-----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, KeQ9W2T1nTaWxN9qkCaN2ubeDD13fN96AvOl87a9IuKKI6q+a6paHBPBzI6sNKJm P5iZhhYU6mhVxgh4y9ScBA== 0000950144-97-012933.txt : 19971203 0000950144-97-012933.hdr.sgml : 19971203 ACCESSION NUMBER: 0000950144-97-012933 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971201 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-K405 SEC ACT: SEC FILE NUMBER: 000-21884 FILM NUMBER: 97730948 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-K405 1 REXALL SUNDOWN FORM 10-K DATED 08/31/97 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996) FOR THE FISCAL YEAR ENDED AUGUST 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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, NW 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. [X] The aggregate market value of the voting stock of the Registrant held by non-affiliates based on the closing sale price of the common stock on November 18, 1997 was $756,610,860. As of November 18, 1997, the Registrant had 67,849,750 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its Annual Meeting of Shareholders to be held on February 4, 1998 are incorporated by reference into Part III of this Report. ================================================================================ 2 This Report may contain certain "forward-looking statements" as such term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases, which represent the Company's expectations or beliefs, including, but not limited to, statements concerning industry performance, the Company's operations, economic 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 this and other Company filings with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS. Unless otherwise indicated, all share, per share and financial information set forth herein reflects the two-for-one stock split effected in October 1997. 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 product line of approximately 1,300 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 was $6.5 billion in 1996. 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, arthritis, osteoporosis, mental fatigue and depression 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 a substantial majority 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 approximately 35% of Americans consumed vitamins and nutritional supplements on a regular basis in 1996, the Company believes that there is a large untapped domestic market for 2 3 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 drug stores, supermarkets, mass merchandisers 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, the market for national brands and broadline and other brands of vitamins in the mass market has increased from approximately 60% in each of 1994 and 1995 to approximately 65% of total domestic vitamin dollar sales in 1996 and the market for private label vitamins has decreased from approximately 40% in each of 1994 and 1995 to approximately 35% in 1996 of such sales. The national brand category primarily consists of multivitamin 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. 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. 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. Certain amounts have been reclassified to conform with the 1997 presentation.
FISCAL YEAR ENDED AUGUST 31, -------------------------------------------------------------------------------------------- DISTRIBUTION CHANNEL 1997 1996 1995 1994 1993 - -------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Sales to retailers: Sundown............ $116,645 44.3% $ 71,387 38.2% $ 62,427 42.0% $ 54,216 47.8% $ 46,571 50.3% Other(1)........... 24,830 9.4 22,728 12.1 17,722 11.9 14,050 12.4 12,231 13.3 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total sales to retailers...... 141,475 53.7 94,115 50.3 80,149 53.9 68,266 60.2 58,802 63.6 Direct sales -- Rexall Showcase(R)........ 105,221 40.0 76,483 40.9 52,606 35.4 29,510 26.1 20,535 22.1 Mail order -- SDV(R).... 16,673 6.3 16,442 8.8 15,979 10.7 15,559 13.7 13,279 14.3 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total net sales.. $263,369 100.0% $187,040 100.0% $148,734 100.0% $113,335 100.0% $ 92,616 100.0% ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
- --------------- * Includes Rexall(R), Thompson(R), private label and Rexall Managed Care(R). 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 $58.8 million in fiscal 1993 to $141.5 million in fiscal 1997. 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 ultimately experience 3 4 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, for the 52 week period ended September 28, 1997, in the broadline vitamin category, Sundown was the number one brand in dollar and unit sales, despite its availability in outlets representing only 50% of all commodity volume ("ACV") sales and generates the highest rate of dollar and unit sales per share of distribution across all food, drug and mass merchandiser retail outlets. 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 in all Kmart stores and in fiscal 1996, the Company gained nationwide distribution of Sundown products in all Wal*Mart stores and all Thrifty-Payless and Eckerd drug stores. In fiscal 1997, the Company gained nationwide distribution of Sundown products chainwide in Kroger and Winn-Dixie supermarkets, all Rite-Aid drug stores and in all Shopko discount stores. Sundown's net sales have increased from $46.6 million in fiscal 1993 to $116.6 million in fiscal 1997. The Company sells approximately 325 vitamins and nutritional supplements under the Sundown tradename, including among others, vitamin C, vitamin E, multivitamins, folic acid, calcium, lecithin, magnesium, iron, potassium, herbals and food supplements. Because the Company offers most of its products in varying quantities, the Sundown line consists of approximately 500 SKUs. Vitamins and minerals are sold as single-entity supplements, multivitamin combinations and in varying potency levels, and are offered in tablet, softgel, liquid, chewable, two-piece capsule 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). 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 and emerging health and nutrition trends in the past year include the introduction of (i) Sundown's Osteo-Bi-Flex(TM) and Thompson's Gluco-Pro 900(TM), which are patented combinations of the two dietary ingredients, glucosamine and chondroitin sulfate, featured in the New York Times bestseller, The Arthritis Cure, and reported in various clinical studies to provide nutritional benefits which may help to promote healthy, mobile joint function and connective tissue health; (ii) St. John's Wort, which promotes mood enhancement and well-being, and has been featured in numerous articles and on the ABC News magazine 20/20 as a natural herbal approach for responding to depression; (iii) Zinc Lozenges, combining zinc, Vitamin C and echinacea to promote healthy immune function, especially during the cold and flu season; (iv) Selenium in a 200 mcg dosage, to promote cell repair in the lungs and other organs which was introduced in rapid response to the results of a clinical study conducted at the University of Arizona College of Medicine suggesting that daily intake of 200 mcg of selenium dramatically reduced the incidence of certain types of cancer and cancer mortality; and (v) five new herbal complex formulas combining popular herbs with other bio-enhancing herbs and vitamins, including Ginseng Complex, Gingko Biloba Complex, Echinacea Complex, Saw Palmetto Complex and Valerian Complex. To date, the Company has not incurred material research and development expenses but anticipates devoting greater resources to research and development in the future. 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 outlets for its products. All international sales are settled in United States currency. Other Sales to Retailers. In addition to Sundown products, the Company's other sales to retailers include sales under the Rexall brand to wholesalers, convenience stores and independent drug stores, the 4 5 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 115 moderately-priced vitamins and nutritional supplements under the Rexall tradename, primarily to independent drug stores and wholesalers. In addition, approximately 75 OTC pharmaceutical products, including aspirin, cold remedies and analgesic formulas, are primarily offered to drug stores, wholesalers and convenience stores 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 select customer requests. For fiscal 1997 and 1996, approximately 3.4% and 3.8%, respectively, of the Company's net sales were from private label products. The Rexall Managed Care Division was formed in 1995 to market vitamins, nutritional supplements and OTC pharmaceuticals to the managed care market 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 two prescription products. 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 under the Rexall tradename exclusively through a sales force of independent distributors who are not employees of Rexall Showcase or the Company. 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 the network marketing 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 distributor kit. Rexall Showcase began its international expansion in 1996 by commencing operations in South Korea and Mexico and, in November 1997, commenced operations in Hong Kong. Rexall Showcase intends to commence operations in selected other countries in the future. Rexall Showcase's net sales have increased from $20.5 million in fiscal 1993 to $105.2 million in fiscal 1997. To become a Rexall Showcase distributor, a person or entity must enter into a standard distributor agreement with Rexall Showcase which obligates that person to abide by Rexall Showcase's policies and procedures. Additionally, distributors are also required to purchase a distributor kit, which includes all of the materials necessary for a distributor to commence operating his or its Rexall Showcase distributorship including information about the Company, product information, Rexall Showcase support functions, training materials, the ProfitPlus(TM) compensation program, policies and procedures, order forms, application forms and sales aids, for $49.50, which approximates the cost of producing the distributor kit and associated costs. The number of active Rexall Showcase distributors as of August 31, 1997 was approximately 75,000. An "active" Rexall Showcase distributor is defined to mean any distributor who is eligible to participate in the Rexall Showcase business, including all new applicants whose completed distributor application and agree- 5 6 ment has been accepted by Rexall Showcase as well as those existing distributors who have renewed their distributorship during the last twelve months. 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 allows its retail customers to return any product, for any reason, to the selling distributor within 30 days from the date of purchase for a total refund or replacement. Rexall Showcase then reimburses the selling distributor who has issued the 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. The Company provides for a reserve for such returns, however, 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; and (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. 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 products primarily under its SDV brand directly to consumers through catalogs and direct mailings. This division targets approximately 250,000 of the most active customers out of an approximate 585,000 household proprietary mailing list developed by the Company since its inception in 1976. The Company's SDV division offers approximately 400 products in approximately 490 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 $13.3 million in fiscal 1993 to $16.7 million in fiscal 1997. As the Company has focused primarily on its Sundown brand and Rexall Showcase, the Company has not allocated significant resources to its mail order division. SALES SUPPORT AND CUSTOMER SERVICES FOR RETAILERS The Company utilizes its information systems and staff of sales and customer support professionals to provide retailers with a comprehensive array of services. The Company seeks to assist the retailer with sales initiatives, sales data analyses and marketing and merchandising programs, all of which are designed to maximize in-store awareness of the Company's products and improve results in the retailer's vitamin and nutritional supplement category. For a number of its retail customers, the Company serves as a category manager, at no additional cost to the retailer, actively analyzing, monitoring and advising on product selection, profitability, sales velocity and overall performance of the retailer's entire vitamin and nutritional supplement category. To help optimize the performance of its retailers' departments, as well as sales of the Company's products, the Company develops computerized plan-o-grams designed to efficiently utilize shelf space and direct consumers' attention to the Company's products. In addition, the Company provides marketing support for its product lines by developing customized marketing programs. The Company's corporate communications and media department provides customer 6 7 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 sales on advertising which primarily has consisted of cooperative support to retailers and some brand advertising on a limited basis. During the fourth quarter of fiscal 1997, the Company launched its first ever major national advertising campaign to support Osteo-Bi-Flex(TM), the Sundown division's new exclusive patented formula of glucosamine and chondroitin sulfate. The Company spent approximately $1.2 million in the fourth quarter of 1997 and intends to spend an additional $3.8 million in fiscal 1998 on this campaign. In addition, Dick Clark serves as the Company's national spokesperson, Sundown is the official vitamin brand of the Miami Dolphins and is the preferred nutritional supplier of vitamins and nutritional supplements for the Florida Panthers, and the Company sponsors various sports personalities and events. The Company expects to continue to use various forms of mass media advertisement, including national advertising, to build the national reputation and recognition of its brands, primarily Sundown. At November 1, 1997, the Company had a total sales force of approximately 40 employees responsible for accounts located throughout the United States, who are paid on a salary and incentive bonus basis. In addition, the Company utilizes a national brokerage alliance of approximately 50 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 90 employees devoted to customer service and support for retailers. PRODUCT DEVELOPMENT The Company consistently introduces new and innovative products in a timely manner. 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 conceptually 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 adequate 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 1997, the Company introduced 24 new products for Sundown, six new products for Rexall Showcase and 45 new products for other divisions. 7 8 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 expanded its manufacturing capacity for 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. The Company does not presently intend to manufacture softgels and, accordingly, it will continue to purchase these products from independent suppliers. 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 450 persons and have been enhanced by the opening of its 65,000 square foot western distribution facility in Sparks, Nevada in October 1996 and its newly acquired 157,000 square foot warehousing and packaging facility in Deerfield Beach, Florida, which the Company anticipates will commence operations in December 1997. The Company emphasizes quality control. All of the Company's products are manufactured in accordance with the applicable Current Good Manufacturing Practices ("CGMPs") of the Food and Drug Administration ("FDA") and other applicable regulatory and compendial manufacturing 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. Each year since November 1995, Shuster Laboratories, Inc., an independent quality assurance and testing service, has awarded the Company its highest rating issued to Shuster-inspected dietary supplement firms based on its review of the Company's manufacturing, laboratory testing and quality control procedures. Upon receipt by the Company of raw materials or finished products such as tablets or softgels at its manufacturing facilities, such raw materials or products are placed in quarantine and tested by the Company's technical services department. When the raw materials released from quality control are ready for production, they are blended and produced into tablets or two-piece capsules. The principal raw materials used in the manufacturing process are natural and synthetic vitamins and other dietary ingredients, 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 and localities, as well as foreign countries, in which the Company's products are sold. In particular, the FDA regulates the safety, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, food additives, food supplements, OTC and prescription drugs and cosmetics. The regulations that are promulgated by the FDA relating to the manufacturing process are known as CGMPs, and are different for drug and food products. In addition, the FTC has overlapping jurisdiction with the FDA to regulate the labeling, promotion and advertising of vitamins, 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 8 9 the dissemination of accurate information about such products. Under DSHEA, the FDA is generally prohibited from regulating the active ingredients in 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 and final regulations have been published with an October 23, 1997 effective date for the notification to FDA of Statements of Nutritional Support and new dietary ingredients, and a March 23, 1999 effective date for the labeling provisions. DSHEA permits substantiated, truthful and non-misleading statements of nutritional support to be made in labeling, such as statements describing general well-being resulting from consumption of a dietary ingredient or the role of a nutrient or dietary ingredient in affecting or maintaining a structure or function of the body. 