<PAGE>
As filed with the Securities and Exchange Commission on August 8, 1996
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
SUPERIOR SUPPLEMENTS, INC.
(Name of small business issuer in its charter)
Delaware 2833 11-3320172
- ---------------------- ---------------------------- ----------------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
270 Oser Avenue
Hauppauge, New York 11788
(516) 231-0783
(Address and telephone number
of principal executive offices and principal place of business)
Lawrence D. Simon
President
270 Oser Avenue
Hauppauge, New York 11788
(516) 231-0783
(Name, address and telephone number of agent for service)
Copies to:
Steven F. Wasserman, Esq. Steven A. Morse, Esq.
Bernstein & Wasserman, LLP Lester Morse, P.C.
950 Third Avenue 111 Great Neck Road
New York, NY 10022 Great Neck, NY 11021
(212) 826-0730 (516) 487-1446
(212) 371-4730 (Fax) (516) 487-1452 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
continued overleaf
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered (1) Offering Price Per Aggregate Offering Registration
Security (2) Price Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share(3) 690,000 $ 5.00 $ 3,450,000 $ 1,189.66
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (4) 690,000 $ 0.10 $ 69,000 $ 23.79
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock par value $.0001 per
share, underlying the Class A Warrants (5) 690,000 $ 5.00 $ 3,450,000 $ 1,189.66
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriters' Option to purchase shares
of Common Stock and Class A Warrants(6) 60,000 $ .001 $ 60.00 $ 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Underwriters' Option 60,000 $ 6.00 $ 360,000 $ 124.14
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants, underlying
Underwriters' Option 60,000 $ 0.12 $ 7,200 $ 2.48
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Class A Warrants in
Underwriters' Option (7) 60,000 $ 5.00 $ 300,000 $ 103.45
- ------------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants issuable upon conversion
of the Convertible Bridge Notes (8) 1,000,000 $ 0.10 $ 100,000 $ 34.48
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Class A Warrants
issuable upon conversion of the
Convertible Bridge Notes 1,000,000 $ 5.00 $ 5,000,000 $ 1,724.14
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share (9) 2,000,000 $ 5.00 $10,000,000 $ 3,448.28
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (10) 2,000,000 $ 0.10 $ 200,000 $ 68.97
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share underlying Class A Warrants held by
Selling Securityholder 2,000,000 $ 5.00 $10,000,000 $ 3,448.28
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL -- -- $32,936,260 $11,357.35
====================================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock and Class A Redeemable Common Stock Purchase
Warrants (the "Class A Warrants") as may be issued by reason of adjustments
in the number of shares of Common Stock and Class A Warrants pursuant to
anti-dilution provisions contained in the Class A Warrants and
Underwriters' Option. Because such additional shares of Common Stock and
Class A Warrants will, if issued, be issued for no additional
consideration, no registration fee is required.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 90,000 shares of Common Stock, 90,000 Class A Warrants and 90,000
shares of Common Stock underlying the Class A Warrants subject to the
Underwriters' over-allotment option (the "Over-Allotment Option").
<PAGE>
(4) The Class A Warrants are exercisable over a four (4) year period commencing
one (1) year following the effective date of this Offering into one (1)
share of Common Stock per Class A Warrant at an exercise price of $5.00 per
share.
(5) The number of shares of Common Stock specified is the number which may be
acquired upon exercise of the Class A Redeemable Common Stock Purchase
Warrants ("Class A Warrants") at the maximum exercise price thereof.
(6) The Underwriters' option entitles the Underwriters to purchase up to 60,000
shares of Common Stock and 60,000 Class A Warrants at 120% of the offering
price (the "Underwriters' Option").
(7) Issuable upon exercise of the Class A Warrants included in the
Underwriters' Option.
(8) Represents the resale of 1,000,000 Class A Warrants issuable upon
conversion of the Convertible Bridge Notes.
(9) Represents the resale of shares of Common Stock held by one of the Selling
Securityholders.
(10) Represents the resale of Class A Warrants held by one of the Selling
Securityholders.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
CROSS REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I, of Form SB-2)
Item in Form SB-2 Prospectus Caption
----------------- ------------------
1. Front of Registration
Statement and Outside Front
Cover of Prospectus................ Facing Page of Registration
Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution........................... Dilution; Risk Factors
7. Selling Securityholders........... Description of Securities; Selling
Securityholders
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
9. Legal Proceedings.................. Business-Litigation
10. Directors, Executive Officers,
Promoters and Control Persons...... Management
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
i
<PAGE>
Item in Form SB-2 Prospectus Caption
----------------- ------------------
12. Description of Securities.......... Description of Securities;
Underwriting
13. Interest of Named Experts and
Counsel............................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Underwriting; Certain Transactions
15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business
16. Description of Business............ Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property............ Business - Facilities
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
21. Executive Compensation............. Management - Executive
Compensation
22. Financial Statements............... Selected Financial Data;
Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures.......... *
- ----------
* Omitted because Item is not applicable.
ii
<PAGE>
Explanatory Note
This registration statement covers the primary offering ("Offering") of
Common Stock and Class A Warrants by Superior Supplements, Inc. (the "Company")
and the concurrent offering of securities by certain selling securityholders
("Selling Securityholders"). The Company is registering, under the primary
prospectus ("Primary Prospectus"), 690,000 shares of Common Stock, 690,000 Class
A Warrants and 690,000 shares of Common Stock issuable upon the exercise of the
Class A Warrants including, 90,000 shares of Common Stock, 90,000 Class A
Warrants, and 90,000 shares of Common Stock issuable upon exercise of the
Over-Allotment Option. The Company is registering on behalf of the Selling
Securityholders, under an alternate prospectus ("Alternate Prospectus"), the
resale of (i) (a) 2,000,000 shares of Common Stock, (b) 2,000,000 Class A
Warrants, and (c) 2,000,000 shares of Common Stock issuable upon conversion of
the Class A Warrants and (ii) (a) 1,000,000 Class A Warrants issuable upon
conversion of the Convertible Bridge Notes (as hereinafter defined), and (b)
3,000,000 shares of Common Stock issuable upon conversion of those Class A
Warrants. See "Bridge Financing." The Alternate Prospectus pages, which follow
the Primary Prospectus, are to be combined with all of the sections contained in
the Primary Prospectus, with the following exceptions: the front and back cover
pages and the sections entitled "Concurrent Sales," "Selling Securityholders,"
and "Plan of Distribution." Such sections from the Alternate Prospectus pages
will be added to the Primary Prospectus. The "Underwriting" section contained in
the Primary Prospectus will not be included in the Alternate Prospectus.
Furthermore, all references contained in the Alternate Prospectus to "the
Offering" or "this Offering" shall refer to the Company's Offering under the
Primary Prospectus.
iii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 8, 1996
SUPERIOR SUPPLEMENTS, INC.
600,000 Shares of Common Stock par value $.0001 per share,
and
600,000 Class A Redeemable Common Stock Purchase Warrants
Offering Price Per Share - $5.00
Offering Price Per Warrant - $0.10
----------
Superior Supplements, Inc., a Delaware corporation (the "Company" or "SSI")
hereby offers 600,000 shares of common stock, par value $.0001 per share (the
"Common Stock" and "Shares") and 600,000 Class A Redeemable Common Stock
Purchase Warrants (the "Class A Warrants"). See "Description of Securities." The
Risk Factor section begins on page __ of this Prospectus.
The Class A Warrants shall be exercisable commencing one (1) year after the
date hereof (the "Effective Date"). Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock at a price of $5.00 per share during the
four (4) year period commencing one (1) year from the Effective Date. The Class
A Warrants are redeemable by the Company for $.05 per Warrant, at any time after
________ __, 1997, upon thirty (30) days' prior written notice, if the average
closing price or bid price of the Common Stock, as reported by the principal
exchange on which the Common Stock is traded, Nasdaq or the National Quotation
Bureau Incorporated, as the case may be, equals or exceeds $10.00 per share, for
any twenty (20) trading days within a period of thirty (30) consecutive trading
days ending five (5) days prior to the date of the notice of redemption. Upon
thirty (30) days' written notice to all holders of the Class A Warrants, the
Company shall have the right to reduce the exercise price and/or extend the term
of the Class A Warrants. See "Description of Securities."
The Company has applied for inclusion of the Common Stock and the Class A
Warrants on The Nasdaq Small Cap Market, under the symbols SUPP, and SUPW,
respectively, although there can be no assurances that an active trading market
will develop even if the securities are accepted for quotation. See "Risk
Factors - Lack of Prior Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market" and "Penny Stock Regulations May Impose
Certain Restrictions on Marketability of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the
<PAGE>
Class A Warrants. The price of the Shares and the Class A Warrants, as well as
the exercise price of the Class A Warrants, have been determined by negotiations
between the Company and VTR Capital, Inc. ("VTR Capital" or the
"Representative"), the representative of the underwriters of this Offering (the
"Underwriters"), and does not necessarily bear any relationship to the Company's
assets, book value, net worth or results of operations or any other established
criteria of value. The Representative may enter into arrangements with one or
more broker-dealers to act as co-underwriters of this Offering. For additional
information regarding the factors considered in determining the initial public
offering price of the Shares and the Class A Warrants and the exercise price of
the Class A Warrants, see "Risk Factors No Prior Public Market; Possible
Volatility of Stock Price," "Description of Securities" and "Underwriting."
The registration statement of which this Prospectus forms a part also
covers the resale of (a) 1,000,000 Class A Warrants issuable to certain bridge
lenders (the "Bridge Lenders") in connection with the Company's recent bridge
financings (the "Bridge Loans") and 1,000,000 shares of Common Stock issuable
upon exercise of the Class A Warrants and (b) (i) 2,000,000 shares of Common
Stock, and (ii) (x) 2,000,000 Class A Warrants and (y) 2,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants, all of which are
held by PMF, Inc. ("PMF"), a company wholly-owned and controlled by Barry
Gersten, an unrelated party. The Bridge Lenders and PMF are hereinafter
collectively referred to as the "Selling Securityholders." PMF owned 85.7% of
the outstanding shares of Common Stock of the Company prior to the Offering; the
shares being registered on behalf of PMF constitute 57.1% of such outstanding
shares prior to the Offering and 48.8% of the outstanding shares of Common Stock
upon completion of the Offering. The Company will not receive any of the
proceeds on the resale of the securities by the Selling Securityholders.
----------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. FOR A DISCUSSION OF CERTAIN MATERIAL RISKS SEE "RISK
FACTORS" BEGINNING ON PAGE 14 AND "DILUTION" BEGINNING ON PAGE 28.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
2
<PAGE>
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price Proceeds
To Underwriting Discounts To
Public And Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Share...... $5.00 $0.50 $4.50
Per Warrant.. $0.10 $0.01 $0.09
Total (3).... $3,060,000 $306,000 $2,754,000
- --------------------------------------------------------------------------------
The date of this Prospectus is ___________, 1996
VTR CAPITAL, INC.
Investment Bankers
(Notes to Cover)
- ----------
(1) Does not reflect additional compensation to be received by the Underwriters
in the form of: (i) a non-accountable expense allowance of $91,800
($105,570 if the Over-Allotment Option (as hereinafter defined) is
exercised in full), (ii) a two (2) year financial advisory and investment
banking agreement providing for fees of $72,000 payable in advance at the
closing of this Offering, and (iii) an option to purchase 60,000 Shares at
$6.00 per Share and 60,000 Class A Warrants at $0.12 per Class A Warrant
(the "Underwriters' Option"), exercisable for a period of four (4) years,
commencing one (1) year from the effective date of this Offering. The
Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $588,800 including the Underwriters' non-accountable expense allowance
and the financial advisory fee referred to in Footnote (1) (not assuming
exercise of the Over-Allotment Option (as hereinafter defined),
registration fees, transfer agent fees, NASD fees, Blue Sky filing fees and
expenses, legal fees and expenses, and accounting fees and expenses. See
"Use of Proceeds" and "Underwriting."
(3) Does not include 90,000 additional Shares and 90,000 additional Class A
Warrants to cover over-allotments which the Underwriters have an option to
purchase for thirty (30) days from the date of this Prospectus at the
initial public offering price, less the
3
<PAGE>
Underwriters' discount (the "Over-Allotment Option"). If the Over-Allotment
Option is exercised in full, the total price to the public, underwriting
discounts and commissions and the estimated expenses including the
Underwriters' non-accountable expense allowance will be $3,519,000,
$351,900, and $602,570, respectively, and the total proceeds to the Company
will be $2,564,530. See "Underwriting."
The Shares and Class A Warrants are offered by the Underwriters on a "firm
commitment" basis, when, as and if delivered to and accepted by the
Underwriters, and subject to prior sale, allotment and withdrawal, modification
of the offer with notice, receipt and acceptance by the Underwriters named
herein and subject to their right to reject orders in whole or in part and to
certain other conditions. It is expected that the delivery of the certificates
representing the Common Stock and Class A Warrants and payment therefor will be
made at the offices of the Representative on or about __________, 1996.
4
<PAGE>
AVAILABLE INFORMATION
The Company does not presently file reports and other information with the
Securities and Exchange Commission (the "Commission"). However, following
completion of this Offering, the Company intends to furnish its stockholders
with annual reports containing audited financial statements examined and
reported upon by its independent public accounting firm and such interim
reports, in each case as it may determine to furnish or as may be required by
law. After the effective date of this Offering, the Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission.
Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR). The Company
has filed with the Commission a registration statement on Form SB-2 (herein
together with all amendments and exhibits referred to as the "Registration
Statement") under the Act of which this Prospectus forms a part. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information reference is made to the
Registration Statement.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE CLASS A WARRANTS CONTAINED THEREIN AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE
NASDAQ SMALL CAP MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE SHARES AND CLASS A WARRANTS TO BE SOLD IN THIS
OFFERING MAY BE SOLD TO CUSTOMERS OF THE UNDERWRITERS WHICH MAY AFFECT THE
MARKET FOR AND LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT
ADDITIONAL BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF
WHICH THERE CAN NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE COMMON STOCK AND/OR THE CLASS A
WARRANTS THROUGH AND/OR WITH THE UNDERWRITERS.
ALTHOUGH THEY HAVE NO OBLIGATION TO DO SO, THE UNDERWRITERS MAY FROM TIME
TO TIME ACT AS MARKET MAKERS AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE
5
<PAGE>
MARKET FOR THE COMMON STOCK AND CLASS A WARRANTS. HOWEVER, THERE IS NO ASSURANCE
THAT THE UNDERWRITERS WILL OR WILL NOT CONTINUE TO BE A DOMINATING INFLUENCE.
THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREUNDER MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITERS' PARTICIPATION
IN SUCH MARKET. SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR COMMON STOCK AND
CLASS A WARRANTS; NO ASSURANCE OF PUBLIC TRADING MARKET." THE UNDERWRITERS MAY
DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
6
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, all information appearing
herein does not give effect to (i) 600,000 shares of Common Stock issuable upon
exercise of the Class A Warrants; (ii) 90,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (iii) 90,000 shares of Common Stock
issuable upon exercise of the Class A Warrants included in the Over-Allotment
Option; (iv) 60,000 shares of Common Stock issuable upon exercise of the
Underwriters' Option; (v) 60,000 shares of Common Stock issuable upon exercise
of the Class A Warrants included in the Underwriters' Option; (vi) 1,000,000
shares of Common Stock issuable upon exercise of the Class A Warrants issuable
upon conversion of Convertible Bridge Notes, (vii) 3,000,000 shares of Common
Stock issuable upon exercise of the Class A Warrants held by PMF, Inc.,a company
wholly-owned and controlled by Barry Gersten, an unrelated party, and (viii)
employee stock options. See "Description of Securities," "Certain Transactions,"
"Underwriting," and "Management - Stock Option Plans and Agreements." Each
prospective investor is urged to read this Prospectus in its entirety.
THE COMPANY
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI"), was formed on April 24, 1996. The Company is engaged in the development,
manufacture, marketing and sale of dietary supplements including vitamins,
minerals, herbs and specialty nutritional supplements, in bulk tablet, capsule
and powder form. The Company intends to manufacture a wide variety of products
for companies which package and sell through many different channels of
distribution, including health food, drug, convenience and mass market stores.
Prior to the setting up of its manufacturing facility, the Company is operating
as a wholesaler for these products.
On May 14, 1996, the Company entered into a supply agreement with PDK Labs
Inc. a New York corporation ("PDK"), pursuant to which the Company agreed to
supply PDK with vitamins and dietary supplements manufactured to PDK's
specifications in bulk tablet form for a three (3) year period, renewable for
successive one (1) year periods thereafter. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per annum during the term
of the agreement and to pay liquidated damages of $100,000 to the Company in the
event PDK did not meet that minimum purchase requirement.
On May 31, 1996, the Company entered into an exclusive supply agreement
with Compare Generiks, Inc., a Delaware corporation ("CGI"), pursuant to which
the Company agreed to supply CGI with all of CGI's requirements for vitamins on
an exclusive basis (other than any vitamins sold under the "Energex" trade mark
or as part of the "Energex" product line) for a three (3) year period, renewable
for successive one (1) year periods thereafter. The Company's supply
arrangements with PDK and CGI form the core of its current business.
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an unrelated party, for a forty thousand (40,000) square foot
facility to be utilized for manufacturing,
7
<PAGE>
distribution and for its executive offices.
Upon completion, the Company's manufacturing facility will have sixteen
production machines consisting of twelve tablet presses and four encapsulating
machines with a capacity of producing per annum, in excess of one billion two
hundred million (1,200,000,000) tablets and capsules of various sizes and
shapes. All manufacturing will be conducted in accordance with Good
Manufacturing Practice Standards of the United States Food and Drug
Administration and other applicable regulatory standards. The Company believes
that the capacity of its manufacturing facility is adequate to meet the
requirements of its current business and will be adequate to meet the
requirements of anticipated increases in net sales.
The Company intends to use the proceeds from this Offering to repay certain
of the Company's indebtedness, acquire additional manufacturing equipment,
expand its marketing efforts, and for general working capital purposes. See "Use
of Proceeds."
The Company maintains its executive offices at 270 Oser Avenue, Hauppauge,
New York 11788, telephone number (516) 231-0783.
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Company and its business.
8
<PAGE>
THE OFFERING
Securities Offered
by the Company(1)................. 600,000 Shares of Common Stock at a price
of $5.00 per Share and 600,000 Class A
Warrants at a price of $0.10 per Class A
Warrant. The Class A Warrants shall be
exercisable commencing one (1) year from
the Effective Date. Each Class A Warrant
entitles the holder to purchase one (1)
share of Common Stock at a price of $5.00
per share during the four (4) year period
commencing one (1) year from the Effective
Date of this Offering. See "Description of
Securities."
Terms of Redemption of
Class A Warrants.................. The Class A Warrants are each redeemable by
the Company for $.05 per Warrant, at any
time after _______, 1997, upon thirty (30)
days' prior written notice, if the average
closing price or bid price of the Common
Stock, as reported by the principal
exchange on which the Common Stock is
quoted, The Nasdaq Small Cap Market or the
National Quotation Bureau Incorporated, as
the case may be, equals or exceeds $10.00
per share for any twenty (20) trading days
within a period of thirty (30) consecutive
trading days ending five (5) days prior to
the date of the notice of redemption. Upon
thirty (30) days' written notice to all
holders of the Class A Warrants, the
Company shall have the right to reduce the
exercise price and/or extend the term of
the Class A Warrants. See "Description of
Securities."
Securities Outstanding Prior
to the Offering:
Common Stock................. 3,500,000 Shares
Series A Preferred Stock..... 5,000,000 Shares
Class A Warrants.............. 3,000,000 Warrants
Securities Outstanding Subsequent
to the Offering(2):
Common Stock................. 4,100,000 Shares
Series A Preferred Stock.... 5,000,000 Shares
Class A Warrants.............. 3,600,000 Warrants
9
<PAGE>
Use of Proceeds................ The net proceeds to the Company from the
sale of the 600,000 Shares of Common Stock
and 600,000 Class A Warrants offered
hereby, after deducting Offering expenses
and the $72,000 financial advisory fee, are
estimated to be $2,165,200. The net
proceeds are expected to be applied for the
following purposes: acquisition of
machinery and equipment, marketing,
repayment of certain indebtedness, and
working capital. See "Use of Proceeds."
Risk Factors................... Qualified Auditor's Report of Accountants;
Development Stage Enterprise; Limited
Operating History, No Assurance that the
Company will Successfully Implement
Business; Dependence on Offering Proceeds;
Possible Need for Additional Financing;
Possible Adverse Effect on the Market of
Securities Eligible for Future Resale;
Significant Industry Competition; Dilution;
Equity Securities Sold Previously at Below
Offering Price; Conflicts of Interest;
Governmental Regulation; Dependence on PDK
and CGI; Dependence on Key Personnel;
Control by PMF; Limited Number of
Management Personnel; Risks Attendant to
Expansion; Product Liability Risks; Broad
Discretion in Application of Proceeds; No
Prior Public Market; Possible Volatility of
Stock Price; Lack of Prior Market for
Common Stock and Class A Warrants; No
Assurance of Public Trading Market; Current
Prospectus and State Blue Sky Registration
in Connection with the Exercise of the
Warrants; Impact on Market of Warrant
Exercise; Underwriters' Option; Possible
Adverse Effects of Ownership of Preferred
Stock by PMF; "Penny Stock" Regulations May
Impose Certain Restrictions on
Marketability of Securities; Redemption of
Redeemable Warrants; No Dividends;
Limitation on Director Liability; Shares
Eligible for Future Sale May Adversely
Affect the Market; Anti-Takeover Effect of
General Corporation Law of Delaware. An
investment in the securities offered hereby
involves a high degree of risk and
immediate substantial dilution of the book
value of the Common Stock and should be
considered only by persons who can afford
the loss of their entire investment. See
"Dilution" and "Risk Factors."
Proposed Nasdaq Small-Cap
Market Symbol (3)............. Common Stock - SUPP
Class A Warrants - SUPW
10
<PAGE>
- ----------
(1) Concurrently with this Offering, the Company is registering the resale of
(i) (a) 2,000,000 shares of Common Stock, (b) 2,000,000 Class A Warrants,
and (c) 2,000,000 shares of Common Stock issuable upon exercise of the
Class A Warrants on behalf of one of the Selling Securityholders, and (ii)
(a) 1,000,000 Class A Warrants issuable upon conversion of the Convertible
Bridge Notes, and (b) 1,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants. See "Selling Securityholders" and
"Certain Transactions."
(2) Does not include (i) 1,000,000 Class A Warrants issuable upon conversion of
the Convertible Bridge Notes, or (ii) 1,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants issuable upon conversion of
the Convertible Bridge Notes, or (iii) 3,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants held by PMF, Inc., a company
wholly-owned and controlled by Barry Gersten, an unrelated party, or (iv)
600,000 shares of Common Stock issuable upon exercise of the Class A
Warrants offered hereby.
(3) Although the Company intends to apply for inclusion of the Common Stock and
the Class A Warrants on The Nasdaq Small Cap Market, there can be no
assurance that the Company's securities will be included for quotation, or
if so included that the Company will be able to continue to meet the
requirements for continued quotation, or that a public trading market will
develop or that if such market develops, it will be sustained. See "Risk
Factors - Lack of Prior Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market."
11
<PAGE>
SUMMARY FINANCIAL INFORMATION
The selected historical financial data presented below are derived from
financial statements of the Company, which have been audited by Holtz Rubenstein
& Co., LLP, independent accountants, whose reports are included elsewhere
herein. The data set forth below should be read in conjunction with and is
qualified in its entirety by the Company's financial statements, related notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations. See "Financial Statements," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The following
summary financial information has been summarized from the Company's financial
statements included elsewhere in this Prospectus. The information should be read
in conjunction with the financial statements and the related notes thereto. See
"Financial Statements."
SUMMARY STATEMENT OF OPERATIONS
Period April 24, 1996
(Inception) to June 30, 1996
----------------------------
Historical
----------
Revenues $ 857,398
Gross Profit $ 119,358
Operating Income $ 48,389
Net Income $ 35,189
Net Income $ .01
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000
SUMMARY BALANCE SHEET DATA
June 30, 1996
June 30, 1996 as Adjusted (2)
------------- ----------------
Working Capital $ 560 $2,237,760
Total Assets $2,565,537 $4,502,737
Total Liabilities $1,285,448 $ 985,448
Retained Earnings $ 35,189 $ 35,189
Stockholders'
Equity $1,280,089 $3,517,289
12
<PAGE>
(1) Does not include the sale of 600,000 shares of Common Stock, and 600,000
Class A Warrants offered hereby.
(2) Reflects initial application of net proceeds of the 600,000 shares of
Common Stock and 600,000 Class A Warrants offered hereby at the assumed
initial public offering price of $5.00 and $0.10, respectively.
13
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and involves
a high degree of risk and substantial dilution and should only be purchased by
investors who can afford to lose their entire investment. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors, as well as other information set forth
elsewhere in this Prospectus, associated with this Offering, including the
information contained in the Financial Statements herein.
1. Qualified Auditor's Report of Accountants. As a result of the Company's
current financial condition, the Company's independent auditors have qualified
their report on the Company's financial statement for the period April 24, 1996
(inception) to June 30, 1996. The Company is in the development stage, and the
Company's ability to continue in the normal course of business is dependent upon
successful completion of its planned public offering of securities to raise
capital and the success of future operations. These uncertainties raise
substantial doubt about its ability to continue as a going concern. There can be
no assurance that the Company will not incur net losses in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business, " "Use of Proceeds, " and "Financial Statements and
Notes."
2. Development Stage Enterprise. The Company is a development stage
enterprise that has devoted substantially all its efforts since inception to
establishing its manufacturing facility, and operating as a wholesaler for the
products it intends to manufacture and has not yet commenced manufacturing
operations. The Company is dependent upon the proceeds of this Offering in order
to establish its manufacturing operations. The likelihood of success must be
considered in light of the problems, experiences, difficulties, complications
and delays frequently encountered in various degrees in connection with the
operation and development of new businesses. The Company must surmount a number
of hurdles before it can commence manufacturing operations. The most significant
of these are obtaining financing, which is expected to be satisfied through the
Offering, the acquisition of additional manufacturing equipment and repaying
indebtedness owed to the Bridge Lenders. See "Use of Proceeds." There can be no
assurance that the Company will be able to complete all of these items in a
timely manner, or at all, in order to allow the Company to commence
manufacturing operations. See "Business."
3. Limited Operating History, No Assurance that the Company will
Successfully Implement Business. The Company was organized on April 24, 1996 and
is in its early stage of development. The Company's core business consists of
the supply agreements with PDK and CGI, although at the date of this Prospectus,
almost 100% of the Company's revenues are received from PDK. The Company's
prospects must be considered in light of the risks, expenses, and difficulties
frequently encountered by a small business in a highly competitive industry. As
of June 30, 1996, the Company had stockholder's equity of $1,280,089 and working
capital of
14
<PAGE>
$560. The Company's operating expenses can be expected to increase significantly
as a result of the Company's start up of manufacturing operations and proposed
expansion of distribution, marketing and sales efforts. Since the Company has a
limited operating history as a separate corporation, it is impossible to
determine whether its operations will be profitable or that it will ever
generate sufficient revenues to meet its expenses and support its activities.
Like any relatively new business enterprise operating in a specialized and
intensely competitive market, the Company is subject to many business risks
which include, but are not limited to, unforeseen marketing and promotional
expenses, unforeseen negative publicity, competition, product liability and lack
of operating experience. Many of the risks may be unforeseeable or beyond the
control of the Company. There can be no assurance that the Company will
successfully implement its business plan in a timely or effective manner, or
that management of the Company will be able to distribute and sell enough
products to generate sufficient revenues and continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," Use of Proceeds," "Certain Transactions" and "Financial
Statements."
4. Dependence on Offering Proceeds; Possible Need for Additional Financing.
The Company's cash requirements will be significant. The Company is dependent on
the proceeds from this Offering to generate cash for the acquisition of
additional machinery, and expansion of its product lines and marketing efforts.
The Company anticipates, based on its currently proposed plans, that the
proceeds of this Offering, together with funds generated from operations, will
be sufficient to satisfy its anticipated cash requirements for approximately
twelve (12) months following the consummation of this Offering. In the event
that these plans change, or the costs of development of operations prove greater
than anticipated, the Company could be required to modify its operations,
curtail its expansion or seek additional financing sooner than currently
anticipated. The Company believes that its operations would be restricted absent
expansion. The Company has no current arrangements with respect to such
additional financing and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company. See "Use Of
Proceeds."
5. Possible Adverse Effect on the Market of Securities Eligible for Future
Resale. The registration statement of which this Prospectus forms a part covers
the resale of 2,000,000 shares of Common Stock and 2,000,000 Class A Warrants
(which are exercisable into 2,000,000 shares of Common Stock) owned by PMF, a
company wholly-owned and controlled by Barry Gersten, an unrelated party. The
shares being registered are not subject to any restriction on resale by the
Company or the Representative, subject only to the Over-Allotment Option being
exercised in full or terminated. As a result, those shares may be sold
immediately after the Offering, subject only to the Over-Allotment Option being
exercised in full or terminated. The Company has been advised by the Selling
Securityholders that they have no present intentions regarding the timing and
amount of sales of these shares.
However, prospective investors should be aware that the possibility of
sales may, in the future, have a depressive effect on the price of the Company's
Common Stock in any market which may develop, and therefore, the ability of any
investor to market his shares may be
15
<PAGE>
dependent directly upon the number of shares that are offered and sold.
Affiliates of the Company may sell their shares during a favorable movement in
the market price of the Company's Common Stock which may have a depressive
effect on its price per share. See "Description of Securities."
6. Significant Industry Competition. The market for dietary supplement
products is highly competitive in each of the Company's existing and anticipated
product lines and methods of distribution. Numerous manufacturers and
distributors compete for customers throughout the United States and
internationally in the "bulk" packaged dietary supplement industry, selling
products to distributors who service health food, drug, convenience and mass
market stores, companies that market a branded or generic line of products but
do not manufacture these items ("repackagers"), and other manufacturers who
"outsource" a portion of their needs to supplement their own capacities. Many of
the Company's competitors are substantially larger and more experienced than the
Company, have longer operating histories and have materially greater financial
and other resources than the Company. Many of these competitors are private
companies, and therefore, the Company cannot compare its revenues with respect
to the sales volume of each competitor. The Company's significant competitors
include Nature's Bounty and International Vitamin Corporation, both of whom have
longer operating histories and materially greater financial and other resources
than the Company (although, no implication is intended hereby regarding the
Company's industry ranking in comparison to such competitors). There can be no
assurance that the Company will be able to compete successfully with its more
established and better capitalized competitors.
7. Dilution; Equity Securities Sold Previously at Below Offering Price.
Upon completion of this Offering assuming no exercise of the Over-Allotment
Option, and without giving effect to the exercise of the Underwriters' Option,
the net tangible book value per share of the Company's Common Stock will be
$.85. At the initial public offering price of $5.00 per Share, investors in this
Offering will experience an immediate dilution of approximately $4.15 or 83% in
net tangible book value per share and existing investors will experience an
increase of approximately $.49 per share. The exercise of the Class A Warrants
sold to the public will result in future dilution to the public investors. See
"Dilution." The present stockholders of the Company have acquired their
respective equity interest at costs substantially below the public offering
price. Accordingly, to the extent that the Company incurs losses, the public
investors will bear a disproportionate risk of such losses.
8. Conflicts of Interest. After this Offering, PMF, a company wholly-owned
and controlled by Barry Gersten, an unrelated party, will continue to own 73.2%
of the Company's outstanding shares of Common Stock, 100% of the shares of
Series A Preferred Stock of the Company, par value $.0001 per share (the "Series
A Preferred Stock") and 83.3% of the Company's outstanding Class A Warrants. In
addition, in June 1996, PMF made a loan of $200,000 to the Company pursuant to a
promissory note. At present, PDK is a major customer of the Company, accounting
for essentially all of the Company's total sales revenue and also supplies
certain management and personnel to the Company. In addition, Reginald Spinello,
one of the Company's Directors, holds a management position with PDK. Daniel
Durchslag, one of
16
<PAGE>
the Company's Directors, is also a Director of CGI, a customer and stockholder
of the Company. It is anticipated that PDK will continue to purchase a
significant percentage of the Company's products, at or near its minimum
requirement of $2,500,000 per annum. Because of PMF's ownership interest in the
Company, PMF's role as a creditor of the Company, the identity of certain
management, CGI's role as a customer and stockholder of the Company, and PDK's
role as a significant customer to the Company, certain conflicts of interest may
occur between the Company and PMF, CGI or PDK.
9. Governmental Regulation. The processing, formulation, packaging,
labeling and advertising of the Company's products are subject to regulation by
one or more federal agencies, including the Food and Drug Administration
("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety
Commission and the United States Department of Agriculture, as well as various
agencies of the states and localities in which the Company's products are sold.
The FTC regulates all advertising for food and over-the-counter drug
products. The FDA, in particular, regulates the advertising, labeling and sales
of prescription drugs and those vitamin and mineral supplements which the FDA
determines are unapproved drugs or food additives rather than food supplements.
Following the enactment of the Nutrition Labeling and Education Act of 1990
(the "NLEA"), the FDA, in November 1991, issued proposed regulations designed to
amend its food labeling regulations, establish standards for nutrients and food
components and establish procedures for FDA approval of health claim messages.
Final regulations on dietary supplements were published on January 4, 1994, and
became effective on July 1, 1995.
On June 18, 1993, the FDA issued proposed regulations and on December 30,
1993 it adopted final regulations concerning the labeling of, and use of health
claims on, dietary supplements. The regulations require, effective July 5, 1995,
nutrition labeling on all dietary supplements and, effective July 1, 1994,
prohibit the use of any health claim on a dietary supplement unless the
supplement is consumed as a food, its components have been demonstrated to be
safe, and the health claim is supported by significant scientific agreement and
approved by the FDA. Presently, the FDA has approved only the use of health
claims for calcium in connection with osteoporosis, and folic acid in connection
with neural tube defects. Accordingly, most dietary supplements will be
precluded from bearing most health claims. The Company cannot determine at this
time the effect of the new regulations on its future operation although it
believes they will not have a material adverse effect.
