-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EV2LUlzebHjfZSuSTK+ccDx0Es6e2FY2d10J0RN2kV+gzZDZmrXCep3sGVEcyrC1 TqrN41HIIqs5JJacST4tDQ== 0000950144-96-007035.txt : 19961015 0000950144-96-007035.hdr.sgml : 19961015 ACCESSION NUMBER: 0000950144-96-007035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961011 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REXALL SUNDOWN INC CENTRAL INDEX KEY: 0000901620 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 591688986 STATE OF INCORPORATION: FL FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21884 FILM NUMBER: 96642721 BUSINESS ADDRESS: STREET 1: 851 BROKEN SOUND PARKWAY N W CITY: BOCA RATON STATE: FL ZIP: 33487 BUSINESS PHONE: 4072419400 MAIL ADDRESS: STREET 1: 4031 NE 12TH TERRACE CITY: FT LAUDERDALE STATE: FL ZIP: 33334 10-K 1 REXALL SUNDOWN FORM 10-K 8/31/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________. Commission file number: 0-21884 REXALL SUNDOWN, INC. (Exact name of Registrant as specified in its charter) Florida 59-1688986 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 851 Broken Sound Parkway, N.W. Boca Raton, Florida 33487 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 241-9400 ________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares outstanding of the Registrant's common stock is 30,721,571 (as of October 10, 1996). The aggregate market value of the voting stock held by non-affiliates of the Registrant is $354,608,780 (as of October 10, 1996). 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its Annual Meeting of Shareholders to be held on February 6, 1997, which will be filed with the SEC, are incorporated by reference into Part III. 3 PART I ITEM 1. BUSINESS. GENERAL 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's principal 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 "Company" means Rexall Sundown, Inc. and its subsidiaries, except where the context indicates otherwise. INDUSTRY OVERVIEW 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. 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 (R) 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. -3- 4 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.
FISCAL YEAR ENDED AUGUST 31, ---------------------------------------------------------------------------------------------- DISTRIBUTION CHANNEL 1992 1993 1994 1995 1996 - -------------------------------- --------------- --------------- ---------------- ---------------- ---------------- (DOLLARS IN THOUSANDS) 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(R)............ 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% ======= ===== ======= ===== ======== ===== ======== ===== ======== =====
- --------------- (1) Rexall(R), Thompson(R), private label and Rexall Managed Care(R) 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 Information Resources, Inc. ("IRI"), a retail information gathering service, 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 Wal*Mart 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 comparable multivitamin formulas to such products as Centrum(R), One-A-Day(R) and Theragran(R). -4- 5 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 antioxidants 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 B6 and B12, 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. -5- 6 DIRECT SALES THROUGH INDEPENDENT DISTRIBUTORS In 1990, the Company formed Rexall Showcase International, Inc. ("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. 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 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. -6- 7 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 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. 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. 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. -7- 8 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. 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 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. 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. -8- 9 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. 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. -9- 10 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. ITEM 2. PROPERTIES. As of August 31, 1996, the Company owned or leased the following facilities:
APPROXIMATE EXPIRATION DATE OF LOCATION TYPE OF FACILITY SQUARE FEET LEASED OR OWNED LEASE - ------------------- --------------------------- -------------------- --------------- -------------------- Boca Raton, Florida Administrative Offices 58,000 Owned -- Boca Raton, Florida Manufacturing and 82,000 Owned -- Production 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
(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. ITEM 3. 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. 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 -10- 11 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 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 affect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to the vote of security holders during the fourth quarter of fiscal 1996. -11- 12 EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information concerning the executive officers of the Company:
NAME AGE POSITION - ---- --- ------------------------------------------------------------- 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
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 drug store 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. 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. -12- 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 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.
HIGH LOW ------ ------ 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
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 Company's Common Stock. The approximate number of record holders of the Common Stock as of October 10, 1996 was 700. -13- 14 ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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 Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and related notes and other consolidated financial information included herein.
FISCAL YEAR ENDED AUGUST 31, -------------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- -------- -------- -------- (In thousands, except per share data) 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
AUGUST 31, -------------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- -------- -------- -------- 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
- --------------- (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. -14- 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, and the Notes to the Consolidated Financial Statements included herein. Additionally, certain divisional data of the Company is set forth in Item 1 - "Business -- General." 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, SDV and Rexall Managed Care. 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." 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. RESULTS OF CONTINUING OPERATIONS The following table sets forth, for the periods indicated, certain financial data as a percentage of net sales:
FISCAL YEAR ENDED AUGUST 31, ----------------------------- 1994 1995 1996 ----- ----- ----- 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%
-15- 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 Wal*Mart 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. -16- 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 collateralized 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 $.04 per share, which would be reflected as an adjustment to discontinued operations. -17- 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.
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) 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
- ---------------------- (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 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. -18- 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. -19- 20 FORWARD LOOKING STATEMENTS This Report 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 Report 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 uncertainty related to acquisitions, government regulation, managing and maintaining growth, the effect of adverse publicity, reliance on independent distributors of Rexall Showcase, the centralized location of the Company's manufacturing operations, availability of raw materials, risks associated with international operations, competition, product liability claims, volatility of stock price and those factors described in the Company's filings with the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial statements and supplementary data for the Company are on the following pages F-1 through F-18. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. -20- 21 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- 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
F-1 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Rexall Sundown, Inc. Boca Raton, Florida We have audited the consolidated financial statements and financial statement schedule of Rexall Sundown, Inc. and subsidiaries listed in Item 14(a) of this Form 10-K. 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. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida October 4, 1996 F-2 23 REXALL SUNDOWN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AUGUST 31, -------------------- 1995 1996 ------- -------- 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, $0.01 par value; authorized 5,000,000 shares, no shares outstanding................................................. -- -- Common stock, $0.01 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 ======= ========
See accompanying notes F-3 24 REXALL SUNDOWN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED AUGUST 31, ------------------------------------ 1994 1995 1996 ---------- ---------- ---------- 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
See accompanying notes F-4 25 REXALL SUNDOWN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
CAPITAL IN CUMULATIVE NUMBER OF COMMON EXCESS OF RETAINED TRANSLATION SHARES STOCK PAR VALUE EARNINGS ADJUSTMENT ---------- ------ --------- -------- ----------- 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) ========== ==== ======== ======= =======
See accompanying notes F-5 26 REXALL SUNDOWN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED AUGUST 31, ------------------------------ 1994 1995 1996 -------- -------- -------- 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 ======== ======== ========
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: Assets acquired.................................. $ 7,372 Cash paid (including advances under debtor- in-possession financing in fiscal 1993)......... (5,115) -------- Liabilities assumed.............................. $ 2,257 ========
See accompanying notes F-6 27 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 28 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 29 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 30 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:
AUGUST 31, ------------------- 1995 1996 ------- ------- 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 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is comprised of:
AUGUST 31, ------------------- 1995 1996 ------- ------- 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 ======= =======
5. OTHER ASSETS Other assets consist of the following:
AUGUST 31, ------------------ USEFUL 1995 1996 LIVES ------ ------- ------------ 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 ======= =======
F-10 31 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:
AUGUST 31, ------------------ 1995 1996 ------ ------- 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 ====== =======
7. LONG-TERM DEBT AND BORROWING ARRANGEMENTS Long-term debt consists of the following:
AUGUST 31, ------------------ 1995 1996 ------ ------- 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 ====== =======
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. F-11 32 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 8. LEASE OBLIGATIONS, CONTINUED The future minimum lease payments under noncancelable operating leases at August 31, 1996 are as follows:
FISCAL YEAR ----------- 1997.............................................................. $1,179 1998.............................................................. 677 1999.............................................................. 353 ----- Total................................................... $2,209 =====
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. F-12 33 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 10. COMMON STOCK TRANSACTIONS, CONTINUED 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 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. F-13 34 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 11. STOCK OPTIONS, CONTINUED Information with regard to the stock options is as follows:
SHARES ----------------------------------------------------------- 1993 1994 1993 DIRECTOR DIRECTOR OTHER OPTION PRICE PLAN PLAN PLAN OPTIONS RANGE --------- --------- --------- -------- ------------ 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 -- ========= ======== ====== ======
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. F-14 35 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 13. INCOME TAXES, CONTINUED 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 income tax provision (benefit) the Company incurred for the fiscal years ended August 31, 1994, 1995 and 1996:
FISCAL YEAR ENDED AUGUST 31, ---------------------------- 1994 1995 1996 ------ ------- ------- 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 ====== ======= =======
The following summarizes the total income tax provisions for each of the years ended August 31, 1994, 1995 and 1996:
1994 1995 1996 ------- ------- ------- 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 ====== ====== =======
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:
1994 1995 1996 ------ ------- ------- 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 ====== ====== =======
F-15 36 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 13. INCOME TAXES, CONTINUED The significant components of the deferred tax assets and liabilities at August 31, 1994, 1995 and 1996 are as follows:
1994 1995 1996 ---- ------ ----- 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) ====== ====== =======
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. 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. F-16 37 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 14. DISCONTINUED OPERATIONS, CONTINUED 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:
1995 1996 ------- ------ 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 ======== =======
The results of discontinued operations for the fiscal year ended August 31, 1994 and 1995 were as follows:
1994 1995 ------- ------- 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) ======= =======
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. 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 F-17 38 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 15. COMMITMENTS AND CONTINGENCIES, CONTINUED 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. 17. CONDENSED INTERIM FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 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 ======= ======= ======= =======
F-18 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Directors of the Company. See the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the heading "Election of Directors." (b) Executive Officers of the Company. See Part I of this Form 10-K at Page 12. ITEM 11. EXECUTIVE COMPENSATION. See the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the headings "Executive Compensation" and "Certain Relationships and Related Transactions." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. See the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See the Company's Proxy Statement, incorporated by reference in Part III of this Form 10-K, under the heading "Certain Relationships and Related Transactions." -21- 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS PART OF THIS REPORT (1) FINANCIAL STATEMENTS See "Item 8. Financial Statements and Supplementary Data" for Financial Statements included with this Annual Report on Form 10-K. (2) FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation and Qualifying Accounts All other schedules have been omitted because they are not required, not applicable, or the information is otherwise set forth in the financial statements or notes thereto. (3) EXHIBITS
3.1 Amended and Restated Articles of Incorporation (1) 3.2 Amended and Restated By-Laws (1) 10.1 Redemption Agreement dated January 7, 1988 between the Company, Carl DeSantis, Sylvia DeSantis, Lorraine Hoffman and Joseph Greene (1) 10.2 Agreement for Employment and Consulting and Covenant Not to Compete dated July 1, 1988 between the Company, Joseph Greene and Carl DeSantis (1) 10.3 Agreement dated December 15, 1992 between the Company and Herbert V. Shuster, Inc. (1) 10.4 Letter Agreement dated January 25, 1993 between the Company and Phar-Mor, Inc. together with Agreement for Merchandising Services and Side Letter of even date therewith (1)(2) 10.5 Amended and Restated Indemnification Agreement dated March 15, 1993 between the Company and Showa Denko America, Inc. (1) 10.6 Guaranty Agreement dated March 15, 1993 between the Company and Showa Denko K.K. (1) 10.7 Amended and Restated 1993 Employee Stock Purchase Plan (1) 10.8 Form of Non-Qualified Stock Option Agreement (1) 10.9 Amended and Restated 1993 Stock Incentive Plan (3) 10.10 Amended and Restated 1993 Non-Employee Director Stock Option Plan (3) 10.11 Amended and Restated 1994 Non-Employee Director Stock Option Plan (3) 10.12 Employment Agreement dated April 1, 1995 between Carl DeSantis and the Company, as amended on October 9, 1995 (4)
-22- 41
10.13 Employment Agreement dated April 1, 1995 between Dean DeSantis and the Company, as amended on April 1, 1996 (4) 10.14 Employment Agreement dated April 1, 1995 between Damon DeSantis and the Company, as amended on April 1, 1996 (4) 10.15 Employment Agreement dated April 1, 1995 between Nickolas Palin and the Company, as amended on April 1, 1996 (4) 10.16 Employment Agreement dated April 1, 1995 between Geary Cotton and the Company (5) 10.17 Employment Agreement dated April 1, 1995 between Richard Werber and the Company (5) 10.18 Employment Agreement dated April 24, 1995 between Christian Nast and the Company and Amendment thereto dated July 21, 1995 (6) 10.19 Business Loan Agreement dated September 19, 1995 between the Company, Rexall Showcase International, Inc., Pennex Laboratories, Inc. (now known Bank of Broward as RSL Holdings, Inc.) and Barnett County, N.A. (7) 10.20 Agreement dated October 13, 1991 between Pennex Products Co., Inc. and The United Steel Workers of America, the Memorandum thereto dated September 3, 1993 of Understanding with respect and Extension thereto dated October 10, 1995 (8) 10.21 Agreement dated December 29, 1995 by and between Pennex Laboratories, Inc. (now known as RSL Holdings, Inc.) and Oakmont Pharmaceuticals, Inc. (9) 10.22 Forbearance Agreement dated April 29, 1996 by and between Oakmont Pharmaceuticals, Inc. and the Company (9) 10.23 Second Forbearance Agreement dated September 23, 1996 by and between Oakmont Pharmaceuticals, Inc. and the Company (9) 10.24 Industrial Lease dated March 3, 1995 by and between WRC Properties, Inc. and Network Marketing, L.C. (now known as Rexall Showcase International, Inc.) (9) 10.25 Industrial Lease dated April 17, 1996 by and between WRC Properties, Inc. and the Company (9) 10.26 Standard Industrial Lease dated May 16, 1996 between the Company and Dermody Properties (9) 11 Earnings Per Share Computation (9) 21 Subsidiaries of Registrant (9) 23 Consent of Coopers & Lybrand L.L.P. (9) 27 Financial Data Schedule (for SEC use only) (9)
____________________ -23- 42 (1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (File No. 33-61382) and incorporated herein by reference. (2) Confidential treatment has been granted by the Securities and Exchange Commission for the redacted portions of these exhibits, and such confidential portions have been filed with the Securities and Exchange Commission. (3) Plan is filed as an Exhibit to the Company's Proxy Statement dated January 2, 1996 and is incorporated herein by reference. (4) Employment Agreement is filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1995 and is incorporated herein by reference and the amendment thereto is filed herewith. (5) Employment Agreement is filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1995 and is incorporated herein by reference. (6) Employment Agreement is filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarter Ended May 31, 1995 and is incorporated herein by reference and the Amendment thereto is filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1995 and is incorporated herein by reference. (7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1994 and is incorporated herein by reference. (8) Agreement and Memorandum of Understanding are filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1993 and are incorporated herein by reference and the Extension is filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1995. (9) Filed herewith. (B) REPORTS ON FORM 8-K No Report on Form 8-K was filed during the three-month period ended August 31, 1996. (C) ITEM 601 EXHIBITS The exhibits required by Item 601 of Regulation S-K are set forth in (a)(3) above. (D) FINANCIAL STATEMENT SCHEDULES The financial statement schedules required by Regulation S-K are set forth in (a)(2) above. -24- 43 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REXALL SUNDOWN, INC. Dated: October 10, 1996 By: /s/ Carl DeSantis ------------------- Carl DeSantis, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Carl Desantis Chairman of the Board and October 10, 1996 - ----------------------- Carl DeSantis Chief Executive Officer /s/ Christian Nast Director, President and Chief October 10, 1996 - ----------------------- Christian Nast Operating Officer /s/ Dean DeSantis Director and Senior Vice President-- October 10, 1996 - ----------------------- Dean DeSantis Operations /s/Damon DeSantis Director and Executive Vice President October 10, 1996 - ----------------------- Damon DeSantis /s/ Geary Cotton Vice President - Finance, Chief October 10, 1996 - ----------------------- Geary Cotton Financial Officer, Treasurer and Chief Accounting Officer /s/ Nickolas Palin Director and Senior Vice President October 10, 1996 - ----------------------- Nickolas Palin Sales and 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
-25- 44 SCHEDULE II REXALL SUNDOWN, INC. VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to Beginning Costs and Other Balance at Description of Year Expenses Accounts Deductions End of Year ----------- ---------- ---------- ---------- ---------- ----------- Year ended August 31, 1994 Allowance for doubtful accounts.............. $78,000 $ 44,446 $ -- $ 44,446 $78,000 Year ended August 31, 1995 Allowance for doubtful accounts.............. $78,000 $154,280 $ -- $154,280 $78,000 Year ended August 31, 1996 Allowance for doubtful accounts.............. $78,000 $112,990 $ -- $112,990 $78,000
EX-10.12 2 EMPLOYMENT AGREEMENT-DESANTIS 10/9/95 1 Exhibit 10.12 October 9, 1995 Mr. Carl DeSantis Rexall Sundown, Inc. 851 Broken Sound Parkway, N.W. Boca Raton, Florida 33487 Dear Carl: Reference is hereby made to the Employment Agreement ("Agreement") dated April 1, 1995 between Rexall Sundown, Inc. (the "Company") and Carl DeSantis (the "Employee"). Effective the date hereof, the Company and the Employee have agreed to amend Section 3.1 of the Agreement by deleting Section 3.1 in its entirety and inserting the following provision in lieu thereof: "3.1 Salary. In payment for the obligations to be performed by the Employee during the Term, the Company shall pay to the Employee (subject to any applicable payroll and/or taxes required to be withheld) annual compensation ("Annual Compensation") equal to (i) a salary of Four Hundred Thirty Five Thousand Dollars ($435,000) in cash commencing October 9, 1995 and (ii) for each succeeding year during the Term commencing April 1, 1997, a salary equal to that of the previous year increased by the greater of (A) 5% or (B) the increase in the cost of living based upon the Revised Consumer Price Index (1982-84=100) published by the Bureau of Labor Statistics of the United States Department of Labor for Boca Raton, Florida utilizing April 1,1995 as the base month." If the foregoing is in accordance with our understanding, please execute the enclosed copy of this letter and return to the undersigned. Very truly yours, REXALL SUNDOWN, INC. By: /s/ Christian Nast ---------------------------- Christian Nast, President AGREED TO AND ACCEPTED this 1st day of October 1995. /s/ Carl DeSantis - ----------------------------- Carl DeSantis EX-10.13 3 EMPLOYMENT AGREEMENT-DESANTIS 4/1/96 1 Exhibit 10.13 April 1, 1996 Mr. Dean DeSantis Rexall Sundown, Inc. 851 Broken Sound Parkway, N.W. Boca Raton, Florida 33487 Dear Dean: Reference is hereby made to the Employment Agreement ( "Agreement") dated April 1, 1995 between Rexall Sundown, Inc. (the "Company") and Dean DeSantis (the "Employee"). Effective the date hereof, the Company and the Employee have agreed to amend Section 3.1 of the Agreement by deleting Section 3.1 in its entirety and insertign the following provision in lieu thereof: "3.1 Salary. In payment for the obligations to be performed by the Employee during the Term, the Company shall pay to the Employee (subject to any applicable payroll and/or taxes required to be withheld) annual compensation ("Annual Compensation") equal to (i) a salary of One Hundred Ninety Thousand Dollars ($190,000) in cash commencing April 1, 1996 and (ii) for each succeeding year during the Term, a salary equal to that of the previous year increased by the greater of (A) 5% or (B) the increase in the cost of living based upon the Revised Consumer Price Index (1982-84=100) published by the Bureau of Labor Statistics of the United States Department of Labor for Boca Raton, Florida utilizing April 1995 as the base month." If the foregoing is in accordance with our understanding, please execute the enclosed copy of this letter and return to the undersigned. Very truly yours, REXALL SUNDOWN, INC. By: /s/ Carl DeSantis ----------------------------- Carl DeSantis, Chairman of the Board AGREED TO AND ACCEPTED this 1st day of April 1996. /s/ Dean DeSantis - ----------------------------- Dean DeSantis EX-10.14 4 EMPLOYMENT AGREEMENT-DESANTIS 4/1/96 1 Exhibit 10.14 April 1, 1996 Mr. Damon DeSantis Rexall Sundown, Inc. 851 Broken Sound Parkway, N.W. Boca Raton, Florida 33487 Dear Damon: Reference is hereby made to the Employment Agreement ("Agreement") dated April 1, 1995 between Rexall Sundown, Inc. (the "Company") and Damon DeSantis (the "Employee"). Effective the date hereof, the Company and the Employee have agreed to amend Section 3.1 of the Agreement by deleting Section 3.1 in its entirety and inserting the following provision in lieu thereof: "3.1 Salary. In payment for the obligations to be performed by the Employee during the Term, the Company shall pay to the Employee (subject to any applicable payroll and/or taxes required to be withheld) annual compensation ("Annual Compensation") equal to (i) a salary of One Hundred Ninety Thousand Dollars ($190,000) in cash commencing April 1, 1996 and (ii) for each succeeding year during the Term, a salary equal to that of the previous year increased by the greater of (A) 5% or (B) the increase in the cost of living based upon the Revised Consumer Price Index (1982-84=100) published by the Bureau of Labor Statistics of the United States Department of Labor for Boca Raton, Florida utilizing April 1995 as the base month." If the foregoing is in accordance with our understanding, please execute the enclosed copy of this letter and return to the undersigned. Very truly yours, REXALL SUNDOWN, INC. By: /s/ Carl DeSantis ------------------------------ Carl DeSantis, Chairman of the Board AGREED TO AND ACCEPTED this 1st day of April 1996. /s/ Damon DeSantis - ---------------------------- Damon DeSantis EX-10.15 5 EMPLOYMENT AGREEMENT-PALIN 1 Exhibit 10.15 April 1, 1996 Mr. Nickolas Palin Rexall Sundown, Inc. 851 Broken Sound Parkway, N.W. Boca Raton, Florida 33487 Dear Nick: Reference is hereby made to the Employment Agreement (the "Agreement") dated April 1, 1995 between Rexall Sundown, Inc. (the "Company") and Nickolas Palin (the "Employee"). Effective the date hereof, the Company and the Employee have agreed to amend Section 3.1 of the Agreement by deleting Section 3.1 in its entirety and including the following provision in lieu thereof: "3.1 Salary. In payment for the obligations to be performed by the Employee during the Term, the Company shall pay to the Employee (subject to any applicable payroll and/or taxes required to be withheld) annual compensation ("Annual Compensation") equal to (i) a salary of Two Hundred Seventy Five Thousand Dollars ($275,000) in cash commencing April 1, 1996 and (ii) for each succeeding year during the Term, a salary equal to that of the previous year increased by the greater of (A) 5% or (B) the increase in the cost of living based upon the Revised Consumer Price Index (1982-84=100) published by the Bureau of Labor Statistics of the United States Department of Labor for Boca Raton, Florida utilizing April 1995 as the base month." If the foregoing is in accordance with our understanding, please execute the enclosed copy of this letter and return to the undersigned. Very truly yours, REXALL SUNDOWN, INC. By: /s/ Carl DeSantis ---------------------------- Carl DeSantis, Chairman of the Board AGREED TO AND ACCEPTED this 1st day of April 1996. /s/ Nickolas Palin - ------------------------------- Nickolas Palin EX-10.21 6 AGREEMENT BETWEEN PENNEX AND OAKMONT 1 EXHIBIT 10.21 AGREEMENT dated as of December___, 1995 (the "Agreement") by and between PENNEX LABORATORIES, INC., a Pennsylvania corporation ("Pennex"), and OAKMONT PHARMACEUTICALS, INC., a Delaware corporation ("Buyer"). Seller desires to sell and Buyer purchase certain of the assets of Seller, all as more fully described herein, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual benefits to be derived hereby and the representations, warranties, covenants and agreements herein contained, the parties agree as follows: ARTICLE I SALE AND PURCHASE 1.1 Transfer. Upon the terms and subject to the conditions hereinafter set forth, Seller shall sell, deliver, transfer, assign and convey to Buyer, at the Closing (as hereinafter defined) and Buyer shall purchase from Seller, free and clear of all liens, pledges, charges and encumbrances, whether legal or equitable, except for the purchase money liens reserved by Seller as provided in Section 1.5 hereof, the assets of Seller set forth on Schedule 1.1 attached hereto and made a part hereof (the "Assets"). 1.2 No Assumed Liabilities. Seller and Buyer acknowledge and agree that Buyer does not assume and shall not have any obligation, responsibility or liability for any of Seller's debts, obligations or liabilities of any kind or nature whatsoever, known or unknown, matured or unmatured, liquid or contingent, including, without limitation, any which relates in any way to the Seller's conduct of its business or the ownership of its Assets, all of which shall remain with and be paid, satisfied or discharged by Seller. 1.3 Instruments of Transfer. At the Closing, Seller shall deliver to Buyer deeds, bills of sale, endorsements, assignments, certificates of title and other good and sufficient instruments of transfer as shall be effective to vest in Buyer good and marketable title to the Assets, free and clear of all liens, pledges, charges and encumbrances, except for the purchase money liens reserved by Seller as provided in Section 1.5 hereof. Simultaneously therewith, Seller shall put Buyer in possession and operating control of the Assets. 1.4 Instruments Giving Certain Additional Powers and Rights; Further Assurances; Etc. Seller further agrees that, at any time and from time to time after the Closing, Seller will, upon the request of Buyer and at Seller's expense, do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged or delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney or assurances as may be reasonably required in order to further transfer, assign, convey, grant, assure and confirm to Buyer, or to aid and assist in the collection of or the reduction to possession by Buyer, any of the Assets or to vest in Buyer good and marketable title to such Assets, free and clear of all liens, pledges, charges and encumbrances, except for the purchase money liens reserved by Seller in accordance with Section 1.5 hereof. If Buyer receives any amounts owed to Seller after the Closing Date, Buyer will immediately remit any such amounts to Seller. Seller also will reasonably cooperate with Buyer, at Buyer's sole cost and expense, with Buyer's application for the transfer or renewal of any permits or licenses held by Seller. 1.5 Purchase Price. The purchase price for the Assets (the "Purchase Price") which Buyer shall pay and deliver to Seller at the Closing or as otherwise provided, shall be Six Million Four Hundred Ninety-Five Thousand Dollars ($6,495,000.00), payable as follows: (a) Five Hundred Thousand Dollars ($500,000.00) payable on or before January 15,1996 in cash or other immediately available funds and 1 2 (b) the balance shall be payable as follows: (i) Three Million Dollars ($3,000,000.00) on or before March 29, 1996 and (ii) Two Million Nine Hundred Ninety-Five Thousand Dollars ($2,995,000.00) on the earlier to occur of June 30, 1996 or the date of the closing of the financing from the Commonwealth of Pennsylvania. Such balance shall be evidenced by a secured promissory note (the "Promissory Note"), which shall bear interest at the rate of 12% per annum, payable on the last day of each month commencing March 31, 1996, provided, however, that if the $3,000,000.00 payment, with all accrued interest, is not made in full on March 29, 1996, the outstanding obligation shall bear interest at the rate of 18% per annum from March 29, 1996 until such obligation is paid in full, and which shall be secured by all of the real and personal property constituting the Assets (the "Mortgage and Security Agreement"), the forms of which are attached hereto as Schedule 1.5. 1.6 Formulations. Buyer acknowledges that the formulations set forth in Schedule 1.1 hereof are being transferred to Buyer on a non-exclusive basis and Seller has sold, or may in the future sell, such formulations to other parties. 1.7 Operational and Other Expenses. Buyer will reimburse Seller for all of its expenses from January 1, 1996 through the Closing Date relating to its building and equipment located at One Pennex Drive, Verona, Pennsylvania, including, without limitation, salaries and expenses of Buyer's employees and consultants, taxes, insurance, utility costs, secuity, maintainence and repairs to the building and equipment. ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER Seller makes the following representations and warranties to Buyer: 2.1 Valid Corporate Existence. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Pennsylvania and Seller has the corporate power to carry on its business as now conducted and to own its assets. The copies of Seller's Articles of Incorporation and By-Laws, as amended to date, which have heretofore been delivered to Buyer, are true and complete copies of those documents as now in effect. 2.2 Corporate Authority; Binding Nature of Agreement. Seller has the corporate power to enter into this Agreement and to carry out its obligations hereunder. This Agreement constitutes the valid and binding obligation of Seller and is enforceable in accordance with its terms. 2.3 Consents. No consents of governmental and other regulatory agencies, foreign or domestic, or of other parties is required to be received by or on the part of Seller to enable it to enter into and carry out this Agreement and the transactions contemplated hereby. 2.4 Taxes. All taxes, including, without limitation, income, property, sales, use, franchise, capital stock, excise, added value, employees' income withholding, social security and unemployment taxes imposed by the United States, any state or any foreign country, or by any other taxing authority, which have or may become due or payable by Seller and all interest and penalties thereon, whether disputed or not, have been paid in full or adequately provided for by reserves shown in its books of account; all deposits required by law to be made by Seller or with respect to estimated income, franchise and employees withholding taxes have been duly made; and all tax returns, including estimated tax returns, required to be filed have been duly filed. No extension of time for the assessment of deficiencies for any year is in effect and no deficiency is proposed, or to the knowledge of Seller, after reasonable inquiry, threatened against Seller. 2 3 2.5 Ownership of Assets. Except as set forth on Schedule 2.5 attached hereto and made a part hereof, Seller owns outright, and has good and marketable title to all of the Assets, free and clear of all liens, mortgages, pledges, claims, conditional sales agreements, restrictions on transfer or other encumbrances or charges whatsoever. 2.6 Litigation. Except as set forth on Schedule 2.6 attached hereto and made a part hereof, there are no actions, suits, proceedings or governmental investigations relating to Seller or the Assets pending or, to the knowledge of Seller, after reasonable inquiry, threatened, or any order, injunction, award or decree outstanding, against Seller or against or relating to its properties, assets or business; and Seller, after reasonable inquiry, does not know of any basis for any such action, suit, proceeding, governmental investigation, order, injunction or decree. 2.7 Environmental Matters. Except as provided in the Phase I environmental site assessment report of Killam Associates dated November 1993 as to the conditions reported as of such date: (a) Seller has operated its business and each parcel of real property in the Assets (the "Real Property") in material compliance with all federal, state and local environmental laws ("environmental laws"). (b) No notice of violation, citation, summons or order has been issued by any governmental body; no claim or complaint has been filed by any person; no penalty has been proposed or assessed by any governmental body; and no inquiry, investigation, enforcement action or review is pending or, to the best knowledge of Seller, threatened by any person, in each case: (i) with respect to any violation or alleged violation by Seller of any environmental law, (ii) with respect to any alleged failure by Seller to have or properly maintain any permit required in connection with the property or Business, (iii) with respect to any generation, treatment, storage, recycling, transportation or disposal of any hazardous substances or wastes, as defined by environmental laws and including petroleum and related materials ("hazardous substances"), or (iv) with respect to any release or alleged release on or with respect to the property. (c) There have ben no past and there are not pending or contemplated claims by Seller under any environmental laws based on actions of others that may have impacted on the Real Property, and Seller has not entered into any agreement with any person regarding any environmental law, remedial action or other environmental liability or expense (including contingent liabilities). (d) To the best of Seller's knowledge, Seller has obtained all material permits, licenses and other authorizations which are required by environmental laws and Seller is in compliance in all material respects with such permits, licenses and authorizations 2.8 Disclaimer of Warranties. Except for the specific representations and warranties set forth in this Article II, the Assets are being sold "AS IS," "WHERE IS" with no warranty made to Buyer, and all warranties, express or implied, including, but not limited to, the implied warranties of merchantability and fitness for a particular purpose are disclaimed. In executing this Agreement and in purchasing Assets, Buyer has not relied upon or been induced by any statements or representations of any person in respect of the physical condition of the Assets, Seller's business or the operation thereof, or any other matter affecting the Assets which might be pertinent in considering the purchase of the Assets or the execution of this Agreement. Seller makes no warranty or representation about the Assets, about its present state of repair, about its condition or maintenance or about its ability to function in any 3 4 respect. Buyer expressly acknowledges that no such representations have been made. Buyer has, on the contrary, relied solely on its inspection, as Buyer has chosen to make or has made. 2.9 Brokers. Neither Seller nor any of its affiliates has engaged, consented to, or authorized any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker or finder in connection with the transactions contemplated by this Agreement. Seller agrees to indemnify Buyer against, and to hold it harmless from, any claim for brokerage or similar commission or other compensation which may be made against Buyer by any third party in connection with the any transactions contemplated hereby which claim is based upon any action by Seller or any of its affiliates. ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER Buyer makes the following representations and warranties to Seller: 3.1 Valid Corporate Existence. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has the corporate power to carry on its business as now conducted and to own its assets. The copies of Buyer's Articles of Incorporation and By-Laws, as amended to date, which have heretofore been delivered to Seller, are true and complete copies of those documents as now in effect. 3.2 Corporate Authority; Binding Nature of Agreement. Buyer has the corporate power to enter into this Agreement and to carry out its obligations hereunder. This Agreement constitutes the valid and binding obligation of Buyer and is enforceable in accordance with its terms. 3.3 Consents. No consents of governmental and other regulatory agencies, foreign or domestic, or of other parties is required to be received by or on the part of Buyer to enable it to enter into and carry out this Agreement and the transactions contemplated hereby. 3.4 Brokers. Buyer has not engaged, consented to, or authorized any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker or finder in connection with the transactions contemplated by this Agreement, and Buyer agrees to indemnify Seller against, and to hold it harmless from, any claim for brokerage or other similar commission or other compensation which may be made against Buyer by any third party in connection with the transactions contemplated hereby which claim is based upon any action by Buyer. ARTICLE IV COVENANTS 4.1 Additional Agreements. Subject to the terms and conditions of this Agreement, each of the parties hereto shall use its best efforts at its own expense to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to carry out the purposes of this Agreement. 4.2 Access; Conduct of Business; No Negotiations. Unless otherwise provided herein, Seller hereby covenants that from and after the date hereof and until the Closing or earlier termination of this Agreement: 4 5 (a) Access. Seller shall afford to the officers, attorneys, accountants and other authorized representatives of Buyer free and full access, during regular business hours and upon reasonable notice, to all of its books, records, personnel and properties so that Buyer, at its own expense, may have full opportunity to make such review, examination and investigation as Buyer may desire of the Assets. Seller will cause its employees, accountants and attorneys to cooperate fully with said review, examination and investigation. (b) Conduct of Business. Seller's business will be conducted in such manner to insure continued compliance with the Good Manufacturing Practices ("CGMPs") as promulgated by the United States Food and Drug Administration (the "FDA") and such other regulations pertaining to the operations of a pharmaceutical facility and the formulations which have been approved by the FDA; provided, however, Buyer understands that Seller has ceased operations and nothing herein shall require Seller to do anything other than maintain its facility in a maintenance mode. (c) No Negotiations. Until December 31, 1995 or the termination of this Agreement, whichever shall occur first, Seller shall not enter into or conduct any discussions or negotiations, or enter into any agreement or understanding, for the sale or possible sale of Seller's securities or business or all or substantially all of its assets with anyone other than Buyer. 4.3 Payment, Release and Assumption of Liabilities. Seller agrees to pay and satisfy in full on a timely basis all obligations and liabilities, of any nature whatsoever, including without limitation any liabilities with respect to taxes, owed or incurred by it at any time which are due and payable after the Closing Date. Seller hereby acknowledges and agrees that Buyer does not and will not assume, and will not otherwise be liable for, any liabilities, obligations or commitments of Seller, whether accrued, absolute, contingent, due or to become due, or yet unassessed or unknown. 4.4 Bulk Sales Laws. The parties waive compliance with the applicable Bulk Sales laws, if any, and Seller will indemnify and hold Buyer harmless from such non-compliance. 4.5 Limitation of Liability. It is understood and agreed that Seller's liability, whether in contract, in tort, under any warranty, in negligence or otherwise, will not exceed the amount of the Purchase Price paid by Buyer and under no circumstances will Seller be liable for special, indirect or consequential damages. 4.6 Records Maintenance; Access. (a) After the Closing Date, Buyer will store and maintain all current and historical information relating to products manufactured, assembled, sold or serviced by Seller including all sales literature, sales data and other information (including correspondence and recorded knowledge) relating to the foregoing and all other current and historical information relating to the Assets, including employee records, accounting information and the medial in which or on which any such information, knowledge, data or records may be found or otherwise stored. Without limiting the generality of the foregoing, the materials to be stored and maintained by Buyer shall include reserve samples of each lot or batch of drug product manufactured by Seller, any production, control or distribution records, components, drug product containers, closures and labeling, complaint files and any other records or reports, ingredients, components or Product samples to be kept by Seller in accordance with CGMPs. Such materials required to be maintained under CGMPs shall be maintained by Buyer and its successors in interest for a sufficient period of time and under sufficient conditions of storage, practice and use as to comply with CGMPs. 5 6 (b) At Seller's expense, upon reasonable notice and request and during the normal business hours, Buyer shall for a period of at least five (5) years after the Closing Date (i) afford Seller free and full access to Seller's tax and accounting records, for all purposes relating to its tax returns or to its obligations under this Agreement relating to periods prior to the Closing; and (ii) permit Seller to make extracts from and copies of such records. (c) At Seller's expense, upon reasonable notice and request and during normal business hours, Buyer shall for a period of at least five (5) years after the Closing Date (i) afford Seller free and full access to all such information and materials maintained by Buyer as set forth in Section 4.6 (a) hereof, for all purposes relating to the safety and efficacy of any product of any product manufactured by Seller or the propriety and legality of any action or forbearance from action by Seller in the conduct of its business operation; and (ii) permit Seller to make extracts from and copies of such records, and to take such reserve samples of ingredients, products, components, containers, closures and labeling as may be required by Seller. ARTICLE V CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE The obligation of Buyer to close hereunder is subject to the fulfillment, prior to or at the Closing, of each of the following conditions, any one or more of which may be waived by Buyer (except when the fulfillment of such condition is a requirement of law); 5.1 Representations and Warranties. All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as at the Closing Date as if made at the Closing Date and as of the Closing Date. 5.2 Covenants. Seller shall have performed and complied in all material respect with all covenants and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing. 5.3 Certificate. Buyer shall have received a certificate dated the Closing Date, signed by the President or Vice President and Treasurer or Secretary of Seller as to the satisfaction of the conditions contained in Section 5.1 and 5.2 hereof. 5.4 No Injunction, etc. There shall not be in effect any injunction, order or other decree by any court or governmental body prohibiting, restraining or otherwise preventing the consummation of the transactions contemplated hereby. 5.5 Instruments of Conveyance. Seller shall have executed and delivered such bills of sale, deeds and other conveyance documents necessary to convey the Assets to Buyer in accordance with the terms hereof. 5.6 Corporate Actions. All actions necessary to authorize the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby shall have been duly and validly taken and Seller shall have full power and right to consummate the transactions contemplated by this Agreement. 6 7 5.7 Name Change. Within five (5) days after the Closing, Seller shall change its name to a name that does not contain the words "Pennex." 5.7 Additional Documents. Seller shall have delivered all such other certificates and documents as Buyer or its counsel may have reasonably requested. 5.8 Approval of Counsel. All actions, proceedings, instruments and documents required to carry out this Agreement or incidental thereto, and all other related legal matters, shall have been approved as to form and substance by counsel to Buyer, which approval shall not be unreasonably withheld or delayed. ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE The obligation of Seller to close hereunder is subject to the fulfillment, prior to or at the Closing, of each of the following conditions, any one or more of which may be waived by Seller (except when the fulfillment of such condition is a requirement of law). 6.1 Representations and Warranties. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects as at the Closing Date, as if made at the Closing and as of the Closing Date. 6.2 Covenants. Buyer shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing. 6.3 Certificate. Seller shall have received a certificate dated the Closing Date, signed by the President or Vice President and Treasurer or Secretary of Buyer as to the satisfaction of the conditions contained in Section 6.1 and 6.2 hereof. 6.4 No Injunction, etc. There shall not be in effect any injunction, order or other decree by any court or governmental body prohibiting, restraining or otherwise preventing the consummation of the transactions contemplated hereby. 6.5 Consideration. Seller shall have received the Purchase Price consisting of (a) $500,000.00; (b) the Promissory Note; and (c) the Mortgage and Security Agreement. In addition, Buyer shall pay to Seller the expenses required by Section 1.7 hereof. 6.6 Corporate Actions. All actions necessary to authorize the execution, delivery and performance of this Agreement by Buyer and the consummation of the transactions contemplated hereby shall have been duly and validly taken and Buyer shall have full power and right to consummate the transactions contemplated by this Agreement. 6.7 Additional Documents. Buyer shall have delivered all such certified resolutions, certificates and documents with respect to Buyer as Seller or its counsel may have reasonably requested. 6.8 Approval of Counsel. All actions, proceedings, instruments and documents required to carry out this Agreement or incidental thereto, and all other related legal matters, shall have been 7 8 approved as to form and substance by counsel to Seller, which approval shall not be unreasonably withheld or delayed. ARTICLE VII CLOSING 7.1 Location. The closing (the "Closing") provided for herein shall take place at the offices of Seller at 10:00 A.M. on January 15, 1996 at such time and place as may be mutually agreed to by the parties. Such date is referred to in this Agreement as the "Closing Date." 7.2 Items to be Delivered by Seller. At the Closing, Seller will deliver or cause to be delivered to Buyer: (a) executed bills of sale, deeds and other conveyance documents that serve to convey the Assets to Buyer in accordance with the terms hereof; (b) certified copies of all corporate action necessary to authorize the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions hereby shall been duly and validly taken and Seller shall have full power and right to consummate the transactions contemplated by this Agreement; (c) such other certified resolutions, documents and certificates as are required to be delivered by Seller pursuant to the provisions of this Agreement; (d) such other certificates and documents as Buyer may have reasonably requested; and (e) all actions, proceedings, instruments and documents required to carry out this Agreement, or incidental thereto, and all the related legal matters shall have been approved as to the form and substance by counsel to Buyer, which approval shall not be unreasonably withheld. 7.3 Items to be Delivered by Buyer. At the Closing, Buyer will deliver or cause to be delivered to the Seller: (a) the cash portions of the Purchase Price shall be delivered to Seller in accordance with Section 1.2 hereof and the expense reimbursement shall be declared to Seller in accordance with Section 1.7 hereof. (b) the executed Promissory Note shall be delivered to Seller in accordance with Section 1.2 hereof; (c) the executed Mortgage and Security Agreement shall be delivered in accordance with Section 1.2 hereof; (d) certified copies of all corporate action necessary to authorize the execution, delivery and performance of this Agreement by Buyer and the consummation of the transactions hereby shall been duly and validly taken and Buyer shall have full power and right to consummate the transactions contemplated by this Agreement; 8 9 (e) such other certified resolutions, documents and certificates as are required to be delivered by Buyer pursuant to the provisions of this Agreement; (f) such other certificates and documents as Seller may have reasonably requested; and (g) all actions, proceedings, instruments and documents required to carry out this Agreement, or incidental thereto, and all the related legal matters shall have been approved as to the form and substance by counsel to Seller, which approval shall not be unreasonably withheld. ARTICLE VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 8.1 Survival. The parties agree that their respective representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing for a period of six (6) months. 8.2 Indemnification. (a) Seller agrees to save, defend and indemnify Buyer against and hold it harmless from any and all liabilities, of every kind, nature and description, fixed or contingent (including, without limitation, counsel fees and expenses in connection with any action, claim or proceeding relating to such liabilities) arising out of any transaction or event commencing or occurring on or prior to the Closing Date, or by reason of any breach or failure of observance or performance of any representation, warranty, covenant, agreement or commitment made by Seller hereunder or as a result of any such representation, warranty, covenant, agreement or commitment being untrue or incorrect in any respect. (b) Buyer agrees to indemnify Seller and hold it harmless from and against any and all obligations or liabilities, of every kind, nature and description, fixed or contingent (including, without limitation, counsel fees and expenses in connection with any action or proceeding relating to such liabilities), arising out of Buyer's operations of the Assets after the Closing Date, or by reason of any breach or failure of observance or performance of any representation, warranty, covenant, agreement or commitment made by Buyer hereunder or relating hereto or as a result of any such representation, warranty, covenant, agreement or commitment being untrue or incorrect in any respect. 8.3 Defense of Claims. A party entitled to indemnification hereunder (an "Indemnified Party") agrees to notify each party required to indemnify hereunder (an "Indemnifying Party") with reasonable promptness of any claim asserted against it in respect of which any Indemnifying Party may be liable under this Agreement, which notification shall be accompanied by a written statement setting forth the basis of such claim and the manner of calculation thereof. An Indemnifying Party shall have the right to defend any such claim at its or his own expense and with counsel of its or his choice; provided, however, that such counsel shall have been approved by the Indemnified Party prior to engagement, which approval shall not be unreasonably withheld or delayed; and provided further, that the Indemnified Party may participate in such defense, if it so chooses, with its own counsel and at its own expense. 8.4 Rights Without Prejudice. The rights of the parties under this Article VIII are without prejudice to any other right or remedies that it may have by reason of this Agreement or as otherwise provided by law. 9 10 ARTICLE IX TERMINATION AND WAIVER 9.1 Termination. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the transactions provided for herein abandoned at any time prior to the Closing Date: (a) By mutual consent of the Boards of Directors of Buyer and Seller; (b) By Buyer if any of the conditions set forth in Article V hereof shall not have been fulfilled on or prior to January 15, 1996, or shall have become incapable of fulfillment, and shall not have been waived; or (c) By Seller if any of the conditions set forth in Article VI hereof shall not have been fulfilled on or prior to January 15, 1996 or shall become incapable of fulfillment, and shall not have been waived. (d) If this Agreement is terminated pursuant to this Section 9.1, this Agreement shall be void and of no force and effect, without any liability or obligation on the part of any of the parties. 9.2 Waiver. Any condition to the performance of the parties which legally may be waived on or prior to the Closing Date may be waived at any time by the Party entitled to the benefit thereof by action taken or authorized by an instrument in writing executed by the relevant party or parties. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term, covenant, representation or warranty contained in this Agreement, as a condition to such party's obligations hereunder shall, release or affect any liability resulting from such breach, and no waiver of any nature, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or of any breach of any other term, covenant, representation or warranty of this Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS 10.1 Expenses. Each of the parties shall bear its own expenses in connection herewith, including all accounting, legal and appraisal fees and settlement charges. Buyer will pay all recording and documentary stamp fees, if any, in connection with the deed, bill of sale, Promissory Note and Mortgage and Security Interest and the cost of title insurance. 10.2 Publicity. The parties agree that no publicity, releases or other public announcement concerning the transactions contemplated by this Agreement shall be issued by either party without the advance approval of both the form and substance of the same by the other party and its counsel, which approval, in the case of any publicity, release or other public announcement required by applicable law, shall not be unreasonably withheld or delayed. 10.3 Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. The representations, warranties, covenants and agreements set 10 11 forth in this Agreement and in the schedules or exhibits delivered pursuant hereto constitute all the representations, warranties, covenants and agreements of the parties and upon which the parties have relied and except as may be specifically provided herein, no change, modification, amendment, addition or termination of this Agreement or any part thereof shall be valid unless in writing and signed by or on behalf of the party to be charged therewith. 10.4 Notices. Any and all notices or other communications or deliveries required or permitted to be given or made pursuant to any of the provisions of this Agreement shall be deemed to have been duly given or made for all purposes if sent by certified or registered mail, return receipt requested and postage prepaid, Federal Express, Express Mail, hand delivered or sent by telefax as follows: If to Seller, at: One Pennex Drive. Verona, Pennsylvania 15147 Attention: Geary Cotton, Vice President Fax No. 412-826-4709 With a copy to: Richard S. Werber, Esq. 851 Broken Sound Parkway, N.W. Boca Raton, Florida 33487 Fax No. 407-995-0085 If to Buyer: 110 West Lancaster Avenue Wayne, Pennslvania 19087 Fax No. 610-293-0550 With a copy to: Arthur P. Hartel, Jr., Esq. 110 West Lancaster Avenue Wayne, Pennsylvania 19087 Fax No. 610-293-0550 or at such other address as any party may specify by notice given to other party in accordance with this Section 10.4. The date of giving of any such notice shall be the date of the actual receipt thereof. 10.5 Time of Essence. Time is of the essence in this Agreement. 10.6 Choice of Law; Arbitration; Prevailing Party. This Agreement shall be governed, interpreted and construed in accordance with the laws of the Commonwealth of Pennsylvania, except that body of law relating to choice of law. Should any clause, section or part of this Agreement be held or declared to be void or illegal for any reason, all other clauses, sections or parts of this Agreement which can be effected without such illegal clause, section or part shall nevertheless continue in full force and effect. All disputes arising out of or under this Agreement shall be submitted to the American Arbitration Association (AAA) to be heard in Allegheny County, Pennsylvania, under the rules then in 11 12 force, such determination of the AAA shall be enforceable through collateral proceedings to enforce arbitration awards in the state courts of Florida which shall have the authority to enjoin any violation of this Agreement. The prevailing party in any dispute shall be reimbursed all of its costs, including attorney's fees and costs, by the other party. 10.7 No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that no party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other party except that Buyer may assign all of its rights hereunder to an affiliate, and Seller may assign the Promissory Note, the Mortgage and the Security Agreement to an affiliate. 10.9 No Third Party Beneficiaries. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 10.10 Headings. The headings or captions under sections of this Agreement are for convenience and reference only and do not in any modify, interpret or construe the intent of the parties or effect any of the provisions of this Agreement. WITNESS the execution of this Agreement as of the date first above written. PENNEX LABORATORIES, INC. By: _____________________________ OAKMONT PHARMACEUTICALS, INC. By: _____________________________ 12 EX-10.22 7 FOREBEARANCE AGREEMENT 1 Exhibit 10.22 FORBEARANCE AGREEMENT THIS AGREEMENT is made as of April 29, 1996, by and between OAKMONT PHARMACEUTICALS, INC., a Delaware corporation ("Oakmont"), and REXALL SUNDOWN, INC., a Florida corporation ("Rexall-Sundown"), as assignee of RSL Holdings, Inc. (formerly known as Pennex Laboratories, Inc. and, before that, RS Acquisition, Inc.), a Pennsylvania corporation ("RSL"). Pursuant to an Agreement of Purchase and Sale dated as of December 29, 1995, by and between RSL as Seller and Oakmont as Buyer (the "Agreement"), RSL sold to Oakmont various assets formerly used in RSL's pharmaceutical manufacturing business (collectively, the "Assets"), including (i) certain real estate in Plum Borough, Allegheny County, Pennsylvania (the "Real Property"), wherein RSL conducted its pharmaceutical manufacturing operations, and (ii) various items of personal property (collectively, the "Personal Property") including equipment used by RSL in the conduct of its operations conducted at the Real Property and inventory located at the Real Property. RSL retained a mortgage lien on the Real Property and a security interest in the Personal Property to secure Oakmont's payment of the unpaid balance of the purchase price of the Assets and various other obligations owed by Oakmont to RSL (collectively, the "Obligations") pursuant to a promissory note dated January 31, 1996 (the "Note") and a mortgage dated February 1, 1996 and a security agreement dated January 31, 1996 2 (such mortgage and security agreement are together hereinafter referred to as the "Security Documents"). RSL has transferred all of its rights in respect of the Obligations and in and under the Note and the Security Documents to Rexall-Sundown. Oakmont has defaulted in the timely payment of the Obligations. The amount necessary to bring Oakmont current on the Obligations as of June 30, 1996 (the "Cure Amount"), including interest accrued through that date at a per annum rate of 12%, will be $454,069.34, comprising interest in the amount of $301,748.33 accrued on the Note, and reimbursable costs (together with interest thereon) of $152,321.01. Rexall-Sundown is willing to forbear from the enforcement of its right to payment on the outstanding balance of the Obligations on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing recitals and the mutual promises herein contained, Oakmont and Rexall-Sundown, each intending to be legally bound hereby, agree as follows: 1. Rexall-Sundown waives any right to accelerate the maturity of the outstanding balance of the Obligations or to exercise any other right or remedy under the Agreement, the Note, or the Security Documents available by reason of any payment default thereunder occurring prior to the date of this Agreement, and if such acceleration shall be deemed to have occurred prior to the date hereof by reason of any such default, such acceleration shall be deemed nullified and rescinded. Rexall-Sundown further - 2 - 3 agrees not to accelerate the maturity of the Obligations or take any other action to enforce payment of the Obligations unless an Event of Default (as defined below in paragraph 6 below) shall have occurred and be continuing. 2. Oakmont will pay Rexall-Sundown the Cure Amount in three successive installments as follows: $250,000.00 will be paid on or before May 25, 1996 $125,000.00 will be paid on or before June 15, 1996 $79,069.34 will be paid on or before June 30, 1996 3. Oakmont will pay the following additional amounts, representing interest accrued on the outstanding principal due under the Note at a rate of 12% per annum, on the following dates: $61,948.33 on or before July 31, 1996 $61,948.33 on or before August 31, 1996 $59,950.00 on or before September 30, 1996 $61,948.33 on or before October 31, 1996 4. Oakmont will pay RSL the following additional amounts on or before October 31, 1996: $213,821.67 (representing additional interest accrued at a rate of 6% per annum from April 1, 1996 through October 31, 1996 on the outstanding principal balance of the Note) $5,995,000.00 (representing the current unpaid principal balance due under the Note) $100,000.00 (representing an agreed upon forbearance fee) Accordingly, the total amount due and payable by Oakmont to Rexall-Sundown on October 31, 1996, including the items enumerated in this paragraph 4 and the interest payment due on October 31, 1996 as provided in paragraph 3, is $6,370,770.00. - 3 - 4 5. Simultaneously with the execution and delivery of this Agreement, Oakmont will deliver to Kirkpatrick & Lockhart LLP ("K&L"), counsel to Rexall-Sundown, at its office at 1500 Oliver Building, Pittsburgh, PA 15222, the following items: (i) an executed and acknowledged Deed of Conveyance, conveying the Real Property to a person or persons to be designated by Rexall-Sundown (such Deed to be prepared in such fashion that the name and address of the transferee may be inserted by Rexall-Sundown); and (ii) a Bill of Sale, also prepared in such fashion that the name of the transferee can be inserted by Rexall-Sundown. The Deed and the Bill of Sale shall be in the forms annexed hereto as Exhibits A and B, and shall hereinafter be together referred to as the "Transfer Documents". K&L shall hold the Transfer Documents in escrow, until directed by Rexall-Sundown to deliver them in accordance with paragraphs 7 or 9 below. 6. Any of the following events shall constitute an "Event of Default" for purposes of this Forbearance Agreement: (i) Any of the installment payments required to be made in respect of the Cure Amount as provided in paragraph 2 above shall not be made in full on or before its respective due date; or (ii) Oakmont shall have defaulted in the payment or performance of any other duty or obligation under this Forbearance Agreement or the Agreement, the Note or the Security Documents as modified by this Forbearance Agreement (other than any default waived by Rexall-Sundown pursuant to paragraph 1 above) and any applicable grace or cure period shall have expired. - 4 - 5 7. If any Event of Default shall have occurred and be continuing, then, in any such event, Rexall-Sundown may accelerate the maturity of all the remaining Obligations and, in addition, may do any or all of the following: (a) cause K&L to deliver the Transfer Documents to Rexall-Sundown; cause such Transfer Documents to be completed by the insertion of the name of the transferee or transferees of the Real Property and the Personal Property; and cause any or all of the Transfer Documents to be filed or recorded in the appropriate public records; (b) cause judgment to be entered in favor of Rexall-Sundown (or its assignee) and against Oakmont for all or any part of the outstanding balance of the Obligations pursuant to the warrant of attorney hereinafter set forth; and (c) exercise any and all other rights and remedies provided by law. 8. If Rexall-Sundown elects to cause K&L to deliver to Rexall-Sundown the Transfer Documents, then Oakmont shall be released and discharged from any and all further liability in respect of the Obligations; provided, however, that nothing in this Forbearance Agreement shall impair Rexall-Sundown's right to enforce its lien and security interest in the Assets. 9. If all the Obligations are timely paid in full in accordance with this Forbearance Agreement, the Agreement, the Note, and the Security Documents as modified by this Forbearance Agreement, and no Event of Default shall have occurred and be continuing, then upon receipt of such payment, Rexall-Sundown shall - 5 - 6 release its lien and security interest in the Assets and shall cause K&L to return the Transfer Documents to Oakmont. 10. OAKMONT HEREBY AUTHORIZES ANY ATTORNEY OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR OAKMONT AT ANY TIME AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, AND CONFESS A JUDGMENT OR JUDGMENTS AGAINST OAKMONT AND IN FAVOR OF REXALL-SUNDOWN OR ITS ASSIGNS, AS MANY TIMES AS SHALL BE NECESSARY OR EXPEDIENT, FOR ALL OR ANY PART OF THE THEN OUTSTANDING BALANCE OF THE OBLIGATIONS, TOGETHER WITH AN ATTORNEY'S FEES OF 15% OF SUCH AMOUNT, WITH RELEASE OF ALL ERRORS AND WITHOUT STAY OF EXECUTION. IN WITNESS WHEREOF, we have hereunto set our hands and seals the day and year first above written. OAKMONT PHARMACEUTICALS, INC. By: ------------------------------- Title: ---------------------------- REXALL SUNDOWN, INC. By: ------------------------------- Title: ---------------------------- - 6 - EX-10.23 8 SECOND FOREBEARANCE AGREEMENT 1 Exhibit 10.23 SECOND FORBEARANCE AGREEMENT THIS AGREEMENT (the "Second Forbearance Agreement") is made as of September 23, 1996, by and between OAKMONT PHARMACEUTICALS, INC., a Delaware corporation ("Oakmont"), and REXALL SUNDOWN, INC., a Florida corporation ("Rexall Sundown"), as assignee of RSL Holdings, Inc. (formerly known as Pennex Laboratories, Inc. and, before that, RS Acquisition, Inc.), a Pennsylvania corporation ("RSL"), for the purpose of amending the payment terms under an agreement made as of April 29, 1996, by and between Oakmont and Rexall Sundown (the "First Forbearance Agreement"). Pursuant to an Agreement of Purchase and Sale dated as of December 29, 1995, by and between RSL as Seller and Oakmont as Buyer (the "Purchase Agreement"), RSL sold to Oakmont various assets formerly used in RSL's pharmaceutical manufacturing business (collectively, the "Assets"), including (i) certain real estate in Plum Borough, Allegheny County, Pennsylvania (the "Real Property"), wherein RSL conducted its pharmaceutical manufacturing operations, and (ii) various items of personal property (collectively, the "Personal Property") including equipment used by RSL in the conduct of its operations conducted at the Real Property and inventory located at the Real Property. RSL retained a mortgage lien on the Real Property and a security interest in the Personal Property to secure Oakmont's payment of the unpaid balance of the purchase 2 price of the Assets and various other obligations owed by Oakmont to RSL (collectively, the "Obligations") pursuant to a promissory note dated January 31, 1996 (the "Note") and a mortgage dated February 1, 1996 and a security agreement dated January 31, 1996 (such mortgage and security agreement are together hereinafter referred to as the "Security Documents"). Thereafter, RSL transferred all of its rights in respect of the Obligations and in and under the Note and the Security Documents to Rexall Sundown. Oakmont defaulted in the timely payment of the Obligations. Thereafter, Rexall Sundown and Oakmont entered into the First Forbearance Agreement, whereby Rexall Sundown agreed to forbear from the enforcement of its right to payment on the outstanding balance of the Obligations on the terms and conditions set forth therein. Simultaneously with the execution and delivery of the First Forbearance Agreement, Oakmont delivered to Kirkpatrick & Lockhart LLP ("K&L"), counsel to Rexall Sundown, at its office at 1500 Oliver Building, Pittsburgh, PA 15222, the following items: (i) an executed and acknowledged Deed of Conveyance, conveying the Real Property to a person or persons to be designated by Rexall Sundown; and (ii) an executed Bill of Sale, conveying the Personal Property to a person or persons to be designed by Rexall Sundown. The Deed and the Bill of Sale are hereinafter together referred to as the "Transfer Documents". K&L has been holding the Transfer - 2 - 3 Documents in escrow pursuant to the terms of the First Forbearance Agreement. Oakmont has defaulted in the timely payment of the amounts due under the First Forbearance Agreement (the "Modified Obligations"). Rexall Sundown is willing to forbear from the enforcement of its rights and remedies in respect of such default, on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing recitals and the mutual promises herein contained, Oakmont and Rexall Sundown, each intending to be legally bound hereby, agree as follows: 1. The effectiveness of this Second Forbearance Agreement is conditioned on Rexall Sundown's receipt, on or before the date of this Second Forbearance Agreement, of the sum of $182,966.00, which sum shall be credited against the payments that became due on June 30, July 31, and August 31, 1996, under paragraphs 2 and 3 of the First Forbearance Agreement. 2. Subject to the fulfillment of the condition specified in paragraph 1 above, Rexall Sundown waives any right to accelerate the maturity of the outstanding balance of the Modified Obligations or to exercise any other right or remedy under the Purchase Agreement, the Note, the Security Documents, or the First Forbearance Agreement available by reason of any payment default thereunder occurring prior to the date of this Second Forbearance - 3 - 4 Agreement, and if such acceleration shall be deemed to have occurred prior to the date hereof by reason of any such default, such acceleration shall be deemed nullified and rescinded. Likewise subject to the fulfillment of the condition set forth in paragraph 1 above, Rexall Sundown further agrees not to accelerate the maturity of the Modified Obligations or take any other action to enforce payment of the Modified Obligations unless an Event of Default (as defined below in paragraph 8 below) shall have occurred and be continuing. 3. Oakmont will pay Rexall Sundown the sum of $59,950.00 on or before September 30, 1996. This sum shall be credited against the payment coming due on September 30, 1996, under paragraph 3 of the First Forbearance Agreement. 4. On or before October 31, 1996, Oakmont will pay Rexall Sundown the sum of $561,948.33. The payment made pursuant to this paragraph shall be applied first to accrued and unpaid interest on the Modified Obligations (including the additional interest accrued at the rate of 6% from April 1, 1996 through October 31, 1996, as provided in the Note), next to the $100,000.00 forbearance fee provided for in paragraph 4 of the First Forbearance Agreement, and the balance to the unpaid principal amount of the Modified Obligations. 5. Oakmont will pay RSL the following additional amounts on or before the following dates: - 4 - 5 November 30, 1996 $60,000.00 December 31, 1996 $60,000.00 January 31, 1997 $60,000.00 Payments made pursuant to this paragraph shall be applied first to accrued and unpaid interest on the Modified Obligations, and next to the unpaid principal balance of the Modified Obligations. 6. On or before February 28, 1997, Oakmont shall pay the outstanding balance due under the Purchase Agreement, the Note, and the Security Documents as modified by the First Forbearance Agreement and this Second Forbearance Agreement (collectively, the "Modified Documents"). 7. If Oakmont shall pay all other amounts due and owing under the Modified Documents on or before December 31, 1996, then, at the time such amounts are paid in full, Oakmont shall pay Rexall Sundown an additional sum of $50,000.00 as an additional forbearance fee; or in the alternative, if Oakmont shall fail to pay in full all other amounts due and owing under the Modified Documents on or before December 31, 1996, then, at the time such other amounts are paid in full, Oakmont shall pay Rexall Sundown an additional sum of $100,000.00 as an additional forbearance fee. 8. Any of the following events shall constitute an "Event of Default" for purposes of this Second Forbearance Agreement: (i) Any of the payments required to be made pursuant to this Second Forbearance Agreement shall not be made in full on or before its respective due date; or (ii) Oakmont shall have defaulted in the payment or performance of any other duty or - 5 - 6 obligation under the Modified Documents (other than any default waived by Rexall Sundown pursuant to paragraph 2 above) and any applicable grace or cure period shall have expired. 9. If any Event of Default shall have occurred and be continuing, then, in any such event, Rexall Sundown may accelerate the maturity of all the remaining amounts payable hereunder, and, in addition, may do any or all of the following: (a) cause K&L to deliver the Transfer Documents to Rexall Sundown; cause such Transfer Documents to be completed by the insertion of the name of the transferee or transferees of the Real Property and the Personal Property; and cause any or all of the Transfer Documents to be filed or recorded in the appropriate public records; (b) cause judgment to be entered in favor of Rexall Sundown (or its assignee) and against Oakmont for all or any part of the outstanding balance of such amounts pursuant to the warrant of attorney hereinafter set forth; and (c) exercise any and all other rights and remedies provided by law. 10. If, in accordance with this Second Forbearance Agreement, Rexall Sundown elects to cause K&L to deliver to Rexall Sundown the Transfer Documents, then Oakmont shall be released and discharged from any and all further liability in respect of the amounts payable hereunder; provided, however, that nothing in this Second Forbearance Agreement shall impair Rexall Sundown's right to enforce its lien and security interest in the Assets. - 6 - 7 11. If all the amounts payable to Rexall Sundown under the Modified Documents are paid in full, then upon receipt of such payment, Rexall Sundown shall release its lien and security interest in the Assets and shall cause K&L to return the Transfer Documents to Oakmont. 12. This Second Forbearance Agreement may be executed in multiple counterparts and by different parties on different counterparts, each of which shall be deemed an original, but all of which shall be deemed one and the same instrument. 13. OAKMONT HEREBY AUTHORIZES ANY ATTORNEY OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR OAKMONT AT ANY TIME AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, AND CONFESS A JUDGMENT OR JUDGMENTS AGAINST OAKMONT AND IN FAVOR OF REXALL SUNDOWN OR ITS ASSIGNS, AS MANY TIMES AS SHALL BE NECESSARY OR EXPEDIENT, FOR ALL OR ANY PART OF THE THEN OUTSTANDING BALANCE DUE AND PAYABLE HEREUNDER, TOGETHER WITH AN ATTORNEY'S FEE OF 15% OF SUCH AMOUNT, WITH RELEASE OF ALL ERRORS AND WITHOUT STAY OF EXECUTION. IN WITNESS WHEREOF, we have hereunto set our hands and seals on or as of the day and year first above written. OAKMONT PHARMACEUTICALS, INC. By: ------------------------------- Title: ---------------------------- - 7 - 8 REXALL SUNDOWN, INC. By: ------------------------------- Title: ---------------------------- - 8 - EX-10.24 9 INDUSTRIAL LEASE 3/3/95 1 Exhibit 10.24 LEASE AGREEMENT BETWEEN Network Marketing, L.C. d.b.a. Rexall Showcase International ("Tenant") AND WRC Properties, Inc. ("Landlord") 2 INDUSTRIAL LEASE INDEX