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 finalize CGMPs which are specific to dietary supplements and require at least some of the quality control provisions contained in the CGMPs for drugs, which are more rigorous than CGMPs for foods. The Company currently manufactures its vitamins and nutritional supplement products in compliance with the applicable food CGMPs. The Company cannot determine what effect such regulations implementing DSHEA, which were adopted on September 23, 1997, will have on its business in the future. Such regulations require expanded and different labeling for the Company's vitamins and nutritional supplement products and, among other things, require 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 Office of Dietary Supplements ("ODS") established within the National Institutes of Health, and the Presidential Commission on Dietary Supplements ("Commission"). The Commission which was established for two years to provide recommendations to the President and Congress for the regulation of supplement labeling and health claims, including procedures for making disease-related claims, issued its final report on November 24, 1997. Such report includes findings which are similar, and different in material respects from the FDA regulations on DSHEA. Such report further recommends that ODS, which is charged with coordinating research results and advising the Secretary of Health and Human Services on supplement regulation, safety and health claims, be funded as authorized by DSHEA. The Company cannot determine what effect such report will have on its business in the future, and such report could lead to legislative or regulatory changes to the final rules promulgated by the FDA under DSHEA. 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, have now been statutorily affirmed as a food and not as a drug or food additive. Therefore, the regulation of dietary supplements is less restrictive than that imposed upon manufacturers and distributors of drugs or food additives. Unlike food additives and new drugs, which require regulatory approval of formulation, safety and labeling, and for drugs, efficacy 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 such 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, product recalls and seizures, injunctions and criminal prosecutions. 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. 9 10 COMPETITION The market for the sale of vitamins and nutritional supplements is highly competitive. There are numerous companies in the vitamin and nutritional supplement industry selling products to retailers, including mass merchandisers, drug store chains, independent drug stores and health food stores. Most companies are privately held and the Company is unable to precisely assess the size of its competitors or where it ranks in comparison to such privately held competitors with respect to sales to retailers. 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 other direct sales companies. The Company competes in the recruitment of independent sales people with other network marketing 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 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), Rexall(R) and other trademarks, and has rights to use other names material to its business. In addition, the Company has obtained trademarks for certain of its products, processes or slogans 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(R), Bios Life 2(R), Showcase Nutritionals(R), Calmplex 2000(R), Metaba-trol(R), Cellular Essentials(R), Cardio Basics(R), Nature Force(R), PMS Balance(R), Human Nature(R), Mature Choices(R), Multiple Choice(R), Memory Plus(R), In- Vigor-ol(R), Reliev-ol(R), Defend-ol(R), Intern-ol(R), Traum-ex(R) and Advanced Release Technology(R). The Company has trademark and service mark applications pending for Osteo-Bi-Flex(TM), Gluco-Pro 900(TM), Meta-Essent-ol(TM), Vascular Complete(TM), Smokease(TM), Tomorrow's Nutrition Today(TM), Vision Essentials(TM), Clear Thoughts(TM), Rexweb(SM), Rextel(SM) and The Best Vitamins Under the Sun(TM). 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 and Canada, including several patents relating to its Bios Life 2 and Bios Life 2 Natural weight management products and a patent for dual-sided labels in the vitamin industry. The Company currently markets its Osteo-Bi-Flex(TM) glucosamine and chondroitin sulfate dietary supplement, which has been reported in various clinical studies to provide nutritional benefits which may help to promote healthy, mobile joint function and connective tissue health, as the exclusive licensee in the United States and Canada of over-the-counter dietary supplements manufactured under two United States Patents and one Canadian Patent Application. 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 are adequate for its operations. There can be no assurance, however, that such 10 11 insurance will continue to be available at a reasonable cost, or if available, will be adequate to cover liabilities. The Company requires that each of its suppliers certify that it carries adequate product liability insurance covering the Company. EMPLOYEES As of November 18, 1997, the Company employed approximately 820 full-time persons. None of the Company's employees are represented by a collective bargaining unit. The Company believes that its relationship with its employees is good. ITEM 2. PROPERTIES. As of November 18, 1997, the Company owned or leased the following facilities:
APPROXIMATE LEASED OR EXPIRATION DATE LOCATION TYPE OF FACILITY SQUARE FEET OWNED OF LEASE - -------- --------------------------- ----------- --------- ------------------- Boca Raton, Florida............ Administrative Offices 58,000 Owned -- Boca Raton, Florida(1)......... Administrative Offices 92,000 Owned -- Boca Raton, Florida............ Administrative Offices 10,400 Leased November 1998 Boca Raton, Manufacturing and Florida............ Production 82,000 Owned -- Boca Raton, Florida............ Warehouse and Distribution 100,000 Owned -- Deerfield Beach, Florida(2)......... Warehouse and Packaging 157,000 Owned -- Sparks, Nevada....... Warehouse and Distribution 65,000 Leased September 1999 Boca Raton, Florida............ Warehouse and Distribution 60,000 Leased March 1998 Hong Kong, China..... Administrative Offices 7,700 Leased July 2000 Mexico City, Administrative Offices, Mexico(3).......... Warehouse and Distribution 5,600 Leased December 1997 Seoul, South Administrative Offices, Korea(4)........... Distribution Service Center and Warehouse 16,800 Leased February-April 1998
- --------------- (1) The Company acquired this facility in November 1997. The previous owner will occupy such facility until April 1998 and the Company intends to occupy this facility in the fourth quarter of fiscal 1998. (2) The Company acquired this facility in May 1997, is currently retrofitting it for use as a packaging and warehouse facility and intends to commence operations in such facility in December 1997. (3) The Company also leases three small distribution service centers in Cuernavaca, Guadalajara and Mexico City, Mexico. The Company intends to extend the lease on its administrative offices upon expiration of the current lease. (4) The Company leases administrative, distribution service and warehouse facilities which leases expire in February, March and April 1998, respectively. 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 November 1997 and additional suits may be filed. Prior to a request 11 12 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 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, therefore, 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 in the United States District Court for the Southern District of Florida (CIV 92-6387) by Patrick J. Hines, on behalf of himself and others similarly situated against the Company, Rexall Showcase and certain of its officers. 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 filed a new complaint. The allegations in Plaintiff's Second Amended Complaint were similar to the original complaint and included additional claims of violations of various Florida statutes, including those relating to deceptive advertising, business opportunities, franchises and securities. On August 8, 1997, the court dismissed those claims for relief alleging fraud in connection with the offer and sale of securities, federal racketeering violations under RICO and state law 12 13 racketeering claims, common law fraud and deceit, illegal lottery and business opportunities state law violations. Plaintiff filed a Third Amended Complaint in response to such order, and on October 31, 1997, the Company and Rexall Showcase filed a motion to dismiss the Third Amended Complaint on numerous grounds, including the failure to state a federal cause of action. Although the Company believes that such lawsuit is without merit, no assurances can be given in this regard. The Company will vigorously defend itself and believes any adverse decision will not have a material adverse impact on the Company or Rexall Showcase. Other Litigation. The Company is also involved in litigation relating to claims arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company. 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 1997. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information concerning the executive officers of the Company:
NAME AGE POSITION - ---- --- -------- Carl DeSantis.................. 58 Chairman of the Board Christian Nast................. 66 President, Chief Executive Officer and Director Dean DeSantis.................. 35 Senior Vice President -- Operations, Chief Operating Officer and Director Damon DeSantis................. 33 Executive Vice President, President of Rexall Showcase and Director Nickolas Palin................. 50 President -- Sundown Vitamins and Director Gary Malloch................... 55 Executive Vice President Geary Cotton................... 46 Vice President -- Finance, Chief Financial Officer and Treasurer Richard Werber................. 45 Vice President -- Legal Affairs, General Counsel and Secretary Gerald Holly................... 53 Executive Vice President -- Operations
Carl DeSantis founded the Company in 1976 and has served as Chairman of the Board of the Company since its inception, served as Chief Executive Officer from the Company's inception to February 1997 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 of the Company since April 1995, Chief Executive Officer since February 1997 and a Director of the Company since October 1993. He served as Chief Operating Officer of the Company from April 1995 to February 1997. From December 1989 to April 1995, Mr. Nast was employed by Colgate Palmolive Company 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 Squibb Company, Chesebrough-Ponds, Inc. and the Procter & Gamble Company. Dean DeSantis has been Senior Vice President -- Operations of the Company since June 1989, Chief Operating Officer since February 1997, 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. 13 14 Nickolas Palin has been President -- Sundown Vitamins since September 1997, a Director of the Company since December 1995 and joined the Company in 1984. He served as Senior Vice President -- Sales and Marketing of the Company from August 1989 to September 1997. Gary Malloch has been Executive Vice President of the Company since joining the Company in February 1997. From 1994 to 1996, Mr. Malloch served as President and Chief Executive Officer of Kayser-Roth Corporation and from 1989 to 1994, served as President of that company's Sheer Hosiery Division. Geary Cotton has been Chief Financial Officer of the Company since August 1989, Vice President-Finance and Treasurer of the Company since March 1993 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. Gerald Holly has been Executive Vice President -- Operations of the Company since joining the Company in November 1997. For the past twenty-five years, Mr. Holly has served in various capacities for Pharmavite Corp., a subsidiary of Otsuka Pharmaceutical Company, Ltd. of Japan, including Executive Vice President -- Operations since 1992. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock was first listed and began trading on the Nasdaq National Market on June 18, 1993 under the symbol RXSD. Set forth below are the high and low closing 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 23, 1997.
COMMON STOCK --------------- HIGH LOW ------ ------ FISCAL YEAR ENDED AUGUST 31, 1996: First Quarter............................................. $ 6.50 $ 4.54 Second Quarter............................................ 9.50 5.84 Third Quarter............................................. 18.50 8.38 Fourth Quarter............................................ 18.13 10.63 FISCAL YEAR ENDED AUGUST 31, 1997: First Quarter............................................. 19.62 11.81 Second Quarter............................................ 16.56 11.88 Third Quarter............................................. 13.81 9.63 Fourth Quarter............................................ 19.50 13.56
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 benefical owners and record holders of the Common Stock as of November 18, 1997 was 15,000 and 860, respectively. 14 15 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. The selected consolidated financial data presented below is derived from the Consolidated Financial Statements of the Company. The Consolidated Financial Statements as of and for the years ended August 31, 1997, 1996, 1995, 1994, and 1993 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. Certain amounts have been reclassified to conform with the 1997 presentation.
FISCAL YEAR ENDED AUGUST 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Net sales................................... $263,369 $187,040 $148,734 $113,335 $ 92,616 Cost of sales............................... 98,764 70,987 64,511 54,125 45,245 -------- -------- -------- -------- -------- Gross profit.............................. 164,605 116,053 84,223 59,210 47,371 Selling, general and administrative expenses.................................. 114,318 85,166 64,512 45,668 36,598 -------- -------- -------- -------- -------- Operating income.......................... 50,287 30,887 19,711 13,542 10,773 Other income (expense), net................. 4,251 1,204 (-507) 177 347 -------- -------- -------- -------- -------- Income before income tax provision.......... 54,538 32,091 19,204 13,719 11,120 -------- -------- -------- -------- -------- Income from continuing operations (pro forma)(1)................................. 35,061 20,293 12,338 8,572 7,104 Loss from discontinued operations(2)........ -- -- (-7,976) (-2,377) -- -------- -------- -------- -------- -------- Net income (pro forma)(1)......... $ 35,061 $ 20,293 $ 4,362 $ 6,195 $ 7,104 ======== ======== ======== ======== ======== Income (loss) per common share (pro forma)(1) Continuing operations..................... $ 0.52 $ 0.33 $ 0.21 $ 0.15 $ 0.15 Discontinued operations................... -- -- (0.14) (0.04) -- Net income per share.............. $ 0.52 $ 0.33 $ 0.07 $ 0.11 $ 0.15 ======== ======== ======== ======== ======== Weighted average shares outstanding......... 67,908 61,452 58,994 58,538 46,336 ======== ======== ======== ======== ========
AUGUST 31, ------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- ------- ------- ------- BALANCE SHEET DATA: Working capital................................ $145,629 $ 54,133 $29,292 $21,027 $28,771 Total assets................................... 224,114 103,095 67,351 61,633 53,126 Long term debt, net of current portion......... -- 105 448 776 1,151 Shareholders' equity........................... 191,589 86,692 55,038 48,962 41,714