On June 18, 1993, the FDA published an Advance Notice of Proposed
Rulemaking ("ANPR") soliciting comments on the concept of the overall regulatory
strategy to assure the safety of vitamins, minerals, herbs, amino acids and
other supplements. This follows a study by an internal FDA committee on the
current regulatory framework for dietary supplements and an FDA commissioned
study by the Federation of American Societies for Experimental Biology ("FASEB")
on the safety of amino acids. Although the internal FDA report has not yet been
17
<PAGE>
issued, agency representatives have indicated that it will include a
recommendation that certain manufactured amino acids be available by
prescription only. The FASEB report, published in September 1992, concluded that
there was insufficient research and information on amino acids to allow them to
assert that single or incomplete mixtures of amino acids were safe and,
therefore, recommended that further research be conducted. The internal FDA
report, issued in conjunction with the publication of the ANPR, contains
recommendations concerning the possible regulation of dietary supplements by
category, including the regulation of single and incomplete mixtures of amino
acids either as drugs, "food additives" or "generally recognized as safe"
substances with potencies low enough to ensure safety. The ANPR has requested
input and comments form interested parties. Whether regulations will or will not
be recommended and adopted and, if adopted, on what dietary supplements, is
presently unclear. Implementation of an ANPR normally involves longer time
periods than those cited above in connection with the proposed NLEA regulations.
The legislation sponsored by the dietary supplement industry would impact the
FDA's ability to issue and implement any such regulations. See
"Business-Government Regulation" for a description of the legislation.
The Company cannot determine what effect this proposed rule-making, or
other governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, require the
recall or discontinuance of certain products not capable of reformulation, or
impose additional recordkeeping, expanded documentation of the properties of
certain products, expanded or different labeling, and scientific substantiation.
Any or all of such requirements could adversely affect the Company's operations
and its financial condition. See "Business - Government Regulations."
10. Dependence on PDK and CGI. The Company's core business consists of two
supply agreements entered into by the Company and PDK and CGI, although at the
date of this Prospectus, PDK accounts for essentially all of the total sales of
the Company. There can be no assurance that PDK will maintain this volume of
business with the Company or that CGI's volume of business will become
substantial. Although the Company believes that other customers are available
for the purchase of such products from the Company, there can be no assurance
that the Company would be able to replace these customers, in the event either
supply agreement is terminated. Even if the Company is able to develop
alternative customer sources, there can be no assurance that it can do so
without material delay or on a cost effective basis at prices similar to those
paid by PDK or CGI. As a result, any interruption or discontinuance of supplies
to PDK or CGI could result in considerable expense, delay the Company's
operations, and have a material adverse effect on the Company.
11. Dependence on Key Personnel. The Company is substantially dependent on
the continued services of Lawrence D. Simon. The Company has entered into one
(1) year employment agreements with Mr. Simon. Should Mr. Simon not be able to
continue as an officer of the Company, its prospects could be adversely affected
and as a result the loss of this officer could materially adversely affect the
Company's operations. The Company currently does not
18
<PAGE>
maintain key personnel life insurance for any of its employees. See
"Management."
12. Control by PMF. Prior to this Offering, PMF, a company wholly-owned and
controlled by Barry Gersten, an unrelated party, owned 3,000,000 shares of the
Company's issued and outstanding Common Stock, 5,000,000 shares of the Company's
Preferred Stock, representing 94.12% of the Company's outstanding shares and
3,000,000 Class A Warrants. After this offering, PMF will own approximately
73.17% of the outstanding Common Stock and 100% of the outstanding Preferred
Stock representing a combined percentage of the total combined vote after the
Offering of 87.9%, and 83.3% of the outstanding Class A Warrants. See "Principal
Stockholders." Since holders of Common Stock do not have any cumulative voting
rights and directors are elected by a majority vote, PMF is in a position to
control the election of directors as well as the affairs of the Company. In the
event PMF were to sell all of its shares of the Company's Common Stock, PMF
would continue to own one hundred (100%) percent of the Preferred Stock,
representing 54.9% of the voting shares of the Company, and would thereby be in
a position to continue to control the election of directors and officers of the
Company. In addition, in the event PMF were to sell all of its shares of the
Company's Common Stock, PMF would continue to own 83.3% of the outstanding Class
A Warrants, which, if exercised, would mean that PMF would own a further
3,000,000 shares of the outstanding Common Stock representing 42.3% of the then
outstanding Common Stock (assuming no exercise of any other Class A Warrants)
and a combined percentage of the total combined vote of 66.1%. Such control
could also preclude an unsolicited acquisition of the Company and consequently,
adversely affect the market price of the Common Stock. See "Description of
Securities."
13. Limited Number of Management Personnel. There is currently only one (1)
executive officer of the Company. Following this Offering, there can be no
assurance that, if the Company grows, the current management team will be able
to continue to properly manage the Company's affairs. Further, there can be no
assurance that the Company will be able to identify additional qualified
managers on terms economically feasible to the Company.
14. Risks Attendant to Expansion. The Company intends to utilize a
significant portion of the net proceeds of this Offering to expand its business.
In this regard, the Company intends to allocate a significant portion of the
proceeds to the acquisition of additional machinery, the expansion of its
marketing efforts, and for general administrative costs. Many of the risks of
expansion may be unforeseeable or beyond the control of management. There can be
no assurance that the Company will successfully implement its business plan in a
timely or effective manner, or that management of the Company will be able to
generate sufficient revenue to continue as a going concern. See "Use Of
Proceeds."
15. Product Liability Risks. In view of the nature of its business, the
Company is subject to the inherent risk of products liability claims in the
event that, among other things, the use or ingestion of its products results in
injury. Accordingly, currently the Company maintains product liability insurance
as a named insured on each of its suppliers' policies. Upon completion of the
Offering, the Company will purchase its own product liability insurance;
however, there
19
<PAGE>
can be no assurance that existing or future insurance coverage will be
sufficient to cover any possible product liability risks or that such insurance
will continue to be available to the Company on economically feasible terms. See
"Business - Product Liability Insurance."
16. Broad Discretion in Application of Proceeds. While the Company
presently intends to use the net proceeds of this Offering, as described in the
"Use of Proceeds" section of this Prospectus, management of the Company has
broad discretion to adjust the application and allocation of the net proceeds of
this Offering as well as any proceeds received upon any exercise of the Class A
Warrants in order to address changed circumstances and opportunities. As a
result of the foregoing, the success of the Company will be substantially
dependent upon the discretion and judgment of the management of the Company with
respect to the application and allocation of the net proceeds hereof. Pending
use of such proceeds, the net proceeds of this Offering will be invested by the
Company in short-term, low risk marketable securities. See "Use of Proceeds."
17. No Prior Public Market; Possible Volatility of Stock Price. Prior to
this Offering, there has been no public market for the Common Stock or Class A
Warrants. The initial public offering price of the Shares and the Class A
Warrants, as well as the exercise price for the Class A Warrants was determined
by negotiation between the Company and the Representative, and may not be
indicative of the market price for such securities in the future, and does not
necessarily bear any relationship to the Company's assets, book value, net worth
or results of operations of the Company or any other established criteria of
value. Among the factors considered in determining the price of the Shares and
the Class A Warrants were the history of and prospects for the industry in which
the Company competes, estimates of the business potential of the Company, the
present state of the development of the Company's business, the Company's
financial condition, an assessment of the Company's management, the general
condition of the securities markets at the time of this Offering, and the demand
for similar securities of comparable companies. There is, however, no
relationship whatsoever between the offering price of the Shares and the Class A
Warrants and the Company's net worth, projected earnings, book value, or any
other objective criteria of value on the other. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. See "Underwriting Determination of Public Offering Price," "Description
of Securities" and "Financial Statements."
18. Lack of Prior Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market. Prior to this Offering, no public trading
market existed for the Common Stock and Class A Warrants. There can be no
assurances that a public trading market for the Common Stock and Class A
Warrants will develop or that a public trading market, if developed, will be
sustained. Although the Company anticipates that upon completion of this
Offering, the Common Stock and Class A Warrants will be eligible for inclusion
on The Nasdaq Small Cap Market, no assurance can be given that the Common Stock
and Class A Warrants will be listed on The Nasdaq Small Cap Market as of the
Effective Date. Consequently, there can be no assurance that a regular trading
market for the Common Stock and Class A Warrants, other than the pink sheets,
will develop after the completion of this Offering. If a trading market does
20
<PAGE>
in fact develop for the Common Stock and Class A Warrants offered hereby, there
can be no assurance that it will be maintained. If for any reason the Common
Stock and Class A Warrants are not listed on The Nasdaq Small Cap Market or a
public trading market does not develop, purchasers of the Common Stock and Class
A Warrants may have difficulty in selling their securities should they desire to
do so. In any event, because certain restrictions may be placed upon the sale of
securities at prices under $5.00, unless such securities qualify for an
exemption from the "penny stock" rules, such as a listing on The Nasdaq Small
Cap Market, some brokerage firms will not effect transactions in the Company's
securities and it is unlikely that any bank or financial institution will accept
such securities as collateral, which could have an adverse effect in developing
or sustaining any market for the Common Stock and Class A Warrants. See "Risk
Factors - Penny Stock Regulations May Impose Certain Restrictions on
Marketability of Securities."
Although it has no legal obligation to do so, the Underwriters from time to
time may act as market makers and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Underwriters will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Underwriters'
participation in the market. The Underwriters may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely affected by the fact that a significant
amount of the Shares and the Class A Warrants may be sold to customers of the
Underwriters.
Under prevailing rules of the National Association of Securities Dealers,
Inc ("NASD"), in order to qualify for initial quotation of securities on The
Nasdaq Small Cap Market, a company, among other things, must have at least
$4,000,000 in total assets, $2,000,000 in total capital and surplus, $1,000,000
in market value of public float and a minimum bid price of $3.00 per share.
Although the Company may upon the completion of this Offering qualify for
initial quotation of its securities on The Nasdaq Small Cap Market, for
continued listing on The Nasdaq Small Cap Market, a company, among other things,
must have $2,000,000 in total assets, $1,000,000 in total capital and surplus,
$1,000,000 in market value of public float and a minimum bid price of $1.00 per
share. If the Company is unable to satisfy the requirements for quotation on The
Nasdaq Small Cap Market, trading, if any, in the Common Stock and Class A
Warrants offered hereby would be conducted in the over-the-counter market in
what are commonly referred to as the "pink sheets" or on the NASD OTC Electronic
Bulletin Board. As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the securities offered
hereby. The above-described rules may materially adversely affect the liquidity
of the market for the Company's securities. See "Underwriting."
19. Current Prospectus and State Blue Sky Registration in Connection with
the Exercise of the Warrants. The Company will be able to issue the securities
offered hereby, shares of its Common Stock upon the exercise of the Class A
Warrants and Underwriters' Option only if (i) there is a current prospectus
relating to the Common Stock issuable upon the exercise
21
<PAGE>
of the Class A Warrants under an effective registration statement filed with the
Securities and Exchange Commission, and (ii) such Common Stock is then qualified
for sale or exempt therefrom under applicable state securities laws of the
jurisdictions in which the various holders of Warrants reside. There can be no
assurance, however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) anytime after nine (9) months subsequent to the
Effective Date when any information contained in the prospectus is over sixteen
(16) months old, (ii) when facts or events have occurred which represent a
fundamental change in the information contained in the registration statement,
or (iii) when any material change occurs in the information relating to the plan
or distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine (9) months following the date of this Prospectus or until _______
__, 1997, assuming a post-effective amendment is not filed by the Company. The
Company intends to qualify the sale of Shares and Class A Warrants in a limited
number of states, although certain exemptions under certain state securities
("blue sky") laws may permit the Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified. The
Company will be prevented, however, from issuing Common Stock upon exercise of
the Class A Warrants in those states where exemptions are unavailable and the
Company has failed to qualify the Common Stock issuable upon exercise of the
Class A Warrants. The Company may decide not to seek, or may not be able to
obtain qualification of the issuance of such Common Stock in all of the states
in which the ultimate purchasers of the Warrants reside. In such a case, the
Warrants of those purchasers will expire and have no value if such Warrants
cannot be exercised or sold. Accordingly, the market for the Warrants may be
limited because of the Company's obligation to fulfill both of the foregoing
requirements. See "Description of Securities."
20. Impact on Market of Warrant Exercise. In the event of the exercise of a
substantial number of Class A Warrants owned by PMF or offered hereby or, in the
event of the conversion of the Convertible Bridge Notes, owned by the Bridge
Lenders within a reasonably short period of time after their right to exercise
commences, the resulting increase in the amount of Common Stock of the Company
in the trading market could substantially affect the market price of the Common
Stock. See "Description of Securities - Class A Warrants."
21. Underwriters' Option. In connection with this Offering, the Company
will sell to the Underwriters, for nominal consideration, an option to purchase
an aggregate of 60,000 Shares of Common Stock and 60,000 Class A Warrants (the
"Underwriters' Option"). The Underwriters' Option will be exercisable commencing
one year from the Effective Date of this Offering and ending four (4) years from
such date, at an exercise price of $6.00 per Share and $0.12 per Class A Warrant
subject to certain adjustments. The holders of the Underwriters' Option will
have the opportunity to profit from a rise in the market price of the Warrants
and/or the Common Stock, if any, without assuming the risk of ownership. The
Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriters' Option
is outstanding. At any time when the holders thereof
22
<PAGE>
might be expected to exercise them, the Company would probably be able to obtain
additional capital on terms more favorable than those provided by the
Underwriters' Option. See "Dilution" and "Underwriting."
22. Possible Adverse Effects of Ownership of Preferred Stock by PMF. The
Company's Certificate of Incorporation, as amended, authorizes the issuance of a
maximum of 10,000,000 shares of Preferred Stock on terms that may be fixed by
the Company's Board of Directors without further stockholder action. Prior to
this Offering, 5,000,000 shares of Preferred Stock have been issued by the
Company to PMF, a company wholly-owned and controlled by Barry Gersten, a
unrelated party. Pursuant to the Certificate of Designation each share of stock
possesses one vote on all matters upon which common shareholders are entitled to
vote. Although the Preferred Stock does not possess any dividend rights,
ownership of the Preferred Stock will continue to afford PMF voting control over
the affairs of the Company since PMF will hold a majority of all outstanding
voting shares of the Company. Any transfer of the Preferred Stock by PMF could
result in a change of control of the Company. See "Description of Securities
Preferred Stock."
23. "Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Securities. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define"penny stock" to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Since it is intended that the securities offered hereby will be
authorized for quotation on The Nasdaq Small Cap Market, such securities will
initially be exempt from the definition of "penny stock." If the securities
offered hereby are removed from listing by The Nasdaq Small Cap Market at any
time following the Effective Date, the Company's securities may become subject
to rules that impose additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this Offering to sell the Company's
securities in the secondary market and the price at which such purchasers can
sell any such securities.
23
<PAGE>
24. Redemption of Redeemable Warrants. The Class A Warrants are subject to
redemption by the Company, at any time, commencing one (1) year following the
date of this Prospectus, at a price of $.05 per Warrant if the closing bid price
for the Common Stock equals or exceeds $10.00 per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. In the
event that the Warrants are called for redemption by the Company, Warrantholders
will have thirty (30) days during which they may exercise their rights to
purchase shares of Common Stock. If holders of the Warrants elect not to
exercise them upon notice of redemption thereof, and the Warrants are
subsequently redeemed prior to exercise, the holders thereof would lose the
benefit of the difference between the market price of the underlying Common
Stock as of such date and the exercise price of such Warrants, as well as any
possible future price appreciation in the Common Stock. As a result of an
exercise of the Warrants, existing stockholders would be diluted and the market
price of the Common Stock may be adversely affected. If a Warrantholder fails to
exercise his rights under the Warrants prior to the date set for redemption, the
Warrantholder will be entitled to receive only the redemption price, or $.05 per
Warrant. In addition, the Warrants may only be exercised when a Prospectus is
current and meets the requirements of Section 10 of the Securities Act of 1933.
See "Description of Securities - Class A Warrants."
25. No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
See "Dividend Policy."
26. Limitation on Director Liability. As permitted by Delaware corporation
law, the Company's Certificate of Incorporation limits the liability of
Directors to the Company or its stockholders to monetary damages for breach of a
Director's fiduciary duty except for liability in certain instances. As a result
of the Company's charter provision and Delaware law, stockholders may have a
more limited right to recover against Directors for breach of their fiduciary
duty other than as existed prior to the enactment of the law. See "Description
of Securities - Limitation on Liability of Directors."
27. Shares Eligible for Future Sale May Adversely Affect the Market. All of
the Company's currently outstanding shares of Common Stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of two (2)
years may sell only an amount every three (3) months equal to the greater of (a)
one percent (1%) of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four (4) calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for three (3) years if there is
adequate current public information available concerning the Company. It should
be noted, however, that the Commission is currently considering changing the two
(2) year holding period
24
<PAGE>
to one (1) year and the three (3) year holding period to two (2) years. In such
an event, "restricted securities" would be eligible for sale to the public at an
earlier date. Immediately prior to the Effective Date, the Company will have
3,500,000 shares of its Common Stock issued and outstanding, of which (i)
3,500,000 shares are "restricted securities", all of which are eligible for
resale in April 1998 and (ii) 2,000,000 shares of which are being registered
under the Registration Statement of which this Prospectus forms a part.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop, and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See "Description of
Securities."
28. Anti-Takeover Effect of General Corporation Law of Delaware. The
Company is governed by the provisions of Section 203 of the General Corporation
Law of Delaware, an anti-takeover law enacted in 1988. As a result of Section
203, potential acquirors of the Company may be discouraged from attempting to
effect acquisition transactions with the Company, thereby possibly depriving
holders of the Company's securities of certain opportunities to sell or
otherwise dispose of such securities at above-market prices pursuant to such
transactions. See "Description of Securities."
25
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 600,000 shares of
Common Stock and 600,000 Class A Warrants offered hereby, are estimated to be
$2,165,200 (after deducting approximately $306,000 in underwriting discounts,
other expenses of this Offering estimated to be $588,800, which includes the
Underwriters' non-accountable expense allowance of $91,800, and a $72,000
financial consulting fee payable to the Representative at the closing) (but not
considering any exercise of the Over-Allotment Option, or the Underwriters'
Option). The Company based upon all currently available information, intends to
utilize such proceeds approximately as follows:
Approximate
Approximate Percentage(%)
Amount of of Net
Net Proceeds Proceeds
----------- -------------
Acquisition of Additional Machinery(1) $1,200,000 55%
Expansion of Marketing(2) $ 215,000 10%
Repayment of Certain Indebtedness(3) $ 300,000 14%
Working Capital(4) $ 450,200 21%
---------- --------
Total................... $2,165,200 100%
- ----------
(1) The Company is acquiring additional tablet presses, encapsulating machines,
blending equipment and laboratory instruments.
(2) Attendance at trade shows and advertising in trade publications.
(3) Represents the repayment of Bridge Loans in the aggregate principal amount
of $300,000. The Bridge Loans were made by two (2) unaffiliated parties.
The Bridge Loans are due and payable upon the earlier of April 30, 1997 or
the closing of the Company's initial public offering and bear interest at
the rate of 8% per annum. The proceeds of the Bridge Loans were used for
working capital and as a source of funds to pay expenses associated with
this Offering. See "Bridge Financing." See "Certain Transactions."
(4) To be used for general operating and overhead expenses and the funding of
inventory.
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to increase its annual revenues through the expansion of its business
and customer base. As a result, the Company believes that the net proceeds of
this Offering, together with increased revenues
26
<PAGE>
generated from operations, will be sufficient to conduct the Company's
operations for at least twelve (12) months. The terms of the underwriting
agreement between the Company and the Underwriters restrict the Company from
entering into any acquisition or merger of the Company or obtaining additional
capital financing, without the prior approval of the Representative, for the
issuance of additional equity securities for a period of two (2) years, in
either public or private offerings. The underwriting agreement does not prevent
the Company from seeking bank financing although there can be no assurance that
such financing will be available on commercially reasonable terms. See "Risk
Factors - Dependence on Offering Proceeds; Possible Need for Additional
Financing."
To the extent that the Company's expenditures are less than projected
and/or the proceeds of this Offering increase as a result of the exercise by the
Underwriters of their Over-Allotment Option, the resulting balances will be
retained and used for general working capital purposes. Conversely, to the
extent that such expenditures require the utilization of funds in excess of the
amounts anticipated, additional financing may be sought from other sources, such
as debt financing from financial institutions, although there can be no
assurance that such additional financing, if available, will be on terms
acceptable to the Company. See "Risk Factors Dependence on Offering Proceeds;
Possible Need For Additional Financing." The net proceeds of this Offering that
are not expended immediately may be deposited in interest bearing accounts, or
invested in government obligations or certificates of deposit.
27
<PAGE>
DILUTION
At June 30, 1996, the Company had outstanding an aggregate of 3,500,000
shares of Common Stock having an aggregate net tangible value of $1,261,755 or
$.36 per share, based upon operating activity through June 30, 1996 and giving
effect to the April, 1996 issuance of 5,000,000 Preferred Shares for $5,000. Net
tangible book value per share consists of total assets less intangible assets
and liabilities, divided by the total number of shares of Common Stock
outstanding. The shares of capital stock described above do not include any
securities subject to any outstanding warrants or options.
After giving effect to the sale of 600,000 shares of Common Stock and
600,000 Class A Warrants by the Company with net proceeds of $2,237,200 (without
deducting the $72,000 financial advisory fee), the pro forma net tangible book
value of the Common Stock would have been $3,498,955 or approximately $.85 per
share. This represents an immediate increase in pro forma net tangible book
value of $.49 per share to the present stockholders and an immediate dilution of
$4.15 per share (83%) to the public purchasers. The following table illustrates
the dilution which investors participating in this Offering will incur and the
benefit to current stockholders as a result of this Offering:
Public offering price of Shares offered hereby (1) $5.00
Net tangible per
share .................................................. $ .36
Increase per share attributable
to Shares offered hereby................................ $ .49
Pro Forma net tangible book value
per share after Offering(3)............................. $ .85
Dilution of net tangible book
value per share to purchasers
in this Offering (2)(3)............................... $4.15
- ----------
(1) Before deduction of underwriting discounts, commissions, fees and Offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option, the Underwriters' Option
or Class A Warrants. See "Underwriting" and "Description of Securities."
28
<PAGE>
(3) Assuming no exercise of the 1,000,000 Class A Warrants issuable in
connection with the conversion of the Bridge Notes. Assuming no exercise of
the 3,000,000 Class A Warrants held by PMF, a company wholly-owned and
controlled by Barry Gersten, an unrelated party. See "Selling
Securityholders" and "Certain Transactions."
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing stockholders as of June 30, 1996 and to
be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $5.00 per share of Common Stock before deducting
underwriting discounts and commissions and estimated Offering expenses).
<TABLE>
<CAPTION>
Shares of Aggregate
Common Percent Cash Percent of Average
Stock of Equity Consideration Total Cash Price Per
Purchased Owned Paid Consideration Share
--------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
New
Stockholders 600,000 14.6% $3,000,000 69.7% 5.00
Existing
Stockholders 3,500,000 85.4% $1,305,000(1) 30.3% .37
- -----------------------------------------------------------------------------------------
TOTAL 4,100,000 100% $4,305,000 100% $1.05
</TABLE>
- ----------
(1) Includes the value of 200,000 shares of Common Stock of CGI received as
part payment for 500,000 shares of Common Stock of the Company.
The foregoing table gives effect to the sale of the Common Stock offered
hereby but without giving effect to the exercise of the Underwriters' Option, or
any securities issuable upon the exercise of the Over-Allotment Option or any
outstanding options or warrants, including those held by the Bridge Lenders and
PMF.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted gives effect to the sale of 600,000 shares of Common
Stock and 600,000 Class A Warrants offered hereby and the application of net
proceeds therefrom. The table is not adjusted to give effect to the conversion
of the Bridge Notes by the Bridge Lenders, or the exercise of the Over-Allotment
Option, the Class A Warrants, the Underwriters' Option or any other outstanding
warrants or options. This table should be read in conjunction with the Financial
Statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus.
As Adjusted for
Actual (1) the Offering (2)
----------- ----------------
Notes Payable .............................. $ 500,000 $ 200,000
Stockholders' equity:
Common Stock, $.0001 par value
per share, 25,000,000 shares
authorized, 3,500,000 issued and
outstanding and (4,100,000 shares
outstanding as adjusted) ................... $ 350 $ 410
Preferred Stock, $.0001 par
value per share, 10,000,000
shares authorized, 5,000,000
issued and outstanding ..................... $ 500 $ 500
Additional paid-in capital ................. $ 1,304,150 $ 3,541,290
Retained Earnings .......................... $ 35,189 $ 35,189
Unrealized loss on available
for sale investments ....................... $ (60,100) $ (60,100)
TOTAL STOCKHOLDERS'
EQUITY ..................................... $ 1,280,089 $ 3,517,289
----------- -----------
TOTAL CAPITALIZATION ....................... $ 1,780,089 $ 3,717.289
=========== ===========
30
<PAGE>
- ----------
(1) Does not include the sale of 600,000 shares of Common Stock and 600,000
Class A Warrants offered hereby.
(2) As Adjusted balance sheet reflects the sale of 600,000 shares of Common
Stock and 600,000 Class A Warrants offered hereby and the anticipated
application of the net proceeds of $2,237,200 therefrom, after deducting
estimated Offering expenses of $822,800 and the repayment of notes of
$300,000 payable with the proceeds of the Offering. Does not give effect to
a $72,000 fee payable to the Representative pursuant to a two (2) year
financial advisory and investment banking agreement.
31
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore. The Company has not in the past and does not currently anticipate the
declaration or payment of any dividends in the foreseeable future. The Company
intends to retain earnings, if any, to finance the development and expansion of
its business. Future dividend policy will be subject to the discretion of the
Board of Directors and will be contingent upon future earnings, if any, the
Company's financial condition, capital requirements, general business conditions
and other factors. Therefore, there can be no assurance that any dividends of
any kind will ever be paid.
BRIDGE FINANCING
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investments Ltd., two (2) unaffiliated parties (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Notes bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 or (ii) the closing of an
initial underwritten public offering of the Company's securities. The Company
intends to use a portion of the proceeds of this Offering to repay the Bridge
Lenders. See "Use of Proceeds." In addition, each Convertible Bridge Note
converts into a number of Class A Warrants of the Company equal to ten (10)
times the principal amount of such Convertible Bridge Note upon the consummation
of this Offering. The Company entered into the bridge financing transactions
because it required additional financing and no other sources of financing were
available to the Company at that time. Further, the Company agreed to register
the resale of the Class A Warrants issuable upon conversion of the Convertible
Bridge Notes, as well as the shares of Common Stock issuable upon exercise of
the Class A Warrants in the first registration statement filed by the Company
following the date of the loan. Therefore, the Registration Statement, of which
this Prospectus forms a part, relates to resale of the 1,000,000 Class A
Warrants issuable upon conversion of the Convertible Bridge Notes and 1,000,000
shares of Common Stock issuable upon exercise of the Class A Warrants. See
"Selling Securityholders" "Certain Transactions" and "Underwriting."
32
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected historical financial data presented below are derived from
financial statements of the Company, which have been audited by Holtz Rubenstein
& Co., L.L.P., independent accountants, whose reports are included elsewhere
herein. The data set forth below should be read in conjunction with and is
qualified in its entirety by the Company's financial statements, related notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations. See "Financial Statements," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The following
summary financial information has been summarized from the Company's financial
statements included elsewhere in this Prospectus. The information should be read
in conjunction with the financial statements and the related notes thereto. See
"Financial Statements."
SUMMARY STATEMENT OF OPERATIONS
Period April 24, 1996
(Inception) to June 30, 1996
----------------------------
Historical
----------
Revenues $ 857,398
Gross Profit $ 119,358
Operating Income $ 48,389
Net Income $ 35,189
Net Income $ .01
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000
SUMMARY BALANCE SHEET DATA
June 30, 1996
June 30, 1996 as Adjusted (2)
------------- ----------------
Working Capital $ 560 $2,237,760
Total Assets $2,565,537 $4,502,737
Total Liabilities $1,285,448 $ 985,448
Retained Earnings $ 35,189 $ 35,189
Stockholders'
Equity $1,280,089 $3,517,289
33
<PAGE>
(1) Does not include the sale of 600,000 shares of Common Stock, and 600,000
Class A Warrants offered hereby.
(2) Reflects initial application of net proceeds of the 600,000 shares of
Common Stock and 600,000 Class A Warrants offered.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Since its inception, the Company's primary activities have consisted of
leasing a facility, acquiring machinery and equipment and operating as a
wholesaler for the products it intends to manufacture. As of June 30, 1996, the
Company has not commenced manufacturing operations.
The Company's results of operations reflects revenues of approximately
$857,398 for the period April 24, 1996 (inception) to June 30, 1996.
Approximately 96 percent of these sales were derived from PDK Labs Inc. ("PDK").
The gross profit on sales was approximately $119,000 or 14 percent.
On May 14, 1996, the Company entered into a three year Supply Agreement
with PDK, which provides for the Company to supply PDK with certain products at
a price equal to material cost plus 15 percent. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per year during the term of
the agreement. In the event that PDK fails to purchase the minimum amount of
products in any year, the Company will be paid up to $100,000 on a pro-rated
basis as liquidated damages.
On May 31, 1996, the Company agreed to supply Compare Generiks, Inc. with
vitamins in bulk tablet form at the Company's cost plus 15 percent.
Plan of Operation
During the first twelve months of operations after completion of the
Offering, the Company will adopt a sales and marketing campaign to secure new
customers who purchase dietary supplements in "bulk" tablet and capsule form.
The Company intends to establish a national network of brokers pursuing
customers that package and sell dietary supplements. The potential customer base
includes (but is not limited to) other manufacturers who outsource a portion of
their needs to supplement their own capacities ("repackagers,") companies that
market a brand or generic line of products but do not manufacture these items,
and distributors servicing health food, drug, convenience and mass market
stores.
An extensive network of brokers is also planned for Canada, Latin America,
Europe and parts of Asia to pursue trading partners who possess the ability to
distribute dietary supplements to large distribution and retail companies. The
Company intends to expend substantial sums on promotional material, trade shows
and advertising through trade magazines. Upon completion of the Offering, the
Company intends to purchase additional production equipment to increase capacity
to meet future demand.
As of June 30, 1996, the Company employed a total of seven (7) employees on
a full time basis (five (5) employees in manufacturing and sales and two (2)
employees in administration and finance). The Company has also leased a forty
thousand square foot facility for manufacturing, quality assurance,
pharmaceutical laboratory, warehouse, executive and sales offices. The number of
employees and the amount of space the Company will need following the Offering
will vary according to the progress made in the marketing and distribution of
its products. The Company
35
<PAGE>
intends to hire additional administrative, sales, productions and warehouse
employees. In addition, the Company intends to install a detailed Management
Information System in order to effectively manage production, quality assurance,
inventory and to properly service its customer base.
Liquidity and Capital Resources
As of June 30, 1996, the Company had working capital of $560. The Company
remains in the development stage as it has not yet commenced its manufacturing
operations and requires the proceeds of this Offering or alternative financing
to acquire additional machinery, execute meaningful marketing activities, and
start up manufacturing operations. The report of the Company's auditors contains
an explanatory paragraph which discusses certain factors which raise substantial
doubt about the ability of the Company to continue as a going concern. The
Company has funded its activities to date from the initial capital contribution
of the founder and Bridge Loans. See "Certain Transactions."
The Company expects to incur substantial expenditures over the next twelve
months to start up manufacturing activities and implement its sales and
marketing plans. The Company's management believes that the net proceeds of this
Offering (excluding any proceeds from the Underwriters' Over-Allotment Option or
the Underwriters' Option) will be sufficient to fund its liquidity needs for at
least the next twelve months.
36
<PAGE>
BUSINESS
General
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI"), was formed on April 24, 1996. The Company is engaged in the development,
manufacture, marketing and sale of dietary supplements including vitamins,
minerals, herbs and specialty nutritional supplements, in bulk tablet, capsule
and powder form. The Company intends to manufacture a wide variety of products
for companies which package and sell through many different channels of
distribution, including health food, drug, convenience and mass market stores.
Prior to the setting up of its manufacturing facility, the Company is operating
as a wholesaler for these products.
On May 14, 1996, the Company entered into a supply agreement with PDK Labs
Inc. a New York corporation ("PDK"), pursuant to which the Company agreed to
supply PDK with vitamins and dietary supplements manufactured to PDK's
specifications in bulk tablet form for a three (3) year period, renewable for
successive one (1) year periods thereafter. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per annum during the term
of the agreement and to pay liquidated damages of $100,000 to the Company in the
event PDK did not meet that minimum purchase requirement.
On May 31, 1996, the Company entered into an exclusive supply agreement
with Compare Generiks, Inc., a Delaware corporation ("CGI"), pursuant to which
the Company agreed to supply CGI with all of CGI's requirements for vitamins on
an exclusive basis (other than any vitamins sold under the "Energex" trade mark
or as part of the "Energex" product line) for a three (3) year period, renewable
for successive one (1) year periods thereafter. The Company's supply
arrangements with PDK and CGI form the core of its current business.
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an unrelated party, for a forty thousand (40,000) square foot
facility to be utilized for manufacturing, distribution and for its executive
offices.
Upon completion, the Company's manufacturing facility will have sixteen
production machines consisting of twelve tablet presses and four encapsulating
machines, with a capacity of producing per annum, in excess of one billion two
hundred million (1,200,000,000) tablets and capsules of various sizes and
shapes. All manufacturing will be conducted in accordance with Good
Manufacturing Practice Standards of the United States Food and Drug
Administration and other applicable regulatory standards. The Company believes
that the capacity of its manufacturing facility is adequate to meet the
requirements of its current business and will be adequate to meet the
requirements of anticipated increases in net sales.
