chain drug stores and supermarkets; (ii) continue the growth of
Rexall Showcase by further developing its product line and increasing the number
and productivity of its independent distributors that market and sell its
products; and (iii) supplement the Company's internal growth through strategic
acquisitions in health and wellness-related markets that leverage existing or
add new distribution channels. The Company intends to actively pursue
acquisition opportunities that are compatible with its business philosophy, have
a level of critical mass and infrastructure necessary to generate rates of
growth expected by the Company and have a positive financial impact on the
Company's operations. The Company expects that such acquisitions may include
products, product lines or businesses.
The Company was incorporated in the State of Florida in 1976. The Company's
executive offices are located at 851 Broken Sound Parkway, NW, Boca Raton,
Florida 33487, and its telephone number is (561) 241-9400.
------------------------------
As used herein, the term "all commodity volume" ("ACV") means the
volume of all goods sold in all food, drug and mass merchandiser retail outlets
in the United States. "Rate of sales per share of ACV distribution" refers to a
ratio calculated by dividing a particular brand's total sales by the total
sales of the retail outlets which carry such brand. "Broadline vitamin brands"
encompass a complete range of multi-vitamins, single-entity vitamins, minerals
and nutritional supplements, as compared to "national brands" which primarily
consist of a narrow assortment of multivitamins and mineral products marketed
under nationally advertised names such as Centrum(R), One-A-Day(R) and
Theragran(R).
THE OFFERING
Common Stock Offered by the Company......... 2,000,000 shares
Common Stock Offered by the Selling
Shareholders................................ 2,000,000 shares
Common Stock to be Outstanding after the
Offering.................................... 32,721,571 shares(1)
Use of Proceeds............................. To acquire complementary
products, product lines or
businesses; to provide working
capital; and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............... RXSD
- ---------------
(1) Does not include (i) an aggregate of 2,676,548 shares of Common Stock
underlying currently outstanding options and (ii) 1,355,024 additional
shares available for issuance under the Company's 1993 Stock Incentive
Plan, 1993 Non-Employee Director Stock Option Plan and 1994 Non-Employee
Director Stock Option Plan.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING DATA:
Net sales.................................................. $114,119 $149,473 $187,844
Gross profit............................................... 59,644 84,441 116,162
Operating income........................................... 12,639 18,616 29,489
Income from continuing operations(1)....................... 8,572 12,338 20,293
Net income................................................. 6,195 4,362 20,293
Income per share from continuing operations(1)............. $0.29 $0.42 $0.66
Weighted average shares outstanding........................ 29,269 29,497 30,726
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
AS
ACTUAL ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 13,450 $ 72,788
Working capital......................................................... 54,133 113,471
Total assets............................................................ 103,095 162,433
Long-term debt, net of current portion.................................. 105 105
Total shareholders' equity.............................................. 86,692 146,030
</TABLE>
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(1) Does not reflect discontinued operations. See "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Discontinued Operations" and Note 14
to the Consolidated Financial Statements.
(2) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company at an assumed offering price of $31.25 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
The shares offered hereby involve a high degree of risk, including the
risks described below. Prospective investors should carefully consider the
specific factors set forth below, as well as the other information contained in
this Prospectus, before deciding to invest in the Common Stock offered hereby.
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), which represent the Company's expectations or beliefs,
including, but not limited to, statements concerning industry performance, the
Company's operations, performance, financial condition, growth and acquisition
strategies, margins and growth in sales of the Company's products. For this
purpose, any statements contained in this Prospectus that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate" or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including those described below under this "Risk Factors"
section and elsewhere in this Prospectus.
UNCERTAINTY RELATED TO ACQUISITIONS; BROAD DISCRETION IN USE OF PROCEEDS
The Company intends to use a significant portion of the net proceeds from
this offering to pursue the acquisition of complementary products, product lines
or businesses. Acquisitions involve a number of risks that could adversely
affect the Company's operating results, including the diversion of management's
attention, the assimilation of operations and personnel of the acquired
companies, the amortization of acquired intangible assets and the potential loss
of key employees of the acquired companies. There can be no assurance that the
Company will consummate future acquisitions on satisfactory terms, if at all,
that adequate financing will be available on terms acceptable to the Company, if
at all, that any acquired products, product lines or businesses will be
successfully integrated or that such products, product lines or businesses will
ultimately have a positive impact on the Company, its financial condition or
results of operations.
At the present time, the Company has not entered into binding contracts or
other agreements and the Company will continue to have broad discretion in
identifying potential acquisitions. Accordingly, the Company will have broad
discretion in using the net proceeds of this offering. An investor will not have
the opportunity to evaluate the economic, financial and other relevant
information which will be utilized by the Company in determining the application
of such proceeds. See "Use of Proceeds" and "Business -- Growth Strategy."
GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration
("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety
Commission, the United States Department of Agriculture, the United States
Postal Service, the United States Environmental Protection Agency and the
Occupational Safety and Health Administration. These activities are also
regulated by various agencies of the states, localities and foreign countries in
which the Company's products are sold. In particular, the FDA regulates the
safety, manufacturing, labeling and distribution of dietary supplements,
including vitamins, minerals and herbs, food additives, food supplements,
over-the-counter ("OTC") and prescription drugs and cosmetics. The regulations
that are promulgated by the FDA relating to the manufacturing process are known
as Current Good Manufacturing Practices ("CGMPs"), and are different for drug
and food products. In addition, the FTC has overlapping jurisdiction with the
FDA to regulate the labeling, promotion and advertising of dietary supplements,
OTC drugs, cosmetics and foods.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted on October 25, 1994. DSHEA amends the Federal Food, Drug and Cosmetic
Act by defining dietary supplements, which include vitamins, minerals,
nutritional supplements and herbs, as a new category of food separate from
6
<PAGE> 8
conventional food. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and the dissemination of accurate information about such
products. Under DSHEA, the FDA is generally prohibited from regulating dietary
supplements as food additives or as drugs unless product claims, such as claims
that a product may heal, mitigate, cure or prevent an illness, disease or
malady, trigger drug status.
DSHEA provides for specific nutritional labeling requirements for dietary
supplements effective January 1, 1997, although final regulations have not been
published and the FDA has indicated that implementation will be delayed. DSHEA
permits substantiated, truthful and non-misleading statements of nutritional
support to be made in labeling, such as statements describing general well-being
resulting from consumption of a dietary ingredient or the role of a nutrient or
dietary ingredient in affecting or maintaining a structure or function of the
body. The Company anticipates that the FDA will promulgate CGMPs which are
specific to dietary supplements and require at least some of the quality control
provisions contained in the CGMPs for drugs. The Company currently manufactures
its vitamins and nutritional supplement products in compliance with the
applicable food CGMPs.
The FDA has proposed but not finalized regulations to implement DSHEA,
including those relating to nutritional labeling requirements. The Company
cannot determine what effect such regulations, when promulgated, will have on
its business in the future. Such regulations are likely to require expanded or
different labeling for the Company's vitamin and nutritional supplement products
and could, among other things, require the recall, reformulation or
discontinuance of certain products, additional recordkeeping, warnings,
notification procedures and expanded documentation of the properties of certain
products and scientific substantiation regarding ingredients, product claims,
safety or efficacy. Failure to comply with applicable FDA requirements can
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls and seizures.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into a market or prevent or
delay the introduction, or require the reformulation, of certain of the
Company's products.
Rexall Showcase is subject to regulation under various international, state
and local laws which include provisions regulating, among other things, the
operation of direct sales programs. In addition, many countries currently have
laws that would restrict or prohibit direct sales companies, such as Rexall
Showcase, from conducting business therein.
In addition, the Company cannot predict whether new domestic or foreign
legislation regulating its activities will be enacted. Such new legislation
could have a material adverse effect on the Company. See "Business -- Government
Regulation."
MANAGING AND MAINTAINING GROWTH
The Company is currently experiencing a period of rapid growth and
expansion which has placed, and could continue to place, a significant strain on
the Company's management, customer service and support, operations, sales and
administrative personnel and other resources. In order to serve the needs of its
existing and future customers, the Company has substantially increased and will
continue to increase its workforce, which requires the Company to attract,
train, motivate and manage qualified employees. The Company's ability to manage
its planned growth requires the Company to continue to expand its operating,
management, information and financial systems, all of which may significantly
increase its operating expenses. If the Company fails to achieve its growth as
planned or is unsuccessful in managing its anticipated growth, there could be a
material adverse effect on the Company. In addition, the Company's retail
customers are not generally bound to purchase products from the Company for any
significant length of time. Although the Company has entered into agreements
with certain of its retail customers, these agreements can generally be
cancelled on short notice without cause and with minimal liability to such
customers. The loss of a large customer or a number of customers, or a
significant reduction in purchase volume by or financial difficulty of such
customers, for any reason, could have a material adverse effect on the Company.
See "Business -- Growth Strategy."
7
<PAGE> 9
EFFECT OF ADVERSE PUBLICITY
The Company's products contain vitamins, minerals, herbs and other
ingredients that the Company regards as safe when taken as directed by the
Company and that various scientific studies have suggested may offer health
benefits. While the Company conducts extensive quality control testing on its
products, the Company generally does not conduct or sponsor clinical studies
relating to the benefits of its products. The Company is highly dependent upon
consumers' perception of the overall integrity of its business, as well as the
safety and quality of its products and similar products distributed by other
companies which may not adhere to the same quality standards as the Company. The
Company could be materially adversely affected if any of the Company's products
or any similar products distributed by other companies should prove or be
asserted to be harmful to consumers or if scientific studies provide unfavorable
findings regarding the effectiveness of the Company's products. Further, Rexall
Showcase's ability to attract and retain independent distributors could be
adversely affected by negative publicity relating to it or to other direct sales
organizations, or by the announcement by any governmental agency of
investigatory proceedings regarding the business practices of Rexall Showcase or
other direct sales organizations. See "Business -- Industry Overview" and
"-- Product Liability Insurance."
RELIANCE ON INDEPENDENT DISTRIBUTORS OF REXALL SHOWCASE
Rexall Showcase's sales are directly dependent upon the efforts of its
independent distributors, and any growth in sales volume will require an
increase in the productivity or the number of such distributors. As is typical
in the direct sales industry, there is turnover in distributors from year to
year, which requires the sponsoring and training of new distributors by existing
distributors in order to maintain the size of the distributor network. The
Company experiences seasonal decreases in distributor sponsoring and product
sales due to summer and winter holiday periods. Other factors such as general
economic conditions and negative publicity relating to Rexall Showcase or other
direct sales organizations could also adversely affect the ability of Rexall
Showcase to maintain or expand its distributor network. The loss of a key
distributor or group of distributors could adversely affect sales of Rexall
Showcase products and impair Rexall Showcase's ability to attract new
distributors.
CENTRALIZED LOCATION OF MANUFACTURING OPERATIONS; AVAILABILITY OF RAW MATERIALS
The Company currently manufactures approximately 60%, and packages
approximately 90%, of its products at its manufacturing facility in Boca Raton,
Florida, and, until the recent opening of its distribution facility in Sparks,
Nevada, distributed all of its products from its two distribution facilities in
Boca Raton. Accordingly, any event resulting in the slowdown or stoppage of the
Company's manufacturing operations or distribution facilities in Boca Raton
could have a material adverse effect on the Company. The Company maintains
business interruption insurance. There can be no assurance, however, that such
insurance will continue to be available at a reasonable cost or, if available,
will be adequate to cover any losses that may be incurred from an interruption
in the Company's manufacturing or distribution operations.
Most of the raw materials used in the Company's products are obtained from
third-party suppliers. Although the Company believes that all of its sources for
raw materials are reliable, any interruption of such supply could have a
material adverse effect on the Company. See "Business -- Manufacturing and
Quality Control."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
An element of the Company's growth strategy is to increase the distribution
and sale of the Company's products into international markets. The Company's
existing and planned international operations are subject to political and
economic uncertainties, including, among others, inflation, risk of
renegotiation or modification of existing agreements or arrangements with
governmental authorities, transportation, tariffs, export controls, government
regulation, trademark availability and registration issues, currency exchange
rate fluctuations, foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom, changes in taxation, hostilities or
confiscation of property. Changes related to these matters could have a material
adverse effect on the Company. See "Business -- Sales By Distribution Channel."
8
<PAGE> 10
COMPETITION
The market for the sale of vitamins and nutritional supplements is highly
competitive. Competition is based principally upon price, quality of products,
customer service and marketing support. There are numerous companies in the
vitamin and nutritional supplement industry selling products to retailers such
as mass merchandisers, drug store chains, independent drug stores, supermarkets
and health food stores. Most of these companies are privately held and the
Company is unable to precisely assess the size of such competitors. No company
is believed to control more than 10% of this market.
The market for OTC pharmaceuticals and health and beauty care products is
also highly competitive. Competition is based principally upon price, quality of
products, customer service and marketing support. The Rexall brand competes with
nationally advertised brand name products and private label products.
Although Rexall Showcase competes with other health and nutritional food
companies, the Company believes its primary competition stems from other direct
sales companies. The Company competes in the recruitment of independent sales
people with other direct sales organizations whose product lines may or may not
compete with the Company's products.
Certain of the Company's competitors are substantially larger than the
Company and have greater financial resources. See "Business -- Competition."
PRODUCT LIABILITY CLAIMS
As a marketer of vitamin and nutritional supplements and other products
that are ingested by consumers or applied to their bodies, the Company may be
subjected to various product liability claims, including, among others, that its
products contain contaminants or include inadequate instructions as to use or
inadequate warnings concerning side effects and interactions with other
substances. While such claims to date have not been material to the Company and
the Company maintains product liability insurance, there can be no assurance
that product liability claims and the resulting adverse publicity will not have
a material adverse effect on the Company. See "Business -- Product Liability
Insurance" and "Business -- Legal Proceedings."
CONCENTRATION OF OWNERSHIP; CERTAIN ANTI-TAKEOVER CONSIDERATIONS
Following this offering, the Company's directors and executive officers and
certain of their affiliates will beneficially own approximately 54% of the
outstanding Common Stock, substantially all of which will be beneficially owned
or controlled by Carl DeSantis, Dean DeSantis and Damon DeSantis. Accordingly,
these shareholders will continue to have the ability to elect all of the
directors of the Company and to thereby direct or substantially influence the
management, policies and business operations of the Company and will have the
power to control the outcome of any matters submitted to a vote of the Company's
shareholders. The Company's Board of Directors has the authority to approve the
issuance of 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the Company's shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in
the future. Certain provisions of Florida law, as well as the issuance of
preferred stock, could delay or inhibit the removal of incumbent directors and
could delay, defer, make more difficult or prevent a merger, tender offer or
proxy contest, or any change in control involving the Company, as well as the
removal of management, even if such events would be beneficial to the interests
of the Company's shareholders, and may limit the price certain investors may be
willing to pay in the future for shares of Common Stock. See "Principal and
Selling Shareholders" and "Description of Common Stock."
9
<PAGE> 11
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public market
after this offering, including sales pursuant to Rule 144 promulgated under the
Securities Act, or the perception that such sales could occur, may adversely
affect the market price of the Common Stock. Upon completion of this offering,
the Company will have 32,721,571 shares of Common Stock outstanding. All
4,000,000 shares offered hereby will be freely tradeable. The Company, certain
shareholders of the Company selling shares of Common Stock hereunder (the
"Selling Shareholders") and the Company's executive officers and directors have
agreed not to sell, contract to sell or otherwise dispose of any of such shares
for a period of 180 days after the closing of this offering without the prior
written consent of Raymond James & Associates, Inc. Notwithstanding the
foregoing, at any time on or after the date of this Prospectus, the Company may
issue shares pursuant to the exercise of employee stock options outstanding on
the date of this Prospectus, which issuances or sales may be effected any time
after the date of this Prospectus. See "Principal and Selling Shareholders" and
"Underwriting."
VOLATILITY OF STOCK PRICE
The price of the Common Stock has experienced significant volatility since
the Company's initial public offering in 1993. Moreover, the stock market has
from time to time experienced extreme price and volume fluctuations which may be
unrelated to the operating performance of particular companies. Market
conditions in the vitamin and nutritional supplement industry and factors such
as announcements of new products by the Company, its competitors or third
parties, and changes in earnings estimates by analysts may have a significant
effect on the price of the Common Stock. See "Price Range of Common Stock."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company, after deducting underwriting discounts and
commissions and estimated offering expenses, and assuming an offering price of
$31.25 per share, are estimated to be $59.3 million (approximately $71.3 million
if the Underwriters' over-allotment option is exercised in full). The net
proceeds from the sale of shares of Common Stock offered by the Company will be
used primarily to acquire complementary products, product lines or businesses,
to provide working capital and for general corporate purposes. The Company
currently has no specific agreements with respect to particular acquisitions and
no assurance can be given that any acquisitions will be consummated. See
"Business -- Growth Strategy." Pending such applications, the net proceeds will
be invested in investment grade, short-term, interest-bearing securities. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996, and as adjusted to reflect the net proceeds from the sale by
the Company of 2,000,000 shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements.
<TABLE>
<CAPTION>
AUGUST 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion............................... $ 105 $ 105
------- -------
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares, no
shares outstanding.............................................. -- --
Common stock, $0.01 par value; authorized 100,000,000 shares,
30,660,128 shares outstanding; 32,660,128 shares outstanding as
adjusted(1)..................................................... 307 327
Capital in excess of par value..................................... 53,563 112,881
Retained earnings.................................................. 32,943 32,943
Cumulative translation adjustment.................................. (121) (121)
------- -------
Total shareholders' equity................................. 86,692 146,030
------- -------
Total capitalization.................................. $86,797 $ 146,135
======= =======
</TABLE>
- ---------------
(1) Does not include (i) an aggregate of 2,676,548 shares of Common Stock
underlying currently outstanding stock options and (ii) 1,355,024
additional shares available for issuance under the Company's 1993 Stock
Incentive Plan, 1993 Non-Employee Director Stock Option Plan and 1994
Non-Employee Director Stock Option Plan.
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Common Stock was first quoted and began trading on the Nasdaq National
Market on June 18, 1993 under the symbol RXSD.
Set forth below are the high and low sales prices of the Common Stock as
reported on the Nasdaq National Market for the periods indicated, retroactively
adjusted to reflect the two-for-one stock split effected on October 28, 1993 and
the three-for-two stock split effected on April 4, 1996.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED AUGUST 31, 1994:
First Quarter............................................................ $13.50 $ 7.25
Second Quarter........................................................... 14.50 6.83
Third Quarter............................................................ 14.67 5.50
Fourth Quarter........................................................... 7.33 4.83
FISCAL YEAR ENDED AUGUST 31, 1995:
First Quarter............................................................ 8.50 5.83
Second Quarter........................................................... 8.67 6.25
Third Quarter............................................................ 7.33 5.50
Fourth Quarter........................................................... 10.75 5.50
FISCAL YEAR ENDED AUGUST 31, 1996:
First Quarter............................................................ 13.00 9.08
Second Quarter........................................................... 19.00 11.67
Third Quarter............................................................ 37.00 16.75
Fourth Quarter........................................................... 36.25 21.25
FISCAL YEAR ENDED AUGUST 31, 1997:
First Quarter (through October 10, 1996)................................. 39.75 31.13
</TABLE>
On October 10, 1996, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $31.25 per share. The approximate number of
record holders of the Common Stock as of October 10, 1996 was 700.
DIVIDEND POLICY
The Company presently intends to retain all earnings for the operation and
development of its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. Any future determination as to the
payment of cash dividends will depend on a number of factors, including future
earnings, capital requirements, the financial condition and prospects of the
Company and any restrictions under credit agreements existing from time to time,
as well as such other factors as the Company's Board of Directors may deem
relevant. The Company's current line of credit prohibits the payment of any
dividends on the Common Stock.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below is derived from
the Consolidated Financial Statements. The Consolidated Financial Statements as
of and for the years ended August 31, 1992, 1993, 1994, 1995 and 1996 have been
audited by Coopers & Lybrand L.L.P., independent accountants. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and other consolidated financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales..................................... $74,240 $93,147 $114,119 $149,473 $187,844
Cost of sales................................. 40,238 45,447 54,475 65,032 71,682
------- ------- -------- -------- --------
Gross profit................................ 34,002 47,700 59,644 84,441 116,162
Selling, general and administrative
expenses.................................... 29,301 37,390 47,005 65,825 86,673
------- ------- -------- -------- --------
Operating income............................ 4,701 10,310 12,639 18,616 29,489
Other income, net............................. 50 810 1,080 588 2,602
------- ------- -------- -------- --------
Income before income tax provision............ 4,751 11,120 13,719 19,204 32,091
------- ------- -------- -------- --------
Income from continuing operations (pro
forma)(1)................................... 2,905 7,104 8,572 12,338 20,293
Loss from discontinued operations(2).......... -- -- (2,377) (7,976) --
------- ------- -------- -------- --------
Net income (pro forma)(1)..................... $ 2,905 $ 7,104 $ 6,195 $ 4,362 $ 20,293
======= ======= ======== ======== ========
Income (loss) per share (pro forma)(1):
Continuing operations....................... $0.13 $0.31 $0.29 $0.42 $0.66
Discontinued operations..................... -- -- (0.08) (0.27) --
------- ------- -------- -------- --------
Net income per share................ $0.13 $0.31 $0.21 $0.15 $0.66
======= ======= ======== ======== ========
Weighted average shares outstanding........... 21,942 23,168 29,269 29,497 30,726
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 5,289 $28,771 $ 21,027 $ 29,292 $ 54,133
Total assets.................................. 22,194 53,126 61,633 67,351 103,095
Long-term debt, net of current portion........ 4,938 1,151 776 448 105
Shareholders' equity.......................... 8,273 41,714 48,962 55,038 86,692
</TABLE>
- ---------------
(1) The Company was an S Corporation until June 1993 and accordingly was not
subject to corporate income taxes until the termination of its S
Corporation status. For fiscal years 1992 and 1993, income from continuing
operations, net income, income per share from continuing operations and net
income per share have been computed as if the Company was subject to
corporate income taxes, based on tax laws in effect during such periods.
(2) Net of tax benefit.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements. Additionally, certain divisional data of
the Company is set forth in "Business -- Sales by Distribution Channel."
Revenue from the sale of the Company's products is recognized at the time
products are shipped. Net sales are net of all discounts, allowances, returns
and credits, and sales to Rexall Showcase's independent distributors are
recorded at wholesale prices. Initial costs associated with acquiring sales
agreements with certain retail customers are amortized over the term of the
relevant agreement and the amortization of such costs is recorded as a reduction
in net sales. Approximately 96.2% of the Company's net sales are of products
sold under one of the following brand names: Sundown, Rexall Showcase, Rexall,
Thompson(R), SDV(R) and Rexall Managed Care(R). Sales of private label products
accounted for approximately 3.8% of net sales for fiscal 1996.
Cost of goods sold includes the cost of raw materials and all labor and
overhead associated with the manufacturing and packaging of the products. The
majority of the Company's products are in tablet, softgel or two-piece capsule
forms. In 1994, the Company initiated manufacturing, beginning with vitamins in
tablet form, which resulted in lower costs than outsourcing such manufacturing.
Presently, the Company manufactures approximately 90% of its tablet formulations
and recently began manufacturing two-piece capsules. The Company does not
presently intend to manufacture softgel formulations or other products. The
Company's manufacturing facility as currently configured is estimated to be
operating at approximately 70% of capacity. However, the Company believes
capacity could be doubled by adding additional equipment, personnel and shifts.
Gross margins are impacted by changes in the relative sales mix among the
Company's channels of distribution. In particular, gross margin is positively
impacted if sales of Rexall Showcase increase as a percentage of net sales
because such products command a higher gross margin. In a related manner,
selling, general and administrative expenses as a percentage of net sales are
typically higher if sales of Rexall Showcase increase as a percentage of net
sales because of the commissions paid to Rexall Showcase's independent
distributors. Historically, operating margins from sales to retailers and mail
order have been higher than operating margins from Rexall Showcase sales.
On August 31, 1995, the Company approved a plan to divest Pennex
Laboratories, Inc. ("Pennex"), its subsidiary which manufactured and sold OTC
pharmaceuticals. The fiscal 1994 and 1995 results of Pennex have been presented
as discontinued operations in the Consolidated Financial Statements. See
"-- Discontinued Operations."
RESULTS OF CONTINUING OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
Cost of sales........................................... 47.7 43.5 38.2
---- ---- ----
Gross profit.......................................... 52.3 56.5 61.8
Selling, general and administrative expenses............ 41.2 44.0 46.1
---- ---- ----
Operating income...................................... 11.1 12.5 15.7
Other income, net....................................... 0.9 0.4 1.4
---- ---- ----
Income before income tax provision...................... 12.0 12.9 17.1
Income from continuing operations....................... 7.5% 8.3% 10.8%
</TABLE>
14
<PAGE> 16
FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1995
Net sales for fiscal 1996 were $187.8 million, an increase of $38.4 million
or 25.7% over fiscal 1995. Of the $38.4 million increase, sales to retailers
accounted for $14.0 million, an increase of 17.4% over fiscal 1995. The increase
in sales to retailers was partially attributable to approximately $7.0 million
of initial shipments of Sundown products to WalMart and Thrifty-Payless in the
second half of fiscal 1996. Net sales of the Company's direct sales subsidiary,
Rexall Showcase, increased by $23.9 million, an increase of 45.4% over fiscal
1995. The increase in direct sales was partially due to the commencement of
Rexall Showcase's operations in Mexico in February 1996 and South Korea in April
1996. Net sales of the Company's mail order division, SDV, increased by $528,000
or 3.2% over fiscal 1995. The increase in net sales in each division was
primarily due to increased unit sales.