- --------------- (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 year 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. 15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included herein. Additionally, certain divisional data of the Company is set forth in Item 1 -- "Business -- Sales by Distribution Channel." Revenue from the sale of the Company's products is recognized at the time products are shipped. Net sales are net of all discounts, allowances, returns and credits. Initial costs associated with acquiring sales agreements with certain retail customers are amortized over the expected term of the relevant agreement and the amortization of such costs is recorded as a reduction in net sales. Approximately 96.6% and 96.2% of the Company's net sales in fiscal 1997 and 1996, respectively, were 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 3.4% and 3.8% of net sales for fiscal 1997 and 1996, respectively. 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 80% of its tablet and two-piece formulations. The Company does not presently intend to manufacture softgel formulations or other products. Currently, the Company's manufacturing and packaging operations are in one 82,000 square foot facility. In May 1997, the Company purchased a 157,000 square foot building which will serve as a new packaging and warehouse facility, which facility is expected to commence operations in December 1997. The new facility will allow the Company to more than double its tablet manufacturing and packaging operations. 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 the Rexall Showcase division. 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 1995 results of Pennex have been presented as discontinued operations in the Consolidated Financial Statements. See "-- Discontinued Operations." On November 5, 1996 the Company consummated a public offering (the "Offering") of 8,000,000 shares of Common Stock. Of those shares, 4,000,000 were sold by the Company and 4,000,000 were sold by certain shareholders of the Company. On December 3, 1996, the underwriters' over-allotment option to purchase an additional 1,200,000 shares was exercised. Of those 1,200,000 shares, 800,000 were sold by the Company and 400,000 were sold by a shareholder 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. 16 17 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, ----------------------------- 1997 1996 1995 ------- ------- ------- Net sales................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 37.5 38.0 43.4 ----- ----- ----- Gross profit.............................................. 62.5 62.0 56.6 Selling, general and administrative expenses................ 43.4 45.5 43.4 ----- ----- ----- Operating income.......................................... 19.1 16.5 13.2 Other income (expense), net................................. 1.6 .6 (0.3) ----- ----- ----- Income before income tax provision.......................... 20.7 17.1 12.9 Net income(1)............................................... 13.3% 10.8% 8.3%
- --------------- (1) From continuing operations in 1995. Fiscal Year Ended August 31, 1997 Compared To Fiscal Year Ended August 31, 1996 Net sales for fiscal 1997 were $263.4 million, an increase of $76.3 million or 40.8% over fiscal 1996. Of the $76.3 million increase, sales to retailers accounted for $47.4 million, an increase of 50.3% over fiscal 1996. Net sales to Wal*Mart increased by $30.0 million in fiscal 1997. Initial distribution to Wal*Mart began during fiscal year 1996 and fiscal 1997 reflects the first full year of distribution of Sundown product offerings at Wal*Mart. The remaining increase in sales to retailers was primarily attributable to increased distribution as well as an increase in the Company's existing customer base business. Net sales of the Company's direct sales subsidiary, Rexall Showcase, increased by $28.7 million, an increase of 37.6% over fiscal 1996. Net sales of the Company's mail order division, SDV, increased by $231,000 or 1.4% over fiscal 1996. The increase in net sales in each division was primarily due to increased unit sales. Gross profit for fiscal 1997 was $164.6 million, an increase of $48.6 million or 41.8% over fiscal 1996. As a percentage of net sales, gross margin increased from 62.0% for fiscal 1996 to 62.5% for fiscal 1997. The increase in gross margin was due, in part, to an increase in net sales of products with higher margins and improved margins as a result of manufacturing efficiencies achieved from higher volume at the Company's vitamin manufacturing facility. Net sales of Rexall Showcase, whose products have higher margins, remained relatively constant as a percent of the Company's sales representing 40.9% of total Company net sales in fiscal 1996 compared to 40.0% in fiscal 1997. Selling, general and administrative expenses for fiscal 1997 were $114.3 million, an increase of $29.2 million or 34.2% over fiscal 1996. As a percentage of net sales, such expenses decreased from 45.5% for fiscal 1996 to 43.4% for fiscal 1997, primarily as a result of increased net sales and the relatively fixed nature of such expenses, except for the commission expense of Rexall Showcase, which is variable and comprises the majority of Rexall Showcase's selling, general and administrative expense. Such commission expense increased by $14.3 million over fiscal 1996. Other income, net, increased from $1.2 million in fiscal 1996 to $4.3 million in fiscal 1997 primarily as a result of increased interest income. Interest income for fiscal 1997 was $4.3 million, as compared to $1.3 million for fiscal 1996. Such increase was primarily a result of investment of the Company's available cash balances, which were higher in fiscal 1997 than fiscal 1996, primarily due to the net proceeds of $62.3 million received from the Offering. Income before income tax provision was $54.5 million for fiscal 1997, an increase of $22.4 million or 70.0% over fiscal 1996. As a percentage of net sales, income from continuing operations before income tax provision increased from 17.1% for fiscal 1996 to 20.7% for fiscal 1997. Net income was $35.1 million for fiscal 1997, an increase of $14.8 million or 72.8% over fiscal 1996. As a percentage of net sales, income from continuing operations increased from 10.8% for fiscal 1996 to 13.3% for fiscal 1997 due to the reasons described above and also as a result of a lower effective tax rate of 35.7% in fiscal 17 18 1997 compared to 36.8% in fiscal 1996 primarily as a result of tax-free interest on certain of the Company's cash and cash equivalents marketable securities. Fiscal Year Ended August 31, 1996 Compared To Fiscal Year Ended August 31, 1995 Net sales for fiscal 1996 were $187.0 million, an increase of $38.3 million or 25.8% over fiscal 1995. Of the $38.3 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 $463,000 or 2.9% over fiscal 1995. The increase in net sales in each division was primarily due to increased unit sales. Gross profit for fiscal 1996 was $116.1 million, an increase of $31.8 million or 37.8% over fiscal 1995. As a percentage of net sales, gross margin increased from 56.6% for fiscal 1995 to 62.0% 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 whose sales represented 40.9% of the Company's net sales in fiscal 1996 compared to 35.4% in fiscal 1995. 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. Selling, general and administrative expenses for fiscal 1996 were $85.2 million, an increase of $20.7 million or 32.0% over fiscal 1995. As a percentage of net sales, such expenses increased from 43.4% for fiscal 1995 to 45.5% 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 a net expense of $507,000 in fiscal 1995 to net income of $1.2 million in fiscal 1996 primarily as a result of increased interest income and decreased interest expense. 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. DISCONTINUED OPERATIONS On September 30, 1993, the Company 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 have been 18 19 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 provided 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 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. As of September 1, 1997, the Company extended the maturity of the collateralized note related to the sale of the assets of Pennex Laboratories, Inc. to April 15, 1998. Interest continues to accrue and is payable in accordance with the previous terms. As of August 31, 1997, the Company had recorded net assets of discontinued operations of $4.1 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 $.02 per share, which would be reflected as an adjustment to discontinued operations. QUARTERLY RESULTS OF OPERATIONS; SEASONALITY The following table sets forth certain quarterly financial data for fiscal 1997 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 1997 FISCAL 1996 ------------------------------------- ------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales......................... $56,070 $58,534 $69,613 $79,152 $40,679 $40,371 $54,568 $51,422 Operating income.................. 10,936 12,079 13,114 14,158 5,540 6,246 9,197 9,904 Income from continuing operations(1)................... 7,242 8,551 9,280 9,988 3,556 4,074 6,134 6,529 Income per share from continuing operations(1)(2)................ $ 0.11 $ 0.12 $ 0.14 $ 0.15 $ 0.06 $ 0.07 $ 0.10 $ 0.10
- --------------- (1) Does not reflect discontinued operations. See "Selected Consolidated Financial Data," "-- Discontinued Operations" and Notes to the Consolidated Financial Statements. (2) Reflects adjustment to give retroactive effect to the two-for-one stock split effected on October 23, 1997. 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 $145.6 million as of August 31, 1997, compared to $54.1 million as of August 31, 1996. This increase was principally the result of increased cash and cash equivalents, and marketable securities, as a result of the net proceeds from the Offering and inventory and trade accounts receivable due to higher sales in fiscal 1997 compared to fiscal 1996. 19 20 Net cash provided by operating activities for fiscal 1997 was $37.4 million compared to $19.6 million for fiscal 1996. Net cash provided by operating activities increased primarily due to increased net income. Net cash used in investing activities was $34.1 million for fiscal 1997 compared to $13.5 million for fiscal 1996. Net cash used in investing activities, including $13.3 million used for capital expenditures, increased primarily due to the purchase of marketable securities in fiscal 1997. Net cash provided by financing activities was $65.2 million for fiscal 1997 compared to $6.2 million for fiscal 1996 reflecting $62.3 million of net proceeds received from the Offering. The Company believes that 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. 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 include SFAS No. 128, "Earnings Per Share," which is not required to be adopted until fiscal 1998, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which are not required to be adopted until fiscal 1999. SFAS No. 128 changes the method of calculating earnings per share. The statement requires the presentation of "basic" earnings per share ("EPS") and "diluted" EPS on the face of the income statement. SFAS No. 128 is effective for financial statements issued for periods ended after December 15, 1997 and requires restatement of all prior-period EPS data presented. The Company has not yet determined the impact, if any, the adoption will have on the Company's financial statements. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and requires reclassification of financial statements for earlier periods provided for comparative purposes. The Company has not yet determined the effects, if any, the adoption will have on the Company's financial statements. SFAS No. 131 establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. The Company has not yet determined the effects, if any, the adoption will have on the Company's financial statements. 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, 1997 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, 1997 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, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida October 10, 1997 F-2 23 REXALL SUNDOWN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AUGUST 31, ------------------- 1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 81,942 $ 13,450 Restricted cash........................................... -- 278 Marketable securities..................................... 24,829 7,988 Trade accounts receivable, net of allowance for doubtful accounts of $78 at August 31, 1997 and 1996............ 22,294 12,413 Inventory................................................. 38,623 28,179 Prepaid expenses and other current assets................. 5,941 4,015 Net current assets of discontinued operations............. 4,076 3,855 -------- -------- Total current assets.............................. 177,705 70,178 Property, plant and equipment, net.......................... 33,789 24,078 Other assets................................................ 12,620 8,839 -------- -------- Total assets...................................... $224,114 $103,095 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 11,781 $ 5,599 Accrued expenses and other current liabilities............ 20,190 10,100 Current portion of long-term debt......................... 105 346 -------- -------- Total current liabilities......................... 32,076 16,045 Long-term debt.............................................. -- 105 Other liabilities........................................... 449 253 -------- -------- Total liabilities................................. 32,525 16,403 -------- -------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares, no shares outstanding.......................... -- -- Common stock, $.01 par value; authorized 100,000,000 shares, shares issued: 67,260,018 and 61,320,256, respectively........................................... 673 307 Capital in excess of par value............................ 123,402 53,563 Retained earnings......................................... 68,004 32,943 Cumulative translation adjustment......................... (490) (121) -------- -------- Total shareholders' equity........................ 191,589 86,692 -------- -------- Total liabilities and shareholders' equity........ $224,114 $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, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Net sales.................................................. $ 263,369 $ 187,040 $ 148,734 Cost of sales.............................................. 98,764 70,987 64,511 ---------- ---------- ---------- Gross profit..................................... 164,605 116,053 84,223 Selling, general and administrative expenses............... 114,318 85,166 64,512 ---------- ---------- ---------- Operating income................................. 50,287 30,887 19,711 Other income (expense): Interest income.......................................... 4,306 1,251 119 Interest expense......................................... (95) (40) (424) Other income (expense)................................... 40 (7) (157) Minority interests in income of consolidated subsidiary............................................ -- -- (45) ---------- ---------- ---------- Income before income tax provision......................... 54,538 32,091 19,204 Income tax provision....................................... 19,477 11,798 6,866 ---------- ---------- ---------- Income from continuing operations.......................... 35,061 20,293 12,338 Discontinued operations: Loss from discontinued operations (net of tax benefit of $2,425)............................................... -- -- (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................................................. $ 35,061 $ 20,293 $ 4,362 ========== ========== ========== Income (loss) per share: Continuing operations.................................... $ .52 $ .33 $ .21 Discontinued operations.................................. -- -- (.08) Disposal of discontinued operations...................... -- -- (.06) ---------- ---------- ---------- Net income per share............................. $ .52 $ .33 $ .07 ========== ========== ========== Weighted average common shares outstanding................. 67,907,714 61,452,464 58,994,332 ========== ========== ==========
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, 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) Net income................................. -- -- -- 35,061 -- Common stock offering...................... 2,400,000 24 62,263 -- -- Exercise of stock options.................. 569,881 6 3,210 -- -- Tax benefit from exercise of options....... -- -- 4,188 -- -- Compensatory stock options issued.......... -- -- 514 -- -- Two-for-one common stock split............. 33,630,009 336 (336) -- -- Cumulative translation adjustment.......... -- -- -- -- (369) ---------- ---- -------- ------- ----- Balance at August 31, 1997................... 67,260,018 $673 $123,402 $68,004 $(490) ========== ==== ======== ======= =====