TITLE PAGE PARAGRAPH Acceptance of Premises 5 9 Access, Changes in Building Facilities Name 13 27 Additional Rent 9 15 Alterations 6 11 Assignment 3 6 Broker(s) 11 20 Broker Acknowledgment 17 Common Areas 15 31 Condemnation 12 25 Construction, Applicable Laws 5 7 Default 7 14 Delay of Possession 6 12 Destruction or Damage 6 13 Entire Agreement 16 36 Exhibit "A" - Site Location 18 Exhibit "B" - Rules and Regulations 19 Exhibit "C" - Sign Requirements 21 Hazardous Waste 15 34 Indemnification 10 17 Insurance 11 Liens 12 23 Notices 11 21 Option to Renew 3 3 Peaceful Possession 13 26 Preparation of Premises 5 8 Radon Gas 16 35 Relocation of Tenant 15 32 Rent 1 2 Repairs and Maintenance 5 10 Rules and Regulations 12 22 Security 3 4 Security Systems 14 30 Signs 15 33 Sign Placement Plan 22 Subordination 10 16 Surrender, Holding Over 14 28 Term 1 1 Transfer by Landlord 12 24 Use 3 5 Utilities 14 29 Waiver 11 19 Exhibit "D" - Tenant Improvements 23 Rider No. "1" - Addendum 24
3 INDUSTRIAL LEASE THIS LEASE AGREEMENT, dated as of the 3rd day of March 1995 by and between WRC Properties, Inc. referred to as "LANDLORD", and Network Marketing, L.C. hereinafter referred to as "TENANT": d.b.a. Rexall Showcase International WITNESSETH: LANDLORD hereby leases to TENANT and TENANT hereby hires from LANDLORD: Space located at: 7656-7686 N.W. 77th Street (Bldg. 204) ----------------------------------------- Boca Raton, FL 33487 ----------------------------------------- of Boca Industrial Park ----------------------------------------- hereinafter referred to as the "Premises" or "Demised Premises", for the term hereinafter stated, for the rents hereinafter reserved, and upon and subject to the terms, conditions, and covenants hereinafter provided. 1. TERM: The term of this Lease shall commence on April 1, 1995 and end at midnight on March 31, 1998. 2. RENT: The rent reserved under this Lease for the term hereof shall be and consist of: A. Base Rent of $ See Page 1A per year, which shall be payable in advance, in equal monthly installments, without deduction or setoffs and without prior demand therefore, on the first day of each and every calendar month during the term of this Lease except that TENANT shall pay, upon execution and delivery of this Lease by TENANT, the sum of $20,000.00, together with $9,750.00, representing the first month's portion of the estimated share of expenses per section 15 of this Lease entitled "Additional Rent", plus applicable sales tax, to be applied against the first installment of Base Rent becoming due under this lease. B. All taxes in the nature of sales, use or similar taxes, now or hereinafter assessed or levied by any taxing authority upon the payment of fixed rent or Additional Rent as hereinafter defined, and which the LANDLORD is required or permitted to collect from TENANT, shall be payable simultaneously with the payment of Base Rent or Additional Rent. C. TENANT covenants and agrees to pay a late charge for any payment of Base Rent not received by LANDLORD on or before the tenth (10th) day of each month and for any other payment, such as Additional Rent, not received by LANDLORD on or before the date when same is due. Said late charge shall be computed from the first day of the month in the case of Rent and from the date when same is due in case of Additional Rent. The amount of the late charge shall be an amount equal to the interest commencing on the dates aforesaid, ending on the date of receipt of the sum(s) by LANDLORD and having a rate equal to eighteen percent (18%) per annum. In the event any late charge is due to LANDLORD, LANDLORD shall advise TENANT in writing and TENANT shall pay said late charge to LANDLORD not later than the date when the next payment of Rent is due. 1 4 NETWORK MARKETING, L.C. D.B.A. REXALL SHOWCASE INTERNATIONAL RENT SCHEDULE BASE RENT Base Rent shall be increased as follows:
Year $/SF ANNUAL RENT MONTHLY RENT ---- ---- ----------- ------------ 1. 04/01/95 - 03/31/96 $4.00 $240,000.00 $20,000.00 2. 04/01/96 - 03/31/97 4.20 252,000.00 21,000.00 3. 04/01/97 - 03/31/98 4.41 264,600.00 22,050.00
OPERATING EXPENSES 1995 Operating Expenses are estimated at $1.95 per square foot. Operating Expenses are adjusted annually based on a calendar year. NETWORK MARKETING, L.C. D.B.A. REXALL SHOWCASE INTERNATIONAL 60,000 SF @ $1.95/SF = $117,000.00/year or $9,750.00 per month 1A 5 E. Additional Rent consisting of all such other sums of money as shall become due from and payable by TENANT to LANDLORD hereunder (for default in payment of which LANDLORD shall have the same remedies as for a default in payment of fixed rent); all to be paid to LANDLORD without demand, deduction, or set off at its office, or such agent or such other place as Landlord may designate by notice to TENANT, in lawful money of the United States of America. Rent and Additional Rent shall be made payable to: WRC Properties, Inc. ---------------------------- c/o McCoy/PM Realty Group ---------------------------- 6301 N.W. 5th Way ---------------------------- Ft. Lauderdale, FL 33309 ---------------------------- 2 6 3. OPTION TO RENEW: A. The TENANT is hereby granted an option to renew/extend this Lease for an additional three (3) year term, commencing 04/01/98 through 03/31/01, subject to the terms of this Lease as well as the following terms and conditions: (1) To exercise this option, the TENANT shall give 180 days written notice prior to the termination date of this lease of its intention to renew. In the absence of such timely notification, the option to renew shall be null and void. (2) TENANT must not be in default of any of the conditions or covenants of this Lease. (3) The rental rate during the initial year of the option period shall be the current market rate. Landlord shall notify Tenant of the current market rate upon Tenant's written notice of its intention to renew. Notwithstanding contrary provisions hereof, in no event shall the renewal rate herein be less than $4.41/SF plus additional rent (operating expenses). Should Tenant exercise this option, the demised premises shall be leased in "as-is" condition. (4) Rental adjustments to the new Base Rent during the option period shall be made annually in the same manner as adjustments were made for the initial Lease Term. 4. SECURITY: TENANT simultaneously with the execution and delivery of this Lease has deposited with LANDLORD, the sum of $29,750.00 receipt of which is hereby acknowledged, which sum shall be retained by LANDLORD as security for the payment by TENANT of the rents herein agreed to be paid by TENANT and for the faithful performance by TENANT of the terms, conditions, and covenants of this Lease. It is agreed that LANDLORD, at LANDLORD's option, may at any time apply said sum or any part thereof toward the payment of the rents and any other sum payable by TENANT under this Lease, and/or toward the performance of each and every of TENANT's covenants under this Lease and TENANT's liability under this Lease shall thereby be reduced pro tanto; that TENANT shall remain liable for any amounts that such sum shall be insufficient to pay; that LANDLORD may exhaust and or all rights and remedies against TENANT before resorting to said sum, but nothing herein contained shall require or be deemed to require LANDLORD to do so; that, in the event this deposit shall not be utilized for any of such purposes, then such deposit shall be returned by LANDLORD to TENANT promptly after the expiration of the term of the Lease. LANDLORD shall not be required to pay TENANT any interest on said security deposit. Promptly upon demand by LANDLORD, TENANT shall deposit with LANDLORD such additional sum as may be necessary to replace any amounts expended therefrom by LANDLORD pursuant to the provisions hereof, so that there shall always be a security deposit in the sum first set forth above. Landlord shall provide written notice should Tenant's security deposit be applied in any manner as described herein. Any amount of security deposit remaining at lease expiration shall be refunded to Tenant within 45 days of the expiration date of the Lease. 5. USE: The TENANT will use and occupy the Premises for _________________ distribution, warehouse, packaging and ancillary office and for no other use or purpose. The TENANT will not create nor allow to be created any form of pollution whether noise, smoke, or otherwise within or without the Demised Premises. The Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for any such use. 6. ASSIGNMENT: TENANT may not assign, sublet, transfer, or dispose of this Lease during the term hereof, or underlet the Demised Premises or any part thereof or permit the Premises to be occupied by any other persons without the written consent of LANDLORD first obtained in each case. If this Lease be assigned, or if the Demised Premises or any part thereof be underlet or occupied by anybody other than the TENANT, the LANDLORD may, at LANDLORD's option, after default by the TENANT, collect rent from the assignee, under tenant, or occupant, and apply the net amount collected to the rent herein reserved, but no such collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under tenant or occupant as TENANT or a 3 7 release of the TENANT from the further observance and performance by the TENANT of the convenants herein contained. Notwithstanding the foregoing provisions of this paragraph, this Lease may be assigned, sublet, or transferred to, or the Demised Premises may be underlet to, or occupied by, in whole or in part, (i) any corporation into or with which TENANT may be merged or consolidated, or (ii) any corporation which now or hereafter is an affiliate, subsidiary, parent, or successor of TENANT, or (iii) any corporation which acquires all or a substantial portion of the stock or assets of TENANT, or (iv) any partnership, the majority or controlling interest in which shall be owned by TENANT, or an affiliate, subsidiary, parent, or successor of TENANT, or by stockholders of TENANT or of an affiliate, subsidiary, parent, or successor of TENANT, without the written consent of LANDLORD. If TENANT shall desire to make interior alterations in connection with an assignment or subletting which is permitted hereunder, LANDLORD shall not unreasonably withhold or delay its consent thereto. For the purpose of this paragraph, a "subsidiary" or "affiliate" or a "successor" of TENANT shall mean the following: A. An "Affiliate" shall mean any corporation which, directly or indirectly controls or is controlled by or is under common control with TENANT. For this purpose "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities or by contract or otherwise; B. A "subsidiary" shall mean any corporation not less than fifty percent (50%) of whose outstanding stock shall, at the time, be owned directly or indirectly by TENANT; C. A "successor" of TENANT shall mean: (1) A corporation in which or with which TENANT, its corporate successors, or assigns, is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation of corporations, provided that by operation of law or by the effective provisions contained in the instruments of merger or consolidation, the liabilities of the corporations participating in such merger or consolidation are assumed by the surviving such merger or created by such consolidation; or (2) A corporation or partnership acquiring this Lease and the term hereby demised and a substantial portion of the property and assets or the stock of TENANT, its corporate successors, or assigns or; (3) A corporate or other entity resulting from a reorganization of TENANT (not a reorganization under the Bankruptcy laws); or (4) A corporate successor to a successor corporation becoming such by any of the methods described in (1), (2) or (3), provided that on the completion of such merger, consolidation, acquisition, or assumption, the successor shall have a net worth no less than Tenant's net worth immediately prior to such merger, consolidation acquisition, or assumption. Acquisition, reorganization, or assumption by TENANT, its corporate successors or assigns, of a substantial portion of the assets, together with the assumption of all or substantially all of the obligations and liabilities of any corporation, shall be deemed a merger of such corporation into TENANT for the purpose of this paragraph. Anything to the contrary notwithstanding, where the consent of the LANDLORD is necessary to a proposed assignment or subletting, TENANT agrees to notify the LANDLORD in writing of the name, address, terms of the proposed sublease or assignment, proposed use, and such other data concerning the assignee or sublessee as TENANT shall have obtained. LANDLORD shall have thirty (30) days from such notice within which to (a) give its written consent to such assignment or sublease with TENANT remaining fully liable for its obligations under the Lease; 4 8 (b) acquiesce to such assignment or sublease, but terminate TENANT's obligations under the Lease (provided LANDLORD and assignee or sublessee enter into a new Lease upon the same terms as set forth in the proposed assignment or sublease); or (c) give written notice that it is withholding its consent to the proposed assignment or subletting in accordance with the applicable provisions of this Lease. In the event of the transfer and assignment by Landlord of its interest in this Lease and/or in the building containing the Leased Premises to a person expressly assuming Landlord's obligations under this Lease, Landlord shall thereby be released from any further obligations thereunder, and Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations. Any security given by Tenant to secure performance of Tenant's obligations hereunder may be assigned and transferred by Landlord to such successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto. 7. CONSTRUCTION, APPLICABLE LAW: The words "LANDLORD" and "TENANT" as used herein shall include plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there be more than one LANDLORD or TENANT, the obligations imposed hereunder upon the LANDLORD and TENANT shall be joint or several. The section headings or titles in this Lease are not a part hereof and shall have no effect upon the construction of interpretation of any part hereof. This Lease shall be construed and enforced under the laws of the State of Florida. Should any provisions of this Lease be illegal or unenforceable under such laws, it or they shall be considered severable and this Lease and its conditions shall remain in force and be binding upon the parties hereto just as though the illegal or unenforceable provisions has never been included herein. 8. PREPARATION OF THE PREMISES: "AS IS" Landlord shall provide tenant improvements as outlined on Exhibit "D", attached hereto. 9. ACCEPTANCE OF THE PREMISES: TENANT's failure to give written notice to LANDLORD at any time during the thirty (30) day period after TENANT has taken possession of the Demised Premises shall be conclusive evidence that the Demised Premises were in good order and satisfactory condition on the day TENANT took possession. No promise of the LANDLORD to alter, remodel, or improve the Demised Premises and no representation respecting the condition of the Demised Premises have been made by the LANDLORD to the TENANT, unless the same is contained herein or made a part hereof, and the TENANT will make no claim on Account of any representations whatsoever, whether made by any renting agent, broker, officer, or other representatives of LANDLORD or which may be contained in any circular, prospectus, or advertisement relating to the Demised Premises, unless the same is specifically set forth or referenced in this Lease. The LANDLORD agrees that it will promptly correct any of the work to be performed by the LANDLORD under the terms of this Lease which defects, inconsistencies or work are set forth in the above referenced written notice to LANDLORD. 10. REPAIRS AND MAINTENANCE: The TENANT will, at TENANT's sole cost and expense, keep the Demised Premises in good repair and tenantable condition during the term of this Lease. The repair and maintenance of the whole of the Demised Premises, including without limitation, the nonstructural interior portions of the Demised Premises; including storefronts, windows, doors, floor covering, plumbing, ventilation, heating and air conditioning systems, shall be the sole responsibility of the TENANT at the TENANT's expense. The TENANT will, at the termination of this Lease, by lapse of time or otherwise, surrender the Premises in the same condition as when received, reasonable wear and tear excepted, and shall surrender all keys for the Premises to LANDLORD. TENANT shall remove all its trade fixtures, leased equipment and any alterations or improvements which LANDLORD requests to be removed before surrendering the Premises as aforesaid and shall repair any damage to the 5 9 Premises caused thereby. TENANT's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of the Lease. The TENANT shall at its own cost and expense, enter into an annual contract for regularly scheduled preventive maintenance and repair, with a licensed maintenance contractor approved by the LANDLORD, for servicing and repair of all heating and air conditioning systems and equipment serving the Premises. Not later than thirty (30) days following the commencement of this Lease and annually thereafter, TENANT shall furnish to LANDLORD a copy of the air conditioning maintenance contract described above and proof that the annual premium for the maintenance has been paid. Provided Tenant enter into the above referenced contract, Landlord shall replace any existing compressors that will not function. The service contract must include all services suggested by the equipment manufacturer. The maintenance contractor shall keep a detailed record of all services performed on the Premises and prepare a yearly service report to be furnished to the TENANT and the LANDLORD at the end of each calendar year. The LANDLORD may, but shall not be required to, upon notice to the TENANT, elect to enter into such maintenance/service contract on behalf of the TENANT or perform the work itself, and in either case, charge TENANT therefore, together with a reasonable charge of overhead. The LANDLORD agrees to repair and maintain in good order and condition the roof, roof drains, exterior walls, parking lots, landscaping, exterior lighting and the structural integrity of the interior and exterior of the Premises. 11. ALTERATIONS: TENANT shall make no alterations, additions, installations, improvements, or decorations in or to the Premises without the written consent of LANDLORD, which consent shall be subject to the foregoing and upon such terms and conditions as LANDLORD may require and stipulate in such consent, including without limitations, (a) physical and spatial limitations, (b) governmental approvals, (c) payment, (d) bonding to guarantee the payment of contractor's fees, (e) indemnification, (f) liens, (g) designations of approved contractors and subcontractors and (h) LANDLORD's insurer's requirements. This clause shall not be construed to mean that the LANDLORD shall allow any mechanics' liens upon the Premises based upon work ordered by the TENANT. 12. DELAY OF POSSESSION: If the Landlord is unable to give possession of the Demised Premises on the date stipulated in Paragraph 1 hereof as the commencement of the term hereof, by reason of the LANDLORD not having fully completed construction of the Demised Premises or the holding over of any prior tenant or tenants or for any other reason; an abatement or diminution of the rent to be paid hereunder shall be allowed. TENANT under such circumstances, but noting herein shall operate to extend the term of this Lease beyond the expiration date; and said abatement in rent shall be in the full extent of LANDLORD's liability to TENANT for any loss or damage to TENANT on account of said delay in obtaining possession of the Premises. In the event Landlord is unable to deliver the leased premises by May 1, 1995, Tenant may terminate the Lease. 13. DESTRUCTION OR DAMAGE: A. In the event that the Demised Premises shall be destroyed or damaged or injured by fire or casualty during the term of this Lease, whereby all or a part thereof shall be rendered untenantable, then the LANDLORD shall have the right, to be exercised by notice to TENANT within thirty (30) days after casualty, to render such premises tenantable by repairs within 180 days therefrom subject to extension for delays faced by LANDLORD due to adjustment of insurance proceeds, labor trouble, governmental controls, so-called acts of God, or any other cause beyond LANDLORD's reasonable control. If said Premises are not rendered tenantable within said time, it shall, be optional with either party hereto cancel this Lease, by written notice to the other, and in the event of such cancellation the rent shall be paid only to the date of such fire or casualty and paid rent refunded. During any time that the Demised Premises are untenantable due to causes set forth in this paragraph, the rent or a just and fair proportion thereof shall be abated. 6 10 B. If the Demised Premises shall suffer damage to an extent that less than fifteen percent (15%) of the building in which the Demised Premises are located are rendered untenantable, then LANDLORD agrees to proceed promptly and without expense to TENANT to repair the damage and restore the improvement installed by LANDLORD, and TENANT shall be entitled to an abatement of a fair and just portion of the rent and other payment required under this Lease according to TENANT'S ability to use the Premises from the date of such damage until said Premises are completely reinstated or restored. If damage to the Demised Premises in excess of $100,000.00 shall occur within the last year of the initial term or the option extension period provided for herein, the obligation of the LANDLORD to restore the Premises shall not arise unless TENANT shall give notice to LANDLORD within thirty (30) days after such damage of its desire to extend the term of this Lease for an additional option term if such option term is still available. Upon such notice, LANDLORD agrees with all due diligence to repair and restore the Demised Premises and the Lease shall continue. Failing such notice to exercise in available option to extend, LANDLORD, at its option, shall have the right to terminate this Lease or to restore the Premises and the Lease shall continue for the remainder of the then unexpired term and any options which are thereafter exercised. TENANT shall be entitled to an abatement of a fair and just portion of the rent and other payments required under this Lease according to the TENANT's ability to use the Premises from the date of such damage until the Premises are completely reinstated and restored. C. No damages, compensation, or claim shall be payable by LANDLORD for inconvenience, loss of business, or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the building pursuant to this paragraph. If the LANDLORD is required to, or exercises its rights to, restore the Premises, then LANDLORD shall use its best efforts not to unreasonably interfere with the TENANT's use and occupancy. Notwithstanding anything to the contrary the LANDLORD shall not be liable for damages or claims if it is unable to obtain insurance. D. Notwithstanding any of the provisions of the foregoing, if the LANDLORD or the holder of any superior mortgage, as defined hereafter is unable to collect all of the insurance proceeds, if any, applicable to the damage or destruction of the Demised Premises or of the building by fire or some other casualty or cause, by reason of some action or inaction on the part of the TENANT, its agents, employees, or contractors then without prejudice to any other of LANDLORD's remedies available against TENANT, there shall be no abatement of the rent due from TENANT to the extent of the uncollected insurance proceeds, if any. E. LANDLORD will not carry separate insurance of any kind covering TENANT's property. Except by reason of LANDLORD's breach of any of its obligations hereunder or by operation of law the LANDLORD shall not be liable for the repair of any damage or the replacement of TENANT's property. 14. DEFAULT: LANDLORD'S REMEDIES All rights and remedies of the LANDLORD herein enumerated shall be cumulative, and none shall exclude another or any other right or remedy provided by law. A. If TENANT or any guarantor of this Lease shall become bankrupt or insolvent or unable to pay its debts as such become due, or file any debtor proceedings or if TENANT or any guarantor shall take or have taken against either party in any court pursuant to any statute either of the United States or of any State, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of TENANT's or any such guarantor's property, or if TENANT or any such guarantor makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, then this Lease shall terminate and LANDLORD, in addition to any other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the leased Premises and such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of TENANT, all without service of notice or resort to legal process and without being deemed guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby. 7 11 B. If the TENANT defaults in the payment of rent or in the prompt and full performance of any provisions of this Lease, or if the leasehold interest or the TENANT's business or fixtures of TENANT are levied upon under execution or attached by process of law, or if the TENANT makes an assignment for the benefit of creditors, the TENANT abandons the Premises, then and in any such event the LANDLORD may, if the LANDLORD so elects, but not otherwise, and after three (3) days written notice thereof to TENANT, forthwith terminate this Lease and the TENANT's right to possession of the Demised Premises, or terminate only TENANT's right to possession hereunder. In the event Tenant vacates the leased premises yet continues to pay all rent when due, this shall not be deemed default. C. Upon any termination of this Lease, whether by lapse of time or otherwise, the TENANT shall surrender possession and vacate the Premises immediately, and deliver possession thereof to the LANDLORD, and hereby grants to the LANDLORD full and free license to enter into and upon the Premises in such event with or without process of law and to expel or remove the TENANT and any others who may be occupying or within the Premises and to remove any and all property therefrom, using such force as may be necessary, without being deemed in any manner guilty of trespass, eviction, or forcible entry or detainer, and without relinquishing the LANDLORD's rights to rent or any other right given to LANDLORD hereunder or by operation of law. The TENANT expressly waives the service of any demand for the payment of rent or for possession and the service of any notice of the LANDLORD'S election to terminate this Lease or to re-enter the Premises, except as provided for in subparagraph (b) of this paragraph, and agree that the simple breach of any covenants or provisions of this Lease by the TENANT shall, of itself, without the service of any notice or demand whatsoever, constitute an unlawful detainer by TENANT of the Premises within the meaning of the Statutes of the State of Florida. D. If the TENANT abandons the Premises or otherwise entitles the LANDLORD so to elect and the LANDLORD does elect to terminate the TENANT's right to possession only, without terminating the Lease, the LANDLORD may, at the LANDLORD's option, enter into the Premises, remove the TENANT's signs and other evidence of tenancy, and take and hold possession thereof without such entry and possession terminating the Lease or releasing the TENANT, in whole or in part from the TENANT'S obligation to pay the rent hereunder for the full term, and in any such case the TENANT shall pay forthwith to the LANDLORD, a sum equal to the entire amount of the rent reserved under Paragraph 2 of this Lease for the residue of the stated term plus any other sums then due hereunder. Upon and after entry into possession without termination of the Lease, the LANDLORD may, but need not, relet the Premises or any part thereof for the account of the TENANT to any person, firm, or corporation other than the TENANT for such rent, for such time, and upon such terms as the LANDLORD in the LANDLORD's sole discretion shall determine; and the LANDLORD shall not be required to accept any tenant offered by the TENANT. In any such case, the LANDLORD may make repairs, alterations, and additions in or to the Premises and redecorate the same to the extent deemed by the LANDLORD necessary or desirable, and the TENANT shall, upon demand, pay the cost thereof, together with the LANDLORD's expenses of the reletting. If the consideration collected by the LANDLORD upon any such reletting for the TENANT's account is not sufficient to pay monthly the full amount of the rent reserved in this Lease, together with the costs of repairs, alterations, additions, redecorating, and the LANDLORD's expenses, the TENANT shall pay to the LANDLORD the amount of each monthly deficiency upon demand; and if the consideration so collected from any such reletting is more than sufficient to pay the full amount of the rent reserved herein, together with the costs and expenses of the LANDLORD, the LANDLORD, at the end of stated term of the Lease, shall account for the surplus to the TENANT. E. Landlord shall use all remedies available under Florida state law as it relates to Tenant default. Any and all property which may be removed for the Premises by the LANDLORD pursuant to the authority of law, to which the TENANT is or may be entitled, may be handled, removed, or stored by LANDLORD at the risk, cost, and expense of TENANT, and LANDLORD shall in no event be responsible for the value, preservation, or safekeeping thereof. TENANT shall pay to LANDLORD, upon demand, all expenses incurred in such removal and all storage charges against such property so long as the same shall be in LANDLORD's possession or under LANDLORD's control. LANDLORD may place such property after it has been stored for a period of ninety (90) days or more, LANDLORD may sell any or all of such property in such manner and at such times 8 12 and places as LANDLORD in its sole discretion may deem proper, without notice to or demand upon TENANT for the payment of any part of such charges or the removal of any of such property and shall apply the proceeds of such sale first to the cost of expenses of such sale, including reasonable attorneys' fees; second, to the payment of the costs and charges of storing any property; third, to the payment of any other sum of money which may then or thereafter be due to LANDLORD from TENANT under any of the terms hereof; and fourth, the balance, if any, to TENANT. The removal and storage of TENANT's property as above provided shall not constitute a waiver of LANDLORD's lien thereon. F. TENANT shall pay upon demand all of LANDLORD's costs, charges, and expenses, including the fees of counsel, agents, and others retained by LANDLORD, incurred in enforcing TENANT's obligations hereunder or incurred by LANDLORD in any litigation, negotiations, or transaction in which TENANT causes LANDLORD, without LANDLORD'S fault, to become involved or concerned. Attorneys' fees shall be awardable for all phases of litigation, trial, as well as appellate. To perfect and assist in the implementation of certain of LANDLORD's rights in and to the TENANT's personal property, TENANT hereby pledges and assigns to LANDLORD and grants unto LANDLORD a lien upon all furniture, fixtures, goods, and chattels of TENANT which shall or may be brought or put on the Premises as further security for the faithful performance of the terms, provisions, conditions, and covenants of this Lease, and TENANT specifically agrees that said lien may be enforced by distress, foreclosure, or otherwise at the election of the LANDLORD. TENANT hereby expressly waives and renounces for himself and family, any and all homestead exemption right he may have now or hereafter, under or by virtue of the Constitution or laws of the State of Florida, or of any other State, or of the United States, as against the payment of rent, Additional Rent, or any other charges payable by TENANT hereunder or any other obligation or damage that may accrue under the terms of the Agreement. 15. ADDITIONAL RENT: A. Definitions: "Building" means Buildings 204 in which the Demised Premises are located. "Parcel" means Tract II, Boca Commerce Center, according to the Plat thereof, recorded in Plat Book 46, at Page(s) 44-46 of the Public Records of Palm Beach County, Florida. "TENANT's Building Share" means the proportion that the square footage of the Demised Premises bears to the total square footage of the rentable area in the building. For calculation purposes, TENANT's Proportional Building Share is estimated to be 43.10 percent. The total rentable area of Building 204 is 139,200 SF. "TENANT's Parcel Share" means the proportion that the square footage of the Demised Premises bears to the total square footage of the rentable area of building located on the Parcel, which the square footage is 386,046. Tenant's proportionate share of the parcel is estimated to be 15.54 percent. "TENANT's Share" shall, in reference to any item which applies to the entire Parcel, mean TENANT's Parcel Share and, as to any item for which there is a separate meter of bill for the building (i.e., water and sewer fees), shall mean TENANT's Building Share. B. In addition to the Base Rent and adjustments thereto, TENANT shall pay to LANDLORD as Additional Rent, its prorated share of all taxes, assessments, insurance premiums, utility services, operating expenses, maintenance charges, and any other charges, costs, and expenses which arise from the ownership, occupancy or use of the Parcel, or any part thereof. The TENANT's prorated share of these Additional Assessments shall be calculated by multiplying the cost of these items to the LANDLORD by the TENANT's Percentage as set forth in Section (A) hereof. The TENANT agrees to pay the Additional Assessments, as set forth above, in monthly payments in advance during the Term of this Lease, as may be estimated by the LANDLORD. At the end of each calendar year, the LANDLORD shall advise the TENANT of the actual TENANT's share of the Additional Assessments payable for such calendar year as computed based upon the cost thereof to the LANDLORD. If there shall have been an underpayment by the TENANT, the TENANT shall pay the difference within ten (10) days; if there shall have been an 9 13 overpayment by the TENANT, the TENANT shall be given a credit towards the next due payment of its share of the Additional Assessment. At the end of each calendar year, the TENANT shall have the right to require LANDLORD to substantiate, by written itemization, LANDLORD's computation of TENANT's Additional Assessments. LANDLORD shall furnish such an itemization to TENANT within thirty (30) days from receipt of TENANT's written request for such itemization. 16. SUBORDINATION: This Lease, and all rights of TENANT hereunder, are and shall be subject and subordinate to all ground leases, overriding leases, and underlying leases affecting the Demised Premises now or hereafter existing and to all mortgages which may now or hereafter affect the Demised Premises and to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements, and extensions of such leases and mortgages and spreaders and consolidations of such mortgages (which leases and mortgages are sometimes collectively referred to herein for convenience is the "Superior Lease" and "Superior Mortgage"). This paragraph shall be self-operative and no further instrument of subordination shall be required to make it effective; however, TENANT shall promptly execute and deliver any instrument reasonably requested to evidence such subordination. A. TENANT agrees that in the event of any act or omission by the LANDLORD which would give TENANT the right to terminate this Lease, or to claim a partial or total eviction, TENANT shall not exercise any such right until he has notified in writing the holder of any such mortgage which at the time shall be a lien on the Demised Premises or the underlying lessor, if any, of such act or omission. B. If the lessor of any such Lease or the holder of any such mortgage shall succeed to the rights of LANDLORD under this Lease, then at the request of such party of succeeding to LANDLORD's rights and upon such successor written agreement to accept TENANT's attornment, TENANT shall attorn to such successor LANDLORD and will execute such instruments as may be necessary or appropriate to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as, or as if it were a direct Lease between the successor LANDLORD and TENANT upon all the terms, conditions, and covenants as are set forth in this Lease and shall be applicable after such attornment except that the successor LANDLORD shall not (i) be liable for any previous act or omission of LANDLORD under this Lease; (ii) be subject to any offset, not expressly provided for in this Lease, which shall have theretofore accrued to TENANT against LANDLORD; and (iii) be bound by any previous modification of this Lease, not expressly provided for in this Lease, or by any previous prepayment of more than one month's fixed rent unless such modification or prepayment shall have been expressly approved in writing by such LANDLORD or such holder through or by reason of which the successor LANDLORD shall have succeeded to the rights of LANDLORD under this Lease. C. TENANT shall deliver to LANDLORD or to its mortgagee or auditors, or prospective purchaser of the owner of the fee, when requested by LANDLORD, a certificate to the effect that this Lease is in full force and that Lessor is not in default therein, or stating specifically any exceptions thereto. Failure to give such a certificate within ten (10) business days after written request shall be conclusive evidence that the Lease is in full force and effect and LANDLORD is not in default and in such event, TENANT shall be stopped from asserting any defaults known to TENANT at that time. 17. INDEMNIFICATION: Neither LANDLORD nor any agent or employee of LANDLORD shall be liable to TENANT for any injury or damage to TENANT or to any other person or for any damage to, or loss (by other person, irrespective of the cause of such injury, damage, or loss), unless caused by or due to the negligence of LANDLORD, its agents, or employees with contributory negligence of TENANT, its agents or employees, subject to the comparative negligence doctrine, it being understood that no property, other than such as might normally be brought upon or kept in the 10 14 Premises as an incident to the reasonable use of the Premises for the purposes herein permitted, will be brought upon or be kept in the Premises. TENANT shall indemnify and save harmless LANDLORD and its agents against and from (a) any and all claims (i) arising from (x) the conduct or management of the Demised Premises or of any business therein, or (y) any work or thing whatsoever done, or any condition created or permitted to exist (other than by LANDLORD for LANDLORD's or TENANT's account) in or about the Demised Premises during the term of this Lease, or during the period of time, if any, prior to the commencement of the term hereof that TENANT may have been given access to the Demised Premises, or (ii) arising from any negligent or otherwise wrongful act or omission of TENANT or any of its subtenants or its or their employees, agents, or contractors; and (b) all costs, expenses, and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon. In case any action or proceeding be brought against LANDLORD, TENANT shall resist and defend such action or proceeding. 