Gross profit for fiscal 1996 was $116.2 million, an increase of $31.7
million or 37.6% over fiscal 1995. As a percentage of net sales, gross margin
increased from 56.5% for fiscal 1995 to 61.8% for fiscal 1996. The increase in
gross margin was due primarily to an increase in net sales of products with
higher margins, related principally to the increased net sales of Rexall
Showcase as a percentage of the Company's net sales. The increase was also due,
in part, to improved margins as a result of manufacturing efficiencies achieved
from higher volume at the Company's vitamin manufacturing facility. The average
number of tablets manufactured per month increased from approximately 85 million
tablets for fiscal 1995 to approximately 170 million tablets for fiscal 1996.
Selling, general and administrative expenses for fiscal 1996 were $86.7
million, an increase of $20.8 million or 31.7% over fiscal 1995. As a percentage
of net sales, such expenses increased from 44.0% for fiscal 1995 to 46.1% for
fiscal 1996, primarily as a result of increased sales of Rexall Showcase as a
percentage of the Company's net sales. In addition, selling, general and
administrative expenses associated with Rexall Showcase increased due to the
commencement of international operations. This increase was partially offset by
reductions of other divisions' selling, general and administrative expenses as a
percentage of net sales. The reduction in other divisions' selling, general and
administrative expenses was due in part to new incentive and cost control
programs initiated by management in fiscal 1996.
Other income, net, increased from $588,000 in fiscal 1995 to $2.6 million
in fiscal 1996 as a result of increased interest income, decreased interest
expense and increased amounts included in other income. Interest income for
fiscal 1996 was $1.3 million, as compared to $119,000 for fiscal 1995. Such
increase was primarily a result of investment of the Company's available cash
balances, which were higher in fiscal 1996 than fiscal 1995, and interest
received in fiscal 1996 from the note receivable related to the sale of Pennex's
assets, which interest is at a higher rate than the Company's average rate of
return on available cash balances. Interest expense for fiscal 1996 was $40,000
as compared to $424,000 for fiscal 1995 as there were no borrowings under the
Company's line of credit in fiscal 1996.
Income from continuing operations before income tax provision was $32.1
million for fiscal 1996, an increase of $12.9 million or 67.1% over fiscal 1995.
As a percentage of net sales, income from continuing operations before income
tax provision increased from 12.9% for fiscal 1995 to 17.1% for fiscal 1996.
Income from continuing operations was $20.3 million for fiscal 1996, an
increase of $8.0 million or 64.5% over fiscal 1995. As a percentage of net
sales, income from continuing operations increased from 8.3% for fiscal 1995 to
10.8% for fiscal 1996 due to the reasons described above.
FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1994
Net sales for fiscal 1995 were $149.5 million, an increase of $35.4 million
or 31.0% over fiscal 1994. Of the $35.4 million increase, sales to retailers
accounted for $11.9 million, an increase of 17.4% over fiscal 1994. Included in
sales to retailers is $1.7 million of net sales of the Company's Rexall Managed
Care division for which there were minimal sales in fiscal 1994. Net sales of
Rexall Showcase increased by $23.1 million, an increase of 78.3% over fiscal
1994. Net sales of SDV increased by $375,000 or 2.3% over fiscal 1994. The
increase in net sales in each division was primarily due to increased unit
sales.
15
<PAGE> 17
Gross profit for fiscal 1995 was $84.4 million, an increase of $24.8
million or 41.6% over fiscal 1994. As a percentage of net sales, gross margin
increased from 52.3% for the fiscal year ended August 31, 1994 to 56.5% for
fiscal 1995. The increase in gross margin was due primarily to an increase in
net sales of products with higher margins, related principally to the increased
net sales of Rexall Showcase as a percentage of the Company's net sales. In
fiscal 1995, the Company achieved a modest increase in gross margin of its other
divisions.
Selling, general and administrative expenses for fiscal 1995 were $65.8
million, an increase of $18.8 million or 40.0% over fiscal 1994. As a percentage
of net sales, such expenses increased from 41.2% for the fiscal year ended
August 31, 1994 to 44.0% for fiscal 1995, primarily as a result of increased net
sales of Rexall Showcase as a percentage of the Company's net sales. While
selling, general and administrative expenses in the Company's other business
divisions increased in absolute dollars, such expenses declined as a percentage
of net sales.
Other income, net, decreased from $1.1 million in fiscal 1994 to $588,000
in fiscal 1995, primarily as a result of reduced interest income and increased
interest expense. Interest income for fiscal 1995 was $119,000, as compared to
$361,000 for fiscal 1994. This decrease is a result of the reduction of
marketable securities. Interest expense for fiscal 1995 was $424,000 as compared
to $109,000 for fiscal 1994. This increase resulted from borrowings under the
Company's line of credit.
Income from continuing operations before income tax provision was $19.2
million for fiscal 1995, an increase of $5.5 million or 40.0% over fiscal 1994.
As a percentage of net sales, income from continuing operations before income
tax provision increased from 12.0% for fiscal 1994 to 12.9% for fiscal 1995.
Income from continuing operations was $12.3 million for fiscal 1995, an
increase of $3.8 million or 43.9% from fiscal 1994. As a percentage of net
sales, income from continuing operations increased from 7.5% for fiscal 1994 to
8.3% for fiscal 1995 due to the reasons described above.
DISCONTINUED OPERATIONS
On September 30, 1993, Pennex acquired substantially all the assets of
Pennex Products Co., Inc., a manufacturer of OTC pharmaceuticals. The assets
primarily consisted of a 300,000 square foot manufacturing and distribution
facility along with all manufacturing equipment and inventory located on
approximately 22 acres in Verona, Pennsylvania. The purchase price was $5.1
million in cash. On August 31, 1995, the Company approved a plan to divest
Pennex and the Company's Consolidated Financial Statements for fiscal 1994 and
1995 have been presented to include Pennex's results as discontinued operations.
In the fourth quarter of fiscal 1995, the Company recorded an estimated loss on
the disposition of Pennex in the amount of $3.7 million, net of the related tax
benefit of $2.1 million, for the loss on disposition of the related assets and
liabilities of Pennex and other expenses related to the closing of Pennex. This
amount included $964,000 for the estimated operating losses of Pennex during the
phase-out period. On November 17, 1995, Pennex ceased operations and on February
1, 1996, substantially all the remaining assets of Pennex were sold for
$6,495,000. The Company received a $500,000 deposit and a secured note for the
balance. The terms of such note provide for interest at 12%, payable monthly
through March 1996. The rate of interest increased to 18% on April 1, 1996,
although interest is currently being paid at 12% with the balance accruing until
February 28, 1997, when the entire balance under such note is due in full. The
note was assigned from Pennex to the Company as partial consideration for
amounts owed to the Company by Pennex. The Company has been recording interest
income on the 12% interest paid to the Company.
As of August 31, 1996, the Company had recorded net assets of discontinued
operations of $3.9 million. Assuming full collection of the balance of the
collateralized note, the Company expects to record a reduction to the estimated
loss on disposition of approximately $1.4 million (net of tax) or $0.04 per
share, which would be reflected as an adjustment to discontinued operations.
16
<PAGE> 18
QUARTERLY RESULTS OF OPERATIONS; SEASONALITY
The following table sets forth certain quarterly financial data for fiscal
1995 and 1996. This quarterly information is unaudited, has been prepared on the
same basis as the annual financial statements and, in the opinion of the
Company's management, reflects all normally recurring adjustments necessary for
fair presentation of the information for the periods presented. Operating
results for any quarter are not necessarily indicative of results of any future
period.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $32,105 $37,868 $38,291 $41,209 $40,867 $40,560 $54,781 $51,636
Operating income.................. 4,371 5,245 4,133 4,867 5,314 5,932 8,801 9,442
Income from continuing
operations(1)................... 2,750 3,488 2,965 3,135 3,556 4,074 6,134 6,529
Income per share from continuing
operations(1)................... $0.09 $0.12 $0.10 $0.11 $0.12 $0.13 $0.20 $0.21
</TABLE>
- ---------------
(1) Does not reflect discontinued operations. See "Selected Consolidated
Financial Data," "-- Discontinued Operations" and Notes to the Consolidated
Financial Statements.
The Company believes that its business is not subject to significant
seasonality based on historical trends, with the exception of Rexall Showcase
which typically experiences lower revenues in the second and fourth fiscal
quarters due to winter and summer holiday seasons, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $54.1 million as of August 31, 1996,
compared to $29.3 million as of August 31, 1995. This increase was principally
the result of increased cash and cash equivalents, marketable securities,
inventory and trade accounts receivable due to higher sales in fiscal 1996
compared to fiscal 1995.
Net cash provided by operating activities for fiscal 1996 was $19.6 million
compared to $4.3 million for fiscal 1995. Net cash provided by operating
activities increased primarily due to increased net income, decreases in net
assets of discontinued operations and recognition of deferred income taxes,
partially offset by increases in accounts receivable and inventory. Net cash
used in investing activities was $13.5 million for fiscal 1996 compared to $5.1
million for fiscal 1995. Net cash used in investing activities, including $5.4
million used for capital expenditures, increased primarily due to the purchase
of marketable securities in fiscal 1996. Net cash provided by financing
activities was $6.2 million for fiscal 1996 compared to $123,000 for fiscal
1995. The Company's cash flow from financing activities for fiscal 1996 of $6.2
million reflects $6.5 million received for the exercise of options to purchase
Common Stock partially offset by debt payments.
The Company presently has a line of credit with a financial institution in
the amount of $10 million, under which there were no borrowings in fiscal 1996.
The Company expects to increase its line of credit following completion of this
offering. The Company believes that the net proceeds to the Company from this
offering, its existing cash balances, internally generated funds from operations
and its available bank line of credit will provide the liquidity necessary to
satisfy the Company's working capital needs, including the purchase and
maintenance of inventory and the financing of the Company's accounts receivable,
and anticipated capital expenditures for the next fiscal year. Capital
expenditures for fiscal 1997 are anticipated to be approximately $11 million,
including approximately $6 million for upgrades to the Company's information
systems and the majority of the balance for manufacturing equipment.
17
<PAGE> 19
INFLATION
Inflation has not had a significant impact on the Company in the past three
years nor is it expected to have a significant impact in the foreseeable future.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted by the Company until fiscal 1997, include
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
and SFAS No. 123, "Accounting for Stock Based Compensation."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This pronouncement is not expected to have a material impact on the
financial statements of the Company.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on new fair value accounting
rules. Companies that choose not to adopt the new fair value accounting rules
will be required to disclose pro forma net income and earnings per share under
the new method. The Company anticipates adopting the disclosure provisions of
SFAS No. 123, although the impact of such disclosure has not been determined.
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<PAGE> 20
BUSINESS
GENERAL
The Company develops, manufactures, markets and sells vitamins, nutritional
supplements and consumer health products through three channels of distribution:
sales to retailers; direct sales through independent distributors; and mail
order. The Company offers a broad line of approximately 1,500 products
consisting of approximately 1,900 stock keeping units ("SKUs"), including
vitamins in both multivitamin and single-entity formulas, minerals, herbals,
homeopathic remedies, weight management products, skin care products and
over-the-counter ("OTC") pharmaceuticals. The Company has experienced
significant growth in recent years as net sales have grown from $74.2 million in
fiscal 1992 to $187.8 million in fiscal 1996, representing a compound annual
growth rate ("CAGR") of 26%.
The Company's recent growth has been driven significantly by sales of its
Sundown(R) brand of vitamins and nutritional supplements, which currently
represent approximately 76% of the Company's sales to retailers. The Sundown
brand offers a broad selection of approximately 290 high quality products at
prices lower than comparable-quality branded vitamins, thereby creating value
for consumers as well as higher rates of shelf inventory turnover for retailers.
According to data from Information Resources, Inc. ("IRI"), a retail information
gathering service, in the broadline vitamin category, Sundown is currently the
number two brand in dollar and unit sales across all food, drug and mass
merchandiser retail outlets and generates the highest rate of dollar and unit
sales per share of all commodity volume ("ACV") distribution. The Company
believes that Sundown's high sales velocity is a result of its value pricing
strategy and its high quality products, most of which are unique. The Company
also believes that there are significant opportunities for continued growth
because Sundown products are currently available in outlets representing only
35% of ACV sales. In fiscal 1995, the Company commenced nationwide distribution
of Sundown products to all Kmart stores. Since May 1996, the Company has begun
nationwide distribution of Sundown products to all WalMart stores and
Thrifty-Payless and Eckerd drug stores. The Company's net sales of Sundown
products have increased from $42.1 million in fiscal 1992 to $71.4 million in
fiscal 1996.
Another important factor contributing to the Company's recent growth has
been the Company's network marketing subsidiary, Rexall Showcase International,
Inc. ("Rexall Showcase"). Rexall Showcase develops, markets and sells health and
wellness products through a sales force of independent distributors. Rexall
Showcase products include weight management products, homeopathic medicines,
personal care products, health and nutritional supplements and water filtration
systems. Rexall Showcase products are specially formulated and packaged only for
this distribution channel and are not available through retailers. The Company
believes that Rexall Showcase has several competitive advantages over other
direct sales organizations including: (i) the Rexall brand name under which
health products have been marketed since 1903; (ii) Rexall Showcase's commission
plan which the Company believes is financially attractive to its independent
distributors; (iii) its broad product mix which includes approximately 40
innovative products that are unique to Rexall Showcase; and (iv) Rexall
Showcase's ability to attract, support and motivate distributors. The Company
intends to further expand its direct sales business by continuing to develop and
offer innovative products, add independent distributors and provide sales
support. In addition, the Company seeks to educate and motivate its existing and
prospective distributors through comprehensive sales aids and regularly
scheduled regional and national conventions and local meetings. Rexall
Showcase's independent distributors are not required to make any inventory
purchases and, to become a distributor, must only purchase a $49.50 distributor
kit. Rexall Showcase recently initiated its international expansion by
commencing operations in Mexico in February 1996 and South Korea in April 1996
and intends to commence operations in selected other countries in the future.
Rexall Showcase's net sales have increased from $10.4 million in fiscal 1992 to
$76.5 million in fiscal 1996.
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<PAGE> 21
INDUSTRY OVERVIEW
The Company believes that it is well-positioned to capitalize on the
expected growth and consolidation in the highly fragmented vitamin and
nutritional supplement industry. As reported by industry sources, the annual
domestic retail market for vitamins and nutritional supplements grew from $3.3
billion in 1991 to $4.9 billion in 1995, representing a CAGR of 10%. The Company
believes that growth in the vitamin and nutritional supplement market is being
driven by several factors, including: (i) the general public's heightened
awareness and understanding of the connection between diet and health; (ii) the
increase in baby-boomer and senior-aged population groups, which are more likely
to consume vitamins; (iii) product introductions in response to new scientific
research; and (iv) the nationwide trend toward preventative medicine.
In the last several years, public awareness of the positive effects of
vitamins and nutritional supplements on health has been heightened by widely
publicized reports of scientific findings. Recent studies have indicated a
correlation between the regular consumption of selected vitamins and nutritional
supplements and reduced incidences of conditions such as heart disease, cancer,
stroke, osteoporosis and neural tube birth defects. The rise of alternative
medicine and the holistic health movement has also contributed to increased
sales of nutritional supplements.
The Company expects that the aging of the United States population,
together with a corresponding increased focus on preventative health measures,
will result in increased demand for vitamins and nutritional supplement
products. According to the United States Census Bureau, through 2010, the
35-and-older age group of consumers, which represents approximately 78% of
regular users of vitamin and nutritional supplements, is expected to grow
significantly faster than the general United States population. Based on a
national survey indicating that only 33% of Americans consumed vitamins and
nutritional supplements on a regular basis in 1995, the Company believes that
there is a large untapped domestic market for vitamins and nutritional
supplements. Industry sources also report that vitamin consumers are taking more
vitamins and nutritional supplements per day than in the past.
The primary channels of distribution in the vitamin and nutritional
supplement industry are: (i) mass market retailers which include mass
merchandisers, drug stores, supermarkets and discount stores; (ii) health food
stores; (iii) direct sales organizations; and (iv) mail order. Within the mass
market retailer channel, there are three primary vitamin product categories:
national brands, broadline and other brands, and private label brands. According
to industry sources, during 1994 and 1995, the market for national brands and
broadline and other brands of vitamins in the mass market was approximately 60%
of total domestic vitamin sales and the market for private label vitamins was
approximately 40% of such sales. For the first six months of calendar 1996,
industry sources indicate that the market for national brands and broadline and
other brands of vitamins in the mass market was approximately 63% of total
domestic vitamin sales and the market for private label vitamins was
approximately 37% of such sales. The national brand category primarily consists
of multivitamins and mineral products marketed under nationally advertised names
such as Centrum(R), One-A-Day(R) and Theragran(R). Broadline brands, such as the
Company's Sundown brand, offer a complete range of products under one brand
name, including multivitamins, single-entity vitamins, minerals and nutritional
supplements, including herbal products. Private label products marketed under
the retailer's store brand name also offer a wide product assortment, albeit
somewhat narrower in scope than broadline brands, including national brand
equivalent formulas positioned as lower-priced "compare and save" products. The
Company believes that broadline brands have gained market share primarily at the
expense of national brands as consumers have increased their consumption of
single-entity vitamins and nutritional supplements while the market for
multivitamins has remained essentially flat.
While the retail channel of distribution for vitamins and nutritional
supplements has been consolidating, there has not yet been any significant
consolidation among the companies that manufacture and sell these products. The
vitamin and nutritional supplement industry remains fragmented, and the Company
believes that no company controls more than 10% of the market. The Company
believes that the larger retailers will align themselves with those companies
that offer a wide variety of high quality products at competitive prices, have a
loyal customer base, support their brands with strong marketing and provide
consistently high levels of customer service. The Company believes that
increasing standards for manufacturing and product quality,
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<PAGE> 22
resulting in part from a changing regulatory environment, could also result in
consolidation among vitamin and nutritional supplement companies as it becomes
more difficult for smaller companies to compete effectively. See "-- Government
Regulation." The Company believes it is well-positioned to capitalize on these
industry trends.
GROWTH STRATEGY
The Company's objective is to achieve profitable sales growth and maximize
market share in its targeted domestic and international markets. To achieve its
growth objectives, the Company intends to employ the following strategies: (i)
leverage the success of the Sundown brand to increase its market share in mass
merchandisers, chain drug stores and supermarkets; (ii) continue the growth of
Rexall Showcase by further developing its product line and increasing the number
and productivity of its independent distributors that market and sell its
products; and (iii) supplement the Company's internal growth through strategic
acquisitions in health and wellness-related markets that leverage existing or
add new distribution channels.
LEVERAGE SUCCESS OF SUNDOWN BRAND. The Company intends to leverage
the success of its Sundown brand by increasing its penetration of select
mass merchandisers, chain drug stores and supermarkets, while continuing to
maintain high sales velocity. The Sundown brand strategy is to offer a
broad selection of high quality products at prices lower than
comparable-quality branded vitamins, thereby creating value for consumers
as well as higher rates of shelf inventory turnover for retailers. In
addition, the Company intends to build upon its existing customer
relationships by continuing to provide responsive service through timely
and innovative product introductions, value-added operating information,
training support and marketing programs that are tailored to its customers'
needs. Sales of the Sundown brand of products have grown from $42.1 million
in fiscal 1992 to $71.4 million in fiscal 1996. According to data from IRI,
in the broadline vitamin category, Sundown generates the highest rate of
dollar and unit sales per share of ACV distribution and is currently the
number two brand in dollar and unit sales, despite its availability in
outlets representing only 35% of ACV sales.
CONTINUE GROWTH OF REXALL SHOWCASE. The Company has experienced
significant growth in the sales of Rexall Showcase, with sales increasing
from $10.4 million in fiscal 1992 to $76.5 million in fiscal 1996. The
Company intends to further expand its direct sales business by continuing
to develop and offer innovative products, add independent distributors and
provide sales support. In addition, the Company seeks to educate and
motivate its existing and prospective distributors through comprehensive
sales aids and regularly scheduled regional and national conventions and
local meetings. In addition, Rexall Showcase intends to build on its recent
international expansion into Mexico and South Korea by commencing
operations in selected other countries in the future.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue
strategic acquisitions in the health and wellness-related markets, which
opportunities it believes are available because of the highly-fragmented
nature of the industry. The Company intends to actively pursue acquisition
opportunities that are compatible with its business philosophy, have a
level of critical mass and infrastructure necessary to generate rates of
growth expected by the Company and have a positive financial impact on the
Company's operations. The Company expects that such acquisitions may
include products, product lines or businesses.
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<PAGE> 23
SALES BY DISTRIBUTION CHANNEL
Set forth below for the periods indicated are the net sales and percent of
net sales of the Company's products through the Company's three current
distribution channels.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------------------
DISTRIBUTION CHANNEL 1992 1993 1994 1995 1996
- -------------------------------- --------------- --------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to retailers:
Sundown....................... $42,112 56.7% $46,571 50.0% $ 54,216 47.5% $ 62,427 41.8% $ 71,387 38.0%
Other(1)...................... 10,293 13.9 12,231 13.2 14,050 12.3 17,722 11.8 22,728 12.1
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Total net sales to 52,405 70.6 58,802 63.2 68,266 59.8 80,149 53.6 94,115 50.1
retailers.............
Direct sales -- Rexall 10,418 14.0 20,535 22.0 29,510 25.9 52,606 35.2 76,483 40.7
Showcase......................
Mail order -- SDV............... 11,417 15.4 13,810 14.8 16,343 14.3 16,718 11.2 17,246 9.2
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Total net sales......... $74,240 100.0% $93,147 100.0% $114,119 100.0% $149,473 100.0% $187,844 100.0%
======= ===== ======= ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) Rexall, Thompson, private label and Rexall Managed Care sales.
SALES TO RETAILERS
For its sales of vitamins and nutritional supplements to retailers, the
Company employs a marketing strategy directed at the end-user, with an emphasis
on educating these consumers. The Company provides a wide product selection with
many unique formulations, value pricing, clear and informative labeling, timely
and innovative product introductions, and specially designed shelf organization
systems. Net sales to retailers have grown from $52.4 million in fiscal 1992 to
$94.1 million in fiscal 1996.
Sundown. The Company has been selling vitamins and nutritional supplements
under the Sundown tradename since 1976. The Sundown brand offers a broad
selection of high quality products at prices lower than comparable-quality
branded vitamins, thereby creating value for consumers as well as higher rates
of shelf inventory turnover for retailers. The Company believes that its retail
customers experience increased profits per linear shelf foot due to the high
sales velocity of the Sundown brand. According to data from IRI, in the
broadline vitamin category, Sundown generates the highest rate of dollar and
unit sales per share of ACV distribution and is currently the number two brand
in dollar and unit sales, despite its availability in outlets representing only
35% of ACV sales.
Historically, a majority of the Sundown brand sales were to regional deep
discount retailers. The success of the Company's value pricing strategy and high
sales velocity has enabled the Company to increase its sales to mass
merchandisers, chain drug stores and supermarkets. In fiscal 1995, the Company
gained nationwide distribution of Sundown products to all Kmart stores. Since
May 1996, the Company has begun nationwide distribution of Sundown products to
all WalMart stores and Thrifty-Payless and Eckerd drug stores. Sundown's net
sales have increased from $42.1 million in fiscal 1992 to $71.4 million in
fiscal 1996.
The Company sells approximately 290 vitamins and nutritional supplements
under the Sundown tradename, including among others, vitamin C, vitamin E,
multivitamins, folic acid, calcium, lecithin, selenium, magnesium, iron,
potassium, herbals and food supplements. Because the Company offers most of its
products in varying quantities, the Sundown line consists of approximately 750
SKUs. Vitamins and minerals are sold as single-entity supplements, multivitamin
combinations and in varying potency levels, and are offered in tablet, softgel,
two-piece capsule, chewable, liquid and powder forms to accommodate various
consumer preferences. The Company also offers national brand comparisons under
the Sundown brand which have multivitamin formulas comparable to such products
as Centrum(R), One-A-Day(R) and Theragran(R).
The Company monitors new and developing health and nutrition trends in
order to anticipate consumer demand and to introduce new products and
reformulate existing products. Examples of the Company's anticipation of and
response to consumer demand in the past two years include the introduction of
(i) three new herbal and food supplements (Saw Palmetto, Hawthorn Berry and
Bilberry) to complement the early 1995 introduction of 13 herbal products; (ii)
Fortified Pycnogenol(R), which includes additional key antioxi-
22
<PAGE> 24
dants Coenzyme Q-10, Selenium and Grape Seed Extract (the Pycnogenol(R)
trademark is owned by a third party); (iii) Grape Seed Extract, an antioxidant
that provides abundant amounts of proanthocyanidins; (iv) Melatonin at the lower
300 mcg level to allow consumers to better regulate their dosage; (v)
Intelligent Multiple(R), a multivitamin that excludes vitamins C and E, which
consumers often take separately; and (vi) E-400/Folic Acid, fortified with
vitamins B(*) and B(')', which, when combined, play an important role in energy
production and the formation of red blood cells. The Company has not incurred
material research and development expenses with respect to vitamins and
nutritional supplements. Product concepts are internally developed by the
Company's product development team, which consists of representatives of the
Company's research and development, sales and marketing and purchasing
departments and members of senior management. See "-- Product Development."
The Company markets its Sundown vitamin and nutritional supplements
internationally through a network of distributors. The Company has exclusive and
non-exclusive distribution agreements in foreign countries throughout the world,
with the majority of international revenues presently being generated from South
America. The Company believes that certain markets in South America, the Middle
East and the Far East represent the most attractive international outlets for
its products. All international sales are settled in United States currency.