See accompanying notes F-5 26 REXALL SUNDOWN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED AUGUST 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Cash flows provided by (used in) operating activities: Net income............................................... $ 35,061 $ 20,293 $ 4,362 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.......................................... 3,570 2,797 2,400 Amortization.......................................... 1,523 1,202 400 Loss (gain) on sale of property and equipment......... 6 (18) 158 Minority interest..................................... -- -- 45 Deferred income taxes................................. (429) 2,076 (1,789) Foreign exchange translation adjustment............... (369) (121) -- Compensatory stock options issued..................... 514 -- -- Changes in assets and liabilities: Trade accounts receivable........................... (9,881) (5,456) (1,276) Inventory........................................... (10,444) (7,667) (3,063) Prepaid expenses and other current assets........... 1,926 (1,543) 102 Other assets........................................ (472) (5,501) 85 Accounts payable.................................... 6,182 7 (2,523) Accrued expenses and other current liabilities...... 14,101 9,137 2,493 Other liabilities................................... 196 253 (22) Discontinued operations -- non cash charges and changes in assets and liabilities................ (221) 4,153 2,923 -------- -------- -------- Net cash provided by operating activities........ 37,411 19,612 4,295 -------- -------- -------- Cash flows provided by (used in) investing activities: Purchase of marketable securities........................ (37,828) (5,988) -- Proceeds from sale of marketable securities.............. 20,988 -- 12 Acquisition of property, plant and equipment............. (13,305) (5,391) (3,590) Acquisition of computer software......................... (4,227) (1,835) (409) Proceeds from sale of property and equipment............. 18 23 5 Investing activities of discontinued operations.......... -- -- (1,160) Restricted cash.......................................... 278 (278) -- -------- -------- -------- Net cash used in investing activities............ (34,076) (13,469) (5,142) -------- -------- -------- Cash flows provided by (used in) financing activities: Proceeds from bank line of credit........................ -- -- 10,500 Payments on bank line of credit.......................... -- -- (10,500) Net proceeds from offering............................... 62,287 -- -- Principal payments on long-term debt..................... (346) (329) (306) Exercise of options to purchase common stock............. 3,216 6,482 429 -------- -------- -------- Net cash provided by financing activities........ 65,157 6,153 123 -------- -------- -------- Net increase (decrease) in cash and cash equivalents..... 68,492 12,296 (724) Cash and cash equivalents at beginning of period......... 13,450 1,154 1,878 -------- -------- -------- Cash and cash equivalents at end of period............... $ 81,942 $ 13,450 $ 1,154 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest................................................. $ 104 $ 42 $ 403 ======== ======== ======== Income taxes............................................. $ 13,857 $ 3,725 $ 3,495 ======== ======== ========
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. The Company distributes its products using 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. The Company still owns the stock of Pennex Laboratories, Inc., now known as RSL Holdings, Inc. ("Pennex"), for which operations have been discontinued. (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 1997 presentation. MARKETABLE SECURITIES Marketable securities consist primarily of government debt instruments and are classified as available-for-sale securities under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). At August 31, 1997 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 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. F-7 28 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) RESTRICTED CASH In 1996, restricted cash consisted of funds held in South Korea by the local government to ensure that funds are available to satisfy customer demands for refunds. In 1997, a line of credit was issued in lieu of deposits of cash. 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 expected 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 Mail order catalog costs are expensed as incurred. Advertising production costs are expensed when the advertising first takes place and media costs are expensed as incurred. RESERVE FOR ESTIMATED CHARGEBACKS The Company's Rexall Managed Care division markets and distributes vitamins, nutritional supplements and over-the-counter (OTC) pharmaceuticals to the managed care market. The Company enters into contracts to provide such products to various managed care suppliers who purchase the 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, except those located in highly inflationary economies, are maintained in their functional currency and translated into U.S. dollars in accordance with SFAS No. 52. Assets and liabilities are translated at current exchange rates in effect at the balance sheet date. Translation adjustments, which result from the process of translating financial statements into United States dollars, are accumulated in a separate component of shareholders' equity. Revenues and expenses are translated at the average exchange rate for each period. Gains and losses from foreign currency transactions are included in net income. For foreign operations in highly inflationary economies, gains and losses from balance sheet translation adjustments are included in net income. F-8 29 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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). Net income per share of common stock is presented in the accompanying consolidated statements of income on an adjusted basis, which gives retroactive effect to a two-for-one stock split paid on October 23, 1997 to shareholders of record on October 7, 1997. 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. RECENT ACCOUNTING STANDARDS During Fiscal 1997, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). (See Note 11). SFAS No 121, "Accounting for the Impairment of long-lived Assets and for Long-Lived Assets to be Disposed of" was also adopted during fiscal 1997. 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 did not require impairment charges on the financial statements of the Company. Recent pronouncements of the Financial Accounting Standards Board include SFAS No. 128, "Earnings Per Share", which is not required to be adopted until fiscal 1998, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which are not required to be adopted until fiscal 1999. SFAS No. 128 changes the method of calculating earnings per share. The statement requires the presentation of "basic" earnings per share ("EPS") and "diluted" EPS on the face of the income statement. SFAS No. 128 is effective for financial statements issued for periods ended after December 15, 1997 and requires restatement of all prior-period EPS data presented. The Company has not yet determined the impact, if any, the adoption will have on the Company's financial statements. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. The statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and requires reclassification of financial statements be for earlier periods provided for comparative purposes. The Company has not yet determined the effects, if any, the adoption will have on the Company's financial statements. SFAS No. 131 establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is F-9 30 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) effective for financial statements for periods beginning after December 15, 1997. The Company has not yet determined the effects, if any, the adoption will have on the Company's financial statements. 3. INVENTORY The components of inventory are as follows:
AUGUST 31, ----------------- 1997 1996 ------- ------- Raw materials, bulk tablets and capsules.................... $20,429 $11,609 Work in process............................................. 1,147 1,732 Finished products........................................... 17,047 14,838 ------- ------- Total inventory................................... $38,623 $28,179 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is comprised of:
AUGUST 31, ----------------- 1997 1996 ------- ------- Land........................................................ $ 2,972 $ 2,022 Building and improvements................................... 19,987 14,064 Machinery and equipment..................................... 20,415 14,479 Leasehold improvements...................................... 750 506 Furniture and fixtures...................................... 1,701 1,508 Other assets................................................ 212 212 ------- ------- 46,037 32,791 Less accumulated depreciation and amortization............ (12,248) (8,713) ------- ------- Property, plant and equipment, net................ $33,789 $24,078 ======= =======
F-10 31 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5. OTHER ASSETS Other assets consist of the following:
AUGUST 31, ----------------- 1997 1996 USEFUL LIVES ------- ------- ------------ Intangible assets: Non-compete agreement................................ $ 1,000 $ 1,000 5 years License and registration fees........................ 170 170 5 years Organizational costs................................. 482 450 3 years Computer software.................................... 6,950 2,723 5 years Trademarks........................................... 901 224 10-14 years Patents.............................................. 1,500 1,500 10.5 years Other securities....................................... 150 150 Prepaid customer allowances............................ 3,076 3,121 Other.................................................. 1,171 776 ------- ------- 15,400 10,114 Less accumulated amortization........................ (2,780) (1,275) ------- ------- Total other assets........................... $12,620 $ 8,839 ======= =======
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities are comprised of the following:
AUGUST 31, ----------------- 1997 1996 ------- ------- Accrued customer rebates.................................... $ 1,642 $ 2,166 Accrued commissions......................................... 5,093 2,823 Accrued salaries and bonuses................................ 2,639 2,099 Income taxes payable........................................ 2,078 823 Deposits on unshipped orders................................ 1,598 -- Loans payable............................................... 2,444 -- Other....................................................... 4,696 2,189 ------- ------- Total accrued expenses and other current liabilities..................................... $20,190 $10,100 ======= =======
Loans payable consist of two short-term lines of credit with South Korean banks for the Company's foreign subsidiary in South Korea. Such lines have combined available borrowing amounts of $3,333. The balances outstanding as of August 31, 1997 of $556 and $1,888 are due in April and May 1998, and bear interest at rates of 13% and 11.5%, respectively. F-11 32 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 7. LONG-TERM DEBT AND BORROWING ARRANGEMENTS Long-term debt consists of the following:
AUGUST 31, ----------- 1997 1996 ---- ---- Non-compete agreement, non-interest bearing, net of discount imputed at 8%, of $2 and $23 at August 31, 1997 and 1996, respectively, maturing in January 1998.................... $105 $403 $650 promissory note, interest at 9%, matured in April 1997...................................................... -- 48 ---- ---- 105 451 Less current portion........................................ 105 346 ---- ---- Total long-term debt.............................. $ -- $105 ==== ====
In December 1996, the Company entered into a revolving line of credit with a financial institution with a borrowing amount of $20 million, which line of credit is subject to annual extensions. Borrowings under the line of credit bear interest at LIBOR plus 1.5 percent. The line of credit is collateralized by accounts receivable and inventory, is subject to compliance with certain financial covenants and ratios and prohibits the payment of any dividends on the Company's Common Stock. There were no amounts outstanding under this revolving line of credit at August 31, 1997. 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 $1,474, $905 and $552 for the years ended August 31, 1997, 1996 and 1995, respectively. The future minimum lease payments under noncancelable operating leases at August 31, 1997 are as follows:
FISCAL YEAR - ----------- 1998........................................................ $1,055 1999........................................................ 465 2000........................................................ 53 ------ Total............................................. $1,573 ======
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 $196, $159 and $158 during fiscal 1997, 1996 and 1995, 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 1,500,000 shares of Common Stock for issuance under the 1993 Stock Purchase Plan and may issue such shares or purchase F-12 33 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) additional shares of Common Stock in the open market for participants. For the years ended August 31, 1997 and 1996 participants purchased 7,102 and 8,862 shares in the open market at an average purchase price of $14.44 and $9.07 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 20% 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 1,500,000 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 years ended August 31, 1997 and 1996, participants purchased 52,176 and 2,314 shares of Common Stock in the open market at an average purchase price of $14.60 and $16.25 per share, respectively. 10. COMMON STOCK TRANSACTIONS On March 14, 1996, the Board of Directors declared a three-for-two 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 on March 25, 1996. On November 5, 1996, the Company consummated a public offering (the "Offering") of 8,000,000 shares of Common Stock. Of those shares, 4,000,000 were sold by the Company and 4,000,000 were sold by certain shareholders of the Company. On December 3, 1996, the underwriters' over-allotment option to purchase an additional 1,200,000 shares was exercised. Of those 1,200,000 shares, 800,000 were sold by the Company and 400,000 were sold by a shareholder of the Company. On September 22, 1997, the Board of Directors declared a two-for-one split of the Common Stock which was effected in the form of a stock dividend. The stock dividend will be paid on October 23, 1997 to shareholders of record on October 7, 1997. 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 9,000,000 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 1997 and 1996, the Company realized a tax benefit through shareholder's equity of $4,188 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 available for issuance under the 1993 Director Plan is 120,000 shares. F-13 34 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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 300,000 shares. As of August 31, 1997, non-qualified stock options to purchase 1,855,800 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 1,500,000 shares. Options granted under the 1996 Distributor Plan are for a term of five years. In February 1997, the Board of Directors adopted the Company's 1997 Rexall Showcase International Distributor Stock Option Plan (the "1997 Distributor Plan"). The 1997 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 1997 Distributor Plan is 500,000 shares. Options granted under the 1997 Distributor Plan are for a term of five years. As of August 31, 1997, no options have been granted under the 1997 Distributor Plan. Information with regard to the stock options is as follows:
SHARES ---------------------------------------------------------------- 1993 DIRECTOR DISTRIBUTOR OTHER OPTION PRICE PLAN PLANS PLANS OPTIONS RANGE ---------- -------- ----------- ---------- ------------- Outstanding at August 31, 1994.... 3,175,200 60,000 -- 1,636,800 Granted......................... 2,493,750 45,000 -- 202,500 $2.84-$4.13 Cancelled....................... (705,600) (27,000) -- -- $1.58-$7.09 Exercised....................... (118,500) (3,000) -- (120,000) $1.58-$3.17 ---------- ------- --------- ---------- Outstanding at August 31, 1995.... 4,844,850 75,000 -- 1,719,300 Granted......................... 1,872,902 45,000 -- 225,000 $4.75-$15.00 Cancelled....................... (525,300) -- -- (292,500) $1.58-$7.25 Exercised....................... (1,445,356) (2,000) -- (1,040,800) $1.58-$5.71 ---------- ------- --------- ---------- Outstanding at August 31, 1996.... 4,747,096 118,000 -- 611,000 $1.58-$15.00 Granted......................... 1,718,500 90,000 181,600 -- $11.88-$17.75 Cancelled....................... (208,700) -- -- -- $3.33-$13.25 Exercised....................... (724,876) (2,000) -- (413,000) $1.58-$6.31 ---------- ------- --------- ---------- Outstanding at August 31, 1997.... 5,532,020 206,000 181,600 198,000 ========== ======= ========= ========== Options currently exercisable..... 1,918,978 62,000 36,320 198,000 ========== ======= ========= ========== Options available for grant at August 31, 1997................. 903,248 207,000 1,818,400 -- ========== ======= ========= ==========
The weighted average fair value of options granted at fair market value during fiscal year ended August 31, 1997 and 1996 was $14.30 and $6.77, respectively. F-14 35 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) During fiscal 1996, Financial Accounting Standards Board issued SFAS 123. SFAS 123 encourages, but does not require, the use of a fair value based method of accounting for stock-based compensation plans under which the fair value of stock options is determined on the date of grant and expensed over the vesting period of the stock options. While the Company has elected to continue to apply the provisions of APB 25, SFAS 123 requires pro forma disclosure of net income and income per common share as if the fair value based method under SFAS 123 had been adopted. The pro forma net income and income per common share amounts below have been derived using the Black-Scholes stock option pricing model with the following assumptions for each stock option grant during the respective fiscal year:
STOCK OPTIONS GRANTED IN FISCAL YEAR ------------------------ 1997 1996 ----------- ----------- Assumptions Risk-free interest rate................................. 5.75%-6.63% 5.68%-5.75% Expected life of stock options (years).................. 6 6 Expected volatility of common stock..................... 45% 45% Expected annual dividends on common stock............... -- --