The Company intends to use the proceeds from this Offering to repay certain
of the Company's indebtedness, acquire additional manufacturing equipment,
expand its marketing efforts, and for general working capital purposes. See "Use
of Proceeds."
The Company maintains its executive offices at 270 Oser Avenue, Hauppauge,
New York 11788, telephone number (516) 231-0783.
37
<PAGE>
Investment in CGI
Although the Company accepted part payment for CGI's subscription for
shares of Common Stock in the Company in the form of shares of Common Stock of
CGI, the Company does not intend to invest in any other company.
Manufacturing
The vitamin production process includes the following stages: testing of
raw materials, pharmacy, blending, compression, coating, testing of finished
products, packaging and labeling. The vitamin production process involves
sending the raw materials through each stage of production in order to form
vitamin products.
The principal raw materials needed in the manufacturing process are natural
and synthetic vitamins which will be purchased from manufacturers in the United
States, Japan and Europe. The Company can purchase raw materials from numerous
sources and is not dependent on any major supplier. The Company believes that
the materials to be purchased from these suppliers are readily available from
numerous sources and the loss of these suppliers would not adversely affect its
operations.
The Company has one large Gemco blender-mixer and one PK blender to handle
mixing for dry batches of production. The plant will be equipped with twelve
tablet presses, four encapsulating machines, and one capsule imprint machine
available for customizing each capsule. The production machines have the
combined capacity of producing per annum, in excess of one billion two hundred
million (1,200,000,000) tablets and capsules of various sizes and shapes.
Several of the tablet presses have the capability to encode a name or logo on
the tablets based on the punches used. In addition, the plant will have one
tablet imprint machine for customizing tablet products.
Quality Control
All of the Company's products will be manufactured in accordance with the
Good Manufacturing Practices of the FDA and all other applicable regulatory
standards. The Company places special emphasis on quality control. All raw
materials and finished products are subjected to sample testing, weight testing,
and purity testing. The Company has adopted formal written quality control
procedures which will be rigorously followed. The Company intends to maintain
well documented records on all material testing, production processes,
inspections carried out in the manufacturing process, and labeling procedures.
All products are subject to the Company's rigorous quality control procedures.
The Company will maintain a modern well-equipped pharmaceutical laboratory. The
Company believes that the laboratory will have the capability of adhering to any
current and anticipated agency requirements.
The Company's manufacturing operations will include a modern quality
control laboratory and testing facilities. All raw materials used in production
are to be initially held in quarantine during which time the Company's quality
assurance department assay the product against the manufacturer's certificate of
analysis. Once cleared, a lot number will be assigned, samples are to be
retained and the material is to be processed by formulating, blending,
38
<PAGE>
compressing and where required, coating operations. Throughout the manufacturing
process the quality control department will conduct "in process" testing
procedures. After tablets are manufactured, the quality assurance department
will test for weight, purity, potency, dissolution and stability.
Marketing and Distribution Strategies
The Company intends to manufacture a full line of dietary supplements
including vitamins, minerals, herbs and speciality nutritional supplements in
bulk tablet and capsule form, which are marketed to companies that package and
sell through many different channels of distribution, including health food,
drug, convenience and mass market stores. In addition, the Company supplies
other manufacturers which "outsource" a portion of their needs on an ongoing
basis to supplement their own capacities.
The Company has begun working to capitalize on the global opportunities
created by an increasing worldwide recognition of the benefits of dietary
supplements and the perception that "American made supplements" offer the safest
and highest quality products available The company is establishing relationships
with brokers, manufacturer representatives and distributors in Canada, Latin
America, Europe and parts of Asia.
The Company intends to use a portion of the proceeds from the Offering to
establish a network of manufacturer representatives throughout the United States
for the purposes of obtaining new customers who purchase dietary supplements in
bulk tablet and capsule form.
Competition
The market for dietary supplement products is highly competitive in each of
the Company's existing and anticipated product lines and methods of
distribution. Numerous manufacturers and distributors compete with the Company
for customers throughout the United States and internationally in the bulk
packaged dietary supplement industry, selling products to distributors who
service health food, drug, convenience and mass market stores, companies that
market a branded or generic line of products but do not manufacture these items
("repackagers"), and other manufacturers who "outsource" a portion of their
needs to supplement their own capacities. Many of the Company's competitors are
substantially larger and more experienced than the Company, have longer
operating histories and have materially greater financial and other resources
than the Company. Many of these competitors are private companies, and
therefore, the Company cannot compare its revenues with respect to the sales
volume of each competitor. The Company's significant competitors include
International Vitamin Corporation and Nature's Bounty both of whom have longer
operating histories and materially greater financial and other resources than
the Company (although, no implication is intended hereby regarding the Company's
industry ranking in comparison to such competitors). There can be no assurance
that the Company will be able to compete successfully with its more established
and better capitalized competitors.
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 dietary supplement companies because
of its access to products, competitive pricing, quality of products, and sales
support.
39
<PAGE>
Financing
On May 31, 1996, the Company entered into a revolving credit agreement with
Dune Holdings, Inc. ("Dune"), one of the Company's Bridge Lenders, pursuant to
which the Company can borrow up to $200,000 for a period of twenty four (24)
months at an interest rate of fifteen percent (15%) per annum. The Company paid
Dune a commitment fee of $2,000 (one percent (1%) of the maximum amount
available under the revolving credit agreement). As of June 30, 1996, the
Company had not borrowed any funds pursuant to the revolving credit agreement.
See "Certain Transactions."
On June 26, 1996, the Company borrowed $200,000 from PMF (a company wholly-
owned and controlled by Barry Gersten, an unrelated party), the Company's
founder, at an annual interest rate of eight percent (8%) pursuant to a
promissory note dated June 26, 1996 repayable on June 25, 1998. See "Certain
Transactions."
Management and Employees
As of June 30, 1996, the Company employed a total of seven (7) employees on
a full time basis (five (5) employees in manufacturing and sales and two (2)
employees in administration and finance). See "Management" and "Executive
Compensation."
The Company has experienced no work stoppages and considers its employee
relations to be satisfactory. The Company's employees are not represented by a
labor union.
Government Regulation
The Company's products and/or its business operations are subject to
regulation by one or more federal agencies, including The United States Postal
Service, the Federal Trade Commission ("FTC"), the Food and Drug Administration
("FDA") and the Consumer Product Safety Commission and the United States
Department of Agriculture. The FDA in particular, is primarily responsible for
regulation of the labeling, manufacture and sale of vitamins and mineral
supplements which the FDA believes to be unapproved drugs or food additives
rather than food supplements. The Company's activities are also regulated by
various agencies of the states and localities in which the Company's products
are sold and the Department of Health for the State of New York monitors the
facility, checks for cleanliness, audits the record keeping and observes the
control and labeling. It is this latter agency that issues the Company the
license which allows the Company to carry out its operations.
The Company markets vitamins, minerals, herbs, amino acids and other
similar nutritional substances ("dietary supplements"). These products are
primarily regulated by the FDA under the auspices of the Federal Food, Drug and
Cosmetic Act (the "FFDCA"). Under the FFDCA, most dietary supplements are
currently regulated as foods, which require no approval from the FDA prior to
marketing. Therefore, the regulation of dietary supplements is far less
restrictive than that imposed upon manufacturers and distributors of
prescription drugs. Dietary supplements, however, must be labeled correctly to
avoid being misbranded under the FFDCA. Health claims made by vitamin and
dietary supplement companies with respect to their products are specifically
regulated by the FDA. If such products make unapproved health claims, the FDA
may consider them to be unapproved drugs, which require
40
<PAGE>
approval by the FDA prior to marketing.
For the production of the Company's products deemed by the FDA now or in
the future to be a food, the operation of the Company's manufacturing facilities
will be subject to regulation by the FDA as a food manufacturing facility and to
compliance with good food manufacturing practices. Although the Company does not
anticipate any difficulties in complying with the necessary good food
manufacturing practices, any such difficulties that are encountered could have a
material adverse effect on the Company.
Marketing misbranded or adulterated food or unapproved new food additives,
can result in civil or criminal penalties, including, but not limited to,
product seizure, injunction and fines.
On January 4, 1994, the FDA issued final regulations concerning dietary
supplements. It did so partially in response to the Nutritional Labeling and
Education Act of 1990 ("NLEA") and the Dietary Supplement Act of 1992 in order
to amend its food labeling regulations, setting forth specific regulations for
the nutrition labeling of vitamins and mineral supplements, establish up to date
reference standards for nutrients and food components and establish procedures
for FDA approval of health claim messages. The regulations subject dietary
supplement labels to the same standards as food labels under the Nutrition
Labeling and Education Act with regard to health claim messages and nutrition
labeling information. The regulations concerning health claim messages went into
effect on July 1, 1994 and the regulations concerning nutrition labeling went
into effect on July 5, 1995.
The regulations prohibit the use of any health claim on a dietary
supplement unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has approved the use
of health claims only in connection with calcium products and osteoporosis, and
folic acid and neural tube defects. Accordingly, most dietary supplements will
be precluded from bearing most health claims. The Company's products include
single ingredient vitamins, minerals, herbs and amino acids in tablet and
capsule form. In addition, the Company produces a wide spectrum of
multi-ingredient combinations of vitamins, minerals, herbs and amino acids based
on customer specifications. The FDA regulations do not at present limit consumer
access to dietary supplements, unless such products present safety concerns. The
Company cannot determine at this time whether the new regulations will have any
adverse effect on its operations, although it believes that they will not have a
material adverse effect.
In addition, the FDA issued an Advanced Notice of Proposed Rulemaking on
June 18, 1993 ("ANPR") requesting comments on the general regulation of certain
dietary supplements, such as herbs, fish and plant oils, fatty acids, fibers and
vegetable gums, and amino acids. Some of these substances are sold by the
Company. In connection therewith, the FDA commissioned the Federation of
American Societies for Experimental Biology ("FASEB") to conduct a study of the
safety of amino acids. The FASEB report published in September 1992 concluded
that there was insufficient research and information on amino acids to conclude
that added, manufactured, or incomplete mixtures of amino acids are safe and,
therefore, recommended that further research be conducted. The internal FASEB
report issued in connection with the ANPR contains recommendations concerning
the possible regulation of dietary supplements by category.
41
<PAGE>
The Company cannot determine whether separate regulations will be issued
for these substances, or what effect any new regulations for such substances,
when and if promulgated, will have on its business in the future. The FDA or
other governmental regulations or administrative orders concerning such
substances, when and if promulgated, could require the reformulation of certain
products to meet new standards or require the recall or discontinuance of
certain products not capable of reformulation.
The Dietary Supplement Act of 1992 requires that the Comptroller General of
the United States and the Director of the Office of Technology Assessment
undertake separate studies of FDA regulation of dietary supplements and make
recommendations in Congress which would reduce or modify the FDA's authority to
regulate dietary supplements. While these bills have not been enacted as law,
there is a strong likelihood that Congress will again consider such legislation.
There is no assurance, however, that these bills will ultimately be passed and
signed into law.
Any such legislation reducing the FDA's authority to modify dietary
supplements could result in the Company being subject to fewer regulatory
requirements and would, therefore, have no adverse impact on the Company. Any
modification which increases the FDA's regulatory authority could subject the
Company to additional expenses in order to comply with more stringent
requirements and could have a materially adverse impact on the Company by
limiting products or causing the Company to incur additional expenses in order
to comply with these regulations.
Conflict of Interests
After this Offering, PMF, a company wholly-owned and controlled by Barry
Gersten, an unrelated party, will continue to own 73.2% of the Company's
outstanding shares of Common Stock, 100% of the shares of Series A Preferred
Stock of the Company, par value $.0001 per share (the "Series A Preferred
Stock") and 83.3% of the Company's outstanding Class A Warrants. In addition, in
June 1996, PMF made a loan of $200,000 to the Company pursuant to a promissory
note. At present, PDK is a major customer of the Company, accounting for
essentially all of the Company's total sales revenue and also supplies certain
management and personnel to the Company. In addition, Reginald Spinello, one of
the Company's Directors, holds a management position with PDK. Daniel Durchslag,
one of the Company's Directors, is also a Director of CGI, a customer and
stockholder of the Company. It is anticipated that PDK will continue to purchase
a significant percentage of the Company's products, at or near its minimum
requirement of $2,500,000 per annum. Because of PMF's ownership interest in the
Company, PMF's role as a creditor of the Company, the identity of certain
management, CGI's role as a customer and stockholder of the Company, and PDK's
role as a significant customer to the Company, certain conflicts of interest may
occur between the Company and PMF, CGI or PDK.
42
<PAGE>
Product Liability Insurance
The Company, like other manufacturers of products that are ingested, faces
inherent risk of exposure to product liability claims. Accordingly, currently
the Company maintains product liability insurance as a named insured on each of
its suppliers' policies. The Company requires that its suppliers have minimum
coverage of $1,000,000 and that the Company is named insured on the policy. Upon
completion of the Offering, the Company will purchase its own product liability
insurance. While management believes that its insurance coverage is adequate,
there can be no assurance that any judgment against the Company will not exceed
liability coverage. A judgment significantly in excess of the amount of
insurance coverage would have a material adverse effect on the Company.
Facilities
The Company's headquarters, plant operations, warehousing and shipping
facilities are housed in a modern forty thousand (40,000) square foot building.
The Company leases the building pursuant to an agreement with Park Associates,
the Landlord, which expires on October 14, 1998. The lease provides for the
Company to pay rent in the following amounts: from May 1, 1996 through August 1,
1996 no base rent shall be due. From August 1, 1996 through May 31, 1997 the
base rent shall be $23,000 monthly. From June 1, 1997 through October 14, 1997
the base rent shall be $19,166.67 monthly. From October 15, 1997 through October
14, 1998 the base rent shall be $20,833.33 monthly. In the judgment of
management, the lease with the Landlord reflects a rent at current fair market
value.
The Facility is equipped with a modern, state-of-the-art dust collection
system which extracts dust particles from the air and recycles the air through
massive filters. The dust collection system is designed to ensure that no
contaminants are emitted into the environment.
The Facility will maintain a modern and well equipped pharmaceutical
laboratory. The Company believes that the one thousand five hundred (1,500)
square foot laboratory will have the capability of adhering to any current or
anticipated regulatory requirement.
Litigation
There is no material litigation pending or threatened against the Company
nor are there any such proceedings to which the Company is a party.
43
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
Name Age Position Held
- --------------------- --- -------------
Lawrence D. Simon 30 President, Chairman, Chief Financial Officer
and Director
Reginald Spinello 42 Director
Matthew L. Harriton 31 Director and Secretary
Steven F. Wasserman 37 Director
Dr. Daniel Durchslag 52 Director
Background of Executive Officers and Directors
Lawrence D. Simon has been the President, Chairman, Chief Financial Officer and
a Director of the Company since May 1, 1996. He has been a National Sales
Director for Futurebiotics, Inc. ("Futurebiotics") since October 1, 1995.
Futurebiotics distributes, markets and sells vitamins, minerals, herbal
formulations and specialty nutritional supplements principally to health food
stores through regional distributors. Prior to joining Futurebiotics Mr. Simon
was Regional Sales Manager for PDK Labs Inc., (from April 10, 1992 to September
30, 1995). Prior to PDK Labs Inc., Mr. Simon was President of LDS Products Inc.
(from March 1990 to March of 1991). LDS Products Inc., is a brokerage
corporation specializing in sales to wholesale companies in Eastern Europe.
Prior to LDS Products Inc., Mr. Simon was an Auditor with Coopers & Lybrand LLP
(from December 1988 to March 1990). He is a graduate of Cleveland State
University with a Bachelors Degree in Business Administration.
Reginald Spinello has been a Director of the Company since May 1, 1996. He has
been the President and a Director of Futurebiotics since its formation in March,
1994. Futurebiotics distributes, markets and sells vitamins, minerals, herbal
formulations and specialty nutritional supplements principally to health food
stores through regional distributors. In addition, he is the Executive Vice
President of PDK Labs Inc., a position he has held since September 1993. Mr.
Spinello joined PDK Labs Inc. in September 1991 as Vice President of Operations.
Prior to joining PDK Labs Inc. Mr. Spinello was President and Founder of
Internal Reinforcements from 1985 to 1991, a specialty distributor and marketer
of natural vitamins and supplements. Prior to Internal Reinforcements, Mr.
Spinello was Founder and President of Superior Supplements (a company with no
affiliation to the Company). Mr. Spinello sold his entire interest in this
company in 1985 and the company was dissolved in 1992. Mr. Spinello graduated
from Bryant College with a B.S. Degree in Business Administration. Additionally,
he has studied in the field of nutrition and is a non-practicing nutrition
consultant. See "Risk Factors - Conflicts of Interest."
44
<PAGE>
Matthew L. Harriton has been a Director and Secretary of the Company since May
1, 1996. He has also been a director of Decor Group, Inc. since March 1996.
Decor Group, Inc. is the holding company of a subsidiary company formed to
acquire a business specializing in the design, manufacture and marketing of
metal wall, table and freestanding sculptures. Mr. Harriton has been the Chief
Financial Officer of Embryo Development Corporation since January 1996. Embryo
Development Corporation is a public company which specializes in developing and
distributing medical devices. Prior to joining Embryo Development Corporation,
Mr. Harriton's professional experience included positions at CIBC Wood Gundy
Securities Corporation as an associate (from June 1994 to December 1995),
Coopers & Lybrand as a senior associate (from December 1990 to May 1994), and
The First Boston Corporation as a senior accountant (from June 1986 to May
1988). Mr. Harriton has also served as a director of Perry's Majestic Beer, Inc.
since January 1996, a company involved in the microbrewery industry. He is a
graduate of Lehigh University and received his M.B.A.
from Duke University's Fuqua School of Business.
David J. Waldman, M.D. has been a Director of the Company since May 1, 1996. Dr.
Waldman is a graduate of Lafayette College, Easton, PA, Class of 1967. He
received an M.D. degree from the New York Medical College in 1972. Dr. Waldman
completed residency training at the Mayo Clinic and UCLA in both Pediatric
Medicine and Allergy. He currently resides in Palm Springs, CA, where he
maintains an active Allergy practice, and substantial business and real estate
interests. Dr. Waldman also serves as the sole director of Walpac. In addition,
he has been a Director of CGI since October 1995. See "Risk Factors - Conflicts
of Interest."
Steven F. Wasserman has been a Director of the Company since May 1, 1996. He has
also been a Director of Embryo Development Corporation since March , 1995.
Embryo Development Corporation is a public company which specializes in
developing and distributing medical devices. Mr. Wasserman has been engaged in
the practice of law at the firm of Bernstein & Wasserman, LLP, since 1984. See
"Legal Matters." Mr. Wasserman is a graduate of Union College and received his
J.D. from the Benjamin N. Cardozo School of Law.
Dr. Daniel Durchslag, DDS. has been a Director of the Company since May 1, 1996
and has practiced General Cosmetic and Sports Dentistry in Beverly Hills,
California since 1980. From 1973 until 1979, he was an Associate Professor and
Director of Clinics at the University of Southern California School of
Dentistry. He is a graduate of the University of Wisconsin and Loyola
University/Chicago College of Dental Surgery. He is presently team dentist for
the Oakland Raiders. In addition, he has been a Director of CGI since October
1995. See "Risk Factors - Conflicts of Interest."
There are no family relationships between the officers and directors of the
Company.
45
<PAGE>
Executive Compensation
Details of the cash or other compensation paid or accrued by the Company to
or on behalf of the Company's President, Chairman and Chief Financial Officer of
the Company since its formation to the end of the Company's fiscal year, June
30, 1996, are set forth in the tables listed below. Each director of the Company
is entitled to receive reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors of the Company. The members of the Board of
Directors intend to meet at least quarterly during the Company's fiscal year,
and at such other times duly called.
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------------
Annual Compensation Awards Payouts
----------------------------------- --------- ----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus Compensation ($) SARs(#) ($) ($)
- --------------------------- ---- --------- ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence Simon, President 1996 $12,692 $-0- $ -0- $ -0- 100,000(1) $ -0- $ -0-
</TABLE>
(1) Represents issuance of options to acquire 100,000 shares of common stock at
$5.00 per share exercisable one year from the effective date of the
Company's initial public offering.
Option/SAR Grants -
Individual Grants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Lawrence Simon, President 100,000 100% $5.00 May 1, 2001
</TABLE>
Aggregated Option/SAR Exercises -
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Lawrence Simon, President -0- -0- 0/100,000 $-0-/-0- (2)
</TABLE>
(2) The exercise price of the options is equal to the public offering price of
the shares of common stock of the Company hereby offered.
47
<PAGE>
Employment Agreements
As of May 1, 1996, the Company entered into a one (1) year employment
agreement with Lawrence D. Simon, pursuant to which Mr. Simon serves as the
Company's President. The agreement provides for Mr. Simon to receive a salary of
$75,000 per annum. In addition, Mr. Simon has been granted the right to the
delivery, after the Effective Date hereof, of an option to purchase 100,000
shares of the outstanding Common Stock of the Company exercisable (i) at an
exercise price equal to the public offering price of the shares of Common Stock
of the Company offered for sale in the Offering commencing one year from the
Effective Date of the Offering, and (ii) only at a time when Mr. Simon is
employed by the Company. The agreement can be terminated by the Company, with or
without cause, upon ninety (90) days' notice and contains prohibitions on the
disclosure of confidential information and covenants not to compete with the
Company which survive any such termination.
1996 Stock Plan
In June 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive officers and other key employees in
a position to contribute substantially to the progress and success of the
Company, to closely align the interests of such employees with the interests of
stockholders of the Company by linking benefits to stock performance and to
retain the services of such employees, as well as to attract new key employees.
In furtherance of that purpose, the 1996 Plan authorizes the grant to executives
and other key employees of the Company and its subsidiaries of stock options,
restricted stock, deferred stock, bonus shares, performance awards, dividend
equivalent rights, limited stock appreciation rights and other stock-based
awards, or any combination thereof. The 1996 Plan is expected to provide
flexibility to the Company's compensation methods, after giving due
consideration to competitive conditions and the impact of federal tax laws. The
Company anticipates that the stockholders will be requested to approve the
adoption of the 1996 Plan in the near future.
The maximum number of shares of Common Stock with respect to which awards
may be granted pursuant to the 1996 Plan is initially 2,000,000 shares. Shares
issuable under the 1996 Plan may be either treasury shares or authorized but
unissued shares. The number of shares available for issuance will be subject to
adjustment to prevent dilution in the event of stock splits, stock dividends or
other changes in the capitalization of the Company.
The 1996 Plan will be administered by a committee consisting of not less
than two (2) members of the Board of Directors who are "disinterested" within
the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code (including persons
who may be deemed outside directors by virtue of any transitional rule which may
be adopted by the Internal Revenue Service implementing such Section). The Board
will determine the persons to whom awards will be granted, the type of
48
<PAGE>
award and, if applicable, the number of shares to be covered by the award.
During any calendar year, no person may be granted under the 1996 Plan awards
aggregating more than 100,000 shares (which number shall be subject to
adjustment to prevent dilution in the event of stock splits, stock dividends or
other changes in capitalization of the Company).
Types of Awards
Stock Options. Options granted under the 1996 Plan may be "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Code or
stock options which are not incentive stock options ("Non-Incentive Options"
and, collectively with Incentive Options, hereinafter referred to as "Options").
The persons to whom Options will be granted, the number of shares subject to
each Option granted, the prices at which Options may be exercised (which shall
not be less than the fair market value of shares of Common Stock on the date of
grant), whether an Option will be an Incentive Option or a Non-Incentive Option,
the time or times and the extent to which Options may be exercised and all other
terms and conditions of Options will be determined by the Committee.
Each Incentive Option shall terminate no later than ten (10) years from the
date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined). No Incentive Option may be
granted at any time after May 2006. Each Non-Incentive Option shall terminate
not later than fifteen (15) years from the date of grant. The exercise price at
which the shares may be purchased may not be less than the Fair Market Value of
shares of Common Stock at the time the Option is granted, except as provided
below with respect to Incentive Options granted to 10% Stockholders. Options
granted to executive officers may not be exercised at any time prior to six (6)
months after the date of grant.
The exercise price of an Incentive Option granted to a person possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ("10% Stockholder") shall in no
event be less than 110% of the Fair Market Value of the shares of the Common
Stock at the time the Incentive Option is granted. The term of an Incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.
The exercise price of the shares to be purchased pursuant to each Option
shall be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of shares
of the Company's Common Stock owned by the optionee at the time of the exercise
of the Option, (iii) in installments, payable in cash, if permitted by the
Committee or (iv) any combination of the foregoing. The stock-for-stock payment
method permits an optionee to deliver one (1) or more shares of previously owned
Common Stock of the Company in satisfaction of the exercise price of subsequent
Options. The optionee may use the shares obtained on each exercise to purchase a
larger number of shares on the next exercise. (The foregoing assumes an
appreciation in value of previously acquired shares). The result of the
stock-for-stock payment method is that the optionee can generally avoid
immediate tax liability with respect to any appreciation in the value of the
stock utilized to
49
<PAGE>
exercise the Option.
Shares received by an optionee upon exercise of a Non-Incentive Option may
not be sold or otherwise disposed of for a period determined by the Board upon
grant of the Option, which period shall be not less than six (6) months nor more
than three (3) years from the date of acquisition of the shares (the "Restricted
Period"), except that, during the Restricted Period (i) the optionee may offer
the shares to the Company and the Company may, in its discretion, purchase up to
all the shares offered at the exercise price and (ii) if the optionee's
employment terminates during the Restricted Period (except in limited
instances), the optionee, upon written request of the Company, must offer to
sell the shares to the Company at the exercise price within seven (7) business
days. The Restricted Period shall terminate in the event of a Change in Control
of the Company (as defined), or at the discretion of the Board. After the
Restricted Period, an optionee wishing to sell must first offer such shares to
the Company at the Fair Market Value.
Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable restrictive period,
restricted stock that is at the time subject to restrictions shall be forfeited
and reacquired by the Company. Except as otherwise provided by the Committee at
the time of grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited. Until such time as the stock which is the subject
of the award is issued, the recipient of the award has no rights as a
stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient the
right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a free standing award.
50
<PAGE>
Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall be determined by the Committee. The 1996
Plan also authorizes the Committee to grant other forms of awards based upon,
payable in, or otherwise related in whole or in part to, Common Stock,
including, without limitation, convertible or exchangeable debentures or other
debt securities, other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by reference to the book value of shares of Common Stock or awards
determined by reference to the value of securities of, or the performance of,
specified subsidiaries.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding shares of
the Company's Common Stock by (i) any holder of more than five percent (5%) of
the outstanding shares; (ii) the Company's officers and directors; and (iii) the
directors and officers of the Company as a group:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
(%) of (%) of (%) of Total
Shares of Common Common Shares of Combined
Common Stock Before Stock After Preferred Vote Before
Stock Owned Offering Offering Stock Offering
- ---------------------------------------------------------------------------------------------------------
Name and Address of
Beneficial Owner
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PMF, Inc.(1)(2) 3,000,000 85.7 73.2 5,000,000 94.1
- ---------------------------------------------------------------------------------------------------------
Compare Generiks, 500,000 14.3 12.2 0.0 12.2
Inc.(3)
- ---------------------------------------------------------------------------------------------------------
Lawrence D 0.0 0.0 0.0 5,000,000 58.8
Simon(1)(4)(6)
- ---------------------------------------------------------------------------------------------------------
Reginald Spinello(1)(6) 0.0 0.0 0.0 5,000,000 58.8
- ---------------------------------------------------------------------------------------------------------
Matthew L 0.0 0.0 0.0 0.0 0.0
Harriton(1)
- ---------------------------------------------------------------------------------------------------------
Dr. Daniel
Durchslag(1)(6) 0.0 0.0 0.0 5,000,000 58.8
- ---------------------------------------------------------------------------------------------------------
Steven F. Wasserman(5) 0.0 0.0 0.0 0.0 0.0
- ---------------------------------------------------------------------------------------------------------
All officers and
directors as a group
(five (5) persons) 0.0 0.0 0.0 0.0 0.0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) The address of each stockholder shown above is c/o Superior Supplements,
Inc., 270 Oser Avenue, Hauppauge, NY 11788.
(2) PMF, Inc., a corporation wholly owned by Barry Gersten, and the founder of
the Company is record holder of such shares. Mr. Gersten may be deemed to
hold sole investment and voting power over such shares.
(3) The address of Compare Generiks, Inc. is 300 Oser Avenue, Hauppauge, New
York 11788.
(4) Does not include an option to purchase 100,000 shares of Common Stock
delivery of which will be made to Mr. Simon after the Effective Date.
(5) The address of Steven F. Wasserman is 950 Third Avenue, New York, NY 10022.
Mr. Wasserman is a partner in the firm of Bernstein & Wasserman, LLP, which
firm is passing upon certain legal matters in connection with this Offering
for the Company.
(6) Includes 5,000,000 shares of Preferred Stock owned by PMF, Inc. PMF, Inc.
granted a voting trust on May 1, 1996 for a period of five (5) years to
Lawrence D. Simon, Reginald Spinello and Dr. Durchslag. In the event of any
disagreement a majority decides how to vote. Accordingly, each of them may
be deemed to hold voting power over such shares.
52
<PAGE>
CERTAIN TRANSACTIONS
On April 24, 1996, the Company was formed in the State of Delaware.
On April 24, 1996, PMF, Inc., a company wholly-owned and controlled by
Barry Gersten, an unrelated party, acquired (i) (a) 3,000,000 shares of Common
Stock of the Company, par value $.0001 per share, and (b) 3,000,000 Class A
Warrants for a cash consideration of $50,000, and (ii) 5,000,000 shares of
Series A Preferred Stock of the Company, par value $.0001, per share, for a cash
consideration of $5,000. The Series A Preferred Stock has no dividend rights and
has a liquidation right of $.02 per share. Each share of Series A Preferred
Stock shall be entitled to one (1) vote per share on all matters presented to
stockholders of the Company. See "Description of Securities." Each Class A
Warrant entitles the holder to purchase one (1) share of Common Stock of the
Company at the initial public offering price, commencing one (1) year after the
Effective Date of the Company's initial public offering.
On May 1, 1996 PMF, Inc. granted a voting trust for a period of five (5)
years to Lawrence D. Simon, Reginald Spinello and Dr. Daniel Durchslag over the
5,000,000 Preferred Shares owned by PMF, Inc. The voting trust provides for the
majority decision to control the vote in the event of any disagreement between
the trustees.
As of May 1, 1996, the Company entered into a one (1) year employment
agreement with Lawrence D. Simon, pursuant to which Mr. Simon serves as the
Company's President. The agreement provides for Mr. Simon to receive a salary of
$75,000 per annum. In addition, Mr. Simon has been granted the right to the
delivery, after the Effective Date hereof, of an option to purchase 100,000
shares of the outstanding Common Stock of the Company exercisable (i) at an
exercise price equal to the public offering price of the shares of Common Stock
of the Company offered for sale in the Offering commencing one year from the
Effective Date of the Offering, and (ii) only at a time when Mr. Simon is
employed by the Company. The agreement can be terminated by the Company, with or
without cause, upon ninety (90) days' notice and contains prohibitions on the
disclosure of confidential information and covenants not to compete with the
Company which survive any such termination for a period of twenty four (24)
months.
On May 14, 1996, the Company agreed to supply PDK Labs Inc. with vitamins
and dietary supplements in bulk tablet form at the Company's cost plus fifteen
percent (15%) pursuant to a supply agreement between the Company and PDK Labs
Inc. (the "PDK Agreement"). PDK Labs Inc. agreed to purchase products having a
minimum aggregate sales price of $2,500,000 per annum for each year during the
term of the PDK Agreement. In the event that PDK Labs Inc. fails to purchase the
minimum amount of products in any year, the Company will be paid $100,000 as
liquidated damages (pro-rated by reference to the percentage of said minimum
amount purchased during the related year). The term of the PDK
52
<PAGE>
Agreement is for a period of three (3) years, automatically renewable for
successive one (1) year terms. See "Risk Factors - Conflicts of Interest."
On May 31, 1996, the Company agreed to exclusively supply Compare Generiks,
Inc. with vitamins in bulk tablet form (other than any vitamins sold under the
"Energex" trade mark or as part of the "Energex" product line) at the Company's
cost plus fifteen percent (15%) pursuant to a supply agreement between the
Company and Compare Generiks, Inc. (the "Compare Agreement"). The term of the
Compare Agreement is for a period of three (3) years, automatically renewable
for successive one (1) year terms. See "Risk Factors Conflicts of Interest."
On May 31, 1996, Compare Generiks, Inc., acquired 500,000 shares of Common
Stock of the Company (14.29% of the issued and outstanding shares of Common
Stock prior to the Offering), par value $.0001 per share (i) for a cash
consideration of $100,000, and (ii) in consideration of the issuance of 200,000
shares of common stock of Compare Generiks, Inc. In June, 1996, a registration
statement filed by Compare Generiks, Inc. was declared effective by the
Securities and Exchange Commission registering the 200,000 shares of common
stock owned by the Company.
On May 31, 1996, the Company entered into a revolving credit agreement with
Dune Holdings, Inc., ("Dune") one of the Bridge Lenders, pursuant to which the
Company can borrow up to $200,000 for a period of twenty four (24) months at an
interest rate of fifteen percent (15%) interest per annum. The Company paid Dune
a commitment fee of $2,000 (one percent (1%) of the maximum amount available
under the revolving credit agreement). As of June 30, 1996, the Company had not
borrowed any funds pursuant to the revolving credit agreement.
In May, 1996, the Company borrowed an aggregate of $300,000 from two (2)
unaffiliated lenders, Dune Holdings, Inc. and Clinthill Investments Ltd. (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Notes bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 or (ii) the closing of an
initial underwritten public offering of the Company's securities. The Company
intends to use a portion of the proceeds of this Offering to repay the Bridge
Lenders. See "Use of Proceeds." In addition, each Convertible Bridge Note
converts into a number of Class A Warrants equal to ten (10) times the principal
amount of such Convertible Bridge Note upon the consummation of this Offering.