Other Sales to Retailers. In addition to sales of Sundown products, the
Company's other sales to retailers include sales under the Rexall brand to
wholesalers, convenience stores and independent drug stores, the Thompson brand
to health food stores, private label products to selected mass merchandisers and
drug stores and the Rexall Managed Care brand to HMOs, hospitals and long-term
care facilities.
In 1989, the Company purchased the Rexall tradename, under which health
products have been marketed since 1903. An independent study has shown that the
Rexall tradename is widely recognized by households in the United States. The
Company's marketing strategy with respect to both its Rexall vitamin and OTC
drug lines is to emphasize a national branded product at generic prices. The
Company markets a full line of approximately 100 moderately-priced vitamins and
nutritional supplements under the Rexall tradename, primarily to independent
drug stores, wholesalers and convenience stores. In addition, approximately 75
OTC pharmaceutical products, including aspirin, cold remedies and analgesic
formulas, are offered under the Rexall tradename in formulas comparable to
nationally advertised products such as Bayer(R), Advil(R), Nuprin(R),
Tylenol(R), Contac(R), Robitussin(R), Sudafed(R), Benadryl(R) and Mylanta(R).
Recently, the Company has begun to license the Rexall name in various
international markets for vitamins and OTC pharmaceuticals.
In 1990, the Company acquired the operating assets of Wm. T. Thompson Co.,
Inc., which was founded in 1935, including the Thompson trademark. The "Rainbow"
line of Thompson vitamins is sold through health food stores and consists of
approximately 135 products in approximately 160 SKUs, many of which have high
potencies and are unique to Thompson. The Rainbow line represents the Company's
premium line, and is priced competitively with other similar vitamin products
sold in health food stores. Because the Company's targeted customer for Thompson
products is the sophisticated vitamin consumer, the Company's strategy includes
constantly monitoring new and developing trends in health and nutrition and
adapting its product offerings accordingly.
While the Company does not emphasize private label manufacturing, in select
instances the Company offers these products to accommodate specific customer
requests. For fiscal 1996, approximately 3.8% of the Company's net sales were
from private label products.
The Rexall Managed Care Division was formed in 1995 to market and sell
vitamins, nutritional supplements and OTC pharmaceuticals to the managed care
marketplace with a focus on HMOs, hospitals and long-term care facilities. The
Rexall Managed Care line currently consists of approximately 70 OTC
pharmaceuticals, 55 vitamin products and three prescription products.
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<PAGE> 25
DIRECT SALES THROUGH INDEPENDENT DISTRIBUTORS
In 1990, the Company formed Rexall Showcase, its network marketing
subsidiary, to market and sell unique health and wellness products through a
sales force of independent distributors. Rexall Showcase products include weight
management products, homeopathic medicines, personal care products, health and
nutritional supplements and water filtration systems. Rexall Showcase products
are specially formulated and packaged only for this distribution channel and are
not available through retailers. The Company believes that Rexall Showcase has
several competitive advantages over other direct sales organizations including:
(i) the Rexall brand name under which health products have been marketed since
1903; (ii) Rexall Showcase's commission plan which the Company believes is
financially attractive to its independent distributors; (iii) its broad product
mix which includes approximately 40 innovative products that are unique to
Rexall Showcase; and (iv) Rexall Showcase's ability to attract, support and
motivate distributors. The Company intends to further expand its direct sales
business by continuing to develop and offer innovative products, add independent
distributors and provide sales support. In addition, the Company seeks to
educate and motivate its existing and prospective distributors through
comprehensive sales aids and regularly scheduled regional and national
conventions and local meetings. Rexall Showcase's independent distributors are
not required to make any inventory purchases and, to become a distributor, must
only purchase a $49.50 distributor kit. Rexall Showcase recently initiated its
international expansion by commencing operations in Mexico in February 1996 and
South Korea in April 1996 and intends to commence operations in selected other
countries in the future. Rexall Showcase's net sales have increased from $10.4
million in fiscal 1992 to $76.5 million in fiscal 1996.
The Rexall Showcase distributor kit includes product brochures and
information, sales aids, order forms and other business information. Such
distributor kits are sold at approximately Rexall Showcase's cost. Rexall
Showcase processes, fills and ships orders from the Company's distribution
center, usually within a 24 hour period after the order is placed by the
distributor. Rexall Showcase guarantees the quality of its products and
customers may return any product to the selling distributor within 30 days for a
total refund or replacement. Prior to placing orders for additional products,
distributors are required to certify that they have sold at least 70% of their
prior order. In the event of termination of the relationship between Rexall
Showcase and a distributor, Rexall Showcase will repurchase from such
distributor all resaleable inventory purchased by such distributor within 12
months of such termination for 90% of the original net cost to the distributor.
To date, such returns have not been material.
Rexall Showcase's success is dependent upon continued sales of its products
to consumers by its distributors and the ongoing recruitment and maintenance of
a motivated, experienced network of distributors. Rexall Showcase sponsors and
conducts regional and national conventions in order to educate and recruit
distributors, and employs various technologies and innovations which allow for
fast and efficient communication and service between Rexall Showcase, its
distributors and their customers. These include such tools as (i) the Autoship
program, which allows products to be regularly shipped each month directly from
Rexall Showcase to the end-user; (ii) voice mail, which allows Rexall Showcase
or its distributors to send phone messages to large numbers of distributors at
once or communicate to specific distributors; and (iii) the private Rexnet(SM)
satellite network, which the Company uses to broadcast educational and training
programs describing Rexall Showcase products and business opportunities to
distributors, prospective distributors and customers. The Company also maintains
a dedicated department to provide information and assistance to distributors.
The Company publishes and distributes a bi-monthly newsletter to inform its
distributors of recent developments and other relevant information and to
recognize the accomplishments of certain distributors. Rexall Showcase also
offers participation in a stock option plan and stock purchase plan to
distributors who reach certain sales targets.
MAIL ORDER
The Company's mail order division markets and sells products primarily
under its SDV brand directly to consumers through catalogs and direct mailings.
This division targets approximately 200,000 of the most active customers out of
an approximate 565,000 household proprietary mailing list developed by the
Company since its inception in 1976. The Company's SDV division offers
approximately 420 products in approximately
24
<PAGE> 26
940 SKUs, including a full line of vitamins, minerals and other nutritional
supplements along with selected health-related products at prices which are
competitive with those of other mail order companies. Net sales for the
Company's SDV division have increased from $11.4 million in fiscal 1992 to $17.2
million in fiscal 1996. As the Company has focused primarily on its Sundown
brand and Rexall Showcase, the Company has not allocated significantly increased
resources to its mail order division.
SALES SUPPORT AND CUSTOMER SERVICES FOR RETAILERS
The Company utilizes its information systems and staff of sales and
customer support professionals to provide retailers with a comprehensive array
of services. The Company seeks to assist the retailer with sales initiatives,
sales data analyses and marketing and merchandising programs, all of which are
designed to maximize in-store awareness of the Company's products and improve
results in the retailer's vitamin and nutritional supplement category. For a
number of its retail customers, the Company serves as a category manager, at no
additional cost to the retailer, actively analyzing, monitoring and advising on
product selection, profitability, sales velocity and overall performance of the
retailer's entire vitamin and nutritional supplement category. To help optimize
the performance of its retailers' departments, as well as sales of the Company's
products, the Company develops computerized plan-o-grams designed to efficiently
utilize shelf space and direct consumers' attention to the Company's products.
In addition, the Company provides marketing support for its product lines
by developing customized marketing programs. The Company's graphic arts
department provides customer support by designing packaging displays and point
of purchase material for customers as well as informative, easy-to-read labels
and packages for the Company's products. The Company believes that its
double-sided label gives it a shelf-facing advantage appreciated by retailers.
Support for retail sales is further provided through various in-store
merchandising centers, including information pamphlets for consumers, displays,
featuring key and topical products, and "Nutrition News," a Company publication
directed to pharmacists. The Company employs and contracts with merchandisers
who periodically visit certain retailers to restock the shelves, place new
orders and monitor and update the presentation of the Company's product line
through floor displays, side wings, shelf-talkers, store signs, promotional
packs and other individualized promotions.
To further support sales, the Company has historically expended
approximately 2% of its net sales on advertising. To date, this spending has
primarily been in the form of cooperative support to retailers; however, the
Company has also conducted some brand advertising on a limited basis. In
addition, Dick Clark is the Company's national spokesperson, Sundown is the
official vitamin brand of the Miami Dolphins and the Company sponsors various
sports personalities and events. In the future, the Company expects to use
various forms of mass media advertisement to build the national reputation and
recognition of its brands, primarily Sundown.
At October 1, 1996, the Company had a total sales force of approximately 30
employees responsible for accounts located throughout the United States, who are
paid on a salary and commission basis. In addition, the Company utilizes a
national brokerage alliance of approximately 70 independent representative
organizations in the United States and internationally, substantially all of
which sell the Company's brands on an exclusive basis in their respective
product categories. The Company also had a total of approximately 80 employees
devoted to customer service and support for retailers.
PRODUCT DEVELOPMENT
The Company consistently and timely introduces new and innovative products.
New product ideas are generated from a variety of sources, including clinical
studies reported in scientific and medical periodicals such as the New England
Journal of Medicine and the Journal of the American Medical Association. The
Company also responds to suggestions from vendors and consumers. Such product
ideas are developed by the Company's product development team which consists of
representatives of the Company's research and development, sales and marketing
and purchasing departments and members of senior management. For select
products, the Company's product development team is assisted by independent
consultants. The ideas
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<PAGE> 27
are then submitted to the Company's operations department which determines the
overall feasibility of developing and producing the product. As part of this
overall feasibility analysis, the Company's regulatory department conducts a
thorough investigation of the safety and potential regulatory issues with
respect to the new product, and reviews any patent and trademark issues.
Following the regulatory department's review, the Company's purchasing
department obtains any raw materials necessary to produce the new product and,
after applicable testing, the Company begins production of an initial pilot
sample to study various characteristics of the products. The Company's technical
services department conducts tests on the pilot sample to ensure that the new
product meets all applicable regulatory and internal quality standards. Based on
these tests, final labels and product specifications, including any
substantiated statements of nutritional support, such as structure and function
claims for the new product, are developed, along with the final costs of
production which are reviewed by the financial and marketing teams to determine
that expected margins can be obtained based on the anticipated sales price. The
Company has typically been able to complete the cycle from product concept to
final production in a period ranging from several weeks to several months.
The Company believes that new product introductions have enabled it and its
retail customers to increase market share, and the Company intends to continue
developing new products in the future. During fiscal 1996, the Company
introduced 15 new products for Sundown, 10 new products for Rexall Showcase and
24 new products for other divisions.
MANUFACTURING AND QUALITY CONTROL
In June 1994, the Company commenced manufacturing vitamin tablets at its
82,000 square foot plant located adjacent to the Company's administrative office
building in Boca Raton, Florida. The Company's vitamin manufacturing facility
enables the Company to better ensure continued sources of supply, reduce cost of
goods sold and maintain high product quality. The Company recently began
manufacturing two-piece capsules at this facility. Currently, the Company
manufactures approximately 60% of its products and, with the addition of
two-piece capsules, anticipates increasing that percentage to 75% by the end of
fiscal 1997. The balance of the Company's vitamins and nutritional products are
purchased from independent third parties that manufacture such products to the
Company's specifications and standards. At this time, the Company does not
believe it is cost-effective to manufacture softgels and, accordingly, it will
continue to purchase these products from independent suppliers. In the future,
the Company will continue to monitor the cost of manufacturing other products in
order to determine whether in-house manufacturing of such products would be
cost-effective. The Company purchases all of its OTC pharmaceuticals from
various independent suppliers. The Company's manufacturing and distribution
operations employ over 350 persons and have recently been enhanced by the
opening of its western distribution facility in Sparks, Nevada.
The Company emphasizes quality control. All of the Company's products are
manufactured in accordance with the applicable CGMPs of the FDA and other
applicable regulatory and compendial standards, such as the United States
Pharmacopeia ("USP"). All raw materials and finished products undergo various
testing procedures, including sample testing, weight testing, purity testing
and, where required, microbiological testing. In November 1995, H.V. Shuster,
Inc., an independent quality assurance and testing service, awarded the Company
its highest rating for vitamin manufacturing companies for its vitamin
manufacturing facility and operations, including its manufacturing, testing and
quality control procedures.
Upon receipt by the Company of raw materials or finished products such as
tablets or softgels at its manufacturing facilities, such raw materials or
products are placed in quarantine and tested by the Company's technical services
department. When the raw materials released from quality control are ready for
production, they are blended and produced into tablets or two-piece capsules.
The principal raw materials used in the manufacturing process are natural and
synthetic vitamins, which are purchased by the Company from bulk manufacturers
in the United States and internationally and are believed to be readily
available from numerous sources. Although the Company believes that all of its
sources of raw materials and products are reliable, the Company's results of
operations could be adversely impacted should it be forced to find replacement
sources of supply on short notice.
26
<PAGE> 28
GOVERNMENT REGULATION
The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the FDA, the Federal Trade Commission (the "FTC"),
the Consumer Products Safety Commission, the United States Department of
Agriculture, the United States Postal Service, the United States Environmental
Protection Agency and the Occupational Safety and Health Administration. These
activities are also regulated by various agencies of the states, localities and
foreign countries, in which the Company's products are sold. In particular, the
FDA regulates the safety, manufacturing, labeling and distribution of dietary
supplements, including vitamins, minerals and herbs, food additives, food
supplements, OTC and prescription drugs and cosmetics. In addition, the FTC has
overlapping jurisdiction with the FDA to regulate the labeling, promotion and
advertising of dietary supplements, OTC drugs, cosmetics and foods.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted on October 25, 1994. DSHEA amends the Federal Food, Drug and Cosmetic
Act by defining dietary supplements, which include vitamins, minerals,
nutritional supplements and herbs as a new category of food separate from
conventional food. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and the dissemination of accurate information about such
products. Under DSHEA, the FDA is generally prohibited from regulating dietary
supplements as food additives or as drugs unless product claims, such as claims
that a product may heal, mitigate, cure or prevent an illness, disease or
malady, trigger drug status.
DSHEA provides for specific nutritional labeling requirements for dietary
supplements effective January 1, 1997, although final regulations have not been
published and the FDA has indicated that implementation will be delayed. DSHEA
permits substantiated, truthful and non-misleading statements of nutritional
support to be made in labeling, such as statements describing general well-being
resulting from consumption of a dietary ingredient or the role of a nutrient or
dietary ingredient in affecting or maintaining structure or function of the
body. Any statement of nutritional support beyond traditional claims must be
accompanied by disclosure that the FDA has not evaluated such statement and that
the product is not intended to cure or prevent any disease. The Company
anticipates that the FDA will promulgate CGMPs which are specific to dietary
supplements and require at least some of the quality control provisions
contained in the CGMPs for drugs. The Company currently manufactures its
vitamins and nutritional supplement products in compliance with the applicable
food CGMPs.
The FDA has proposed but not finalized regulations to implement DSHEA. The
Company cannot determine what effect such regulations, when promulgated, will
have on its business in the future. Such regulations are likely to require
expanded or different labeling for the Company's vitamins and nutritional
supplement products and could, among other things, require the recall,
reformulation or discontinuance of certain products, additional recordkeeping,
warnings, notification procedures and expanded documentation of the properties
of certain products and scientific substantiation regarding ingredients, product
claims, safety or efficacy. The Company believes that it is in material
compliance with all applicable laws.
DSHEA created two new governmental bodies. The Commission on Dietary
Supplements was established for two years to provide recommendations for the
regulation of supplement labeling and health claims, including procedures for
making disease-related claims. The Office of Dietary Supplements, established
within the National Institute of Health, is charged with coordinating research
on dietary supplements and disease prevention, compiling research results, and
advising the Secretary of Health and Human Services on supplement regulation,
safety and health claims.
Although the vitamin and nutritional supplement industry is subject to
regulation by the FDA and local authorities, dietary supplements, including
vitamins, minerals, herbs and nutritional supplements, now have been statutorily
affirmed as a food and not as a drug or food additive. Therefore, the regulation
of dietary supplements is far less restrictive than that imposed upon
manufacturers and distributors of drugs or food additives. Unlike food
additives, which are more pervasively regulated, and new drugs, which require
regulatory approval of formulation and labeling prior to marketing, dietary
supplement companies are authorized to make substantiated statements of
nutritional support and to market manufacturer-substantiated-as-safe dietary
supplement products without FDA preclearances. Failure to comply with applicable
FDA
27
<PAGE> 29
requirements can result in sanctions being imposed on the Company or the
manufacturers of its products, including warning letters, fines, product recalls
and seizures.
The OTC pharmaceutical products distributed by the Company's Rexall, Rexall
Showcase and Rexall Managed Care divisions are subject to regulation by a number
of federal and state governmental agencies. In particular, the FDA regulates the
formulation, manufacture, packaging and labeling of all OTC pharmaceutical
products. The Company believes that its OTC pharmaceutical products distributed
by the Company's Rexall, Rexall Showcase and Rexall Managed Care divisions
comply in all material respects with existing regulations.
Rexall Showcase is subject to regulation under various international, state
and local laws which include provisions regulating, among other things, the
operations of direct sales programs. The Company believes that it is in material
compliance with such provisions and has, in certain cases, established
procedures providing greater protection for its distributors than is required by
law.
COMPETITION
The market for the sale of vitamins and nutritional supplements is highly
competitive. Competition is based principally upon price, quality of products,
customer service and marketing support. There are numerous companies in the
vitamin and nutritional supplement industry selling products to retailers such
as mass merchandisers, drug store chains, independent drug stores, supermarkets
and health food stores. Most companies are privately held and the Company is
unable to precisely assess the size of such competitors. No company is believed
to control more than 10% of this market.
The market for OTC pharmaceuticals and health and beauty care products is
highly competitive. Competition is based principally upon price, quality of
products, customer service and marketing support. The Rexall brand competes with
nationally advertised brand name products and private label products.
Although Rexall Showcase competes with other health and nutritional food
companies, the Company believes its primary competition stems from direct sales
companies. The Company competes in the recruitment of independent sales people
with other direct sales organizations whose product lines may or may not compete
with the Company's products.
Although certain of the Company's competitors are substantially larger than
the Company and have greater financial resources, the Company believes that it
competes favorably with other vitamin and nutritional supplement companies and
other OTC pharmaceutical companies because of its competitive pricing, marketing
strategies, sales support and the quality, uniqueness and breadth of its of
product line.
TRADEMARKS AND PATENTS
The Company owns trademarks registered with the United States Patent and
Trademark Office or certain other countries for its Sundown(R), Thompson(R),
Rexall Showcase International(R) and Rexall(R) trademarks, and has rights to use
other names material to its business. In addition, the Company has obtained
trademarks for certain of its products including Plenamins(R), Super
Plenamins(R), SunVite(R), Ultra Max(R), Perfect Iron(R), Perfect Antioxidant(R),
Ginstamina(R), Circus Chews(R), Digest-It(R), Bios Life 2(R), In-Vigor-ol(R),
Calmplex(R), Metaba-trol(R), Nature Force(R), Human Nature(R), Mature
Choices(R), Memory Plus(R), Advanced Release Technology(R), Cardio Basics(R),
Defend-ol(R), Intern-ol(R) and Traum-ex(R). The Company has trademark and
service mark applications pending for Cellular Essentials(TM), Vascular
Complete(TM), Rexnet(SM), Rexweb(SM) and Rextel(SM). Federally registered
trademarks have perpetual life, as long as they are renewed on a timely basis
and used properly as trademarks, subject to the rights of third parties to seek
cancellation of the marks. The Company regards its trademarks and other
proprietary rights as valuable assets and believes they have significant value
in the marketing of its products. The Company vigorously protects its trademarks
against infringement. The Company owns certain patents in the United States
relating to its Bios Life 2 and Bios Life 2 Natural weight management products
and a patent for double-sided labels in the vitamin industry. Although the
Company owns the Rexall(R) trademark, none of the operating Rexall Drug Stores
are owned by the Company or have any obligation to purchase products from the
Company.
28
<PAGE> 30
PRODUCT LIABILITY INSURANCE
The Company, like other manufacturers, wholesalers, distributors and
retailers of products that are ingested, faces an inherent risk of exposure to
product liability claims if, among other things, the use of its products results
in injury. The Company currently has product liability insurance for its
operations in amounts the Company believes is adequate for its operations. There
can be no assurance, however, that such insurance will continue to be available
at a reasonable cost, or if available, will be adequate to cover liabilities.
The Company requires that each of its suppliers certify that it carries adequate
product liability insurance covering the Company.
EMPLOYEES
At October 1, 1996, the Company employed approximately 740 full-time
persons. None of the Company's employees is represented by a collective
bargaining unit. The Company believes that its relationship with its employees
is good.
PROPERTIES
As of October 1, 1996, the Company owned or leased the following
facilities:
<TABLE>
<CAPTION>
APPROXIMATE LEASED OR EXPIRATION DATE
LOCATION TYPE OF FACILITY SQUARE FEET OWNED OF LEASE
- ------------------- ----------------------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Boca Raton, Florida Administrative Offices 58,000 Owned --
Boca Raton, Florida Manufacturing and Production 82,000 Owned --
Boca Raton, Florida Warehouse and Distribution 100,000 Owned --
Boca Raton, Florida Warehouse and Distribution 90,000 Leased (1)
Sparks, Nevada Warehouse and Distribution 65,000 Leased September 1999
Seoul, South Korea Administrative Offices 4,700 Leased December 1996
Seoul, South Korea Distribution Service Center 5,000 Leased March 1997
Seoul, South Korea Warehouse 3,500 Leased April 1997
Mexico City, Mexico Administrative Offices, 5,600 Leased December 1997
Warehouse and Distribution
</TABLE>
- ---------------
(1) This facility is subject to two leases. The lease for 60,000 square feet of
the facility expires in March 1998 and the lease for 30,000 square feet of
the facility expires in April 1997.
LEGAL PROCEEDINGS
L-Tryptophan Litigation. Numerous unrelated manufacturers, distributors,
suppliers, importers and retailers of manufactured L-tryptophan are or were
defendants in an estimated 2,000 lawsuits brought in federal and state courts
seeking compensatory and punitive damages for alleged personal injury from
ingestion of products containing manufactured L-tryptophan. The Company has been
named in 27 lawsuits, of which 25 have been settled or discontinued through
October 1, 1996 and additional suits may be filed. Prior to a request from the
FDA in November 1989 for a national, industry-wide recall, the Company halted
sales and distribution of, and also ordered a recall of, L-tryptophan products.
Subsequently, the FDA indicated that there is a strong epidemiological link
between the ingestion of the allegedly contaminated L-tryptophan and a blood
disorder known as eosinophilia myalgia syndrome ("EMS"). Investigators at the
United States Center for Disease Control suspect that a contaminant was
introduced during the manufacture of the product in Japan. While intensive
independent investigations are continuing, there has been no indication that EMS
was caused by any formulation or manufacturing fault of the Company's supplier
or any of the other companies that manufactured tablets or capsules containing
L-tryptophan.
29
<PAGE> 31
The Company and certain companies in the vitamin industry, including
distributors, wholesalers and retailers, have entered into an agreement (the
"Indemnification Agreement") with Showa Denko America, Inc. ("SDA"), under which
SDA, a United States subsidiary of a Japanese corporation, Showa Denko K.K.
("SDK"), which appears to be the supplier of the apparently contaminated
product, has assumed the defense of all claims against the Company arising out
of the ingestion of L-tryptophan products and has agreed to pay the legal fees
and expenses in that defense. SDA has agreed to indemnify the Company against
any judgments and to fund settlements arising out of those actions and claims if
it is determined that a cause of the injuries sustained by the plaintiffs was a
constituent in the bulk material sold by SDA to the Company or its suppliers,
except to the extent that the Company is found to have any part of the
responsibility for those injuries and except for certain claims relating to
punitive damages. While the Indemnification Agreement remains in effect, the
Company and SDA have agreed not to institute litigation against each other
relating to claims based upon products containing L-tryptophan. In March 1993,
SDK entered into an agreement with the Company to guarantee the payment by its
subsidiary, SDA, pursuant to the Indemnification Agreement. However, it should
be noted, in attempting to prosecute claims against foreign nationals, complex
legal problems arise, such as jurisdiction, service of process, conflict of
laws, enforceability of judgments and cultural differences, among others.
It is the intention of the Company to hold SDA, and if necessary, SDK,
responsible for any liabilities and expenses incurred in connection with this
litigation, even if the Indemnification Agreement is terminated. SDA has posted
a revolving irrevocable letter of credit of $20 million to be used for the
benefit of the Company and other indemnified parties if SDA is unable or
unwilling to satisfy any claims or judgments. Although the parties have agreed
that the letter of credit will be replenished as needed, there can be no
assurance that such replenishment will occur or that there will be sufficient
funds available for the satisfaction of any and all claims or judgments. The
Company has product liability insurance, as does its supplier of L-tryptophan
products, which the Company believes provides coverage for all of its
L-tryptophan products subject to these claims, including legal defense costs.
Due to the multitude of defendants, the probability that some or all of the
total liability will be assessed against other defendants and the fact that
discovery in these actions is not complete, it is impossible to predict the
outcome of these actions or to assess the ultimate financial exposure of the
Company. The Company does not believe the outcome of these actions will have a
material adverse effect on the Company, and, accordingly, no provision has been
made in the Consolidated Financial Statements for any loss that may be incurred
by the Company as a result of these actions.