18. INSURANCE: TENANT shall carry public liability insurance, in amounts of $500,000.00 in respect of injuries to any one person, and $1,000,000.00 in respect of any one accident or disaster, with companies and on forms acceptable to LANDLORD, naming both LANDLORD and TENANT as parties insured thereby, insuring the parties against any such claim. All such policies of insurance shall provide for not less than thirty (30) days notice to LANDLORD as a condition precedent to cancellation. Such policy shall be delivered to LANDLORD. TENANT shall provide LANDLORD with evidence of payment of renewal premiums or replacement of policy and payment of renewal premiums or replacement of policy and payment of premiums not later than thirty (30) days prior to the expiration of any such policy. The public liability policy shall include Premises and operations. 19. WAIVER: The failure of either the LANDLORD or TENANT to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any right or election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such or more obligations of this Lease or of the right to exercise such election, but the same shall both continue and remain in full force and effect with respect to any subsequent breach, act, or omission. 20. BROKER(S): The broker(s) in this transactions (are) Commercial Florida Realty Partners, Inc. McCoy/PM Realty Group. TENANT covenants, warrants, and represents that no other broker was instrumental in consummating this Lease, and that no conversations or negotiations were had with any other broker concerning the renting of the Demised Premises or rental space at Boca Commerce Center. TENANT agrees to hold LANDLORD harmless from any and all claims, and agrees to defend at its own expense, any and all claims for brokerage commission asserted by third parties other than the broker(s) stated above. *LANDLORD shall be responsible for payment of commission to above broker(s). 21. NOTICES: Any notice, statement, demand, or other communication required or permitted to be given or made by either party to the other, pursuant to this Lease or pursuant to any applicable law, shall be deemed to have been properly given and made if sent by registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth or at such other address as may hereafter be designated by either party by notice to the other and shall be deemed to have been given or made on the day so mailed. Either party may, by notice given as aforesaid, designate a different address or addresses for notices, statements, demands, or other communications intended for it. *Tenant shall not be responsible for any claims for brokerage commissions asserted by third parties other than the broker(s) stated above regarding claims of brokers representing the Landlord. 11 15 For LANDLORD: For TENANT: WRC Properties, Inc. Network Marketing, Inc. c/o McCoy/PM Realty Group d.b.a. Rexall Showcase International 6301 N.W. 5th Way 851 Broken Sound Parkway NW Ft. Lauderdale, FL 33309 Boca Raton, FL 33487 ATTN: Property Manager ATTN: Dean DeSantis Richard Werber with a copy to: WRC Properties, Inc. 730 Third Avenue, 7th Fl. New York, NY 10017 22. RULES AND REGULATIONS: It is mutually agreed that all the rules and regulations included with this instrument attached hereto marked as Exhibit "B" shall be and are hereby made a part of this Lease, and TENANT covenants and agrees that it and its employees, servants, and agents will at all times observe, perform, and abide by said rules and regulations as they exist and as they may be amended hereafter from time to time. 23. LIENS: TENANT further agrees that TENANT will pay all of TENANT'S contractors, subcontractors, laborers, materialmen, and all others, and will indemnify LANDLORD against all legal costs and charges, bond premiums for release of liens, and counsel fees reasonably incurred in the commencement of defense of any suit by the LANDLORD to discharge any liens, judgments, or encumbrances against the Premises caused or suffered by TENANT. It is understood and agreed between the parties hereto that the costs and charges above referred to shall be considered as rent due under this Lease payable upon demand. The TENANT herein shall not have any authority to create any liens for labor or material on the LANDLORD'S interest in the above described property, and all persons contracting with the TENANT for the doing of any work or the furnishing of any materials on or to the Premises, and all materialmen, contractors, mechanics, and laborers, are hereby charged with notice that they must look to the TENANT only to secure the payments of any bill or work done or material furnished during the term of this Lease. 24. TRANSFER BY LANDLORD: In the event that the interest or estate of LANDLORD in the Premises shall terminate by operation of law or by bonafide sale of the Premises or by execution or foreclosure sale, or for any other reason, then and in any such event LANDLORD shall be released and relieved from all future liability and responsibility as to obligations to be performed by LANDLORD hereunder or otherwise. A voluntary conveyance of the Demised Premises shall not terminate this Lease and LANDLORD'S successor, by TENANT tendering payment of rent hereunder to such successor, shall become liable and responsible to TENANT in respect to all such obligations of LANDLORD under this Lease. This Lease may be assigned by the LANDLORD, in which case, the TENANT, upon request by the LANDLORD, shall issue a letter stating that the Lease is in full force and effect* and that there are no setoffs or claims or other defenses to rent. 25. CONDEMNATION: In the event any portion of the Demised Premises is taken by any condemnation or eminent domain proceeding or should the Demised Premises by conveyed in lieu of such a taking and this Lease continues in force as to any part of the Demised Premises, as hereinafter provided, the base *,if true, 12 16 monthly rental herein specified to be paid shall be ratably reduced according to the area of the Demised Premises which is actually taken, as of the date of such taking, and TENANT shall be entitled to no other consideration by reason of such a taking and any damages whatsoever suffered by TENANT and occasioned by such taking shall not entitle TENANT to share to any extent in any and all income, rent, awards, or any interest therein whatsoever which may be made in connection with such a taking and TENANT does hereby relinquish and assign to LANDLORD all TENANT's rights and equities in and to any such income, rent, awards, or any interest therein. In the event of a partial taking of the building, either by condemnation, eminent domain, or conveyance in lieu thereof, LANDLORD may elect to terminate this Lease if the remaining area of the building shall not be reasonably sufficient for LANDLORD to continue feasible and economical operation of the remaining portion of the building, in the LANDLORD's sole discretion. Upon the giving of such notice this Lease shall terminate on the date of service of such notice, and the rents apportioned to the part of the Demised Premises so taken shall be prorated and adjusted as of the date of the taking and the rents apportioned to the remainder of the Demised Premises shall be prorated and adjusted as of such termination date. Should all the Demised Premises be so taken, this Lease shall terminate as of the date of such a taking and in the event TENANT shall be entitled to no damages or any consideration by reason of such taking, except the cancellation and termination of this Lease as of the date of said taking. 26. PEACEFUL POSSESSION: LANDLORD warrants and represents that it is the owner of the Demised Premises and has full right, power, and authority to enter into this Lease Agreement. So long as TENANT pays all of the fixed rent and Additional Rent and charges due hereunder and performs all of TENANT's other obligations hereunder, TENANT shall peaceably and quietly have, hold, and enjoy the Demised Premises throughout the term of this Lease, without interference or hindrance by LANDLORD or any person claiming by, through, or under LANDLORD. 27. ACCESS, CHANGES IN BUILDING FACILITIES NAME: Except for the inside surfaces of all walls, windows, and doors bounding the Demised Premises, all of the building, including exterior building walls, core corridor walls and doors, and any core corridor entrance, any terraces or roofs adjacent to the Demised Premises, and any space in or adjacent to the Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric, or other utilities, sinks, or other building facilities, and the use thereof, as well as access thereto through the Demised Premises for the purposes of operation, maintenance, decoration, and repair, are reserved to LANDLORD. TENANT shall permit LANDLORD to install, use, and maintain pipes, ducts, and conduits within the demising walls, bearing columns, ceilings of the Demised Premises. LANDLORD shall be responsible for repairing, at its own expense, any damages caused by such installation or maintenance. LANDLORD or LANDLORD's agents shall have the right, upon request, to enter and/or pass through the Demised Premises or any part thereof, at reasonable times during reasonable hours (i) to examine the Demised Premises and to show them to the fee owners, holders of superior mortgages, or prospective purchasers, mortgagees of lessees of the building as an entirety, and (ii) for the purpose of making such repairs or changes or doing such repainting in or to the Demised Premises or in or to the building or its facilities as may be provided for by this Lease or as may be mutually agreed upon by the parties or as LANDLORD may be required to make by law or in order to repair and maintain the building or its fixtures or facilities. LANDLORD shall be allowed to take all materials into and upon the Demised Premises that may be required for such repairs, changes, repainting, or maintenance. LANDLORD shall also have the right to enter on and/or pass through the Demised Promises, or any part thereof, at such times as such entry shall be required by circumstances of emergency affecting the Demised Premises or the building. During the period commencing six (6) months prior to the end of the term hereof, LANDLORD may exhibit the Demised Premises to prospective tenants at reasonable times and during reasonable hours upon advance and proper notification to TENANT. 13 17 LANDLORD reserves the right, at any time after completion of the building, to make such reasonable changes in or to the building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators, and stairways thereof, as it may deem necessary or desirable. LANDLORD may adopt any name for the building. LANDLORD reserves the right to change the name or address of the building at any time. 28. SURRENDER, HOLDING OVER: On the last day of the term of this Lease, or upon any earlier termination of this Lease, or upon any re-entry by LANDLORD upon the Demised Premises, TENANT shall peaceably and without notice of any sort, quit and surrender the Demised Premises to LANDLORD in good order, condition, and repair, except for ordinary wear and tear and such damage or destruction as LANDLORD is required to repair or restore under the terms of this Lease, and TENANT shall remove all of TENANT's property therefrom. TENANT specifically agrees that in the event TENANT retains possession and does not so quit and Surrender the Demised Premises to LANDLORD, then TENANT shall pay LANDLORD (i) all damages that LANDLORD may suffer on account of TENANT's failure to so surrender and quit the Demised Premises, including but not limited to any and all claims made by succeeding tenant of the Demised Premises against LANDLORD based on delay of LANDLORD in delivering possession of the Demised Premises to said succeeding tenant to the extent such delay is occasioned by the failure of TENANT to so quit and surrender said Premises, and (ii) rent for each month or any applicable portion of a month of such holding over at the amount payable for the month immediately preceding the termination of this Lease, during the time the TENANT thus remains in possession. The provisions of this paragraph do not waive any of the LANDLORD's rights of re-entry or any other right under the terms of this lease or the laws of Florida. If TENANT shall fail to surrender the Premises as herein provided, no new tenancy shall be created and TENANT shall be guilty of unlawful detainer. No surrender of this Lease or of the Premises shall be binding on the LANDLORD unless acknowledged by LANDLORD in writing. * 175% 29. UTILITIES: The TENANT agrees to pay promptly for all utilities used and consumed on the Premises which are separately metered to the Demised Premises. TENANT agrees that TENANT will pay its proportionate TENANT's Share (as defined in Paragraph 15 above) of the electric, water, and sewage bills which are not separately metered. If the TENANT uses water and sewage or extraordinary electrical power for commercial purposes, a separate meter will be installed at TENANT's expenses and TENANT will pay separately for such electric, water, and sewage services. In this context, water and sewage for commercial purposes shall mean that the TENANT is utilizing the water, sewer, and electric power for the purpose of production of a product for the preparation of a product for shipping or the integration of the use of water and the disposition of the sewage in connection with a business as opposed to the usage for light and for the benefit of employees, bathroom facilities, and the like. 30. SECURITY SYSTEMS: The LANDLORD, at its sole discretion, determination, and option may enter into a contract or otherwise provide or make arrangement for the providing of a security system which may include security guards and/or electronic devices and/or a security guard gate and gate house. In the event that the LANDLORD elects to obtain such security system or systems, then the TENANT shall pay its proportionate share of the expense. The TENANT's proportionate share of the expense shall be determined by taking the total square footage of the TENANT's Demised Premises as a numerator and dividing that by the total square footage of the rentable area in the building served by that security system as the denominator, and then multiplying that by the annual cost of the service or system. The TENANT shall pay its proportionate share on a monthly basis together with its rental payment. The LANDLORD shall in no way be responsible for the performance of the obligations of the security guards, and the TENANT hereby releases the LANDLORD from any claims of any nature whatsoever in connection with the furnishing of security guard services. The TENANT 14 18 further acknowledges that should said services by provided on a negligent basis, that its sole and exclusive remedy shall be to seek recovery against the security service company. 31. COMMON AREAS: With the exception of the use of the parking lot for the parking of vehicles and waling to and from the Demised Premises, the TENANT, the TENANT's employees, guests, and invitees shall not use the parking lot and areas not contained within the Demised Premises.* 32. RELOCATION OF TENANT: LANDLORD expressly reserves the right at LANDLORD's sole cost and expense to remove TENANT from the Leased Premises and to relocate TENANT in some other space of LANDLORD's choosing of approximately the same dimensions and size, which other space shall be improved and decorated by LANDLORD at LANDLORD's expense. LANDLORD shall have the right, in LANDLORD's sole discretion, to use such decorations and materials from the existing Leased Premises, or other materials so that the space in which TENANT is relocated shall be comparable in its interior design and decoration to the Leased Premises from which TENANT is removed. Nothing herein contained shall be construed to relieve TENANT or imply that TENANT is relieved of the liability for or obligation to pay any Additional Rent due by reason of the provisions of Paragraph 15 of this Lease, the provisions of which paragraph shall be applied to the space in which TENANT is relocated on the same basis as said provisions were applied to the Leased Premises from which TENANT is removed. TENANT agrees that LANDLORD's exercise of its election to remove and relocate TENANT shall not terminate this Lease or release TENANT, in whole or in part, from TENANT's obligations to pay Rent and perform the covenants and agreements hereunder for the full Lease Term. 33. SIGNS: Attached hereto marked as Exhibit "C" and made a part hereof is the LANDLORD's sign standard. The TENANT must, prior to installing a sign, receive LANDLORD's prior written approval of the proposed sign. The TENANT will submit a "permit ready" set of sign plans for LANDLORD's approval. Notwithstanding the fact that LANDLORD shall have approved the plans the TENANT must comply with all applicable governmental rules and laws concerning signs and their installation. In no event will a sign be approved by LANDLORD which does not comply with the standard attached hereto. 34. HAZARDOUS WASTE: The TENANT agrees not to store in, on, or outside of the Premises any hazardous materials of any type, as defined by any local, state, or federal agency, or any other toxic, corrosive, reactive, or ignitable material. The TENANT agrees to document all hazardous waste disposal, if any, and to keep the same on file for five years and to document the same by one of the following types of documentation: A hazardous waste manifest; a bill of lading from a bonded hazardous substance transporter showing shipment of a licensed hazardous waste facility; or a confirmation of receipt of materials from a recycler, a waste exchange operation, or other permitted hazardous waste management facility. TENANT agrees not to generate hazard effluents. TENANT agrees to allow reasonable access to facilities for monitoring of the above by LANDLORD, Palm Beach County, ERM, and the Florida DER to assure compliance with the above as well as any other condition relating to the use of the subject property. Violation of any of the above shall be deemed to be a default on the part of the TENANT of the terms of the Lease at the option of the LANDLORD. *Tenant shall be granted the use of up to 1.2 parking spaces per 1,000 square feet leased (72 spaces). Five (5) out of these 72 spaces shall be marked "Visitor Parking". Parking at Boca Industrial Park is unreserved and in common with all tenants; 15 19 35. RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 36. ENTIRE AGREEMENT: This Lease along with the attached Exhibits contain the entire agreement between the parties hereto and all previous negotiations leading hereto and it may be modified only by an agreement in writing signed and sealed by the LANDLORD and TENANT. IN WITNESS WHEREOF, the LANDLORD and TENANT have duly signed and executed these presents at Palm Beach County, on this 3rd day of March 1995. Signed, Sealed And Delivered "LANDLORD" In the Presence Of: WRC Properties, Inc. By: /s/ Harry St. Clair - ---------------------------------- -------------------------- HARRY ST. CLAIR ASSISTANT SECRETARY - ---------------------------------- As To LANDLORD "TENANT" Network Marketing, L.C. d.b.a. Rexall Showcase International /s/ Joan Struck - ---------------------------------- By: /s/ Richard Werber /s/ Rachelle F. Schindle ------------------------ - ---------------------------------- As To TENANT 16 20 I/we hereby acknowledge and agree to be bound by the terms and conditions of Paragraph 20 of this Lease, and the balance of this Lease as it relates to Paragraphs 19 and 20. There are no other agreements or understandings or representations made by the LANDLORD or TENANT other than those contained in this Lease. Broker: Commercial Florida Realty Partners, Inc. ---------------------------------------- By:/s/ ---------------------------------------- /s/ Rosanne DeBernardo - ---------------------------- As to Broker Broker: McCoy/PM Realty Group ----------------------------------------- By:/s/ ------------------------------------- - ---------------------------- As to Broker 17 21 EXHIBIT "A" SITE PLAN TRACT II [MAP] 18 22 EXHIBIT "B" RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, vestibules, or stairways shall not be obstructed or encumbered by any TENANT or used for any purpose other than ingress and egress to and from the demised premises. 2. No awnings or other projections shall be attached to the outside walls of the building without the prior written consent of the LANDLORD and the City of Boca Raton. 3. No sign, advertisement, notice, or other letting shall be exhibited, inscribed, painted, or affixed by any TENANT on any part of the outside or inside of the demised premises or building without the prior written consent of the LANDLORD and the City of Boca Raton. In the event of the violation of the foregoing by any TENANT, the LANDLORD may remove same without any liability, and may charge the expense incurred by such removal to the TENANT or TENANTS violating this rule. 4. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways, and other public places in the building shall not be covered or obstructed by any TENANT, nor shall any bottles, parcels, or other articles be placed on the windowsills. 5. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damage resulting from any misuse of the fixture shall be borne by the TENANT who, or whose servants, employees, agents, visitors, or licensees shall have caused the same. 6. No TENANT shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting, or stringing of wires shall be permitted, except with the prior written consent of the LANDLORD and as it may direct. 7. No TENANT shall make, or permit to be made, any unseemingly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises of those having business with them, whether by the use of any musical instruments, radio talking machine, unmusical noise, whistling, singing, or in any other way. No TENANT shall throw anything out of the doors, windows, or skylights, or down the passageways. 8. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by TENANT, nor shall any change be made in existing locks or the mechanism thereof. Each TENANT must, upon the termination of his tenancy, restore to the LANDLORD all keys of offices and toilet rooms, either furnished to, or otherwise procured by, such TENANT, and in the event of the loss of any keys so furnished, such TENANT shall pay to the LANDLORD the cost thereof. 9. No TENANT shall occupy or permit any portion of the premises demised to him to be used for the possession, storage, manufacture, or sale of liquor. No TENANT shall engage or pay any employees of the demised premises, except those actually working for such TENANT on said premises nor advertise for laborers giving an address at said premises. 10. The premises shall not be used for gambling, lodging, or sleeping or for any immoral or illegal purpose. 11. The requirements of TENANTS will be attended to only upon application at the office of the building. Employees shall not perform any work or do anything outside of the regular duties unless under special instruction from the LANDLORD. 19 23 12. Canvassing, soliciting and peddling in the building is prohibited and such TENANT shall cooperate to prevent the same. 13. The LANDLORD specifically reserves the right to refuse admittance to the building after 7:00 p.m. daily, or on Sundays or on legal holidays, to any person or persons who cannot furnish satisfactory identification, or to any person or persons who for any other reason in the LANDLORDS judgment, should be denied access to the premises. The LANDLORD, for the protection of the TENANTS and their effects may prescribe hours and intervals during the night, on Sunday, and holidays, when all persons entering and departing the building shall be required to enter their names, the offices to which they are going or from which they are leaving, and the time of entrance or departure in a Register provided for that purpose by the LANDLORD. 14. The LANDLORD may retain a pass key to the leased premises, and be allowed admittance thereof at all times to enable its representatives to examine the demised premises. 15. The LANDLORD reserves the right to make such other and further reasonable rules and regulate in its judgment may from time to time be needed for the safety, care, and cleanliness of the premises, and for the preservation of good order therein, and any such other or further rules and regulations shall be binding upon the parties hereto with the same force and effect as if they had been inserted herein at the time of the execution hereof. 16. Except as otherwise approved in writing by the LANDLORD's insurer, no TENANT, nor any of the TENANT's servants, employees, agents, visitors, or licensees, shall at any time bring or keep upon the demised premises any inflammable, combustible, or explosive-fluid, chemical, or substance. 17. Notwithstanding anything contained to the contrary, the TENANT shall be entitled to park its' vehicles in the rear of the building during the nighttime hours. 20 24 EXHIBIT "C" SIGN REQUIREMENTS FOR BOCA INDUSTRIAL PARK 1. All signs must be submitted to the office of WRC Properties, Inc. c/o McCoy/PM Realty, at 6301 N.W. 5th Way, Ft. Lauderdale, FL 33309 for approval. Signs "not approved" will not be permitted to be erected. Submit three (3) sets of prints for approval. Approval given by WRC Properties, Inc. will not relieve any tenant from compliance with all acceptable sign codes set forth by the governing authority. 2. Signs projecting perpendicular from the face of the building, or above the roof, and/or parapet coping, will not be permitted. 3. Signs must be constructed of reverse channel aluminum fabricated individual letters 12" high and 2" deep, Microgramma Bold Style mounted to masonry using 1/8" brass stand offs. Color to match Sherwin Williams Mosaic Blue BM-33.7. 4. Box or Plaque type signs will not be permitted. 5. Insignias or trademarks might be permitted if in the Landlord's opinion, proper relationship is achieved with overall design concept. Landlord's decision will be final. 6. Flashing or moving lights will not be permitted, nor will flood lighting be allowed. 7. Placement of signs to be in accordance with attached plan. 21 25 [MAP] 22 26 EXHIBIT "D" TENANT IMPROVEMENTS Landlord shall provide Tenant with a tenant improvement allowance equal to Thirty Thousand Dollars and No Cents ($30,000.00). The payment of the allowance shall be subject to the following conditions: 1) Landlord's receipt of paid invoices for the improvements made to the leased premises. 2) Landlord's receipt of Lien Waivers from all contractors. 3) Landlord's receipt of Tenant's Certificate of Occupancy. Upon receipt of the above stated items, Landlord shall reimburse up to $30,000.00 to Tenant. Said tenant improvement allowance shall be provided in lieu of Landlord making any improvements to the leased premises. Tenant shall accept space in "as-is" condition. Tenant may take early possession of the leased premises for initiating construction. All terms and conditions of the Lease shall be in full force and effect during this early occupancy period, with exception that rent shall not be due until the commencement date of the Lease. Landlord must have a copy of all Tenant's contractors certificates of insurance and licenses prior to any work being performed. Any Landlord approved improvements made by Tenant shall remain the property of Tenant upon lease expiration. However, said improvements shall be removed at Tenant's expense upon expiration or sooner termination of the term of this Lease and Tenant, at its expense, shall also repair any damage to the Premises caused by such removal and restore the Premises to Building Standard. 23 27 RIDER NO. 1 ANNEXED TO AND MADE A PART OF LEASE BETWEEN WRC PROPERTIES, INC. AS LESSOR AND NETWORK MARKETING, L.C. D.B.A. REXALL SHOWCASE INTERNATIONAL AS LESSEE DATED MARCH 3RD, 1995 ADDENDUM CONSENTS AND APPROVALS Whenever this lease requires landlord's consent or approval, landlord will not withhold its approval or consent unreasonably or in bad faith, and landlord will not unreasonably delay its response to tenant's request for its approval or consent. Landlord will be deemed to have given its consent or approval to any request made by tenant in writing if landlord does not respond to tenant in writing within sixty (60) days after landlord's receipt of the request. If landlord withholds its consent or approval, its response will explain its reasons for doing so. RIGHT OF FIRST OFFERING Tenant shall be granted the Right of First Offering on any vacant space that becomes available throughout the term of this Lease in building number 204. Landlord shall use best efforts to notify Tenant of the availability of vacant space in building 204 when Landlord becomes aware of said space. Tenant shall have seven (7) business days in which to exercise their right of first offering. In the event Tenant exercises said right, the lease on the additional space shall commence within thirty (30) days from the date Tenant exercised their right of first offering. Lease terms shall be negotiated at the time the additional space is requested by Tenant. LANDLORD ACCESS Whenever this lease requires landlord's access to the leased premises, Landlord shall enter the premises at reasonable times with reasonable notice, except in the case of an emergency. PREVAILING PARTY To the extent that there are any conflicts between the provision as contained in this Addendum and the provisions of the Lease, the following provision of this Addendum shall govern: Should suit be brought for the recovery of possession of the Premises, or for rent or any other sum due Lessor under this Lease, or because of the default of any of the covenants of the parties under this Lease, the prevailing party shall be entitled to recover all expenses of such suit and any appeal thereof, including reasonable attorney's fees. EARLY ACCESS Tenant shall be granted access to the leased premises as soon as the existing tenant has vacated the premises. Tenant may use this period prior to the commencement date of the lease in order to install phone equipment, alarms, racks, etc., but in no event shall Tenant be permitted to hinder the Landlord from completing the improvements as outlined in this Lease on Exhibit "D" Tenant Improvements, attached hereto. 24 28 EXHIBIT "D" TENANT IMPROVEMENTS Landlord shall provide Tenant with a tenant improvement allowance equal to Thirty Thousand Dollars and No Cents ($30,000.00). The payment of the allowance shall be subject to the following conditions: 1) Landlord's receipt of paid invoices for the improvements made to the leased premises. 2) Landlord's receipt of Lien Waivers from all contractors. 3) Landlord's receipt of Tenant's Certificate of Occupancy. Upon receipt of the above stated items, Landlord shall reimburse up to $30,000.00 to Tenant. Said tenant improvement allowance shall be provided in lieu of Landlord making any improvements to the leased premises. Tenant shall accept space in "as-is" condition. Tenant may take early possession of the leased premises for initiating construction. All terms and conditions of the Lease shall be in full force and effect during this early occupancy period, with exception that rent shall not be due until the commencement date of the Lease. Landlord must have a copy of all Tenant's contractors certificates of insurance and licenses prior to any work being performed. Any Landlord approved improvements made by Tenant shall remain the property of Tenant upon lease expiration. However, said improvements shall be removed at Tenant's expense upon expiration or sooner termination of the term of this Lease and Tenant, at its expense, shall also repair any damage to the Premises caused by such removal and restore the Premises to Building Standard. 25 EX-10.25 10 INDUSTRIAL LEASE 4/17/96 1 Exhibit 10.25 BOCA INDUSTRIAL PARK INDUSTRIAL LEASE AGREEMENT LANDLORD: WRC PROPERTIES, INC. -------------------- TENANT: REXALL SUNDOWN, INC. -------------------- -------------------- DATE: APRIL 17, 1996 -------------------- 2 INDUSTRIAL LEASE INDEX TITLE PAGE PARAGRAPH Term 1 1 Rent 1 2 Security 3 3 Use 3 4 Assignment 3 5 Construction, Applicable Law 5 6 Preparation of the Premises: "As is" 5 7 Acceptance of the Premises 5 8 Repairs and Maintenance 5 9 Alterations 6 10 Delay or Possession 6 11 Destruction or Damage 6 12 Default: Landlord's Remedies 8 13 Additional Rent 10 14 Subordination 10 15 Indemnification 11 16 Insurance 12 17 Waiver 12 18 Broker(s) 12 18 Notices 12 19 Rules and Regulations 13 20 Liens 13 21 Transfer of Landlord 13 22 Condemnation 14 23 Peaceful Possession 14 24 Access, Changes in Building Facilities Name 14 25 Surrender, Holding Over 15 26 Utilities 15 27 Security Systems 16 28 Common Areas 16 29 Relocation of Tenant 16 30 Signs 17 31 Hazardous Waste 17 32 Radon Gas 17 33 Entire Agreement 17 34 Code Compliance 18 35 Waiver of Jury Trial 18 36 Exhibit "A" - Site Plan 19 37 Exhibit "B" - Rules and Regulations 20 Exhibit "C" - Sign Requirements 22 3 INDUSTRIAL LEASE THIS LEASE AGREEMENT, dated as of the ______ day of ________, 19 __ by and between WRC Properties, Inc., a Delaware corporation referred to as "LANDLORD", and Rexall Sundown, Inc., a Florida corporation hereinafter referred to as "Tenant": W I T N E S S E T H: LANDLORD hereby leases to TENANT and TENANT hereby hires from LANDLORD: Space located at: 7674-7684 N.W. 6th Avenue (Bldg. 204) ------------------------------------ Boca Raton, FL 33487 ------------------------------------ of Boca Industrial Park ------------------------------------ hereinafter referred to as the "Premises" or "Demised Premises", for the term hereinafter stated, for the rents hereinafter reserved, and upon and subject to the terms, conditions and covenants hereinafter provided. 1. TERM: The term of this Lease shall commence on May 1, 1996 and end at midnight on April 30, 1997. 2. RENT: The rent reserved under this Lease for the term hereof shall be and consist of: A. Base Rent of $See Page 1A per year, shall be payable in advance, in equal monthly installments, without deduction or set-offs and without prior demand therefore, on the first day of each and every calendar month during the term of this Lease except that TENANT shall pay, upon execution and delivery of this Lease by TENANT, the sum of $11,925.00*, together with $5,167.50*, representing the first month's portion of the estimated share of expenses per section 14 of this Lease entitled "Additional Rent" plus applicable sales tax, to be applied against the first installment of Base Rent becoming due under this lease. * include sales tax B. All taxes in the nature of sales, use, or similar taxes, now or hereinafter assessed or levied by any taxing authority upon the payment of fixed rent or Additional Rent as permitted to collect from TENANT, shall be payable simultaneously with the payment of Base Rent or Additional Rent. C. TENANT covenants and agrees to pay a late charge for any payment of Base Rent not received by LANDLORD on or before the tenth (10th) day of each month and for any other payment, such as Additional Rent, not received by LANDLORD on or before the date when same is due. Said late charge shall be computed from the first day of the month in the case of Rent and from the date when same is due in case of Additional Rent. The amount of the late charge shall be an amount equal to the interest commencing on the dates aforesaid, ending on the date of receipt of the sum(s) by annum. In the event any late charge is due to LANDLORD, LANDLORD shall advise TENANT in writing and TENANT shall pay said late charge to LANDLORD not later than the date when the next payment of Rent is due. 4 REXALL SUNDOWN, INC. RENT SCHEDULE BASE RENT Base Rent shall be as follows: MONTHS $/SF ANNUAL RENT MONTHLY RENT ----- --- ----------- ------------ 01-12 $4.50 $135,000.00 $11,250.00 OPERATING EXPENSES (Section 14 "Additional Rent") 1996 Operating Expenses are estimated at $1.95 per square foot. Operating expenses are adjusted annually based on a calendar year. 30,000 SF @ $1.95 = $58,500.00 or $4,875.00 per month. SALES TAX The state of Florida requires sales tax be charged on all rent and operating expenses. The state sales tax is currently six percent (6%). 1A 5 E. Additional Rent consisting of all such other sums of money as shall become due from and payable by TENANT to LANDLORD hereunder (for default in payment of which LANDLORD shall have the same remedies as for a default in payment of fixed rent); all to be paid to LANDLORD without demand, deduction, or set off at its office, or such agent or such other place as Landlord may designate by notice to TENANT, in lawful money of the United States of America. Rent and Additional Rent shall be made payable to: -2- 6 WRC Properties, Inc. c/o McCoy Realty Group 1815 Griffin Road, Suite 103 Dania, FL 33004 3. SECURITY: TENANT simultaneously with the execution and delivery of this Lease has deposited with LANDLORD, the sum of $16,125.00 receipt of which is hereby acknowledged, which sum shall be retained by LANDLORD as security for the payment by TENANT of the rents herein agreed to be paid by TENANT and for the faithful performance by TENANT of the terms, conditions, and covenants of this Lease. It is agreed that LANDLORD, at LANDLORD's option, may at any time apply said sum or any part thereof toward the payment of the rents and any other sum payable by TENANT under this lease, and/or toward the performance of each and every of TENANT's covenants under this Lease and TENANT's liability under this Lease shall thereby be reduced pro tanto; that TENANT shall remain liable for any amounts that such sum shall be insufficient to pay; that LANDLORD may exhaust any or all rights and remedies against TENANT before resorting to said sum, but nothing herein contained shall require or be deemed to require LANDLORD to do so; that, in the event this deposit shall not be utilized for any of such purposes, then such deposit shall be returned by LANDLORD to TENANT promptly after the expiration of the term of this Lease. LANDLORD shall not be required to pay TENANT any interest on said security deposit. Promptly upon demand by LANDLORD, TENANT shall deposit with LANDLORD such additional sum as may be necessary to replace any amounts expended therefrom by LANDLORD pursuant to the provisions hereof, so that there shall always be a security deposit in the sum first set forth above.* * Landlord shall provide written notice should Tenant's security deposit be applied in any manner as described herein. Any amount of security deposit remaining at lease expiration shall be refunded to Tenant within 45 days of the expiration date of the Lease. 