The Company entered into the bridge financing transactions because it required
additional financing and no other sources of financing were available to the
Company at that time. Further, the Company agreed to register the resale of the
Class A Warrants issuable upon conversion of the Convertible Bridge Notes, as
well as the shares of
54
<PAGE>
Common Stock issuable upon the exercise of the Class A Warrants in the first
registration statement filed by the Company following the date of the loan.
Therefore, the Registration Statement, of which this Prospectus forms a part,
relates to the resale of the 1,000,000 Class A Warrants issuable upon conversion
of the Convertible Bridge Notes and 1,000,000 shares of Common Stock issuable
upon exercise of the Class A Warrants. See "Selling Securityholders" "Bridge
Financings" and "Underwriting."
In June, 1996, the Company borrowed $200,000 from PMF, Inc., the Company's
founder, at an annual interest rate of eight percent (8%) pursuant to a
promissory note dated June 26, 1996, repayable on June 25, 1998.
55
<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 600,000 shares of Common Stock, par value $.0001
per share and 600,000 Class A Warrants.
Common Stock
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
of which 3,500,000 shares will be issued and outstanding as of the date of this
Prospectus. All of the issued and outstanding shares of Common Stock will be
fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See "Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one (1) vote for
each share held at all stockholders' meetings including the annual meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 10,000,000 shares of
"blank check" Preferred Stock, whereby the Board of Directors of the Company
shall have the authority, without further action by the holders of the
outstanding Common Stock, to issue shares of Preferred Stock from time to time
in one or more classes or series, to fix the number of shares constituting any
class or series and the stated value thereof, if different from the par value,
and to fix the term of any such series or class, including dividend rights,
dividend rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the redemption price and the
liquidation preference of such class or series. As of the date of this
Prospectus, there are 5,000,000 shares of Series A Preferred Stock issued and
outstanding. The Company has agreed with the Underwriters that it will not issue
any additional shares of preferred stock for a period of twenty four (24) months
from the date of this Prospectus without the prior written consent of the
Underwriter.
56
<PAGE>
Series A Preferred Stock
Designation and Amount; Par Value. The shares of such series are designated
as Series A Preferred Stock and the number of shares constituting such series is
5,000,000, 5,000,000 of which are issued and outstanding prior to the Effective
Date of the Offering. The Series A Preferred Stock has $.0001 par value per
share.
Dividends. Holders of the Series A Preferred Stock do not have any right to
the payment of any dividend.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the shares
of Series A Preferred Stock shall have a liquidation preference in the aggregate
amount of $100,000 or $.02 per share of Series A Preferred Stock.
Voting Rights. Each holder of Series A Preferred Stock shall be entitled to
one (1) vote per share on all matters presented to the stockholders of the
Company.
Rank. The shares of Series A Preferred Stock rank senior to all series of
preferred stock and the Common Stock in all respects.
Class A Warrants
Each Class A Warrant entitles the holder to purchase one (1) share of
Common Stock at a price of $5.00 per share for a period of four (4) years
commencing one (1) year from the Effective Date of this Offering. As of the date
of this Prospectus, there are 3,000,000 Class A Warrants issued and outstanding.
Each Class A Warrant is redeemable by the Company for $.05 per Class A Warrant,
at any time after ____, 1997, upon thirty (30) days' prior written notice, if
the closing price of the Common Stock, as reported by the principal exchange on
which the Common Stock is traded, The Nasdaq Small Cap Market or the National
Quotation Bureau Incorporated, as the case may be, exceeds $10.00 per share for
twenty (20) consecutive trading days prior to the date of the notice of
redemption. Upon thirty (30) days' written notice to all holders of Class A
Warrants, the Company shall have the right, subject to compliance with Rule
13E-4 under the Securities Exchange Act of 1934 and the filing of Schedule 13E-4
and, if required, a post-effective amendment to this registration statement, to
reduce the exercise price and/or extend the term of the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a
57
<PAGE>
holder of Class A Warrant certificates resides, such holder might not be
permitted to exercise the Warrants. See "Risk Factors - Current Prospectus and
State Blue Sky Registration in Connection with the Exercise of the Warrants."
Each Class A Warrant may be exercised by surrendering the Warrant
certificate, with the form of election to purchase on the reverse side of the
Class A Warrant certificate properly completed and executed, together with
payment of the exercise price, or $5.00 per share, to the Transfer Agent. The
Class A Warrants may be exercised in whole or from time to time in part. If less
than all of the Class A Warrants evidenced by a Warrant certificate are
exercised, a new Class A Warrant certificate will be issued for the remaining
number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the Class A Warrants will result in the dilution
of the then book value of the Common Stock of the Company held by the public
investors and would result in a dilution of their percentage ownership of the
Company.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.
Limitation on Liability of Directors
In connection with the Offering, the Underwriters have agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the registration statement
58
<PAGE>
or the Prospectus or any amendment or supplement thereto if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Underwriters specifically for or in connection with the
preparation of the registration statement, the prospectus, or any such amendment
or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
59
<PAGE>
Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the "Transfer Agent").
60
<PAGE>
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
covers the resale of (i) (a) 1,000,000 Class A Warrants issuable upon conversion
of the Convertible Bridge Notes, and (b) 1,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants and (ii) (a) 2,000,000 shares of
Common Stock, (b) 2,000,000 Class A Warrants, and (c) 2,000,000 shares of Common
Stock issuable upon exercise of the Class A Warrants all of which are held by
PMF, Inc. ("PMF") (hereinafter collectively referred to as the "Selling
Securityholders"). The Selling Securityholders cannot resell any of the
securities owned by them until the Over-Allotment Option has either been
exercised in full or terminated. PMF is wholly-owned and controlled by Barry
Gersten, an unrelated party. PMF owned 85.7% of the outstanding shares of Common
Stock of the Company prior to the Offering and the shares being registered on
behalf of PMF constitute 57.1% of such outstanding shares prior to the Offering
and 48.8% of the outstanding shares of Common Stock upon completion of the
Offering. The Company will not receive any of the proceeds on the resale of the
securities by the Selling Securityholders. The resale of the securities of the
Selling Securityholders are subject to Prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Act"). Sales of
such securities or the potential of such sales at any time may have an adverse
effect on the market prices of the securities offered hereby. See "Risk Factors
- - Shares Eligible for Future Sale May Adversely Affect the Market."
The securities offered hereby may be sold from time to time directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares and/or
warrants as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders in connection with such sales of securities.
The securities offered by the Selling Securityholders may be sold by one or more
of the following methods, without limitations: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares and/or warrants as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers, and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Securityholders may arrange for other brokers or dealers to participate.
The Selling Securityholders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Act with respect to
the securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
61
<PAGE>
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares and/or warrants being offered and the
terms of the Offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any Underwriters for sales
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
Resales of securities by the Selling Securityholder or even the potential
of such resales would likely have an adverse effect on the market prices of the
securities offered hereby.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriters, as set forth below and for whom VTR
Capital is acting as the Representative, have agreed to purchase from the
Company 600,000 shares of Common Stock and 600,000 Class A Warrants offered
hereby from the Company on a "firm commitment" basis, if any are purchased. The
Underwriters have advised the Company that they propose to offer the Shares to
the public at $5.00 per Share and the Class A Warrants at $0.10 per Class A
Warrant as set forth on the cover page of this Prospectus and that they may
allow to certain dealers who are NASD members concessions not to exceed $___ per
Share and $___ per Class A Warrant, of which not in excess of $___ per Share and
$__ per Class A Warrant may be reallowed to other dealers who are members of the
NASD. After the initial public offering, the public offering price, concession
and reallowance may be changed by the Underwriters.
Underwriter Number of Shares Number of Warrants
- ----------- ---------------- ------------------
VTR Capital, Inc.......... ---- ----
..........
..........
The public offering price of the Shares and Class A Warrants and the
exercise price and other terms of the Class A Warrants were arbitrarily
determined by negotiations between the Company and the Representative and do not
necessarily relate to the assets, book value or results of operations of the
Company or any other established criteria of value.
The Company has granted an option to the Underwriters, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 90,000 additional Shares and 90,000 additional Class A Warrants at
the Offering price, less the underwriting discount, to cover over-allotments, if
any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities arising under the Act. Insofar
as indemnification for liabilities arising under the Act may be provided to
officers, directors or persons controlling the Company, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriters a non-accountable expense
allowance of three percent (3%) of the aggregate Offering price of the Shares
and Class A Warrants offered hereby, including any Shares and Class A Warrants
purchased pursuant to the Over-Allotment Option.
The Company has agreed to sell to the Underwriters, or their designees, for
an
63
<PAGE>
aggregate purchase price of $60, an option (the "Underwriters' Option") to
purchase up to an aggregate of 60,000 Shares and 60,000 Class A Warrants. The
Underwriters' Option shall be exercisable during a four (4) year period
commencing one (1) year from the Effective Date. The Underwriters' Option may
not be assigned, transferred, sold or hypothecated by the Underwriters until
twelve (12) months after the Effective Date of this Prospectus, except to
officers of the Representative or the Underwriters or to selling group members
or their officers or partners in this Offering. Any profits realized upon the
sale of the Shares and Class A Warrants issuable upon exercise of the
Underwriters' Option may be deemed to be additional underwriting compensation.
The exercise price of the Shares and Class A Warrants issuable upon exercise of
the Underwriters' Option during the period of exercisability shall be one
hundred twenty percent (120%) of the initial public offering price of the Shares
and Class A Warrants. The exercise of the Underwriters' Option and the number of
Shares and Class A Warrants covered thereby are subject to adjustment in certain
events to prevent dilution. For the life of the Underwriters' Option, the
holders thereof are given, at a nominal cost, the opportunity to profit from a
rise in the market price of the Company's Common Stock and Class A Warrants with
a resulting dilution in the interest of other stockholders. The Company may find
it more difficult to raise capital for its business if the need should arise
while the Underwriters' Option is outstanding. At any time when the holders of
the Underwriters' Option might be expected to exercise it, the Company would
probably be able to obtain additional capital on more favorable terms.
If the Company enters into a transaction (including a merger, joint
venture, equity financing, debt financing, or the acquisition of another entity)
introduced to the Company by the Representative, the Company has agreed to pay
the Representative a finder's fee equal to five percent (5%) of the first
$4,000,000 of consideration involved in the transaction, ranging in $1,000,000
increments down to two percent (2%) of the excess, if any, over $6,000,000.
Upon the closing of the sale of the Shares and Class A Warrants offered
hereby, the Company will enter into a two (2) year financial advisory and
investment banking agreement with the Representative, pursuant to which the
Company will be obligated to pay the Representative $72,000 in advance upon the
closing of the Offering, for financial and investment advisory services to the
Company.
The Company has agreed with the Representative that, commencing one (1)
year from the date hereof the Company will pay to the Representative a warrant
solicitation fee (the "Warrant Solicitation Fee") equal to four percent (4%) of
the exercise price of the Class A Warrants exercised, a portion of which may be
re-allowed to any dealer who solicited the exercise to the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission. Such Warrant Solicitation Fee will be paid to the Representative
if (a) the market price of the Common Stock on the date that any Class A
Warrants is exercised is greater than the exercise price of the Class A Warrant;
(b) the exercise of such Class A Warrant was solicited by the Representative or
other NASD members; (c) prior specific written approval for exercise is received
from the customer if the
64
<PAGE>
Class A Warrant is held in a discretionary account; (d) disclosure of this
compensation agreement is made prior to or upon the exercise of such Class A
Warrant; (e) solicitation of the exercise is not in violation of Rule 10b-6 of
the Exchange Act; and (f) solicitation of the exercise is in compliance with
NASD Notice to Member 81-38. In addition, unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Representative will be
prohibited from engaging in any market making activities or solicited brokerage
activities with respect to the Company's securities for the period from nine (9)
business days prior to any solicitation of the exercise of any Class A Warrant
or nine (9) business days prior to the exercise of any Class A Warrant based on
a prior solicitation until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative may have to receive such a fee for the exercise of Class A
Warrants following such solicitation. As a result, the Representative may be
unable to continue to provide a market for the Company's securities during that
certain period while the Class A Warrants are exercisable. See "Risk Factors -
Lack of Prior Market for Common Stock and Class A Warrants; No Assurance of
Public Trading Market."
The Representative has limited experience as an underwriter of public
offerings. There can be no assurance that the Representative's limited
experience as an underwriter of public offerings will not adversely affect the
proposed public offering of the Shares and Class A Warrants the subsequent
development of a trading market, if any, or the market for and liquidity of the
Company's securities. Therefore, purchasers of the securities offered hereby may
suffer a lack of liquidity in their investment or a material diminution of the
value of their investment.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Underwriters' Option which have been filed as exhibits hereto.
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the Common
Stock and the Class A Warrants. The initial public offering price for the Shares
and Class A Warrants and the exercise price of the Class A Warrants have been
determined by negotiations between the Company and the Representative. Among the
factors considered in the negotiations were the market price of the Company's
Common Stock, an analysis of the areas of activity in which the Company is
engaged, the present state of the Company's business, the Company's financial
condition, the Company's prospects, an assessment of management, the general
condition of the securities market at the time of this Offering and the demand
for similar securities of comparable companies. The public offering price of the
Shares and Class A Warrants and the exercise price of the Class A Warrants does
not necessarily bear any relationship to assets, earnings, book value or other
criteria of value applicable to the Company.
The Company anticipates that the Common Stock and the Class A Warrants will
be listed for quotation on The Nasdaq Small Cap Market under the symbols, SUPP
and SUPW,
65
<PAGE>
respectively, but there can be no assurances that an active trading market will
develop, even if the securities are accepted for quotation. The Underwriters
intend to make a market in all of the publicly-traded securities of the Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP, has served, and continues to serve, as counsel to
the Underwriters in matters unrelated to this Offering. Certain legal matters
will be passed upon for the Underwriters by Lester Morse, P.C., 111 Great Neck
Road, Great Neck, N.Y. 11021. Steven F. Wasserman, a partner at Bernstein &
Wasserman, LLP, is one of the Directors of the Company. See "Management" and
"Principal Stockholders."
EXPERTS
Certain of the financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been examined by Holtz Rubenstein &
Co., LLP, independent certified public accountants, whose reports contain an
explanatory paragraph regarding uncertainties as to the ability of the Company
to continue as a going concern, which appear elsewhere herein and in the
Registration Statement.
ADDITIONAL INFORMATION
This Prospectus constitutes part of a Registration Statement on Form SB-2
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act and omits certain information contained
in the Registration Statement. Reference is hereby made to the Registration
Statement and to its exhibits for further information with respect to the
Company and the Common Stock and Class A Warrants offered hereby. Statements
contained herein concerning provisions of documents are necessarily summaries of
such documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
The Registration Statement, including the exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at: 450 Fifth Street, Washington, D.C. 20549; and at the offices of
the Commission located at 7 World Trade Center, New York, NY 10048; and copies
of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, Washington, D.C. 20549 at prescribed rates.
66
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance sheet as of June 30, 1996 F-2
Statement of earnings for the period April 24, 1996
(inception) to June 30, 1996 F-3
Statement of stockholders' equity for the period
April 24, 1996 (inception) to June 30, 1996 F-4
Statement of cash flows for the period April 24, 1996
(inception) to June 30, 1996 F-5
Notes to financial statements F-6 - F-11
<PAGE>
[LETTERHEAD OF HOLTZ RUBENSTEIN & CO., LLP]
Independent Auditors' Report
Board of Directors and Stockholders
Superior Supplements, Inc.
Hauppauge, New York
We have audited the balance sheet of Superior Supplements, Inc. (a development
stage company) as of June 30, 1996, and the related statements of earnings,
stockholders' equity and cash flows for the period April 24, 1996 (inception) to
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Superior Supplements, Inc. as of
June 30, 1996 and the results of its operations and its cash flows for the
period April 24, 1996 (inception) to June 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, Superior
Supplements, Inc. is in the development stage and the Company's ability to
continue in the normal course of business is dependent upon successful
completion of its planned public offering of equity securities to raise capital
and the success of future operations. These uncertainties raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
/S/ HOLTZ RUBENSTEIN & CO., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
July 11, 1996
F-1
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 594,175
Accounts receivable (Note 10) 392,247
Inventory 99,586
-----------
Total current assets 1,086,008
PROPERTY AND EQUIPMENT, net (Note 3) 341,328
INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES (Note 7) 1,067,000
DEFERRED TAX ASSET (Note 8) 33,700
OTHER ASSETS, net 37,501
-----------
$ 2,565,537
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bridge notes payable (Note 4) $ 300,000
Accounts payable and accrued expenses 761,448
Income taxes payable (Note 8) 24,000
-----------
Total current liabilities 1,085,448
-----------
NOTE PAYABLE (Note 5) 200,000
-----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY: (Note 7)
Common stock, $.0001 par value; authorized 25,000,000 shares;
3,500,000 issued and outstanding 350
Preferred stock, $.0001 par value; authorized 10,000,000
shares; 5,000,000 shares issued and outstanding 500
Additional paid-in capital 1,304,150
Unrealized loss on available-for-sale investments (60,100)
Retained earnings during the development stage 35,189
-----------
1,280,089
-----------
$ 2,565,537
===========
See notes to financial statements
F-2
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENT OF EARNINGS
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
REVENUE (Note 10) $ 857,398
----------
COSTS AND EXPENSES:
Cost of sales 738,040
General and administrative (Note 9) 70,969
----------
809,009
----------
EARNINGS FROM OPERATIONS BEFORE INCOME TAX 48,389
PROVISION FOR INCOME TAX (Note 8) 13,200
----------
NET INCOME $ 35,189
==========
NET INCOME PER SHARE (Note 2) $ .01
==========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Note 2) 3,500,000
==========
See notes to financial statements
F-3
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Note 7)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Retained
25,000,000 Shares 10,000,000 Shares Unrealized Earnings
$.0001 Par Value $.0001 Par Value Loss on Accumulated
-------------------- ------------------- Additional Investment During the
Par Par Paid-in Available- Development
Shares Value Shares Value Capital for-Sale Stage Total
----------- ------ --------- ------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock
for cash at inception 3,000,000 $ 300 5,000,000 $ 500 $ 54,200 $ -- $ -- $ 55,000
Issuance of stock for cash
and stock of Compare
Generik, Inc. 500,000 50 -- -- 1,249,950 -- -- 1,250,000
Unrealized loss on investment
available-for-sale -- -- -- -- -- (60,100) -- (60,100)
Net income -- -- -- -- -- -- 35,189 35,189
----------- ------- ----------- ------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 3,500,000 $ 350 5,000,000 $ 500 $ 1,304,150 $ (60,100) $ 35,189 $ 1,280,089
=========== ======= =========== ======= =========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,189
---------
Adjustments to reconcile net income to net
cash provided by operations:
Deferred income taxes (10,800)
Amortization 1,666
Increase in assets:
Accounts receivable (392,247)
Inventory (99,586)
Other assets (39,167)
Increase in liabilities:
Accounts payable and accrued expenses 761,448
Taxes payable 24,000
---------
Total adjustments 245,314
---------
Net cash provided by operating activities 280,503
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (341,328)
---------
Net cash from investing activities (341,328)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 155,000
Proceeds from notes payable 200,000
Proceeds from bridge notes payable 300,000
---------
Net cash provided by financing activities 655,000
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 594,175
CASH AND CASH EQUIVALENTS, beginning of period --
---------
CASH AND CASH EQUIVALENTS, end of period $ 594,175
=========
See notes to financial statements
F-5
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
1. Organization and Nature of Operations:
Superior Supplements, Inc. (the "Company") is a Delaware Corporation which
was formed on April 24, 1996. It is the Company's intention to be engaged in the
development, manufacture, marketing and sale of dietary supplements including
vitamins, minerals, herbs and specialty nutritional supplements, in bulk tablet,
capsule and powder form. Prior to the setting up of its manufacturing facility,
the Company acted as a wholesaler for these products. The Company's fiscal year
end is June 30.
The Company is in the development stage, as defined in Financial Accounting
Standards Board Statement No. 7. Through June 30, 1996, the Company has devoted
its efforts to various organizational activities, including developing its
business strategy, raising capital, and undertaking preliminary activities for
the commencement of operations. As of June 30, 1996, cumulation from date of
inception financial data as required by FASB No. 7 would be identical to the
amount presented at such date; accordingly, this information has not been shown.
As reflected in the accompanying financial statements, the Company has
incurred cumulative earnings of approximately $35,000. The Company has entered
into a letter of intent with an underwriter for the public sale of the Company's
securities (Note 7e). Management is of the opinion that the proceeds of this
proposed offering will be sufficient to meet the working capital needs of the
Company for the twelve-month period following the successful completion of this
proposed offering, including the payment of certain indebtedness of the Company.
There can be no assurance that additional financing will not be required to
successfully penetrate the market and for continued operations. If additional
financing is required, there is no assurance that such funds will be available
to the Company. In addition, there is no assurance that the proposed public
offering will occur.
The above factors raise substantial doubt about the ability of the Company
to continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of the
recorded asset amounts and classifications of liabilities that might result
should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
a. Inventory
Inventory, consisting of finished goods, are valued at lower of cost
(first-in, first-out method) or market.
b. Depreciation
Depreciation is computed on the straight-line method over the useful lives
of the related assets (5-10 years). Leasehold improvements are amortized over
their expected useful lives.
F-6
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
c. Income taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
d. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
e. Net Income Per Share
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin, all common stock
issued by the Company during the twelve months preceding the offering date at
prices below the offering price have been included in the calculation of
weighted average shares outstanding as if they were outstanding for the entire
period.
f. 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.
g. Concentration of credit risk
Financial instruments which potentially expose the Company to credit risk,
as defined by Statement of Financial Accounting Standard No. 105 ("FAS 105"),
consists primarily of trade accounts receivable. Wholesale distributors of
dietary supplements and over-the-counter pharmaceuticals account for all of the
Company's trade receivables. The risk associated with this concentration is
limited due to their geographic dispersion.
h. Accounting for stock-based compensation
The Company accounts for its stock-based compensation costs using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25 and
will provide pro forma disclosures of net income and earnings per share as if
the fair value-based method prescribed by Financial Accounting Standards Board
Statement No. 123 ("FASB") had been applied in measuring compensation expense.
3. Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows:
Equipment $277,832
Leasehold improvements 63,496
--------
$341,328
========
No depreciation has been recorded as of June 30, 1996 as none of the
productive equipment has been put into operation.
F-7
<PAGE>
4. Bridge Notes Payable:
On May 31, 1996 the Company borrowed $300,000 from two unrelated parties at
8% due and payable upon the earlier of (i) April 30, 1997 or (ii) the completion
of a public offering of the Company's securities. In exchange for making the
loans to the Company each lender received a "Principal Bridge Note" and a
"Convertible Bridge Note." The Convertible Bridge Notes, which in the aggregate
equal $100,000, contain conversion features which entitles the holder to convert
the note into a 1,000,000 Class A Warrants. Each Class A Warrant is exercisable
into one share of common stock at an exercise price equal to the initial public
offering price commencing one (1) year after the effective date of the Company's
initial public offering.
The Company has agreed to register the related Warrants as well as the
underlying shares of common stock issuable upon conversion of the Convertible
Bridge Notes.
5. Note Payable:
On June 26, 1996, the Company borrowed $200,000 from PMF, Inc., the
Company's founder. This note bears interest at 8% per annum. Principal and
accrued interest is due on June 25, 1998.
6. Revolving Credit Agreement:
In May 1996, the Company entered into a revolving credit agreement with
Dune Holdings, Inc. ("Dune"), one of the Company's Bridge Lenders, pursuant to
which the Company can borrow up to $200,000 for a period of twenty four (24)
months at an interest rate of fifteen percent (15%) per annum. As of June 30,
1996, the Company had no outstanding balance.
7. Stockholders' Equity:
a. Capitalization
Pursuant to the Company's certificate of incorporation, the Company is
authorized to issue 25,000,000 shares of common stock and 10,000,000 shares of
preferred stock. All stock has a $.0001 par value. Each share of common and
preferred has one vote in all matters.
b. Initial capitalization
In April 1996, the Company issued 3,000,000 shares of common stock,
3,000,000 Class A Warrants and 5,000,000 shares of preferred stock for $55,000
("Founders' Stock"). The preferred shares, issued in April 1996, are designated
as Series A Preferred Shares. The Board of Directors has the authority to issue
preferred stock in one or more series and to fix the rights and other terms. The
Series A Preferred Shares rank senior to all series of preferred and common
stock, do not have any right to the payment of any dividend, and in the event of
any voluntary or involuntary liquidation of the Company are entitled to $.02 per
share.
Each Class A Warrant entitles the holder to purchase one (1) share of
common stock of the Company at the initial public offering price, commencing one
(1) year after the effective date of the Company's initial public offering.
F-8
<PAGE>
7. Stockholders' Equity: (Cont'd)
c. Issuance of stock for stock and cash
On May 31, 1996, Compare Generiks, Inc. ("Compare") (see Note 9c) acquired
500,000 shares of common stock of the Company, for $100,000 and the issuance of
200,000 shares of common stock of Compare Generiks, Inc. The value of the shares
($1,150,000) issued in connection with this transaction have been determined
using a fair value of $5.75 per share representing approximately two-thirds of
the market value of Compare's stock at May 31, 1996. As of June 30, 1996,
available-for-sale investments were composed of the aforementioned Compare
shares with a historical cost basis of $1,150,000 and an approximate market
value of $1,067,000. Unrealized loss, which is reported as a part of
stockholders' equity, was approximately $60,100 as of June 30, 1996, net of
deferred income taxes of $22,900. In June 1996, Compare registered the
aforementioned 200,000 shares of common stock owned by the Company.
d. Reserved shares
At June 30, 1996, the Company has 6,100,000 shares of common stock reserved
for future issuances.
e. Proposed public offering
The Company intends to file a registration statement on Form SB-2 in
connection with a public offering of its securities. The proposed transaction
would be in the form of a unit offering consisting of two shares of common stock
and one Class A Warrant. The unit offering price will be dependent upon market
conditions on the effective date. Accordingly, the extent to which this
transaction will be successful, or if it will be successful at all, cannot be
ascertained prior to its completion.
f. Stock option plan
The Company has adopted a Stock Option Plan (the "Plan") covering 2,000,000
shares of common stock of the Company. Options under the Plan are granted at
terms set by the Board of Directors at the time of issuance. To date, no options
have been granted under the Plan.
8. Income Taxes:
Income tax provision (benefit) consists of the following:
Federal:
Current $ 14,000
Deferred (6,350)
--------
7,650
--------
State:
Current 10,000
Deferred (4,450)
--------
5,550
--------
$ 13,200
========
Deferred income taxes are provided as a result of transactions being
reported in different periods for financial accounting and income tax purposes.
F-9
<PAGE>
8. Income Taxes: (Cont'd)
The difference between the corporation's effective income tax rate and the
United States Statutory rate is reconciled below:
United States statutory rate 34.0%
State income taxes, net of Federal income tax benefit 7.0
Effect of graduated rates (13.7)
------
27.3%
======
9. Commitments:
a. Employment agreement
On May 1, 1996 the Company entered into a one year employment agreement
with its president. The agreement provides for an aggregate annual salary of
$75,000 and an option to purchase 100,000 shares of the outstanding common stock
of the Company exercisable at an exercise price equal to the public offering
price commencing one (1) year after the effective date of the Company's initial
public offering. The Company accounts for its stock-based compensation costs
under APB Opinion No. 25. Accordingly, no compensation cost has been recognized
as of June 30, 1996. Had compensation cost been determined on the basis of FASB
No. 123, net income and earnings per share would have been as follows:
Net income:
As reported $35,189
=======
Pro forma $32,604
=======
Earnings per share:
As reported $.01
====
Pro forma $.01
====
b. Lease
On May 1, 1996 the Company entered into a 30-month lease agreement for its
office and warehouse space. The lease provides for no monthly rental payments
through July 1996, $23,000 per month beginning August 1996 to May 1996, $19,166
per month from the June 1997 to October 14, 1997 and $20,833 per month from
October 15, 1997 to October 14, 1998. According, the Company has given effect to
such rent concessions and has accrued rent expense aggregating $38,500 as of
June 30, 1996 using the straight-line basis over the term of the lease.
c. Supply agreements
In May, 1996 the Company entered into two separate three year "Supply
Agreements" with PDK and Compare, which provide for the Company to supply PDK
and Compare certain products at a price equal to material cost plus 15%. PDK
agreed to purchase products having a minimum aggregate sales price of $2,500,000
per year during the term of the agreement. In the event that PDK fails to
purchase the minimum amount of products in any year, the Company will be paid up
to $100,000, on a pro-rata basis, as liquidated damages.
10. Major Customer:
Sales to one major customer approximated 96% of revenue for the period
ended June 30, 1996. Amounts due from this customer included in accounts
receivable approximated $357,087 at June 30, 1996.
F-10
<PAGE>
11. Fair Value of Financial Instruments:
The methods and assumptions used to estimate the value of the following
classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash,
current receivables and payables and certain other short-term financial
instruments approximate their fair value.
Long-Term Debt: The fair value of the Company's long-term debt is estimated
using current incremental borrowing rates for similar types of borrowing
arrangements.
The carrying amount and fair value of the Company's financial instruments
are as follows:
June 30, 1996
-----------------------------
Carrying Fair
Amount Value
---------- ----------
Cash and cash equivalents $ 594,175 $ 594,175
Accounts receivable 620,160 620,160
Investment available-for-sale 1,150,000 1,150,000
Notes payable 500,000 500,000
Other current liabilities 1,013,361 1,013,361
F-11
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
----------
TABLE OF CONTENTS
Page
----
Available Information.........
Prospectus Summary............
The Company...................
The Offering..................
Summary Financial
Information.................
Risk Factors..................
Use of Proceeds...............
Dilution......................
Capitalization................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Securityholders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
----------
Until ___, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
600,000 Shares of Common Stock, par value .0001
per share
and
600,000 Class A Redeemable Common Stock
Purchase Warrants
SUPERIOR SUPPLEMENTS, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
_________, 1996
----------
<PAGE>
SUBJECT TO COMPLETION, DATED __________, 1996
ALTERNATE
PROSPECTUS
SUPERIOR SUPPLEMENTS, INC.
2,000,000 shares of Common Stock
3,000,000 Class A Warrants
----------
This Prospectus relates to the resale of (a) (i) 1,000,000 Class A
Redeemable Common Stock Purchase Warrants (the "Class A Warrants") issuable upon
conversion of certain Convertible Bridge Notes held by certain unaffiliated
bridge lenders to the Company (the "Bridge Lenders"), and (ii) 1,000,000 shares
of Common Stock issuable upon exercise of the Class A Warrants and (b) (i)
2,000,000 shares of Common Stock, (ii) 2,000,000 Class A Warrants, and (iii)
2,000,000 shares of Common Stock issuable upon exercise of the Class A Warrants
all of which are held by PMF, Inc., a company wholly-owned and controlled by
Barry Gersten, an unrelated party ("PMF"). The Bridge Lenders and PMF are
hereinafter collectively referred to as the "Selling Securityholders." The
Company will not receive any of the proceeds on the resale of the securities by
the Selling Securityholders. PMF owned 85.7% of the outstanding shares of Common
Stock of the Company prior to the Offering. The shares being registered on
behalf of PMF constitute 57.1% of such outstanding shares prior to the Offering
and 48.8% of the outstanding shares of Common Stock upon completion of the
Offering. The resale of the securities of the Selling Securityholders are
subject to Prospectus delivery and other requirements of the Securities Act of
1933, as amended (the "Act"). Sales of such securities or the potential of such
sales at any time may have an adverse effect on the market prices of the
securities offered hereby. See "Selling Securityholders" and "Risk Factors -
Shares Eligible for Future Sale May Adversely Affect the Market."
The Class A Warrants shall be exercisable commencing one (1) year after the
date hereof (the "Effective Date"). Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock at a price of $5.00 per share during the
four (4) year period commencing one (1) year from the Effective Date. The Class
A Warrants are redeemable by the Company for $.05 per Warrant, at any time after
, 1997, upon thirty (30) days' prior written notice, if the closing bid price of
the Common Stock, as reported by the principal exchange on which the Common
Stock is traded, The Nasdaq Small Cap Market or the National Quotation Bureau
Incorporated, as the case may be, equals or exceeds $____ per share, for any
twenty (20) consecutive trading days ending five (5) days prior to the date of
the notice of redemption. Upon thirty (30) days' written notice to all holders
of the Class A Warrants, the Company shall have the right to reduce the exercise
price and/or extend the term of the Class A Warrants. See "Description of
Securities."
<PAGE>
The Company has applied for inclusion of the Common Stock and the Class A
Warrants on The Nasdaq Small Cap Market, although there can be no assurances
that an active trading market will develop even if the securities are accepted
for quotation. Additionally, even if the Company's securities are accepted for
quotation and active trading develops, the Company is still required to maintain
certain minimum criteria established by The Nasdaq Small Cap Market, of which
there can be no assurance. See "Risk Factors - Lack of Prior Market for Common
Stock and Class A Warrants; No Assurance of Public Trading Market."
The Common Stock offered by this Prospectus may be sold from time to time
by the Selling Securityholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders. The
distribution of the securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with sales of such securities.
The Selling Securityholders and intermediaries through whom such securities
may be sold may be deemed "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Act"), with respect to the securities offered and
any profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Act.
The Company will not receive any of the proceeds from the resale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "Selling Securityholders."
----------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. FOR A DISCUSSION OF CERTAIN MATERIAL RISKS SEE "RISK
FACTORS" BEGINNING ON PAGE 14 AND "DILUTION" BEGINNING ON PAGE 28.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________, 1996
Alt - ii
<PAGE>
ALTERNATE
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the Act with
respect to an underwritten public offering (the "Offering") of 600,000 shares of
Common Stock and 600,000 Class A Warrants to purchase an additional 600,000
shares of Common Stock (without giving effect to the Over-Allotment Option
granted to the Underwriters of the Offering) by the Company was declared
effective by the Securities and Exchange Commission ("SEC"), and the Company
commenced the sale of shares of Common Stock and Class A Warrants offered
thereby. Sales of securities under this Prospectus by the Selling
Securityholders or even the potential of such sales may have an adverse effect
on the market price of the Company's securities.