Hines Litigation. In April 1992, an action was commenced by Patrick J.
Hines, on behalf of himself and others similarly situated, against the Company,
Rexall Showcase and certain of its officers in the United States District Court
for the Southern District of Florida (Civ. Action 92-6387). The complaint
alleges, among other things, violation of the United States securities laws,
RICO and unfair advertising with respect to the operations of Rexall Showcase.
Virtually identical lawsuits on behalf of various plaintiffs were filed at
approximately the same time against various other direct sales companies by two
law firms, including the law firm representing Mr. Hines. The Company and Rexall
Showcase filed a motion to dismiss the complaint on numerous grounds, including
failure to state a cause of action and violations of the federal civil
procedural rules. Such motion was granted in June 1994 and the plaintiff was
given leave to file a new complaint, which he did. The allegations in the new
complaint are similar to those in the original complaint and include additional
claims of violations of various Florida statutes, including those relating to
deceptive advertising, business opportunities, franchises and securities. The
Company and Rexall Showcase have filed a motion to dismiss the new complaint on
numerous grounds, including failure to state a cause of action and violations of
the federal rules of civil procedure. Although the Company believes that such
lawsuit is without merit, no assurances can be given in this regard. The Company
will vigorously defend itself and believes any adverse decision will not have a
material adverse impact on the Company or Rexall Showcase.
Other Litigation. The Company is also involved in litigation relating to
claims arising out of its operations in the normal course of business, none of
which are expected, individually or in the aggregate, to have a material adverse
effect on the Company.
30
<PAGE> 32
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Carl DeSantis.......................... 57 Chairman of the Board and Chief
Executive Officer
Christian Nast......................... 65 President, Chief Operating Officer and
Director
Dean DeSantis.......................... 34 Senior Vice President - Operations and
Director
Damon DeSantis......................... 32 Executive Vice President, President of
Rexall Showcase and Director
Nickolas Palin......................... 49 Senior Vice President - Sales and
Marketing and Director
Geary Cotton........................... 44 Vice President - Finance, Chief
Financial Officer and Treasurer
Richard Werber......................... 44 Vice President - Legal Affairs, General
Counsel and Secretary
Stanley Leedy.......................... 62 Director
Raymond Monteleone..................... 48 Director
Howard Yenke........................... 60 Director
</TABLE>
CARL DESANTIS founded the Company in 1976, has served as its Chairman of
the Board and Chief Executive Officer since its inception, and served as its
President from 1976 to April 1995. Mr. DeSantis has had over 17 years of
experience with retail drugstore companies, including Super-X Drug Stores and
Walgreen Drug Stores. He is the father of Dean DeSantis and Damon DeSantis.
CHRISTIAN NAST has been President and Chief Operating Officer of the
Company since April 1995 and a Director of the Company since October 1993. From
December 1989 to April 1995, Mr. Nast was employed by Colgate Palmolive Co. as
its executive vice president - North America. Mr. Nast has over 40 years of
experience in the consumer products industry with companies such as
Bristol-Myers Company, Chesebrough-Ponds, Inc. and the Procter & Gamble Company.
DEAN DESANTIS has been Senior Vice President - Operations of the Company
since June 1989, a Director of the Company since March 1990 and joined the
Company in 1985. He is the son of Carl DeSantis and the brother of Damon
DeSantis.
DAMON DESANTIS has been President of Rexall Showcase since January 1993,
Executive Vice President and a Director of the Company since July 1988, and was
a Vice President of the Company from September 1983, when he joined the Company,
until July 1988. He is the son of Carl DeSantis and the brother of Dean
DeSantis.
NICKOLAS PALIN has been Senior Vice President - Sales and Marketing of the
Company since August 1989, a Director of the Company since December 1995 and
joined the Company in 1984. Prior to 1989, he served as the Company's General
Manager - Sales and Administration.
GEARY COTTON has been Vice President - Finance and Treasurer of the Company
since March 1993, Chief Financial Officer of the Company since August 1989 and
joined the Company in 1986. Mr. Cotton is a Certified Public Accountant.
31
<PAGE> 33
RICHARD WERBER has been Vice President - Legal Affairs and General Counsel
of the Company since August 1991 and Secretary of the Company since March 1993.
Prior to that, Mr. Werber was a partner in the law firm of Holland & Knight.
STANLEY LEEDY has been a Director of the Company since March 1993. Since
January 1985, Mr. Leedy has been the president and chief executive officer of
VanSan Corporation, a consulting firm for the pharmaceutical and vitamin
industry. From July 1989 through September 1992, Mr. Leedy served as president
of I. Wolfmark, Inc., which was an affiliate of the Company. Mr. Leedy has over
30 years of experience in the pharmaceutical and vitamin industry and has
previously served as president and chief executive officer of the Rexall Drug &
Chemical Company, a division of Dart Industries, Inc.
RAYMOND MONTELEONE has been a Director of the Company since April 1995.
Since July 1996, Mr. Monteleone has been the president and chief operating
officer of First American Railways, Inc. From May 1988 until January 1996, Mr.
Monteleone was employed by Sensormatic Electronics Corporation in various
capacities, including vice president - corporate development, planning and
administration and acting chief financial officer. Prior to that, Mr. Monteleone
was a partner with the accounting firm of Arthur Young & Company. Mr. Monteleone
is a Certified Public Accountant.
HOWARD YENKE has been a Director of the Company since April 1995. Since
July 1996, Mr. Yenke has been the president and chief operating officer of
LANart Corp., a private local area network company. From November 1995 to June
1996, Mr. Yenke was the president of The Yenke Group, a business consulting
firm. From November 1994 to October 1995, Mr. Yenke was the president and chief
executive officer of Enterprise Development Corporation of Palm Beach County, an
economic development consulting firm. From June 1994 to October 1994, Mr. Yenke
was president and chief executive officer of Arco Computer Products. From May
1989 to March 1994, Mr. Yenke was employed by Boca Research, Inc. in several
capacities, including its president and chief executive officer from September
1991 through March 1994. Prior thereto, Mr. Yenke was employed by IBM
Corporation in various executive management positions. Mr. Yenke is a director
of Checkmate Electronics, Inc.
32
<PAGE> 34
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Company's Chief
Executive Officer and the other four most highly paid executive officers who
were serving as executive officers at the end of fiscal 1996 (collectively, the
"Named Executive Officers"), for the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION(1)
---------------------------------------------- ---------------
NUMBER
FISCAL OTHER ANNUAL OF OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) GRANTED
- -------------------------------------- ------ -------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Carl DeSantis(3)...................... 1996 $415,383 $125,625 $16,098 52,500
Chairman of the Board and Chief 1995 321,205 10,000 9,958 37,500
Executive Officer 1994 305,037 160,000 8,862 82,500
Christian Nast(3)(4).................. 1996 308,158 113,500 8,269 52,500
President and Chief Operating 1995 113,077 -- 3,950 322,500
Officer 1994 -- -- -- --
Nickolas Palin(3)..................... 1996 234,635 114,401 4,890 112,500
Senior Vice President -- Sales and 1995 190,359 35,000 3,845 60,000
Marketing 1994 178,374 10,000 6,851 45,000
Dean DeSantis(3)...................... 1996 187,038 51,206 9,196 37,500
Senior Vice President -- Operations 1995 173,524 35,000 7,687 75,000
1994 158,105 10,000 7,749 45,000
Geary Cotton(3)....................... 1996 184,500 48,706 11,502 37,500
Vice President -- Finance, Chief 1995 176,593 10,000 8,400 60,000
Financial Officer and Treasurer 1994 163,189 10,000 8,975 45,000
</TABLE>
- ---------------
(1) The columns for "Restricted Stock Awards," "LTIP Payouts" and "All Other
Compensation" have been omitted because there is no compensation required
to be reported in such columns.
(2) Represents that portion of the Company's automobile expense allowance
attributable to non-business utilization of such officer's automobile and
the Company's contributions to its 401(k) Plan for the benefit of such
officer.
(3) See "-- Employment Agreements" for information regarding current and future
compensation arrangements.
(4) Mr. Nast's employment with the Company commenced on April 24, 1995.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Carl DeSantis,
Nickolas Palin, Dean DeSantis and Geary Cotton for three-year terms commencing
April 1, 1995, pursuant to which they currently receive base annual salaries of
$435,000, $275,000, $195,000 and $190,000, respectively, and the Company entered
into an employment agreement with Christian Nast for a three-year, four-month
term commencing April 24, 1995, pursuant to which he currently receives a base
annual salary of $315,000. Each of such employment agreements provides for
annual increases of base salary of the greater of 5% or the percentage increase
in the consumer price index published by the United States Department of Labor.
In addition, each of such officers is entitled to receive incentive bonuses upon
the attainment by the Company of certain net sales and net income targets. Such
bonuses may not exceed 100% of base salary for Carl DeSantis; 75% of base salary
for Christian Nast; and 50% of base salary for Nickolas Palin, Dean DeSantis and
Geary Cotton.
The employment agreements each provide that, if the employee terminates his
employment without good reason or is terminated for cause, such employee is
subject to a non-competition provision for a period of 18 months. In the event
of a change of control of the Company, the employee is entitled to terminate his
employment and receive a lump sum distribution of compensation in an amount
equal to three times such employee's then current effective yearly compensation,
including, but not limited to, salary and bonuses. If the employee elects to so
terminate, the non-competition provisions contained in the employment agreement
will
33
<PAGE> 35
terminate. Similar provisions apply in the event an employee is terminated
without cause upon a change of control of the Company. Payments under the
agreements by the Company after a change of control are, however, limited to the
amount which would be deductible by the Company under the Internal Revenue Code
of 1986, as amended. A "change of control" is deemed to occur upon (i) the
acquisition of 30% or more of the Company's voting power by anyone other than a
current director of the Company, executive officer of the Company or an
affiliate thereof, without approval of a majority of the Board of Directors or
(ii) the Incumbent Directors, as defined, becoming less than a majority of the
Board of Directors of the Company or its successor. A change of control, as to
any employee, may not result from a voluntary action of such employee.
34
<PAGE> 36
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of October 1, 1996 and as adjusted
to reflect the sale of 2,000,000 shares of Common Stock by the Company and the
sale of 2,000,000 shares of Common Stock by the Selling Shareholders, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each of the Selling Shareholders, (iii) each
director of the Company, (iv) each of the Named Executive Officers and (v) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK OWNED COMMON STOCK OWNED
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- NUMBER OF SHARES --------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------ ---------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Carl DeSantis(1).................... 13,415,581(2)(3) 43.6% 1,500,000 11,915,581(2)(3) 36.4%
Dean DeSantis(1).................... 2,745,481(3)(4) 8.9 500,000 2,245,481(3)(4) 6.9
Damon DeSantis(1)................... 3,123,231(3)(5) 10.1 -- 3,123,231(3)(5) 9.5
Christian Nast...................... 25,350(3) * -- 25,350(3) *
Nickolas Palin...................... 51,581(3) * -- 51,581(3) *
Geary Cotton........................ 314,926(3)(6) 1.0 -- 314,926(3)(6) *
Stanley Leedy....................... 12,500(3) * -- 12,500(3) *
Raymond Monteleone.................. 1,500(3) * -- 1,500(3) *
Howard Yenke........................ 1,500(3) * -- 1,500(3) *
CDD Partners, Ltd.(1)............... 12,098,736(3) 39.4 -- 12,098,736(3) 30.9
Sylvia DeSantis..................... 6,915,932(7) 22.5 -- 6,915,932(7) 21.1
All Executive Officers and Directors
as a group (10 persons)........... 19,798,650(8) 63.6 2,000,000 17,798,650(8) 53.7
</TABLE>
- ---------------
* Less than 1%.
(1) The shares of Common Stock being offered by Carl DeSantis and Dean DeSantis
(the "Borrowing Shareholders") will be borrowed from CDD Partners, Ltd.
("CDD"), a Texas limited partnership of which Carl DeSantis, Dean DeSantis
and Damon DeSantis are limited partners and share control of CDD Management,
Inc. ("CDDM"), a Texas corporation and the general partner of CDD. In each
case, the Borrowing Shareholders will be obligated to repay the borrowing by
delivering to CDD shares equal in number to the borrowed shares ("Identical
Shares") five days after demand by CDD; and, upon demand, CDD will receive
from the Borrowing Shareholders amounts equal to dividends and other
distributions on the Identical Shares. CDD may from time to time demand a
pledge of collateral by the Borrowing Shareholders to secure the Borrowing
Shareholders' obligations to repay Identical Shares to CDD. CDD's address is
324 Harbor Landing Drive, Rockwall, Texas 75087. In June 1993, each of Carl
DeSantis, Dean DeSantis and Damon DeSantis contributed all shares of Common
Stock then owned by them to CDD and CDDM. See "Management" for information
regarding the positions of the Borrowing Shareholders with the Company. Each
of Carl DeSantis, Dean DeSantis and Damon DeSantis has shared beneficial
ownership and voting power with respect to all such shares held by CDD and
CDDM.
(2) As of October 1, 1996, includes 6,915,932 shares owned by Sylvia DeSantis,
as to which Carl DeSantis has sole voting power. Also includes 6,441,524
shares held by CDD which represent Mr. DeSantis' percentage interest in CDD.
Does not include 5,687,212 shares beneficially owned by Carl DeSantis that
are held by CDD, which represent the percentage interest of Dean DeSantis
and Damon DeSantis in CDD.
(3) For each person, includes the following numbers of shares beneficially owned
pursuant to currently exercisable stock options or options which will become
exercisable within 60 days: Carl DeSantis -- 58,125 shares; Dean DeSantis --
73,125 shares; Damon DeSantis -- 73,125 shares; Christian Nast -- 7,685
shares; Nickolas Palin -- 31,500 shares; Geary Cotton -- 79,500 shares;
Stanley Leedy -- 12,500 shares; Raymond Monteleone -- 1,500 shares; and
Howard Yenke -- 1,500 shares.
(4) As of October 1, 1996, includes 2,672,356 shares held by CDD which represent
Mr. DeSantis' percentage interest in CDD. Does not include 9,456,380 shares
beneficially owned by Dean DeSantis that are held by CDD, which represent
the percentage interest of Carl DeSantis and Damon DeSantis in CDD, and
8,000 shares beneficially owned by the wife of Dean DeSantis. Mr. DeSantis
disclaims beneficial ownership of his wife's shares.
(5) As of October 1, 1996, includes 2,984,856 shares held by CDD which represent
Mr. DeSantis' percentage interest in CDD. Does not include 9,113,880 shares
beneficially owned by Damon DeSantis that are held by CDD, which represent
the percentage interest of Carl DeSantis and Dean DeSantis in CDD, and 4,500
shares owned by the wife of Damon DeSantis. Mr. DeSantis disclaims
beneficial ownership of his wife's shares.
(6) Does not include 4,500 shares owned by the wife of Geary Cotton, as to which
shares Mr. Cotton disclaims beneficial ownership.
(7) Ms. DeSantis' address is 851 Broken Sound Parkway, NW, Boca Raton, Florida
33487. All of such shares are subject to an irrevocable proxy granted to
Carl DeSantis, and 6,579,021 of such shares are further subject to a stock
purchase agreement with an irrevocable life insurance trust for the benefit
of her children. Such stock purchase agreement provides for significant
restrictions on sales or transfers of such shares during her life, and
requires the sale of such shares to such trust upon her death.
(8) Includes 424,560 shares beneficially owned by directors and executive
officers as a group pursuant to stock options under which such persons have
the right to acquire such shares within 60 days.
35
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of common stock, par value $0.01 per share (the "Common Stock"), and 5,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock").
COMMON STOCK
The Common Stock possesses ordinary voting rights, and the holders thereof
vote together as a single class for the election of directors and in respect of
other corporate matters. Holders of shares of Common Stock are entitled to one
vote per share. In the event of the voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive and share ratably in all net
assets available for distribution to shareholders after distribution in full of
the preferential amount, if any, to be distributed to the holders of the
Preferred Stock. Cumulative voting of shares is not permitted. The Common Stock
carries no preemptive rights and is not convertible, redeemable or assessable,
or entitled to the benefits of any sinking fund. After the requirements with
respect to preferential dividends on Preferred Stock, if any, have been met, the
holders of Common Stock are entitled to such dividends as may be declared by the
Company's Board of Directors and paid out of funds legally available therefor.
PREFERRED STOCK
The Board of Directors of the Company, without further action by the
shareholders, is authorized to issue Preferred Stock in one or more series and
to fix and determine as to any series all the relative rights and preferences of
shares in such series, including, without limitation, preferences, limitations
or relative rights with respect to redemption rights, conversion rights, if any,
voting rights, if any, dividend rights and preferences on liquidation. Although
the Company has no present intention to issue shares of Preferred Stock, the
issuance of shares of Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal
that some, or a majority, of the shareholders might believe to be in the best
interests of the Company or in which shareholders might receive a premium for
their stock over the then market price of such stock. In addition, under certain
circumstances, the issuance of Preferred Stock could adversely affect the voting
power of the holders of the Common Stock.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law unless the
corporation has elected to opt out of such provisions in the Articles of
Incorporation or, depending on the provision in question, its By-Laws. The
Company has not elected to opt out of these provisions. The Common Stock is
subject to the "affiliated transaction" and "control-share acquisition"
provisions of the Florida Business Corporation Act, Sections 607.0901 and
607.0902, Florida Statutes, respectively. These provide that, subject to certain
exceptions, an "affiliated transaction" must be approved by the holders of
two-thirds of the voting shares other than those beneficially owned by an
"interested shareholder" and that "control shares" acquired in specified
control-share acquisitions have voting rights only to the extent conferred by
resolution approved by shareholders, excluding holders of shares defined as
"interested shares."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
36
<PAGE> 38
UNDERWRITING
The Underwriters named below, acting through their representatives, Raymond
James & Associates, Inc., Adams, Harkness & Hill, Inc. and Montgomery Securities
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the underwriting agreement (the "Underwriting Agreement") by and
among the Company, the Selling Shareholders and the Underwriters, to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock set forth below opposite their respective names, at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Raymond James & Associates, Inc. .........................................
Adams, Harkness & Hill, Inc. .............................................
Montgomery Securities.....................................................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock 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
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. The Representatives have informed the Company
and the Selling Shareholders that the Underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.
Certain of the Underwriters and the selling group members that currently
act as market makers for the Common Stock may engage in "passive market making"
in the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule
10b-6A permits, upon satisfaction of certain conditions, underwriters and
selling group members participating in a distribution that are also Nasdaq
market makers in the security being distributed to engage in limited market
making activity when Rule 10b-6A would otherwise prohibit such activity. Rule
10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or affecting a purchase at a price
that exceeds the highest bid for those securities displayed on the Nasdaq
National Market by a market maker that is not participating in the distribution
of the Common Stock. Each underwriter or selling group member engaged in passive
market making is subject to a daily net purchase limitation equal to 30% of such
entity's average daily trading volume during the two full consecutive calendar
months immediately preceding the date of the filing of the Registration
Statement of which this Prospectus forms a part.
37
<PAGE> 39
The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to an aggregate of 600,000 additional shares of Common Stock, at
the public offering price, less the underwriting discounts and commissions, set
forth on the cover page of this Prospectus. Of the shares subject to such
option, the Selling Shareholders will, at their sole discretion, sell a maximum
of 200,000 shares and the Company will sell at least 400,000 shares plus any
shares that the Selling Shareholders elect not to sell. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
bears to the total shown, and the Company will be obligated, pursuant to the
option, to sell such shares to the Underwriters. The Underwriter may exercise
this option only to cover such over-allotments, if any, made in connection with
the sale of the shares of Common Stock offered hereby. If purchased, the
Underwriters will sell such additional shares on the same terms as those on
which the shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities in connection with this offering, including liabilities under the
Securities Act.
The Company, its officers and directors and the Selling Shareholders have
agreed that for a period of 180 days following the date of this Prospectus, they
will not, except with the prior written consent of Raymond James & Associates,
Inc., acting for the Underwriters, sell, contract to sell or otherwise dispose
of any shares of Common Stock. This restriction does not apply to shares sold by
Selling Shareholders hereunder or certain issuances of Common Stock by the
Company pursuant to its stock option plans. See "Risk Factors -- Shares Eligible
for Future Sale."
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus forms a part.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and for the Selling Shareholders by Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida, for the Selling
Shareholders by Tescher Chaves Rubin Forman & Muller, P.A., Miami, Florida, and
for the Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company as of August 31, 1995 and 1996, and for each of the years in the
period ended August 31, 1996, included herein and incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended August 31, 1996 have
been included herein and incorporated by reference in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
38
<PAGE> 40
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company may be
inspected and copied (at prescribed rates) at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, such reports, proxy statements and other information can be obtained
from the Commission's web site at http://www.sec.gov. Quotations relating to the
Common Stock appear on the Nasdaq National Market. Such reports, proxy
statements and other information concerning the Company can also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus, which is a part of the
Registration Statement, does not contain all the information set forth in, or
annexed as exhibits to, such Registration Statement, certain portions of which
have been omitted pursuant to rules and regulations of the Commission. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is hereby made to such Registration Statement,
including the exhibits thereto. Copies of such Registration Statement, including
exhibits, may be obtained from the aforementioned public reference facilities of
the Commission upon payment of the prescribed fees, or may be examined without
charge at such facilities. Statements contained herein concerning any document
filed as an exhibit are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated by reference in and made a part of this
Prospectus:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996;
(b) the Company's Proxy Statement relating to its 1996 Annual Meeting
of Shareholders; and
(c) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated June 7, 1993 (Registration No.
0-21884).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any other
subsequently filed documents, which also are incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide, without
charge, to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the information incorporated herein by reference. Exhibits to
any of such documents, however, will not be provided unless such exhibits are
specifically incorporated by reference into such documents. The requests should
be addressed to the Company's principal executive offices: Attn: Secretary, 851
Broken Sound Parkway, NW, Boca Raton, Florida 33487, telephone number (561)
241-9400.