1997 1996 ----------- ----------- Net income -- as reported................................. $35,061 $20,293 Net income -- pro forma................................... 32,746 19,659 Net income per share -- as reported....................... 0.52 0.33 Net income per share -- pro forma......................... 0.48 0.32
The pro forma effects on net income and income per common share for fiscal 1997 and 1996 may not be representative of the pro forma effects SFAS 123 may have in future years. The following table summarizes information about stock options outstanding at August 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE AT 8/31/97 EXERCISE PRICE - ----------------------- ----------- ---------------- -------------- ----------- -------------- $ 1.58-$5.00........... 2,657,300 3.20 $ 3.18 1,844,998 $ 3.02 $ 5.01-$10.00.......... 1,514,720 8.20 $ 6.40 310,680 $ 6.64 $10.01-$20.00.......... 1,945,600 9.30 $12.95 59,620 $16.54
12. SALES TO A MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK The Company had sales to a national retailer which represented approximately 17% of net sales for the year ended August 31, 1997, and sales to a different national retailer which represented approximately 11% of net sales for the year ended August 31, 1995. The Company sells products to a large number of customers, which are primarily in the United States. The Company continuously evaluates the credit worthiness 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 U.S. federal, state and local securities with high credit quality financial institutions. F-15 36 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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 foreign subsidiaries file income tax returns in their respective countries of incorporation. Deferred income taxes as of August 31, 1997 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 account receivable reserves, book depreciation versus tax deprecation and foreign net operating losses. The following reflects the actual income tax provision (benefits) the Company incurred for the fiscal years ended August 31, 1997, 1996 and 1995:
FISCAL YEAR ENDED AUGUST 31, ------------------------------ 1997 1996 1995 -------- -------- -------- Current: Federal................................................. $18,305 $ 8,886 $ 3,866 State................................................... 1,601 776 307 Foreign................................................. -- 60 -- ------- ------- ------- 19,906 9,722 4,173 ------- ------- ------- Deferred: Federal................................................. 176 1,906 (1,657) State................................................... -- 153 (132) Foreign................................................. (605) 17 -- ------- ------- ------- (429) 2,076 (1,789) ------- ------- ------- Total income tax provision........................... $19,477 $11,798 $ 2,384 ======= ======= =======
The following summarizes the total income tax provisions for each of the years ended August 31, 1997, 1996 and 1995:
1997 1996 1995 ------- ------- ------- Continuing operations..................................... $19,477 $11,798 $ 6,866 Discontinued operations................................... -- -- (2,425) Loss on disposal of discontinued operations............... -- -- (2,057) ------- ------- ------- $19,477 $11,798 $ 2,384 ======= ======= =======
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, 1997, 1996 and 1995:
1997 1995 1996 ------- ------- ------ Income tax provision, at 35%............................... $19,088 $11,232 $2,360 Statutory federal surtax exemption......................... -- -- (66) State income tax, net of federal benefit................... 1,048 624 177 Tax exempt interest........................................ (664) -- -- Non-deductible expenses.................................... 128 83 54 Other, net................................................. (123) (141) (141) ------- ------- ------ Total income tax provision............................... $19,477 $11,798 $2,384 ======= ======= ======
F-16 37 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The significant components of the deferred tax assets and liabilities at August 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---- ---- ------ Deferred income tax assets: Loss on disposition of discontinued operations............ $185 $185 $2,057 Non-compete amortization.................................. 39 149 238 Accounts receivable and other reserves.................... 67 66 135 Net operating losses...................................... 605 -- -- Other..................................................... 89 102 11 ---- ---- ------ 985 502 2,441 ---- ---- ------ Deferred income tax liabilities: Depreciation.............................................. 598 527 387 Foreign................................................... -- 17 -- ---- ---- ------ 598 544 387 ---- ---- ------ $387 $(42) $2,054 ==== ==== ======
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. Net assets of Pennex, which are presented as net amounts in the Company's consolidated balance sheets at August 31, 1997 and 1996, were as follows:
1997 1996 ------ ------ Property, plant and equipment, net (under contract for sale)..................................................... $3,948 $3,948 Other net assets (liabilities).............................. 128 (93) ------ ------ Total assets...................................... $4,076 $3,855 ====== ======
The results of discontinued operations for the fiscal year ended August 31, 1995 were as follows:
1995 ------- Net sales................................................... $18,933 ======= Loss from discontinued operations before income tax......... $(6,704) Income tax benefit.......................................... 2,425 ------- Net loss from discontinued operations....................... $(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 1996. The rate of interest increased to 18% on April 1, 1996, although interest is being paid at 12% with the balance accruing until the note is due in full. The note was assigned from F-17 38 REXALL SUNDOWN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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 September 1, 1997, the Company extended the maturity of the collateralized note related to the sale of the assets of Pennex Laboratories, Inc. to April 15, 1998. Interest continues to accrue and is payable in accordance with the previous terms. 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 $.02 per share, which would be reflected as an adjustment to discontinued operations. 15. COMMITMENTS AND CONTINGENCIES The Company was named in 27 lawsuits, of which 25 have been settled or discontinued, relating to the manufacture of L-tryptophan. These lawsuits seek or have sought compensation and damages for alleged personal injury from ingestion of products containing allegedly contaminated L-tryptophan. The Company has entered into an agreement with the apparent supplier of all the alleged contaminated L-tryptophan products pursuant to which such supplier has agreed to indemnify the Company against any judgment and to fund settlements arising out of those claims in certain circumstances, as well as to pay the legal fees and expenses of the defense. Based upon such indemnification arrangements, the Company's product liability insurance and the product liability insurance of the Company's supplier, the Company does not believe that any adverse decision will have a material adverse effect on the Company and, accordingly, no provision has been made in the financial statements for any loss that may result to the Company as a result of these actions. The Company has employment agreements with each of its executives for a term of three years, some of which are automatically extended for an additional year at the expiration of each year. The agreements provide for current minimum annual salaries in the aggregate of $2.9 million, adjusted annually for cost-of-living changes. 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. 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." 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
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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)
21 40 10.2 -- Amended and Restated Indemnification Agreement dated March 15, 1993 between the Company and Showa Denko America, Inc.(1) 10.3 -- Guaranty Agreement dated March 15, 1993 between the Company and Showa Denko K.K.(1) 10.4 -- Amended and Restated 1993 Employee Stock Purchase Plan(1) 10.5 -- Form of Non-Qualified Stock Option Agreement(1) 10.6 -- Amended and Restated 1993 Stock Incentive Plan(2) 10.7 -- Amended and Restated 1993 Non-Employee Director Stock Option Plan(2) 10.8 -- Amended and Restated 1994 Non-Employee Director Stock Option Plan(2) 10.9 -- 1996 Rexall Showcase Distributor Stock Purchase Plan(3) 10.10 -- 1996 Rexall Showcase Distributor Stock Option Plan(4) 10.11 -- Employment Agreement dated April 1, 1995 between Carl DeSantis and the Company, as amended on October 9, 1995 and on March 27, 1997(5) 10.12 -- Employment Agreement dated April 1, 1995 between Dean DeSantis and the Company, as amended on April 1, 1996 and on March 27, 1997(5) 10.13 -- Employment Agreement dated April 1, 1995 between Damon DeSantis and the Company, as amended on April 1, 1996 and on March 27, 1997(5) 10.14 -- Employment Agreement dated April 1, 1995 between Nickolas Palin and the Company, as amended on April 1, 1996 and on March 27, 1997(5) 10.15 -- Employment Agreement dated April 1, 1995 between Geary Cotton and the Company, as amended on March 27, 1997(6) 10.16 -- Employment Agreement dated April 1, 1995 between Richard Werber and the Company, as amended on March 27, 1997(6) 10.17 -- Employment Agreement dated April 24, 1995 between Christian Nast and the Company, as amended on July 21, 1995 and on March 27, 1997(7) 10.18 -- Employment Agreement dated February 3, 1997 by and between the Company and Gary N. Malloch(8) 10.19 -- Business Loan Agreement dated December 13, 1996 between the Company and Barnett Bank, N.A.(9) 10.20 -- Agreement dated December 29, 1995 by and between Pennex Laboratories, Inc. (now known as RSL Holdings, Inc.) and Oakmont Pharmaceuticals, Inc.(10) 10.21 -- Fourth Forbearance Agreement dated September 1, 1997 by and between Oakmont Pharmaceuticals, Inc. and the Company(11) 10.22 -- Industrial Lease dated March 3, 1995 by and between WRC Properties, Inc. and Network Marketing, L.C. (now known as Rexall Showcase International, Inc.)(10) 10.23 -- Standard Industrial Lease dated May 16, 1996 between the Company and Dermody Properties(10) 10.24 -- Purchase and Sale Agreement dated August 26, 1997 by and between Levitz Furniture Corporation and the Company(11) 11 -- Earnings Per Share Computation(11) 21 -- Subsidiaries of Registrant(11) 23 -- Consent of Coopers & Lybrand, L.L.P.(11) 27 -- Financial Data Schedule (for SEC use only)(11)
22 41 - --------------- (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) Plan is filed as an Exhibit to the Company's Proxy Statement dated December 30, 1996 and is incorporated herein by reference. (3) Filed as an Exhibit to the Company's Registration Statement on Form S-3 (File No. 33-6571) and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Registration Statement on Form S-3 (File No. 33-7883) and incorporated herein by reference. (5) The Employment Agreement is filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1995, the April 1, 1996 amendment thereto is filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1996, and the March 27, 1997 amendment thereto is filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended May 31, 1997, each of which is incorporated herein by reference. (6) The 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 the March 27, 1997 amendment thereto is filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended May 31, 1997, each of which is incorporated herein by reference. (7) The Employment Agreement is filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarter Ended May 31, 1995, the July 21, 1995 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 the March 27, 1997 amendment thereto is filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended May 31, 1997, each of which is incorporated herein by reference. (8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended February 28, 1997. (9) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended November 30, 1996 and is incorporated herein by reference. (10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1996 and is incorporated herein by reference. (11) Filed herewith. (B) REPORTS ON FORM 8-K No Report on Form 8-K was filed during the three-month period ended August 31, 1997. (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. 23 42 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: November 26, 1997 By: /s/ CARL DESANTIS ---------------------------------------------------- Carl DeSantis, Chairman of the Board
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 November 26, 1997 - ------------------------------------------------ Carl DeSantis /s/ CHRISTIAN NAST Director, President and Chief November 26, 1997 - ------------------------------------------------ Executive Officer Christian Nast /s/ DEAN DESANTIS Director, Senior Vice November 26, 1997 - ------------------------------------------------ President -- Operations and Dean DeSantis Chief Operating Officer /s/ DAMON DESANTIS Director and Executive Vice November 26, 1997 - ------------------------------------------------ President Damon DeSantis /s/ GEARY COTTON Vice President -- Finance, Chief November 26, 1997 - ------------------------------------------------ Financial Officer, Treasurer Geary Cotton and Chief Accounting Officer /s/ NICKOLAS PALIN Director and President -- Sundown November 26, 1997 - ------------------------------------------------ Vitamins Nickolas Palin /s/ STANLEY LEEDY Director November 26, 1997 - ------------------------------------------------ Stanley Leedy Director November 26, 1997 - ------------------------------------------------ Raymond Monteleone /s/ MELVIN STITH Director November 26, 1997 - ------------------------------------------------ Melvin Stith
24 EX-10.21 2 FOREBEARANCE AGREEMENT DATED 09/01/97 1 Exhibit 10.21 FOURTH FORBEARANCE AGREEMENT THIS FOURTH FORBEARANCE AGREEMENT, (the "Fourth Forbearance Agreement") is made as of September 1, 1997 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 that certain Forbearance Agreement dated April 29, 1996 by and between Oakmont and Rexall Sundown, (the "First Forbearance Agreement"), that certain Second Forbearance Agreement dated September 23, 1996 by and between Oakmont and Rexall Sundown (the "Second Forbearance Agreement"), and that certain Third Forbearance Agreement dated April 1, 1997 by and between Oakmont and Rexall Sundown (the "Third 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 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 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, the Second Forbearance Agreement and the Third 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 1 2 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 designated by Rexall Sundown (the Deed and the Bill of Sale are hereinafter collectively referred to as the "Transfer Documents"). K&L has been holding the Transfer Documents in escrow pursuant to the terms of the First Forbearance Agreement. Oakmont has also defaulted in the timely payment of the amounts due under the First Forbearance Agreement, the Second Forbearance Agreement and the Third 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. 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, the Second Forbearance Agreement or the Third Forbearance Agreement available by reason of any payment default thereunder occurring prior to the date of this Fourth Forbearance 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 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 5 below) shall have occurred and be continuing. 2. Oakmont will pay Rexall Sundown the following amounts on or before the following dates: September 19, 1997 $ 120,000.00 September 30, 1997 $ 60,000.00 October 31, 1997 $ 60,000.00 November 15, 1997 $1,000,000.00 November 30, 1997 $ 60,000.00 December 31, 1997 $1,060,000.00 January 31, 1998 $ 60,000.00 February 28, 1998 $ 60,000.00 March 31, 1998 $ 60,000.00 If Oakmont raises more than $3,500,000.00 from the sale of bonds, Oakmont will pay Rexall fifty percent (50%) of the net amount raised in excess of $3,500,000.00 within two (2) business days of the closing. Payments made pursuant to this paragraph 2 shall be applied first to accrued and unpaid interest on the Modified Obligations, and next to the unpaid principal balance of the Modified Obligations. 2 3 3. On or before April 15, 1998, Oakmont shall pay Rexall Sundown the outstanding balance due under the Purchase Agreement, the Note, and the Security Documents as modified by the First Forbearance Agreement, the Second Forbearance Agreement and the Third Forbearance Agreement (collectively, the "Modified Documents"), as specifically set forth on EXHIBIT A attached hereto. 4. In addition to the amounts due to Rexall Sundown pursuant to Sections 2 and 3 hereof, Oakmont shall pay to Rexall Sundown an additional forbearance fee of $100,000 not later than April 15, 1998. 5. Any of the following events shall constitute an "Event of Default" for purposes of the Fourth Forbearance Agreement: (i) Any of the payment required to be made pursuant to this Fourth 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 obligation under the Modified Documents (other than any default waived by Rexall Sundown pursuant to paragraph 1 above) and any applicable grace or cure period shall have expired. 6. 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. 7. If, in accordance with this Fourth 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 Fourth Forbearance Agreement shall impair Rexall Sundown's right to enforce its lien and security interest in the Assets. 8. 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. 9. This Fourth Forbearance Agreement may be executed in multiple counterparts 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. 3 4 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 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: /s/ Arthur F. Michaelis --------------------------------- Name: Arthur F. Michaelis Title: CEO REXALL SUNDOWN, INC. By: /s/ Richard Werber --------------------------------- Name: Richard Werber Title: VP 4 5 EXHIBIT A PAGE 1 OAKMONT PHARMACEUTICALS BALANCES DUE AS OF AUGUST 31, 1997 Interest Calculation