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
covers the sale of (i) (a) 1,000,000 Class A Warrants issuable upon conversion
of the Convertible Bridge Notes, and (b) 1,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants and (ii) (a) 2,000,000 shares of
Common Stock, (b) 2,000,000 Class A Warrants, and (c) 2,000,000 shares of Common
Stock issuable upon exercise of the Class A Warrants, all of which are held by
PMF, Inc., a company wholly-owned and controlled by Barry Gersten, an unrelated
party ("PMF"). The Bridge Lenders and PMF are hereinafter collectively referred
to as the "Selling Securityholders." PMF owned 85.7% of the outstanding shares
of Common Stock of the Company prior to the Offering. The shares being
registered on behalf of PMF constitute 57.1% of such outstanding shares prior to
the Offering and 48.8% of the outstanding shares of Common Stock upon completion
of the Offering. The Company will not receive any of the proceeds on the resale
of the securities by the Selling Securityholders. The resale of the securities
of the Selling Securityholders are subject to Prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Act"). Sales of
such securities or the potential of such sales at any time may have an adverse
effect on the market prices of the securities offered hereby. See "Risk Factors
- - Shares Eligible for Future Sale May Adversely Affect the Market." The resale
of the securities by the Selling Securityholders is subject to Prospectus
delivery and other requirements of the Act. Accordingly, an additional 2,000,000
shares of Common Stock will become transferrable at such time.
The following table sets forth the holders of the shares of Common Stock
which are being offered by the Selling Securityholders (assuming the conversion
of the Convertible Bridge Notes) and the number of shares owned before the
Offering, the number of shares being offered and the number of shares and the
percentage of the class to be owned after the Offering is complete.
Alt - iii
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name Shares of Class A Shares of Class A Shares of Class A Percent of Percent of
Common Warrants Common Warrants Stock Owned Warrants Common Class A
Stock Owned Owned Stock Offered After Owned After Stock After Warrants
Before Before Offered Hereby Offering Offering Offering After
Offering Offering Hereby Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PMF, Inc. 3,000,000 3,000,000 2,000,000 2,000,000 1,000,000 1,000,000 24.4 27.8
- ------------------------------------------------------------------------------------------------------------------------------------
Dune Holdings, Inc. 0 800,000 0 800,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Clinthill Investments, 0 200,000 0 200,000 0 0 0 0
Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Total 3,000,000 4,000,000 2,000,000 3,000,000 1,000,000 1,000,000 24.4 27.8
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Alt - iv
<PAGE>
PLAN OF DISTRIBUTION
The securities offered hereby may be sold from time to time directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers, and (d) face- to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling Securityholders
and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
Offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public.
Sales of securities by the Selling Securityholders or even the potential of
such sales would likely have an adverse effect on the market prices of the
securities offered hereby. See "Company Offering."
Alt - v
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
----------
TABLE OF CONTENTS
Page
----
Available Information.........
Prospectus Summary............
The Company...................
The Offering..................
Summary Financial
Information.................
Risk Factors..................
Use of Proceeds...............
Dilution......................
Capitalization................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Securityholders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
----------
ALTERNATE
2,000,000 Shares of Common Stock
and
3,000,000 Class A Warrants
SUPERIOR SUPPLEMENTS, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
__________, 1996
----------
Alt - vi
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Underwriters agreed to indemnify the
Company, its directors, and each person who controls it within the meaning of
Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriters specifically for or in connection
with the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
II - I
<PAGE>
The Company does not currently have any liability insurance coverage for
its officers and directors.
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee*............................. $ 10,000
The Nasdaq Small Cap Market
filing fee................................ $ 11,000
NASD filing fee............................. $ 2,000
Accounting fees and expenses*............... $ 75,000
Legal fees and expenses*.................... $175,000
Blue Sky fees and expenses*................. $ 55,000
Printing and engraving*..................... $ 65,000
Transfer Agent's and Registrar's fees*...... $ 4,000
Miscellaneous expenses*..................... $ 28,000
Total....................................... $425,000
- ----------------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
In April, 1996, the Company issued (i) (a) 3,000,000 shares of Common Stock
to PMF, Inc., a company wholly-owned and controlled by Barry Gersten, an
unrelated party, and (b) 3,000,000 Class A Warrants for a cash consideration of
$50,000 and (ii) 5,000,000 shares of Preferred Stock to PMF, Inc. for a cash
consideration of $5,000.
In May, 1996, the Company issued 500,000 shares of Common Stock to Compare
Generiks, Inc. ("CGI") (i) for a cash consideration of $100,000, and (ii) in
exchange for the issuance of 200,000 shares of common stock of CGI.
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investment Ltd., two (2) unaffiliated lenders (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge
II - 2
<PAGE>
Note bears interest at the rate of eight percent (8%) per annum. The Bridge
Notes are due and payable upon the earlier of (i) April 30, 1997 and (ii) the
closing of an initial underwritten public offering of the Company's securities.
The Company intends to use a portion of the proceeds of this Offering to repay
the Bridge Lenders. See "Use of Proceeds." In addition, each Convertible Bridge
Note converts into a number of Class A Warrants equal to ten (10) times the
principal amount of such Convertible Bridge Note upon consummation of the
Offering. The Company entered into the bridge financing transactions because it
required additional financing and no other sources of financing were available
to the Company at that time. Further, the Company agreed to register the Class A
Warrants issuable upon conversion of the Convertible Bridge Notes, as well as
the shares of Common Stock issuable upon exercise of the Class A Warrants in the
first registration statement filed by the Company following the date of the
loan. Therefore, the Registration Statement, of which this Prospectus forms a
part, relates to the 1,000,000 Class A Warrants issuable upon conversion of the
Convertible Bridge Notes and 1,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants. See "Selling Securityholders," "Certain
Transactions," "Bridge Financing" and "Underwriting."
The Company has relied on Section 4(2) of the Securities Act of 1933, as
amended, and the provisions of Regulation D promulgated thereunder for its
private placement exemption, such that the sales of the securities were
transactions by an issuer not involving any public offering.
Reference is also made hereby to "Certain Transactions," "Dilution,"
"Principal Stockholders" and "Description of Securities" in the Prospectus for
more information with respect to the previous issuance and sale of the Company's
securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities" as defined in Rule 144 of the
rules and the regulations of the Securities and Exchange Commission, Washington
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is able to bear the economic risk
of his investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold until
they have been so registered or until the availability of an exemption
therefrom. The Transfer Agent and registrar of the Registrant will be instructed
to mark "stop transfer" on its ledgers to assure that these securities will not
be transferred absent registration or until the availability of an exemption
therefrom is determined.
II - 3
<PAGE>
Item 27. Exhibits.
1.01 Form of Underwriting Agreement.
1.02 Form of Agreement Among Underwriters
1.03 Form of Consulting Agreement.
1.04 Form of Selected Dealer Agreement.
1.05 Form of Warrant Exercise Fee Agreement.
3.01 Certificate of Incorporation of the Company dated April 24, 1996.
3.02 By-Laws of the Company.
3.03 Form of Certificate of Designation of Series A Preferred Stock.
4.01+ Specimen Certificate for shares of Common Stock.
4.02+ Specimen Certificate for shares of Series A Preferred Stock.
4.03+ Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.04+ Form of Warrant Agreement by and among the Company and American Stock
Transfer & Trust Company.
4.05 Form of Representative's Stock Warrant.
4.06 Form of Representative's Warrant to Purchase Common Stock Purchase
Warrant.
5.01+ Opinion of Bernstein & Wasserman, counsel to the Company.
9.01+ Form of Voting Trust Agreement.
10.01 Supply Agreement between the Company and PDK dated as of May 14, 1996.
10.02 Supply Agreement between the Company and CGI dated as of May 31, 1996.
10.03+ Lease between the Company and Park Associates dated as of May 1, 1996.
II - 4
<PAGE>
10.04 Subscription Agreement between the Company and CGI dated as of May 31,
1996.
10.05 Employment Agreement between the Company and Lawrence D. Simon dated
as of May 1, 1996.
10.06 Form of May, 1996 Bridge Loan Agreements.
10.07 Revolving Credit Agreement between the Company and Dune dated May 31,
1996.
10.08 Promissory Note in favor of PMF dated June 26, 1996.
10.09 1996 Stock Plan.
23.01+ Consent of Bernstein & Wasserman (to be included in Exhibit 5.01).
23.02 Consent of Holtz Rubenstein & Co., LLP
- ----------
+ To be filed by amendment.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) Include any additional or changed material information on the plan of
distribution.
2. For determining liability under the Act, treat each such post-effective
amendment as a new registration statement of the securities offered, and the
Offering of such securities at that time shall be deemed to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of the
securities
II - 5
<PAGE>
that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
2. For any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the Offering of the
securities at that time as the initial bona fide Offering of those securities.
II - 6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York, New York on August 6, 1996.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
---------------------------------------
Lawrence D. Simon
President, Chairman, Chief
Financial Officer, Principal Accounting
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Lawrence D. Simon President, Chairman, August 6, 1996
- -------------------------- Chief Financial Officer,
Lawrence D. Simon Principal Accounting
Officer and Director
/s/ Reginald Spinello Director August 6, 1996
- --------------------------
Reginald Spinello
/s/ Matthew L. Harriton Director, Secretary August 6, 1996
- --------------------------
Matthew L. Harriton
/s/ Steven F. Wasserman Director August 6, 1996
- --------------------------
Steven F. Wasserman
/s/ Dr. Daniel Durchslag Director August 6, 1996
- --------------------------
Dr. Daniel Durchslag
<PAGE>
As filed with the
Securities and Exchange Commission
on August 8, 1996
Registration No. 333-
------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
SUPERIOR SUPPLEMENTS, INC.
<PAGE>
Exhibits.
--------
1.01 Form of Underwriting Agreement.
1.02 Form of Agreement Among Underwriters
1.03 Form of Consulting Agreement.
1.04 Form of Selected Dealer Agreement.
1.05 Form of Warrant Exercise Fee Agreement.
3.01 Certificate of Incorporation of the Company dated April 24, 1996.
3.02 By-Laws of the Company.
3.03 Form of Certificate of Designation of Series A Preferred Stock.
4.01+ Specimen Certificate for shares of Common Stock.
4.02+ Specimen Certificate for shares of Series A Preferred Stock.
4.03+ Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.04+ Form of Warrant Agreement by and among the Company and American Stock
Transfer & Trust Company.
4.05 Form of Representative's Stock Warrant.
4.06 Form of Representative's Warrant to Purchase Common Stock Purchase
Warrant.
5.01+ Opinion of Bernstein & Wasserman, counsel to the Company.
9.01+ Form of Voting Trust Agreement.
10.01 Supply Agreement between the Company and PDK dated as of May 14, 1996.
10.02 Supply Agreement between the Company and CGI dated as of May 31, 1996.
10.03+ Lease between the Company and Park Associates dated as of May 1, 1996.
10.04 Subscription Agreement between the Company and CGI dated as of May 31,
1996.
<PAGE>
10.05 Employment Agreement between the Company and Lawrence D. Simon dated
as of May 1, 1996.
10.06 Form of May, 1996 Bridge Loan Agreements.
10.07 Revolving Credit Agreement between the Company and Dune dated May 31,
1996.
10.08 Promissory Note in favor of PMF dated June 26, 1996.
10.09 1996 Stock Plan.
23.01+ Consent of Bernstein & Wasserman (to be included in Exhibit 5.01).
23.02 Consent of Holtz Rubenstein & Co., LLP
- ----------
+ To be filed by amendment.
<PAGE>
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
UNDERWRITING AGREEMENT
VTR Capital, Inc. __________, 1996
99 Wall Street
New York, NY 10005
Gentlemen:
Superior Supplements, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to VTR Capital, Inc. ("VTR" or the "Representative")
and to each of the other underwriters named in Schedule I hereto (the
"Underwriters"), for each of whom you are acting as Representative the following
securities: (i) 600,000 shares of Common Stock at a public offering price of
$5.00 per share; and (ii) 600,000 Class A Common Stock Purchase Warrants (the
"Warrants") at a public offering price of $.10 per Warrant. Commencing one year
from the Effective Date, each Warrant shall entitle the holder thereof to
purchase one share of Common Stock for a period of four years from the Effective
Date (as hereinafter defined) at a purchase price of $5.00. The Warrants are
subject to redemption by the Company during its exercise period upon 30 days
prior written notice at $0.05 per Warrant, at any time after one year from the
Effective Date, if the closing bid price per share of the shares of Common Stock
closes at no less than $10.00 per share for a period of twenty out of thirty
consecutive trading days prior to any such call for redemption. The 600,000
shares of Common Stock and the 600,000 Warrants are hereinafter sometimes
referred to as the "Firm Common Stock," and the "Firm Warrants," respectively.
The Firm Common Stock, and the Firm Warrants are sometimes hereinafter referred
to as the "Firm Securities." Upon the request of the Representative, and as
provided in Section 3 hereof, the Company will also issue and sell to the
Underwriters up to a maximum of an additional 90,000 shares of Common Stock, and
90,000 Warrants for the purpose of covering over-allotments. Such additional
shares of Common Stock and Warrants are hereinafter sometimes referred to as the
"Optional Common Stock" and the "Optional Warrants," respectively. The Optional
Common Stock and Optional Warrants are sometimes hereinafter referred to as the
"Optional Securities." Both the Firm Securities and the Optional Securities are
sometimes collectively referred to herein as the "Securities." All of the
securities which are the subject of this Agreement are more fully described in
the Prospectus of the Company described below. In the event that the
Representative does not form an underwriting group but decides to act as the
sole Underwriter, then all references to VTR herein as Representative shall be
deemed to be to it as such
<PAGE>
sole Underwriter and Section 14 hereof shall be deemed deleted in its entirety.
In an alternate Prospectus, the Registration Statement also covers certain
additional securities for sale by Selling Security Holders. Such reoffering by
Selling Security Holders is not the subject of this Underwriting Agreement,
except for the restrictions against resale until the exercise or termination of
the Optional Securities.
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative deems advisable after
the Registration Statement hereinafter referred to becomes effective. The
Company hereby confirms its agreement with the Representative and the other
Underwriters as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants will be as set forth in the Prospectus (hereinafter defined).
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments thereto (No.
333-________ ) with respect to the Securities, including a form of prospectus
relating thereto, copies of which have been previously delivered to you, has
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act. The Company, subject to the provisions of Section 6(a)
hereof, may file one or more amendments to such Registration Statement and
Prospectus. The Underwriters will receive copies of each such amendment.
The date on which such Registration Statement is declared effective
under the Act and the public offering of the Securities as contemplated by this
Agreement is therefore authorized to commence, is herein called the "Effective
Date." The Registration Statement and Prospectus, as finally amended and revised
immediately prior to the Effective Date, are herein called respectively the
"Registration Statement" and the "Prospectus." If, however, a prospectus is
filed by the Company pursuant to Rule 424(b) of the Rules and Regulations which
differs from the Prospectus, the term "Prospectus" shall also include the
prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time it
becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission
2
<PAGE>
an amendment or supplement), and, with respect to all such documents, on the
Closing Date (hereinafter defined), will in all material respects comply with
the provisions of the Act and the Rules and Regulations, and will not contain an
untrue statement of a material fact and will not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subsection (b) shall extend to the Underwriters in respect of
any statements in or omissions from the Registration Statement and/or the
Prospectus, based upon information furnished in writing to the Company by the
Underwriters specifically for use in connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing under
the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or location of
its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company (audited and unaudited)
included in the Registration Statement and Prospectus present fairly the
financial position and results of operations and changes in financial condition
of the Company at the respective dates and for the respective periods to which
they apply; and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied throughout the
periods involved, and are in accordance with the books and records of the
Company.
(e) Holtz Rubenstein & Co., LLP, independent public accountants, who
have given their report on certain financial statements which are included as a
part of the Registration Statement and the Prospectus are independent public
accountants as required under the Act and the Rules and Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to the Closing Date and, except as set forth
in or contemplated in the Prospectus, (i) the Company has not incurred, nor will
it incur, any material liabilities or obligations, direct or contingent, nor has
it, nor will it have entered into any material transactions, in each case not in
the ordinary course of business; (ii) there has not been, and will not have
been, any material change in the Company's Certificate of Incorporation or in
its capital stock or funded debt; and (iii) there has not been, and will not
have been, any
3
<PAGE>
material adverse change in the business, net worth or properties or condition
(financial or otherwise) of the Company whether or not arising from transactions
in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and Registration
Statement to be owned by the Company are owned by the Company by good and
marketable title free and clear of all liens and encumbrances, except those
specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as disclosed in the Prospectus and Registration
Statement, the Company in all material respects has full right and licenses,
permits and governmental authorizations required to maintain and operate its
business and properties as the same are now operated and, to its best knowledge,
none of the activities or business of the Company is in material violation of,
or causes the Company to violate any laws, ordinances and regulations applicable
thereto, the violation of which would have a material adverse impact on the
condition (financial or otherwise), business, properties or net worth of the
Company.
(h) The Company has no material contingent obligations, nor are its
properties or business subject to any material risks, which may be reasonably
anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration Statement,
there are no material actions, suits or proceedings at law or in equity of a
material nature pending, or to the Company's knowledge, threatened against the
Company which are not adequately covered by insurance, which might result in a
material adverse change in the condition (financial or otherwise), properties or
net worth of the Company, and there are no proceedings pending or, to the
knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and preferred stock
are duly authorized and validly issued and outstanding, fully paid,
non-assessable, and do not have any and were not issued in violation of any
preemptive rights. All of the Common Stock as described in the Prospectus when
paid for shall be duly authorized and validly issued and outstanding, fully
paid, non-assessable, and will not have any and will not be issued in violation
of any preemptive rights. The Common Stock issuable upon exercise of the
Warrants when issued and paid for in accordance with the Warrant Agreement shall
be duly authorized and validly issued and outstanding, fully paid,
non-assessable, and
4
<PAGE>
will not have any and will not be issued in violation of any preemptive rights.
The Common Stock and Warrants will be delivered in accordance with this
Agreement and the Warrant Agreement between the Company and American Stock
Transfer & Trust Company. The Underwriters will receive good and marketable
title to the Securities purchased by them from the Company, free and clear of
all liens, encumbrances, claims, security interests, restrictions, stockholders'
agreements and voting trusts whatsoever. Except as set forth in the Prospectus,
there are no outstanding options, warrants, or other rights, providing for the
issuance of, and no commitments, plans or arrangements to issue, any shares of
any class of capital stock of the Company, or any security convertible into, or
exchangeable for, any shares of any class of capital stock of the Company. All
of the Securities of the Company to which this Agreement relates conform to the
statements relating to them that are contained in the Registration Statement and
Prospectus.
(k) The certificate or certificates required to be furnished to the
Underwriters pursuant to the provisions of Section 11 hereof will be true and
correct.
(l) The execution and delivery by the Company of this Agreement has
been duly authorized by all necessary corporate action and it is a valid and
binding obligation of the Company, enforceable against it in accordance with its
terms except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws pertaining to creditors
rights generally.
(m) Except as disclosed in the Prospectus, no default exists, and no
event has occurred which, with notice or lapse of time, or both, would
constitute a default in the due performance and observance of any material term,
covenant or condition by the Company or any other party, of any material
indenture, mortgage, deed of trust, note or any other material agreement or
instrument to which the Company is a party or by which it or its business or its
properties may be bound or affected, except as disclosed in the Prospectus. The
Company has full power and lawful authority to authorize, issue and sell the
Securities to be sold by it hereunder on the terms and conditions set forth
herein and in the Registration Statement and in the Prospectus. No consent,
approval, authorization or other order of any regulatory authority is required
for such authorization, issue or sale, except as may be required under the Act
or State securities laws. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, and compliance with the
terms hereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or materially affected; the Certificate of Incorporation
and any amendments thereto; the by-laws of the Company, as amended; or to the
best knowledge of the Company, any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court,
5
<PAGE>
domestic or foreign, having jurisdiction over the Company or its business or
properties.
(n) No officer or director of the Company has taken, and each officer
and director has agreed that he will not take, directly or indirectly, any
action designed to stabilize or manipulate the price of the Common Stock or the
Warrants in the open market following the Closing Date or any other type of
action designed to, or that may reasonably be expected to cause or result in
such stabilization or manipulation, or that may reasonably be expected to
facilitate the initial sale, or resale, of any of the securities which are the
subject of this Agreement.
(o) The Representative's Stock Warrants to purchase Common Stock
and/or the Representative's Warrants to purchase Warrants (the Representative's
Stock Warrants and the Representative's Warrants collectively hereinafter
referred to as the "Representative's Securities") to be issued to the
Representative hereunder will be, when issued and paid for, duly and validly
authorized and executed by the Company and will constitute valid and binding
obligations of the Company, legally enforceable in accordance with their terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws pertaining to creditors rights
generally), and the Company will have duly authorized, reserved and set aside
the shares of its Common Stock issuable upon exercise, and such stock, when
issued and paid for upon exercise of the Representative's Securities and
underlying Warrants in accordance with the provisions of the Warrant Agreement
will be duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements, and warranties
shall survive delivery of, and payment for, the Securities.
SECTION 3. Issuance, Sale and Delivery of the Firm Securities, the Optional
Securities and the Representative's Warrants.
(a) Upon the basis of the representations, warranties, covenants and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to the several
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the number of the Firm Securities set forth opposite the
respective names of the Underwriters in Schedule I hereto, plus any additional
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 14 hereof.
The purchase price of the Common Stock and Warrants to be paid by the
several Underwriters shall be $4.50 and $.09, respectively (the initial public
offering price less a ten percent discount).
In addition, and upon the same basis, and subject to the same terms
and conditions, the Company hereby grants an option to you to purchase, but only
for the purpose of covering over-
6
<PAGE>
allotments, upon not less than two days' notice from the Representative, the
Optional Securities, or any portion thereof, at the same price per share of
Common Stock, and/or Warrant as that set forth in the preceding paragraph; and
each Underwriter agrees, severally and not jointly, to purchase Optional
Securities in the same proportion in which it has agreed to purchase Firm
Securities. Notwithstanding anything contained herein to the contrary, you
individually and not as Representative may provide in the Agreement Among
Underwriters for the Representative to purchase all or any part of the Optional
Securities and are not obligated to offer the Optional Securities to the other
Underwriters. The Optional Securities may be exercised at any time, and from
time to time, thereafter within a period of 30 calendar days following the
Effective Date. The time(s) and date(s) (if any) so designated for delivery and
payment for the Optional Securities shall be set forth in the notice to the
Company. Such dates are herein defined as the Additional Closing Date(s).
(b) Payment for the Firm Securities shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company, at the offices of the Representative, or its clearing agent, or at
such other place as shall be agreed upon by the Representative and the Company,
upon delivery of the Firm Securities to the Representative for the respective
accounts of the Underwriters. In making payment to the Company, the
Representative may first deduct all sums due to it for the non-accountable
expense allowance and under the Financial Consulting Agreement (as hereinafter
defined). Such delivery and payment shall be made at ______ A.M., New York City
Time on the ________ business day which may be extended by the Representative to
not later than the eighth business day following the Effective Date (unless
postponed in accordance with the provisions of Section 14 hereof) or at such
other time as shall be agreed upon by the Representative and the Company. The
time and date of such delivery and payment are hereby defined as the Closing
Date. It is understood that each Underwriter has authorized the Representative,
for the account of such Underwriter, to accept delivery of, receipt for, and
make payment of the purchase price for, the Firm Securities which it has agreed
to purchase. You, individually, and not as Representative may (but shall not be
obligated to) make payment of the purchase price for the Firm Securities to be
purchased by any Underwriter whose check shall not have been received by the
Closing Date, for the account of such Underwriter, but any such payment shall
not relieve such Underwriter from its obligations hereunder.
(c) Payment for the Optional Securities shall be made at the offices
of the Representative, or its clearing agent or at such other place as shall be
agreed upon by the Representative and the Company, in accordance with the notice
delivered pursuant to Section 3(a) which shall be no later than seven business
days from the expiration of the thirty day option period.
(d) Certificates for the Firm Securities and for the Optional
Securities shall be registered in such name or names and
7
<PAGE>
in such authorized denominations as the Representative may request in writing at
least two business days prior to the Closing Date, and the Additional Closing
Date(s) (if any). The Company shall permit the Representative to examine and
package said certificates for delivery at least one full business day prior to
the Closing Date and prior to the Additional Closing Date(s). The Company shall
not be obligated to sell or deliver any of the Firm Securities except upon
tender of payment by the Underwriters for all of the Firm Securities agreed to
be purchased by them hereunder. The Representative, however, shall have the sole
discretion to determine the number of Optional Securities, if any, to be
purchased.
(e) At the time of making payment for the Firm Securities, the Company
also hereby agrees to sell to the Representative, Representative's Stock
Warrants to purchase 60,000 shares of Common Stock at any time on or after
Effective Time until five years from the Effective Time, and Representative's
Warrants to purchase 60,000 Warrants at an aggregate purchase price of $120. The
Representative's Stock Warrants will be exercisable at a price of $6.00 per
share equal to 120% of the public offering price of the shares of Common Stock.
The Representative's Warrants will be exercisable at a price of $.12 per Warrant
at any time on or after the Effective Time until five years from the Effective
Time, but in no event after the Termination Date of the public Warrants. The
Warrants underlying the Representative's Warrants shall be identical in all
respects to the Warrants sold to the public. From the Effective Date and until
one (1) year thereafter, such Representative Securities and underlying
securities may be transferred only to officers or partners of the Representative
and selling group members and their officers or partners.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent to deliver to the Representative
(at the Company's expense) for a period of five years from the Closing Date,
daily advice sheets showing any transfers of the Securities and from time to
time during the aforesaid period a complete stockholders' list will be promptly
furnished by the Company when requested by the Representative on not more than
two occasions per year.
SECTION 4. Public Offering. The several Underwriters agree, subject to the
terms and provisions of this Agreement, to offer the Common Stock, and Warrants
to the public as soon as practicable after the Effective Date, at the initial
offering price of $5.00 and $.10, respectively and upon the terms described in
the Prospectus. The Representative may, from time to time, decrease the public
offering price, after the initial public offering, to such extent as the
Representative may determine, however, such decreases will not affect the price
payable to the Company hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will furnish
the Representative, without charge, two signed
8
<PAGE>
copies of the Registration Statement and of each amendment thereto, including
all exhibits thereto and such amount of conformed copies of the Registration
Statement and Amendments as may be reasonably requested by the Representative
for distribution to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed copies of a
Preliminary Prospectus and of the Prospectus as the Representative may request
for the purposes contemplated by this Agreement. If, while the Prospectus is
required to be delivered under the Act or the Rules and Regulations, any event
known to the Company relating to or affecting the Company shall occur which
should be set forth in a supplement to or an amendment of the Prospectus in
order to comply with the Act (or other applicable law) or with the Rules and
Regulations, the Company will forthwith prepare, furnish and deliver to the
Representative and to each of the other Underwriters and to others whose names
and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected dealers, if
any, in connection with the distribution of the Securities and all dealers to
whom any of the Securities may be sold by the Underwriters, or by any Selected
Dealer, to use the Prospectus, as from time to time amended or supplemented, in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the Act and the applicable Rules and Regulations
and applicable State Securities Laws.
SECTION 6. Covenants of the Company. The Company covenants and agrees with
each Underwriter that:
(a) After the date hereof, the Company will not at any time, whether
before or after the Effective Date, file any amendment to the Registration
Statement or the Prospectus, or any supplement to the Prospectus, of which the
Representative shall not previously have been advised and furnished with a copy,
or to which the Representative or the Underwriters' counsel, shall have
reasonably objected in writing on the ground that it is not in compliance with
the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as reasonably practicable and will
advise the Representative, (i) when the Registration Statement shall have become
effective and when any amendment thereto shall have become effective, and when
any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make request or suggestion for any
amendment to the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof, and (iii) of the issuance by
the Commission of an order suspending the effectiveness of the Registration
Statement or of the initiation of any proceedings for that purpose, and will
9
<PAGE>
use every reasonable effort to prevent the issuance of such an order, or if such
an order shall be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representative, such amendments, or supplements to the
Registration Statement or Prospectus, in form and substance satisfactory to
counsel to the Company, as in the reasonable opinion of Lester Morse P.C., as
counsel to the Underwriters, may be necessary or advisable in connection with
the offering or distribution of the Securities, and will use its best efforts to
cause the same to become effective as promptly as possible.
(d) The Company will, at its expense, when and as requested by the
Representative, supply all necessary documents, exhibits and information, and
execute all such applications, instruments and papers as may be required or
desirable, in the opinion of the Underwriters' counsel; to qualify the
Securities or such part thereof as the Representative may determine, for sale
under the so-called "Blue Sky" Laws of such states as the Representative shall
designate, and to continue such qualification in effect so long as required for
the purposes of the distribution of the Securities, provided, however, that the
Company shall not be required to qualify as a foreign corporation or to file a
consent to service of process in any state in any action other than one arising
out of the offering or sale of the Securities.
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Securities may be qualified for sale, for so long as
required by applicable law, rule or regulation and will provide the
Representative with copies of all such registrations, filings and reports on a
timely basis.
(f) During the period of five years from the Effective Date, the
Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as at the end of such quarter-yearly period, together with a
statement of its income and a statement of changes in its cash flow for such
period (Form 10-QSB), all in reasonable detail, signed by its principal
financial or accounting officer, (ii) within 105 days after the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with a statement of its income and statement of changes in cash flow
for such fiscal year (Form 10-KSB), such balance sheet and statement of cash
flow for such fiscal year to be in complete detail and to be accompanied by a
certificate or report of independent public accountants, (who may be the regular
accountants for the Company), (iii) as soon as available a copy of every other
report (financial or other) mailed to the shareholders, and (iv) as soon as
available a copy of every
10
<PAGE>
report and financial statement furnished to or filed with the Commission or with
any securities exchange pursuant to requirements by or agreement with such
exchange or the Commission pursuant to the Securities Exchange Act of 1934, as
amended, or any regulations of the Commission thereunder. If the Company has one
or more active subsidiaries, the financial statements required by (i) and (ii)
above shall be furnished on a consolidated basis in respect of the Company and
its subsidiaries. Separate financial statements shall be furnished for each
subsidiary, the accounts of which are not so consolidated. The financial
statements referred to in (ii) shall also be furnished to all of the
shareholders of the Company as soon as practicable after the 105 days referred
to therein.
(g) The Company represents that with respect to the Securities, it
will prepare and file a Registration Statement with the Commission pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, prior to the
Effective Date with a request that such Registration Statement will become
effective on the first day following the Effective Date. The Company understands
that, to register, it must prepare and file with the Securities and Exchange
Commission a General Form of Registration of Securities (Form 8-A or Form 10).
In addition, the Company agrees to qualify its Securities for listing on the
NASDAQ System Small-Cap Issues on the Effective Date and will take all necessary
and appropriate action so that the Securities continue to be listed for trading
in the NASDAQ System Small-Cap Issues for at least ten years from the Effective
Date provided the Company otherwise complies with the prevailing maintenance
requirements of NASDAQ System Small-Cap. In addition, at such time as the
Company qualifies for listing its securities on the National Market System of
NASDAQ, the Company will take all steps necessary to have the Company's
Securities thereof listed on the National Market System of NASDAQ in lieu of
listing as Small-Cap Issues. The Company shall comply with all periodic
reporting and proxy solicitation requirements imposed by the Commission pursuant
to the 1934 Act, and shall promptly furnish you with copies of all material
filed with the Commission pursuant to the 1934 Act or otherwise furnished to
shareholders of the Company.
(h) The Company will make generally available to its security holders,
as soon as practicable, but in no event later than 15 months after the Effective
Date, an earnings statement of the Company (which need not be audited) in
reasonable detail, covering a period of at least twelve months beginning after
the Effective Date, which earnings statement shall satisfy the provisions of
Section 11(a) of the Act.
(i) The Company shall, on the Effective Date, apply for listing in
Standard and Poor's Corporation Records (requesting coverage in the Daily News
Supplement) and Standard & Poor's Monthly Stock Guide and shall use its best
efforts to have the Company listed in such reports for a period of not less than
ten (10) years from the Closing Date.
11
<PAGE>
(j) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement and
shall continue to appoint such auditors or such other auditors as are reasonably
acceptable to the Representative for a period of five (5) years following the
Effective Date of the Registration Statement. Said financial statements shall be
prepared in accordance with Regulation S-X under the General Rules and
Regulations of the 1933 Act. The firm of Holtz Rubenstein & Co., LLP are deemed
acceptable to the Underwriter. The Company shall appoint Continental Stock
Transfer & Trust Company transfer agent for the Securities.
(k) Until such time as the securities of the Company are listed on the
New York Stock Exchange, the American Stock Exchange, or the NASDAQ/NMS; the
Company shall cause its legal counsel or an independent firm acceptable to the
Representative to provide the Representative with a survey, to be updated at
least semi-annually, of those states in which the securities of the Company may
be traded in non-issuer transactions under the Blue Sky laws of the states and
the basis for such authority. The first such survey shall be delivered by
Company's counsel at closing; the second such survey shall be delivered by
Company's counsel within five business days of publication of the Company in
Standard & Poor's Corporation Records and, thereafter, on a semi-annual basis on
April 30 and October 31 of each year.
(l) As soon as practicable after the Closing Date, the Company will
deliver to the Representative and its counsel a total of two bound volumes of
copies of all documents relating to the public offering which is the subject of
this Agreement.
(m) The Company, for a period of at least three years following the
public offering, shall retain the services of a financial public relations
firm(s) satisfactory to the Representative, said agreement(s) to commence no
later than 30 days after the Closing of the public offering.
(n) For a period of two years after the Effective Date, the Company
will not increase the number of authorized shares under its existing Stock
Option Plan as described in the Prospectus or establish any other plans pursuant
to which stock options or securities will be issued without the prior written
consent of the Representative. Further, for a period of two years after the
Effective Date, the Company will not issue or agree to issue any securities of
the Company without the prior written consent of the Representative. The
foregoing restriction does not apply to the Company's obligations to issue
securities as described in the Prospectus. The foregoing shall not prevent the
Company from seeking bank financing on commercially reasonable terms so long as
no capital stock, options to purchase capital stock or securities convertible
into capital stock are granted.