4. USE: The TENANT will use and occupy the Premises for * and for no other use or purpose. The TENANT will not create nor allow to be created any form of pollution whether noise, smoke, or otherwise within or without the Demised Premises. The Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for any such use. *distribution, warehouse, packaging, and ancillary office 5. ASSIGNMENT: TENANT may not assign, sublet, transfer, or dispose of this Lease during the term hereof, or underlet the Demised Premises or any part thereof or permit the Premises to be occupied by any other persons without the written consent of LANDLORD first obtained in each case. If this Lease be assigned, or if the Demised Premises or any part thereof be underlet or occupied by anybody other than the TENANT, the LANDLORD may, at LANDLORD's option, after default by the TENANT, collect rent from the assignee, under tenant, or occupant, and apply the net amount collected to the rent herein reserved, but no such collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under tenant or occupant as TENANT or a release of the TENANT from the further observance and performance by the TENANT of the covenants herein contained. Notwithstanding the foregoing provisions of this paragraph, this Lease may be assigned, sublet, or transferred to, or the Demised Premises may be underlet to, or occupied by, in whole or in or part, (i) any corporation into or with which TENANT may be merged or consolidated, or (ii) any corporation which now or hereafter is an affiliate, subsidiary, parent, or successor of TENANT, or (iii) any corporation which acquires all or a substantial portion of the -3- 7 stock or assets of TENANT, or (iv) any partnership, the majority or controlling interest in which shall be owned by TENANT, or an affiliate, subsidiary, parent, or successor of TENANT, or by stockholders of TENANT or of an affiliate, subsidiary, parent, or successor of TENANT, without the written consent of LANDLORD. If TENANT shall desire to make interior alterations in connection with an assignment or subletting which is permitted hereunder, LANDLORD shall not unreasonably withhold or delay its consent thereto. For the purpose of this paragraph, a "subsidiary" or "affiliate" or a "successor" of TENANT shall mean the following: A. An "Affiliate" shall mean any corporation which, directly or indirectly controls or is controlled by or is under common control with TENANT. For this purpose "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities or by contract or otherwise; B. A "subsidiary" shall mean any corporation not less than fifty percent (50%) of whose outstanding stock shall, at the time, be owned directly or indirectly by TENANT; C. A "successor" of TENANT shall mean: (1) A corporation in which or with which TENANT, its corporate successors, or assigns, is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation of corporations, provided that by operation of law or by the effective provisions contained in the instruments of merger or consolidation, the liabilities of the corporations participating in such merger or consolidation are assumed by the surviving such merger or created by such consolidation; or (2) A corporation or partnership acquiring this Lease and the term hereby demised and a substantial portion of the property and assets or the stock of TENANT, its corporate successors, or assigns or; (3) A corporate or other entity resulting from a reorganization of TENANT (not a reorganization under the Bankruptcy laws); or (4) A corporate successor to a successor corporation becoming such by any of the methods described in (1), (2), or (3), provided that on the completion of such merger, consolidation, acquisition, or assumption, the successor shall have a net worth no less than Tenant's net worth immediately prior to such merger, consolidation acquisition, or assumption. Acquisition, reorganization, or assumption by TENANT, its corporate successors or assigns, of a substantial portion of the assets, together with the assumption of all or substantially all of the obligations and liabilities of any corporation, shall be deemed a merger of such corporation into TENANT for the purpose of this paragraph. Anything to the contrary notwithstanding, where the consent of the LANDLORD is necessary to a proposed assignment or subletting, TENANT agrees to notify the LANDLORD in writing of the name, address, terms of the proposed sublease or assignment, proposed use, and such other data concerning the assignee or sublessee as TENANT shall have obtained. LANDLORD shall have thirty (30) days from such notice within which to (a) give its written consent to such assignment or sublease with TENANT remaining fully liable for its obligations under the Lease; (b) acquiesce to such assignment or sublease, but terminate TENANT'S obligations under the Lease -4- 8 (provided LANDLORD and assignee or sublessee enter into a new Lease upon the same terms as set forth in the proposed assignment or sublease); or (c) give written notice that it is withholding its consent to the proposed assignment or subletting in accordance with the applicable provisions of this Lease. In the event of the transfer and assignment by Landlord of its interest in this Lease and/or in the building containing the Leased Premises to a person expressly assuming Landlord's obligations under this Lease, Landlord shall thereby be released from any further obligations thereunder, and Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations. Any security given by Tenant to secure performance of Tenant's obligations hereunder may be assigned and transferred by Landlord to such successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto. 6. CONSTRUCTION, APPLICABLE LAW: The words "LANDLORD" and "TENANT" as used herein shall include plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there be more than one LANDLORD or TENANT, the obligations imposed hereunder upon the LANDLORD and TENANT, shall be joint or several. The section headings or titles in this Lease are not a part hereof and shall have no effect upon the construction of interpretation of any part hereof. This Lease shall be construed and enforced under the laws of the State of Florida. Should any provisions of this Lease be illegal or unenforceable under such laws, it or they shall be considered severable and this Lease and its conditions shall remain in force and be binding upon the parties hereto just as though the illegal or unenforceable provisions had never been included herein. 7. PREPARATION OF THE PREMISES: "AS IS" Tenant shall accept space in "as-is" condition except Landlord will repair overhead doors. 8. ACCEPTANCE OF THE PREMISES: TENANT's failure to give written notice to LANDLORD at any time during the thirty (30) day period after TENANT has taken possession of the Demised Premises shall be conclusive evidence that the Demised Premises were in good order and satisfactory condition on the day TENANT took possession. No promise of the LANDLORD to alter, remodel, or improve the Demised Premises and no representation respecting the condition of the Demised Premises have been made by the LANDLORD to the TENANT, unless the same is contained herein or made a part hereof, and the TENANT will make no claim on Account of any representations whatsoever, whether made by any renting agent, broker, officer, or other representatives of LANDLORD or which may be contained in any circular, prospectus, or advertisement relating to the Demised Premises, unless the same is specifically set forth or referenced in this Lease. The LANDLORD agrees that it will promptly correct any of the work to be performed by the LANDLORD under the terms of this lease which defects, inconsistencies or work are set forth in the above referenced written notice to LANDLORD. 9. REPAIRS AND MAINTENANCE: The TENANT will, at TENANT's sole cost and expense, keep the Demised Premises in good repair and tenantable condition during the term of this Lease. The repair and maintenance of the whole of the Demised Premises, including without limitation, the nonstructural interior portions of the Demised Premises; including storefronts, windows, doors, floor covering, plumbing, ventilation, heating and air conditioning systems, shall be the sole responsibility of the TENANT at the TENANT's expense. - 5 - 9 The TENANT will, at the termination of this Lease, by lapse of time or otherwise, surrender the Premises in the same condition as when received, reasonable wear and tear excepted, and shall surrender all keys for the Premises to LANDLORD. TENANT shall remove all its trade fixtures leased equipment and any alterations or improvements which LANDLORD requests to be removed before surrendering the Premises as aforesaid and shall repair any damage to the Premises caused thereby. TENANT's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of the Lease. The TENANT shall at its own cost and expense, enter into an annual contract for regularly scheduled preventive maintenance and repair, with a licensed maintenance contractor approved by the LANDLORD, for servicing and repair of all heating and air conditioning systems and equipment serving the Premises. Not later than thirty (30) days following the commencement of this Lease and annually thereafter, TENANT shall furnish to LANDLORD a copy of the air conditioning maintenance contract described above and proof that the annual premium for the maintenance has been paid. Provided, if the Tenant enters into the above referenced contract, Landlord shall replace any existing compressors that will not function. The service contract must include all services suggested by the equipment manufacturer. The maintenance contractor shall keep a detailed record of all services performed on the Premises and prepare a yearly service report to be furnished to the TENANT and the LANDLORD at the end of each calendar year. The LANDLORD may, but shall not be required to, upon notice to the TENANT, elect to enter into such maintenance/service contract on behalf of the TENANT or perform the work itself, and in either case, charge TENANT therefore, together with a reasonable charge of overhead. The LANDLORD agrees to repair and maintain in good order and condition the roof, roof drains, exterior walls, parking lots, landscaping, exterior lighting and the structural integrity of the interior and exterior of the Premises. 10. ALTERATIONS: TENANT shall make no alterations, additions, installations, improvements, or decorations in or to the Premises without the written consent of LANDLORD, which consent shall be subject to the foregoing and upon such terms and conditions as LANDLORD may require and stipulate in such consent, including without limitations, (a) physical and spatial limitations, (b) governmental approvals, (c) payment, (d) bonding to guarantee the payment of contractor's fees, (e) indemnification, (f) liens, (g) designation of approved contractors and subcontractors and (h) LANDLORD's insurer's requirements. This clause shall not be construed to mean that the LANDLORD shall allow any mechanics' liens upon the Premises based upon work ordered by the TENANT. 11. DELAY OR POSSESSION: If the LANDLORD is unable to give possession of the Demised Premises on the date stipulated in Paragraph I hereof as the commencement of the term hereof, by reason of the LANDLORD not having fully completed construction of the Demised Premises or the holding over of any prior tenant or tenants or for any other reason; an abatement or diminution of the rent to be paid hereunder shall be allowed. TENANT under such circumstances, but nothing herein shall operate to extend the term of this Lease beyond the expiration date; and said abatement in rent shall be in the full extent of LANDLORD's liability to TENANT for any loss or damage to TENANT on account of said delay in obtaining possession of the Premises. 12. DESTRUCTION OR DAMAGE: A. In the event that the Demised Premises shall be destroyed or damaged or injured by fire or casualty during the term - 6 - 10 of this Lease, whereby all or a part thereof shall be rendered untenantable, then the LANDLORD shall have the right, to be exercised by notice to TENANT within thirty (30) days after casualty, to render such premises tenantable by repairs within 180 days therefrom subject to extension for delays faced by LANDLORD due to adjustment of insurance proceeds, labor trouble, governmental controls, so-called acts of God, or any other cause beyond LANDLORD's reasonable control. If said Premises are not rendered tenantable within said time, it shall, be optional with either party hereto cancel this Lease, by written notice to the other, and in any event of such cancellation the rent shall be paid only to the date of such fire or casualty and paid rent refunded. During any time that the Demised Premises are untenantable due to causes set forth in this paragraph, the rent or a just and fair proportion thereof shall be abated. B. If the Demised Premises shall suffer damage to an extent that less than fifteen percent (15%) of the building in which the Demised Premises are located are rendered untenantable, then LANDLORD agrees to proceed promptly and without expense to TENANT to repair the damage and restore the improvement installed by LANDLORD, and TENANT shall be entitled to an abatement of a fair and just portion of the rent and other payment required under this Lease according to TENANT's ability to use the Premises from the date of such damage until said Premises are completely reinstated or restored. If damage to the Demised Premised in excess of $100,000 shall occur within the last year of the initial term or the option extension period provided for herein, the obligation of the LANDLORD to restore the Premises shall not arise unless TENANT shall give notice to LANDLORD within thirty (30) days after such damage of its desire to extend the term of this Lease for an additional option term if such option term is still available. Upon such notice, LANDLORD agrees with all due diligence to repair and restore the Demised Premises and the Lease shall continue. Failing such notice to exercise in available option to extend, LANDLORD, at its option, shall have the right to terminate this Lease or to restore the Premises and the Lease shall continue for the remainder of the then unexpired term and any options which are thereafter exercised. TENANT shall be entitled to an abatement of a fair and just portion of the rent and other payments required under this Lease according to the TENANT's ability to use the Premises from the date of such damage until the Premises are completely reinstated and restored. C. No damages, compensation, or claim shall be payable by LANDLORD for inconvenience, loss of business, or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the building pursuant to this paragraph. If the LANDLORD is required to, or exercises its rights to, restore the Premises, then LANDLORD shall use its best efforts not to unreasonably interfere with the TENANT's use and occupancy. Notwithstanding anything to the contrary the LANDLORD shall not be liable for damages or claims if it is unable to obtain insurance. D. Notwithstanding any of the provisions of the foregoing, if the LANDLORD or the holder of any superior mortgage, as defined hereafter is unable to collect all of the insurance proceeds, if any, applicable to the damage or destruction of the Demised Premises or of the building by fire or some other casualty or cause, by reason of some action or inaction on the part of the TENANT, its agents, employees, or contractors then without prejudice to any other of LANDLORD's remedies available against TENANT, there shall be no abatement of the rent due from TENANT to the extent of the uncollected insurance proceeds, if any. E. LANDLORD will not carry separate insurance of any kind covering TENANT's property. Except by reason of LANDLORD's breach of any of its obligations hereunder or by operation of law the LANDLORD shall not be liable for the repair of any damage or the replacement of TENANT's property. - 7 - 11 13. DEFAULT: LANDLORD'S REMEDIES: All rights and remedies of the LANDLORD herein enumerated shall be cumulative, and none shall exclude another or any other right or remedy provided by law. A. If TENANT or any guarantor of this Lease shall become bankrupt or insolvent or unable to pay its debts as such become due, or file any debtor proceedings or if TENANT or any guarantor shall take or have taken against either party in any court pursuant to any statute either of the United States or of any State, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of TENANT's or any such guarantor's property, or if TENANT or any such guarantor makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, then this Lease shall terminate and LANDLORD, in addition to any other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the leased Promises and such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of TENANT, all without service of notice or resort to legal process and without being deemed guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby. B. If the TENANT defaults in the payment of rent or in the prompt and full performance of any provisions of this Lease, or if the leasehold interest or the TENANT's business or fixtures of TENANT are levied upon under execution or attached by process of law, or if the TENANT makes an assignment for the benefit of creditors, the TENANT abandons Premises, then and in any such event the LANDLORD may, if the LANDLORD so elects, but not otherwise, and after three (3) days written notice thereof to TENANT, forthwith terminate this Lease and the TENANT's right to possession of the Demised Premises, or terminate only TENANT's right to possession hereunder. In the event Tenant vacates the leased premises yet continues to pay all rent when due, this shall not be deemed default. C. Upon any termination of this Lease, whether by lapse of time or otherwise, the TENANT shall surrender possession and vacate the Premises immediately, and deliver possession thereof to the LANDLORD, and hereby grants to the LANDLORD full and free license to enter into and upon the Premises in such event with or without process of law and to expel or remove the TENANT and any others who may be occupying or within the Premises and to remove any and all property therefrom, using such force as may be necessary, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without relinquishing the LANDLORD's rights to rent or any other right given to LANDLORD hereunder or by operation of law. The TENANT expressly waives the service of any demand for the payment of rent or for possession and the service of any notice of the LANDLORD'S election to terminate this Lease or to re-enter the Premises, except as provided for in subparagraph (b) of this paragraph, and agree that the simple breach of any covenants or provisions of this Lease by the TENANT shall, of itself, without the service of any notice or demand whatsoever, constitute an unlawful detainer by TENANT of the Premises within the meaning of the Statutes of the State of Florida. D. If the TENANT abandons the Premises or otherwise entitles the LANDLORD so to elect and the LANDLORD does elect to terminate the TENANT's right to possession only, without terminating the Lease, the LANDLORD may, at the LANDLORD's option, enter the Premises, remove the TENANT's signs and other evidence of tenancy, and take and hold possession thereof without such entry and possession terminating the Lease or releasing the TENANT, in whole or in part from the TENANT's obligation to pay the rent hereunder for the full term, and in any such case the TENANT shall pay forthwith to the LANDLORD, a sum equal to the entire amount of the rent reserved under Paragraph 2 of this Lease for the - 8 - 12 residue of the stated term plus any other sums then due hereunder. Upon and after entry into possession without termination of the Lease, the LANDLORD may, but need not, relet the Premises or any part thereof for the account of the TENANT to any person, firm, or corporation other than the TENANT for such rent, for such time, and upon such terms as the LANDLORD in the LANDLORD's sole discretion shall determine; and the LANDLORD shall not be required to accept any tenant offered by the TENANT. In any such case, the LANDLORD may make repairs, alterations, and additions in or to the Premises and redecorate the same to the extent deemed by the LANDLORD necessary or desirable, and the TENANT shall, upon demand, pay the cost thereof, together with the LANDLORD's expenses of the reletting. If the consideration collected by the LANDLORD upon any such reletting for the TENANT's account is not sufficient to pay monthly the full amount of the rent reserved in this Lease, together with the costs of repairs, alterations, additions, redecorating, and the LANDLORD's expenses, the TENANT shall pay to the LANDLORD the amount of each monthly deficiency upon demand; and if the consideration so collected from any such reletting is more than sufficient to pay the full amount of the rent reserved herein, together with the costs and expenses of the LANDLORD, the LANDLORD, at the end of stated term of the Lease, shall account for the surplus to the TENANT. E. LANDLORD shall use all remedies available under Florida state law as it relates to default. Any and all property which may be removed from the Premises by the LANDLORD pursuant to the authority of law, to which the TENANT is or may be entitled, may be handled, removed, or stored by LANDLORD at the risk, cost, and expense of TENANT, and LANDLORD shall in no event be responsible for the value, preservation, or safekeeping thereof. TENANT shall pay to LANDLORD, upon demand, all expenses incurred in such removal and all storage charges against such property so long as the same shall be in LANDLORD's possession or under LANDLORD's control. LANDLORD may place such property after it has been stored for a period of ninety (90) days or more, LANDLORD may sell any or all of such property in such manner and at such times and places as LANDLORD in its sole discretion may deem proper, without notice to or demand upon TENANT for the payment of any part of such charges or the removal of any of such property and shall apply the proceeds of such sale first to the cost of expenses of such sale, including reasonable attorneys' fees; second, to the payment of the costs and charges of storing any property; third, to the payment of any other sum of money which may then or thereafter be due to LANDLORD from TENANT under any of the terms hereof; and fourth, the balance, if any, to TENANT. The removal and storage of TENANT's property as above provided shall not constitute a waiver of LANDLORD's lien thereon. F. TENANT shall pay upon demand all of LANDLORD's costs, charges, and expenses, including the fees of counsel, agents; and others retained by LANDLORD, incurred in enforcing TENANT's obligations hereunder or incurred by LANDLORD in any litigation, negotiations, or transaction in which TENANT causes LANDLORD, without LANDLORD's fault, to become involved or concerned. Attorneys' fees shall be awardable for all phases of litigation, trial, as well as appellate. To perfect and assist in the implementation of certain of LANDLORD's right in and to the TENANT's personal property, TENANT hereby pledges and assigns to LANDLORD and grants unto LANDLORD a lien upon all furniture, fixtures, goods, and chattels of TENANT which shall or may be brought or put on the Premises as further security for the faithful performance of the terms, provisions, conditions, and covenants of this Lease, and TENANT specifically agrees that said lien may be enforced by distress, foreclosure, or otherwise at the election of the LANDLORD. TENANT hereby expressly waives and renounces for himself and family, any and all homestead and exemption right he may have now or hereafter, under or by virtue of the Constitution - 9 - 13 or laws of the State of Florida, or of any other State, or of the United States, as against the payment of rent, Additional Rent, or any other charges payable by TENANT hereunder or any other obligation or damage that may accrue under the terms of the Agreement.* 14. ADDITIONAL RENT: A. Definitions: "Building" means Buildings 204 in which the Demised Premises are located. "Parcel" means Tract II, Boca Commerce Center, according to the Plat thereof, recorded in Plat Book 46, at Page(s) 44-46 of the Public Records of Palm Beach County, Florida. "TENANT's Building Share" means the proportion that the square footage of the Demised Premises bears to the total square footage of the rentable area in the building. For calculation purposes, TENANT's Proportional Building Share is estimated to be 21.55 percent. The total rentable areas of Building 204 is 139,200. "TENANT's Parcel Share" means the proportion that the square footage of the Demised Premises bears to the total square footage of the rentable area of building located on the Parcel, which the square footage is 386,046. Tenant's proportionate share of the parcel is estimated to be 7.77 percent. "TENANT's Share" shall, in reference to any item which applies to the entire Parcel, mean TENANT's Parcel Share and, as to any item for which there is a separate meter of bill for the building (i.e., water and sewer fees), shall mean TENANT's Building Share. B. In addition to the Base Rent and adjustments thereto, TENANT shall pay to LANDLORD as Additional Rent, its prorated share of all taxes, assessments, insurance premiums, utility services, operating expenses, maintenance charges, and any other charges, costs, and expenses which arise from the ownership, occupancy or use of the Parcel, or any part thereof. The TENANT's prorated share of these Additional Assessments shall be calculated by multiplying the cost of these items to the LANDLORD by the TENANT's Percentage as set forth in Section (A) hereof. The TENANT agrees to pay the Additional Assessments, as set forth above, in monthly payments in advance during the Term of this Lease, as may be estimated by the LANDLORD. At the end of each calendar year, the LANDLORD shall advise the TENANT of the actual TENANT's share of the Additional Assessments payable for such calendar year as computed based upon the cost thereof to the LANDLORD. If there shall have been an underpayment by the TENANT, the tenant shall pay the difference within ten (10) days; if there shall have been an overpayment by the TENANT, the TENANT shall be given a credit towards the next due payment of its share of the Additional Assessment. At the end of each calendar year, the TENANT shall have the right to require LANDLORD to substantiate, by written itemization, LANDLORD's computation of TENANT's Additional Assessments. LANDLORD shall furnish such an itemization to TENANT within thirty (30) days from receipt of TENANT's written request for such itemization. 15. SUBORDINATION: This Lease, and all rights of TENANT hereunder, are and shall be subject and subordinate to all ground leases, overriding leases, and underlying leases affecting the Demised Promises now or hereafter existing and to all mortgages which may now or hereafter affect the Demised Premises and to each and every advance made or hereafter to be made under such mortgages, and to all renewals, *Any default under that certain lease dated March 3, 1995 between Landlord and Tenant shall constitute and Event of Default hereunder and shall entitle Landlord to all remedies available under this lease. -10- 14 modifications, replacements, and extensions of such leases and mortgages and spreaders and consolidations of such mortgages (which leases and mortgages are sometimes collectively referred to herein for convenience is the "Superior Lease" and "Superior Mortgage"). This paragraph shall be self-operative and no further instrument of subordination shall be required to make it effective; however, TENANT shall promptly execute and deliver any instrument reasonably requested to evidence such subordination. A. TENANT agrees that in the event of any act or omission by the LANDLORD which would give TENANT the right to terminate this Lease, or to claim a partial or total eviction, TENANT shall not exercise any such right until he has notified in writing the holder of any such mortgage which at the time shall be a lien on the Demised Premises or the underlying lessor, if any, or such act or omission. B. If the lessor of any such Lease or the holder of any such mortgage shall succeed to the rights of LANDLORD under this Lease, then at the request of such party of succeeding to LANDLORD's rights and upon such successor written agreement to accept TENANT'S attornment, TENANT shall attorn to such successor LANDLORD and will execute such instruments as may be necessary or appropriate to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as, or as if it were a direct Lease between the successor LANDLORD and TENANT upon all the terms, conditions, and covenants as are set forth in this Lease and shall be applicable after such attornment except that the successor LANDLORD shall not (i) be liable for any previous act or omission of LANDLORD under this Lease; (ii) be subject to any offset, not expressly provided for in this Lease, which shall have theretofore accrued to TENANT against LANDLORD; and (iii) be bound by any previous modification of this Lease, not expressly provided for in this Lease, or by any previous prepayment of more than one month's fixed rent unless such modification or prepayment shall have been expressly approved in writing by such LANDLORD or such holder through or by reason of which the successor LANDLORD shall have succeeded to the rights of LANDLORD under this Lease. C. TENANT shall deliver to LANDLORD or to its mortgagee or auditors, or prospective purchaser of the owner of the fee, when requested by LANDLORD, a certificate to the effect that this Lease is in full force and that Lessor is not in default therein, or stating specifically any exceptions thereto. Failure to give such a certificate within ten (10) business days after written request shall be conclusive evidence that the Lease is in full force and effect and LANDLORD is not in default and in such event, TENANT shall be estopped from asserting any defaults known to TENANT at that time. 16. INDEMNIFICATION: Neither LANDLORD nor any agent or employee of LANDLORD shall be liable to TENANT for any injury or damage to TENANT or to any other person or for any damage to, or loss (by other person, irrespective of the cause of such injury, damage, or loss), unless caused by or due to the negligence of LANDLORD, its agents, or employees without contributory negligence of TENANT, its agents or employees, subject to the comparative negligence doctrine, it being understood that no property, other than such as might normally be brought upon or kept in the Premises as an incident to the reasonable use of the Premises for the purposes herein permitted, will be brought upon or be kept in the Premises. TENANT shall indemnify and save harmless LANDLORD and its agents against and from (a) any and all claims (i) arising from (x) the conduct or management of the Demised Premises or of any business therein, or (y) any work or thing whatsoever done, or any condition created or permitted to exist (other than by LANDLORD for LANDLORD's or TENANT's account) in or about the Demised Premises -11- 15 during the term of this Lease, or during the period of time, if any, prior to the commencement of the term hereof that TENANT may have been given access to the Demised Premises, or (ii) arising from any negligent or otherwise wrongful act or omission of TENANT or any of its subtenants or its or their employees, agents, or contractors; and (b) all costs, expenses, and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon. In case any action or proceeding be brought against LANDLORD, TENANT shall resist and defend such action or proceeding. 17. INSURANCE: TENANT shall carry public liability insurance, in amounts of $500,000.00 in respect of injuries to any one person, and $1,000,000.00 in respect of any one accident or disaster, with companies and on forms acceptable to LANDLORD, naming both LANDLORD and TENANT as parties insured thereby, insuring the parties against any such claim. All insurance required to be carried by TENANT pursuant to the terms of this Lease shall be effected under policies issued by insurers permitted to do business in the State of Florida and rated in Best's Insurance Guide, or any successor thereto (or, if there be none, an organization having national reputation) as having a general policyholder rating of "A" and a financial rating of at least "13". All such policies of insurance shall provide for not less than thirty (30) days notice to LANDLORD as a condition precedent to cancellation. Such policy shall be delivered to LANDLORD. TENANT shall provide LANDLORD with evidence of payment of renewal premiums or replacement of policy and payment of renewal premiums not later than thirty (30) days prior to the expiration of any such policy. The public liability policy shall include Premises and operations. 18. WAIVER: The failure of either the LANDLORD or TENANT to insist in any one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any right or election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such or more obligations of this Lease or of the right to exercise such election, but the same shall both continue and remain in full force and effect with respect to any subsequent breach, act, or omission. 19. BROKER(S): The broker(s) in this transactions (are) Commercial Florida Realty Partners/McCoy Realty Group. TENANT covenants, warrants, and represents that no other broker was instrumental in consummating this Lease, and that no conversations or negotiations were had with any other broker concerning the renting of the Demised Premises or rental space at Boca Commerce Center. TENANT agrees to hold LANDLORD harmless from any and all claims, and agrees to defend at its own expense, any and all claims for brokerage commission asserted by third parties other than the broker(s) stated above.* LANDLORD shall be responsible for payment of commission to above broker(s). *Tenant shall not be responsible for any claims for brokerage commissions asserted by third parties other than brokers stated above regarding claims of brokers representing the Landlord. 20. NOTICES: Any notice, statement, demand, or other communication required or permitted to be given or made by either party to the other, pursuant to this Lease or pursuant to any applicable law, shall be deemed to have been properly given and made if sent by registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth or at such other address as may hereafter be designated by either party by notice to the other and shall be deemed to have been given or made on the day so mailed. Either party may, by notice given as aforesaid, designate -12- 16 a different address or addresses for notices, statements, demands, or other communications intended for it. For LANDLORD: For TENANT: WRC Properties, Inc. Rexall Sundown, Inc. c/o McCoy Realty Group 851 Broken Sound Parkway NW 1815 Griffin Road, Suite 103 Boca Raton, FL 33487 Dania, FL 33004 Attn: Dean DeSantis ATTN: Property Manager Richard Werber with a copy to: WRC Properties, Inc. 730 Third Avenue, 7th Floor New York, NY 10017 Attn: David Bengel 21. RULES AND REGULATIONS: It is mutually agreed that all the rules and regulations included with this instrument attached hereto marked as Exhibit "B" shall be and are hereby made a part of this Lease, and TENANT covenants and agrees that it and its employees, servants, and agents will at all times observe, perform, and abide by said rules and regulations as they exist and as they may be amended hereafter from time to time. 22. LIENS: TENANT further agrees that TENANT will pay all of TENANT'S contractors, subcontractors, laborers, materialmen, and all others, and will indemnify LANDLORD against all legal costs and charges, bond premiums for release of liens, and counsel fees reasonably incurred in the commencement of defense of any suit by the LANDLORD to discharge any liens, judgments, or encumbrances against the Premises caused or suffered by TENANT. It is understood and agreed between the parties hereto that the cost and charges above referred to shall be considered as rent due under this Lease payable upon demand. The TENANT herein shall not have any authority to create any liens for labor or material on the LANDLORD'S interest in the above-described property, and all persons contracting with the TENANT for the doing of any work or the furnishing of any materials on or to the Premises, and all materialmen, contractors, mechanics, and laborers, are hereby charged with notice that they must look to the TENANT only to secure the payments of any bill or work done or material furnished during the term of this Lease. 23. TRANSFER BY LANDLORD: In the event that the interest or estate of LANDLORD in the Premises shall terminate by operation of law or by bona fide sale of the Premises or by execution or foreclosure sale, or for any other reason, then and in any such event LANDLORD shall be released and relieved from all future liability and responsibility as to obligations to be performed by LANDLORD hereunder or otherwise. A voluntary conveyance of the Demised Premises shall not terminate this Lease and LANDLORD's successor, by TENANT tendering payment of rent hereunder to such successor, shall become liable and responsible to TENANT in respect to all such obligations of LANDLORD under this Lease. This Lease may be assigned by the LANDLORD, in which case, the TENANT, upon request by the LANDLORD, shall issue a letter stating that the Lease is in full force and effect *and that there are no set-offs or claims or other defenses to rent. *,if true, -------- -13- 17 24. CONDEMNATION: In the event any portion of the Demised Premises is taken by any condemnation or eminent domain proceeding or should the Demised Premises by conveyed in lieu of such a taking and this Lease continues in force as to any part of the Demised Premises, as hereinafter provided, the base monthly rental herein specified to be paid shall be ratably reduced according to the area of the Demised Premises which is actually taken, as of the date of such taking, and TENANT shall be entitled to no other consideration by reason of such a taking and any damages whatsoever suffered by TENANT and occasioned by such taking shall not entitle TENANT to share to any extent in any and all income, rent, awards, or any interest therein whatsoever which may be made in connection with such a taking and TENANT does hereby relinquish and assign to LANDLORD all TENANT's rights and equities in and to any such income, rent, awards, or any interest therein. In the event of a partial taking of the building, either by condemnation, eminent domain, or conveyance in lieu thereof, LANDLORD may elect to terminate this Lease if the remaining area of the building shall not be reasonably sufficient for LANDLORD to continue feasible and economical operation of the remaining portion of the building, in the LANDLORD's sole discretion. Upon the giving of such notice this Lease shall terminate on the date of service of such notice, and the rents apportioned to the part of the Demised Premises so taken shall be prorated and adjusted as of the date of the taking and the rents apportioned to the remainder of the Demised Premises shall be prorated and adjusted as of such termination date. Should all the Demised Premises be so taken, this Lease shall terminate as of the date of such a taking and in the event TENANT shall be entitled to no damages or any consideration by reason of such taking, except the cancellation and termination of this Lease as of the date of said taking. 25. PEACEFUL POSSESSION: LANDLORD warrants and represents that it is the owner of the Demised Premises and has full right, power, and authority to enter into this Lease Agreement. So long as TENANT pays all of the fixed rent and Additional Rent and charges due hereunder and performs all of TENANT's other obligations hereunder, TENANT shall peaceably and quietly have, hold, and enjoy the Demised Premises throughout the term of this Lease, without interference or hindrance by LANDLORD or any person claiming by, through, or under LANDLORD. 