Int @ 12% Int @ 6% Total ----------------------------------------------------------- April '96 29,975.00 29,975.00 May 30,974.17 30,974.17 June 29,975.00 29,975.00 July 30,974.17 30,974.17 Aug 30,974.17 30,974.17 Sept 29,975.00 29,975.00 Oct 30,974.17 30,974.17 Nov 29,975.00 29,975.00 Dec 30,974.17 30,974.17 Jan 30,974.17 30,974.17 Feb 27,976.67 27,976.67 March 61,948.33 30,974.17 92,922.50 April 59,950.00 29,975.00 89,925.00 May 61,948.33 30,974.17 92,922.50 June 59,950.00 29,975.00 89,925.00 July 59,950.00 29,975.00 89,925.00 August 61,948.33 30,974.17 92,922.50 September 59,950.00 29,975.00 89,925.00 October 61,948.33 30,974.17 92,922.50 November 57,875.56 28,937.78 86,813.34 December 57,661.15 28,830.58 86,491.73 January 47,327.82 23,663.91 70,991.73 Feb 42,747.71 21,373.85 64,121.56 March 47,327.82 23,663.91 70,991.73 April 22,900.56 11,450.28 34,350.84 ---------------------------------------------------------------- 763,433.95 715,438.64 1,478,872.60 Payment 6/97 (180,000.00) (180,000.00) Payment 8/97 (60,000.00) (60,000.00) ---------------------------------------------------------------- Balance due 523,433.95 715,438.64 1,238,872.60 ---------------------------------------------------------------- Above Interest due 1,238,872.60 Principal Balance 5,995,000.00 First forbearance fee 100,000.00 Second forbearance fee 100,000.00 Third forbearance fee 250,000.00 Fourth forbearance fee 100,000.00 -------------- Total Balance Due as of 8/31/97 7,783,872.60 Payment due September 19, 1997 (120,000.00) Payments due monthly 9/30/97 - 3/31/98 (420,000.00) Payment due 11/15/97 (1,000,000.00) Payment due 12/31/97 (1,000,000.00) -------------- Balance due April 15, 1998 5,243,872.60 ==============
6 EXHIBIT A PAGE 2
INTEREST @ 12% INTEREST @ 6% TOTAL INTEREST PRINCIPAL TOTAL PAYMENT ------------------------------------------------------------------------------------ Interest due thru 10/31/97 487,593.33 577,518.33 1,065,111.67 Interest due 11/1-11/15/97 - - - ------------------------------------------------ Interest thru 11/15/97 487,593.33 577,518.33 1,065,111.67 Payment 6/97 (180,000.00) (180,000.00) 180,000.00 Payment 8/97 (60,000.00) (60,000.00) 60,000.00 Payment due 9/19/97 (120,000.00) (120,000.00) 120,000.00 Payment due 9/30 (60,000.00) (60,000.00) 60,000.00 Payment due 10/31 (60,000.00) (60,000.00) 60,000.00 Payment due 11/15/97 (7,593.33) (577,518.33) (585,111.57) 414,888.33 1,000,000.00 ------------------------------------------------ Interest balances - - (0.00) Interest due 11/1-11/15/97 29,975.00 14,987.50 44,962.50 Interest 11/16-11/30 27,900.56 13,950.28 41,850.84 ------------------------------------------------ Interest November 57,875.56 28,937.78 86,813.34 Payment due 11/30 (57,875.56) (2,124.44) (60,000.00) 60,000.00 Interest December 57,661.15 28,830.58 86,491.73 Payment due 12/31/97 (57,661.15) (2,338.85) (60,000.00) 60,000.00 Payment due 12/31/97 - - - 1,000,000.00 1,000,000.00 Interest January 47,327.82 23,663.91 70,991.73 Payment due 1/31/98 (47,327.82) (12,672.18) (60,000.00) 60,000.00 Interest February 42,747.71 21,373.85 64,121.56 Payment due 2/28/98 (42,747.71) (17,262.29) (60,000.00) 60,000.00 Interest March 47,327.82 23,663.91 70,991.73 Payment due 3/31/98 (47,327.82) (12,672.18) (60,000.00) 60,000.00 Interest April 22,900.56 11,450.28 34,350.84 ------------------------------------------------ Interest balances due 22,900.56 90,860.37 113,760.93 ------------------------------------------------ Total interest due 113,760.93 Forbearance fees 550,000.00 Principal due 5,995,000.00 Payment applied (414,888.33) Payment applied (1,000,000.00) 4,580,111.67 ------------- -------------- Total due at 4/15/98 5,243,872.60 ==============
The parties agree that if payments are not made on their due dates, the amounts due as set forth above will be adjusted accordingly. Rexall Sundown, Inc. Oakmont Pharmaceuticals, Inc. by: /s/ Richard Werber, VP by: /s/ Arthur F. Michaelis, CEO ------------------------- -------------------------- EX-10.24 3 PURCHASE & SALE AGREEMENT 1 EXHIBIT 10.24 PURCHASE AND SALE AGREEMENT THIS AGREEMENT is made and entered into as of the 26th day of August 1997, by and between Levitz Furniture Corporation, a Florida corporation. ("Seller"), and Rexall Sundown, Inc., a Florida corporation and/or assigns ("Purchaser"). In consideration of the mutual covenants and promises set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the parties to this Agreement, the parties agree to the following terms and conditions: 1. PURCHASE AND SALE. Subject to the terms of this Agreement, Seller agrees to sell to Purchaser and Purchaser agrees to purchase from Seller the following property (collectively, the "Property"): 1.1 That certain parcel of property located in Palm Beach County, Florida, having a street address of 6111 Broken Sound Parkway, Boca Raton, Florida, as more particularly described in Schedule "A" (the "Realty"); 1.2 The land and all buildings, structures and other improvements situated on the Realty (the "Improvements"); 1.3 All fixtures, equipment, furnishings and other items of property (other than furniture and files and similar personal property used by Seller in its ordinary business) whatsoever used or useful in the operation, repair and maintenance of the Realty, situated on the Realty, and owned by Seller (the "Personalty"); 1.4 All licenses, permits, and contracts rights pertaining to ownership and/or operation of the Realty, Improvements or Personalty; 1.5 All general intangible rights pertaining to the ownership and/or operation of the Realty; and 1.6 All strips, gores, easements, privileges, rights-of-way, riparian and other water rights, rights to lands underlying any adjacent streets or roads, and other tenements, hereditaments and appurtenances, if any, pertaining to or accruing to the benefit of the Realty and Improvements. 2. EFFECTIVE DATE. If this Agreement is not executed and delivered, by each party to it, to all parties on or before August 27th, 1997, at 5:00 p.m., this Agreement shall, after that time, be null and void and of no further force and effect. The date of this Agreement, for purposes of performance, shall be the date when the last one of Seller or Purchaser has signed this Agreement, as stated on the signature page (the "Effective Date"). 3. CLOSING DATE. Subject to other provisions of this Agreement for extension, closing on the transaction described in this Agreement (the "Closing") shall be held at the offices of the attorneys for Purchaser, Gunster, Yoakley, Valdes-Fauli and Stewart, P.A., in Fort Lauderdale, Florida on the business day which is forty-five (45) days after the Effective Date (the "Closing Date"). The parties understand that, if all documents are prepared and agreed upon in advance, the parties will cooperate with each other to close by mail. 4. DEPOSIT. 4.1 To secure the performance of Purchaser of Purchaser's obligations under this Agreement, Purchaser has delivered to the law firm of Gunster, Yoakley, Valdes-Fauli and Stewart, P.A., as escrow agent ("Escrow Agent"), the sum of Five Hundred Thousand and No/100 Dollars ($500,000.00) by check, the proceeds of which shall be held in trust as an earnest money deposit (the "Initial Deposit") by Escrow Agent, and disbursed only in accordance with the terms of this Agreement. If Purchaser elects not to cancel this Agreement during the Investigation Period, as more particularly described in Section 10 of this Agreement, then within one (1) business day following the expiration of said Investigation Period, Purchaser shall deliver to Escrow Agent a check in the sum of Five Hundred Thousand and No/100 Dollars ($500,000.00) (the "Additional Deposit") to be held together with, and on the same terms and 2 conditions as, the Initial Deposit. Once the Additional Deposit is paid to Escrow Agent, the term "Deposit" shall mean the Initial Deposit plus the Additional Deposit; prior to such payment, whenever used in this Agreement, the term "Deposit" shall mean only the Initial Deposit. 4.2 Provided Purchaser executes the appropriate tax forms, Escrow Agent shall use its good efforts to invest the Deposit in an interest bearing account or certificate of deposit maintained at Republic Security Bank, 777 South Flagler, Suite 148, West Palm Beach, FL (561) 655 5424 Attn: Nancy Mecerra, Branch Manager. All interest accrued or earned on the Deposit shall be paid or credited to Purchaser except in the event of a default by Purchaser and not by Seller. 4.3 Purchaser and Seller acknowledge that if the Deposit is at any time in excess of $100,000 then the amount over $100,000.00 shall not be insured, and both parties hold Escrow Agent harmless from all losses and costs and liabilities which may accrue or be incurred related to such lack of insurance. 5. PURCHASE PRICE. 5.1 The total purchase price (the "Purchase Price") to be paid by Purchaser to Seller for the Property is Eight Million One Hundred Thousand and No/100 Dollars ($8,100,000.00). 5.2 The Purchase price shall be paid to Seller as follows: $1,000,000.00 the Deposit described in Section 4 of this Agreement, which shall be paid to Seller at Closing; $7,100,000.00 approximately, in cash at Closing, subject to prorations and adjustment as provided in this Agreement, to be paid by wire transfer of federal funds. $8,100,000.00 Total Purchase Price
6. EXISTING MORTGAGE. Seller acknowledges that the Property is subject to a blanket mortgage ("Existing Mortgage") and any note it secures (the "Existing Note"), both as described in Schedule "B". Seller represents and warrants to Purchaser that: 6.0.1 There are no amendments, modifications, or other agreements or understandings affecting the Property with respect to the Existing Note and Existing Mortgage except as set forth in Schedule "B"; 6.0.2 The Existing Note and Existing Mortgage do not require the consent of the holder of them for the timely consummation of this transaction. 6.1 At least twenty (20) days prior to Closing, Seller shall deliver to Purchaser an appropriate estoppel and instruction letter from the holder of the Existing Note and Existing Mortgage providing for payment(if applicable) and release or satisfaction of the Existing Note and Existing Mortgage at Closing. At Closing, Seller shall deliver to Purchaser an updated estoppel and instruction letter and, if required by Purchaser's title underwriter to be delivered at Closing, a duly executed Release of Mortgage, in form acceptable to Purchaser's title insurer. 6.2 The provisions of this section shall survive the Closing. 7. TITLE EVIDENCE. Within three (3) days following the Effective Date, Seller, at Seller's expense, shall deliver to Purchaser's attorneys, Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., Attention: Julie A.S. Williamson a title insurance commitment (the "Title Commitment") written on First American Title Insurance Company (together with hard copies of all exceptions to title shown on them), and any abstract of title for the Property which it may have or have access to (together, the "Title Evidence"). At Seller's expense, a computer title update shall be obtained, within ten (10) days before Closing. The title evidence shall show Seller to be vested with good and marketable and insurable fee simple title to the Realty, 2 3 free and clear of all liens, encumbrances, leases, tenancies, covenants, conditions, restrictions, rights-of-way, easements and other matters affecting title, except the following matters (the "Permitted Exceptions"): 7.1 Ad valorem real estate taxes for 1997 and subsequent years; 7.2 All applicable zoning ordinances and regulations; 7.3 All matters shown on Schedule "C". Title shall be deemed good, marketable and insurable only if Purchaser can obtain an Owner's ALTA Form B Marketability Policy from Forst American Title Insurance Company, at standard rates, containing no exceptions other than those specifically permitted above. The cost of title evidence shall be paid by Seller. The cost of the title insurance shall be paid by Seller. 8. SURVEY. 8.1 Within five (5) days from the Effective Date, Seller shall also deliver to Purchaser, at Seller's expense, a survey (the "Survey") of the Realty, current to at least July 31, 1996. If the Survey does not include the following matters, Purchaser may have it modified to include them: 8.1.1 meet the minimum technical standards of the Florida Board of Land Surveyors; 8.1.2 set forth the total number of square feet and acres in the Realty and the number and type of parking spaces; 8.1.3 show the location of all improvements, parcels (if any) in the legal descriptions of the Realty, utility and other lines, easements, either visible or recorded, and recording references of them; 8.1.4 include elevation and flood zone information; 8.1.5 show all setback lines established by law and regulation, and the actual setbacks of the Improvements; 8.1.6 show all of the exceptions which are reflected in the Title Commitment which Seller shall have delivered to Purchaser; and 8.1.7 include the accurate legal description. The cost of including these matters, and of updating the Survey, and of certifying it to the Purchaser, Purchaser's attorney, Seller, Seller's attorney, and the title underwriter, shall be reimbursed to Purchaser by Seller, up to a maximum of $1000. 8.2 If the Survey (including any additional matters which Purchaser or its title insurer may require), as updated, shall reflect any encroachments, overlaps, unrecorded easements or similar rights in third parties, or any other adverse matters not specifically provided for in this Agreement, then the same shall be deemed "title defects" as set forth in Section 9. 9. TITLE DEFECTS. 9.1 Purchaser shall have twenty (20) days from receipt of the Title Evidence and the Survey (updated and modified, if applicable, to meet the requirements of Section 8), respectively, within which to examine each of them. If Purchaser finds title to be defective, Purchaser shall, no later than the end of each such twenty (20) day examination period, notify Seller in writing specifying the title defect(s). If Purchaser fails to give Seller written notice of any title defect(s) before the expiration of each such twenty (20) day period, the defects shown in the Title Evidence or Survey shall be deemed to be waived as title objections to closing this transaction. 9.2 If Purchaser has given Seller timely written notice of defect(s) and the defect(s) render the title other than as represented in this Agreement, Seller shall use Seller's best efforts to cause such defects to be cured by the Closing Date. Seller agrees to remove by payment, bonding, or otherwise any lien against the Property capable of removal by the payment of money or bonding. Seller shall not be obligated to 3 4 bring suit, if necessary, to cure any other defect; Purchaser, however, shall then have the options described in Section 9.3. At either party's option, the Closing Date may be extended for a period not to exceed sixty (60) days for purposes of eliminating any title defects. 9.3 If Seller does not eliminate such defects as of the Closing Date as the same may be extended under the preceding sentence, or if any new "title defects" appear from the date of the Title Evidence through the Closing Date, which Seller does not eliminate as of the Closing Date, Purchaser shall have the option to: 9.3.1 Close and accept the title "as is", without reduction in the Purchase Price and without claim against Seller for such title defects (except for any lien or other matter that can be removed by the payment of money or bonding, for which credit shall be given Purchaser at the Closing); in such event the Closing shall take place ten (10) days after notice of such election, or on the Closing Date, whichever is later; or 9.3.2 Cancel this Agreement, in which event Escrow Agent shall return the Deposit together with all interest earned on it to Purchaser; upon such return of the Deposit, both parties shall be released from all further obligations under this Agreement, unless such defects were caused by Seller's willful act or willful omission, in which event Seller shall remain liable to Purchaser for damages caused by the defects. 10. INVESTIGATION PERIOD. 