12
<PAGE>
SECTION 7. Expenses of the Company.
(a) The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (i) the preparation, printing and filing of the Registration
Statement and amendments thereto, including NASD and SEC filing fees,
preliminary and final Prospectus and the printing of the Underwriting Agreement,
the Agreement Among the Underwriters and the Selected Dealers' Agreement, a Blue
Sky Memorandum and material to be circulated to the Underwriters by us; (ii) the
issuance and delivery of certificates representing the Securities, including
original issue and transfer taxes, if any; (iii) the qualifications of the
Company's Securities (covered by the "firm commitment" offering) under State
Securities or Blue Sky Laws, including counsel fees of Lester Morse P.C.
relating thereto in the sum of Thirty ($30,000) Dollars ($_________ of which has
been paid, together with appropriate state filing fees) plus disbursements
relating to, but not limited to, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services; (iv) the fees
and disbursements of counsel for the Company and the accountants for the
Company; (v) costs of qualifying the Securities for listing on NASDAQ and (vi)
post closing tombstone advertisements not to exceed $10,000. Upon the
commencement of the necessary state Blue Sky filings by our counsel, the Company
shall supply him at his request, all necessary state filing fees.
(b) In addition, the Company shall bear each of the following costs:
(i) investigative reports (such as Bishop's Reports) of the Company's executive
officers, directors and principal shareholders, not to exceed $5,000 in the
aggregate; and (ii) otherwise unreimbursed postage, including mailing of
preliminary and final prospectuses incurred by or on behalf of the
Representative and the Underwriters in preparation for, or in connection with
the offering and sale and distribution of the Securities on an accountable
basis.
SECTION 8. Payment of Underwriters' Expenses.
On the Closing Date and Additional Closing Date(s) (if any) the
Company will pay to you an expense allowance equal to three (3%) percent of the
total gross proceeds derived from the public offering contemplated by this
Agreement for the fees and disbursements of counsel to the Underwriters and for
costs of otherwise unreimbursed advertising, traveling, postage, telephone and
telegraph expenses and other miscellaneous expenses incurred by or on behalf of
the Representative and the Underwriters in preparation for, or in connection
with the offering and sale and distribution of the Securities; and you shall not
be obligated to account to the Company for such disbursements and expenses.
Further, in the event that this Agreement is terminated pursuant to Section 12
hereof, the Company will be obligated to reimburse the Representative on an
accountable basis for its reasonable out-of-pocket expenses incurred in
connection hereunder.
13
<PAGE>
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, and each person who controls each of the Underwriters within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses, or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law or
otherwise, and to reimburse persons indemnified as above for any reasonable
legal or other expense (including the cost of any investigation and preparation)
incurred by them (as incurred), or any of them, in connection with
investigating, defending against or appearing as a third party witness in
connection with any claim or litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, liabilities, expenses or
litigation arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented, if amended or supplemented), or in any
"Blue Sky" application, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading; provided, however, that
the indemnity agreement contained in this subsection (a) shall not apply to
amounts paid in settlement of any such claims or litigation if such settlement
is effected without the consent of the Company, nor shall it apply to the
Underwriters or any person controlling the Underwriters in respect of any such
losses, claims, damages, expenses, liabilities or litigation arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon and in conformity with written information furnished in writing to the
Company by such Underwriter, or on its behalf, specifically for use in
connection with the preparation of the Registration Statement or the Prospectus
or any such amendment thereof or supplement thereto or any such blue sky
application and further provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
Preliminary Prospectus but eliminated or remedied in the Prospectus, such
indemnity agreement shall not inure to the benefit of the Underwriters (or the
benefit of any person who controls such Underwriter) if a copy of the Prospectus
was not sent or given to such person with or prior to the confirmation of the
sale of such securities to such person.
(b) Each of the Underwriters severally agrees, in the same manner and
to the same extent as set forth in subsection (a) above, to indemnify and hold
harmless the Company, each of the directors and officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement, or the Prospectus (as amended or as
supplemented, if amended or supplemented), or in any
14
<PAGE>
"Blue Sky" application, if such statement or omission was made in reliance upon
and in conformity with written information furnished in writing to the Company
by such Underwriter, or on its behalf, specifically for use in connection with
the preparation of the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, or any such application. An Underwriter
shall not be liable for amounts paid in settlement of any such claim or
litigation if such settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the defendants in any such action include both the indemnified and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party or parties), it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for
15
<PAGE>
the indemnified party which firm shall be designated in writing by
the indemnified party.
(d) The respective indemnity agreements between the Underwriters and
the Company contained in subsections (a) and (b) above, and the representations
and warranties of the Company set forth in Section 2 hereof or elsewhere in this
Agreement, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the Underwriters or by or on behalf of
any controlling person of the Underwriters or the Company or any such officer or
director or any controlling person of the Company, and shall survive the
delivery of the Securities. Any successor of the Company, or of the
Underwriters, or of any controlling person of the Underwriters or the Company,
as the case may be, shall be entitled to the benefit of such respective
indemnity agreements.
(e) In order to provide for just and equitable contribution under the
Act in any case in which (i) any person entitled to indemnification under this
Section 9 makes claim for indemnification pursuant hereto but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or labilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon, and the Company is responsible for the remaining portion; provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within twenty days after receipt by any party to this Agreement (or
its representative) of notice of the commencement of any action, suit or
proceeding, such party will, if a claim for contribution in respect thereof is
to be made against another party (the "contributing party"), notify the
contributing party, in writing, of the commencement thereof, but the omission so
to notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party so
notifies a contributing party or his or its representative of the commencement
thereof within the aforesaid twenty days, the
16
<PAGE>
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified. Any such contributing
party shall not be liable to any party seeking contribution on account of any
settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section 9 are in addition to any other
rights or remedies which either party hereto may have with respect to the other
or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Securities whichever shall first occur. The time of the
initial public offering by the Underwriters of the Securities for the purposes
of this Section 10, shall mean the time, after the Registration Statement
becomes effective, of the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating to the
Securities, or the time, after the Registration Statement becomes effective,
when the Securities are first released by the Representative for offering by the
Underwriters or dealers by letter or telegram, whichever shall first occur. The
Representative agrees to notify the Company immediately after it shall have
taken any action, by release or otherwise, whereby this Agreement shall have
become effective. This Agreement shall, nevertheless, become effective at such
time earlier than the time specified above, after the Effective Date, as the
Representative may determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Securities which the
Underwriters have agreed to purchase hereunder are subject to: the accuracy, as
of the date hereof and as of the Closing Dates of all of the representations and
warranties of the Company contained in this Agreement; the Company's compliance
with, or performance of, all of its covenants, undertakings and agreements
contained in this Agreement that are required to be complied with or performed
on or prior to each of the Closing Dates and to the following additional
conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
17
<PAGE>
(b) The Representative shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel to the Underwriters, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein,
or is necessary to make the statements therein not misleading.
(c) Between the date hereof and the Closing Date, the Company shall
not have sustained any loss on account of fire, explosion, flood, accident,
calamity or other such cause, of such character as materially adversely affects
its business or property, whether or not such loss is covered by insurance.
(d) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company, and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the Registration
Statement and Prospectus, during the period subsequent to the Effective Date and
prior to the Closing Date, (A) the Company shall have conducted its business in
the usual and ordinary manner as the same was being conducted on the date of the
filing of the initial Registration Statement and (B) except in the ordinary
course of its business, the Company shall not have incurred any material
liabilities or obligations (direct or contingent), or disposed of any of its
assets, or entered into any material transaction, and (C) the Company shall not
have suffered or experienced any material adverse change in its business,
affairs or in its condition, financial or otherwise. On the Closing Date, the
capital stock and surplus accounts of the Company shall be substantially as
great as at its last financial report without considering the proceeds from the
sale of the Securities except to the extent that any decrease is disclosed in or
contemplated by the Prospectus.
(f) The authorization of the Common Stock and Warrants, the
Registration Statement, the Prospectus and all corporate proceedings and other
legal matters incident thereto and to this Agreement, shall be reasonably
satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of its counsel that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of
18
<PAGE>
the State of Delaware with full corporate power and authority to own and operate
its properties and to carry on its business as set forth in the Registration
Statement and Prospectus; it has authorized and outstanding capital as set forth
in the Registration Statement and Prospectus; and the Company is duly licensed
or qualified as a foreign corporation in all jurisdictions in which by reason of
maintaining an office in such jurisdiction or by owning or leasing real property
in such jurisdiction it is required to be so licensed or qualified except where
failure to be so qualified or licensed would have no material adverse effect.
(ii) All of the outstanding shares of Common Stock and Preferred
Stock are duly and validly issued and outstanding, fully paid, and
non-assessable, and do not have any, and were not issued in violation of any,
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of the Warrants and any other
outstanding options or warrants and when issued in accordance with such terms
contained in the Prospectus, will be duly and validly authorized and issued,
fully paid and non-assessable.
(iii) All of the Securities of the Company to which this
Agreement relates conform to the statements relating to them that are contained
in the Registration Statement and Prospectus (excluding financial statements).
(iv) The Underwriters against payment therefor, will receive good
and marketable title to the Securities purchased by them from the Company in
accordance with the terms and provisions of this Agreement.
(v) To the best of the knowledge of such counsel, except as set
forth in the Prospectus, there are no outstanding options, warrants, or other
rights, providing for the issuance of, and, no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the Company,
or any security convertible into, or exchangeable for, any shares of any class
of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or other regulatory
authorities are necessary for the valid authorization, issue or sale of the
Securities hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
Act, and the Registration Statement and Prospectus, and each amendment thereof
and supplement thereto, comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations (except that no opinion
need be expressed as to financial
19
<PAGE>
statements and financial data contained in the Registration Statement or
Prospectus), and in the course of the preparation of the Registration Statement,
nothing has come to the attention of said counsel to cause them to believe that
either the Registration Statement or the Prospectus or any such amendment or
supplement contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and such counsel is familiar with all contracts referred
to in the Registration Statement or in the Prospectus and such contracts are
sufficiently summarized or disclosed therein, or filed as exhibits thereto, as
required, and such counsel does not know of any other contracts required to be
summarized or disclosed or filed; and such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company is a party,
or in which property of the Company is the subject, of a character required to
be disclosed in the Registration Statement or the Prospectus which are not
disclosed and properly described therein.
(viii) The Representative's Securities to be issued to the
Representative hereunder will be, when issued against payment therefor duly and
validly authorized and executed by the Company and will constitute valid and
binding obligations of the Company, legally enforceable in accordance with their
terms (except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally), and the Company will have duly
authorized, reserved and set aside the shares of its Common Stock issuable upon
exercise of the Representative's Securities and Underlying Warrants, and such
stock, when issued and paid for upon exercise of the Representative's Securities
and Underlying Warrants in accordance with the provisions thereof, will be duly
and validly authorized and issued, fully-paid and non-assessable.
(ix) The Company holds by valid lease, its properties as shown in
the Prospectus, and is in all material respects complying with all laws,
ordinances and regulations applicable thereto.
(x) This Agreement has been duly authorized and executed by the
Company and is a valid and binding agreement of the Company.
(xi) To the best of the knowledge of such counsel, no default
exists, and no event has occurred which, with notice or lapse of time, or both,
would constitute a default in the due performance and observance of any material
term, covenant or condition by the Company or any other party, of any indenture,
mortgage, deed of trust, note or any other agreement or instrument known to
counsel to which the Company is a party or by which it or its business or its
properties may be bound or affected, except as disclosed in the Prospectus. The
Company has full power and lawful authority to authorize, issue and sell the
Securities on the terms and conditions set forth herein and in the Registration
Statement
20
<PAGE>
and in the Prospectus. No consent, approval, authorization or other order of any
regulatory authority is required for such authorization, issue or sale, except
as may be required under the Act or State securities laws. The execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated, and compliance with the terms hereof will not conflict with, or
constitute a default under any indenture, mortgage, deed or trust, note or any
other agreement or instrument known to counsel to which the Company is now a
party or by which it or its business or its properties may be bound or affected;
the Articles of Incorporation and any amendments thereto; the by-laws of the
Company; or any law, order, rule or regulation, writ, injunction or decree of
any government, governmental instrumentality, or court, domestic or foreign,
having jurisdiction over the Company or its business or properties known to
counsel.
(xii) To the best of the knowledge of such counsel, there are no
material actions, suits or proceedings at law or in equity of a material nature
pending or to such counsel's knowledge threatened against the Company which are
not adequately covered by insurance and there are no proceedings pending, or to
the knowledge of such counsel threatened, against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, business prospects, franchise,
licenses, permits, operation or financial condition or income of the Company,
which are not disclosed in the Prospectus.
(xiii) The description of any statutes, regulations and laws,
applicable to the Company's business contained in the Registration Statements,
is in all respects true and correct.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the President or Chairman of the Board and the Secretary of the
Company, dated as of the Closing Date, and Additional Closing Date(s), to the
effect that:
(i) Each of the representations and warranties of the Company
contained in Section 2 hereof are true and correct in all material respects at
and as of such Closing Date, and the Company has performed or complied with all
of its agreements, covenants and undertakings contained in this Agreement and
has performed or satisfied all the conditions contained in this Agreement on its
part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become effective and no order
suspending the effectiveness of the Registration
21
<PAGE>
Statement has been issued, and, to the best of the knowledge of the respective
signers, no proceeding for that purpose has been initiated or is threatened by
the Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and the Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth except changes which the
Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the Registration
Statement and Prospectus, since the respective dates as of which, or periods for
which, information is given in the Registration Statement and Prospectus and
prior to the date of such certificate (A) there has not been any material
adverse change, financial or otherwise, in the business, business prospects,
earnings, general affairs or condition (financial or otherwise), of the Company
(in each case whether or not arising in the ordinary course of business), and
(B) the Company has not incurred any liabilities, direct or contingent, or
entered into any transactions, otherwise than in the ordinary course of business
other than as referred to in the Registration Statement or Prospectus and except
changes which the Registration Statement and Prospectus indicate might occur.
(i) The Company shall have furnished to the Representative on the
Closing Date, such other certificates, additional to those specifically
mentioned herein, as the Representative may have reasonably requested, as to:
the accuracy and completeness of any statement in the Registration Statement or
the Prospectus, or in any amendment or supplement thereto; the representations
and warranties of the Company herein; the performance by the Company of its
obligations hereunder; or the fulfillment of the conditions concurrent and
precedent to the obligations of the Underwriters hereunder, which are required
to be performed or fulfilled on or prior to the Closing Date.
(j) At the time this Agreement is executed, and on the Closing Date
you shall have received a letter from Holtz, Rubenstein & Co., LLP, addressed to
the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of the Closing Date and
Additional Closing Date as the case may be (based upon information not more than
five business days prior to such Effective Date, Closing Date and Additional
Closing Date as the case may be), in
22
<PAGE>
form and substance reasonably satisfactory to the Representative,
to the effect that:
(i) They are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations of the Commission;
(ii) In their opinion, the financial statements and related
schedules of the Company included in the Registration Statement and Prospectus
and covered by their reports comply as to form in all material respects with the
applicable accounting requirements of the Act and the published Rules and
Regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures, not constituting an
audit, including a review of the latest interim unaudited financial statements
of the Company on the basis specified by the American Institute of Certified
Public Accountants for a review of interim financial information, a reading of
the minutes of meetings of the boards of directors, and stockholders of the
Company, inquiries of officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention which caused them to believe:
(A) that at the date of the latest balance sheet read by
them and at a subsequent specified date not more than five business days prior
to the date of such letter, there was any change in the capital stock or
increase in long-term debt of the Company as compared with amounts shown in the
most recent balance sheet included in the Prospectus, except for changes which
the Prospectus discloses have occurred or may occur or which are described in
such letter;
(B) that at the date of the latest balance sheet read by
them and at a subsequent specified date not more than five business days prior
to the date of such letter, there were any decreases, as compared with amounts
shown in the most recent balance sheet included in the Prospectus, in total
assets, net current assets or stockholder's equity of the Company except for
decreases which the Prospectus discloses have occurred or may occur or which are
described in such letter; or
(C) that for the period from the date of the most recent
financial statements in the Registration Statement to a subsequent specified
date not more than five business days prior to the date of such letter, there
were any decreases, as compared with the corresponding period of the preceding
year, in gross profit or the total or per share amounts of net income of the
Company except for decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter.
(iv) In addition to the audit referred to in their report
included in the Registration Statement and the Prospectus and the limited
procedures referred to in clause (iii) above, they
23
<PAGE>
have carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which are
derived from the general accounting records of the Company which appear in the
Prospectus under the captions "Summary Financial Data," "Capitalization",
"Management", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Certain Transactions", Summary of Financial Data",
"Dilution" and "Risk Factors," as well as such other financial information as
may be specified by the Representative, and that they have compared such
amounts, percentages and financial information with the accounting records of
the Company and have found them to be in agreement.
All the opinions, letters, certificates and evidence mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel to the Representative, whose approval shall not be unreasonably
withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
and all obligations of the Underwriters hereunder may be terminated and canceled
by the Representative by notifying the Company of such termination and
cancellation in writing or by telegram at any time prior to, or on, the Closing
Date and any such termination and cancellation shall be without liability of any
party hereto to any other party, except with respect to the provisions of
Sections 7 and 8 hereof. The Representative may, of course, waive, in writing,
any conditions which have not been fulfilled or extend the time for their
fulfillment.
SECTION 12. Termination.
(a) This Agreement may be terminated by the Representative by written
or telegraphic notice to the Company at any time before it becomes effective
pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by written
or telegraphic notice to the Company, at any time after it becomes effective, in
the event that the Company, after notice from the Representative and an
opportunity to cure, shall have failed or been unable to comply with any of the
terms, conditions or provisions of this Agreement on the part of the Company to
be performed, complied with or fulfilled within the respective times herein
provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either difficulties
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters
24
<PAGE>
incident to the issuance and sale of the securities contemplated or as to
corporate proceedings or other matters or (ii) there is any action, suit or
proceeding, threatened or pending, at law or equity against the Company, or by
any Federal, State or other commission, board or agency wherein any unfavorable
result or decision could materially adversely affect the business, property, or
financial condition of the Company which was not disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by written
or telegraphic notice to the Company at any time after it becomes effective, if
the offering of, or the sale of, or the payment for, or the delivery of, the
Securities is rendered impracticable or inadvisable because (i) additional
material governmental restriction, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or trading in securities generally on such exchange shall have been
suspended or a general banking moratorium shall have been established by Federal
or New York State authorities or (ii) a war or other national calamity shall
have occurred or (iii) the condition of the market for securities in general
shall have materially and adversely changed, or (iv) the condition of the
Company or its business or business prospects is materially affected so that it
would be undesirable, impractical or inadvisable to proceed with, or consummate,
this Agreement or the public offering of the Securities.
(d) Any termination of this Agreement pursuant to this Section 12
shall be without liability of any character (including, but not limited to, loss
of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided.
SECTION 13. Finder. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their obligations to
purchase and pay for Securities hereunder and if the aggregate amount of such
Securities which all Underwriters so defaulting have agreed to purchase does not
exceed 10% of the aggregate number of Securities constituting the Securities,
the non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the
25
<PAGE>
Securities set forth opposite their names in Schedule I) the full amount of the
Securities agreed to be purchased by all such defaulting Underwriters and not so
purchased, in proportion to their respective commitments hereunder. In such
event the Representative, for the accounts of the several non-defaulting
Underwriters, may take up and pay for all or any part of such additional
Securities to be purchased by each such Underwriter under this subsection (a),
and may postpone the Closing Date to a time not exceeding seven full business
days; or
(b) If one or more Underwriters (other than the Representative)
default in its or their obligations to purchase and pay for the Securities
hereunder and if the aggregate amount of such Securities which all Underwriters
so defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Securities or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Securities
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter called
the "Remaining Underwriters") shall have the right, but shall not be obligated
to purchase such Securities in such proportion as may be agreed among them, at
the Closing Date. If the Remaining Underwriters do not purchase and pay for such
Securities at such Closing Date, the Closing Date shall be postponed for 24
hours and the remaining Underwriters shall have the right to purchase such
Securities, or to substitute another person or persons to purchase the same or
both, at such postponed Closing Date. If purchasers shall not have been found
for such Securities by such postponed Closing Date, the Closing Date shall be
postponed for a further 24 hours and the Company shall have the right to
substitute another person or persons, satisfactory to you to purchase such
Securities at such second postponed Closing Date. If the Company shall not have
found such purchasers for such Securities by such second postponed Closing Date,
then this Agreement shall automatically terminate and neither the Company nor
the remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Paragraph 7 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 14. Nothing in this subparagraph (b) will relieve a defaulting
Underwriter from its liability, if any, to the other Underwriters for damages
occasioned by its default hereunder (and such damages shall be deemed to
include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Securities)
or obligate any Underwriter to purchase or find purchasers for any Securities in
excess of those agreed to be purchased by such Underwriter under the terms of
Sections 3 and 14 hereof.
Notwithstanding anything contained herein to the contrary, no provisions of
this Section 14 or any other section of this Underwriting Agreement are intended
to permit an Underwriter to terminate its obligation to purchase the Firm
Securities (as such term is defined in this Underwriting Agreement) from the
Company based upon: (i) the occurrence of non-material events affecting the
26
<PAGE>
Company or the securities market or (ii) the inability to market the securities.
SECTION 15. Registration of the Representative's Securities and/or the
Underlying Securities. The Company agrees that it will, upon request by any 50%
Holder (as defined below) within the period commencing one year after the
Effective Date, and for a period of four years thereafter, on one occasion only
at the Company's sole expense, cause the Representative's Securities and/or the
underlying securities issuable upon exercise of the Representative's Securities,
to be the subject of a post-effective amendment, or a new Registration
Statement, if appropriate (hereinafter referred to as the "demand Registration
Statement"), so as to enable the Representative and/or its assigns to offer
publicly the Representative's Securities and/or the underlying securities. The
Company agrees to register such securities expeditiously and, where possible,
within forty-five (45) business days after receipt of such requests. The Company
agrees to use its "best efforts" to cause the post-effective amendment, or new
Registration Statement to become effective and for a period of nine (9) months
thereafter to reflect in the post-effective amendment or the new Registration
Statement, financial statements which are prepared in accordance with Section
10(a)(3) of the Act and any facts or events arising which, individually or in
the aggregate, represent a fundamental and/or material change in the information
set forth in such post-effective amendment or new Registration Statement. The
holders of the Representative's Securities may demand registration without
exercising such Warrants and, in fact, are never required to exercise same. The
term "50% Holder" as used in this section shall mean the registered holder of at
least a majority of the Representative's Securities and/or the underlying
securities. (The registration rights provided herein apply to the
Representative's Securities in their entirety and do not provide a separate
demand registration right per security.)
The Company understands and agrees that if, at any time within the period
commencing one year after the Effective Date and ending seven years after the
Effective Date, it should file a registration statement with the Commission
pursuant to the Act, regardless of whether some of the holders of the
Representative's Warrants and underlying securities shall have theretofore
availed themselves of the right above provided, the Company, at its own expense,
will offer to said holders the opportunity to register such securities. This
paragraph is not applicable to a Registration Statement filed by the Company
with the Commission on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the Company will cooperate with
the then holders of the Representative's Securities and underlying securities in
preparing and signing a Registration Statement, on one occasion only in addition
to the Registration Statements discussed above, required in order to sell or
transfer the aforesaid Representative's Securities and underlying securities and
will supply all information required therefor, but such additional Registration
27
<PAGE>
Statement shall be at the then holders' cost and expense unless the Company
elects to register additional shares of the Company's Shares in which case the
cost and expense of such Registration Statement will be prorated between the
Company and the holders of the Representative's Securities and underlying
securities according to the aggregate sales price of the securities being
issued. The holders of the Representative's Securities may include such Warrants
in any such filing without exercising the Representative's Securities, and in
fact, are never required to exercise same.
SECTION 16. Other Agreements.
(a) On the Effective Date, the Company will enter into an agreement
retaining the Representative as a financial consultant pursuant to which the
Representative shall receive a consulting fee in an amount equal to $72,000 for
services for one (1) year from the Effective Date, payable in full in advance on
the Closing Date, which shall include, but not be limited to, advising the
Company in connection with possible acquisition opportunities, advising the
Company regarding shareholder relations including the preparation of the annual
report and other releases, assisting in long-term financial planning, advice in
connection with corporate reorganizations and expansion and capital structure,
and other financial assistance.
(b) The Company agrees to file with the NASD all post-effective
amendments or prospectus supplements disclosing actual price and selling terms
by the selling security holders at the same time they are filed with the SEC and
in the event a portion of the securities being registered on behalf of selling
security holders become underwritten, that prior to commencement of the
distribution (i) copies of all underwriting documents proposed for use will be
submitted to the NASD for review and (ii) the maximum compensation to be paid
will be approved by the Department. The Company also agrees to notify the NASD
and the Representative if subsequent to the filing of this offering any 5% or
greater shareholder of the Company is or becomes an affiliate or associated
person of an NASD member participating in the distribution in this offering.
(c) If the Company shall within five (5) years from the Effective
Date, enter into any agreement or understanding with any person or entity
introduced by the Representative involving (i) the sale of all or substantially
all of the assets and properties of the Company, (ii) the merger or
consolidation of the Company (other than a merger or consolidation effected for
the purpose of changing the Company's domicile) or (iii) the acquisition by the
Company of the assets or stock of another business entity, which agreement or
understanding is thereafter consummated, whether or not during such five (5)
year period, the Company, upon such consummation, shall pay to the
Representative an amount equal to the following percentages of the consideration
paid by the Company in connection with such transaction:
5% of the first $4,000,000 or portion thereof, of such
consideration;
28
<PAGE>
4% of the next $1,000,000 or portion thereof, of such
consideration;
3% of the next $1,000,00 or portion thereof, of such
consideration; and
2% of such consideration in excess of the first
$1,000,000 of such consideration.
The fee payable to the Representative will be in the same form of
consideration as that paid by or to the Company, as the case may be, in any such
transactions.
(d) Commencing twelve months after the Effective Date, the Company
will pay the Representative as its Warrant solicitation agent an amount equal to
four percent (4%) of the aggregate exercise price of each Warrant exercised of
which a portion may be allowed to the dealer who solicited the exercise (which
may also be the Representative); provided: (1) the market price of the Common
Stock on the date the Warrant was exercised was greater than the Warrant
exercise price on that date; (2) exercise of the Warrant was solicited by a
member of the NASD and the NASD member is designated in writing by the Warrant
holder; (3) the Warrant was not held in a discretionary account; (4) disclosure
of compensation arrangements was made both at the time of the offering and at
the time of exercise of the Warrant; and (5) the solicitation of the exercise of
the Warrant was not in violation of Rule 10b-6 promulgated under the Securities
Exchange Act of 1934. The Company agrees to pay over to the Representative any
fees due it within five business days after receipt by the Company of Warrant
proceeds. Within ten (10) days of the last day of each month commencing one year
from the Effective Date, the Company will instruct the Warrant Agent to notify
the Representative of each Warrant certificate which has been properly completed
and delivered for exercise by holders of Warrants during each such month. The
Company will instruct the Transfer Agent that the Representative may at any time
during business hours, at its expense, examine the records of the Company and
the Warrant Agent which relate to the exercise of the Warrants. It is understood
that this agreement is on an exclusive basis to solicit the exercise of the
Warrants and that the Company may not engage other broker-dealers to solicit the
exercise of Warrants without the consent of VTR. It is understood that no
solicitation fee will be paid where the Warrant exercise was not solicited by
VTR or another member of the NASD.
(e) For a period of two years from the Effective Date, the Company
will not file a Form S-8 or other Registration Statement for the benefit of
officers, directors, consultants and employees without the prior written consent
of the Representative.
SECTION 17. Notice. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at the address set forth herein on
the first page, copy to Bernstein & Wasserman, LLP, 950 Third Avenue, New York,
New York 10022, Attention Steven F. Wasserman; and (B) whenever notice is
required by the provisions hereof to be
29
<PAGE>
given to the Underwriters, such notice shall be in writing addressed to the
Representative at VTR, at the address set forth herein on the first page copy to
Steven Morse, Esq., Lester Morse P.C., Suite 420, 111 Great Neck Road, Great
Neck, NY 11021. Any party may change the address for notices to be sent by
giving written notice to the other persons.
SECTION 18. Representations and Agreements to Survive Delivery. Except as
the context otherwise requires, all representations, warranties, covenants, and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants, and agreements as at the date hereof and as at the
Closing Date and the Additional Closing Date(s), and all representations,
warranties, covenants, and agreements of the several Underwriters and the
Company, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any of the Underwriters or any of their
controlling persons, and shall survive any termination of this Agreement
(whensoever made) and/or delivery of the Securities to the several Underwriters.
SECTION 19. Miscellaneous. This Agreement is made solely for the benefit of
the Underwriters and the Company and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchaser, as such, of any of the Shares.
This Agreement shall not be assignable by any party without the other party's
prior written consent. This Agreement shall be binding upon, and shall inure to
the benefit of, our respective successors and permitted assigns. The foregoing
represents the sole and entire agreement between us with respect to the subject
matter hereof and supersedes any prior agreements between us with respect
thereto. This Agreement may not be modified, amended or waived except by a
written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one
and the same instrument. If a party signs this Agreement and transmits an
electronic facsimile of the signature page to the other party, the party who
receives the transmission may rely upon the electronic facsimile as a signed
original of this Agreement.
30
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between the Company
and the Underwriters in accordance with its terms.
Very truly yours,
SUPERIOR SUPPLEMENTS, INC.
By:_____________________________________
(Authorized Officer)
CONFIRMED AND ACCEPTED, as of the
date first above written:
VTR CAPITAL, INC.
By____________________________________________
(Authorized Officer)
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
31
<PAGE>
SCHEDULE I
================================================================================
Underwriter Firm Securities to be
Purchased
- --------------------------------------------------------------------------------
Number of Number of
Common Shares Warrants
- --------------------------------------------------------------------------------
VTR Capital, Inc.
Total 600,000 600,000
32
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
600,000 Shares of Common Stock
600,000 Warrants
AGREEMENT AMONG UNDERWRITERS
____________, 1996
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Dear Sirs:
1. Underwriting Agreement. Superior Supplements, Inc., a Delaware
corporation (the "Company"), proposes to enter into an underwriting agreement in
the form of the Underwriting Agreement attached hereto as Exhibit "A" (the
"Underwriting Agreement") with the underwriters named in Schedule I to the
Underwriting Agreement (the "Underwriters"), acting severally and not jointly,
with respect to the purchase from the Company of 600,000 Shares of Common Stock
and 600,000 Warrants (collectively referred to as the "Securities"). Such
Securities are hereinafter sometimes referred to as the "Firm Securities." Upon
our request, and as provided in Section 3 of the Underwriting Agreement, the
Company will also issue and sell to the Underwriters up to a maximum of an
additional 90,000 Shares of Common Stock, and 90,000 Warrants. Such additional
Securities are hereinafter sometimes referred to as the "Optional Securities."
Both the Firm Securities and the Optional Securities are sometimes collectively
referred to herein as the "Securities." All of the Securities which are the
subject of this Agreement are more fully described in the Prospectus of the
Company described below. Under the terms of the Underwriting Agreement, each of
the Underwriters will agree, in accordance with the terms thereof to purchase
the aggregate number of Firm Securities set forth opposite its name in said
Schedule I, subject to adjustment pursuant to Section 12 hereof and Section 14
of the Underwriting Agreement.
2. Registration Statement and Prospectus. The Securities are described in a
registration statement and related prospectus which have been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). An amendment to such registration statement has
been or will be filed in which you have been or will be named as one of the
Underwriters of the Securities. Copies of the registration statement as filed
and as amended have been delivered to you, and you hereby authorize us to
approve on your behalf any further amendments or supplements which may be
necessary or appropriate. The registration statement, as amended at the time it
becomes
1
<PAGE>
effective, is called the "Registration Statement" and the final prospectus
relating to the Securities as filed by the Company with the Commission pursuant
to Rule 424(b) under the Act is referred to as the "Prospectus."
3. Authority of Representative. You authorize us as your Representative to
execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Securities to be purchased by you except as
provided herein and therein) and to take such action as in our discretion we may
deem advisable in respect of all matters pertaining to the Underwriting
Agreement, this Agreement, the transactions for the accounts of the several
Underwriters contemplated thereby and hereby, and the purchase, carrying, sale
and distribution of the Securities.
4. Public Offering. In connection with the public offering of the
Securities, you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement become effective), the initial public offering
price, and the concessions and reallowances to dealers, to change the public
offering price and such concessions and reallowances after the initial public
offering, to furnish the Company with the information to be included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) with respect to the terms of the public offering, and to determine all
matters relating to the public advertisement of the Securities and any
communications with dealers or others;
(b) To reserve all or any part of your Securities for sale to retail
purchasers (including institutions) and to dealers selected by us ("Selected
Dealers") among which may be included any Underwriter (including ourselves) and
each of which shall be a member of the National Association of Securities
Dealers, Inc., and each of which shall agree that in making sales to purchasers
in the United States it will conform to the Rules of Fair Practice of said
Association (or, in the case of a foreign dealer not eligible for membership in
such Association, which shall agree not to reoffer, resell or deliver Securities
in the United States, its territories or its possessions, or to persons whom it
has reason to believe are citizens thereof or residents therein), such
reservations for sales to retail purchasers to be as nearly as practicable in
proportion to the respective underwriting obligations of the Underwriters and
such reservations for sales to Selected Dealers to be in such proportion as we
determine, and from time to time to add to the reserved Securities such
Securities retained by you remaining unsold and to release to you any of your
Securities reserved but not sold;
2
<PAGE>
(c) To sell reserved Securities as nearly as practicable in proportion
to the respective reservations to retail purchasers at the public offering
price, and to Selected Dealers at the public offering price less the Selected
Dealer's concession pursuant to the Selected Dealers Agreement in substantially
the form attached; and
(d) To buy Securities for your account from Selected Dealers at the
public offering price less such amount not in excess of the Selected Dealer's
concession as we may determine.