39
<PAGE> 41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Rexall Sundown, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets for the years ended
August 31, 1995 and 1996 of Rexall Sundown, Inc. and subsidiaries and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1996. 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rexall
Sundown, Inc. and subsidiaries as of August 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
October 4, 1996
F-2
<PAGE> 43
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31,
--------------------
1995 1996
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 1,154 $ 13,450
Restricted cash....................................................... -- 278
Marketable securities................................................. -- 7,988
Trade accounts receivable, net of allowance for doubtful accounts of
$78 at August 31, 1995 and 1996.................................... 6,957 11,410
Inventory............................................................. 20,512 28,179
Prepaid expenses and other current assets............................. 4,526 5,018
Net current assets of discontinued operations......................... 8,008 3,855
------- --------
Total current assets.......................................... 41,157 70,178
Property, plant and equipment, net...................................... 21,489 24,078
Other assets............................................................ 4,705 8,839
------- --------
Total assets.................................................. $67,351 $103,095
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 5,592 $ 5,599
Accrued expenses and other current liabilities........................ 5,941 10,100
Current portion of long-term debt..................................... 332 346
------- --------
Total current liabilities..................................... 11,865 16,045
Long-term debt.......................................................... 448 105
Other liabilities....................................................... -- 253
------- --------
Total liabilities............................................. 12,313 16,403
------- --------
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares, no
shares outstanding................................................. -- --
Common stock, $.01 par value; authorized 100,000,000 shares, shares
issued: 29,416,050 and 30,660,128, respectively.................... 196 307
Capital in excess of par value........................................ 42,192 53,563
Retained earnings..................................................... 12,650 32,943
Cumulative translation adjustment..................................... -- (121)
------- --------
Total shareholders' equity.................................... 55,038 86,692
------- --------
Total liabilities and shareholders' equity.................... $67,351 $103,095
======= ========
</TABLE>
See accompanying notes
F-3
<PAGE> 44
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................................. $ 114,119 $ 149,473 $ 187,844
Cost of sales.............................................. 54,475 65,032 71,682
---------- ---------- ----------
Gross profit..................................... 59,644 84,441 116,162
Selling, general and administrative expenses............... 47,005 65,825 86,673
---------- ---------- ----------
Operating income................................. 12,639 18,616 29,489
Other income (expense):
Interest income.......................................... 361 119 1,251
Interest expense......................................... (109) (424) (40)
Other income............................................. 849 938 1,391
Minority interests in income of consolidated
subsidiary............................................ (21) (45) --
---------- ---------- ----------
Income before income tax provision......................... 13,719 19,204 32,091
Income tax provision....................................... 5,147 6,866 11,798
---------- ---------- ----------
Income from continuing operations.......................... 8,572 12,338 20,293
Discontinued operations:
Loss from discontinued operations (net of tax benefit of
$1,302 and $2,425 in 1994 and 1995, respectively)..... (2,377) (4,278) --
Loss on disposal of discontinued operations including a
provision of $964 for operating losses during the
phase-out period (net of tax benefit of $2,057)....... -- (3,698) --
---------- ---------- ----------
Net income................................................. $ 6,195 $ 4,362 $ 20,293
========== ========== ==========
Income (loss) per share:
Continuing operations.................................... $ .29 $ .42 $ .66
Discontinued operations.................................. (.08) (.15) --
Disposal of discontinued operations...................... -- (.12) --
---------- ---------- ----------
Net income per share............................. $ .21 $ .15 $ .66
========== ========== ==========
Weighted average common shares outstanding................. 29,268,633 29,497,166 30,726,232
</TABLE>
See accompanying notes
F-4
<PAGE> 45
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL
IN CUMULATIVE
NUMBER OF COMMON EXCESS OF RETAINED TRANSLATION
SHARES STOCK PAR VALUE EARNINGS ADJUSTMENT
---------- ------ --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1993............. 19,312,000 $193 $ 39,428 $ 2,093 $ --
Net income........................... -- -- -- 6,195 --
Exercise of stock options............ 118,000 1 653 -- --
Tax benefit from exercise of
options........................... -- -- 399 -- --
---------- ---- -------- ------- -------
Balance at August 31, 1994............. 19,430,000 194 40,480 8,288 --
Net income........................... -- -- -- 4,362 --
Exercise of stock options............ 80,500 1 428 -- --
Tax benefit from exercise of
options........................... -- -- 285 -- --
Issuance of shares for non-compete
agreement......................... 100,200 1 999 -- --
---------- ---- -------- ------- -------
Balance at August 31, 1995............. 19,610,700 196 42,192 12,650 --
Net income........................... -- -- -- 20,293 --
Exercise of stock options............ 1,244,078 13 6,469 -- --
Tax benefit from exercise of
options........................... -- -- 5,000 -- --
Three-for-two common stock split..... 9,805,350 98 (98 ) -- --
Cumulative translation adjustment.... -- -- -- -- (121)
---------- ---- -------- ------- -------
Balance at August 31, 1996............. 30,660,128 $307 $ 53,563 $32,943 $ (121)
========== ==== ======== ======= =======
</TABLE>
See accompanying notes
F-5
<PAGE> 46
REXALL SUNDOWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income............................................................. $ 6,195 $ 4,362 $ 20,293
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation......................................................... 1,161 2,400 2,797
Amortization......................................................... 346 400 1,202
Loss (gain) on sale of property and equipment........................ 93 158 (18)
Minority interest.................................................... 21 45 --
Deferred income taxes................................................ (75) (1,789) 2,076
Foreign exchange translation adjustment.............................. -- -- (121)
Changes in assets and liabilities:
Trade accounts receivable.......................................... (307) (1,276) (4,453)
Inventory.......................................................... (5,641) (3,063) (7,667)
Prepaid expenses and other current assets.......................... (986) 102 (2,546)
Other assets....................................................... 1,043 85 (5,501)
Accounts payable................................................... 2,338 (2,523) 7
Accrued expenses and other current liabilities..................... (86) 2,493 9,137
Income taxes payable............................................... (918) -- --
Other liabilities.................................................. 22 (22) 253
Discontinued operations -- non cash charges and changes in assets
and liabilities................................................... (4,199) 2,923 4,153
-------- -------- --------
Net cash provided by (used in) operating activities............. (993) 4,295 19,612
-------- -------- --------
Cash flows provided by (used in) investing activities:
Acquisition of assets of Pennex Products Co., Inc...................... (4,324) -- --
Purchase of marketable securities...................................... (23,335) -- (5,988)
Proceeds from sale of marketable securities............................ 41,443 12 --
Acquisition of property, plant and equipment........................... (10,491) (3,590) (5,391)
Acquisition of computer software....................................... -- (409) (1,835)
Proceeds from sale of property, plant and equipment.................... 32 5 23
Investing activities of discontinued operations........................ (1,247) (1,160) --
Other.................................................................. -- -- (278)
-------- -------- --------
Net cash provided by (used in) investing activities............. 2,078 (5,142) (13,469)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Proceeds from bank line of credit...................................... -- 10,500 --
Payments on bank line of credit........................................ -- (10,500) --
Principal payments on long-term debt................................... (380) (306) (329)
Principal payments under capital lease obligations..................... (95) -- --
Exercise of options to purchase common stock........................... 655 429 6,482
-------- -------- --------
Net cash provided by financing activities....................... 180 123 6,153
-------- -------- --------
Net increase (decrease) in cash and cash equivalents................... 1,265 (724) 12,296
Cash and cash equivalents at beginning of period....................... 613 1,878 1,154
-------- -------- --------
Cash and cash equivalents at end of period............................. $ 1,878 $ 1,154 $ 13,450
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................... $ 109 $ 403 $ 42
======== ======== ========
Income taxes........................................................... $ 4,838 $ 3,495 $ 3,725
======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY:
On September 30, 1993, the Company acquired substantially all of the assets and
assumed certain liabilities of Pennex Products Co., Inc. (see Note 14) as
follows:
<TABLE>
<S> <C>
Assets acquired........................................................ $ 7,372
Cash paid (including advances under debtor-in-possession financing in
fiscal 1993)......................................................... (5,115)
--------
Liabilities assumed.................................................... $ 2,257
========
</TABLE>
See accompanying notes
F-6
<PAGE> 47
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
BUSINESS
Rexall Sundown, Inc. (the "Company") develops, manufactures, markets and
sells vitamins, nutritional supplements and consumer health products through
three channels of distribution: sales to retailers; direct sales through
independent distributors; and mail order sales.
The Company's wholly-owned operating subsidiary, Rexall Showcase
International, Inc. ("Rexall Showcase") markets and distributes health and
wellness products under the Rexall Showcase tradename through a sales force of
independent distributors. On August 31, 1995, the Company purchased the 1%
minority interest of Rexall Showcase, which was owned by the Company's Chairman
of the Board and Chief Executive Officer. Rexall Showcase formed two foreign
subsidiaries located in Mexico and South Korea in order to conduct business
operations in such foreign countries. The Company still owns the stock of Pennex
Laboratories, Inc., now known as RSL Holdings, Inc. ("Pennex"), for which
operations have been discontinued. Pennex manufactured and distributed
over-the-counter ("OTC") pharmaceuticals and health and beauty care products and
is presented as discontinued operations (see Note 14).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Certain prior period amounts have been
reclassified to conform with the 1996 presentation.
MARKETABLE SECURITIES
As of August 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with SFAS No. 115, marketable
securities are classified in three categories and accounted for as follows: (1)
held-to-maturity securities are debt securities, which the Company has the
positive intent and ability to hold to maturity, and are reported at amortized
cost; (2) trading securities are debt and equity securities that are bought and
held principally for the purpose of selling them in the near term and are
reported at fair value, with unrealized gains and losses included in current
earnings; and (3) available-for-sale securities are debt and equity securities
not classified as either held-to-maturity securities or trading securities and
are reported at fair value, with unrealized gains and losses excluded from
current earnings and reported in a separate component of shareholders' equity.
Marketable securities consist primarily of government debt instruments and
are classified as available-for-sale securities. Gains and losses realized on
the sale of marketable securities are determined using the specific
identification method. At August 31, 1995 and 1996 the fair value of the
securities approximated cost.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is charged to expense over the estimated useful lives
of the assets and is computed principally using accelerated methods. Maintenance
and repairs are charged to expense when incurred and betterments are
capitalized. Upon
F-7
<PAGE> 48
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
retirement or sale, the cost and accumulated depreciation are eliminated from
the accounts and the gain or loss, if any, is included in the determination of
net income.
INTANGIBLE ASSETS
Intangible assets, which are included in other assets (non-current), are
stated at cost less accumulated amortization. Intangible assets are amortized on
a straight-line basis over their estimated useful lives which range from three
to fourteen years.
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.
RESTRICTED CASH
Restricted cash consists of funds held in South Korea by the local
government to ensure that funds are available to satisfy customer demands for
refunds. Deposits of 10% of sales are made monthly and monies are refunded three
months after the date of deposit.
INCOME TAXES
The Company utilizes the liability method of accounting for deferred income
taxes. This method requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statement or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred tax assets are
also established for the future tax benefits of loss and credit carryovers.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment, and such revenue is recorded
net of estimated sales returns, discounts and allowances.
PREPAID CUSTOMER ALLOWANCES
Costs associated with acquiring sales agreements with certain customers are
amortized over the terms of the agreements. These costs consist of the cost of
inventory provided at no charge and other allowances and are included in other
assets (both current and non-current). The amortization of these costs is
recorded as a reduction of net sales.
ADVERTISING AND CATALOG COSTS
Advertising and mail order catalog costs are expensed as incurred.
RESERVE FOR ESTIMATED CHARGEBACKS
The Company's Rexall Managed Care division, which began operations in
fiscal 1995, markets and distributes vitamins, nutritional supplements and OTC
pharmaceuticals to the managed care market. The Company enters into contracts to
provide such products to various managed care providers who purchase the
F-8
<PAGE> 49
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
products through wholesalers. The difference between the Company's price to the
wholesaler and the Company's contract price to the providers is charged back to
the Company by the wholesaler. Upon sale to the wholesaler, the Company provides
for a reserve of estimated future chargebacks.
FOREIGN CURRENCY TRANSLATION
The financial statements and transactions of the Company's foreign
operations (which began operations in February 1996) are maintained in their
functional currency and translated into United States dollars in accordance with
SFAS No. 52. Assets and liabilities are translated at current exchange rates in
effect at the balance sheet date. Revenues and expenses are translated at the
average exchange rate for each period. Translation adjustments, which result
from the process of translating financial statements into United States dollars,
are accumulated in a separate component of shareholders' equity.
USE OF ESTIMATES
The preparation of 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.
NET INCOME PER SHARE
Net income per share of common stock (the "Common Stock"), $.01 par value,
of the Company is calculated by dividing net income by weighted average shares
of Common Stock outstanding, giving effect to Common Stock equivalents (Common
Stock options).
NEW ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted by the Company until fiscal 1997, include SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of " and SFAS No. 123, "Accounting for Stock Based
Compensation."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This pronouncement is not expected to have a material impact on the
financial statements of the Company.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on new fair value accounting
rules. Companies that choose not to adopt the new fair value accounting rules
will be required to disclose pro forma net income and earnings per share under
the new method. The Company anticipates adopting the disclosure provisions of
SFAS No. 123, although the impact of such disclosure has not been determined.
F-9
<PAGE> 50
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVENTORY
The components of inventory are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1995 1996
------- -------
<S> <C> <C> <C>
Raw materials....................................... $ 8,376 $11,609
Work in process..................................... 1,117 1,732
Finished products................................... 11,019 14,838
------- -------
Total inventory........................... $20,512 $28,179
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1995 1996
------- -------
<S> <C> <C> <C>
Land................................................ $ 2,022 $ 2,022
Buildings and improvements.......................... 13,894 14,064
Machinery and equipment............................. 10,112 14,479
Leasehold improvements.............................. 251 506
Furniture and fixtures.............................. 1,128 1,508
Other assets........................................ 21 212
------- -------
27,428 32,791
Less accumulated depreciation and amortization.... (5,939) (8,713)
------- -------
Property, plant and equipment, net........ $21,489 $24,078
======= =======
</TABLE>
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1995 1996 USEFUL LIVES
------- ------- -------------
<S> <C> <C> <C>
Intangible assets:
Non-compete agreement............................. $ 1,000 $ 1,000 5 years
License and registration fees..................... 170 170 5 years
Organizational costs.............................. -- 450 3 years
Computer software................................. 622 2,457 5 years
Trademarks........................................ 224 224 10-14 years
Purchased technology.............................. 500 --
Patents........................................... -- 1,500 10.5 years
Other securities.................................... 2,000 150
Prepaid customer allowances......................... 573 3,121
Other............................................... 184 1,042
------ --------
5,273 10,114
Less accumulated amortization..................... (568) (1,275)
------ --------
Total other assets........................ $ 4,705 $ 8,839
====== ========
</TABLE>
F-10
<PAGE> 51
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities is comprised of the
following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1995 1996
------ -------
<S> <C> <C>
Accrued customer rebates.......................................... $ 542 $ 2,166
Reserve for estimated chargebacks................................. 894 460
Accrued commissions............................................... 2,461 2,823
Accrued salaries and bonuses...................................... 844 2,099
Income taxes...................................................... -- 823
Other............................................................. 1,200 1,729
------ -------
Total accrued expenses and other current liabilities.... $5,941 $10,100
====== =======
</TABLE>
7. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1995 1996
------ -------
<S> <C> <C>
Non-compete agreement, non-interest bearing net of discount
imputed at 8%, of $67 and $23 at August 31, 1995 and 1996,
respectively, maturing in January 1998, guaranteed by the
Company's Chief Executive Officer............................... $ 650 $ 403
$650 promissory note, interest at 9%, maturing in April 1997...... 130 48
---- ----
780 451
Less current portion......................................... 332 346
---- ----
Total long-term debt.................................... $ 448 $ 105
==== ====
</TABLE>
On September 7, 1994, the Company entered into a revolving line of credit
with a financial institution that provides for borrowings up to $10 million,
subject to annual extensions. The revolving line of credit was renewed on
September 7, 1995 and was extended for ninety days on September 7, 1996.
Borrowings under the line of credit bear interest at the prime rate. The line of
credit is collateralized by accounts receivable and inventory and is subject to
compliance with certain financial covenants and ratios, including a minimum
tangible net worth. There were no amounts outstanding under this revolving line
of credit at August 31, 1996.
8. LEASE OBLIGATIONS
The Company leases certain equipment, automobiles and warehouse and
distribution facilities under noncancelable operating leases. The leases provide
for monthly payments over terms of one to five years and certain of the leases
provide for renewal options. Total rent expense on all operating leases amounted
to approximately $651, $552 and $905 for the years ended August 31, 1994, 1995
and 1996, respectively.
The future minimum lease payments under noncancelable operating leases at
August 31, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------
<S> <C>
1997.............................................................. $1,179
1998.............................................................. 677
1999.............................................................. 353
-----
Total................................................... $2,209
=====
</TABLE>
F-11
<PAGE> 52
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. BENEFIT PLANS
The Company offers a 401(k) employee benefit plan (the "Plan"), which
provides for voluntary contributions by employees of up to 20% of their base
compensation (as defined in the Plan), subject to a maximum annual contribution.
The Company may, at the discretion of the Board of Directors, make a
contribution to the Plan. The Company contributed approximately $128, $158 and
$159 during fiscal 1994, 1995 and 1996, respectively.
In March 1993, the Board of Directors and shareholders adopted the
Company's 1993 Employee Stock Purchase Plan (the "1993 Stock Purchase Plan").
The 1993 Stock Purchase Plan enables participants to contribute cash in an
amount not to exceed 10% of salary per relevant pay period. Such funds are used
to periodically purchase shares of Common Stock for the account of each of the
participants in the 1993 Stock Purchase Plan at 90% of the market price of the
Common Stock. The Company has reserved 750,000 shares of Common Stock for
issuance under the 1993 Stock Purchase Plan and may issue such shares or
purchase additional shares of Common Stock in the open market. For the years
ended August 31, 1995 and 1996, participants purchased 11,064 and 4,431 shares
in the open market at an average purchase price of $7.40 and $18.14 per share,
respectively.
In February 1996, the Board of Directors adopted the Company's 1996 Rexall
Showcase International Distributor Stock Purchase Plan (the "1996 Distributor
Stock Purchase Plan"). The 1996 Distributor Stock Purchase Plan enables
participants to contribute cash in an amount not to exceed 10% of a
participant's monthly commission check. Such funds are used to periodically
purchase shares of Common Stock for the account of each of the participants in
the 1996 Distributor Stock Purchase Plan at either 95% or 100% of the market
price of the Common Stock, depending on a participant's level of achievement in
Rexall Showcase. The Company has reserved 750,000 shares of Common Stock for
issuance under the 1996 Distributor Stock Purchase Plan and may issue such
shares or purchase additional shares of Common Stock in the open market for
participants. For the year ended August 31, 1996, participants purchased 1,157
shares of Common Stock in the open market at an average purchase price of $32.50
per share.
10. COMMON STOCK TRANSACTIONS
On October 5, 1993, the Board of Directors declared a 2-for-1 split of the
Common Stock which was effected in the form of a stock dividend. The stock
dividend was paid on October 28, 1993 to shareholders of record as of October
18, 1993.
On March 14, 1996, the Board of Directors declared a 3-for-2 split of the
Common Stock which was effected in the form of a stock dividend. The stock
dividend was paid on April 4, 1996 to shareholders of record as of March 25,
1996.
All references to the number of shares of Common Stock, except shares
authorized, and to per share data in the consolidated financial statements have
been adjusted to reflect the stock splits on a retroactive basis.
11. STOCK OPTIONS
In March 1993, the Board of Directors and shareholders adopted the
Company's 1993 Stock Incentive Plan (the "1993 Plan") for executives and other
key personnel. The 1993 Plan is administered by the Compensation/Stock Option
Committee of the Board of Directors of the Company. Under the 1993 Plan, all
options are to have an exercise price equal to the fair market value at the date
of grant. In February 1995, the Board of Directors amended the 1993 Plan to
increase the number of shares of Common Stock of the Company available
thereunder to a total of 4,500,000 shares, which amendment was approved by the
Company's shareholders in February 1996. Of the stock options granted,
substantially all are for a term of five
F-12
<PAGE> 53
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK OPTIONS, CONTINUED
to ten years. During fiscal 1995 and 1996, the Company realized a tax benefit of
$286 and $5,000, respectively, related to the exercise of stock options.
In March 1993, the Board of Directors and shareholders adopted the
Company's 1993 Non-Employee Director Stock Option Plan (the "1993 Director
Plan"). The maximum number of shares of Common Stock available for issuance
under the 1993 Director Plan is 60,000 shares.
In July 1994, the Board of Directors adopted the Company's 1994
Non-Employee Director Stock Option Plan (the "1994 Director Plan"), which was
approved by the Company's shareholders in February 1995. The maximum number of
shares of Common Stock available for issuance under the 1994 Director Plan is
150,000 shares.
As of August 31, 1996, stock options to purchase 927,900 shares of Common
Stock had been granted outside of any Company plan and have an exercise price
equal to fair market value at date of grant. Substantially all of these options
are for a term of five to seven years.
In February 1996, the Board of Directors adopted the Company's 1996 Rexall
Showcase International Distributor Stock Option Plan (the "1996 Distributor
Plan"). The 1996 Distributor Plan provides for the granting of stock options to
eligible distributors upon attainment of specified conditions at an exercise
price not less than the fair market value on the date of grant. The maximum
number of shares of Common Stock available under the 1996 Distributor Plan is
750,000 shares. Options granted under the 1996 Distributor Plan will be for a
term of five years. As of August 31, 1996, no options have been granted under
the 1996 Distributor Plan.
Information with regard to the stock options is as follows:
<TABLE>
<CAPTION>
SHARES
-----------------------------------------------------------
1993 1994
1993 DIRECTOR DIRECTOR OTHER OPTION PRICE
PLAN PLAN PLAN OPTIONS RANGE
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Outstanding at August 31,
1993.......................... 1,134,000 15,000 -- 441,000
Granted....................... 595,800 -- 15,000 419,400 $5.42-$14.17
Cancelled..................... (7,200) -- -- -- $3.17-$4.67
Exercised..................... (135,000) -- -- (42,000) $3.17-$4.67
--------- -------- ------ ------
Outstanding at August 31,
1994.......................... 1,587,600 15,000 15,000 818,400
Granted....................... 1,246,875 -- 22,500 101,250 $5.67-$8.25
Cancelled..................... (352,800) (7,500) (6,000) -- $3.17-$14.17
Exercised..................... (59,250) -- (1,500) (60,000) $3.17-$6.33
--------- -------- ------ ------
Outstanding at August 31,
1995.......................... 2,422,425 7,500 30,000 859,650
Granted....................... 936,451 -- 22,500 112,500 $9.50-$30.00
Cancelled..................... (262,650) -- -- (146,250) $3.17-$14.50
Exercised..................... (722,678) (1,000) -- (520,400) $3.17-$11.42
--------- -------- ------ ------
Outstanding at August 31,
1996.......................... 2,373,548 6,500 52,500 305,500 $3.17-$30.00
========= ======== ====== ======
Options currently exercisable... 678,318 3,500 9,000 184,300
========= ======== ====== ======
Options available for grant at
August 31, 1996............... 1,206,524 52,500 96,000 --
========= ======== ====== ======
</TABLE>
F-13
<PAGE> 54
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. SALES TO A MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
The Company had sales to Phar-Mor, Inc., a national retailer, which
represented approximately 17%, 11% and 5% of net sales for the years ended
August 31, 1994, 1995 and 1996, respectively. Trade accounts receivable from
this customer amounted to approximately $63 and $975 at August 31, 1995 and
1996, respectively.
The Company sells products to a large number of customers, which are
primarily in the United States. The Company continuously evaluates the
creditworthiness of each customer's financial condition and generally does not
require collateral.
Financial instruments that potentially subject the Company to concentration
of credit risk are cash, marketable securities and trade accounts receivable.
The Company places its temporary cash investments with high credit quality
financial institutions.
Marketable securities consist primarily of United States Government
securities with high credit quality financial institutions.
13. INCOME TAXES
The Company files a consolidated United States income tax return with its
domestic subsidiaries. For state income tax purposes the Company and its
subsidiaries file on both a consolidated and separate return basis in the states
in which they do business. Rexall Showcase's subsidiaries in Mexico and South
Korea file income tax returns in their respective countries of incorporation.
Deferred income taxes as of August 31, 1996 relate primarily to the reserve
for loss on disposition of discontinued operations which is deductible when
realized, amortization of a non-compete agreement which is deductible when paid,
inventory and accounts receivable reserves and book depreciation versus tax
depreciation.
The following reflects the actual income tax provision (benefits) the
Company incurred for the fiscal years ended August 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST
31,
--------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Current:
Federal.......................................................... $3,588 $ 3,866 $ 8,871
State............................................................ 332 307 776
Foreign.......................................................... -- -- 60
------ ------- -------
3,920 4,173 9,707
------ ------- -------
Deferred:
Federal.......................................................... (54) (1,657) 1,921
State............................................................ (21) (132) 153
Foreign.......................................................... -- -- 17
------ ------- -------
(75) (1,789) 2,091
------ ------- -------
Total income tax provision............................... $3,845 $ 2,384 $11,798
====== ======= =======
</TABLE>
F-14
<PAGE> 55
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. INCOME TAXES, CONTINUED
The following summarizes the total income tax provisions for each of the
years ended August 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Continuing operations............................................. $ 5,147 $ 6,866 $11,798
Discontinued operations........................................... (1,302) (2,425) --
Loss on disposal of discontinued operations....................... -- (2,057) --
------ ------ -------
$ 3,845 $ 2,384 $11,798
====== ====== =======
</TABLE>
The following table summarizes the differences between the Company's
effective tax rate for financial statement purposes and the Federal statutory
rate as of August 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Income tax provision, at 35%....................................... $3,514 $ 2,360 $11,288
Statutory federal surtax exemption................................. (100) (66) --
State income tax, net of federal benefit........................... 275 177 624
Non-deductible expenses............................................ 30 54 83
Other, net......................................................... 126 (141) (197)
------ ------ -------
Total income tax provision............................... $3,845 $ 2,384 $11,798
====== ====== =======
</TABLE>
The significant components of the deferred tax assets and liabilities at
August 31, 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Deferred income tax assets:
Loss on disposition of discontinued operations................... $ -- $ 2,057 $ 185
Non-compete amortization......................................... 302 238 149
Accounts receivable reserves..................................... 112 135 66
Net operating losses............................................. -- -- 269
Other............................................................ 38 11 102
Valuation allowance.............................................. -- -- (269)
------ ------ -------
452 2,441 502
------ ------ -------
Deferred income tax liabilities:
Depreciation..................................................... -- 387 527
Foreign.......................................................... -- -- 17
------ ------ -------
-- 387 544
------ ------ -------
$ 452 $ 2,054 $ (42)
====== ====== =======
</TABLE>
The financial reporting bases of investments in certain foreign
subsidiaries is less than their tax bases. In accordance with SFAS No. 109, a
deferred tax liability is not recorded for the difference because the
investments are essentially permanent. A reversal of the Company's plans to
permanently invest in these operations would cause the excess to become
deductible. On August 31, 1996, these temporary differences were approximately
$161. A determination of the amount of unrecognized deferred tax asset related
to these investments is not practicable.
On August 31, 1996, the Company had state and foreign net operating losses
of $3,679 and $469, respectively, expiring in 1998 and 2006, respectively.
F-15
<PAGE> 56
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. DISCONTINUED OPERATIONS
On August 31, 1995, the Company's Board of Directors approved a plan to
divest Pennex. Accordingly, the Company recorded a reserve in its fiscal 1995
fourth quarter in the amount of $3,698, net of tax benefit of $2,057, to provide
for the loss on disposition of the related assets and liabilities of Pennex and
other expenses related to the closing of the business. The $3,698 reserve
included approximately $964 (net of tax benefit), for estimated operating losses
during the phase-out period subsequent to August 31, 1995. On November 17, 1995,
Pennex ceased operations.
The consolidated financial statements and related footnotes of the Company
have been reclassified to report separately the net assets and operating results
of Pennex as discontinued operations for all periods since the Company acquired
Pennex on September 30, 1993.
Net assets of Pennex, which are presented as net amounts in the Company's
consolidated balance sheets at August 31, 1995 and 1996, were as follows:
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Current assets.................................................... $10,570 $ 76
Property, plant and equipment, net (under contract for sale in
1996)........................................................... 4,324 3,948
Other assets...................................................... 1,005 133
-------- -------
Total assets............................................ 15,899 4,157
-------- -------
Current liabilities............................................... 2,137 39
Reserve for loss on disposition................................... 5,754 263
Other liabilities................................................. -- --
-------- -------
Total liabilities....................................... 7,891 302
-------- -------
Net assets of discontinued operations............................. $ 8,008 $3,855
======== =======
</TABLE>
The results of discontinued operations for the fiscal year ended August 31,
1994 and 1995 were as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Net sales........................................................ $12,307 $18,933
======= =======
Loss from discontinued operations before income tax.............. $(3,679) $(6,704)
Income tax benefit............................................... 1,302 2,425
------- -------
Net loss from discontinued operations............................ $(2,377) $(4,279)
======= =======
Loss on disposal, net of tax benefit of $2,057................... $ -- $(3,698)
======= =======
</TABLE>
On February 1, 1996, substantially all the remaining assets of Pennex were
sold for $6,495. The Company received a $500 deposit and a collateralized note
for the balance. The terms of such note provide for interest at 12%, payable
monthly through March 29, 1996. The rate of interest increased to 18% on April
1, 1996, although interest is being paid at 12% with the balance accruing until
February 28, 1997, when the note is due in full. The note was assigned from
Pennex to the Company as partial consideration for amounts owed to the Company
by Pennex. The Company has been recording interest income on the 12% interest
paid to the Company.