10.1 During the Investigation Period, as defined below, Purchaser shall have the right to conduct, at Purchaser's expense, whatever investigations, analyses and studies of the Property that Purchaser may deem appropriate to satisfy Purchaser with regard to: 10.1.1 the physical condition of the building(s) and other improvements included in the Property, including their structure, roofs, air conditioning, heating, electrical, plumbing and other mechanical systems; 10.1.2 the physical condition of all fixtures, equipment, furnishings and other items of property referred to in Section 1 above, an inventory of which shall be furnished by Seller at Seller's expense within ten (10) days following the execution of this Agreement; 10.1.3 the permitted uses of and improvements to the Property under applicable building and zoning ordinances and the present compliance or non-compliance with the same; 10.1.4 evidence of any hazardous waste or similar materials, and of Radon, in, on, under or about the Property; 10.1.5 all existing contracts and agreements affecting the Property, if any; and 10.1.6 Seller's operating statements for the last three (3) years (but not separate business records of Seller's ongoing business) for the Property for the period of Seller's ownership, which statements and related books and records Seller shall make available to Purchaser at all reasonable times at the Property. 10.2 If Purchaser for any reason and in Purchaser's exclusive judgment and sole discretion, elects to terminate this Agreement, then Purchaser may cancel this Agreement by notifying Seller of such cancellation on or before 5:00 p.m. on the thirtieth (30th) day (assuming it is a business day, otherwise on the next ensuring business day) following the Effective Date (the "Investigation Period"), whereupon Escrow Agent shall return the Deposit together with all interest earned on it to Purchaser and both parties shall be released from all further obligations under this Agreement. No inquiry, examination, or analysis made by Purchaser (or the results of them) shall reduce, limit or otherwise affect the representations and warranties made by Seller in this Agreement. 10.3 Seller shall cooperate with Purchaser in Purchaser's investigations and review of all records related to the Property. Notwithstanding any provisions in this Agreement to the contrary, Seller agrees, 4 5 covenants, represents and warrants that Seller will not enter into any new agreements with any tenants or occupants on or after the Effective Date. 10.4 The provisions of this section shall survive the Closing. 11. SELLER'S AND PURCHASER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. 11.1 Seller represents and warrants to Purchaser and covenants and agrees with Purchaser as follows: 11.1.1 Seller has not entered into any contracts, subcontracts, arrangements, licenses, concessions, easements, or other agreements, either recorded or unrecorded, written or oral, affecting all or any portion of the Property, or the use of it, other than those agreements set forth in Schedule "D"; each instrument in Schedule "D" may be canceled by Purchaser upon not more than thirty (30) days' notice and without payment of premium or penalty for such cancellation except as otherwise set forth in Schedule "D"; Seller shall not modify any of the instruments identified in Schedule "D", nor enter into any new contact or other agreement affecting all or any portion of the Property, or the use of it, without the prior written consent of Purchaser, which consent will not be unreasonably withheld or delayed; 11.1.2 To the best of Seller's knowledge and as shown by the Title Commitment, there are no (i) existing or pending improvement liens affecting the Property; (ii) violations of building codes and/or zoning ordinances or other governmental or regulatory laws, ordinances, regulations, orders or requirements affecting the Property; (iii) existing, pending or threatened lawsuits or appeals of prior lawsuits affecting the Property; (iv) existing, pending or threatened condemnation proceedings affecting the Property; or (v) existing, pending or threatened zoning, building or other moratoria, downzoning petitions, proceedings, restrictive allocations or similar matters that could affect Purchaser's use of the Property; 11.1.3 Seller is vested with good and marketable and insurable fee simple title to the Property subject only to the Permitted Exceptions; Seller is vested with good and marketable title to all fixtures, equipment, furnishings and other items of property referred to in Section 1, free of all financing and other liens or encumbrances other than the Existing Mortgage; 11.1.4 Seller shall comply prior to Closing with all laws, rules, regulations and ordinances of all governmental authorities having jurisdiction over the Property; 11.1.5 Seller has not received notice of the existence of violations of law or regulations in regard to radon or other hazardous materials or waste in the Improvements which are above government approved levels for radon, hazardous materials or waste on, in, under or about the Property, except as may be described in the reports prepared by Law Engineering Services, Inc., prepared July and August 1997, copies of which Seller is immediately delivering to Purchaser. 11.1.6 Seller shall provide, and keep in force through the Closing, its present policies of fire, flood, windstorm, hazard and other casualty insurance; 11.1.7 Seller has not received notices of violations of law or regulations in regard to zoning, permits, or similar matters; except for the provisions of any agreements specified in Schedule B-2 of the Title Commitment, Seller does not know of any zoning resolution, ordinance, covenant, agreement, or the like that could prohibit or frustrate any use of the Property now being made or otherwise permissible under the current zoning classification in the absence of such conditions or restrictions; 11.1.8 There are no agreements currently in effect which restrict the sale of the Property; 11.1.9 Seller has the right, power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it; neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by it nor the fulfillment of nor 5 6 the compliance with the terms, conditions and provisions of this Agreement will conflict with or result in a violation or breach of any other instrument or agreement of any nature to which Seller is a party or by which it is bound or may be affected, or constitute (with or without the giving of notice or the passage of time) a default under such an instrument or agreement; no consent, approval, authorization or order of any person is required with respect to the consummation of the transactions contemplated by this Agreement; 11.1.10 To the best of Seller's knowledge and belief, no commitments or agreements have been or will be made to any governmental authority, utility company, school board, church or other religious body, any homeowners or homeowners' association, or any other organization, group or individual, relating to the Property which would impose an obligation upon Purchaser to make any contributions or dedications of money or land to construct, install or maintain any improvements of a public or private nature on or off the Realty, or otherwise impose liability on Purchaser; Purchaser acknowledges, however, that there are ongoing assessments to be made to the Arvida Park of Commerce West Association, Inc. for maintenance, security guards, and similar matters (for which Seller shall obtain an estoppel letter prior to Closing); 11.1.11 At all times during the term of this Agreement and as of Closing, all of Seller's representations, warranties and covenants in this Agreement, including but not limited to those in Sections 10.3 and 11, shall be true and correct; no representation or warranty by Seller contained in this Agreement and no statement delivered or information supplied to Purchaser pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements or information contained in them or in this Agreement not misleading. 11.2 Purchaser represents and warrants to Seller that Purchaser has the right, power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it; neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by it nor the fulfillment of nor the compliance with the terms, conditions and provisions of this Agreement will conflict with or result in a violation or breach of any other instrument or agreement of any nature to which Purchaser is a party or by which it is bound or may be affected, or constitute (with or without the giving of notice or the passage of time) a default under such an instrument or agreement; no consent, approval, authorization or order of any person is required with respect to the consummation of the transactions contemplated by this Agreement; 11.3 The provisions of this section and all other representations, warranties and covenants of Seller or Purchaser otherwise specified in this Agreement shall survive the Closing. 12. CONDITIONS PRECEDENT. 12.1 An express condition precedent to Purchaser's and Seller's respective obligations to close this transaction is the truth and correctness of all of the other party's representations and warranties and the fulfillment of all of the other party's covenants at all times during the term of this Agreement and as of Closing, and no inquiry, analysis or examination made by Purchaser or Seller (or the results of them), as applicable, shall reduce, limit or otherwise affect said representations, warranties and covenants of the other. 12.2 Purchaser is in the process of applying for grants from Palm Beach County's and the State of Florida's job incentive and tax incentive programs, in regard to Purchaser's intended use of the Property. An express condition precedent to Purchaser's obligation to close this transaction is Purchaser's receipt of approval from Palm Beach County and from the State of Florida with respect to these job incentive and tax incentive programs. If Purchaser does not duly terminate this Agreement before the end of the Investigation Period, then Purchaser shall be deemed to have waived this condition precedent. 6 7 13. DEFAULT BY SELLER. 13.1 If any of Seller's representations and warranties are not true and correct or Seller's covenants are not fulfilled or all other conditions precedent are not met as of Closing (or earlier specified date, if any), or Seller fails to perform any of the terms and conditions of this Agreement or is otherwise in default under this Agreement, then Purchaser, at Purchaser's sole option, may elect to: 13.1.1 Waive the default or failure and close "as is"; or 13.1.2 Cancel this Agreement by written notice to Seller given on or before the Closing Date, in which event Escrow Agent shall return the Deposit together with all interest earned on it to Purchaser and Seller shall reimburse Purchaser its actual out of pocket expenses incurred in its investigations of, and contracting in regard to, the Property (up to a maximum of $50,000); upon such return, both parties shall be released from all further obligations under this Agreement (except for those which are specified to or which by their nature survive the Closing or earlier termination of this Agreement); or 13.1.3 Seek specific performance of Seller's obligations under this Agreement. 13.2 The provisions of this section shall survive the Closing. 14. DEFAULT BY PURCHASER. In the event of the failure or refusal of Purchaser to close this transaction, without fault on Seller's part and without failure of title or any conditions precedent to Purchaser's obligations under this Agreement, Seller at Seller's option shall as its sole remedies (i) have the right to receive Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) of the Deposit together with all interest earned on it as agreed and liquidated damages for said breach, and as Seller's sole and exclusive remedy for default of Purchaser (except for those matters which are specified to or which by their nature shall survive the Closing or the earlier termination of this Agreement), and the remainder of the Deposit shall be returned to Purchaser, whereupon the parties shall be relieved of all further obligations under this Agreement except for those matters which are specified to or which by their nature shall survive the Closing or the earlier termination of this Agreement; or, alternatively, (ii) Seller shall have the right to seek specific performance of Purchaser's obligations under this Agreement. 15. PRORATIONS. 15.1 Real estate and personal property taxes, insurance, rents, interest, cost and revenues and all other proratable items shall be prorated as of the Closing Date. In the event the taxes for the year of Closing are unknown, the tax proration will be based upon the mileage rate as announced at day of Closing, and the then-latest tax appraiser's assessment of the Property; at the request of either party, such taxes for the year of Closing shall be reprorated and adjusted when the tax bill for the year of Closing is received and the actual amount of taxes is known. 15.2 The provisions of this section shall survive the Closing. 16. IMPROVEMENT LIENS. 16.1 Certified, confirmed or ratified liens for governmental improvements or special assessments as of the Closing Date, if any, shall be paid in full by Seller, and pending liens for governmental improvements or special assessments as of the Closing Date shall be assumed by Purchaser, provided that where the improvement has been substantially completed as of the Closing Date, such pending lien shall be considered certified. 16.2 The provisions of this section shall survive the Closing. 17. DOCUMENTARY STAMPS AND INTANGIBLE TAXES. At the Closing, Seller shall pay the documentary stamps and surtax, if any, due on the warranty deed of conveyance, the recording cost of any items necessary to clear title, the cost of title evidence and updates and the premium for the owner's title policy, the cost of delivery of a copy of the existing Survey and the cost of any work required for the Survey to meet the standards of this Agreement, and its own attorney's fees. Purchaser shall pay the recording cost of 7 8 the deed and its own attorney's fees, the cost of updating the Survey and of certifying it to the Purchaser, its attorneys and its title underwriter. 18. CLOSING. 18.1 Seller shall convey title to the Property by good and sufficient Special Warranty Deed subject only to the Permitted Exceptions (which, if Purchaser requests, shall not be specifically enumerated). Seller shall also deliver to Purchaser at the Closing: 18.1.1 a mechanic's lien affidavit, to the title insurer and Purchaser, in form acceptable to Purchaser's title insurer to delete the standard exception relating to such liens in Purchaser's owner's title insurance policy; 18.1.2 an affidavit, to the title insurer and Purchaser, that there are no unrecorded easements and that Seller has exclusive possession of the Property and that Seller has done nothing to change the state of facts shown on the Survey, in form acceptable to Purchaser's title insurance to delete the standard exceptions relating to such matters in Purchaser's owner's title insurance policy; 18.1.3 a gap affidavit and indemnification sufficient for Purchaser's title underwriter to delete the "gap" at Closing; 18.1.4 instruments necessary to clear title, if any, including those required to remove standard exceptions from the title policy; 18.1.5 an appropriate bill of sale with warranty of title for the Personalty; 18.1.6 appropriate assignments of all licenses, easements, rights-of-way, contract rights, intangible rights and other property and rights included in this transaction; 18.1.7 appropriate restatements of Seller's covenants, representations and warranties which are to survive Closing; 18.1.8 an affidavit that the Property does not constitute all or substantially all of the assets of Seller and is not essential to its business, or satisfactory evidence that the shareholders of Seller have ratified this transaction and otherwise conformed with applicable statutes; 18.1.9 appropriate evidence of Seller's corporate or partnership existence and authority to sell and convey the Property, including without limitation a certificate from the Secretary of State of Florida of qualification to transact business in Florida together with certified copies of any document filed with such articles; a certificate of due incorporation and good standing from the appropriate governmental authorities; and a certified copy of the resolution of Seller's board of directors identifying Seller's officers and authorizing this transaction and authorizing its officer(s) to execute all requisite documents, including the Special Warranty Deed; 18.1.10 an assignment of all rights under any guarantees and warranties, to the extent assignable; 18.1.11 a non-foreign certificate and other documentation as may be appropriate and satisfactory to Purchaser to meet the non-withholding requirements under FIRPTA and any other federal statute or regulations (or, in the alternative, Seller shall cooperate with Purchaser in the withholding of funds pursuant to FIRPTA regulations); 18.1.12 an appropriate reporting form to be submitted with the deed at time of recordation. 18.2 Seller and Purchaser shall each execute such other documents, including a closing statement, as are reasonably necessary to consummate this transaction. 