After advice from us that the Securities are released for public offering,
you will offer to the public in conformity with the terms of offering set forth
in the Prospectus, or any amendment or supplement, such of your Securities as we
advise you are not reserved.
You recognize the importance of a broad distribution of the Securities
among bona fide investors and you agree to use your best efforts to obtain such
broad distribution and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Securities to Selected Dealers we will
take such action as we deem appropriate to effect a broad distribution.
5. Repurchase of Securities Not Effectively Placed for Investment. You are
requested to place for investment those of your Securities which are not
reserved as aforesaid. Any Securities sold by you (otherwise than through us)
which may be delivered to us against a purchase contract made by us for the
account of any Underwriter prior to termination of the provisions referred to in
Section 11 of this Agreement, shall be purchased by you upon demand from us at
the cost of such purchase plus brokerage commissions and transfer taxes on
redelivery. Securities delivered on such repurchase need not be identical to
those purchased by you. In lieu of demand repurchase by you we may in our
discretion (i) sell for your account the Securities so purchased by us, at such
price and upon such terms as we may determine, and debit or credit your account
with the loss and expense or net profit resulting from such sale, or (ii) charge
your account with an amount not in excess of the Selected Dealer's concession
with respect to such Securities plus brokerage commissions and transfer taxes
paid in connection with such purchase.
6. Payment and Delivery. We shall give you at least 24 hours prior notice
of the Closing Date. You agree to deliver to us at or before 9:00 a.m., New York
City time, on such Closing Date and at or before 9:00 a.m. New York City time,
on the Additional Closing Date referred to in the Underwriting Agreement if the
Optional Securities are purchased, at the office of VTR Capital, Inc., 99 Wall
Street, New York, NY 10005 (or such other office as we may direct), a certified
check or bank cashier's check payable in New York Clearing House funds to the
order of VTR Capital, Inc.,
3
<PAGE>
as Representative, for the full purchase price of the Securities which you shall
have agreed to purchase from the Company less the concession to selected
dealers. If you are a member or clear through a member of the Depository Trust
Company ("DTC"), you may, in your discretion, deliver payment and receive
Securities through the facilities of DTC. The proceeds shall be delivered in the
amounts required in each case for payment of the full purchase price by us to
the Company against delivery of the Securities to us for your account. We are
authorized to accept that delivery and to give a receipt therefor. We may in our
discretion make such payment on your behalf with our own funds, in which event
you will reimburse us promptly upon request. You authorize us, as your
custodian, to take delivery of your Securities, registered as we may direct in
order to facilitate deliveries. You also authorize us to hold for your account
such of your Securities as we have reserved for sale to retail purchasers and to
Selected Dealers, and to deliver your reserved Securities against such sales. We
will deliver your unreserved Securities to you promptly and, after we receive
payment for reserved Securities sold by us for your account, we will remit to
you, as promptly as practicable, an amount equal to the price paid by you for
such Securities. As soon as practicable after termination of Sections 4, 5 and 9
and the first and penultimate sentences of Section 8 of this Agreement (pursuant
to Section 11 hereof) we will deliver to you any of your Securities reserved but
not sold. All Securities delivered to you pursuant to this Section will be
evidenced by certificates in such denominations as you shall direct by written
notice received by us not later than the second full business day preceding the
Closing Date.
7. Authority to Borrow. In connection with the purchase or carrying of any
Securities purchased hereunder for your account, you authorize us, in our
discretion, to advance funds for your account, charging current interest rates,
or to arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Securities. Any lender may rely on our instructions in all matters relating
to any such loan. Any of your Securities held by us for your account may be
delivered to you for carrying purposes only, and subject to our further
direction.
8. Stabilization and Over-Allotment. To facilitate the distribution of the
Securities, you authorize us during the term of this Agreement, or for such
longer period as may be necessary in our discretion, to make purchases and sales
of the Securities for your account in the open market or otherwise, for long or
short account, on such terms as we deem advisable and, in arranging sales, to
over-allot. You also authorize us to cover any short position incurred pursuant
to this Section on such terms as we deem advisable. Included in the authority
granted to us by you is the authority to exercise the over-allotment option to
purchase the Optional Securities granted by Section 3 of the Underwriting
4
<PAGE>
Agreement. Except with respect to the exercise of such over-allotment option,
all such purchases and sales (other than purchases and sales of the Optional
Securities) shall be made for the accounts of the several Underwriters as nearly
as practicable in proportion to their respective underwriting obligations. Your
net commitment under this Section shall not, at the end of any business day,
exceed 15% of your maximum underwriting obligation. You will on our demand take
up at cost or deliver against payment any Securities purchased or sold or
over-allotted for your account and, if any such other Underwriter defaults in
its corresponding obligation, you will assume your proportionate share of such
obligation without relieving the defaulting Underwriter from liability. You will
be obligated in respect to purchases and sales made for your account hereunder
whether or not the proposed purchase of the Securities is consummated. Upon
request you will advise us of Securities retained by you and unsold and will
sell to us for the account of one or more of the Underwriters such of your
unsold Securities as we may designate, at the public offering price thereof less
such amount as we may determine, but not in excess of the Selected Dealer's
concession with respect thereto. Until the termination of this Agreement
pursuant to Section 11 hereof, or prior notification by us, we shall have the
sole right to effect stabilizing transactions in the Securities. You agree that
until such time you will not make any purchases or sales of any of such
securities except as provided in Section 9 hereof. You also agree to timely
provide us with the information required by Rule 17a-2(d) under the Securities
Exchange Act of 1934, as amended (the "1934 Act").
9. Open Market Transactions. You agree not to bid for, purchase, attempt to
induce others to purchase, or sell, directly or indirectly, any Securities,
except as brokers pursuant to unsolicited orders and as otherwise provided in
this Agreement or in the Underwriting Agreement. You further agree not to offer
the Securities for sale until notified by us, as the Representative of the
Underwriters, that they are released for that purpose.
10. Expenses and Settlement. We may charge your account with Selected
Dealer's concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement, in excess of those reimbursed by the Company pursuant to
Section 8 of the Underwriting Agreement, or in connection with the purchase,
carrying, sale or distribution of the Securities. Our determination of the
amount and allocation of expenses shall be conclusive. As soon as practicable
after termination of the provisions referred to in Section 11, the accounts
hereunder will be settled, but we may reserve from distribution such amount as
we deem advisable to cover possible additional expenses. We may at any time make
partial distribution of credit balances or call for payment of debit balances.
Any of your funds in our hands may be
5
<PAGE>
held with our general funds without accountability for interest. Notwithstanding
any settlement, you will pay (i) your proportionate share (based upon your
underwriting obligation) of any liability which may be incurred by the
Underwriters, or any of them, based on the claim that the Underwriters
constitute an association, partnership, unincorporated business or other
separate entity, and of any expenses incurred by us, or by any other Underwriter
with our approval, in contesting any such liability, and (ii) any transfer taxes
which may be assessed and paid after such settlement on account of any sale or
transfer for your account.
11. Termination and Settlement. This Agreement will terminate (a) at the
close of business on the 30th day after the date of the Underwriting Agreement;
or (b) on such earlier or later date, not more than 30 days after the date
specified in (a), as we may determine; or (c) on the date of termination of the
Underwriting Agreement, if the same shall be terminated as provided by its
terms.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder will cease, except (a) the mutual obligation to settle
accounts hereunder, (b) your obligation to pay any claims referred to in the
last paragraph of this Section, (c) the obligations with respect to indemnity
set forth in Section 15 hereof (all obligations of which will continue until
fully discharged), and (d) your obligation with respect to purchases which may
be made by us from time to time thereafter to cover any short position with
respect to the offering, all of which will continue until fully discharged, and
except our authority with respect to matters to be determined by us, or by us
and the Company, pursuant to the terms of the Underwriting Agreement, which will
survive the termination of this Agreement.
The accounts arising pursuant to this Agreement will be settled and paid as
soon as practicable after termination. The determination by us of the amounts to
be paid to or by you will be final and conclusive.
Notwithstanding any settlement upon the termination of this Agreement, you
will pay your proportionate share of any amount asserted against and discharged
by the Underwriters, or any of them, based upon the claim that the Underwriters
constitute an association, unincorporated business or other separate entity, or
based upon or arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any expense incurred
in defending against such claim, and will pay any transfer taxes which may be
assessed thereafter on account of any sale or transfer of Securities for our
account.
12. Default by Underwriters. Default by one or more Underwriters hereunder
or under the Underwriting Agreement shall not release the other Underwriters
from their obligations or affect
6
<PAGE>
the liability of any defaulting Underwriter to the other Underwriters for
damages resulting from such default. In case of default under the Underwriting
Agreement by one or more Underwriters, we may arrange for the purchase by
others, including non-defaulting Underwriters, of Securities not taken up by
such defaulting Underwriter and you will, at our request, increase pro rata with
the other non-defaulting Underwriters the aggregate principal amount of
Securities which you are to purchase, or both, by an amount not exceeding
one-ninth of your original underwriting obligations. In the event any such
arrangements are made, the respective Securities to be purchased by
non-defaulting Underwriters and by such others shall be taken as the basis for
the underwriting obligations under this Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. Position of Representative. We shall be under no liability to you for
any act or omission except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred. Nothing
shall constitute the Underwriters, or any of them, an association, partnership,
unincorporated business or other separate entity and the rights and liability of
ourselves and each of the Underwriters are several and not joint.
14. Compensation to Representative. As compensation for our services as
Representative, you agree to pay us $___ per share of Common Stock and/or $___
per Warrant out of the aggregate underwriting discount attributable to
Securities which you agree to purchase from the Company under the Underwriting
Agreement. We are authorized to charge your account with such an amount.
15. Indemnification. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees to indemnify the Company in the Underwriting Agreement. Such
indemnity agreement shall survive the termination of any of the provisions of
this Agreement.
In the event that at any time any claim shall be asserted against us as or
as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Securities or any of the transactions
contemplated by this Agreement, you authorize us to make such
7
<PAGE>
investigation, to retain such counsel and to take such other action as we shall
deem necessary or desirable under the circumstances, including settlement of any
claim or claims if such course of action shall be recommended by counsel
retained by us. You agree to pay to us, on request, your proportionate share
(based upon your underwriting obligation) of all expenses incurred by us
(including, but not limited to, the disbursements and fees of counsel so
retained) in investigating and defending against such claim or claims, and your
proportionate share (based upon your underwriting obligation) of any liability
incurred by us in respect of such claim or claims, whether such liability shall
be the result of a judgment against us or as a result of any such settlement.
16. Blue Sky Matters. We shall not have any responsibility with respect to
the right of any Underwriter or other person to sell Securities in any
jurisdiction, notwithstanding any information we may furnish in that connection.
You hereby authorize us to take such action as may be necessary or advisable to
qualify the Securities for offering and sale in any jurisdiction. We have caused
to be filed Further State Notices respecting the Securities to be offered to the
public in New York in the form required by, and pursuant to, the provisions of
Article 23A of the General Business Law of the State of New York.
17. Title to Securities. The Securities purchased for the respective
accounts of the several Underwriters shall remain the property of those
Underwriters until sold; and no title to such securities shall in any event pass
to us, as Representative, by virtue of any of the provisions of this Agreement.
18. Capital Requirements. Unless the provisions of clause (b) of the second
sentence of the last paragraph of this Agreement are applicable to you, you
confirm that your commitment hereunder will not result in any violation of
Section 8(b) or 15(c) of the 1934 Act or in any violation of any of the rules
and regulations promulgated under the 1934 Act, including, without limitation,
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which you are subject or of any restriction imposed upon you by such
exchange.
19. Notices and Governing Laws. Any notice from you to us shall be mailed
or transmitted by any standard form of written telecommunication to us at 99
Wall Street. New York, NY 10005. Any notice from us to you shall be mailed or
transmitted by any standard from of written telecommunication to you at your
address as set forth in your Underwriter's Questionnaire. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or
8
<PAGE>
(b) a foreign dealer which is not eligible for membership in such Association,
in which event you will make sales of any Securities only outside the United
States and its territories and possessions to persons who are not citizens or
residents of the United States or its territories or possessions, and that in
making any such sales, you will comply with such Association's Interpretation
with respect to Free-Riding and Withholding. You further represent that: (i) you
will notify each of your customers with respect to whose account you have
investment discretion and to whose account you intend to sell any Securities
that you propose to sell Securities to such account as a principal and you will
obtain the customer's written consent to such sale; and (ii) you will comply
with the requirements of Rule 15c2-8 under the 1934 Act and have distributed or
are distributing copies of a Preliminary Prospectus to all persons to whom you
then expected to mail confirmations of sale, not less than 48 hours prior to the
time it is expected to mail such confirmations.
Very truly yours,
VTR CAPITAL, INC.
By:________________________________
As Representative of the several
Underwriters
Confirmed and accepted as of
the date first above written.
________________________________
Attorney-in-fact for the several
Underwriters named in Schedule I
to the Underwriting Agreement
9
<PAGE>
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
VTR Capital, Inc. _______________, 1996
99 Wall Street
New York, New York 10005
Gentlemen:
The following sets forth our understanding with respect to your providing
financial advisory services for this corporation.
l. For a period of two (2) years commencing on the date hereof, you will
render financial consulting services to this corporation as such services shall
be required but in no event shall such services require more than two business
days per month. Your services shall include the following:
(a) to advise and assist in matters pertaining to the financial
requirements of our corporation and to assist, as and when required, in
formulating plans and methods of financing;
(b) to prepare and present financial reports required by us and to
analyze proposals relating to obtaining funds for our business, mergers and/or
acquisitions;
(c) to assist in our general relationship with the financial community
including brokers, stockholders, financial analysts, investment bankers, and
institutions; and
(d) to assist in obtaining financial management, and technical and
advisory services, and financial and corporate public relations, as may be
requested or advisable.
2. All services required to be performed hereunder shall be requested by us
in writing and upon not less than seven business days notice, unless such notice
is waived by you. Such notice shall be to the address specified above or to such
other place as you shall designate to us in writing.
3. For the services to be performed hereunder, and for your continued
availability to perform such services, we will pay you a fee of $72,000, which
sum is payable in full in advance on the closing date of our proposed initial
public offering. Further, we will reimburse you for such reasonable
out-of-pocket expenses as may be incurred by you on our behalf, but only to the
extent authorized by us.
4. This Agreement has been duly approved by our Board of Directors.
5. You shall have no authority to bind this corporation to any contract or
commitment, inasmuch as your services hereunder are advisory in nature.
<PAGE>
VTR Capital, Inc.
Page 2
6. You will maintain in confidence all proprietary, non- published
information obtained by you with respect to our corporation during the course of
the performance of your services hereunder and you shall not use any of the same
for your own benefit or disclose any of the same to any third party, without our
prior written consent, both during and after the term of this Agreement.
7. This Agreement shall not be assignable by either of us without the other
party's prior written consent.
8. This Agreement shall be binding upon, and shall inure to the benefit of,
our respective successors and permitted assigns.
9. The foregoing represents the sole and entire agreement between us with
respect to the subject matter hereof and supersedes any prior agreements between
us with respect thereto. This Agreement may not be modified, amended or waived
except by a written instrument signed by the party to be charged. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of laws of such
State.
Please signify your agreement to the foregoing by signing and returning to
us the enclosed copy of this Agreement which will thereupon constitute an
agreement between us.
Very truly yours,
SUPERIOR SUPPLEMENTS, INC.
BY__________________________
Agreed and Consented to:
VTR CAPITAL, INC.
BY________________________________
<PAGE>
VTR Capital Inc.
99 Wall Street
New York, New York 10005
Superior Supplements, Inc.
600,000 Shares of Common Stock
600,000 Warrants
SELECTED DEALER AGREEMENT
Dear Sirs: ___________________, 1996
We, as the Underwriter named in the below referred to Prospectus (the
"Underwriter") have agreed, subject to the terms and conditions of the
Underwriting Agreement dated this date (the "Underwriting Agreement") to
purchase from Superior Supplements, Inc. (the "Company"), at the prices set
forth on the cover of such Prospectus, the above referred to 600,000 Shares of
Common Stock and 600,000 Warrants and up to an additional 90,000 Shares of
Common Stock and 90,000 Warrants, collectively being called the "Securities").
The Securities and certain of the terms on which they are being purchased and
offered are more fully described in the enclosed Prospectus (the "Prospectus").
Additional copies of the Prospectus will be supplied to you, in reasonable
quantities upon request.
We, as the Underwriter, are offering to certain dealers ("Selected
Dealers"), among whom we are pleased to include you, part of the Securities, at
the public offering price less a concession of $._____ per Share of Common Stock
and $._____ per Warrant. The offering to Selected Dealers is made subject to the
issuance and delivery of the Securities to us and their acceptance by us, to the
approval of legal matters by our counsel, and to the terms and conditions
hereof, and may be made by us on the basis of the reservation of Securities or
an allotment against subscription, or otherwise in our discretion.
The initial public offering prices of the Securities are as set forth in
the Prospectus. With our consent, Selected Dealers may allow a discount of not
in excess of $____ per Share of Common Stock and $_____ per Warrant in selling
the Shares of Common Stock and Warrants to other dealers meeting the
requirements of the specifications set forth in the affirmation of dealers
contained in the attached Acceptance and Order. Upon our request, you will
notify us of the identity of any dealer to whom you allow such a discount and
any Selected Dealer from whom you receive such a discount.
All orders will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part, to
accept or reject orders in the order of their receipt or otherwise, and to
allot. You are not authorized to give any information or make any representation
other than as set forth in the Prospectus in connection with the sale of any of
the Securities. No dealer is authorized to act as agent for
1
<PAGE>
the Underwriter, or for the Company, when offering any of the Securities.
Nothing contained herein shall constitute the Selected Dealers partners with us
or with one another.
Upon release by us, you may offer the Securities at the public offering
prices, subject to the terms and conditions hereof. We may, and the Selected
Dealers may, with our consent, purchase Securities from and sell Securities to
each other at the public offering price less a concession not in excess of the
concession to Selected Dealers.
Payment for Securities purchased by you is to be made at our office (or at
such other place as instructed) at the public offering price, on such date as we
may advise, on one day's notice to you, by certified or official bank check in
New York Clearing House funds payable to our order. Delivery to you of
certificates for the Securities will be made as soon as is practicable
thereafter. Unless specifically authorized by us, payment by you may not be
deferred until delivery of certificates to you. The concession payable to you
will be paid as soon as practicable after the closing.
This Agreement shall terminate at the close of business on the 45th day
after the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Dealers based upon the claim that the Underwriter and the
Selected Dealers, or any of them, constitute a partnership, association,
unincorporated business or other entity, including in each case your
proportionate share of expenses incurred in defending against any such claim or
liability.
In the event that, prior to the termination of this Agreement we purchase
in the open market or otherwise any Securities delivered to you, you agree to
repay to us for the account of the Underwriter the amount of the above
concession to Selected Dealers plus brokerage commissions and any transfer taxes
paid in connection with such purchase; which amounts can be withheld from the
concession otherwise payable to you hereunder. Certificates for Securities
delivered on any such purchase need not be the identical certificates originally
issued to you.
At any time prior to the termination of this Agreement, you will, upon our
request, report to us the number of Securities purchased by you under this
Agreement which then remain unsold and will, upon our request, sell to us for
the account of the Underwriter the number of such unsold Securities that we may
designate, at the public offering price less an amount to be determined by us
not in excess of the concession allowed you.
We shall have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the offering, including, without
limitation, stabilization and over-
2
<PAGE>
allotment. We shall be under no liability to you except for our lack of good
faith and for obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the Securities Act of 1933 (the
"1933 Act") or the rules and regulations thereunder.
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Securities
are qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell Securities in any jurisdiction. We have filed Further State
Notices with respect to the Securities with the Department of State of the State
of New York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which contains
certain prohibitions against trading by a person interested in a distribution
until such person has completed its participation in the distribution. You
confirm that you will at all times comply with the provisions of such Rule in
connection with this offering.
Any notice from us shall be deemed to have been duly given if telephoned,
and subsequently mailed or transmitted by any standard form of written
tele-communication to you at the address to which this Agreement is mailed, or
if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
tele-communication of the principal amount of Securities ordered by you and
confirm your agreement hereto by signing the Acceptance and Order on the
enclosed duplicate hereof and returning promptly such signed duplicate copy to
VTR Capital, Inc., 99 Wall Street, New York, NY 10005.
Upon receipt thereof, this instrument and such signed duplicate copy will
evidence the agreement between us.
Very truly yours,
VTR CAPITAL, INC.
By:_________________________________
3
<PAGE>
ACCEPTANCE AND ORDER
VTR Capital, Inc.
99 Wall Street
New York, New York 10005
Dear Sirs:
We hereby enter our order for ______ Shares of Common Stock and/or _______
Warrants of Superior Supplements, Inc. under the terms and conditions of the
foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing Agreement.
We acknowledge receipt of the Prospectus relating to the above Securities and we
further state that in entering this order we have relied upon said Prospectus
and no other statements whatsoever, written or oral. We affirm that we are
either (i) a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place of business
located outside the United States, its territories, or possessions and not
registered under the Securities Exchange Act of 1934 and not eligible for
membership in the NASD, who hereby agrees to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein, and in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding, as well as all other
pertinent interpretations of the NASD that may be applicable to us. We also
affirm and agree that we will promptly re-offer any Securities purchased by us
in conformity with the terms of the offering and in conformity with the Rules of
Fair Practice of the NASD, (including, without limitation, Sections 8, 24, 25
and 36 Article III thereof) and all applicable Rules and Regulations promulgated
under the Securities Exchange Act of 1934.
Date: ___________, 1996
_________________________________
(Name of Selected Dealer)
By:______________________________
(Authorized Signature)
Address:_________________________
_________________________
4
<PAGE>
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated this ____ day of ________, 1996, by and among VTR Capital,
Inc. ("VTR"), Superior Supplements, Inc. (the "Company") and American Stock
Transfer & Trust Company (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 600,000 shares of Common
Stock and 600,000 Warrants (a maximum of 690,000 shares of Common Stock and
690,000 Warrants, including the over-allotment options), the Company proposes to
issue, in accordance with an agreement dated _______, 1996 by and between the
Company and the Warrant Agent (the "Warrant Agreement"), Warrants to purchase
shares of Common Stock; and
WHEREAS, the parties hereto wish to provide VTR, a member of the National
Association of Securities Dealers, Inc. ("NASD") with certain rights on an
exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after _________, 199__ and expire at 5:00 p.m. New York time on
_______, 2001 (the "Expiration Date"), subject to the Company's right to extend
the Expiration Date, at which time all rights evidenced by the Warrants shall
cease and the Warrants shall become void. In accordance with the provisions of
the Warrant Agreement, the holder of each Warrant shall have the right to
purchase from the Company, and the Company shall issue and sell to such holders
of Warrants, one fully paid and non-assessable share of the Company's Common
Stock for every Warrant exercised at an Exercise Price of $5.00, subject to
adjustment as provided in the Warrant Agreement.
Section 2. Notification of Exercise. Within five (5) days of the last day
of each month commencing _________, 1997 (one year from the date of the
Company's Prospectus), the Warrant Agent or the Company will notify VTR of each
Warrant certificate which has been properly completed and delivered for exercise
by holders of Warrants during each such month, if any, the determination of the
proper completion to be in the sole and absolute reasonable discretion of the
Company and the Warrant Agent. The Company or the Warrant Agent will provide VTR
with such information, in connection with the exercise of each Warrant, as VTR
shall reasonably request.
Section 3. Payment to VTR. The Company hereby agrees to pay to VTR an
amount equal to four (4%) percent of the exercise price (i.e. $.20 per share
based on the initial exercise price of the Warrants) for each Warrant exercised
(the "Exercise Fee") a
1
<PAGE>
portion of which may be allowed by VTR to the dealer who solicited the exercise
(which may also be VTR) provided that:
(a) such Warrant is exercised on or after _______, 1997, which
represents one year from the effective date of the Company's Registration
Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in writing,
either in the Form of Election contained on the specimen Warrant Certificates
attached hereto as Exhibits A, or by written documents signed and dated by the
holders and specifically stating that the exercise of such Warrants were
solicited by VTR or another member of the NASD;
(d) Solicitation of the exercise was in compliance with NASD Notice to
Members 81-38; and
(e) VTR and/or the member of the NASD which solicited the exercise of
Warrants delivers a certificate to the Company within five (5) business days of
receipt of information relating to such exercised Warrants from the Company or
the Warrant Agent in the form attached hereto as Exhibit B, stating that:
(1) the Warrants exercised were not held in a discretionary
account;
(2) VTR or the member of the NASD which solicited the exercise of
Warrants did not, (unless granted an exemption by the Securities and Exchange
Commission from the provisions thereof), within the applicable number of
business days under Rule 10b-6 immediately preceding the date of exercise of the
Warrant bid for or purchase the Common Stock of the Company or any securities of
the Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive as part of the original offering and upon exercise
of the Warrant.
(4) in connection with the solicitation, it complied with NASD
Notice to Members 81-38.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to pay
over to VTR within two (2) business days after receipt by the Company of the
certificate described in Section 3(d) above, but in no event later than
simultaneously with the distribution of proceeds to the Company from such
exercise of Warrant the Exercise Fee out of the proceeds it received from the
2
<PAGE>
applicable Exercise Price paid for the Warrants to which the
certificate relates.
Section 5. Inspection of Records. VTR may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. Termination. VTR shall be entitled to terminate this Agreement
prior to the exercise of all Warrants at any time upon five (5) business days'
prior notice to the Company and the Warrant Agent. Notwithstanding any such
termination notice, VTR shall be entitled to receive an Exercise Fee for the
exercise of any Warrant for which it has already delivered to the Company prior
to any such termination the certificate required by Section 3(d) of this
Agreement and shall be entitled to receive such Exercise Fee simultaneously with
the distribution of such proceeds to the Company.
Section 7. Notices. Any notice or other communication required or permitted
to be given pursuant to this Agreement shall be in writing and shall be deemed
sufficiently given if sent by first class certified mail, return receipt
requested, postage prepaid, addressed as follows: if to the Company at 270 Oser
Avenue, Hauppauge, New York 11788; if to VTR at 99 Wall Street, New York, NY
10005; and if to the Warrant Agent at 40 Wall Street, New York, NY 10005, or
such other address as such party shall have given notice to other parties hereto
in accordance with this Section. All such notices or other communications shall
be deemed given three (3) business days after mailing, as aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent and
VTR may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
VTR may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that VTR may
assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and VTR any legal or
3
<PAGE>
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of, and be binding upon, the Company, the
Warrant Agent and VTR and their respective successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and shall not control or
affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and all
prior agreements between the parties with respect to the subject matter hereof.
Section 14. Exclusive Agreement. It is understood that this agreement is on
an exclusive basis to solicit the exercise of the Warrants and that the Company
may not engage other broker-dealers to solicit the exercise of Warrants without
the consent of VTR.
Section 15. Conflict with Warrant Agreement. Any conflict between any term
hereof and any term of the Warrant Agreement shall be resolved in favor of such
provision contained in the Warrant Agreement except that nothing contained in
the Warrant Agreement shall be construed to modify the amount of compensation
payable to VTR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SUPERIOR SUPPLEMENTS, INC.
By:_______________________________________________
VTR CAPITAL, INC.
By:_______________________________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_______________________________________________
4
<PAGE>
CERTIFICATE
The undersigned, being the ________________ of VTR Capital, Inc. ("VTR")
pursuant to Section 3(d) of the Warrant Exercise Fee Agreement relating to the
exercise of Warrants dated ________, 1996 between Superior Supplements, Inc.
(the "Company") and American Stock Transfer & Trust Company (the "Warrant
Agent") hereby certifies that:
1. The Company or the Warrant Agent has notified VTR that ______________
Warrants (as defined in the Agreement) have been exercised during _____________,
199___.
2. The exercise of ______________ of such Warrants was solicited by
__________________________.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately preceding
_______________ 199___, bid for or purchase the Common Stock of the Company or
any securities of the Company immediately convertible into or exchangeable for
the Common Stock (including Warrants) or otherwise engage in any activity that
would be prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, to one engaged in a distribution of the Company's securities.
5. In connection with the solicitation of the exercise of the Warrants,
_____________ disclosed the compensation it will receive to holders of the
Warrants as part of the original offering and upon exercise of the Warrants.
6. In connection with the solicitation of the exercise of the Warrants, it
complied with NASD Notice to Members 81-38.
DATED: __________________, 199___
VTR CAPITAL, INC.
By:________________________________
5
<PAGE>
Page 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SUPERIOR SUPPLEMENTS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF APRIL, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------
Edward J. Freel, Secretary of State
[Seal]
AUTHENTICATION: 7929699
DATE: 05-01-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SUPERIOR SUPPLEMENTS, INC.
----------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"). Hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is SUPERIOR SUPPLEMENTS, INC.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware at such address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation have
authority to issue thirty-five million, which are divided into twenty-five
million shares of Common Stock which are of a par value of one tenth of one mill
each, and ten million shares of Blank Check Preferred Stock which are of par
value of one tenth of one mill.
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of the Article FOURTH, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The Authority of the Board with respect to each shall include, but not be
limited to, determination of the following:
-1-
<PAGE>
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of the
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
(h) Any other relative rights, preference, and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or declared and
set apart for payment before any dividends shall be paid or declared and set
apart for payment on the common shares with respect to the same dividend period.
If upon any voluntary or involuntary liquidation, dissolution, or winding up of
the corporation, the assets available for distribution to holders of shares of
Preferred Stock of all series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
FIFTH: The name and the mailing address of the incorporator are as follows:
-2-
<PAGE>
NAME MAILING ADDRESS
---- ---------------
Carol Glospie 375 Hudson Street, 11th Floor
New York, New York 10014
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss.291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
ss.279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all creditors or class of creditors, and/or on all stockholders or
class of stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss.109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the
-3-
<PAGE>
power to adopt, amend, or repeal the Bylaws of the corporation may be
exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation
for staggered terms pursuant to the provisions of subsection (d) of ss.141
of the General Corporation Law of the State of Delaware shall be set forth
in an initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote of the corporation unless provisions for such classification shall be
set forth in this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of ss.242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of ss.102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ss.145 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
-4-
<PAGE>
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed April 23, 1996
/s/ Carol Glospie
--------------------------
Incorporator
-5-
<PAGE>
BYLAWS
OF
SUPERIOR SUPPLEMENTS, INC.
(a Delaware corporation)
-------------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been place upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall
-1-
<PAGE>
be uncertificated shares. Within a reasonable time after the issuance or
transfer of any uncertificated shares, the corporation shall send to the
registered owner thereof any written notice prescribed by the General
Corporation Law.
3. FRACTIONAL SHARES INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they become void if not exchanged for certificates representing the full
shares or uncertificated full shares before a specified date, or subject to the
conditions that the shares for which scrip or warrants are exchangeable may be
sold by the corporation and the proceeds thereof distributed to the holders of
scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation
-2-
<PAGE>
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining the stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by the General Corporation
Law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board or Directors and prior action by the Board of Directors is required by
the General Corporation Law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action. In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
-3-
<PAGE>
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, provided, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
-4-
<PAGE>
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon three years from its date unless such proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and, if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A proxy may be
made irrevocable regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding
-5-
<PAGE>
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by him
or them and execute a certificate of any fact found by him or them. Except as
otherwise required by subsection (e) of Section 231 of the General Corporation
Law, the provisions of that Section shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the
-6-
<PAGE>
members thereof. The use of the phrase "whole board" herein refers to the total
number of directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of stockholders may be increased or decreased by action of the stockholders or
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of
the President, or of a majority of the directors in office.
-7-
<PAGE>
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time or place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors
-8-
<PAGE>
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any such committee or committees, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation with the exception of any authority the delegation of which is
prohibited by Section 141 of the General Corporation Law, and may authorized the
seal of the corporation to be affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may
-9-
<PAGE>
be removed, with or without cause, by the Board of Directors. Any vacancy
in any office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the Bylaws of SUPERIOR SUPPLEMENTS, INC., a Delaware corporation, as in effect
on the date hereof.
Dated:
/s/ Matthew L. Harriton
--------------------------------
Secretary of
SUPERIOR SUPPLEMENTS, INC.
(SEAL)
-10-
<PAGE>
CERTIFICATE OF DESIGNATION
ESTABLISHING A SERIES OF SHARES OF
SERIES A PREFERRED STOCK
OF
SUPERIOR SUPPLEMENTS, INC.
To the Secretary of State
of the State of Delaware:
SUPERIOR SUPPLEMENTS, INC. (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify that: pursuant to the provisions of Section 151(g)
of the General Corporation Law of the State of Delaware, the following
resolution establishing and designating a series of shares of preferred stock
and fixing and determining the relative rights and preferences thereof was duly
adopted by the Board of Directors of the Company as of August 6, 1996:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Company in accordance with the
provisions of its Certificate of Incorporation as amended, a series of
preferred stock, $.0001 par value per share, of the Company be established
and given the distinctive designation of "Series A Preferred Stock" (the
"Series A Preferred Stock"). The number of shares of the Series A Preferred
Stock authorized to be issued by the Company shall be 5,000,000 shares. The
rights, preferences, privileges and restrictions granted to and imposed
upon the Series A Preferred Stock are as set forth on the attached
Exhibit .
IN WITNESS WHEREOF, SUPERIOR SUPPLEMENTS, INC., has caused this Certificate
to be signed by its President and attested by its Secretary, this 6th day of
August, 1996.
SUPERIOR SUPPLEMENTS, INC.
By:________________________________
Name: Lawrence D. Simon
Title: Chief Executive Officer
ATTEST:
_______________________________
Name: Matthew L. Harriton
Title: Secretary
2
<PAGE>
EXHIBIT A
1. Dividends
(a) Holders of Series A Preferred Stock of Superior Supplements, Inc. (the
"Company") are not entitled to receive dividends.