Assuming full collection of the balance of the collateralized note, the
Company expects to record a reduction to the estimated loss on disposition of
approximately $1,400 (net of tax), or $.04 per share, which would be reflected
as an adjustment to discontinued operations.
F-16
<PAGE> 57
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. COMMITMENTS AND CONTINGENCIES
In fiscal 1995, the Company renewed employment contracts with certain
Company executives all of which are for three-year terms and entered into an
employment contract with its new President which has a three year, four month
term. The agreements provide for current minimum annual salaries in the
aggregate of $1.6 million, adjusted annually for cost-of-living changes.
The Company has been named in 27 lawsuits, of which 25 have been settled or
discontinued, relating to the manufacture of L-tryptophan. These lawsuits seek
or have sought compensation and damages for alleged personal injury from
ingestion of products containing allegedly contaminated L-tryptophan. The
Company has entered into an agreement with the apparent supplier of all the
alleged contaminated L-tryptophan products pursuant to which such supplier has
agreed to indemnify the Company against any judgment and to fund settlements
arising out of those claims in certain circumstances, as well as to pay the
legal fees and expenses of the defense. Based upon such indemnification
arrangements, the Company's product liability insurance and the product
liability insurance of the Company's supplier, the Company does not believe that
any adverse decision will have a material adverse effect on the Company and,
accordingly, no provision has been made in the financial statements for any loss
that may result to the Company as a result of these actions.
The Company is also involved in litigation relating to claims arising out
of its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
16. SUBSEQUENT EVENT
On October 3, 1996, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a proposed public offering
of 4,000,000 shares of Common Stock. Of those shares, 2,000,000 are being
offered by the Company and 2,000,000 are being offered by certain shareholders
of the Company. The Company intends to use the net proceeds received from the
offering primarily to acquire complementary products, product lines or
businesses, to provide working capital and for general corporate purposes.
F-17
<PAGE> 58
REXALL SUNDOWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
17. CONDENSED INTERIM FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Net sales................................................. $32,105 $37,868 $38,291 $41,209
Gross profit.............................................. 17,776 20,554 22,725 23,387
Income before taxes and discontinued operations........... 4,466 5,533 4,303 4,902
Income from continuing operations......................... 2,750 3,488 2,965 3,135
Loss from discontinued operations......................... (770) (1,139) (1,032) (1,337)
Loss on disposal of discontinued operations............... -- -- -- (3,698)
Net income (loss)......................................... $ 1,980 $ 2,349 $ 1,933 $(1,900)
Income (loss) per common share:
Continuing operations................................... $ .09 $ .12 $ .10 $ .11
Discontinued operations................................. (.02) (.04) (.04) (.05)
Disposal of discontinued operations..................... -- -- -- (.12)
------- ------- ------- -------
Net income per common share.......................... $ .07 $ .08 $ .06 $ (.06)
======= ======= ======= =======
1996
Net sales................................................. $40,867 $40,560 $54,781 $51,636
Gross profit.............................................. 24,379 24,510 34,441 32,832
Income before taxes....................................... 5,639 6,437 9,691 10,324
Income from continuing operations......................... 3,556 4,074 6,134 6,529
Net income................................................ $ 3,556 $ 4,074 $ 6,134 $ 6,529
Net income per common share.......................... $ .12 $ .13 $ .20 $ .21
======= ======= ======= =======
</TABLE>
F-18
<PAGE> 59
INSIDE BACK COVER -- THE COMPANY'S PRODUCTION, LABORATORY AND OTHER FACILITIES.
<PAGE> 60
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Capitalization........................ 11
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 19
Management............................ 31
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 36
Underwriting.......................... 37
Legal Matters......................... 38
Experts............................... 38
Available Information................. 39
Incorporation of Certain Documents by
Reference........................... 39
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,000,000 SHARES
[LOGO] REXALL(R)
SUNDOWN
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAYMOND JAMES
& ASSOCIATES, INC.
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company and the Selling Shareholders will pay all of the expenses
incurred in connection with the offering described in this registration
statement. Such expenses are estimated to be as follows:
<TABLE>
<CAPTION>
TO BE
TO BE PAID BY THE
PAID BY SELLING
THE COMPANY SHAREHOLDERS
----------- ------------
<S> <C> <C>
Securities and Exchange Commission registration fee...... $25,363.64 $23,250.00
Nasdaq National Market listing fee....................... 17,500.00 --
NASD fee................................................. 8,631.00 7,912.00
Legal fees and expenses.................................. 75,000.00 --
Printing expenses........................................ 90,000.00 --
Fees and expenses (including legal fees) for
qualification under state securities laws.............. 10,000.00 --
Accounting fees and expenses............................. 35,000.00 --
Miscellaneous............................................ 89,505.36 8,838.00
----------- -----------
Total.......................................... $350,000.00 $40,000.00
=========== ===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under the Florida Business Corporation Act to
indemnify its Directors and officers to the extent provided for in such statute.
The Company's Amended and Restated Articles of Incorporation require the Company
to indemnify the Company's directors, officers, employees and agents. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or persons controlling the Company, pursuant to the
foregoing provisions, or otherwise, the Company 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. The Company also maintains directors' and officers' liability
insurance.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Underwriting Agreement*
5.1 -- Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.**
23.1 -- Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (contained in
Exhibit 5.1 hereto)**
23.2 -- Consent of Coopers & Lybrand L.L.P.*
24.1 -- Power of Attorney (Reference is made to page II-3 of this Registration
Statement).***
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) 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 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
II-1
<PAGE> 62
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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 of 1933 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 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 of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-2
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act, 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
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boca Raton, State of Florida, on this
10th day of October, 1996.
REXALL SUNDOWN, INC.
By: /s/ CHRISTIAN NAST
------------------------------------
Christian Nast,
President, Chief Operating Officer
and Director
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
/s/ CARL DESANTIS Chairman of the Board and October 10, 1996
- --------------------------------------------- Chief Executive Officer
Carl DeSantis
/s/ CHRISTIAN NAST Director, President and Chief October 10, 1996
- --------------------------------------------- Operating Officer
Christian Nast
/s/ DEAN DESANTIS Director and Senior Vice October 10, 1996
- --------------------------------------------- President -- Operations
Dean DeSantis
/s/ DAMON DESANTIS* Director and Executive Vice October 10, 1996
- --------------------------------------------- President
Damon DeSantis
/s/ GEARY COTTON Vice President -- Finance, October 10, 1996
- --------------------------------------------- Chief Financial Officer,
Geary Cotton Treasurer and Chief
Accounting Officer
/s/ NICKOLAS PALIN Director and Senior Vice October 10, 1996
- --------------------------------------------- President -- Sales and
Nickolas Palin Marketing
/s/ STANLEY LEEDY* Director October 10, 1996
- ---------------------------------------------
Stanley Leedy
/s/ RAYMOND MONTELEONE* Director October 10, 1996
- ---------------------------------------------
Raymond Monteleone
/s/ HOWARD YENKE* Director October 10, 1996
- ---------------------------------------------
Howard Yenke
*By: /s/ GEARY COTTON
----------------------------------------
Attorney-in-fact
</TABLE>
II-3
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ ----------------------------------------------------------------------
<C> <C> <S> <C>
1.1 -- Underwriting Agreement
23.2 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 1.1
4,000,000 Shares
Rexall Sundown, Inc.
Common Stock
---------------------
UNDERWRITING AGREEMENT
St. Petersburg, Florida
_______________, 1996
RAYMOND JAMES & ASSOCIATES, INC.
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
Rexall Sundown, Inc., a Florida corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell 2,000,000 authorized and unissued shares (the "Company Firm Shares") of
the Company's common stock, par value $.01 per share (the "Common Stock"),
to the several Underwriters named in Schedule I hereto (the "Underwriters").
Certain shareholders of the Company, named in Schedule II hereto (the
"Selling Shareholders"), acting severally and not jointly, propose, subject to
the terms and conditions stated herein, to sell to the Underwriters an
aggregate of 2,000,000 authorized and outstanding shares (the "Shareholder
Firm Shares") of Common Stock in the respective amounts set forth opposite
their names in Schedule II. The Company Firm Shares and the Shareholder
Firm Shares are hereafter collectively referred to as the "Firm Shares."
In addition, the Company and the Selling Shareholders have agreed to sell
to the Underwriters, at the election of the Underwriters and subject to the
terms and conditions set forth herein, up to an aggregate of 600,000 additional
shares of Common Stock (the "Additional Shares"), solely to cover
over-allotments by the Underwriters, if any. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the
"Shares." Raymond James & Associates, Inc., Montgomery Securities and Adams,
Harkness & Hill, Inc. are acting as the representatives of the several
Underwriters and in such capacity are hereinafter referred to as the
"Representatives." Each of the Company and each Selling Shareholder agrees with
the several Underwriters as follows:
SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company
has prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 (File No.
333-13379), including a prospectus subject to completion, relating to the
Shares. Such registration statement (including all financial schedules and
exhibits), as amended at the time when it becomes effective and as thereafter
amended by any post-effective amendment, together with any documents
incorporated by reference
<PAGE> 2
therein and any registration statement filed by the Company with respect to the
foregoing pursuant to Rule 462(b) under the Act, is referred to in this
Agreement as the "Registration Statement." The term "Prospectus" as used
in this Agreement means (i) the prospectus in the form included in the
Registration Statement, or (ii) if the prospectus included in the
Registration Statement omits information in reliance upon Rule 430A under the
Act and such information is included in a prospectus filed with the
Commission pursuant to Rule 424(b) under the Act or as part of a
post-effective amendment to the Registration Statement after the Registration
Statement becomes effective, the prospectus as first so filed, or (iii) if
the prospectus included in the Registration Statement omits information in
reliance upon Rule 430A under the Act and such information is included in a
term sheet (as described in Rule 434 under the Act) filed with the
Commission pursuant to Rule 424(b) under the Act, the prospectus
included in the Registration Statement and such term sheet, taken
together, in each case together with any documents incorporated by
reference therein. The prospectus subject to completion in the form
included in the Registration Statement at the time of the initial filing
of such Registration Statement with the Commission and as such prospectus
is amended from time to time until the date upon which the Registration
Statement was declared effective by the Commission, together with any
documents incorporated by reference therein, is referred to in this Agreement
as the "Prepricing Prospectus."
SECTION 2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby
agrees to sell the Company Firm Share number of Shareholder Firm Shares as is
set forth opposite such Selling Shareholder's name on Schedule II hereto, to
the Underwriters and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company and the
Selling Shareholders the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number of Firm Shares
as adjusted pursuant to Section 10 hereof), at a purchase price of $_____ per
Share (the "purchase price per Share").
Upon the basis of the representations, warranties and agreements of
the Company herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right for 30 days from the date
upon which the Registration Statement is declared effective by the
Commission to purchase from the Company or the Selling Shareholders, from
time to time, and the Company and the Selling Shareholders agree to sell to
the Underwriters subject to the conditions set forth below, any or all of
the Additional Shares at the purchase price per Share for the Firm Shares.
The Additional Shares shall, if purchased, be purchased solely for the purpose
of covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments as you may determine to avoid fractional
shares) which bears the same proportion to the total number of
Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto
(or such number of Firm Shares as adjusted pursuant to Section 10 hereof)
bears to the total number of Firm Shares. Of the Additional Shares, the
Selling Shareholders will, at their sole discretion, sell up to 200,000
shares and the Company will sell up to 400,000 shares, plus any of the
200,000 shares that the Selling Shareholders elect not to sell. The
exercise of the Underwriters over-allotment option as to only a portion of
the Additional Shares will not affect the right of the Selling Shareholders to
elect to sell up to 200,000 such Additional Shares.
SECTION 3. TERMS OF PUBLIC OFFERING. The Company and the
Selling Shareholders have been advised by you that the Underwriters propose
to make a public offering of their respective portions
- 2 -
<PAGE> 3
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR.
Certificates for the Shares to be purchased by the Underwriters hereunder,
in definitive form and in such denominations and registered in such names
as Raymond James & Associates, Inc. may request upon at least 48 hours prior
notice to the Company, shall be delivered by or on behalf of the Company
and the Selling Shareholders to the Underwriters for their respective
accounts, against payment by the Underwriters as provided herein. Payment
shall be made (i) with respect to the purchase price for the Firm Shares
and any Additional Shares purchased from the Company, to the Company by
wire transfer of same-day funds against delivery of the certificates for the
Firm Shares or Additional Shares purchased from the Company, as the case may
be, and (ii) with respect to the purchase price for the Firm Shares and any
Additional Shares sold by the Selling Shareholders, to each such Selling
Shareholder by wire transfer of same-day funds against delivery of the
certificates for the Firm Shares or Additional Shares purchased from each
such Selling Shareholder, as the case may be.
Delivery to the Underwriters of and payment for the Firm Shares
shall be made at the offices of Raymond James & Associates, Inc., 880
Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg,
Florida time, four business days after the date hereof (the "Closing Date").
The place of closing for the Firm Shares and the Closing Date may be varied by
agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the offices of
Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg,
Florida, at 10:00 a.m., St. Petersburg, Florida time, on such date or dates
(the "Additional Closing Date") (which may be the same as the Closing Date
but shall in no event be earlier than the Closing Date nor earlier than
three nor later than ten business days after the giving of the notice
hereinafter referred to), as shall be specified in a written notice from you
on behalf of the Underwriters to the Company and the Selling Shareholders,
of the Underwriters' determination to purchase a number, specified in such
notice, of Additional Shares. Such notice may be given to the Company and
the Selling Shareholders by you at any time within 30 days after the date
upon which the Registration Statement is declared effective by the
Commission. The place of closing for the Additional Shares and the
Additional Closing Date may be varied by agreement between you and the Company
and the Selling Shareholders.
SECTION 5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereto to become effective, if
it has not already become effective, and will advise you promptly and, if
requested by you, will confirm such advice in writing (i) when the
Registration Statement has become effective and when any post-effective
amendment to the Registration Statement or any registration statement
filed pursuant to Rule 462(b) under the Act relating to the Registration
Statement is filed or becomes effective, (ii) if information is omitted from
the Registration Statement pursuant to Rule 430A under the Act, when the
Prospectus or term sheet (as described in Rule 434(b) under the Act) has been
timely filed pursuant to Rule 424(b) under the Act, (iii) of any request
by the Commission for amendments or supplements to the Registration
Statement, any Prepricing Prospectus or the Prospectus or for additional
information, (iv) of the issuance by the Commission of any stop order
- 3 -
<PAGE> 4
suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction or the initiation (or threatened initiation) of any proceeding
for such purposes, and (v) within the period of time referred to in Section
5(e) below, of any change in the Company's condition (financial or other),
business, prospects, properties, net worth or results of operations, or of
any event that comes to the attention of the Company that makes any statement
made in the Registration Statement or the Prospectus (as then amended or
supplemented) untrue in any material respect or that requires the making of
any additions thereto or changes therein in order to make the statements
therein not misleading in any material respect, or of the necessity to amend
or supplement the Prospectus to comply with the Act or any other law. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) The Company will furnish to you, without charge, two signed
copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements
and all exhibits thereto, and will also furnish to you, without charge,
such number of conformed copies of the Registration Statement as originally
filed and of each amendment thereto as you may reasonably request.
(c) The Company will not file any amendment to the
Registration Statement, file any registration statement pursuant to Rule
462(b) under the Act or make any amendment or supplement to the Prospectus
of which you shall not previously have been advised (with a reasonable
opportunity to review such amendment, registration statement or supplement) or
to which you have reasonably objected after being so advised, or which is
not in compliance with the Act. The Company will prepare and file with
the Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel of the several Underwriters, may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriters.
(d) The Company has delivered or will deliver to you, without
charge, in such quantities as you have requested or may hereafter reasonably
request, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the Act and the securities or "blue
sky" laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.
(e) As soon after the execution and delivery of this
Agreement as is practicable and thereafter from time to time for such
period as in the reasonable opinion of counsel for the Underwriters a
prospectus is required by the Act to be delivered in connection with sales
by any Underwriter or a dealer, and for so long a period as you may request
for the distribution of the Shares, the Company will deliver to each
Underwriter and each dealer, without charge, as many copies of the Prospectus
(and of any amendment or supplement thereto) as they may reasonably request.
The Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the Act and the securities or blue sky
laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such period of
time thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. If at any time prior
to the later of (i) the completion of the distribution of the Shares
pursuant to the offering contemplated by the Registration Statement or (ii) the
expiration of prospectus delivery requirements with respect to the Shares
under Section 4(3) of the Act and Rule 174 thereunder, any event shall occur
that in the judgment of the Company or in the
- 4 -
<PAGE> 5
opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with the Act or any other law,
the Company will promptly prepare and, subject to Sections 5(a) and 5(c),
file with the Commission an appropriate supplement or amendment thereto, and
will furnish to each Underwriter and to each dealer who has previously
requested Prospectuses, without charge, a reasonable number of copies thereof.
(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or blue sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other
documents as may be reasonably necessary in order to effect and maintain
such registration or qualification for so long as required to complete
the distribution of the Shares; provided that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action which would subject it to service of
process in suits, other than those arising out of the offering or sale of the
Shares, in any jurisdiction where it is not now so subject. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as
are or may be required by the laws of such jurisdiction. In the event
that the qualification of the Shares in any jurisdiction is suspended, the
Company shall so advise you promptly in writing.
(g) The Company will make generally available to its security
holders a consolidated earnings statement (in form complying with the
provisions of Rule 158 under the Act), which need not be audited, covering a
12 month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(h) During the period ending five years from the date hereof, the
Company will furnish to you and, upon your request, to each of the other
Underwriters, (i) as soon as available, a copy of each report or definitive
proxy statement of the Company filed with the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the National
Association of Securities Dealers, Inc. (the "NASD"), the Nasdaq Stock
Market or any securities exchange, or mailed to shareholders, and (iii)
from time to time such other information concerning the Company as you may
reasonably request.
(i) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provision hereof (except Section 11), or if
this Agreement shall be terminated by the Underwriters because of any
inability, failure or refusal on the part of the Company or any Selling
Shareholder to perform any agreement herein or to comply with any of the
terms or provisions hereof or to fulfill any of the conditions of this
Agreement, the Company agrees to reimburse you and the other Underwriters for
all out- of-pocket expenses (including travel expenses and reasonable
fees and expenses of counsel for the Underwriters but excluding wages and
salaries paid by you) incurred by you in connection herewith.
(j) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
statements set forth under the caption "Use of Proceeds" in the Prospectus.
- 5 -
<PAGE> 6
(k) If information is omitted from the Registration Statement
pursuant to Rule 430A under the Act, the Company will timely file the
Prospectus or term sheet (as described in Rule 434(b) under the Act) pursuant
to Rule 424(b) under the Act.
(l) For a period of 180 days after the date of the
Prospectus as first filed with the Commission pursuant to Rule 424(b) under
the Act, without the prior written consent of Raymond James & Associates,
Inc., the Company will not, directly or indirectly, issue, sell, contract to
sell, offer or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of
Common Stock (collectively, "Company Securities") or any rights to purchase
Company Securities, except (i) to the Underwriters pursuant to this
Agreement, (ii) pursuant to and in accordance with the Company's stock
option plans described in the Prospectus, or (iii) pursuant to the exercise
or conversion of warrants, stock options, preferred stock or convertible
debentures issued and outstanding at the time of effectiveness of the
Registration Statement and described in the Registration Statement.
(m) Prior to the Closing Date or the Additional Closing Date, as
the case may be, the Company will furnish to you, as promptly as possible,
copies of any unaudited interim consolidated financial statements of the
Company and its Subsidiaries (defined below) for any period subsequent to
the periods covered by the financial statements appearing in the Prospectus.
(n) The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
(o) The Company will not, directly or indirectly, take any
action that would constitute or any action designed, or which might reasonably
be expected to cause or result in or constitute, under the Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to qualify or register
its Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of ) the blue sky laws of each state where
necessary to permit market making transactions and secondary trading, and
will comply with such blue sky laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years after the
date hereof.
(q) For so long as the Company's Common Stock is listed
therewith, the Company will comply with the filing and other requirements of
the Nasdaq National Market.
(r) The Company hereby agrees that this Agreement shall be
deemed, for all purposes, to have been made and entered into in Pinellas
County, Florida. The Company agrees that any dispute hereunder shall be
litigated solely in the Circuit Court of the State of Florida in Pinellas
County, Florida or in the United States District Court for the Middle District
of Florida, Tampa Division, and further agrees to submit itself to the personal
jurisdiction of such courts.
SECTION 5A. COVENANTS AND AGREEMENTS OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder covenants and agrees with the several
Underwriters as follows:
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<PAGE> 7
(a) For a period of 180 days after the date of the
Prospectus as first filed with the Commission pursuant to Rule 424(b)
under the Act, without the prior written consent of Raymond James &
Associates, Inc., such Selling Shareholder will not, directly or indirectly,
sell, contract to sell, offer or otherwise dispose of or transfer any Company
Securities or any rights to purchase Company Securities, except in accordance
with that certain Securities Loan Agreement to be entered into on or before
the date hereof between CDD Partners, Ltd., a Texas limited partnership, and
such Selling Shareholder (each, a Securities Loan Agreement).
(b) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date and will advise the Representatives prior to the Closing Date if
any statement to be made on behalf of such Selling Shareholder in the
certificate contemplated by Section 9(i) would be inaccurate if made as of the
Closing Date.
(c) On the Closing Date, all stock transfer and other taxes
(other than income taxes) which are required to be paid in connection with
the sale and transfer of the Shares to be sold by such Selling Shareholder to
the several Underwriters hereunder will have been fully paid for by
such Selling Shareholder and all laws imposing such taxes will have been fully
complied with.
(d) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, the Selling Shareholders severally agree to deliver to you at
least two days prior to the Closing Date a properly completed and executed
United States Treasury Department Form W-9.
SECTION6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to, and agrees with, each of the
Underwriters that:
(a) Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424(a) under the Act, complied
when so filed in all material respects with the provisions of the Act,
except that this representation and warranty does not apply to statements in
or omissions from such Prepricing Prospectus (or any supplement or amendment
thereto) made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein. The Commission has not
issued any order preventing or suspending the use of any Prepricing
Prospectus. The Company has satisfied all conditions to the use of Form S-3
with respect to the offering of the Shares for sale to the public.
(b) The Registration Statement, in the form in which it became
effective and also in such form as it may be when any post-effective
amendment thereto shall become effective, and any registration statement
filed pursuant to Rule 462(b) under the Act, complies and will comply in all
material respects with the provisions of the Act and does not and will not at
any such times contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Registration
Statement (or any amendment or supplement thereto) made in reliance upon and
in conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of any Underwriter through you expressly
for use therein. The Prospectus, and any supplement or amendment thereto,
when filed with the Commission under Rule
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<PAGE> 8
424(b) under the Act, complies and will comply in all material respects with
the provisions of the Act and does not and will not at any such times contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements in or omissions
from the Prospectus (or any amendment or supplement thereto) made in reliance
upon and in conformity with information relating to any Underwriter furnished
to the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.
(c) The capitalization of the Company is as set forth in the
Prospectus as of the date set forth therein. All the outstanding shares of
Common Stock (including without limitation the Shareholder Firm Shares) have
been, and on the Closing Date and any Additional Closing Date will be, duly
authorized and validly issued, fully paid and nonassessable and free of any
preemptive or similar rights to subscribe for or purchase any shares of
capital stock issued by the Company; except as described in the Prospectus,
there are no outstanding securities or obligations of the Company
convertible into, exercisable for or exchangeable for any capital stock of
the Company; the Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights to subscribe for or purchase any shares of
capital stock issued by the Company; the securities of the Company
conform to the description thereof in the Registration Statement and the
Prospectus (or any amendment or supplement thereto); and the delivery of
certificates for the Shares to be issued and sold by the Company pursuant to
the terms of this Agreement and payment for such Shares will pass valid
title to such shares, free and clear of any voting trust arrangements,
liens, encumbrances, equities, claims or defects in title, to the several
Underwriters purchasing such Shares in good faith and without notice of
any lien, claim or encumbrance. The certificates for the Shares are in
valid and sufficient form. All offers and sales of the Company's capital
stock or other securities prior to the date hereof were made in compliance
with the registration provisions of the Act and all other applicable state
and federal securities laws or regulations, or applicable exemptions
therefrom.
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Florida, with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as presently conducted and as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does not
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and
its Subsidiaries, taken as a whole (a "Material Adverse Effect").