26. ACCESS, CHANGES IN BUILDING FACILITIES NAME: Except for the inside surfaces of all walls, windows, and doors bounding the Demised Premises, all of the building, including exterior building walls, core corridor walls and doors, and any core corridor entrance, any terraces or roofs adjacent to the Demised Premises, and any space in or adjacent to the Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric, or other utilities, sinks, or other building facilities, and the use thereof, as well as access thereto through the Demised Premises for the purpose of operation, maintenance, decoration, and repair, are reserved to LANDLORD. TENANT shall permit LANDLORD to install, use, and maintain pipes, ducts, and conduits within the demising walls, bearing columns, and ceilings of the Demised Premises. LANDLORD shall be responsible for repairing, at its own expense, any damages caused by such installation or maintenance. LANDLORD or LANDLORD's agents shall have the right, upon request, to enter and/or pass through the Demised Premises or any part thereof, at reasonable times during reasonable hours (i) to -14- 18 examine the Demised Premises and to show them to the fee owners, holders of superior mortgages, or prospective purchasers, mortgagees of lessees of the building as an entirety, and (ii) for the purpose of making such repairs or changes or doing such repainting in or to the Demised Premises or in or to the building or its facilities as may be provided for by this Lease or as may be mutually agreed upon by the parties or as LANDLORD may be required to make by law or in order to repair and maintain the building or its fixtures or facilities. LANDLORD shall be allowed to take all materials into and upon the Demised Premises that may be required for such repairs, changes, repainting, or maintenance. LANDLORD shall also have the right to enter on and/or pass through the Demised Premises, or any part thereof, at such times as such entry shall be required by circumstances of emergency affecting the Demised Premises or the building. During the period commencing six (6) months prior to the end of the term hereof, LANDLORD may exhibit the Demised Premises to prospective tenants at reasonable times and during reasonable hours upon advance and proper notification to TENANT. LANDLORD reserves the right, at any time after completion of the building, to make such reasonable changes in or to the building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators, and stairways thereof, as it may deem necessary or desirable. LANDLORD may adopt any name for the building. LANDLORD reserves the right to change the name or address of the building at any time. 27. SURRENDER, HOLDING OVER: On the last day of the term of this Lease, or upon any earlier termination of this Lease, or upon any re-entry by LANDLORD upon the Demised Premises, TENANT shall peaceably and without notice of any sort, quit and surrender the Demised Premises to LANDLORD in good order, condition, and repair, except for ordinary wear and tear and such damage or destruction as LANDLORD is required to repair or restore under the terms of this Lease, and TENANT shall remove all of TENANT's property therefrom. TENANT specifically agrees that in the event TENANT retains possession and does not so quit and Surrender the Demised Premises to LANDLORD, then TENANT shall pay LANDLORD (i) all damages that LANDLORD may suffer on account of TENANT's failure to so surrender and quit the Demised Premises, including but not limited to any and all claims made by succeeding tenant of the Demised Premises against LANDLORD based on delay of LANDLORD in delivering possession of the Demised Premises to said succeeding tenant to the extent such delay is occasioned by the failure of TENANT to so quit and surrender said Premises, and (ii) rent for each month or any applicable portion of a month of such holding over at 175% the amount payable for the month immediately preceding the termination of this Lease, during the time the TENANT thus remains in possession. The provisions of this paragraph do not waive any of the LANDLORD's rights of re-entry or any other right under the terms of this lease or the laws of Florida. If TENANT shall fail to surrender the Premises as herein provided, no new tenancy shall be created and TENANT shall be guilty of unlawful detainer. No surrender of this Lease or of the Premises shall be binding on the LANDLORD unless acknowledged by LANDLORD in writing. 28. UTILITIES: The TENANT agrees to pay promptly for all utilities used and consumed on the Premises which are separately metered to the Demised Premises. TENANT agrees that TENANT will pay its proportionate TENANT's Share (as defined in Paragraph 14 above) of the electric, water, and sewage bills which are not separately metered. If the TENANT uses water and sewage or extraordinary -15- 19 electrical power for commercial purposes, a separate meter will be installed at TENANT's expenses and TENANT will pay separately for such electric, water, and sewage services. In this context, water and sewage for commercial purposes shall mean that the TENANT is utilizing the water, sewer, and electric power for the purpose of production of a product for the preparation of a product for shipping or the integration of the use of water and the disposition of the sewage in connection with a business as opposed to the usage for light and for the benefit of employees, bathroom facilities, and the like. 29. SECURITY SYSTEMS: The LANDLORD, at its sole discretion, determination, and option may enter into a contract or otherwise provide or make arrangement for the providing of a security system which may include security guards and/or electronic devices and/or a security guard gate and gate house. In the event that the LANDLORD elects to obtain such security system or systems, then the TENANT shall pay its proportionate share of the expense. The TENANT's proportionate share of the expense shall be determined by taking the total square footage of the TENANT's Demised Premises as a numerator and dividing that by the total square footage of the rentable area in the building served by that security system as the denominator, and then multiplying that by the annual cost of the service of system. The TENANT shall pay its proportionate share on a monthly basis together with its rental payment. The LANDLORD shall in no way be responsible for the performance of the obligations of the security guards, and the TENANT hereby releases the LANDLORD from any claims of any nature whatsoever in connection with the furnishings of security guard services. The TENANT further acknowledges that should said services by provided on a negligent basis, that its sole and exclusive remedy shall be to seek recovery against the security service company. 30. COMMON AREAS: With the exception of the use of the parking lot for the parking of vehicles and walking to and from the Demised Premises, the TENANT, the TENANT's employees, guests, and invitees shall not use the parking lot and areas not contained within the Demised Premises.* 31. RELOCATION OF TENANT: LANDLORD expressly reserves the right at LANDLORD's sole cost and expense to remove TENANT from the Leased Premises and to relocate TENANT in some other space of LANDLORD's choosing of approximately the same dimensions and size, which other space shall be improved and decorated by LANDLORD at LANDLORD's expense. LANDLORD shall have the right, in LANDLORD's sole discretion, to use such decorations and materials from the existing Leased Premises, or other materials so that the space in which TENANT is relocated shall be comparable in its interior design and decoration to the Leased Premises from which TENANT is removed. Nothing herein contained shall be construed to relieve TENANT or imply that TENANT is relieved of the liability for or obligation to pay any Additional Rent due by reason of the provisions of Paragraph 14 of this Lease, the provisions of which paragraph shall be applied to the space in which TENANT is relocated on the same basis as said provisions were applied to the Leased Premises from which TENANT is removed. TENANT agrees that LANDLORD's exercise of its election to remove and relocate TENANT shall not terminate this Lease or release TENANT, in whole or in part, from TENANT's obligations to pay Rent and perform the covenants and agreements hereunder for the full Lease Term. * Tenant shall be granted the use of up to 1.2 parking spaces per 1,000 square feet leased (36 spaces). Parking at Boca Industrial Park is unreserved and in common with all tenants. -16- 20 32. SIGNS: Attached hereto marked as Exhibit "C" and made a part hereof is the LANDLORD's sign standard. The TENANT must, prior to installing a sign, receive LANDLORD'S prior written approval of the proposed sign. The TENANT will submit a "permit ready" set of sign plans for LANDLORD's approval. Notwithstanding the fact that LANDLORD shall have approved the plans the TENANT must comply with all applicable governmental rules and laws concerning signs and their installation. In no event will a sign be approved by LANDLORD which does not comply with the standard attached hereto. 33. HAZARDOUS WASTE: The TENANT agrees not to store in, on, or outside of the Premises any hazardous materials of any type, as defined by any local, state, or federal agency, or any other toxic, corrosive, reactive, or ignitable material. The TENANT agrees to document all hazardous waste disposal, if any, and to keep the same on file for five years and to document the same by one of the following types of documentation: A hazardous waste manifest; a bill of lading from a bonded hazardous substance transporter showing shipment of a licensed hazardous waste facility; or a confirmation of receipt of materials from a recycler, a waste exchange operation, or other permitted hazardous waste management facility. TENANT agrees not to generate hazard effluents. TENANT agrees to allow reasonable access to facilities for monitoring of the above by LANDLORD, Palm Beach County, ERM, and the Florida DER to assure compliance with the above as well as any other condition relating to the use of the subject property. Violation of any of the above shall be deemed to be a default on the part of the TENANT of the terms of the Lease at the option of the LANDLORD. 34. RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 35. ENTIRE AGREEMENT: This Lease along with the attached Exhibits contain the entire agreement between the parties hereto and all previous negotiations leading hereto and it may be modified only by an agreement in writing signed and sealed by the LANDLORD and TENANT. - 17 - 21 36. CODE COMPLIANCE: Tenant shall not do, and shall not permit persons within Tenant's control to do, any act or thing in or upon the Premises or the Building which will invalidate or be in conflict with the certificate of occupancy for the Premises or the Building or violate any other zoning ordinances, and rules and regulations of governmental or quasi-governmental authorities having jurisdiction over the Premises or the Building (the "Requirements"). Tenant shall, at Tenant's sole cost and expense, take all action, including any required Alterations necessary to comply with requirements (including, but not limited to, applicable terms of the Palm Beach County Building Code and the Americans With Disabilities Act of 1990 (the "ADA"), each as modified and supplemented from time to time) which shall impose any violation, order or duty upon Landlord or Tenant arising from, or in connection with, the Premises, Tenant's occupancy, use or manner of use of the Premises (including, without limitation, any occupancy, use or manner of use that constitutes a "place of public accommodation" under the ADA), or any installations in the Premises, or required by reason of a breach of any Tenant's covenants or agreements under this Lease, whether or not such Requirements shall now be in effect or hereafter enacted or issued, and whether or not any work required shall be ordinary or extraordinary or foreseen or unforeseen at the date hereof. Notwithstanding the preceding sentence, Tenant shall not be obligated to perform any Alterations necessary to comply with any Requirements, unless compliance shall be required by reason of (i) any cause or condition arising out of any Alterations or installations in the Premises (whether made by Tenant or by Landlord on behalf of Tenant), or (ii) Tenant's particular use, manner or use or occupancy on behalf or Tenant of the Premises, or (iii) any breach of any Tenant's covenants or agreements under this Lease, or (iv) any wrongful act or omission by Tenant or persons within Tenant's control, or (v) Tenant's use or manner of use or occupancy of the Premises as a "place of public accommodation" within the meaning of the ADA. 37. WAIVER OF JURY TRIAL: Landlord and Tenant hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other on any matters whatsoever arising out of or in any way connected with the Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, whether during or after the Term, or for the enforcement of any remedy under any statute, emergency or otherwise. If Landlord shall commence any summary procedure against Tenant, Tenant will not interpose any counterclaim or whatever nature or description in any such procedure (unless failure to separate action the claim which is the subject of such counterclaim), and will not seek to consolidate such procedure with any other action which may have been or will be brought in any other court by Tenant or Landlord. IN WITNESS WHEREOF, the LANDLORD and TENANT have duly signed and executed these presents at Palm Beach County, on this 25th day of April, 1996. Signed, Sealed And Delivered "LANDLORD" In the Presence Of: WRC Properties, Inc. /s/ - ----------------------- /s/ Loretta Monahan By: /s/ Harry St. Clair - ----------------------- ---------------------- As To LANDLORD "TENANT" Rexall Sundown, Inc. /s/ Deborah Shur Trinker By: /s/ Richard Werber - ------------------------ ----------------------- /s/ Rachelle F. Schindle - ------------------------ As To TENANT -18- 22 EXHIBIT "A" Site Plan Tract II [MAP] 19 23 EXHIBIT "B" RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, vestibules, or stairways shall not be obstructed or encumbered by any TENANT or used for any purpose other than ingress and egress to and from the demised premises. 2. No awnings or other projections shall be attached to the outside walls of the building without the prior written consent of the LANDLORD and the City of Boca Raton. 3. No sign, advertisement, notice, or other letting shall be exhibited, inscribed, painted, or affixed by any TENANT on any part of the outside or inside of the demised premises or building without the prior written consent of the LANDLORD and the City of Boca Raton. In the event of the violation of the foregoing by any TENANT, the LANDLORD may remove same without any liability, and may charge the expense incurred by such removal to the TENANT or TENANTS violating this rule. 4. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways, and other public places in the building shall not be covered or obstructed by any TENANT, nor shall any bottles, parcels, or other articles be placed on the windowsills. 5. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damage resulting from any misuse of the fixture shall be borne by the TENANT who, or whose servants, employees, agents, visitors, or licensees shall have caused the same. 6. No TENANT shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting, or stringing of wires shall be permitted, except with the prior written consent of the LANDLORD and as it may direct. 7. No TENANT shall make, or permit to be made, any unseemingly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises of those having business with them, whether by the use of any musical instruments, radio talking machine, unmusical noise, whistling, singing, or in any other way. No TENANT shall throw anything out of the doors, windows, or skylights, or down the passageways. 8. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by TENANT, no shall any change be made in existing locks or the mechanism thereof. Each TENANT must, upon the termination of his tenancy, restore to the LANDLORD all keys of offices and toilet rooms, either furnished to, or otherwise procured by, such TENANT, and it the event of the loss of any keys so furnished, such TENANT shall pay to the LANDLORD the cost thereof. 9. No TENANT shall occupy or permit any portion of the premises demised to him to be used for the possession, storage, manufacture, or sale of liquor. No TENANT shall engage or pay any employees of the demised premises, except those actually working for such TENANT on said premises nor advertise for laborers giving an address at said premises. 10. The premises shall not be used for gambling, lodging, or sleeping or for any immoral or illegal purpose. -20- 24 11. The requirements of TENANTS will be attended to only upon application at the office of the building. Employees shall not perform any work or do anything outside of the regular duties unless under special instruction from the LANDLORD. 12. Canvassing, soliciting and peddling in the building is prohibited and such TENANT shall cooperate to prevent the same. 13. The LANDLORD specifically reserves the right to refuse admittance to the building after 7:00 p.m. daily, or on Sundays or on legal holidays, to any person or persons who cannot furnish satisfactory identification, or to any person or persons who for any other reason in the LANDLORDS judgment, should be denied access to the premises. The LANDLORD, for the protection of the TENANTS and their effects may prescribe hours and intervals during the night, on Sunday, and holidays, when all persons entering and departing the building shall be required to enter their Dames, the offices to which they are going or from which they are leaving, and the time of entrance or departure in a Register provided for that purpose by the LANDLORD. 14. The LANDLORD may retain a pass key to the leased premises, and be allowed admittance thereof at all times to enable its representatives to examine the demised premises. 15. The LANDLORD reserves the right to make such other and further reasonable rules and regulate in its judgment may from time to time be needed for the safety, care, and cleanliness of the premises, and for the preservation of good order therein, and any such other or further rules and regulations shall be binding upon the parties hereto with the same force and effect as if they had been inserted herein at the time of the execution hereof. 16. Except as otherwise approved in writing by the LANDLORD'S insurer, no TENANT, nor any of the TENANT'S servants, employees, agents, visitors, or licensees, shall at any time bring or keep upon the demised premises any inflammable, combustible, or explosive-fluid, chemical, or substance. 17. Notwithstanding anything contained to the contrary, the TENANT shall be entitled to park its' vehicles in the rear of the building during the nighttime hours. -21- 25 EXHIBIT "C" SIGN REQUIREMENTS FOR BOCA INDUSTRIAL PARK 1. All signs must be submitted to the office of WRC Properties, Inc. c/o McCoy Realty Group, at 1815 Griffin Rd., Dania, FL 33004 for approval. Signs "not approved" will not be permitted to be erected. Submit three (3) sets of prints for approval. Approval given by WRC Properties, Inc. will not relieve any tenant from compliance with all acceptable sign codes set forth by the governing authority. 2. Signs projecting perpendicular from the face of the building, or above the roof, and/or parapet coping, will not be permitted. 3. Signs must be constructed of reverse channel aluminum fabricated individual letters 12" high and 2" deep, Microgramma Bold Style mounted to masonry using 1/8" brass standoffs. Color to match Sherwin Williams Mosaic Blue BM-33.7. 4. Box or Plaque type signs will not be permitted. 5. Insignias or trademarks might be permitted if in the Landlord's opinion, proper relationship is achieved with overall design concept. Landlord's decision will be final. 6. Flashing or moving lights will not be permitted, nor will flood lighting be allowed. 7. Placement of signs to be in accordance with attached plan. -22- 26 [MAP] -23- 27 RIDER NO. 1 ANNEXED TO AND MADE A PART OF LEASE BETWEEN WRC PROPERTIES, INC. AS LANDLORD AND REXALL SUNDOWN, INC. AS TENANT DATED APRIL 25, 1995 ADDENDUM OPTION TO EXTEND The Tenant is hereby granted an option to extend the term of this Lease for an additional one (1) year; commencing upon the expiration date of the term of this Lease, subject to the terms of this Lease as well as the following terms and conditions: 1. To exercise this option, the Tenant shall give one hundred and twenty (120) days written notice prior to the termination date of the current Lease Term of its intention to extend. In the absence of such timely notification, the option to extent shall be null and void. 2. Tenant must not be in default of any of the conditions or covenants of this Lease at the time of the written notification of intention to extend this Lease. 3. This option to extend is non-transferable. 4. The rental rate for the option period shall be the current market rate per square foot at Boca Industrial Park, however, in no event shall the rental rate for the option period be less than $4.50 per square foot, NNN. 5. The premises shall be leased in "as-is" condition in the event Tenant exercises their option to extend. CONSENTS AND APPROVALS Whenever this lease requires landlord's consent or approval, landlord will not withhold its approval or consent unreasonably or in bad faith, and landlord will not unreasonably delay its response to tenant's request for its approval or consent. Landlord will be deemed to have given its consent or approval to any request made by tenant in writing if landlord does not respond to tenant in writing within sixty (60) days after landlord's receipt of the request. If landlord withholds its consent or approval, its response will explain its reasons for doing so. LANDLORD ACCESS Whenever this requires landlord's access to the leased premises, Landlord shall enter the premises at reasonable times with reasonable notice, except in the case of an emergency. PREVAILING PARTY To the extent that there are any conflicts between the provision as contained in this Addendum and the provisions of this Lease, then the following provision of this Addendum shall govern: Should suit be brought for the recovery of possession of the Premises, or for rent or any other sum due Landlord under this Lease, or because of the default of any of the covenants of the parties under this Lease, the prevailing party shall be entitled to recover all expenses of such suit and any appeal thereof, including reasonable attorney's fees. - 24 - 28 WITNESS: "LANDLORD" WRC PROPERTIES, INC. /s/ Loretta Monahan - ---------------------------- /s/ By: /s/ Harry St. Clair - ---------------------------- ----------------------------------- "TENANT" REXALL SUNDOWN, INC. /s/ Deborah Shur Trinker - ---------------------------- /s/ Rachelle F. Schindle By: /s/ Richard Werber - ---------------------------- ---------------------------------- -25- EX-10.26 11 STANDARD INDUSTRIAL LEASE 5/16/96 1 Exhibit 10.26 DERMODY PROPERTIES STANDARD INDUSTRIAL LEASE For Landlord Use Only: (NET-NET-NET) Building #: 228A L/A: EGZ Lease Preparation Date: May 16, 1996 Landlord: Dermody Properties, a Nevada Corporation, located at 1200 Financial Boulevard, P.O. Box 7098, Reno, Nevada 89510 Tenant: Rexall Sundown, Inc., a Florida Corporation Trade Name (dba): Rexall Sundown, Inc. 1. LEASE TERMS 1.01 Premises: The Premises referred to in this Lease contain approximately 65,108 square feet as shown on Exhibit "A" attached. The address of the Leased Premises is: 1430 East Greg Street, Suite 101, Sparks, Nevada 89431. 1.02 Project: The Project in which the Premises are located consist of approximately 201,295 square feet as shown in Exhibit A. 1.03 Tenant's Notice Address: Tenant's Notice Address is the address of the Leased Premises as defined in Section 1.01 unless otherwise specified here: 851 Broken Sound Parkway NW, Boca Raton, Florida 33487 1.04 Landlord's Notice Address: P.O. Box 7098, Reno, Nevada 89510 1.05 Tenant's Permitted Use: Warehousing, production and distribution of vitamins and consumer health products. 1.06 Lease Term: The Lease Term is for three (3) years and commences on October 1, 1996, and expires September 30, 1999. 1.07 Base Monthly Rent: TWENTY-ONE THOUSAND, FOUR HUNDRED EIGHTY-FIVE AND 64/100 DOLLARS ($21,485.64) in lawful money of the United States of America. Adjustments to the Base Monthly Rent shall be made N/A. 1.08 Security Deposit: TWENTY-FOUR THOUSAND, SEVEN HUNDRED FORTY-ONE AND 04/100 DOLLARS ($24,741.04) in lawful money of the United States of America. 1.09 Proportionate Share: Tenant's Proportionate Share is 32.34% based upon the total square footage of the Project and the square footage of the Premises. 1.10 Index: The Index for calculating cost of living adjustments in the Consumer Price Index shall be the All Urban Consumers, U.S. City Average (1982/84=100). 1.11 Tenant is entitled to common vehicle parking spaces subject to the provisions of Section 8 of the Lease. 1.12 Tenant Improvements: Tenant Improvements to be performed in the Premises, if any, will be performed in accordance with the terms and provisions entitled "Landlord's Work" contained in Exhibit "B" attached if applicable. Thereafter during the Lease Term, Landlord will be under no obligation to alter, change, decorate or improve the Premises. 2. DEMISE AND POSSESSION 2.01 Landlord leases to Tenant and Tenant leases from Landlord the Premises described in 1.01. By entering the Premises, Tenant acknowledges that it has examined the Premises and accepts the Premises in their present condition subject to any additional work Landlord has agreed to do as stated on Exhibit B if applicable. Landlord expressly reserves its right to lease any other space available in the Project to whom ever it wishes, further Tenant hereby acknowledges that it did not rely on any other tenant remaining a tenant in the Project as a consideration for entering into this Lease. 2.02 If for any reason Landlord cannot deliver possession of the Premises on the date the Lease commences, Landlord shall not be subject to any liability nor shall the validity of this Lease be affected. If Tenant has not caused such delay there shall be a proportionate reduction of the Base Monthly Rent covering the period between the commencement of the Lease Term and the date when Landlord can deliver possession. However, Tenant, unless it is the cause of the delay, has the right to cancel this Lease by written notification if possession of the Premises is not delivered within ninety (90) days of the date the Lease Term commences. Landlord may terminate this Lease by giving written notice to Tenant if possession of the Premises is not delivered within one hundred eighty (180) days of the date the lease is to commence. 3. BASE MONTHLY RENT 3.01 Base Monthly Rent: On the first day of every calendar month of the Lease Term commencing October 1, 1996, Tenant will pay, without deduction or offset, prior notice or demand, Base Monthly Rent at the place designated by Landlord. However, the first month's rent is due and payable upon execution of this Lease. In the event, that the Term of this Lease commences or ends on a day other than the first day of a calendar month, a prorated amount of Base Monthly Rent shall be due upon execution and it will be calculated using a thirty (30) day month. In the event this Lease is to commence upon a date not ascertained on execution, both parties agree to complete and execute a Commencement Date Certificate in the form of Exhibit "E" within ten (10) days of the Commencement Date, if applicable. 2 3.03 Any installment of rent or any other charge payable which is not paid within ten (10) days after it becomes due will be considered past due and Tenant will pay to Landlord as Additional Rent a late charge equal to the product of the variable Prime Rate "Prime", plus six percent (6%) per annum as charged by Bank of America, Nevada; times the amount of such installment amount due, or eighteen percent (18%) per annum of such installment or the sum of twenty-five dollars ($25.00), whichever is greater, for each month or fractional month transpiring from the date due until paid. A twenty-five dollar ($25.00) handling charge will be paid by Tenant to Landlord for each returned check and, thereafter, Tenant will pay all future payments of rent or other charges due by money order or cashier's check. In the event a late charge is assessed for three (3) consecutive rental periods, whether or not it is collected, the rent shall without further notice become due and payable quarterly in advance notwithstanding any provision this Lease to the contrary. If Tenant shall be served with a demand for the payment of past due rent, any payments tendered thereafter to cure any default by Tenant shall be made only by cashier's check. 3.04 The amount of the Base Monthly Rent includes projected construction of Tenant's improvements as indicated on Exhibit "B" attached. In the event that Tenant requests Landlord to construct additional improvements and/or final construction costs exceed original estimates, such costs or expenses upon itemized notice by Landlord, shall be paid by Tenant to Landlord, or Landlord may increase the Base Monthly Rent according to the terms and conditions outlined on Exhibit "B", or elsewhere in this Lease. 4. COMMON AREAS 4.01 Definitions: "Common Areas: "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project that are provided and designated by Landlord for the non-exclusive use of Landlord, Tenant and other lessees of the Project and their respective employees, agents, customers and invitees. Common Areas include, but are not limited to: all parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, corridors, landscaped areas and any restrooms used in common by lessees. 4.02 Tenant, its employees, agents, customers and invitees have the non-exclusive right (in common with other Tenants, Landlord, and any other person granted use by Landlord) to use of the Common Areas. Tenant agrees to abide by and conform to, and to cause its employees, agents, customers and invitees to abide by and conform to all rules and regulations established by Landlord subject to provisions of paragraph 24. 4.03 Landlord has the right, in its sole discretion, from time to time, to: 1) make changes to the Common Areas, including without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, ingress, egress, direction of driveways, entrances, corridors parking areas and walkways; 2) close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; 3) add additional buildings and improvements to the Common Areas; 4) use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or any portion thereof; do and perform any other acts or make any other changes in, to or with respect to the Common Areas and Project as Landlord may, in the exercise of sound business judgement, deem to be appropriate. 5. ADDITIONAL RENT 5.01 All charges payable by Tenant other than Base Monthly Rent are called "Additional Rent". Unless this lease provides otherwise, Additional Rent is to be paid with the next monthly installment of Base Monthly Rent and is subject to the provisions of 3.03. The term "rent" whenever used in this Lease means Base Monthly Rent and Additional Rent. 5.02 Operating Costs A. "Operating Costs" are all costs and expenses of ownership, operation, maintenance, management, repair and insurance incurred by Landlord for the Project including, bit not limited to the following: all supplies, materials, labor and equipment, used in or related to the operation and maintenance of the Common Areas; all utilities, including but not limited to: water, electricity, gas, heating, lighting, sewer, waste disposal related to the maintenance or operation of the Common Areas; all air-conditioning and ventilating costs related to the maintenance or operation of the Project; all Landlord's costs in managing, maintaining, repairing, operating and insuring the Project, including, for example, clerical, supervisory, and janitorial staff; all maintenance, management and service agreements, including but not limited to, janitorial, security, trash removal related to the maintenance or operation of the Project; all legal and accounting costs and fees for licenses and permits related to the ownership and operation of the Project; all insurance premiums and costs of fire, casualty, and liability coverage, rent abatement and earthquake insurance and any other type of insurance related to the Entire Project, including any deductible for a loss attributable to the Premises; all operation, maintenance and repair costs to the Common Areas, including but not limited to, sidewalks, walkways, parkways, parking areas, loading and unloading areas, trash areas, roadways, driveways, corridors, and landscaped area, including for example, costs of resurfacing and restriping parking areas; all maintenance and repair costs of building exteriors (including painting, asphalt repair and replacement and roof maintenance, repair and replacement), restrooms used in common by Tenants and signs and directories of the Project; amortization (along with reasonable financing charges) of capital improvements made to the Common Areas which may be required by any government authority or which will improve the operating efficiency of the Project; a reasonable reserve for repairs and replacement; a five percent (5%) fee for Landlord's supervision of the Common Areas (five percent (5%) of the total above mentioned costs and expenses incurred in a calender year). Operating Costs will not include depreciation of the Project. B. Tenant shall pay to Landlord Tenant's Proportionate Share of the Operating Costs as indicated in 1.09. If there is a change in the square footage of either the Project or the Premises during the term of this Lease the Proportionate Share of the Tenant shall be adjusted accordingly. Such payment shall be paid by Tenant with and in addition to the monthly payment of Base Monthly Rent. Tenant shall, if Landlord so elects, pay to Landlord on a monthly basis, in advance, the amount which Landlord reasonably estimates to be Tenant's Proportionate Share of the Operating Costs. In the event of such election by Landlord, Landlord shall periodically determine Tenant's share of the actual Operating Costs, and in the event that the amount which Tenant -2- 3 has paid to Landlord on account of the estimated Operating Costs is less than his share of such actual Operating Costs, Tenant shall pay such difference to Landlord on the next rent payment date. In the event that Tenant has paid to Landlord more than his share of such actual Operating Costs, the amount of such difference shall be credited against Tenant's payments of Operating Costs next due or if such period is at the end of the Lease term the amount of any overpayment shall be promptly refunded to Tenant. C. Failure by Landlord to provide Tenant with a statement by April 1st of each year shall not constitute a waiver by Landlord of its right to collect Tenant's share of Operating Costs or estimates for a particular calendar year, Landlord's right to charge Tenant for such expenses in subsequent years is not waived. 5.03 Taxes A. "Real Project Taxes" are: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, penalty or tax imposed by any taxing authority against the Project; (ii) any tax or fee on Landlord's right to receive, or the receipt of, rent or income from the Project or against Landlord's business of leasing the Project, (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Project by any governmental agency; (iv) any tax imposed upon this transaction, or based upon a re-assessment of the Project due to a change in ownership or transfer of all of part or Landlord's interest in the Project; (v) any charge or fee replacing, substituting for, or in addition to any tax previously included within the definition on real property tax; and (vi) the Landlord's cost of any tax protest relating to any of the above. Real Project Taxes do not, however, include Landlord's federal or state income, franchise, inheritance or estate taxes. B. Tenant shall pay to Landlord Tenant's Proportionate Share of the Real Project Taxes as indicated in 1.09. Such payment shall be paid by Tenant annually upon being invoiced for such taxes in addition to the monthly payment of Base Monthly Rent. Tenant shall, if Landlord so elects, pay to Landlord on a monthly basis, in advance, the amount which Landlord reasonably estimates to be Tenant's Proportionate Share of the Real Project Taxes. In the event of such election by Landlord, Landlord shall periodically determine Tenant's share of the actual Real Project Taxes, and in the event that the amount which Tenant has paid to Landlord on account of the Real Project Taxes is less than his share of such actual Real Project Taxes, Tenant shall pay such difference to Landlord on the next rent payment date. In the event that Tenant has paid to Landlord more than his share of such actual Real Project Taxes, the amount of such difference shall be credited against Tenant's payment of Real Project Taxes next due. If the Lease term is expired then Landlord shall promptly refund any overpayment to Tenant. C. Personal Property Taxes: Tenant will pay all taxes charged against trade fixtures, furnishing, equipment or any other personal property belonging to Tenant. Tenant will have personal property taxes billed separately from the Project. If any of Tenant's personal property is taxed with the Project, Tenant will pay Landlord the taxes for the personal property upon demand by Landlord. 5.04 Based on Tenant's Proportionate Share defined in 1.09, Tenant agrees to pay as Additional Rent to Landlord its share of any parking charges, utility surcharges, occupancy taxes, or any other costs resulting from the statutes or regulations, or interpretations thereof, enacted by any governmental authority in connection with the use or occupancy of the Project or the parking facilities serving the Project, or any part thereof. 5.05 Landlord by completing this paragraph may elect to have Tenant pay a monthly estimate of the Additional Rent due from Tenant of 5 cents per square foot, i.e. THREE THOUSAND TWO HUNDRED FIFTY-FIVE AND 40/100 DOLLARS ($3,255.40). Landlord shall make adjustments to this estimate based upon actual costs and projected future costs. Landlord shall periodically determine the balance between actual Additional Rent and Additional Rent paid by Tenant and make adjustments in accordance with 5.02 and 5.03 above. 6. SECURITY DEPOSIT 6.01 If Tenant defaults with respect to any provision of this Lease, Landlord may retain, use or apply all or any part of the Security Deposit to compensate Landlord for any loss or damage suffered by Tenant's default including but not limited to, the payment of Base Monthly Rent, Additional Rent or other rental sums due, and for payment of amounts Landlord is obligated to spend by reason of Tenant's default. If any portion is so retained, used or applied, Tenant, upon demand, will deposit with Landlord an amount sufficient to restore the deposit to its original amount, as adjusted per 3.02, except as otherwise provided by law. Landlord will not be required to keep the Security Deposit separate from its general funds, and Tenant will not be entitled to interest on it. If Tenant fully and faithfully performs every provision of this Lease, the Security Deposit or a balance thereof will be returned to Tenant within 30 days after the expiration of this Lease or any renewals of this Lease. In no event will Tenant have the right to apply any part of the Security Deposit to any rents payable under this Lease. 7. USE OF PREMISES; QUIET CONDUCT 7.01 The Premises may be used and occupied only for Tenant's Permitted Use as shown in 1.05 and for no other purpose, without obtaining Landlord's prior written consent. Tenant will comply with all laws, ordinances, orders and regulations affecting the Premises. Tenant will not perform any act or carry on any practices that may injure the Project or the Premises or be a nuisance or menace, or disturb the quiet enjoyment of other lessees in the Project including but not limited to equipment which causes vibration, use or storage of chemicals, or heat or noise which is not properly insulated. Tenant will not cause, maintain or permit any outside storage on or about the Premises. In addition, Tenant will not allow any condition or thing to remain on or about the Premises which diminishes the appearance or aesthetic qualities of the Premises and/or the Project or the surrounding property. The keeping of a dog or other animal on or about the Premises is expressly prohibited. 