19. BROKERS. The parties each represent and warrant to the other that the only real estate brokers, salesman or finders involved in this transaction are Keller Williams Realty and Lancore Realty who represent Purchaser (together, "Purchaser's Brokers"), and Grubb & Ellis Realty ("Seller's Broker"); Seller shall pay all real estate commissions owing to said brokers, with payment 50% to Purchaser's Brokers and 50% to 8 9 Seller's Broker). If a claim for brokerage or similar fees in connection with this transaction is made by any broker, salesman or finder other than the above-named broker claiming to have dealt through or on behalf of one of the parties to this Agreement, then that party shall indemnify, defend and hold the other party under this Agreement harmless from all liabilities, damages, claims, costs, fees and expenses whatsoever (including reasonable attorneys' fees and court costs, including those for appellate matters) with respect to said claim for brokerage. The provisions of this section shall survive the Closing. 20. ASSIGNABILITY. Purchaser shall be entitled to assign Purchaser's rights and obligations under this Agreement to any entity related to Purchaser or its principals, upon the assumption thereof by the assignee, Purchaser shall be released from its obligations under this Agreement as of the time of Closing. 21. ESCROW AGENT. 21.1 Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement. Escrow Agent shall not be deemed to have any implied duties or obligations under or related to this Agreement. Escrow Agent is the law firm representing Purchaser. In the event of a dispute between the parties, the parties consent to Escrow Agent continuing to represent Purchaser, notwithstanding that Escrow Agent shall continue to have the duties provided for in this Agreement. 21.2 Escrow Agent may (a) act in reliance upon any writing or instrument or signature which it, in good faith, believes to be genuine; (b) assume the validity and accuracy of any statement or assertion contained in such a writing or instrument; and (c) assume that any person purporting to give any writing, notice, advice or instructions in connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner of execution, or validity of any instrument deposited in escrow, nor as to the identify, authority, or right of any person executing any instrument; Escrow Agent's duties under this Agreement are and shall be limited to those duties specifically provided in this Agreement. 21.3 The parties to this Agreement do and shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or other expenses, fees, or charges of any character or nature, including attorneys' fees and costs, which it may incur or with which it may be threatened by reason of its action as Escrow Agent under this Agreement, except for such matters which are the result of Escrow Agent's gross negligence or willful malfeasance. Escrow Agent shall be vested with a lien on all property deposited under this Agreement for the purpose of such indemnification, and for any other expense, fees or charges of any character or nature, which may be incurred by Escrow Agent in its capacity as escrow agent. Escrow Agent has and shall have the right, regardless of any instructions, to hold the property deposited in escrow until and unless said additional expenses, fees and charges shall be fully paid. 21.4 If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or about the propriety of any action contemplated by Escrow Agent, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement; upon filing such action, Escrow Agent shall be released from all obligations under this Agreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys' fees, including those for appellate matters and for paralegals and similar persons, incurred in its capacity as escrow agent in connection with any such interpleader action; Escrow Agent may represent itself in any such interpleader action and charge its usual and customary legal fees for such representation, and the court shall award such attorneys' fees, including those for appellate matters and for paralegals and similar persons, to Escrow Agent from the losing party. Escrow Agent shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action is received. 21.5 Escrow Agent may consult with counsel of its own choice, including counsel within its own firm, and shall have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind unless caused by its gross negligence or willful misconduct. 9 10 21.6 Escrow Agent may resign upon five (5) days' written notice to Seller and Purchaser. If a successor escrow agent is not appointed jointly by Seller and Purchaser within the five (5) day period, Escrow Agent may petition a court of competent jurisdiction to name a successor. 21.7 The provisions of this section shall survive the Closing and also the cancellation of this Agreement. 22. NOTICES. Any notices required or permitted to be given under this Agreement shall be delivered by hand, mailed by certified or registered mail, return receipt requested, in a postage prepaid envelope, or delivered by a nationally recognized overnight delivery service, and addressed as described below; notices shall be deemed effective only upon receipt or refusal of delivery. Notices to Purchaser: 851 Broken Sound Parkway NW Boca Raton, FL 33487-3693 Attn: Richard Werber, Esq. (tel) 561-241-9400 (fax) 561-995-0085 With a copy to: Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. One Biscayne Tower, Suite 3400 Two South Biscayne Blvd. Attn: Julie A.S. Williamson, Esq. (tel) 305-376-6002 (fax) 305-376-6010 Notices to Seller: Levitz Furniture Corporation 6111 Broken Sound Parkway N.W. Boca Raton, FL 33487 Attn: Edward P. Zimmer, Esq. (tel) 561-994-6006 (fax) 561-998-5615 With a copy to: Proskauer Rose LLP 2255 Glades Road, Suite 340 West Boca Raton, FL 33431-7383 Attn: Christopher Wheeler, Esq. (tel) 561-241-7400 (fax) 561-241-7145/8153 Notices to Escrow Agent: Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. One Biscayne Tower, Suite 3400 Two South Biscayne Blvd. Attn: Julie A.S. Williamson, Esq. 23. RISK OF LOSS. 23.1 The Property shall be conveyed to Purchaser in the same condition as on the date of this Agreement, ordinary wear and tear excepted, free of all tenancies or occupancies except for Seller's continued occupancy as provided in this Agreement. Seller shall not remove anything from the Property between the date of this Agreement and Closing. 23.2 Upon receipt of an offer or any notice or communications from any governmental or quasi-governmental body seeking to take under its power of eminent domain all or any portion of the subject property, Seller shall promptly notify Purchaser of the receipt of same and shall send such communication, or a copy of it, to Purchaser. Upon receipt of such notice, Purchaser shall have the right to rescind this Agreement by delivery of written notice to Seller within thirty (30) days of Purchaser's receipt of the communication from Seller. In the event Purchaser elects to rescind, then Purchaser shall receive a refund of the Deposit [together with all interest earned on it], in which case both parties shall be relieved 10 11 of all further obligations under this Agreement. In the event Purchaser elects not to rescind, then Purchaser shall be entitled to all condemnation awards and settlements. Seller and Purchaser agree to cooperate with each other to obtain the highest and best price for the condemned property. 23.3 In the event that the Property is damaged or destroyed by fire or other casualty prior to Closing, Seller shall repair and restore the Property to the same condition as before the fire or casualty, and the Closing shall be deferred for up to sixty (60) days to permit such repair and restoration. If Seller is unable to repair and restore within such 60 day period, then Purchaser shall have the option of: extending the 60 day period for up to one hundred twenty (120) additional days, or canceling this Agreement and receiving a refund of the Deposit together with all interest earned on it, in which case both parties shall be released from all further obligations under this Agreement, or proceeding with the Closing, in which case Purchaser shall be entitled to all insurance proceeds and to a credit equal to the insurance deductibles (or, in the alternative, Purchaser may cancel this Agreement). 24. INDEMNITY. 24.1 Seller shall and does indemnify and hold Purchaser harmless from any and all liability, including costs and attorneys' fees, including those for appellate proceedings: 24.1.1 for services rendered prior to Closing under any contracts for services to the Property existing now or at any time prior to Closing; 24.1.2 for any personal property taxes remaining unpaid for calendar years prior to the year of Closing. 24.2 The provisions of this section shall survive the Closing. 25. RADON GAS NOTICE. Pursuant to Florida Statutes Section 404.056(8), Seller hereby makes, and Purchaser hereby acknowledges, the following notification: 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. 26. MISCELLANEOUS. 26.1 This Agreement has been negotiated and executed in Florida; it shall be construed and governed in accordance with the laws of the State of Florida, without application of conflicts of laws principles. 26.2 In the event any term or provision of this Agreement is determined by appropriate judicial authority to be illegal or otherwise invalid, such provision shall be given its nearest legal meaning or be construed as deleted as such authority determines, and the remainder of this Agreement shall be construed to be in full force and effect. 26.3 In the event of any litigation between the parties under this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees. Wherever provision is made in this Agreement for "attorneys' fees," such term shall be deemed to include accountants' and attorneys' fees and court costs, whether or not litigation is commenced, including those for appellate proceedings and for paralegals and similar persons. 26.4 Each party has participated fully in the negotiation and preparation of this Agreement with full benefit of counsel. Accordingly, this Agreement shall not be more strictly construed against either party. 26.5 Whenever used in this Agreement, the singular shall include the plural, the plural shall include the singular, any gender shall include every other and all genders, and captions and paragraph headings shall be disregarded. 11 12 26.6 The captions in this Agreement are for the convenience of reference only and shall not be deemed to alter any provision of this Agreement. 26.7 Any reference in this Agreement to time periods less than six (6) days shall, in the computation thereof, exclude Saturdays, Sundays, and legal holidays; any time period provided for in this Agreement which shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next full business day. 26.8 This Agreement constitutes the entire agreement between the parties and may not be changed, altered or modified except by an instrument in writing signed by the party against whom enforcement of such change would be sought. 26.9 All references in this Agreement to exhibits, schedules, paragraphs, subparagraphs and sections refer to the respective subdivisions of this Agreement, unless the reference expressly identifies another document. 26.10 All of the terms of this Agreement, including but not limited to the representations, warranties and covenants of Seller, shall be binding upon and shall inure to the benefit of the parties to this Agreement and their respective successors and assigns. 26.11 Typewritten or handwritten provisions which are inserted in or attached to this Agreement as addenda or riders shall control all printed or pretyped provisions of this Agreement with which they may be in conflict. 26.12 All covenants, representations and warranties of Seller in this Agreement, all remedies related to them, and the provisions of this section shall survive the Closing. 27. WAIVER OF JURY TRIAL. Seller and Purchaser mutually agree at that they waive all rights to a trial by jury in the event of any dispute or court action arising from, growing out of, or related to, this Agreement. The parties acknowledge that this waiver is a significant consideration to each of them to enter into this Agreement. 28. SELLER OCCUPANCY. Purchaser shall allow Seller to lease the Building (and parking areas) for one hundred twenty (120) days after Closing, at the rent of $10 per day, payable in advance, pursuant to Lease to be agreed upon between Seller and Purchaser during the Investigation Period. If Seller is not then in default under the Lease, Seller may by notice duly given to Purchaser no later than the ninetieth (90th) day after Closing, extend the Lease for up to an additional sixty (60) days, at a rent of $10.00 per square foot (based on 91,081 square feet) annually, prorated for the 60 days, payable at time of exercise of the option. During its occupancy pursuant to this paragraph, Seller shall maintain the Building (including repair of the Building and its equipment, if such becomes necessary, e.g. repair of leaking roof or replacement of broken air conditioning equipment), and pay all costs associated with the use of the Building except that Purchaser shall pay the ad valorem taxes, and Seller shall vacate the Building in good repair and broom-clean condition. Purchaser shall maintain any landscaping in the parking area. If Seller does not timely and duly vacate the Premises, or damages the Premises, then Seller shall be responsible for Purchaser's costs and fees, including attorneys', paralegals' and similar persons' fees related to or arising from such matters. 12 13 EXECUTED as of the date first written above in several counterparts, each of which shall be deemed an original, but all of which constitute only one agreement. Signed, sealed and delivered in the presence of: SELLER: Levitz Furniture Corporation, a Florida corporation By: /s/ EDWARD P. ZIMMER ------------------------------------------------- Its: Vice President [Corporate Seal] Date: August 26, 1997 PURCHASER: Rexall Sundown, Inc., a Florida corporation By: /s/ DEAN DESANTIS ------------------------------------------------- Its: Senior Vice President [Corporate Seal] Date: August 26, 1997
13 14 RECEIPT The undersigned Escrow Agent acknowledges receipt of a check, subject to clearance, in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) to be held as the Initial Deposit pursuant to the foregoing Agreement. ESCROW AGENT: Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. One Biscayne Tower, Suite 3400 Two South Biscayne Boulevard Miami, Florida 33131 (305) 376-6002 By: /s/ JULIE WILLIAMSON ------------------------------------ SCHEDULE "A": Legal Description SCHEDULE "B": Existing Mortgage SCHEDULE "C": Permitted Exceptions SCHEDULE "D": Other Contracts 14 15 SCHEDULE II REXALL SUNDOWN, INC. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR - ----------- ---------- ---------- ---------- ---------- ----------- Year ended August 31, 1997 Allowance for doubtful accounts.......... $78,000 $ 70,757 $ -- $ 70,757 $78,000 Year ended August 31, 1996 Allowance for doubtful accounts.......... 78,000 112,990 -- 112,990 78,000 Year ended August 31, 1995 Allowance for doubtful accounts.......... 78,000 154,280 -- 154,280 78,000
EX-11 4 INCOME PER COMMON SHARE 1 EXHIBIT 11 REXALL SUNDOWN, INC. AND SUBSIDIARIES NET INCOME PER COMMON SHARE CALCULATION
FISCAL YEAR ENDED AUGUST 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net income.............................................. $35,061,596 $20,292,781 $ 4,361,596 =========== =========== =========== PRIMARY Weighted average common shares outstanding(1)........... 65,686,910 61,023,150 58,673,020 Common stock equivalents(2)............................. 2,220,804 429,314 321,312 ----------- ----------- ----------- Primary weighted average common shares outstanding...... 67,907,714 61,452,464 58,994,332 =========== =========== =========== Primary net income per common share..................... $ 0.52 $ 0.33 $ 0.07 =========== =========== =========== FULLY DILUTED Weighted average common shares outstanding(1)........... 65,686,910 61,023,150 58,673,020 Common stock equivalents(2)............................. 2,195,530 539,024 414,528 ----------- ----------- ----------- Fully diluted weighted average common shares outstanding........................................... 67,882,440 61,562,174 59,087,548 =========== =========== =========== Fully diluted net income per common share............... $ 0.52 $ 0.33 $ 0.07 =========== =========== ===========
Above reflects the calculation of pro forma net income per common share retroactivley adjusted for the two-for-one stock split effected on October 23, 1997. - --------------- (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. (3) All share data in the financial statements are stated using the primary earnings per share calculation as the above fully diluted calculation is anti-dilutive. EX-21 5 SUBSIDIARIES 1 EXHIBIT 21 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. 8. Rexall Hong Kong Limited EX-23 6 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) and on Form S-3 (Registration Statement Nos. 33-6571 and 33-7883) of our reports dated October 10, 1997, on our audits of Sundown, Inc. as of August 31, 1997 and 1996, and for the three years in the period ended August 31, 1997 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 December 1, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF REXALL SUNDOWN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS AUG-31-1997 AUG-31-1997 81,942,305 24,826,323 21,373,073 0 38,623,335 177,705,609 33,788,825 0 224,114,170 32,076,005 0 0 0 672,600 190,916,757 224,114,170 263,369,670 263,369,670 98,764,920 98,764,920 114,317,979 0 95,226 54,538,406 19,476,810 35,061,596 0 0 0 35,061,596 0.52 0 Net of allowance. Net of depreciation. Includes Long-term obligations.
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