(e) Except for Rexall Showcase International, Inc., a Florida
corporation (the "Significant Subsidiary"), Rexall Showcase International
de Mexico, S.A. de C.V., Importadora Rexall Showcase International de
Mexico, S.A. de C.V., Servicios Rexall Showcase International de Mexico,
S.A. de C.V., Asociacion de Vendedores Independientes en Rexall, A.C.,
Rexall Korea Limited and RSL Holdings, Inc. (collectively, the
"Subsidiaries"), the Company does not own a material interest in or control,
directly or indirectly, any other corporation, partnership, joint venture,
association, trust or other business organization. The Significant
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida with full corporate power and
authority to own, lease and
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<PAGE> 9
operate its properties and to conduct its business as presently conducted
and as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its businesses and is in good
standing in each jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or qualification,
except where the failure to so register or qualify does not have a Material
Adverse Effect. All of the equity interests of each Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable, and are
owned by the Company directly, free and clear of any lien, adverse claim,
security interest, equity or other encumbrance.
(f) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened, against the Company or any
Subsidiary, or to which the Company or any Subsidiary, or to which its
respective properties, is subject, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) or any document required to be incorporated by reference therein
but are not described as required. Except as described in the
Prospectus, there is no action, suit, inquiry, proceeding, or investigation
by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the knowledge of the
Company, threatened against or involving the Company or any Subsidiary
(including without limitation any such action, suit, inquiry, proceeding or
investigation relating to any product alleged to have been manufactured or
sold by the Company or any Subsidiary and alleged to have been unreasonably
hazardous, defective, or improperly designed or manufactured), the adverse
resolution of which could have a Material Adverse Effect, nor is there any
basis for any such action, suit, inquiry, proceeding, or investigation.
There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement
or the Prospectus (or any amendment or supplement thereto) or to be filed as
an exhibit to the Registration Statement that are not described or filed
as required or incorporated by reference as permitted by the Act. All
such contracts to which the Company or any Subsidiary is a party have been
duly authorized, executed and delivered by the Company or the respective
Subsidiary, constitute valid and binding agreements of the Company or the
respective Subsidiary and are enforceable against the Company or the
respective Subsidiary in accordance with the terms thereof, except as
enforceability thereof may be limited by (A) the application of bankruptcy,
reorganization, insolvency and other laws affecting creditors' rights
generally, and (B) equitable principles being applied at the discretion of a
court before which any proceeding may be brought
(g) Neither the Company nor any Subsidiary is in violation of
its articles of incorporation or bylaws or other charter documents. Neither
the Company nor any Subsidiary is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company
or any Subsidiary or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any Subsidiary, or in default
in any material respect in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other
instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties may be bound,
which violation or default would have a Material Adverse Effect.
(h) The execution and delivery of this Agreement, and the
performance by the Company of its obligations under this Agreement, have been
duly and validly authorized by the Company, and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company, enforceable against the Company in accordance with
its terms.
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<PAGE> 10
(i) None of the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby (i) is or may be
void or voidable by any person or entity, (ii) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body,
agency or official (except such as may be required for the registration of the
Shares under the Act and compliance with the securities or blue sky laws of
various jurisdictions, all of which will be, or have been, effected in
accordance with this Agreement) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
articles of incorporation or bylaws or other charter documents, of the
Company or any Subsidiary, or (iii) conflicts or will conflict with or
constitutes a breach of, or a default under, any agreement, indenture, lease
or other instrument to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary or any of their respective properties
may be bound, or violates any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any Subsidiary or
any of their respective properties, or results in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to the terms of any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary may be bound or to which the property or assets of
the Company or any Subsidiary is subject, which conflict, violation or
default in this clause (iii) would have a Material Adverse Effect.
(j) No person or entity has any right, not effectively satisfied
or waived, to require the Company to include any securities with the Common
Stock registered pursuant to the Registration Statement; and except as
described in the Prospectus, no person or entity has any 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 with securities to be
registered pursuant to any other registration statement filed by the Company
under the Act.
(k) Coopers & Lybrand, the certified public accountants who have
certified the consolidated financial statements filed as part of the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), are independent public accountants as required by the Act.
The consolidated financial statements, together with related schedules
and notes, forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial
position of the Company and the Subsidiaries on the bases stated therein
at the respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved and all adjustments necessary for a
fair presentation of the results for such period have been made; and the other
financial and statistical information and data set forth in the Registration
Statement and Prospectus (and any amendment or supplement thereto) is
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company. No financial
statements or schedules are required to be included in or incorporated by
reference into the Registration Statement that have not been so included or
incorporated.
(l) Subsequent to the respective dates as of which such
information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), neither the Company nor any Subsidiary
has incurred any liability or obligation, direct or contingent, or entered
into any transaction, whether or not in the ordinary course of business,
that is material to the Company and the Subsidiaries, taken as a whole, and
there has not been any material change in or dividend paid on the
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<PAGE> 11
capital stock, or material increase in the short-term debt or long-term
debt, of the Company or any Subsidiary, or any event resulting in, or any
development involving or which may reasonably be expected to involve a
potential future, Material Adverse Effect.
(m) The Company and the Subsidiaries have good and marketable
title to all property (real and personal) described in the Registration
Statement and the Prospectus (or any amendment or supplement thereto) or
any document required to be incorporated by reference therein as being owned
by the Company or such Subsidiary, free and clear of all liens, claims,
security interests or other encumbrances except such as are described in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) or such as are not materially burdensome and do not interfere in any
material respect with the use of the property or the conduct of the business
of the Company and the Subsidiaries, taken as a whole, and the property
(real and personal) held under lease by the Company or any Subsidiary, as
applicable, is held by them under valid, subsisting and enforceable leases
with only such exceptions as in the aggregate are not materially burdensome
and do not interfere in any material respect with the conduct of the business
of the Company and the Subsidiaries, taken as a whole.
(n) The Company has not distributed and will not distribute prior
to the Closing Date (or the Additional Closing Date, if any) any offering
material in connection with the offering and sale of the Shares other than
the Prepricing Prospectus and the Registration Statement, the Prospectus
or other materials permitted by the Act and distributed with the prior
written approval of the Underwriters. The Company has not taken, directly
or indirectly, any action which constituted or any action designed, or which
might reasonably be expected to cause or result in or constitute, under
the Act or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares. The
Company acknowledges that the Underwriters may engage in passive market
making transactions in the Common Stock on The Nasdaq Stock Market in
accordance with Rule 10b-6A under the Exchange Act.
(o) Neither the Company nor any Subsidiary is an "investment
company," an "affiliated person" of, or "promoter" or "principal underwriter"
for an investment company within the meaning of the Investment Company Act of
1940, as amended.
(p) The Company and the Significant Subsidiary have all
permits, licenses, franchises, approvals, consents and authorizations of
governmental or regulatory authorities or private persons or entities
(hereinafter "permit or "permits") as are necessary to own their respective
properties and to conduct their respective businesses in the manner
described in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), subject to such qualifications as may be
set forth therein, except where the failure to have obtained any such
permit has not had and will not have a Material Adverse Effect; the
Company and the Significant Subsidiary have fulfilled and performed all of
their material obligations with respect to each such permit and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination of any such permit or result in any other material
impairment of the rights of the holder of any such permit, subject in each
case to such qualification as may be set forth in the Prospectus; and,
except as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company and the Subsidiaries, taken as a
whole.
(q) The Company and the Significant Subsidiary are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary
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<PAGE> 12
in the business in which they are engaged; and the Company has no reason to
believe that the Company and the Significant Subsidiary will not be able to
renew their existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue their respective businesses as a comparable cost.
(r) The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorizations; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) To the Company s knowledge, neither the Company nor any
Subsidiary has, directly or indirectly, at any time during the past five years
(i) made any unlawful contribution to any candidate for political office, or
failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal, state or foreign governmental official,
or other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States or any
jurisdiction thereof or applicable foreign jurisdictions.
(t) Except as set forth in the Registration Statement and the
Prospectus, to the knowledge of the Company neither the Company nor any
Subsidiary has violated any safety or similar law applicable to their
respective businesses, nor any federal or state law relating to discrimination
in the hiring, promotion or pay of employees nor any applicable federal or
state wages and hours laws, nor any provisions of the Employee Retirement
Income Security Act or the rules and regulations promulgated thereunder, which
in each case might result in a Material Adverse Effect. To the best of the
Company's knowledge, no labor disturbance by the employees of the Company or
any of the Subsidiaries exists or is imminent; and the Company is not aware of
any existing or imminent labor disturbances by the employees of any of its
principal suppliers that might be expected to result in a Material Adverse
Effect. No collective bargaining agreement exists with any of the Company's
or any Subsidiary's employees and, to the Company's knowledge, no such
agreement is imminent. To the Company s knowledge, neither the employment by
the Company or any Subsidiary of their key personnel nor the activities of such
individuals at the Company or any Subsidiary conflicts with, constitutes
a breach of, or otherwise violates any employment, noncompetition,
nondisclosure or similar agreement or covenant by which such individuals may be
bound.
(u) The Company and the Subsidiaries own and have full right,
title and interest in and to, or have the right to use, each material trade
name, trademark, service mark, patent, copyright, license, and other rights
and all know-how (including trade secrets and other unpatented and/or
proprietary or confidential information, systems, or procedures)
(collectively, "Intellectual Property Rights") under which the Company and
such Subsidiaries conduct all or any portion of their respective businesses,
which Intellectual Property Rights are adequate to conduct such businesses
as conducted or as proposed to be conducted or as described in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto); except as otherwise disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), neither the Company nor
its Subsidiaries has created any lien or encumbrance on, or granted any right
or license with respect to, its respective Intellectual Property
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<PAGE> 13
Rights; there is no claim pending against the Company or any Subsidiary
with respect to any of their respective Intellectual Property Rights; neither
the Company nor any Subsidiary has received notice that, nor is the Company
aware that, any Intellectual Property Right which they use or have used in the
conduct of their respective businesses infringed or infringes upon or
conflicted or conflicts with the rights of any third party, which infringement
of conflict could have a Material Adverse Effect; and the Company is not
aware of any facts which, with the passage of time or otherwise, would
cause the Company or any Subsidiary to infringe upon or otherwise violate the
Intellectual Property Rights of any third party.
(v) The Company and the Subsidiaries have filed with the U. S.
Food and Drug Administration (the "FDA"), and all applicable foreign, state
and local regulatory bodies, for and received approval of, all
registrations; applications, licenses, requests for exemptions, permits
and other regulatory authorizations material to the conduct of the
respective businesses of the Company and the Significant Subsidiary as they
are now conducted except for such registrations, applications, licenses,
requests for exemptions, permits and other regulatory authorizations of which
the failure to so obtain would not have a Material Adverse Effect; the
Company and the Significant Subsidiary are in compliance in all material
respects with all such registrations, applications, licenses, requests for
exemptions, permits and other regulatory authorizations, and all applicable
FDA, foreign, state and local rules and regulations; and the Company has no
reason to believe that any party granting any such registration,
application, license, request for exemption, permit or other authorization is
considering limiting, suspending or revoking the same.
(w) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act. The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed with
the Commission. The documents incorporated by reference in the Registration
Statement or the Prospectus (or any amendment or supplement thereto), when
the Registration Statement became effective under the Act and when such
documents were filed with the Commission under the Exchange Act, conformed in
all material respects with the requirements of the Act or the Exchange Act,
as applicable, and the rules and regulations of the Commission thereunder. The
Common Stock has been and continues to be listed on the Nasdaq National
Market ("NNM") under the symbol "RXSD" and the Company has complied and will
continue to comply with the maintenance and designation criteria applicable
to NNM issuers. The Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under
the Exchange Act or delisting the Common Stock from the NNM, nor has the
Company received any notification that the Commission or the NASD is
contemplating terminating such registration or listing.
(x) All federal, state, local and foreign tax returns required to
be filed by or on behalf of the Company and the Significant Subsidiary with
respect to all periods ended prior to the date of this Agreement have been
filed (or are the subject of valid extension) with the appropriate federal,
state, local and foreign authorities and all such tax returns, as filed, are
accurate in all material respects. All federal, state, local and foreign
taxes (including estimated tax payments) required to be shown on all such tax
returns or claimed to be due from or with respect to the respective businesses
of the Company and the Subsidiaries have been paid or reflected as a
liability on the consolidated financial statements of the Company for
appropriate periods. All deficiencies asserted as a result of any federal,
state, local or foreign tax audits have been paid or finally settled and no
issue has been raised in any such audit which, by application of the same
or similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so audited. No state of facts exist or
has existed which would constitute grounds for the assessment of any tax
liability with respect to the periods that have not been
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<PAGE> 14
audited by appropriate federal, state local or foreign authorities. There
are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal, state, local or foreign tax return for
any period.
(y) The Company and the Subsidiaries have obtained all required
permits, licenses, and other authorizations, if any, which are required under
federal, state, local and foreign statutes, ordinances and other laws
relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, chemicals, or industrial, hazardous, or toxic
materials or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, land surface, or subsurface strata)
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, hazardous, or toxic materials or
wastes, or any regulation rule, code, plan, order, decree, judgment,
injunction, notice, or demand letter issued, entered, promulgated, or
approved thereunder ("Environmental Laws") the failure of which to obtain
would have a Material Adverse Effect. The Company and the Subsidiaries are
in material compliance with all terms and conditions of all required
permits, licenses and authorizations, and are also in material compliance
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables contained
in the Environmental Laws. There is no pending or, to the knowledge of
the Company, threatened, civil or criminal litigation, notice of
violation, or administrative proceeding relating in any way to the
Environmental Laws (including notices, demand letters, or claims under the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), and similar foreign, state, or local laws) involving
the Company or any Subsidiary. There have not been and there are not any
past, present, or foreseeable future events, conditions, circumstances,
activities, practices, incidents, actions, or plans which may interfere with or
prevent continued compliance, or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, study, or investigation, based on or related
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release, or
threatened release into the environment, of any pollutant, contaminant,
chemical, or industrial, hazardous, or toxic material or waste, including,
without limitation, any liability arising, or any claim, action, demand, suit,
proceeding, hearing, study, or investigation which may be brought, under RCRA,
CERCLA, or similar foreign, state or local laws, in each case which
individually or in the aggregate would have a Material Adverse Effect.
(z) The Company and the Subsidiaries are in compliance with all
provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating
to Disclosure of doing Business with Cuba; if the Company or any Subsidiary
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the business of the Company or any Subsidiary
with Cuba or with any person or affiliate located in Cuba changes in any
material way, the Company will provide the Department notice of such business
or change, as appropriate in a form acceptable to the Department.
SECTION 6A. REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder, severally and not jointly,
represents and warrants to each Underwriter and the Company on
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<PAGE> 15
the date hereof, and shall be deemed to represent and warrant to each
Underwriter and the Company on the Closing Date and the Additional Closing
Date, that:
(a) Such Selling Shareholder is the owner of the Shareholder
Firm Shares to be sold by him for purposes of Section 16(c) under the Exchange
Act; CDD Partners, Ltd., a Texas limited partnership ("CDD Partners") has,
and immediately prior to the consummation of the transactions contemplated
hereby on the Closing Date will have, good and valid title to the Shares to
be sold by such Selling Shareholder, free and clear of all pledges, liens,
security interests, encumbrances, claims or equitable interests (except those
of such Selling Shareholder pursuant to the Securities Loan Agreement
between such Selling Shareholder and CDD Partners); and upon delivery of
such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain good and valid title to
the Shares purchased by it from such Selling Shareholder, free and clear of
all pledges, liens, security interests, encumbrances, claims, equitable
interests or adverse claims (or claims of any adverse party), including any
liability to or claims of any creditor of such Selling Shareholder.
(b) All authorizations, approvals, consents and orders
necessary for the execution and delivery by or on behalf of such Selling
Shareholder of this Agreement and the sale and delivery of the Shares to be
sold by such Selling Shareholder under this Agreement (other than such
authorizations, approvals or consents as may be necessary under state or
other securities or blue sky laws) have been obtained and are in full force
and effect; such Selling Shareholder, if other than a natural person, has
been duly organized and is validly existing and in good standing under the laws
of the jurisdiction of its organization as the type of entity that it
purports to be; and such Selling Shareholder has full right, power, and
authority to enter into and perform its obligations under this Agreement, and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder under this Agreement.
(c) (i) This Agreement has been duly executed and delivered by
or on behalf of such Selling Shareholder and constitutes the valid and
binding agreement of each Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms; (ii) the performance of
this Agreement and the consummation of the transactions herein contemplated
will not: (A) conflict with or result in a breach of or default under any
material bond, debenture, note or other evidence of indebtedness, or any
material contract, indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which such Selling Shareholder or CDD
Partners is a party or by which such Selling Shareholder, CDD Partners or
any Selling Shareholder Shares hereunder may be bound or (B) to the best
of such Selling Shareholder's knowledge, result in the violation of any law,
order, rule or regulation applicable to such Selling Shareholder or CDD
Partners, or the violation of any writ, injunction or decree of any court or
governmental agency or body having jurisdiction over the Selling Shareholders
or CDD Partners, or result in the violation of any provisions of the
charter, bylaws or other organizational documents of CDD Partners.
(d) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(e) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
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<PAGE> 16
(f) The information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Shares to be sold
by such Selling Shareholders under this Agreement that is set forth in the
Registration Statement and the Prospectus is, and on the Closing Date will
be, true, correct and complete, and does not, and on the Closing Date will
not, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make such
statements not misleading. Such Selling Shareholder is familiar with the
Registration Statement, the Prepricing Prospectus and the Prospectus and has
no knowledge of any material fact or condition not set forth in the
Registration Statement, the Prepricing Prospectus or the Prospectus which
has adversely affected, or may adversely affect, the condition (financial or
other) of the business, properties, results of operations or prospects of the
Company, and the sale of the Shares proposed to be sold by such Selling
Shareholder is not prompted by any such knowledge.
(g) Such Selling Shareholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that are
to be sold by the Company or any of the other Selling Shareholders to the
Underwriters pursuant to this Agreement; and such Selling Shareholder does not
own any capital stock of the Company or warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
(h) To the best knowledge of each Selling Shareholder, none of
the representations and warranties of the Company set forth in Section 6 above
is untrue or inaccurate.
SECTION 7. EXPENSES. The Company and the Selling Shareholders
hereby agree with the several Underwriters that the Company will pay or cause
to be paid the costs and expenses associated with the following: (1) the
preparation, printing or reproduction, and filing with the Commission of the
Registration Statement (including financial statements and exhibits thereto),
each Prepricing Prospectus, the Prospectus, each registration statement
filed pursuant to Rule 462(b) under the Act, and each amendment or
supplement to any of them; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Prepricing
Prospectus, the Prospectus, each registration statement filed pursuant to
Rule 462(b) under the Act, and all amendments or supplements to any of them,
as may be reasonably requested for use in connection with the offering and
sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp
taxes in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Shares; (v) the listing of the Shares on the Nasdaq National Market;
(vi) the registration or qualification of the Shares for offer and sale
under the securities or Blue Sky laws of the several states as provided
in Section 5(f) hereof (including the reasonable fees and expenses of
counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. in connection with the
offering; (viii) the transportation and other expenses incurred by or on
behalf of representatives of the Company in connection with the presentations
to prospective purchasers of the Shares; (ix) the fees and expenses of
the Company's accountants and the fees and expenses of counsel (including
local and special counsel) for the Company; (x) the preparation, printing and
distribution of bound volumes of the relevant
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<PAGE> 17
transaction documents for the Representatives and their counsel; and (xi) the
performance by the Company of its other obligations under this
Agreement. If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company
to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the
Company will reimburse the several Underwriters for all reasonable out-of-
pocket expenses (including fees and disbursements of counsel for the several
Underwriters) incurred by the Underwriters in investigating, preparing to
market or marketing the Shares. The provisions of this Section 7 are intended
to relieve the Underwriters from the payment of the expenses and costs which
the Company hereby agrees to pay, but shall not affect any agreement which
the Selling Shareholders and the Company may make, or may have made, for the
sharing of such expenses and costs.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION. The Company agrees
to indemnify and hold harmless you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any breach of any
representation, warranty, agreement or covenant of the Company contained
herein or any untrue statement or alleged untrue statement of a material
fact contained in any Prepricing Prospectus the Registration Statement, the
Prospectus, any amendment or supplement thereto, or in any Registration
Statement filed pursuant to Rule 462(b) under the Act, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities
or expenses arise out of or are based upon an untrue statement or omission
or alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating
to an Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith or arise
out of materials prepared solely by the Underwriters based upon material
information obtained from sources other than, directly or indirectly,
the Company or its representatives. This indemnification shall be in
addition to any liability that the Company may otherwise have.
Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless you and each other Underwriter and each person, if
any, who controls any underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any breach of any representation,
warranty, agreement or covenant of such Selling Shareholder contained herein
or any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus the Registration Statement, the
Prospectus, any amendment or supplement thereto, or in any Registration
Statement filed pursuant to Rule 462(b) under the Act, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon an untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating
to an Underwriter furnished in writing to the Company by or on behalf
of any Underwriter through you expressly for use in connection therewith
or arise out of materials prepared solely by the Underwriters based upon
material information obtained from sources other than, directly or
indirectly, the Company or its representatives. This indemnification
shall be in addition to any liability that the Selling Shareholders or
any Selling Shareholder may otherwise have. Notwithstanding anything to the
contrary herein, in no event shall any Selling Shareholder's obligation
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<PAGE> 18
under this Section exceed the total net proceeds from the offering received
by such Selling Shareholder (computed without deduction for any taxes).
If any action or claim shall be brought against any Underwriter or
any person controlling any Underwriter in respect of which indemnity may be
sought against the Company or any Selling Shareholder, such Underwriter or
such controlling person shall promptly notify in writing the party(s)
against whom indemnification is being sought (the "indemnifying party"
or "indemnifying parties"), and such indemnifying party(s) shall assume
the defense thereof, including the employment of counsel reasonably
acceptable to such Underwriter or such controlling person and payment of
all fees and expenses. Such Underwriter or any such controlling person
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person
unless (i) the indemnifying party(s) has (have) agreed in writing to pay
such fees and expenses, (ii) the indemnifying party(s) has (have) failed
to assume the defense and employ counsel reasonably acceptable to the
Underwriter or such controlling person, or (iii) the named parties to any
such action (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying party(s), and
such Underwriter or such controlling person shall have been advised by its
counsel that representation of such indemnified party and any indemnifying
party(s) by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party(s) shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person). The indemnifying party(s) shall
not be liable for any settlement of any such action effected without its
(their) written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, the
indemnifying party(s) agrees to indemnify and hold harmless any Underwriter
and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment, but in
the case of a judgment only to the extent stated in the immediately preceding
paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and each Selling Shareholder, to the same extent as the foregoing indemnity
from the Company and each Selling Shareholder to each Underwriter, but only
with respect to information relating to such Underwriter furnished in
writing by or on behalf of such underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, any
amendment or supplement thereto, or any Registration Statement filed
pursuant to Rule 462(b) under the Act. If any action or claim shall be
brought or asserted against the Company, any of its directors, any such
officers, or any such controlling person or any Selling Shareholder based on
the Registration Statement, the Prospectus or any Prepricing Prospectus, any
amendment or supplement thereto, or any Registration Statement filed pursuant
to Rule 462(b) under the Act, and in respect of which indemnity may be sought
against any Underwriter pursuant to this paragraph, such Underwriter shall
have the rights and duties given to the Company and the Selling Shareholders
by the preceding paragraph (except that if the Company or any Selling
Shareholder shall have assumed the defense thereof such Underwriter shall not
be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such
counsel shall be at such Underwriter's expense), and the Company, its
directors, any such officers, and any such controlling persons and the
Selling Shareholders shall have the rights and duties given to the Underwriters
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<PAGE> 19
by the immediately preceding paragraph. This indemnification shall be in
addition to any liability the Underwriters or any Underwriter may otherwise
have.
If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under the first, second or fourth paragraph hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company or the Selling Shareholders, as applicable, on the
one hand and the Underwriters 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 the Company or the Selling Shareholders, as applicable, on
the one hand and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company or the Selling
Shareholders, as applicable, on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares (before deducting expenses) received
by the Company or the Selling Shareholders, as applicable, bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus; provided
that, in the event that the Underwriters shall have purchased any Additional
Shares hereunder, any determination of the relative benefits received by
the Company or the Selling Shareholders, as applicable, or the Underwriters
from the offering of the Shares shall include the net proceeds (before
deducting expenses) received by the Company, and the underwriting discounts
and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective
amounts set forth in the notes to the table on the over page of the
Prospectus. The relative fault of the Company or the Selling Shareholders,
as applicable on the one hand and the Underwriters on the other hand 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 or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling
Shareholders, as applicable, on the one hand or by the Underwriters on the
other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
In any event, neither the Company nor the Selling Shareholders will,
without the prior written consent of the Representatives, settle or
compromise or consent to the entry of any judgment in any proceeding or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Representatives or
any person who controls the Representatives within the meaning of Section 15
of the Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of all Underwriters and such controlling
persons from all liability arising out of such claim, action, suit or
proceeding.
The Company, the Selling Shareholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 8 was determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in the fifth paragraph of this Section 8. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities and
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<PAGE> 20
expenses referred to in the fifth paragraph of this Section 8 shall be
deemed to include, subject to the limitations set forth above, 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 Section 8, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price of the
Shares underwritten by it and distributed to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. 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. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to the respective numbers of Firm Shares set forth opposite
their names in Schedule I hereto (or such numbers of Firm Shares increased as
set forth in Section 10 hereof) and not joint.
In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus, any supplement or amendment thereto,
or any registration statement filed pursuant to Section 462(b) of the Act,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may
join him or it as an additional defendant in any such proceeding in which such
other contributing party is a party.
Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Shareholders
set forth in this Agreement, as well as in any certificate delivered pursuant
hereto, shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
person controlling the Company or any Selling Shareholder, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, to the Company, its directors or officers, or any person
controlling the Company, or any Selling Shareholder, shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
SECTION 9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 noon, New York City time, on the date hereof, or at such
later date and time as shall be consented to in writing by you, and all
filings required by Rules 424(b) and 430A under the Act shall have been timely
made; and any request of the Commission for additional information (to be
included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction.
(b) Subsequent to the effective date of the Registration
Statement there shall not have occurred any change, or any development
involving, or which might reasonably be expected to involve, a potential
future material adverse change, in the condition (financial or other),
business, properties, net
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<PAGE> 21
worth or results of operations of the Company and the Subsidiaries, taken as a
whole, not contemplated by the Prospectus (or any supplement thereto), that
in your reasonable opinion, as Representatives of the several Underwriters,
would materially and adversely affect the market for the Shares.
(c) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A., counsel for the Company, dated the Closing
Date (and the Additional Closing Date, if any), satisfactory to you and
your counsel, to the effect that:
(i) The Company is a corporation duly incorporated under
the laws of the State of Florida, and validly existing in good
standing, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business as a foreign corporation and is in good standing in
each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification,
except where the failure to so register or qualify does not have a
Material Adverse Effect.
(ii) The Significant Subsidiary is a corporation duly
organized and validly existing in good standing under the laws of the
State of Florida, with full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where
the failure to so register or qualify does not have a Material
Adverse Effect. All issued and outstanding equity interests of the
Significant Subsidiary have been validly issued and are fully paid
and nonassessable and are owned by the Company directly, free and
clear of all liens, encumbrances, equities and claims. To such
counsel's knowledge, the Company does not own or control, directly
or indirectly, any corporation, association or other entity other
than the Subsidiaries.
(iii) The authorized capital stock and other securities of
the Company conform in all material respects as to legal matters to
the description thereof contained in the Prospectus under the caption
"Description of Capital Stock."
(iv) All shares of capital stock or other securities of
the Company outstanding prior to the issuance of the Shares to be
issued and sold by the Company hereunder have been duly authorized
and validly issued, are fully paid and nonassessable and have not
been issued in violation of any registration right, right of first
refusal, preemptive right, or other similar right.
(v) To such counsel's knowledge, all offers and sales of
the Company's capital stock or other securities prior to the date
hereof were made in compliance with the registration provisions of
the Act and all other applicable state and federal securities laws
or regulations, or applicable exemptions therefrom.
(vi) The Shares to be issued and sold to the
Underwriters by the Company, and the Shares to be sold by the Selling
Shareholders, hereunder have been duly authorized and, when
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<PAGE> 22
issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and free and clear of all liens,
encumbrances, equities and claims and will not have been issued in
violation of any co-sale right, registration right, right of first
refusal, preemptive right, or other similar right.
(vii) The form of certificates for the Shares conforms
to the requirements of the applicable corporate laws of the State of
Florida.
(viii) The Registration Statement has become effective
under the Act and, to the knowledge of such counsel after
reasonable inquiry, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose are pending before or threatened by the Commission.
(ix) The Company has all requisite corporate power and
authority to enter into this Agreement and to issue, sell and
deliver the Shares to be sold by it to the Underwriters as
provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and is a valid, legal and
binding agreement of the Company enforceable against the Company in
accordance with its terms, except as enforceability thereof may
be limited by (A) the application of bankruptcy, reorganization,
insolvency and other laws affecting creditors' rights generally, and
(B) equitable principles being applied at the discretion of a court
before which any proceeding may be brought; and the Company has
adequate authorization and has taken all action necessary to authorize
the indemnification provisions contained in Section 8 herein,
provided, however that such counsel may specifically refrain from
opining as to the validity of the indemnification provisions
hereof insofar as they are or may be held to be violative of public
policy (under either state or federal law) against such types of
provisions in the context of the offer, offer for sale, or sale of
securities.
(x) Neither the Company nor any Subsidiary is in
violation of its respective articles of incorporation or bylaws or
other charter documents, and to the knowledge of such counsel after
reasonable inquiry, neither the Company nor any Subsidiary is in
default in the performance of any material obligation, agreement or
condition contained in any bond, indenture, note or other evidence
of indebtedness or in any other agreement material to the Company and
the Subsidiaries, taken as a whole, known to such counsel after
reasonable inquiry.
(xi) Neither the offer, sale or delivery of the Shares,
the execution, delivery or performance of this Agreement,
compliance by the Company with all provisions hereof nor
consummation by the Company of the transactions contemplated hereby
conflicts or will conflict with or constitutes or will constitute a
breach of, or a default under, articles of incorporation or bylaws or
other charter documents, of the Company or any Subsidiary, or
any agreement, indenture, lease or other instrument to which the
Company or any Subsidiary, or any of their respective properties,
is bound, that is or was required to be filed by the Company with
the Commission, or is known to such counsel after reasonable inquiry,
or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any
Subsidiary under any such document, nor will any such action
result in any violation of any existing law (other than Section
16 of the Securities Exchange Act of 1934, as to which such
counsel need express no opinion), regulation, ruling (assuming
compliance with all applicable state securities and blue sky laws),
judgment, injunction, order or decree known to
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<PAGE> 23
such counsel after reasonable inquiry, applicable to the Company or
any Subsidiary, or any of their respective properties.
(xii) No consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or
official is required on the part of the Company (except such as have
been obtained under the Act or such as may be required under state
securities or blue sky laws governing the purchase and distribution
of the Shares) for the valid issuance and sale of the Shares to
the Underwriters under this Agreement.
(xiii) The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other
financial and statistical data included or incorporated by reference
therein, as to which such counsel need not express any opinion)
comply as to form in all material respects with the requirements
of the Act, and the conditions to the use of Form S-3 have been
satisfied by the Company.
(xiv) To the knowledge of such counsel after reasonable
inquiry, (A) there are no legal or governmental proceedings pending
or threatened against the Company or any Subsidiary, or to which the
Company or any Subsidiary, or any of their respective properties, are
subject, that are required to be described in the Registration
Statement or Prospectus (or any amendment or supplement thereto) or
any document incorporated by reference therein that are not
described as required therein, and (B) there are no agreements,
contracts, indentures, leases or other instruments, that are
required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement thereto) or any document
incorporated by reference therein or to be filed as an exhibit to
the Registration Statement or incorporated by reference therein that
are not described or filed as required, as the case may be.
(xv) To the knowledge of such counsel after reasonable
inquiry, neither the Company nor any Subsidiary is in violation of
any law, ordinance, administrative or governmental rule or regulation
applicable to the Company or any Subsidiary or of any decree
of any court or governmental agency or body having jurisdiction over
the Company or any Subsidiary, except where such violation does not
and will not have a Material Adverse Effect.
(xvi) To the knowledge of such counsel after reasonable
inquiry, the Company and the Significant Subsidiary have such
permits, licenses, franchises, approvals, consents and
authorizations of governmental or regulatory authorities
("permits"), as are necessary to own their respective properties and
to conduct their respective businesses in the manner described in the
Registration Statement and the Prospectus (or any amendment or
supplement thereto), subject to such qualifications as may be set
forth therein; the Company and the Significant Subsidiary have
fulfilled and performed all of their respective material obligations
with respect to such permits and no event has occurred which allows,
or after notice or lapse of time would allow, revocation or
termination thereof or result in any other material impairment of the
rights of the holder of any such permit, subject in each case to
such qualification as may be set forth in the Registration
Statement and the Prospectus (or any amendment or supplement thereto);
and except as described in the Registration Statement and the
Prospectus (or any amendment or supplement
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<PAGE> 24
thereto), such permits contain no restrictions that are materially
burdensome to the Company and its Subsidiaries, taken as a whole.
(xvii) The property described in the Registration Statement
and the Prospectus (or any amendment or supplement thereto) as held
under lease by the Company or any Subsidiary is held under valid,
subsisting and enforceable leases, with only such exceptions as in
the aggregate are not material and do not interfere in any material
respect with the conduct of the business of the Company and the
Subsidiaries, taken as a whole.
(xviii) Such counsel has reviewed all agreements, contracts,
indentures, leases or other documents or instruments referred to in
the Registration Statement and the Prospectus (or any amendment or
supplement thereto) (other than routine contracts entered into by the
Company or any Subsidiary for the purchase of materials or the
sale of products, entered into in the normal course of business)
and such agreements, contracts, indentures, leases or other
documents or instruments are fairly summarized or disclosed
therein, and filed as exhibits thereto or incorporated by
reference therein as required, and such counsel does not know, after
reasonable inquiry, of any agreements, contracts, indentures,
leases or other documents or instruments required to be so summarized
or disclosed or filed which have not been so summarized or disclosed
or filed.
(xix) Such counsel has no reason to believe that the
descriptions in the Registration Statement and the Prospectus (or any
amendment or supplement thereto) of statutes, regulations or legal or
governmental proceedings are other than accurate or fail to
present fairly the information required to be shown.
(xx) Neither the Company nor any Subsidiary is, nor
will any of them become, as a result of the consummation of the
transactions contemplated hereby and the application of the net
proceeds therefrom as set forth in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) under the
caption "Use of Proceeds," an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for,
an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
(xxi) The delivery by or on behalf of the Selling
Shareholders to the several Underwriters of certificates for the
shares of Common Stock being sold by the Selling Shareholders pursuant
to this Agreement againt payment therefor as provided herein will
convey good and valid title to such shares of Common Stock to the
several Underwriters, free and clear of all security interests,
pledges, liens, encumbrances, equitable interests and adverse claims.
CDD Partners is not an "adverse person," and has no adverse claim
with respect to the sale of Shares by the Selling Shareholders, for
purposes of Section 678.303(2) of the Florida Statutes. For purposes
of such opinion, such counsel shall be entitled to assume that (a)
the several Underwriters are without notice of any "adverse claim,"
as such term is defined in Section 678.302(2) of the Florida
Statutes (except that no such assumption may be made by such counsel
with respect to CDD Partners), (b) the several Underwriters are
purchasers for value in good faith for purposes of Section 678.302
of the Florida Statutes, and (c) the rights of the several
Underwriters are not limited by the provisions of Section 678.302(4) of
the Florida Statutes.
- 24 -
<PAGE> 25
In rendering such opinion, counsel may rely upon an opinion or
opinions, each dated the Closing Date (and the Additional Closing Date, if
applicable), of other counsel as to the laws of a jurisdiction other than
the State of Florida or the United States, or as to matters involving
regulation of the Company by the United States Food and Drug Administration,
provided that (1) each such local counsel is acceptable to you, (2) each
such opinion so relied upon is addressed to counsel and you, (3) such
reliance is expressly authorized by each opinion so relied upon and a copy
of each such opinion is delivered to you and is in form and substance
satisfactory to you, and (4) counsel shall state in their opinion that they
believe that they and you are justified in relying thereon. In rendering such
opinion, local counsel may rely, to the extent they deem such reliance proper,
as to matters of fact upon certificates of officers of the Company and of
government officials. Copies of all such certificates shall be furnished to
you and your counsel on the Closing Date (and the Additional Closing Date, if
applicable).
In rendering such opinion, in each case where such opinion is
qualified by "the knowledge of such counsel after reasonable inquiry," such
counsel may rely as to matters of fact upon certificates of executive and
other officers and employees of the Company as you and such counsel
shall deem are appropriate and such other procedures as you and such counsel
shall mutually agree; provided, however, in each such case, such counsel shall
state that it has no knowledge contrary to the information contained in such
certificates or developed by such procedures and knows of no reason why you
should not reasonably rely upon the information contained in such
certificates or developed by such procedures. Such counsel may state in
such opinion that their knowledge is limited to the knowledge of their
attorneys and other representatives and employees that have given attention to
the matters involving the Company.
In addition to the opinion set forth above, such counsel shall state
that during the course of the preparation of the Registration Statement and
the Prospectus, and any amendments or supplements thereto, nothing has come
to the attention of such counsel which has caused it to believe that the
Registration Statement, as of the time it became effective under the Act, the
Prospectus or any amendment or supplement thereto, on the date it was filed
pursuant to Rule 424(b), as of the respective dates when such documents were
filed with the Commission, and the Registration Statement and the
Prospectus, or any amendment or supplement thereto, as of the Closing Date
(except for the financial statements and other financial and statistical
information contained therein or omitted therefrom as to which no opinion
need be expressed), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. With respect to such
statement, counsel shall state that although such counsel did not undertake
to determine independently the accuracy, completeness and fairness of the
statements contained in the Registration Statement or in the Prospectus and
takes no responsibility therefor (except to the extent specifically set forth
herein), such counsel did participate in discussions and meetings with
officers and other representatives of the Company and discussions with the
auditor for the Company in connection with the preparation of the
Registration Statement and the Prospectus, and it is on the basis of the
foregoing (relying as to certain factual matters on the information
provided to such counsel and not on an independent investigation) that such
counsel is making such statement.
(d) You shall have received on the Closing Date (and the
Additional Closing Date, if any Additional Shares of the Selling Shareholders
are to be sold on such Additional Closing Date) an opinion of Tescher Chaves
Rubin Forman & Muller, P.A., counsel for the Selling Shareholders, dated
the Closing Date (and the Additional Closing Date, if any), to the effect that:
- 25 -
<PAGE> 26
(i) This Agreement has been duly executed and delivered
by the Selling Shareholders and constitutes the legal, valid and
binding agreement of each of the Selling Shareholders, enforceable
against each of them in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles; provided, however that such counsel may specifically
refrain from opining as to the validity of the indemnification
provisions hereof insofar as they are or may be held to be violative of
public policy (under either state or federal law) against such types of
provisions in the context of the offer, offer for sale, or sale of
securities.
(ii) Each of the Selling Shareholders has full right,
power and authority to enter into and to perform its obligations
under this Agreement and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Shareholder hereunder.
(iii) The delivery by or on behalf of the Selling
Shareholders to the several Underwriters of certificates for the
shares of Common Stock being sold by the Selling Shareholders pursuant
to this Agreement againt payment therefor as provided herein will
convey good and valid title to such shares of Common Stock to
the several Underwriters, free and clear of all security interests,
pledges, liens, encumbrances, equitable interests and adverse claims.
CDD Partners is not an "adverse person," and has no adverse claim with
respect to the sale of Shares by the Selling Shareholders, for purposes
of Section 678.303(2) of the Florida Statutes. For purposes of such
opinion, such counsel shall be entitled to assume that (a) the several
Underwriters are without notice of any "adverse claim," as such term is
defined in Section 678.302(2) of the Florida Statutes (except that no
such assumption may be made by such counsel with respect to CDD
Partners), (b) the several Underwriters are purchasers for value in
good faith for purposes of Section 678.302 of the Florida Statutes, and
(c) the rights of the several Underwriters are not limited by the
provisions of Section 678.302(4) of the Florida Statutes.
(iv) The Securities Loan Agreements entered into among CDD
Partners and each Selling Shareholder have been duly authorized,
executed and delivered by CDD Partners and each Selling Shareholder
and constitute the legal, valid and binding agreement of each of the
parties thereto, enforceable against each of them in accordance with
their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(v) Neither the execution, delivery and performance of
this Agreement by the Selling Shareholders nor the lending to the
Selling Shareholders by CDD Partners pursuant to the Securities
Loan Agreements of the Shares to be sold by the Selling Shareholders
hereunder will: (A) conflict with or result in a breach of or default
under any material bond, debenture, note or other evidence of
indebtedness, or any material contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument known
to such counsel to which such Selling Shareholder or CDD Partners
is a party or by which such Selling Shareholder, CDD Partners or any
Selling Shareholder Shares hereunder may be bound or (B) to the best
of such counsel's knowledge, result in the violation of any law,
order, rule or regulation applicable to the Selling Shareholders
(except for any violation of the Act or the Exchange Act, to be
addressed in the opinion delivered pursuant to Section 9(c);
provided that matters under Section 16 of the Act shall be addressed
solely in the opinion to be delivered pursuant to this Section 9(d) or
in a separate legal opinion of counsel satisfactory to Raymond James &
- 26 -
<PAGE> 27
Associates, Inc.) or CDD Partners or the violation of any writ,
injunction or decree of any court or governmental agency or body
having jurisdiction over the Selling Shareholders or CDD Partner, or
result in the violation of any provisions of the charter, bylaws
or other organizational documents of CDD Partners.
(vi) No consent, approval, authorization or order of, or
filing with, any court or governmental agency or bodies is required
for the consummation of the transactions contemplated by this
Agreement or by the Securities Loan Agreement in connection with the
sale of the Shares by the Selling Shareholders hereunder except such
as have been obtained under the Act and such as may be required under
state securities laws in connection with the purchase and distribution
of such Shares by the Underwriters.
(e) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of King & Spalding, counsel for
the Underwriters, dated the Closing Date (and the Additional Closing Date,
if any), with respect to the issuance and sale of the Firm Shares, the
Registration Statement and other related matters as you may reasonably
request, and the Company and its counsel shall have furnished to your counsel
such documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(f) You shall have received letters addressed to you and dated the
date hereof and the Closing Date (and the Additional Closing Date, if any)
from Coopers & Lybrand, independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock or other securities of the
Company nor any material increase in the short-term or long-term debt of the
Company (other than in the ordinary course of business) from that set forth
or contemplated in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); (iii) there shall not have been since the
respective dates as of which information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any development
involving, or which may reasonably be expected to involve a potential
future, Material Adverse Effect; and (iv) all of the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the date hereof and on and as of
the Closing Date as if made on and as of the Closing Date, and you shall
have received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the Company (or such
other officers as are acceptable to you) to the effect set forth in this
Section 9(g) and in Section 9(h) hereof.
(h) The Company shall not have failed in any material respect at
or prior to the Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied with by
it hereunder at or prior to the Closing Date.
(i) You shall be satisfied that, and you shall have received a
certificate dated the Closing Date, from each Selling Shareholder to the
effect that, as of the Closing Date, they have not been informed that:
(i) the representations and warranties made by such Selling Shareholder herein
are not
- 27 -
<PAGE> 28
true or correct in any material respect on the Closing Date; or (ii) such
Selling Shareholder has not complied with any obligation or satisfied any
condition which is required to be performed or satisfied on his or its part at
or prior to the Closing Date.
(j) The Company and the Selling Shareholders shall have
furnished or caused to have been furnished to you such further certificates
and documents as you shall be reasonably requested.
(k) At or prior to the Closing Date, you shall have received the
written commitment of each of the Company's directors, executive officers and
shareholders set forth on Schedule III hereto, not to offer, sell or
otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or any rights to
purchase or acquire, Common Stock, during the period beginning on date on
which the Prospectus is first filed with the Commission pursuant to Rule
424(b) under the Act and ending 180 days thereafter, inclusive, without the
prior written consent of Raymond James & Associates, Inc. (except in
accordance with the Securities Loan Agreements), which commitments shall be in
full force and effect as of the Closing Date (and the Additional Closing Date,
if any).
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of the Additional
Closing Date of the conditions set forth in this Section 9, except that, if
the Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (j) shall be
dated in the Additional Closing Date and the opinions and letters referred to
in paragraphs (c) through (f) shall be revised to reflect the sale of
Additional Shares.
SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall
become effective upon the later of (a) the execution and delivery hereof by
the parties hereto, or (b) release of notification of the effectiveness of
the Registration Statement by the Commission.
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of Firm Shares, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I hereto bears
to the aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
the Agreement Among Underwriters, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused to
purchase. If any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Firm Shares and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made with 36 hours after such default,
this Agreement will terminate without liability on the part of any non-
defaulting Underwriter or the Company or any Selling Shareholder. In any
such case that does not result in termination of this Agreement, either you
or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven (7) days, in order that the required changes, if
any, in the Registration Statement and the Prospectus or any other documents
or arrangements
- 28 -
<PAGE> 29
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement.
SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be
subject to termination in your absolute discretion, without liability on the
part of any Underwriter to the Company, by notice to the Company, if prior to
the Closing Date or the Additional Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be,
(i) trading in securities generally on the New York Stock Exchange, American
Stock Exchange or The Nasdaq Stock Market shall have been suspended or
materially limited, (ii) trading of any securities of the Company, including
the Shares, on the New York Stock Exchange, American Stock Exchange or The
Nasdaq Stock Market shall have been suspended or materially limited,
whether as the result of a stop order by the Commission or otherwise, (iii) a
general moratorium on commercial banking activities in New York or Florida
shall have been declared by either federal or state authorities, (iv) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political,
financial or economic conditions or other material event the effect of which
on the financial markets of the United States is such as to make it, in your
judgment, impracticable or inadvisable to market the Shares or to enforce
contracts for the sale of the Shares, or (v) the Company or any
Subsidiary shall have, in the sole judgment of the Representatives,
sustained any loss or interference, material to the Company and the
Subsidiaries, taken as a whole, with their respective businesses or properties
from fire, flood, hurricane, accident, or other calamity, whether or not
covered by insurance, or from any labor disputes or any legal or
governmental proceeding, or there shall have been any material adverse
change (including, without limitation, a material change in management or
control of the Company) in the condition (financial or otherwise),
business prospects, net worth, or results of operations of the Company and
the Subsidiaries, taken as a whole, except in each case as described in, or
contemplated by, the Prospectus (excluding any amendment or supplement
thereto). Notice of such cancellation shall be promptly given to the Company
and its counsel by telegraph, telecopy or telephone and shall be subsequently
confirmed by letter.
SECTION 12. INFORMATION FURNISHED BY THE UNDERWRITERS. The
statements set forth under the caption "Underwriting" in any Prepricing
Prospectus and in the Prospectus, constitute all the information furnished
by or on behalf of the Underwriters through you or on your behalf as such
information is referred to in Sections 6(a), 6(b) and 8 hereof.
SECTION 13. NOTICES; SUCCESSORS AND ASSIGNS. Except as otherwise
provided herein, notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be delivered (i) if to the Company,
at the office of the Company at 851 Broken Sound Parkway, Boca Raton, Florida,
33487, Attention: Richard Werber, Esq. (with a copy to Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A. at 1221 Brickell Avenue, Miami,
Florida 33131; Attn: Paul Berkowitz, Esq.); or (ii) if to you, as the
Underwriters, to (A) Raymond James & Associates, Inc., 880 Carillon Parkway,
St. Petersburg, Florida 33716, Attention: Frank E. Hancock; (B)
Montgomery Securities, 600 Montgomery Street, San Francisco, California
94111, Attention: Frank M. Dunlevy; and (C) Adams, Harkness & Hill, Inc.,
60 State Street, Boston, Massachusetts 02109, Attention: Russell W. Landon
(with a copy to King & Spalding, 191 Peachtree Street NW, Atlanta, Georgia
30303-1763, Attn: Jeffrey M. Stein, Esq.); or (iii) if to one or more of the
Selling Shareholders, to Carl DeSantis, at 851 Broken Sound Parkway, Boca
Raton, Florida, 33487 (with a copy to Tescher Chaves Rubin Forman & Muller,
P.A., Attn: Charles Muller, Esq.).
- 29 -
<PAGE> 30
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers and the other
controlling persons referred to in Section 8 hereof, and the Selling
Shareholders, and their respective successors and assigns, to the extent
provided herein, and no other person shall acquire or have any right under
or by virtue of this Agreement. Neither of the terms "successor" and
"successors and assigns" as used in this Agreement shall include a purchaser
from you of any of the Shares in his status as such purchaser.
SECTION 14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Florida without reference to choice of law principles thereunder. This
Agreement may be signed in various counterparts which together shall
constitute one and the same instrument. This Agreement shall be effective
when, but only when, at least one counterpart hereof shall have been executed
on behalf of each party hereto.
- 30 -
<PAGE> 31
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
The Company: REXALL SUNDOWN, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
The Selling Shareholders: CARL DeSANTIS
-------------------------------------
DEAN DeSANTIS
-------------------------------------
CONFIRMED as of the date first
above mentioned, on behalf of
itself and the other several
Underwriters named in Schedule I
hereto.
RAYMOND JAMES & ASSOCIATES, INC.
ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES
By: RAYMOND JAMES & ASSOCIATES, INC.
By:
------------------------------
Authorized Representative
- 31 -
<PAGE> 32
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Name Firm Shares
- ---- -----------
<S> <C>
Raymond James & Associates Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Adams, Harkness & Hill, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . .
Montgomery Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000
==========
</TABLE>
- 32 -
<PAGE> 33
SCHEDULE II
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Number of
Number of Additional
Name Firm Shares Shares(1)
- ---- ----------- -------------
<S> <C> <C>
Carl DeSantis 1,500,000 Up to 150,000
Dean DeSantis 500,000 Up to 50,000
----------- -------------
TOTAL 2,000,000 Up to 200,000
=========== =============
</TABLE>
- -------------------
(1) See Section 2.
- 33 -
<PAGE> 34
SCHEDULE III
LOCK-UP AGREEMENTS
Names
- -----
Christian Nast
Damon DeSantis
Nickolas Palin
Geary Cotton
Richard Werber
Stanley Leedy
Raymond Monteleone
Howard Yenke
CDD Partners, Ltd.
Sylvia DeSantis
- 34 -
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-3
(File No. 333-13379) of our report dated October 4, 1996, on our audits
of the consolidated financial statements of Rexall Sundown, Inc. and to the
incorporation by reference of our report dated October 4, 1996, on our audits
of the consolidated financial statements and financial statement schedule of
Rexall Sundown, Inc. as of August 31, 1995 and 1996 and for each of the three
years in the period ended August 31, 1996, which report is included in the
Annual Report on Form 10-K. We also consent to the reference to our firm under
the captions "Selected Financial Data" and "Experts."
COOPERS & LYBRAND L.L.P.
Ft. Lauderdale, Florida
October 11, 1996