7.02 As used in this section, the term "Hazardous Waste" means: A. Those substances defined as "hazardous substances", "hazardous materials", "toxic substances", "regulated substances", or "solid waste" in the Toxic Substance Control Act, 15 U.S.C. Section 2601 et. seq., as now existing or hereafter amended ("TSCA"), the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C Section 9601 et. seq., as now existing or hereafter amended ("CERCLA"), the Resource, Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et. seq., as now existing or hereafter amended ("RCRA"), the Federal Hazardous Substances Act, 15 U.S.C. Section 1261 et. seq., as now existing or hereafter amended ("FHSA"), the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et. seq., as now existing or hereafter amended ("OSHA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et. seq., as now existing or hereafter amended ("HMTA"), and the rules and regulations now in effect or promulgated hereafter pursuant to each law referenced above; B. Those substances defined as "hazardous waste", hazardous material", or "regulated substances" in Nev. Rev. Stat. ch 459, 1989 Nev. Stat. ch. 598 and 1989 Nev. Stat. ch 363, or in the regulations now existing or hereafter promulgated pursuant thereto or in the Uniform Fire Code, 1988 edition; -3- 4 C. Those substances listed in the United States Department of Transportation table (49 CFR Section 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); and D. Such other substances, mixtures, materials and waste which are regulated under applicable local, state, or federal law, or which are classified as hazardous or toxic under federal, state or local laws or regulations(all laws, rules and regulations referenced in paragraphs (a), (b), (c) and (d) are collectively referred to as "Environmental Laws"). 7.03 Tenant's Covenants. Tenant does not intend to and Tenant will not, nor will Tenant allow any other person (including partnerships, corporations and joint ventures), during the term of this Lease to manufacture, process, store, distribute, use, discharge or dispose of any Hazardous Waste in, under or on the Project, the Common Areas, or any property adjacent thereto. A. Tenant shall notify Landlord promptly in the event of any spill or release of Hazardous Waste into, on, or onto the Project regardless of the source of spill or release, whenever Tenant knows or suspects that such a release occurred. B. Tenant will not be involved in operations at or near the Project which could lead to the imposition on the Tenant or the Landlord of liability or the creation of a lien on the Project, under the Environmental Laws. C. Tenant shall, upon twenty-four (24) hour prior notice by Landlord, permit Landlord or Landlord's agent access to the Project to conduct an environmental site assessment with respect to the Project. 7.04 Indemnity. Tenant for itself and its successors and assigns undertakes to protect, indemnify, save and defend Landlord, its agents, employees, directors, officers, shareholders, affiliates, consultants, independent contractors, successors and assigns (collectively the "Indemnitees") harmless from any and all liability, loss, damage and expense, including reasonable attorneys' fees, claims, suits and judgments that Landlord or any other Indemnitee, whether as Landlord or otherwise, may suffer as a result of, or with respect to: A. The violation by Tenant to Tenant's agents, employees, invitees, licensees or contractors of any Environmental Law, including the assertion of any lien thereunder and any suit brought or judgment rendered regardless of whether the action was commenced by a citizen (as authorized under the Environmental Laws) or by a government agency; B. To the extent caused, directly or indirectly by Tenant or Tenant's agents, employees, invitees, licensees or contractors any spill or release of or the presence of any Hazardous Waste affecting the Project whether or not the same originates or emanates from the Project or any contiguous real estate, including any loss of value of the Project as a result of a spill or release of or the presence of any Hazardous Waste; C. To the extent caused, directly or indirectly by Tenant or Tenant's agents, employees, invitees, licensees or contractors any other matter affecting the Project within the jurisdiction of the United States Environmental Protection Agency, the Nevada State Environmental Commission, the Nevada Department of Conservation and Natural Resources, or the Nevada Department of Commerce, including costs of investigations, remedial action, or other response costs whether such costs are incurred by the United States Government, the State of Nevada, or any Indemnitee; D. To the extent caused, directly or indirectly by Tenant or Tenant's agents, employees, invitees, licensees or contractors liability for clean-up costs, fines, damages or penalties incurred pursuant to the provisions of any applicable Environmental Law; and E. To the extent caused, directly or indirectly by Tenant or Tenant's agents, employees, invitees, licensees or contractors liability for personal injury or property damage arising under any statutory or common-law tort theory, including, without limitation, damages assessed for the maintenance of a public or private nuisance, or for the carrying of an abnormally dangerous activity, and response costs. 7.05 Remedial Acts. In the event of any spill or release of or the presence of any Hazardous Waste affecting the Project, caused by Tenant, its employees, agents, invitees, licensees, or contractors, whether or not the same originates or emanates from the Project or any contiguous real estate, and/or if Tenant shall fail to comply with any of the requirements of any Environmental Law, Landlord may, without notice to Tenant, at its election, but without obligation so to do, gives such notices and/or cause such work to be performed at the Project and/or take any and all other actions as Landlord shall deem necessary or advisable in order to remedy said spill or release of Hazardous Waste or cure said failure of compliance and any amounts paid as a result thereof, together with interest at the rate equal to the product of the variable Prime Rate "Prime", plus six percent (6%) per annum as charged by Bank of America, Nevada; times the amount of such installment amount due, or eighteen percent (18%) per annum of such installment or the sum of twenty-five dollars ($25.00), whichever is greater, for each month or fractional month transpiring from the date due until paid. 7.06 Settlement. Landlord upon giving Tenant ten (10) days prior notice, shall have the right in good faith to pay, settle or compromise, or litigate any claim, demand, loss, liability, cost, charge, suit, order, judgment or adjudication under the belief that it is liable therefor, whether liable or not, without the consent or approval of Tenant unless Tenant within said ten (10) day period shall protest in writing and simultaneously with such protest deposit with Landlord collateral satisfactory to Landlord sufficient to pay and satisfy any penalty and/or interest which may accrue as a result of such protest and any judgment or judgments as may result, together with attorney's fees and expenses, including, but not limited to, environmental consultants. 8. PARKING 8.01 Tenant and Tenant's customers, suppliers, employees, and invitees have the non-exclusive right to park in common with other lessees in the parking facilities as designated by Landlord. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other lessees in the use of the parking facilities. Landlord reserves the right to, on an equitable basis, assign specific spaces with or without charge to Tenant as Additional Rent, make changes in the parking layout from time to time, and to establish reasonable time limits on parking. 9. UTILITIES 9.01 Tenant will be responsible for and shall pay for all water, gas, heat, light, power, sewer, electricity, or other services metered, chargeable to or provided to the Premises separate from and in addition to the costs outlined in Section 5.02 dealing with the utility costs for Common Area Maintenance. Landlord reserves the right to install separate meters from any such utility. -4- 5 9.02 Landlord will not be liable or deemed in default to Tenant nor will there be any abatement of rent for any interruption or reduction of utilities or services not caused by any act of Landlord or any act reasonably beyond Landlord's control. Tenant agrees to comply with energy conservation programs implemented by Landlord by reason of enacted laws or ordinances. 9.03 Tenant will contract and pay for all telephone and such other services for the Premises subject to the provisions of 10.03. 10. ALTERATIONS, MECHANIC'S LIENS 10.01 Tenant will not make any alterations to the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld. Landlord's consent shall be contingent upon Tenant providing Landlord with the following items or information, all subject to Landlord's approval: (i) Tenant's contractor, (ii) certificates of insurance by Tenant's contractor for commercial general liability insurance with limits not less than $2,000,000 General Aggregate, $1,000,000 Products/Complete Operations Aggregate, $1,000,000 Personal & Advertising Injury, $1,000,000 Each Occurrence, $50,000 Fire Damage, $5,000 Medical Expense, $1,000,000 Auto Liability (Combined Single Limit, including Hired/Non-Owned Auto Liability), Workers Compensation, including Employer's Liability, as required by state statute endorsed to show Landlord as an additional insured and for worker's compensation as required and (iii) detailed plans and specifications for such work. Tenant agrees that it will have its contractor execute a waiver of mechanic's lien and that Tenant will remove any mechanic's lien placed against the Project within ten (10) hays of receipt of notice of lien. In addition, before alterations may begin, valid building permits or other permits or licenses required must be furnished to Landlord, and, once the alterations begin, Tenant will diligently and continuously pursue their completion. At Landlord's option, any alterations may become part of the realty and belong to Landlord. If requested by Landlord, Tenant will pay, prior to the commencement of the construction, an amount determined by Landlord necessary to cover the costs of demolishing such alterations and/or the cost of returning the Premises to its condition prior to such alterations. As a further condition to giving such consent, Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a payment and performance bond in form acceptable to Landlord, in a principal amount not less than one and one-half times the estimated costs of such alterations, to ensure Landlord against any liability for mechanic's and materialmen's liens and to ensure completion of work. Tenant, at Landlord's option, shall at Tenant's expense remove all alterations and repair all damage to the Premises. 10.02 Notwithstanding anything in 10.01, Tenant may, with written consent of Landlord, install trade fixtures, equipment, and machinery in conformance with the ordinances of the applicable city and county, and they may be removed upon termination of its Lease provided the Premises are not damaged by their removal. 10.03 Any private telephone systems and/or other related telecommunications equipment and lines must be installed within Tenant's Premises and, upon termination of this Lease removed and the Premises restored to the same condition as before such installation. 10.04 Tenant will pay all costs for alterations and will keep the Premises, the Project and the underlying property free from any liens arising out of work performed for, materials furnished to or obligation incurred by Tenant. 10.05 Landlord will have the right to construct or permit construction of tenant improvements in or about the Project for existing and new Tenants and to alter any public areas in and around the Project. Notwithstanding anything which may be contained in this Lease, Tenant understands this right of Landlord and agrees that such construction will not be deemed to constitute a breach of this Lease by Landlord and Tenant waives any such claim which it might have arising from such construction. 11. FIRE INSURANCE: HAZARD AND LIABILITY INSURANCE 11.01 Except as expressly provided as Tenant's Permitted Use, or as otherwise consented to by landlord in writing, Tenant shall not do or permit anything to be done within or about the Premises which will increase the existing rate of insurance on the Project and shall, at its sole cost and expense, comply with any requirements, pertaining to Premises, of any insurance organization insuring the Project and Project-related apparatus. Tenant agrees to pay to Landlord, as Additional Rent, any increases in premiums on policies resulting from Tenant's Permitted Use or other use consented to by Landlord which increases Landlord's premiums or requires extended coverage by Landlord to insure the Premises. 11.02 Tenant, at all times during the term of this Lease and at Tenant's sole expense, will maintain a policy of standard fire and extended coverage insurance with "all risk" coverage on all Tenant's improvements and alterations in or about the Premises and on all personal property and equipment to the extent of at least ninety percent (90%) of their full replacement value. The proceeds from this policy will be used by Tenant for the replacement of personal property and equipment and the restoration of Tenant's improvements and/or alterations. This policy will contain an express waiver, in favor of Landlord, of any right of subrogation by the insurer. 11.03 Tenant, at all times during the term on this Lease and at Tenant's sole expense, will maintain a policy of commercial general liability coverage with limits of not less than $2,000,000 combined single limit for bodily injury and property damage insuring against all liability of Tenant and its authorized representatives arising out of or in connection with Tenant's use or occupancy of the Premises. 11.04 All insurance will name Landlord and/or Landlord's designated partners and affiliates as an additional insured and will include an express waiver of subrogation by the insurer in favor of Landlord and Tenant and will release Landlord from any claims for damage to any person, to the Premises, and to the Project, and to Tenant's personal property, equipment, improvements and alterations in or on the Premises of the Project, caused by or resulting from risks which are to be insured against by Tenant under this Lease. All insurance required to be provided by Tenant under this Lease will (a) be issued by an insurance company authorized to do business in the state in which the Premises are located and which has and maintains a rating of A/X in the Best's Insurance Reports or the equivalent, (b) be primary and noncontributing with any insurance carried by Landlord, and (c) contain an endorsement requiring at least thirty (30) days prior written notice of cancellation to Landlord before cancellation or change in coverage, scope or limit of any policy. Tenant will deliver a certificate of insurance or a copy of the policy to Landlord with thirty (30) days of execution of this Lease and will provide evidence of renewed insurance coverage at each anniversary, and prior to the expiration of any current policies; however, in no event will Tenant be allowed to occupy the Premises before providing adequate and acceptable proof of insurance as stated above. Tenant's failure to provide evidence of this coverage to Landlord may, in Landlord's sole discretion, constitute a default under this Lease. 12. INDEMNIFICATION AND WAIVER OF CLAIMS 12.01 Tenant waives all claims against Landlord for damage to any property in or about the Premises and for injury to any persons, including death resulting therefrom, regardless of cause or time of occurrence, except to the extent caused by the gross negligence or willful misconduct of Landlord. Tenant will defend, indemnify and hold Landlord harmless from and against any and all claims, actions, proceedings, expenses, damages and liabilities, including attorney's fees, arising out of, -5- 6 without limitation, any failure of Tenant to comply fully with all of the terms and conditions of this Lease except for any damage or injury which is the direct result of gross negligence or intentional misconduct by Landlord, its employees, agents, visitors, or licensees. 13. REPAIRS 13.01 Tenant shall, at its sole expense, keep and maintain the Premises and every part thereof (excepting common use equipment, which Landlord agrees to repair or replace pursuant to Section 5.02 unless damages are due to the neglect or intentional acts of Tenant or its agents, employees, visitors, or licensees), including interior windows, skylights, doors, plate glass, any store fronts and the interior of the Premises, in good and sanitary order, condition and repair. Tenant will, also, at its sole cost keep and maintain all utilities, fixtures, plumbing and mechanical equipment used by Tenant in good order and repair and furnish all expendables (light bulbs, paper goods, soaps, etc.) used in the Premises. The standard for comparison and need of repair will be the condition of the Premises at the time of commencement of this Lease and all repairs will be made by a licensed and bonded contractor approved by Landlord. 13.02 Tenant will not make repairs to the Premises at the cost of Landlord whether by deductions of rent or otherwise, or vacate the Premises or terminate the Lease if repairs are not made. If during the Term, any alteration, addition or change to the Premises is required by legal authorities, Tenant, at its sole expense, shall promptly make the same. The cost of any such capital improvements made by landlord shall be amortized over the useful life thereof in accordance with generally accepted accounting principles and included within the Operating Costs. In such case, Tenant shall reimburse Landlord for its Proportionate Share of the current monthly portion of such amortized costs pursuant to Section 5.02. Landlord reserves the right to make any such repairs or to otherwise maintain the Premises if such repairs or maintenance are required to be performed by Tenant hereunder and if such repairs are not made or the Premises are not maintained in good condition by Tenant and Tenant shall reimburse Landlord for all such costs upon demand. 13.03 If repairs deemed necessary by Landlord or any government authority are not made by Tenant within the prescribed time frame as requested in writing, Tenant shall be in default of this Lease. 13.04 Tenant shall, at its own expense, within thirty days of lease commencement, contract with a vendor acceptable to Landlord for the maintenance service of the HVAC which will be furnished to the Landlord upon request. If Tenant fails to obtain and maintain such a maintenance service contract Landlord shall have the right to obtain such a maintenance service contract at the expense of Tenant. 14. AUCTIONS, SIGNS, AND LANDSCAPING 14.01 Tenant will not conduct or permit to be conducted any sale by auction on the Premises. Landlord will have the right to control landscaping and approve the placement, size, and quality of signs. Tenant will not make alterations or additions to the landscaping and will not place any signs nor allow the placement of any signs, which are visible from the outside, on or about any building of the Project, nor in any landscape area, without the prior written consent of Landlord. Landlord will have the right in its sole discretion to withhold its consent. Any signs not in conformity with this Lease may be removed by Landlord at Tenant's expense. 15. ENTRY BY LANDLORD 15.01 Tenant will permit Landlord and Landlord's agents to enter the Premises at all reasonable times for the purpose of inspecting the same, or for the purpose of maintaining the Project, or for the purpose of making repairs, alterations or additions to any portion of the Project, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, or for the purpose of posting notices of nonresponsibility for alterations, additions or repairs, or for the purpose of showing the Premises to prospective tenants during the last six months of the Lease Term, or placing upon the Project any usual or ordinary "for sale" signs, without any rebate of rents and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant will permit Landlord at any time within sixty (60) days prior to the expiration of this Lease, to place upon the Premises any usual or ordinary "to let" or "to lease" signs. Tenant will not install a new or additional lock or any bolt on any door of the Premises without the prior written consent of Landlord, which will not be unreasonably withheld. If Landlord gives its consent, such work shall be undertaken by a locksmith approved by Landlord, at Tenant's sole cost. Landlord retains the right to charge Tenant for restoring any altered doors to their condition prior to the installation of the new or additional locks. 17. DESTRUCTION 17.01 In the case of total destruction of the Premises, or any portion thereof substantially interfering with Tenant's use of the Premises, whether by fire or other casualty, not caused by the fault or negligence of Tenant, its agents, employees, servants, contractors, subtenants, licensees, customers or business invitees, this Lease shall terminate except as herein provided. If Landlord notifies Tenant in writing within forty-five (45) days of such destruction of Landlord's election to repair said damage, and if Landlord proceeds to and does repair such damage with reasonable dispatch, this Lease shall not terminate, but shall continue in full force and effect, except that Tenant shall be entitled to a reduction in the minimum rent in an amount equal to that proportion of the minimum rent which the number of square feet of floor space in the unusable portion bears to the total number of square feet of floor space in the Premises. Said reduction shall be prorated so that the rent shall only be reduced for those days any given area is actually unusable. In determining what constitutes reasonable dispatch, consideration shall be given to delays caused by labor disputes, civil commotion, war, warlike operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or control, fire or other casualty, inability to obtain any materials or services, acts of God and other causes beyond Landlord's control. If this Lease is terminated pursuant to this Section 17 and if Tenant is not in default hereunder, rent shall be prorated as of the date of termination, any security deposited with Landlord shall be returned to Tenant, less any reasonable offsets and all rights and obligations hereunder shall cease and terminate. 17.02 Notwithstanding the foregoing provisions, in the event the Premises, or any portion thereof, shall be damaged by fire or other casualty due to the fault or negligence of Tenant, its agents, employees, servants, contractors, subtenants, licensees, customers or business invitees, then, without prejudice to any other rights and remedies of Landlord, this Lease shall not terminate, the damage shall be repaired at Tenant's cost, and there shall be no apportionment or abatement of any rent. -6- 7 17.03 In the event of any damage not limited to, or not including, the Premises, such that the building of which the Premises is a part is damaged to the extent of twenty-five (25%) percent of more of the cost of replacement, or the buildings (taken in the aggregate) of the Project owned by Landlord shall be damaged to the extent of more than twenty-five (25%) of the aggregate cost of replacement, Landlord may elect to terminate this Lease upon giving notice of such election in writing to Tenant with ninety (90) days after the occurrence of the event causing the damage. 17.04 The provisions of this Section 17 with respect to Landlord shall be limited to such repair as is necessary to place the Premises in the condition specified for Landlord's work by Exhibit B (if applicable) and when placed in such condition the Leased Property shall be deemed restored and rendered tenantable promptly following which time Tenant, at Tenant's expense shall perform Tenant's work required by Exhibit B (if applicable) and Tenant shall also repair or replace its stock in trade, fixtures, furniture, furnishings, floor coverings and equipment, and if Tenant has closed, Tenant shall promptly reopen for business. 17.05 All insurance proceeds payable under Landlord's policy any fire, and/or rental insurance shall be payable solely to Landlord and Tenant shall have no interest therein. Tenant shall in no case be entitled to compensation for damages on account of any annoyance or inconvenience in making repairs under any provision of this Lease. Except to the extent provided for in this Section 17, neither the rent payable by Tenant nor any of Tenant's other obligations under any provision of this Lease shall be affected by any damage to or destruction of the Premises or any portion thereof by any cause whatsoever. 18. ASSIGNMENT, SUBLETTING AND TRANSFERS OF OWNERSHIP 18.01 Tenant will not, without Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), assign, sell, mortgage, encumber, convey or otherwise transfer all or any part of Tenant's leasehold estate, or permit the Premises to be occupied by anyone other than Tenant and Tenant's employees or sublet the premises or any portion thereof (collectively called "Transfer"). Tenant must supply Landlord with any and all documents deemed necessary by Landlord to evaluate any proposed Transfer at least sixty (60) days in advance of Tenant's proposed Transfer date. 18.02 Landlord need not consent to any Transfer for reasons including, but not limited to, whether or not: (a) in the reasonable judgment of Landlord the transferee is of a character or is engaged in a business which is not in keeping with the standard of Landlord for the Project; (b) in the reasonable judgment of Landlord any purpose for which the transferee intends to use the Premises is not in keeping with standards of Landlord for the Project; provided in no event may any purpose for which transferee intends to use the Premises be in violation of this Lease; (c) the portion of the Premises subject to the transfer is not regular in shape with appropriate means of entering and exiting, including adherence to any local, county or other governmental codes, or is not otherwise suitable for the normal purposes associated with such a Transfer; or (d) Tenant is in default under this Lease or any other Lease with Landlord. 18.03 In the event Landlord consents to a Transfer, Tenant will pay Landlord the excess, if any, of the rent and other charges reserved in the Transfer over the allocable portion of the rent and other charges hereunder for that portion of the Premises subject to the Transfer. For the purpose of this section, the rent reserved in the Transfer will be deemed to include any lump sum payment or other consideration given to Tenant in consideration for the Transfer. Tenant will pay or cause the transferee to pay to Landlord this additional rent together with the monthly installments of rent due. 18.04 Any consent to any Transfer which may be given by Landlord, or the acceptance of any rent, charges or other consideration by Landlord from Tenant or any third party, will not constitute a waiver by Landlord of the provisions of this Lease or a release of Tenant from the full performance by it of the covenants stated herein; and any consent given by Landlord to any Transfer will not relieve Tenant (or any transferee of Tenant) from the above requirements for obtaining the written consent of Landlord to any subsequent Transfer. 18.05 If a default under this Lease should occur while the Premises or any part of the Premises are assigned, sublet or otherwise transferred, Landlord, in addition to any other remedies provided for within this Lease or by law, may at its option collect directly from the transferee all rent or other consideration becoming due to Tenant under the Transfer and apply these monies against any sums due to Landlord by Tenant; and Tenant authorizes and directs any transferee to make payments of rent or other consideration direct to Landlord upon receipt of notice from Landlord. No direct collection by Landlord from any transferee should be construed to constitute a novation or a release of Tenant or any guarantor of Tenant from the further performance of its obligations in connection with this Lease. 18.06 If Tenant is a corporation or a partnership, the issuances of any additional stock or equity interest and/or the transfer, assignment or hypothecation of any stock or interest in such corporation or partnership in the aggregate in excess of Twenty-five (25%) of such interests, as the same may be constituted as of the date of this lease, whether directly or indirectly, shall be deemed to be a Transfer within the meaning of this Section 18. 18.07 In the event Tenant requests Landlord's consent to an Assignment, Sub-Let or Transfer of Tenant's interest in the leased Premises, Tenant agrees to pay Landlord all reasonable attorney's fees incurred by Landlord for any legal services for document review of any and all documents reasonably deemed necessary by Landlord and Tenant to Assign, Sub-let or Transfer Tenant's interest in the leased Premises. 19. BREACH BY TENANT 19.01 Tenant will be in breach of this Lease if at any time during the term of this Lease (and regardless of the pendency of any bankruptcy, reorganization, receivership, insolvency or other proceedings in law, in equity or before any administrative tribunal which have or might have the effect of preventing Tenant from complying with the terms of this Lease): A. Tenant fails to make payments of any installment of Base Monthly Rent, Additional Rent, or of any other sum herein specified to be paid by Tenant, within ten days following written Notice that the same is past due; or B. Tenant fails to observe or perform any of its other covenants, agreements or obligations hereunder, and such failure is not cured within ten (10) days after Landlord's written notice to Tenant of such failure; provided, however, that if the nature of Tenant's obligation is such that more than ten (10) days are required for performance, then Tenant will not be in breach if Tenant commences performance within such 10 day period and thereafter diligently prosecutes the same to completion; or C. Tenant, Tenant's assignee, subtenant, guarantor, or occupant of the Premises becomes insolvent, makes a transfer in fraud of its creditors, makes a transfer for the benefit of its creditors, is the subject of a bankruptcy petition, is adjudged bankrupt or insolvent in proceedings filed against Tenant, a receiver, trustee, or custodian is appointed for all or substantially all of Tenant's assets, fails to pay its debts as they become due, convenes a meeting of all or a portion of its creditors, or performs any acts of bankruptcy or insolvency, including the selling of its assets to pay creditors; or -7- 8 E. Tenant fails to take possession of the Premises within ninety (90) days of receiving notice by Landlord that the Premises are available. 20. REMEDIES OF LANDLORD 20.01 Nothing contained herein shall constitute a waiver of Landlord's right to recover damages by reason of Landlord's efforts to mitigate the damage to it by Tenant's default; nor shall anything in this Section adversely affect Landlord's right, as in this Lease elsewhere provided, to indemnification against liability for injury or damages to persons or property occurring prior to a termination of this Lease. 20.02 All cure periods provided herein shall run concurrently with any periods provided by law. 20.03 In the event of default which has occurred and is continuing, as designated herein above, in addition to any other rights or remedies provided for herein or at law or in equity, Landlord, at its sole option, shall have the following rights: A. The right to declare the term of this Lease ended and reenter the Premises and take possession thereof, and to terminate all of the rights of Tenant in and to the Premises. B. The right, without declaring the term of this Lease ended, to reenter the Premises and to occupy the same, or any portion thereof, for and on account of the Tenant as hereinafter provided, and Tenant shall be liable for and pay to Landlord on demand all such expenses as Landlord may have paid, assumed or incurred in recovering possession of the Premises, including reasonable costs, expenses, attorney's fees and expenditures placing the same in good order, or preparing or altering the same for reletting, and all other expenses, commissions and charges paid by the Landlord in connection with reletting the Premises. Any such reletting may be for the remainder of the term of this Lease or for a longer or shorter period. Such reletting shall be for such rent and on such other terms and conditions as Landlord, in its sole discretion, deems appropriate. Landlord may execute any lease made pursuant to the terms hereof either in the Landlord's own name or in the name of Tenant or assume Tenant's interest in any existing subleases to any tenant of the Premises, as Landlord may see fit, and Tenant shall have no right or authority whatsoever to collect any rent from such tenants, subtenants, of the Premises. In any case, and whether or not the Premises or any part thereof is relet, Tenant, until the end of the Lease term shall be liable to Landlord for an amount equal to the amount due as Rent hereunder, less net proceeds, if any of any reletting effected for the account of Tenant. Landlord reserves the right to bring such actions for the recovery of any deficits remaining unpaid by the Tenant to the Landlord hereunder as Landlord may deem advisable from time to time without being obligated to await the end of the term of the Lease. Commencement of maintenance of one or more actions by the Landlord in this connection shall not bar the Landlord from bringing any subsequent actions for further accruals. In no event shall Tenant be entitled to any excess rent received by Landlord over and above that which Tenant is obligated to pay hereunder; or C. The right, even though it may have relet all or any portion of the Premises in accordance with the provisions of subsection B, above, to thereafter at any time elect to terminate this Lease for such previous default on the part of the Tenant, and to terminate all the rights of Tenant in and to the Premises. 20.04 Pursuant to the rights of re-entry provided above, Landlord may remove all persons from the Premises and may, but shall not be obligated to, remove all property therefrom, and may, but shall not be obligated to, enforce any rights Landlord may have against said property or store the same in any public or private warehouse or elsewhere at the cost and for the account of Tenant or the owner or owners thereof. Tenant agrees to hold Landlord free and harmless from any liability whatsoever for the removal and/or storage of any such property, whether of Tenant or any third party whomsoever. Such action by the Landlord shall not be deemed to have terminated this Lease. 20.05 If Tenant breaches this Lease and abandons the Premises before the end of the term, or if its right of possession is terminated by Landlord because of Tenant's breach of this Lease, then this Lease may be terminated by Landlord at its option. On such Termination Landlord may recover from Tenant, in addition to the remedies permitted at law: A. The worth, at the time of the award, of the unpaid Base Monthly Rents and Additional Rents which had been earned at the time this Lease is terminated. B. The worth, at the time of the award, of the amount by which the unpaid Base Monthly Rents and Additional Rents which would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of rents that Tenant proves could be reasonably avoided; C. The worth, at the time of the award, of the amount by which the unpaid Base Monthly Rent and Additional Rents for the balance of the Lease Term after the time of award exceeds the amount of such rental loss for such period as the Tenant proves could have been reasonably avoided; and D. Any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's breach of its obligations under this Lease, or which in the ordinary course of events would be likely to result therefrom. The detriment proximately caused by Tenant's breach will include, without limitation, (i) expenses for cleaning, repairing or restoring the Premises, (ii) expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting the Premises, (iii) brokers' fees and commissions, advertising costs and other expenses of reletting the Premises, (iv) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions, (v) expenses of retaking possession of the Premises, (vi) reasonable attorney's fees and court costs, (vii) any unearned brokerage commissions paid in connection with this Lease, (viii) reimbursement of any previously waived Base Rent, Additional Rent, free rent or reduced rental rate, and (ix) any concession made or paid by Landlord to the benefit of Tenant in consideration of this Lease including, but not limited to, any moving allowances, contributions or payments by Landlord for tenant improvements or build-out allowances or assumptions by Landlord of any of the Tenant's previous lease obligations. 20.06 In any action brought by the Landlord to enforce any of its rights under or arising from this Lease, the prevailing party shall be entitled to receive its costs and legal expenses including reasonable attorneys' fees, whether or not such action is prosecuted to judgment. 20.07 The waiver by Landlord of any breach or default of Tenant hereunder shall not be a waiver of any preceding or subsequent breach of the same or any other term. Acceptance of any Rent payment shall not be construed to be a waiver of the Landlord of any preceding breach of the Tenant. 20.08 All past due amounts owned by Tenant under the terms of this Lease shall bear interest at twelve percent per annum unless otherwise stated. -8- 9 21. SURRENDER OF LEASE NOT MERGER 21.01 The voluntary or other surrender of this Lease by Tenant, or mutual cancellation thereof, will not work a merger and will, at the option of Landlord, terminate all or any existing transfers, or may, at the option of Landlord, operate as an assignment to it of any or all of such transfers. 22. ATTORNEYS FEES/COLLECTION CHARGES 22.01 In the event of any legal action or proceeding between the parties hereto, reasonable attorneys' fees and expenses of the prevailing party in any such action or proceeding will be added to the judgment therein. Should Landlord be named as defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant will pay to Landlord its costs and expenses incurred in such suit, including reasonable attorney's fees. 22.02 If Landlord utilizes the services of any attorney at law for the purpose of collecting any rent due and unpaid by Tenant after five (5) days written notice to Tenant of such nonpayment of rent or in connection with any other breach of this Lease by Tenant, Tenant agrees to pay Landlord reasonable attorneys' fees as determined by Landlord for such services, regardless of the fact that no legal action may be commenced or filed by Landlord. 23. CONDEMNATION 23.01 If twenty-five percent (25%) or more of the square footage of the Premises is taken for any public or quasi-public purpose by any lawful government power or authority, by exercise of the right of appropriation, reverse condemnation, condemnation or eminent domain, or sold to prevent such taking, and if the remaining portion of the Premises will not be reasonably adequate for the operation of Tenant's business after Landlord completes such repairs or alterations as Landlord elects to make, either Tenant or the Landlord may at its option terminate this Lease by notifying the other party hereto of such election in writing within twenty (20) days after such taking. Tenant will not because of such taking assert any claim against the Landlord or the taking authority for any compensation because of such taking, and Landlord will be entitled to receive the entire amount of any award without deduction for any estate of interest of Tenant. If less than twenty-five percent (25%) of the Premises is taken, Landlord at its option may terminate this Lease. If Landlord does not so elect, Landlord will promptly proceed to restore the Premises to substantially its same condition prior to such partial taking, allowing for any reasonable effects of such taking, and a proportionate allowance based on the loss of square footage will be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises, which, Tenant is deprived on account of such taking and restoration. 24. RULES AND REGULATIONS 24.01 Tenant will faithfully observe and comply with any Rules and Regulations promulgated by Landlord for the Project and Landlord reserves the right to modify and amend them as it deems necessary. Landlord will not be responsible to Tenant for the nonperformance by any other Tenant or occupant of the Project of any of said Rules and Regulations. 24.02 In the event that Tenant fails to cure any violations of such Rules and Regulations following ten (10) days written notice by Landlord, such failure to cure shall be deemed a material breach of this Lease by Tenant. 25. ESTOPPEL CERTIFICATE 25.01 Tenant will execute and deliver to Landlord, within ten (10) business days of Landlords written demand, a statement in writing certifying that this Lease is in full force and effect, and that the Base Monthly Rent and Additional Rent payable hereunder is unmodified and in full force and effect (or, if modified, stating the nature of such modification) and the date to which rent and other charges are paid, if any, and acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or specifying such defaults if they are claimed and such other matters as Landlord may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that (1) this Lease is in full force and effect, without modification except as may be represented by Landlord; (2) there are no uncured defaults in Landlord's performance and (3) not more than one (1) month's rents has been paid in advance. 26. SALE BY LANDLORD 26.01 In the event of a sale or conveyance by Landlord of the Project the same shall operate to release Landlord from any liability upon any of the covenants or conditions, expressed or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. This Lease will not be affected by any such sale, and Tenant agrees to attorn to the purchaser or assignee. 27. NOTICES 27.01 All notices, statements, demands, requests, consents, approvals, authorizations, offers, agreements, appointments, or designations under this Lease by either party to the other will be in writing and will be considered sufficiently given and served upon the other party if sent by certified or registered mail, return receipt requested, postage prepaid, delivered personally, or by a national overnight delivery service and addressed as indicated in 1.03 and 1.04. 28. WAIVER 28.01 The failure of Landlord to insist in any one or more cases upon the strict performance of any term, covenant or condition of the Lease will not be construed as a waiver of a subsequent breach of the same or any other covenant, term or condition; nor shall any delay or omission by Landlord to seek a remedy for any breach of this Lease be deemed a waiver by Landlord of its remedies or rights with respect to such a breach. 29. HOLDOVER 29.01 If Tenant remains in the Premises after the Lease Expiration date with the consent of the Landlord, and has not given prior written notice to Landlord, such continuance of possession by Tenant will be deemed to be a month-to-month tenancy at the sufferance of Landlord terminable on thirty (30) day notice at any time by either party. All provisions of this Lease, except those pertaining to term and rent, will apply to the month-to-month tenancy. Tenant will pay a new Base Monthly Rent in an amount equal to 150% of the base monthly rent payable for the last full calendar month during the regular term of this Lease. 30. DEFAULT OF LANDLORD/LIMITATION OF ABILITY 30.01 In the event of any default by Landlord hereunder, Tenant agrees to give notice of such default, by registered mail, to Landlord at Landlord's Notice Address as stated in 1.04 and to offer Landlord a reasonable opportunity to cure the -9- 10 default. In the event of any actual or alleged failure, breach or default hereunder by Landlord, Tenant's sole and exclusive remedy will be against Landlord's interest in the Project, and Landlord, its directors, officers, employees and any partner of Landlord will not be sued, be subject to service or process, or have a judgement obtained against him in connection with any alleged breach or default, and no writ of execution will be levied against the assets of any partner, shareholder or officer of Landlord. The covenants and agreements are enforceable by Landlord and also by any partner, shareholder or officer of Landlord. 31. SUBORDINATION 31.01 Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee with a lien on the Project or any ground lessor with respect to the Project, this Lease will be subject and subordinate at all times to (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Project, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Project, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant will, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver to Landlord any document or instrument reasonably requested by Landlord or its ground lessor, mortgagee or beneficiary under a deed of trust evidencing such subordination of this Lease with respect to any such ground lease or underlying leases or the lien of any such mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant. 32. DEPOSIT AGREEMENT 32.01 Landlord and Tenant hereby agree that Landlord will be entitled to immediately endorse and cash Tenant's good faith rent and the Security Deposit check(s) accompanying this Lease. It is further agreed and understood that such action will not guarantee acceptance of this Lease by Landlord, but, in the event Landlord does not accept this Lease, such deposits will be promptly refunded in full to Tenant. This Lease will be effective only after Tenant has received a copy fully executed by both Landlord and Tenant. 33. GOVERNING LAW 33.01 This Lease is governed by and construed in accordance with the laws of the State of Nevada, and venue of any suit will be in the county where the Premises are located unless the Premises are not located in Nevada in which case the venue will be Washoe County in the State of Nevada. 34. NEGOTIATED TERMS 34.01 This Lease is the result of the negotiations of the parties and has been agreed to by both Landlord and Tenant after prolonged discussion. 35. SEVERABILITY 35.01 If any provision of this Lease is found to be unenforceable, all other provisions shall remain in full force and effect. 36. BROKERS 36.01 Tenant warrants that it has had no dealings with any broker or agent in connection with this Lease, except -NONE- and covenants to pay, hold harmless and indemnify Landlord from and against any and all cost, expense or liability for any compensation, commissions and charges claimed by any broker or agent, other than any identified above, with respect to this Lease or its negotiation. 37. QUIET POSSESSION 37.01 Tenant, upon paying the rentals and other payments herein required from Tenant, and upon Tenant's performance of all of the terms, covenants and conditions of this Lease on its part to be kept and performed, may quietly have, hold and enjoy the Premises during the Term of this Lease without disturbance from Landlord or from any other person claiming through Landlord. 38. MISCELLANEOUS PROVISIONS 38.01 Whenever the singular number is used in this Lease and when required by the context, the same will include the plural, and the masculine gender will include the feminine and neuter genders, and the word "person" will include corporation, firm, partnership, or association. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease will be joint and several. 38.02 The headings or titles to paragraphs of this Lease are not a part of this Lease and will have no effect upon the construction or interpretation of any part of this Lease. 38.03 This instrument contains all of the agreements and conditions made between the parties to this Lease. Tenant acknowledges that neither Landlord nor Landlord's agents have made any representation or warranty as to the suitability of the Premises to the conduct of Tenant's business. Any agreements, warranties or representations not expressly contained herein will in no way bind either Landlord or Tenant, and Landlord and Tenant expressly waive all claims for damages by reason of any statement, representation, warranty, promise or agreement, if any, not contained in this Lease. 38.04 Time is of the essence of each term and provision of this Lease. 38.05 Except as otherwise expressly stated, each payment required to be made by Tenant is in addition to and not in substitution for other payments to be made by Tenant. 38.06 Subject to Article 18, the terms and provisions of this Lease are binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of Landlord and Tenant. 38.07 All covenants and agreements to be performed by Tenant under any of the terms of this Lease will be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. -10- 11 38.08 In consideration of Landlord's covenants and agreements hereunder, Tenant hereby covenants and agrees not to disclose any terms, covenants or conditions of this Lease to any other party without the prior written consent of Landlord. 38.09 Tenant agrees it will provide to Landlord such financial information as Landlord may reasonably request for the purpose of obtaining construction and/or permanent financing for the Premises. 38.10 If Tenant shall request Landlord's consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent; Tenant's sole remedy shall be an action for specific performance or injunction, and such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent or where as a matter of law Landlord may not unreasonably withhold its consent. 38.11 Whenever a day is appointed herein on which, or a period of time is appointed in which, either party is required to do or complete any act, matter or thing, the time for the doing or completion thereof shall be extended by a period of time equal to the number of days on or during which such party is prevented from, or is reasonably interfered with, the doing or completion of such act, matter or thing because of labor disputes, civil commotion, war, warlike operation, sabotage, governmental regulations or control, fire or other casualty, inability to obtain materials, or to obtain fuel or energy, weather or other acts of God, or other causes beyond such party's reasonable control (financial inability excepted); provided, however, that nothing contained herein shall excuse Tenant from the prompt payment of any Rent or charge required of Tenant hereunder. 38.12 No slot machine or other gambling game shall be permitted on the Premises without the prior written consent of Landlord. The Premises shall not be used for any "adult bookstore" or "adult motion picture theater" as said terms are defined in NRS 278.0221, or any similar use, notwithstanding any local zoning codes or ordinances or any other provisions of law to the contrary permitting such use. 39. CHANGE ORDERS. In the event Tenant requests and/or approves changes in the scope the work being provided by or through Landlord Tenant agrees to pay all the direct and indirect costs of additional work at the time it gives such approval. In the event that the aggregate cost of additional work provided under this Lease is ten thousand dollars ($10,000.00) or more, or in excess of two months rent, whichever is less, then Landlord may accept payment of one half of the cost of additional work at the time of approval of said change order by the Tenant, and payment of the balance to be paid at the time the additional work is substantially completed. 40. SPECIAL PROVISIONS 40.01 Special provision of this Lease numbers 41; and Exhibits "A", "B", "C", and "D" are attached hereto and made a part hereof. If none, so state in the following space: 41. OPTION TO EXTEND 41.01 Tenant is hereby granted one (1) option (the "Option") to extend the Lease Term for an additional term of three (3) years (the "Extension"), beginning on October 1, 1999, and expiring on September 30, 2002, (unless terminated sooner pursuant to any other terms or provisions of the Lease), on all of the same terms and conditions as set forth in the Lease, but at an adjusted rent as set forth in Section 41.02 below (and without any additional option to extend the Lease Term after the expiration of the Extension). The Option may be exercised by Tenant only by delivery of written notice to Landlord, which notice must be received by Landlord at least one hundred twenty (120) days before the expiration of the original Lease Term set forth in Section 1.06 above. If Tenant fails to timely deliver such written notice, or if this Lease is terminated pursuant to any other terms or provision of this Lease prior to the expiration of the original Lease Term, the Option shall lapse, and Tenant shall have no right to extend the Lease Term. The Option shall be exercisable by Tenant on the express conditions that (i) at the time of delivery of Tenant's notice of its election to exercise the Option, and at all times prior to the commencement of the Extension, Tenant shall not be in default under this Lease, (ii) Tenant has not previously been in default (whether or not any such default has been timely cured) under this Lease on more than three (3) occasions during the Lease Term, and (iii) Tenant has not assigned this Lease nor sublet all or any part of the Premises, it being understood that the Option is personal to the original named Tenant under this Lease. In the event of any such assignment or sublease, the Option shall lapse and shall be null and void and of no further force or effect. 41.02 The rental during this Option period shall be adjusted by an increase in the Consumer Price Index, hereafter called CPI, over the preceding three year period. The CPI shall mean the average for "all items" shown on the U.S. City Average for Urban Wage Earners and Clerical Workers (including Single Workers), all items, groups, sub-groups and special groups of items as promulgated by the Bureau of Labor Statistics of the U.S. Department of Labor. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year indicated by Landlord's execution date as written below. Individuals signing on behalf of a Tenant warrant that they have the authority to bind their principals. In the event that Tenant is a corporation, Tenant shall deliver to Landlord, concurrently with the execution and delivery of this Lease, a certified copy of corporate resolutions adopted by Tenant authorizing said corporation to enter into and perform the Lease and authorizing the execution and delivery of the Lease on behalf of the corporation by the parties executing and delivering this Lease. THIS LEASE, WHETHER OR NOT EXECUTED BY TENANT, IS SUBJECT TO ACCEPTANCE AND EXECUTION BY LANDLORD, ACTING ITSELF OR BY ITS AGENT ACTING THROUGH ITS PRESIDENT, VICE PRESIDENT, OR ITS DIRECTOR OF LEASING AND MARKETING. Landlord: Dermody Properties, a Nevada Corporation ------------------------------------------------- By: /s/ Michael C. Dermody -------------------------------------------------------- Michael C. Dermody Its: President ------------------------------------------------------ Date: 6-4-96 ------------------------------------------------------ (Execution date) Tenant: Rexall Sundown, Inc., a Florida Corporation --------------------------------------------------- By: /s/ Dean DeSantis -------------------------------------------------------- Its: Senior Vice President ------------------------------------------------------ Date: May 17, 1996 ------------------------------------------------------ (Execution date) -11- 12 Exhibit C (Tenant Questionnaire) TENANT QUESTIONNAIRE REGARDING USE OF PREMISES AT 1430 EAST GREG STREET, UNIT A, SPARKS, NEVADA 89431
Yes No 1. Will any manufacturing process be done on the subject premises? [ ] [X] 2. Do you or your company intend to use any internal combustion engines greater than 50 hp at the subject premises? [ ] [X] 3. Do you or your company intend to use processes that involve mixing, blending, or processing any solvents, adhesives, paints or coatings? [ ] [X] 4. Will your operation at the premises create any dusts or smoke? [ ] [X] 5. At the subject premises, will you or your company refine any liquids or solids? Reclaim any metals? [ ] [X] 6. Will you or your company plate or coat anything at the subject premises? [ ] [X] 7. Will any process be used on the Premises which requires equipment for the heating of materials (i.e., boilers, furnaces, broilers, baking ovens, etc.)? [ ] [X] 8. Will you handle or store solvents or motor fuels on the premises? [ ] [X] 9. Will you use or store any acids at the premises? [ ] [X] 10. Will you or your company use any chemical processes at the premises? [ ] [X] 11. Will you or your company use any solvents for clean up? [ ] [X] 12. Is your business a dry cleaner, restaurant, body shop, gasoline station, printer or part coater? [ ] [X] 13. Will you or your company use any process which requires lead or melting or soldering with lead or lead alloys? [ ] [X] 14. Do you or your company have a Hazardous Materials Management plan? [ ] [X]
If you have marked "Yes" to any of the questions as to processes, chemicals, including types and quantities, to be used on the Premises, please give a more detailed explanation below and on a second page if necessary. N/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ---------------------------------------- Name of person completing form: Dean DeSantis ------------------------------------------- Company name and address: Rexall Sundown, Inc. ------------------------------------------------- - --------------------------------------------------------------------------- Exhibit "C" to lease dated May 16, 1996, by and between Dermody Properties and Rexall Sundown, Inc. /s/ ? - ---------------------------------------- Dermody Properties /s/ Dean DeSantis, Sr. V.P. - ---------------------------------------- Rexall Sundown, Inc. -12- 13 EXHIBIT "D" RULES AND REGULATIONS It is further agreed that the following rules and regulations shall be and are hereby made a part of this Lease, and the Tenant agrees that its employees and agents, or any others permitted by the Tenant to occupy or enter said Premises, will at all times abide by said rules and regulations and that a default in the performance and observance thereof shall operate the same as any other defaults herein: 1. The sidewalks, entries, and driveways shall not be obstructed by the Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from their Premises. Landlord may remove any such obstruction or thing (unauthorized by Landlord) without notice or obligation to Tenant. 2. Tenant shall not place any movable objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped area or other areas outside of said Premises, or on the roof of said Premises. 3. No person shall disturb the occupants of this or adjoining Building or Premises by the use of any radio or musical instrument or by the making of loud or improper noises. 4. Parking any type of recreational vehicles is specifically prohibited. No vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformation with all signs and other markings. 5. Lessee shall not use, keep or permit to be used or to be kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other Lessees or those having business therein. Lessee shall maintain the leased Premises free from mice, bugs, and ants attracted by food, water or storage materials. 6. Lessor reserves the right to exclude or expel from the complex any person who in the judgment of the Lessor, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the said project. 7. Lessee shall give Lessor prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment or any dangerous or hazardous condition existing on the property. 8. No outside storage of pallets, boxes, cartons, drums or any other containers or materials used in shipping or transport of goods is allowed. Tenant shall place all refuse in proper receptacles provided by Tenant at Tenant's expense on the Premises or inside enclosures (if any) provided by Landlord for the Building, and shall keep sidewalks and driveways outside the Building and lobbies, corridor stairwells, ducts or shafts of the Building free of all refuse. 9. All moveable trash receptacles provided by the trash disposal firm must be kept in the trash enclosure areas where provided for that purpose. 10. The Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be needful and desirable for the safety, care and cleanliness of the Premises and for the preservation of good order therein. 11. Lessee shall not use any method of heating or air conditioning other than that supplied by Lessor without the consent of Lessor. -13- 14 RULES AND REGULATIONS Page 2. 12. No person shall go on the roof without Lessor's permission. 13. All goods, including material used to store goods, delivered to the Premises of Lessee shall be immediately moved into the Premises and shall not be left in parking or receiving areas overnight. 14. Tenants shall not do or permit anything to be done in their Premises or bring or keep anything therein which will in any way obstruct or interfere with the rights of other Tenants, or do, or permit anything to be done in their Premises which shall, in the judgement of the Landlord or its manager, in any way injure or annoy them, or conflict with the laws relating to fire, or with the regulations of the fire department or with any insurance policy upon the Building or any part thereof of any contents therein or conflict with any of the Rules and Ordinances of the public Building or health authorities. 15. All electrical equipment used by Tenants shall be U.L. approved. Nothing shall be done or permitted in Tenant's Premises, and nothing shall be brought into or kept in the Premises which would impair or interfere with any of the Building services or the proper and economic heating, cooling, cleaning or other servicing of the Building or the Premises. Tenant's computers and other equipment are hereby expressly allowed. 16. Tenants shall not install or operate any steam or gas engine or boiler, or carry on any mechanical business in the Building. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Building. Tenants shall not use any other method of heating than that supplied by Landlord. 17. Tenants shall not remove any carpet, or wall coverings, window blinds, or window draperies in their Premises without the prior written approval from Landlord. 18. No animals, birds or pets (other than seeing-eye dogs) of any kind shall be allowed in Tenant's Premises of Building. 19. The water closets, urinals, waste lines, vents or flues of the Building shall not be used for any purpose other than those for which they were constructed, and no rubbish, acids, vapors, newspapers or other such substances of any kind shall be thrown into them. The expense caused by any breakage, stoppage or damage resulting from a violation of this rule by any Tenant, its employees, visitors, guests or licensees, shall be paid by Tenant. 20. All decorating, carpentry work, or any labor required for the installation of Tenant's (a) equipment, such as an alarm system, computer, telephone/telegraph equipment, lines, cables or other electrical devices; or (b) furnishings or other property shall be performed at Tenants expense, and will not require Landlord's prior verbal or written approval. Should any such work require alterations that affect the heating, ventilation, air conditioning, plumbing, electrical or mechanical systems of the Building, the roof, or the structure of the Building, Landlord's prior written approval will be required. Structural changes are defined as changes that affect a vital and substantial portion of the Premises, changing its characteristic appearance, fundamental purpose of its erection or uses, or a change of such a nature as to affect the very realty itself, extraordinary in scope and effect, or unusual in expenditure. 21. The Premises shall not be used or permitted to be used for residential, lodging or sleeping purposes. 22. Except as permitted by landlord, Tenant shall not mark upon, paint signs upon, cut, drill into, drive nails or screws into, or in any way deface the walls, ceilings, partitions or floors of their Premises or of the Building, and the repair cost of any defacement, damage, or injury caused by Tenant, its agents or employees shall be paid for by the Tenant. -14- 15 RULES AND REGULATIONS Page 3. 23. The cost of repairing any damage to the public partitions of the Building or the public facilities, or to any facilities used in common with other tenants, caused by any Tenant or the employees, licensees, agents or invitees of the Tenant, shall be paid by such Tenant. 24. Landlord reserves the right to restrict or prohibit canvassing, soliciting or peddling in the Building. Exhibit "D" to lease dated May 16, 1996, by and between Dermody Properties and Rexall Sundown, Inc. /s/ - ---------------------------- Dermody Properties /s/ Dean DeSantis - ---------------------------- Rexall Sundown, Inc. -15- 16 EXHIBIT "E" COMMENCEMENT DATE CERTIFICATE THIS COMMENCEMENT DATE CERTIFICATE is made as of the ____ day of ______, 199_, by and between Dermody Industrial Group, a Nevada Joint Venture, hereinafter called "Landlord" and _______________________ (hereinafter called "Tenant"). RECITALS: A. Landlord and Tenant have entered into a Lease Agreement (the "Lease") dated as of ______, 19__, whereby Landlord leased to Tenant, and Tenant leased from Landlord, certain real property located in the County of ________________, State of ____________________, which real property is commonly known as ______________________. B. In accordance with Section ___ of the Lease, Landlord and Tenant desire to set forth herein the date that the Term of the Lease had commenced (the "Commencement Date"), and the date of expiration of the Initial Term of the Lease. NOW THEREFORE, Landlord and Tenant certify and agree as follows: 1. The Commencement Date of the Lease defined in Section ___ of the Lease is herby established as _________, 199_. 2. The Initial Term of this Lease shall be years ending upon _______________. 3. The rental adjustment date(s) shall be _________, __________, ____________, and ____________. IN WITNESS WHEREOF, Landlord and Tenant have caused this Commencement Date Certificate to be executed as of the day and year first above written. LANDLORD: TENANT: Dermody Industrial Group, a Nevada Joint Venture REXALL SUNDOWN, INC. By: Dermody Properties, a Nevada Corporation Managing Venturer By: Michael C. Dermody By: /s/ Michael C. Dermody /s/ Dean DeSantis - --------------------------- ------------------------- Michael C. Dermody Signature President Sr. Vp. Ops. - --------------------------- ------------------------- Title Exhibit "E" to lease dated May 16, 1996, by and between Dermody Properties and Rexall Sundown, Inc. /s/ Michael C. Dermody - -------------------------- Dermody Properties /s/ Dean DeSantis - -------------------------- Rexall Sundown, Inc. -16- 17 [UNITED CONSTRUCTION COMPANY LETTERHEAD] Exhibit "B" to lease dated May 16, 1996, by and between Dermody Properties and Rexall Sundown, Inc.
May 8, 1996 ------------------------------ Dermody Properties Dermody Properties 1200 Financial Boulevard Reno, Nevada 89502 ATTN: GORDON ZACK /s/ Dean DeSantis ------------------------------ Rexall Sundown, Inc. RE: REVISED REXALL PROPOSED TENANT IMPROVER SOUTH END OF GREG STREET 200 B Dear Gordon: We respectfully submit our proposal to provide the labor, materials and equipment required to perform the proposed tenant improvements. The proposed improvement is in accordance with your request for proposal, study plan dated 5/8/96, tenant improvement specifications dated January 1996 and the following scope of work. This proposal is in strict conformity with the following scope of work and is predicated upon approvals from the city building and fire departments as well as agencies applicable to tenant usage. This proposal is based upon a B occupancy. SUMMARY OF WORK: base bid includes a 3,613 square foot office with back to back handicap accessible multi fixture rest rooms, conference room, lunch room open office, will call, computer room, private offices and a full height wall. The warehouse area includes temperature control at 78 degrees round at ground level and an additional 400 AMP electrical service to provide sufficient power for added HVAC equipment in the warehouse. Alternate "A" includes a 10 lineal foot base cabinet and double kitchen sink in the lunch room. BASE BID SCOPE OF WORK: 1. GENERAL CONDITIONS; temporary facilities, small tools and equipment. 2. PROTECTION; none provided. 3. CLEANING; daily and final 4. INSURANCE; Project Liability and Worker's Compensation coverage. Installation Floater by owner. 5. SUPERVISION; estimates and buy out, project management, project superintendent, general superintendent, quality control. 6. SECURITY; none provided. 7. PERMITS; building permit, includes fee for 33 fixture units and asbestos assessment allowance on behalf of Dermody Properties consisting of a short form and two bulk samples. 18 [UNITED CONSTRUCTION COMPANY LETTERHEAD] 8. ENGINEERING; drafting and blueprint costs. Includes an allowance for structural review of support for roof top mounted HVAC units. 9. TESTING; none provided. 10. WARRANTY; two year guarantee on workmanship and materials. 11. DEMOLITION; sawcut and remove concrete slab on grade as required for waste line extension, remove roof materials for new roof top HVAC units in the office and warehouse areas. 12. EXCAVATION; hand excavation and backfill as required for waste line extension. 13. CONCRETE AND REINFORCING; replace slab on grade as required for waste line extension including dowels installed at two foot centers between the existing and replaced slab on grade. Also includes a 3' x 6' concrete switchgear pad for the additional service included in the base bid. 14. ROUGH CARPENTRY; 2 x interior wall framing to accommodate a nine foot finish ceiling height in all areas except the rest rooms or as otherwise noted. Rest room framing height accommodates an eight foot finish ceiling height. Ceiling framing is included for support the acoustical ceiling system only. Includes an allowance for additional roof support for the HVAC units in the warehouse. This allowance may change based on the findings of the structural review. Please note that ceiling framing is included in the hall area for the required one hour rated corridor, joists to be placed 2' oc with rock applied top and bottom. 15. FINISH CARPENTRY; none provided in base bid. See Alternate "A". 16. INSULATION; R-11 unfaced batt insulation in rest room walls, tenant dividing walls and walls between office and warehouse, metal "z" furring with 1-1/2" rigid insulation is provided on all concrete walls within the limit of the office construction. R-19 unfaced batt insulation is provided in the office ceiling. 17. ROOFING; patch penetrations for new construction. 18. SHEET METAL; none provided. 19. DOORS, FRAMES AND HARDWARE; Twelve (12) interior openings. All lock and latch sets are equal to Schlage "AL" series lever. Rest room doors and doors between office and warehouse are to receive a closer. Openings between the office and warehouse are to include a keyed lock set and threshold. Balance of openings to receive a passage latch set, hinges and wall stop. Frames are prefinished brown metal, doors are to be 3'-0" x 7'-0" solid core paint grade. Hardware finish to be dull chrome. All doors off of the corridor are to include a one hour fire rating and a door closer. 20. GLASS AND GLAZING; provide 18" x 30" mirror over each wall hung lav in rest rooms and end caps on walls which intersect with the storefront. 21. GYPSUM WALLBOARD SYSTEMS; new office walls and rest room ceilings. Rest room walls to include moisture resistant wall board. Rest room ceiling height is eight feet. Warehouse side of office walls are to be textured, ready for paint. Standard texture is light skip trowel. Also includes a full height tenant dividing wall. The ceiling in the corridor is to be sheetrocked top and bottom for a one hour rated corridor. 22. ACOUSTICAL CEILING SYSTEM; new office ceilings except rest rooms. Ceiling height is 9'. 19 [UNITED CONSTRUCTION COMPANY LETTERHEAD] 23. VINYL COMPOSITION TILE WITH 4" RUBBER BASE; Azrock Standard Patterns. None provided. 24. SHEET VINYL WITH A MINIMUM OF 5-1/2" SELF COVING BASE; Mannington Commercial Fine Fields inlaid sheet vinyl provided in the rest rooms. One color through out. 25. CARPETING WITH 4" RUBBER BASE; Wellco Producer IV 26 ounce direct glue down carpet with Burke 4" topset rubber base. One color through out. Provided in office areas except rest room. 26. PAINTING; new office walls to receive two coats flat latex paint. Rest room walls and ceilings to receive two coats semi-gloss latex paint. Doors to receive three coats oil case enamel. One color through out. Warehouse side of office walls and tenant dividing walls within office area to be painted. Warehouse walls are "as-is". 27. SIGNAGE; plastic international symbols of accessibility on handicap accessible rest room doors, six inch pressure sensitive vinyl address numbers above entrance doors. 28. FIRE EXTINGUISHERS; none provided but will be required. 29. TOILET ACCESSORIES; Sea Chrome 631 roll type dispenser at each water closet, one Bobrick B-262 surface mounted paper towel dispenser and B-2112 surface mounted soap dispenses in each rest room. 36" and 42" stainless steel grab bars at handicap accessible water closets. Six (6) baked enamel, overhead braced toilet partitions and two urinal screens are included, one color throughout. 30. DOCK EQUIPMENT; none provided. 31. PLUMBING; back to back multi fixture handicap accessible rest rooms to include water saver fixtures, handicap water closet, handicap accessible faucet, floor drains and double kitchen sink. Gas piping and regulators provided for HVAC equipment in the office and warehouse areas. 32. FIRE PROTECTION; forty three (43) pendant fire sprinkler heads with chrome or white canopy in new office area. Provide reproducible "as-built" drawings of heads provided for office improvement. Fire lines to be drained, through a hose, to either a drain or to a gutter in order not to disturb or damage existing construction. 33. HEATING, VENTILATION AND AIR CONDITIONING; provide nine (9) tons of standard HVAC equipment for the office areas, and an exhaust fan in each rest room and the breakroom. Includes four 25 ton HVAC roof top units for the warehouse area to maintain 78 degrees year round at the ground level. Placement and support of units per the structural engineer's design review. 34. ELECTRICAL; standard office electrical, connection for HVAC equipment in the office and warehouse areas, includes emergency and exit lighting in office areas. Includes exit lights over the man doors in the warehouse area. The warehouse space includes connection of four 25 ton HVAC units, furnishing fourteen (14) circulating fans, an additional 400 AMP electrical service to provide power for the warehouse HVAC equipment, and a panel and transformer for office area. ALTERNATE PROPOSALS: ALTERNATE A: includes a 10 lineal foot base cabinet and double kitchen sink in the lunch room. 20 [UNITED CONSTRUCTION COMPANY LETTERHEAD] SPECIAL PROJECT CONDITIONS: 1. Structural review allowance of roof top HVAC equipment is included. 2. Parking for tenant occupancy is not addressed. 3. Construction Schedule, commencing upon receipt of a fully executed contract is as follows: a) One (1) week for plan preparation and permit submission b) Three (3) weeks for permit issuance from building department (average duration) c) Eight (8) weeks for construction, (upon receipt of building permit and approved construction documents from tenant). d) Schedule to be adjusted in the event of excessive work load Schedule may be adjusted due to lead time of HVAC units e) additional time will be required if an engineering and permit purchase order is issued to expedite the permit process and the change order for the construction costs is not issued in a timely manner, (up to three weeks as per item b). 4. Asbestos assessment allowance is included based upon the test report cost of 125 and bulk sampling cost of $25.00 each on behalf of Dermody Properties. 5. No fire department or code compliance of proposed facility except as specifically stated above has been addressed. 6. No alarm or security systems are included. 7. No emergency or exit requirements have been addressed, except for those specifically stated above. 8. Special use permit, as required, by others is not included. 9. Upright fire sprinkler coverage in warehouse is "as-is". 10. The warehouse lighting is "as-is". 11. Accessibility is addressed within tenant improvement area only. 12. No roof screen is provided for roof top equipment. 13. No work will commence without the required permits for construction. 14. An allowance for additional support at the new HVAC units is included, upon completion of the structural review it it will be adjusted. 15. This proposal will need to be revisited after completion of core and shell construction. 16. This proposal does not address draft curtains or smoke vents. We look forward to a mutually beneficial relationship on this project. If you have any questions or require further information, please call. UNITED CONSTRUCTION /s/ Debbie Edwards - ------------------------------ Debbie Edwards Tenant Improvements Division cc: Paul Slocum EX-11 12 EARNINGS PER SHARE COMPUTATION 1 EXHIBIT 11 REXALL SUNDOWN, INC. NET INCOME PER COMMON SHARE CALCULATION For the years ended August 31, 1996, 1995 and 1994 (Adjusted to give retroactive effect to April 4, 1996 three-for-two stock split)
Fiscal Year Ended August 31, ----------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Net income ............................... $ 6,195,239 $ 4,361,596 $20,292,781 =========== =========== =========== Primary - ------- Weighted average shares outstanding(1).... 29,071,161 29,336,510 30,511,575 Common stock equivalents(2)............... 197,472 160,656 214,657 ----------- ----------- ----------- Primary weighted average common shares outstanding............................. 29,268,633 29,497,166 30,726,232 =========== =========== =========== Primary net income per common share....... $ .21 $ .15 $ .66 =========== =========== =========== Fully Diluted - ------------- Weighted average shares outstanding(1).... 29,071,161 29,336,510 30,511,575 Common stock equivalents(2)............... 215,670 207,264 269,512 ----------- ----------- ----------- Fully diluted weighted average common shares outstanding...................... 29,286,831 29,543,774 30,781,087 =========== =========== =========== Fully diluted net income per common share................................... $ .21 $ .15 $ .66 =========== =========== ===========
- ----------------- Above reflects the calculation of pro forma net income per common share retroactively adjusted for the two-for-one stock split effected on October 28, 1993. (1) Represents weighted average common shares outstanding for the periods indicated. (2) Common stock equivalents associated with stock options calculated pursuant to the treasury stock method taking into consideration the tax benefit available to the Company upon the assumed exercise of qualified options. EX-21 13 SUBSIDIARIES 1 EXHIBIT 21 Rexall Sundown, Inc. Subsidiaries 1. Rexall Showcase International, Inc. 2. Rexall Showcase International de Mexico, S.A. de C.V. 3. Importadora Rexall Showcase International de Mexico, S.A. de C.V. 4. Servicios Rexall Showcase International de Mexico, S.A. de C.V. 5. Asociacion de Vendedores Independientes en Rexall, A.C. 6. Rexall Korea Limited 7. RSL Holdings, Inc. EX-23 14 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Rexall Sundown, Inc. on Form S-8 (Registration Statement Nos. 33-66282, 33-96906 and 333-34684) 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 appearing in the Form 10-K of Rexall Sundown, Inc. filed with the Securities and Exchange Commission pursuant to the Securities Act of 1934. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida October 4, 1996 EX-27 15 FIANCIAL DATA SCHEDULE
5 REXALL SUNDOWN, INC. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996 (THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS). 1,000 YEAR AUG-31-1996 AUG-31-1996 13,450 7,988 11,410 0 28,179 70,178 24,078 0 103,095 16,045 105 0 0 307 86,385 103,095 187,844 187,844 71,682 71,682 86,673 0 40 32,091 11,798 20,293 0 0 0 20,293 .66 0 NET OF ALLOWANCE. NET OF DEPRECIATION. INCLUDES LONG-TERM OBLIGATIONS.
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