2. Voting
(a) The holders of Series A Preferred Shares shall have the right to vote
on all matters presented to the stockholders of the Company (including the
holders of Common Stock), each share of Series A Preferred Stock to have the
voting power of one (1) share of Common Stock.
(b) In addition, the Company shall not, without the affirmative vote or
consent of the holders of the shares representing at least a majority of the
shares of Series A Preferred Stock then outstanding, voting as a separate class:
(i) in any manner authorize or create any class of capital stock
ranking, either as to payment of dividends or distribution of assets, prior
to or on a parity with the Series A Preferred Stock; or
(ii) in any manner alter or change the designations, powers,
preferences or rights or the qualifications, limitations or restrictions of
the Series A Preferred Stock;
provided, however, that except as otherwise provided by law, any such majority
vote or consent shall be sufficient authorization, insofar as the Series A
Preferred Stock is concerned, for any such action, and when such action is
effected upon such vote or consent, holders of shares of the Series A Preferred
Stock dissenting from such action shall not have any rights to payment for their
shares by reasons of this provision.
3. Rights on Liquidation, Dissolution or Winding Up
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, whether voluntary or involuntary, all of the issued and
outstanding shares of Series A Preferred Stock shall entitle the holders of
record thereof to payment of One Hundred Thousand Dollars ($100,000) for all of
the Series A Preferred Stock or two cents ($0.02) for each share of the Series A
Preferred Stock, before any payment or distribution of the net assets of the
Company (whether stated capital or surplus) shall be made to or set apart for
the holders of record of the issued and outstanding Junior Securities in respect
of said Junior Securities. After setting apart or paying in full the
preferential amounts aforesaid to the holders of record of the issued and
outstanding Series A Preferred Stock, the remaining net assets (whether stated
capital or surplus), if any, shall be distributed exclusively to the holders of
record of the issued and outstanding Junior Securities, each issued and
outstanding Junior Security entitling the holder of record
3
<PAGE>
thereof to receive an equal proportion of said remaining net assets relative to
all other holders of any class or type of Junior Security. If the net assets of
the Company shall be insufficient to pay in full the preferential amounts among
the holders of the Series A Preferred Stock as aforesaid, then each issued and
outstanding Series A Preferred Stock and such other shares having priority with
the Series A Preferred Stock shall entitle the holder of record thereof to a
ratable proportion of said net assets, and the holders of the Junior Securities
shall in no event be entitled to participate in the distribution of said net
assets in respect to their Junior Securities. Without excluding any other
proceeding which does not in fact effect a liquidation, dissolution, or winding
up of the Company, a merger or consideration of the Company into or with any
other corporation, a merger of any other corporation into the Company,
participation by the Company in a plan for share exchanges with any other
corporation, or a sale, lease, mortgage, pledge, exchange, transfer or other
disposition by the Company of all or substantially all of its assets shall not
be deemed, for the purposes of this paragraph, to be a liquidation, dissolution,
or winding up of the Company, provided that in each case, effective provision is
made by the resulting and surviving corporation or otherwise for the protection
of the rights of the holders of the Series A Preferred Stock.
4. Conversion
(a) The Series A Preferred Stock of the Company is not convertible into
shares of Common Stock of the Company.
5. Redemption The Series A Preferred Stock is not subject to redemption by
the Company.
6. Rank of Series A Preferred Stock
The Series A Preferred Stock shall rank senior to all series of preferred
stock and the Common Stock in all respects.
7. Notices
Any notice or other communication under the provisions of this Certificate
shall be in writing, and shall be given by postage prepaid, registered or
certified mail, return receipt requested, by hand delivery with an
acknowledgment copy requested, or by the Express Mail service offered by the
United States Post Office or any other reputable service which guarantees
overnight delivery ("Overnight Mail"), directed to the Company at 270 Oser
Avenue, Hauppauge, New York 11788 and to the Holders at their respective
addresses as set forth in the records of the Company, or to any new address of
which the Company or any Holder shall have informed the others by the giving of
notice in the manner provided herein. Such notice or communication shall be
effective, if sent by mail, three (3) days after it is mailed within the
continental United States; if sent by Overnight Mail, one day after it is
mailed; or by hand delivery, upon receipt.
4
<PAGE>
No sale, offer to sell or transfer of the securities represented by this
certificate or any interest therein shall be made unless a registration
statement under the Federal Securities Act of 1933, as amended, with respect to
such transaction is then in effect, or the issuer has received an opinion of
counsel satisfactory to it that such transfer does not require registration
under that Act.
This Warrant will be void after 5:00 p.m. New York time on __________, 2001
(i.e. five years from the effective date of the Registration Statement).
REPRESENTATIVE'S STOCK WARRANT
WARRANT NO. 1
To Subscribe for and Purchase Shares of
SUPERIOR SUPPLEMENTS, INC.
(Transferability Restricted as Provided in Paragraph 8 Below)
THIS CERTIFIES THAT, for value received, _______________ or registered
assigns, is entitled to subscribe for and purchase from Superior Supplements,
Inc., incorporated under the laws of the State of Delaware (the "Company") up to
__________ fully paid and non-assessable shares of Common Stock (the "Shares")
of the Company, as hereinafter defined, at the "Purchase Price" and during the
period hereinafter set forth, subject, however, to the provisions and upon the
terms and conditions hereinafter set forth. This Warrant is one of an issue of
the Company's Common Stock Purchase Warrants (herein called the "Warrants"),
identical in all respects except as to the names of the holders thereof and the
number of Shares purchasable thereunder, representing on the original issue
thereof rights to purchase up to 60,000 Shares.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to the
Company's Common Stock, $___ par value, per share as more fully set forth in
Section 5 hereof.
(b) "Purchase Price" shall be $6.00 per share (120% of the public
offering price per share) which is subject to adjustment pursuant to Section 4
hereof.
(c) "Underwriter" or "Representative" shall refer to VTR CAPITAL, INC.
(d) "Underwriting Agreement" shall refer to the Underwriting Agreement
dated as of _____________, 1996 between the Company and the Underwriter.
<PAGE>
(e) "Warrants" or "Representative's Stock Warrants" shall refer to
Warrants to purchase an aggregate of up to 60,000 Shares issued to the
Underwriter or its designees by the Company pursuant to the Underwriting
Agreement, as such may be adjusted from time to time pursuant to the terms of
Section 4 and including any Warrants represented by any certificate issued from
time to time in connection with the transfer, partial exercise, exchange of any
Warrants or in connection with a lost, stolen, mutilated or destroyed Warrant
certificate, if any, or to reflect an adjusted number of Shares.
(f) "Underlying Securities" shall refer to and include the Common
Shares issuable or issued upon exercise of the Representative's Stock Warrants.
(g) "Holders" shall mean the registered holder of such
Representative's Stock Warrants or any issued Underlying Securities.
(h) "Effective Date" shall refer to the effective date of the Form
SB-2 Registration Statement File No. 333- ____________.
(i) Warrant Agreement shall refer to the agreement dated as of
___________, 1996 by and among the Company, the Representative and American
Stock Transfer & Trust Company.
(j) "Representative's Warrants" shall refer to Warrants to purchase up
to 60,000 Warrants identical to the Warrants being offered to the public and
which are covered by a separate Warrant. The "Representative's Stock Warrants"
and "Representative's Warrants" collectively shall be referred to as the
"Representative's Securities." The term "underlying securities" when used in
connection with the registration rights of the holder of this Warrant shall
refer to any securities issuable upon exercise of the Representative's
Securities.
2. The purchase rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part at any time, and from time to time, during
the period commencing on the Effective Date until _____________, 2001 (the
"Expiration Date"), by the presentation of this Warrant, with the purchase form
attached duly executed, at the Company's office (or such office or agency of the
Company as it may designate in writing to the Holder hereof by notice pursuant
to Section 14 hereof), and upon payment by the Holder to the Company in cash, or
by certified check or bank draft of the Purchase Price for such Shares of Common
Stock. The Company agrees that the Holder hereof shall be deemed the record
owner of such Underlying Securities as of the close of business on the date on
which this Warrant shall have been presented and payment made for such Shares as
aforesaid. Certificates for the Underlying Securities so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding five (5)
days, after the rights represented by this Warrant shall have been so exercised.
If this Warrant shall be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation,
2
<PAGE>
deliver a new Representative's Stock Warrant evidencing the rights of the Holder
hereof to purchase the balance of the Shares which such Holder is entitled to
purchase hereunder. Exercise in full of the rights represented by this Warrant
shall not extinguish the rights granted under Section 9 hereof.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Representative's Stock Warrants of different denominations entitling
the Holder thereof to purchase in the aggregate the same number of Shares of
Common Stock as are purchasable hereunder; and (ii) this Warrant may be divided
or combined with other Representative's Stock Warrants which carry the same
rights, in either case, upon presentation hereof at the aforesaid office of the
Company together with a written notice, signed by the Holder hereof, specifying
the names and denominations in which new Representative's Stock Warrants are to
be issued, and the payment of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of this Section 4, the Purchase
Price and number of Common Shares subject to this Warrant shall be subject to
adjustment from time to time as set forth hereinafter.
(A) If the Company shall, at any time, subdivide its outstanding
Common Shares by recapitalization, reclassification, split up thereof, or other
such issuance without additional consideration, the appropriate Purchase Price
immediately prior to such subdivision shall be proportionately decreased, and if
the Company shall at any time combine the outstanding Common Shares by
recapitalization, reclassification or combination thereof, the Purchase Price
immediately prior to such combination shall be proportionately increased. Any
such adjustment to the Purchase Price or the corresponding adjustment to the
Purchase Price shall become effective at the close of business on the record
date for such subdivision or combination. No adjustment to the Purchase Price
and the number of shares issuable upon exercise of this Warrant shall be
required if such adjustment provides the holders of this Warrant with
disproportionate rights, privileges and economic benefits which are not provided
to the public shareholders.
(B) In the event that prior to the Representative's Stock Warrant's
expiration date the Company adopts a resolution to merge, consolidate, or sell
percentages in all of its assets, each Warrant holder upon the exercise of his
Representative's Stock Warrant will be entitled to receive the same treatment as
a holder of any other share of Common Stock. In the event the Company adopts a
resolution for the liquidation, dissolution, or winding up of the Company's
business, the Company will give written notice of such adoption of a resolution
to the registered holders of the Representative's Stock Warrants. Thereupon all
liquidation and dissolution rights under this Warrant will terminate at the end
of thirty (30) days from the date of the notice to the extent not exercised
within those thirty (30) days.
3
<PAGE>
(C) If any capital reorganization or reclassification of the capital
stock of the Company or consolidation or merger of the Company with another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Company or such successor
or purchasing corporation, as the case may be, shall execute with the Warrant
Agent a supplemental Warrant Agreement providing that each registered holder of
a Representative's Stock Warrant shall have the right thereafter and until the
expiration date to exercise such Warrant for the kind and amount of stock,
securities, cash or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale by a holder of the number of
shares of Common Stock for the purchase of which such Warrant might have been
exercised immediately prior to such reorganization, reclassification,
consolidation, merger or sale, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4.
(D) In case at any time the Company shall declare a dividend or make
any other distribution upon any stock of the Company payable in Common Stock,
then such Common Stock issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(E) Upon any adjustment of the appropriate respective Purchase Price
as hereinabove provided, the number of Common Shares issuable upon exercise of
each class of Warrant shall be changed to the number of shares determined by
dividing (i) the aggregate Purchase Price payable for the purchase of all shares
issuable upon exercise of that class of Warrant immediately prior to such
adjustment by (ii) the appropriate Purchase Price per share in effect
immediately after such adjustment.
(F) No adjustment in the Purchase Price shall be required under
Section 4 hereof unless such adjustment would require an increase or decrease in
such price of at least 1% provided, however, that any adjustments which by
reason of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment, and provided further, however, that in case the Company
shall at any time subdivide or combine the outstanding Common Shares as a
dividend, said amount of 1% per share shall forthwith be proportionately
increased in the case of a combination or decreased in the case of a subdivision
or stock dividend so as to appropriately reflect the same.
(G) On the effective date of any new Purchase Price the number of
shares as to which this Warrant may be exercised shall be increased or decreased
so that the total sum payable to the Company on the exercise of this Warrant
shall remain constant.
(H) The form of Representative's Stock Warrant need not be changed
because of any change pursuant to this Article, and
4
<PAGE>
Representative's Stock Warrants issued after such change may state the Purchase
Price and the same number of shares as is stated in the Representative's Stock
Warrants initially issued pursuant to this Warrant. However, the Company may at
any time in its sole discretion (which shall be conclusive) make any change in
the form of Representative's Stock Warrant that the Company may deem appropriate
and that does not affect the substance thereof, and any Representative's Stock
Warrant thereafter issued or countersigned, whether in exchange or substitution
for an outstanding Warrant or otherwise, may be in the form as so changed.
5. For the purposes of this Warrant, the terms "Common Shares" or "Common
Stock" shall mean (i) the class of stock designated as the Common Stock, $___
par value, of the Company on the date set forth on the first page hereof or (ii)
any other class of stock resulting from successive changes or re-classifications
of such Common Stock consisting solely of changes in par value, or from no par
value to par value, or from par value to no par value. If at any time, as a
result of an adjustment made pursuant to Section 4, the securities or other
property obtainable upon exercise of this Warrant shall include shares or other
securities of the Company other than Common Shares or securities of another
corporation or other property, thereafter, the number of such other shares or
other securities or property so obtainable shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Shares contained in Section 4 and all
other provisions of this Warrant with respect to Common Shares shall apply on
like terms to any such other shares or other securities or property. Subject to
the foregoing, and unless the context requires otherwise, all references herein
to Common Shares shall, in the event of an adjustment pursuant to Section 4, be
deemed to refer also to any other securities or property then obtainable as a
result of such adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by the
Representative's Stock Warrant may be exercised, the Company shall, at all
times, reserve and keep available out of its authorized capital stock, solely
for the purposes of issuance upon exercise of this Warrant, such number of its
Common Shares as shall be issuable upon the exercise of this Warrant and at its
expense will obtain the listing thereof on all national securities exchanges on
which the Common Shares are then listed; and if at any time the number of
authorized Common Shares shall not be sufficient to effect the exercise of this
Warrant, the Company will take such corporate action as may be necessary to
increase its authorized but unissued Common Shares to such number of shares as
shall be sufficient for such purpose; the Company shall have analogous
obligations with respect to any other securities or property issuable upon
exercise of this Warrant.
(b) All Common Shares which may be issued upon exercise of the rights
represented by this Warrant will, upon issuance be
5
<PAGE>
validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(c) All original issue taxes payable in respect of the issuance of
Common Shares upon the exercise of the rights represented by this Warrant shall
be borne by the Company but in no event shall the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any
Representative's Stock Warrants.
7. Until exercised, this Warrant shall not entitle the Holder hereof to any
voting rights or other rights as a shareholder of the Company, except that the
Holder of this Warrant shall be deemed to be a shareholder of this Company for
the purpose of bringing suit on the ground that the issuance of shares of stock
of the Company is improper under the New York Corporation Law.
8. This Warrant and the Underlying Securities shall not be sold,
transferred, assigned or hypothecated for a period of twelve (12) months from
the Effective Date, except to officers or partners of the Representative, and/or
the other underwriters and/or selected dealers who participated in such
offering, or the officers or partners of such underwriters and/or selected
dealers. In no event shall this Warrant and the Underlying Securities be sold,
transferred, assigned or hypothecated except in conformity with the applicable
provisions of the Securities Act of 1933, as then in force (the "Act"), or any
similar Federal statute then in force, and all applicable "Blue Sky" laws.
9. The Holder of this Warrant, by acceptance hereof, agrees that, prior to
the disposition of this Warrant or of any Underlying Securities theretofore
purchased upon the exercise hereof, under circumstances that might require
registration of such securities under the Act, or any similar Federal statute
then in force, such Holder will give written notice to the Company expressing
such Holder's intention of effecting such disposition, and describing briefly
such Holder's intention as to the disposition to be made of this Warrant and/or
the Underlying Securities theretofore issued upon exercise hereof. Promptly upon
receiving such notice, the Company shall present copies thereof to its counsel
and the provisions of the following subdivisions shall apply:
(a) If, in the opinion of such counsel, the proposed disposition does
not require registration under the Act, or any similar Federal statute then in
force, of this Warrant and/or the securities issuable or issued upon the
exercise of this Warrant, the Company shall, as promptly as practicable, notify
the Holder hereof of such opinion, whereupon such holder shall be entitled to
dispose of this Warrant and/or such Underlying Securities theretofore issued
upon the exercise hereof, all in accordance with the terms of the notice
delivered by such Holder to the Company.
(b) If, in the opinion of such counsel, such proposed disposition
requires such registration or qualification under the Act, or similar Federal
statute then in effect, of this Warrant
6
<PAGE>
and/or the Underlying Securities issuable or issued upon the exercise of this
Warrant, the Company shall promptly give written notice of such opinion to the
Holder hereof and to the then holders of the securities theretofore issued upon
the exercise of this Warrant at the respective addresses thereof shown on the
books of the Company. Section 15 of the Underwriting Agreement provides for the
following rights:
"SECTION 15. Registration of the Representative's Securities and/or the
Underlying Securities. The Company agrees that it will, upon request by any 50%
Holder (as defined below) within the period commencing one year after the
Effective Date, and for a period of four years thereafter, on one occasion only
at the Company's sole expense, cause the Representative's Securities and/or the
underlying securities issuable upon exercise of the Representative's Securities,
to be the subject of a post-effective amendment, or a new Registration
Statement, if appropriate (hereinafter referred to as the "demand Registration
Statement"), so as to enable the Representative and/or its assigns to offer
publicly the Representative's Securities and/or the underlying securities. The
Company agrees to register such securities expeditiously and, where possible,
within forty-five (45) business days after receipt of such requests. The Company
agrees to use its "best efforts" to cause the post-effective amendment, or new
Registration Statement to become effective and for a period of nine (9) months
thereafter to reflect in the post-effective amendment or the new Registration
Statement, financial statements which are prepared in accordance with Section
10(a)(3) of the Act and any facts or events arising which, individually or in
the aggregate, represent a fundamental and/or material change in the information
set forth in such post-effective amendment or new Registration Statement. The
holders of the Representative's Securities may demand registration without
exercising such Warrants and, in fact, are never required to exercise same. The
term "50% Holder" as used in this section shall mean the registered holder of at
least a majority of the Representative's Securities and/or the underlying
securities. (The registration rights provided herein apply to the
Representative's Securities in their entirety and do not provide a separate
demand registration right per security.)
The Company understands and agrees that if, at any time within the period
commencing one year after the Effective Date and ending seven years after the
Effective Date, it should file a registration statement with the Commission
pursuant to the Act, regardless of whether some of the holders of the
Representative's Warrants and underlying securities shall have theretofore
availed themselves of the right above provided, the Company, at its own expense,
will offer to said holders the opportunity to register such securities. This
paragraph is not applicable to a Registration Statement filed by the Company
with the Commission on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the Company will cooperate with
the then holders of the Representative's Securities and underlying securities in
preparing
7
<PAGE>
and signing a Registration Statement, on one occasion only in addition to the
Registration Statements discussed above, required in order to sell or transfer
the aforesaid Representative's Securities and underlying securities and will
supply all information required therefor, but such additional Registration
Statement shall be at the then holders' cost and expense unless the Company
elects to register additional shares of the Company's Shares in which case the
cost and expense of such Registration Statement will be prorated between the
Company and the holders of the Representative's Securities and underlying
securities according to the aggregate sales price of the securities being
issued. The holders of the Representative's Securities may include such Warrants
in any such filing without exercising the Representative's Securities, and in
fact, are never required to exercise same."
10. The Company agrees to indemnify and hold harmless the holder of this
Warrant, or of securities issuable or issued upon the exercise hereof, from and
against any claims and liabilities caused by any untrue statement of a material
fact, or omission to state a material fact required to be stated, in any such
registration statement, prospectus, notification or offering circular under
Regulation A, except insofar as such claims or liabilities are caused by any
such untrue statement or omission based on information furnished in writing to
the Company by such holder, or by any other such holder affiliated with the
holder who seeks indemnification, as to which the holder hereof, by acceptance
hereof, agrees to indemnify and hold harmless the Company.
11. If this Warrant, or any of the securities issuable pursuant hereto,
require qualification or registration with, or approval of, any governmental
official or authority (other than registration under the Act, or any similar
Federal statute at the time in force), before such securities may be issued on
the exercise hereof, the Company, at its expense, will take all requisite action
in connection with such qualification, and will use its best efforts to cause
such securities and/or this Warrant to be duly registered or approved, as may be
required.
12. This Warrant is exchangeable, upon its surrender by the registered
holder at such office or agency of the Company as may be designated by the
Company, for new Representative's Stock Warrants of like tenor, representing, in
the aggregate, the right to subscribe for and purchase the number of Common
Shares that may be subscribed for and purchased hereunder, each of such new
Representative's Stock Warrants to represent the right to subscribe for and
purchase such number of Common Shares as shall be designated by the registered
holder at the time of such surrender. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant, and,
in the case of any such loss, theft or destruction, upon delivery of a bond of
indemnity satisfactory to the Company, or in the case of such mutilation, upon
surrender or cancellation of this Warrant, the Company will issue to the
registered holder a new Representative's Stock Warrant of like tenor, in lieu of
this Warrant, representing the right to subscribe for and purchase the number of
Common Shares
8
<PAGE>
that may be subscribed for and purchased hereunder. Nothing herein is intended
to authorize the transfer of this Warrant except as permitted under Paragraph 8.
13. Every holder hereof, by accepting the same, agrees with any subsequent
holder hereof and with the Company that this Warrant and all rights hereunder
are issued and shall be held subject to all of the terms, conditions,
limitations and provisions set forth in this Warrant, and further agrees that
the Company and its transfer agent may deem and treat the registered holder of
this Warrant as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
14. All notices required hereunder shall be given by first-class mail,
postage prepaid; if given by the holder hereof, addressed to the Company at 270
Oser Avenue, Hauppauge, New York 11788 or such other address as the Company may
designate in writing to the holder hereof; and if given by the Company,
addressed to the holder at the address of the holder shown on the books of the
Company.
15. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York and jurisdiction is hereby vested
in the Courts of said State in the event of the institution of any legal action
under this Warrant.
IN WITNESS WHEREOF, SUPERIOR SUPPLEMENTS, INC. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal, to be dated
as of ________________, 1996.
SUPERIOR SUPPLEMENTS, INC.
By:___________________________________
Attest:
______________________________
(Corporate Seal)
9
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase Common ________Shares
evidenced by the within Warrant, according to the terms and conditions thereof,
and herewith makes payment of the purchase price in full. The undersigned
requests that certificates for such shares shall be issued in the name set forth
below.
Dated: ,19
___________________________________
Signature
___________________________________
Print Name of Signatory
___________________________________
Name to whom certificates are to
be issued if different from above
Address:___________________________
___________________________
Social Security No.________________
or other identifying number
If said number of shares shall not be all the shares purchasable under the
within Warrant, the undersigned requests that a new Warrant for the unexercised
portion shall be registered in the name of:
___________________________
(Please Print)
Address:___________________________
Social Security No.________________
or other identifying number
___________________________________
Signature
10
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby
sells assigns and transfers to , Soc. Sec. No.
[ ] the within Warrant, together with all rights, title
and interest therein, and does hereby irrevocably constitute and
appoint attorney to transfer such Warrant on
the register of the within named Company, with full power of
substitution.
___________________________________
Signature
Dated: , 19
Signature Guaranteed:
_________________________________
11
<PAGE>
No sale, offer to sell or transfer of the securities represented by this
certificate or any interest therein shall be made unless a registration
statement under the Federal Securities Act of 1933, as amended, with respect to
such transaction is then in effect, or the issuer has received an opinion of
counsel satisfactory to it that such transfer does not require registration
under that Act.
This Warrant will be void after 5:00 p.m. New York time on the earlier of
______________, 2001 (i.e. five years from the effective date of the
Registration Statement) or the Warrant Expiration Date of the Warrants as
defined in the Warrant Agreement.
REPRESENTATIVE'S WARRANT TO PURCHASE
COMMON STOCK PURCHASE WARRANT
WARRANT NO. __
To Subscribe for and Purchase
Common Stock Purchase Warrants of
SUPERIOR SUPPLEMENTS, INC.
(Transferability Restricted as Provided in Paragraph 8 Below)
THIS CERTIFIES THAT, for value received, _____________ or registered
assigns, is entitled to subscribe for and purchase from SUPERIOR SUPPLEMENTS,
INC., incorporated under the laws of the State of Delaware (the "Company") up to
______ fully paid Common Stock Purchase Warrants of the Company, as hereinafter
defined, at the "Purchase Price" and during the period hereinafter set forth,
subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant is one of an issue of the Company's
Representative's Warrants (as defined herein) to purchase Common Stock Purchase
Warrants, identical in all respects except as to the names of the holders
thereof and the number of Common Stock Purchase Warrants purchasable thereunder,
representing on the original issue thereof rights to purchase up to 60,000
Common Stock Purchase Warrants.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to the
Company's Common Stock, $____ par value, as more fully defined in the Warrant
Agreement.
(b) "Purchase Price" shall be $.12 per Warrant which is subject to
adjustment pursuant to Section 4 hereof.
(c) "Underwriter" or "Representative" shall refer to VTR CAPITAL, INC.
<PAGE>
(d) "Underwriting Agreement" shall refer to the Underwriting Agreement
dated as of ________, 1996 between the Company and the Underwriter.
(e) "Representative's Warrants" or "this Warrant" shall refer to
Warrants to purchase an aggregate of up to 60,000 Common Stock Purchase Warrants
issued to the Underwriter or its designees by the Company pursuant to the
Underwriting Agreement, as such may be adjusted from time to time pursuant to
the terms of Section 4 and including any Representative's Warrants represented
by any certificate issued from time to time in connection with the transfer,
partial exercise, exchange of any Representative's Warrants or in connection
with a lost, stolen, mutilated or destroyed Representative's Warrant
certificate, if any, or to reflect an adjusted number of Representative's
Warrants.
(f) "Common Stock Purchase Warrants" issuable upon exercise of the
Representative's Warrants shall be identical in all respects to the Common Stock
Purchase Warrants sold to the public in the Form SB-2 Registration Statement
File No. 333-_______ and covered by the Warrant Agreement.
(g) "Holders" shall mean the registered holder of the Representative's
Warrants or any Common Stock Purchase Warrants issued upon exercise of same.
(h) "Effective Date" shall refer to the effective date of the Form
SB-2 Registration Statement File No. 333-________.
(i) Warrant Agreement shall refer to the agreement dated as of
_______, 1996 by and among the Company, the Representative and American Stock
Transfer & Trust Company.
(j) "Representative's Stock Warrants shall refer to Warrants to
purchase up to 60,000 shares of Common Stock which are covered by a separate
Warrant. The "Representative's Stock Warrants" and "Representative's Warrants"
collectively shall be referred to as the "Representative's Securities." The term
"underlying securities" when used in connection with the registration rights of
the holder of this Warrant shall refer to any securities issuable upon exercise
of the Representative's Securities.
2. The purchase rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part at any time, and from time to time, during
the period commencing on the Effective Date until the earlier _______, 2001 or
the Warrant Expiration Date of the Common Stock Purchase Warrants as defined in
the Warrant Agreement (the "Expiration Date"), by the presentation of this
Warrant, with the purchase form attached duly executed, at the Company's office
(or such office or agency of the Company as it may designate in writing to the
Holder hereof by notice pursuant to
2
<PAGE>
Section 14 hereof), and upon payment by the Holder to the Company in cash, or by
certified check or bank draft of the Purchase Price for such Common Stock
Purchase Warrants. The Company agrees that the Holder hereof shall be deemed the
record owner of such Common Stock Purchase Warrants as of the close of business
on the date on which this Warrant shall have been presented and payment made for
such Common Stock Purchase Warrants as aforesaid. Certificates for the Common
Stock Purchase Warrants so purchased shall be delivered to the Holder hereof
within a reasonable time, not exceeding five (5) days, after the rights
represented by this Warrant shall have been so exercised. If this Warrant shall
be exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, deliver a new Representative's Warrant evidencing the rights of
the Holder hereof to purchase the balance of the Common Stock Purchase Warrants
which such Holder is entitled to purchase hereunder. Exercise in full of the
rights represented by this Warrant shall not extinguish the rights granted under
Section 9 hereof.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Representative's Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of Common Stock
Purchase Warrants as are purchasable hereunder; and (ii) this Warrant may be
divided or combined with other Representative's Warrants which carry the same
rights, in either case, upon presentation hereof at the aforesaid office of the
Company together with a written notice, signed by the Holder hereof, specifying
the names and denominations in which new Representative's Warrants are to be
issued, and the payment of any transfer tax due in connection therewith.
4. The Purchase Price and number of Common Stock Purchase Warrants
purchasable upon exercise of this Warrant are subject to adjustment by the Board
of Directors of the Company as deemed appropriate by them acting in good faith
in order to protect the holder on a similar basis as the anti-dilution
provisions contained in the Warrant Agreement applicable to the Common Stock
Purchase Warrants. Notwithstanding anything contained herein to the contrary, no
adjustment will be made to the Purchase Price or number of Common Stock Purchase
Warrants where no adjustment has been made pursuant to the terms of the Warrant
Agreement to the number of Common Stock Purchase Warrants held by the public
Warrant holders.
The exercise price of the Common Stock Purchase Warrants underlying this
Warrant and securities issuable upon exercise of the Common Stock Purchase
Warrants are subject to adjustment pursuant to the terms and conditions
contained in the Warrant Agreement.
5. For the purposes of this Warrant, the term "Common Stock Purchase
Warrants" shall mean any other class of Common Stock
3
<PAGE>
Purchase Warrants resulting from successive changes or re-classifications of
such Warrants. If at any time, as a result of an adjustment made pursuant to
Section 4, the securities or other property obtainable upon exercise of this
Warrant shall include securities of the Company other than Common Stock Purchase
Warrants or securities of another corporation or other property, thereafter, the
number of such securities or property so obtainable shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock Purchase Warrants
contained in Section 4 and all other provisions of this Warrant with respect to
Common Stock Purchase Warrants shall apply on like terms to any such other
securities or property. Subject to the foregoing, and unless the context
requires otherwise, all references herein to Common Stock Purchase Warrants
shall, in the event of an adjustment pursuant to Section 4, be deemed to refer
also to any other securities or property then obtainable as a result of such
adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by the
Representative's Warrant may be exercised, the Company shall, at all times,
reserve and keep available out of its authorized capital stock, solely for the
purposes of issuance upon exercise of the Common Stock Purchase Warrants, such
number of its Common Shares as shall be issuable upon the exercise of the Common
Stock Purchase Warrants and at its expense will obtain the listing thereof on
all national securities exchanges on which the Common Shares are then listed;
and if at any time the number of authorized Common Shares shall not be
sufficient to effect the exercise of the Common Stock Purchase Warrants, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose; the Company shall have analogous obligations with
respect to any other securities or property issuable upon exercise of the Common
Stock Purchase Warrants.
(b) All securities which may be issued upon exercise of the rights
represented by this Warrant and the Common Stock Purchase Warrant will, upon
issuance be validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof; and,
(c) All original issue taxes payable in respect of the issuance of
Common Stock Purchase Warrants upon the exercise of the rights represented by
this Warrant shall be borne by the Company but in no event shall the Company be
responsible or liable for income taxes or transfer taxes upon the transfer of
any Representative's Warrants and/or Common Stock Purchase Warrants.
7. Until the Common Stock Purchase Warrants are exercised, this Warrant
shall not entitle the Holder hereof to any voting
4
<PAGE>
rights or other rights as a shareholder of the Company, except that the Holder
of this Warrant and/or the Common Stock Purchase Warrants shall be deemed to be
a shareholder of this Company for the purpose of bringing suit on the ground
that the issuance of shares of stock of the Company is improper under the New
York Corporation Law.
8. This Warrant and the Common Stock Purchase Warrants shall not be sold,
transferred, assigned or hypothecated for a period of twelve (12) months from
the Effective Date, except to officers or partners of the Representative, and/or
the other underwriters and/or selected dealers who participated in such
offering, or the officers or partners of such underwriters and/or selected
dealers. In no event shall this Warrant and the Common Stock Purchase Warrants
be sold, transferred, assigned or hypothecated except in conformity with the
applicable provisions of the Securities Act of 1933, as then in force (the
"Act"), or any similar Federal statute then in force, and all applicable "Blue
Sky" laws.
9. The holder of this Warrant, by acceptance hereof, agrees that, prior to
the disposition of this Warrant or of any securities theretofore purchased upon
the exercise hereof, under circumstances that might require registration of such
securities under the Act, or any similar Federal statute then in force, such
holder will give written notice to the Company expressing such holder's
intention of effecting such disposition, and describing briefly such holder's
intention as to the disposition to be made of this Warrant and/or the securities
theretofore issued upon exercise hereof. In this event, the provisions of the
following subdivisions shall apply:
(a) If, in the opinion of company counsel, the proposed disposition
does not require registration under the Act or qualification pursuant to
Regulation A promulgated under the Act, or any similar Federal statute then in
force, of this Warrant and/or the securities issuable or issued upon the
exercise of this Warrant, the Company shall, as promptly as practicable after
the receipt of written opinion of counsel to the holder of this Warrant to such
effect, notify the holder hereof of such opinion, whereupon such holder shall be
entitled to dispose of this Warrant and/or such securities theretofore issued
upon the exercise hereof, all in accordance with the terms of the notice
delivered by such holder to the Company.
(b) If, in the opinion of either such counsel, such proposed
disposition requires such registration or qualification under the Act, or
similar Federal statute then in effect, of this Warrant and/or the Common Stock
Purchase Warrants issuable or issued upon the exercise of this Warrant, the
Company shall promptly give written notice to all then holders of the
Representative's Warrants and/or Common Stock Purchase Warrants at the
respective addresses thereof shown on the books of the Company. Section 15 of
the Underwriting Agreement provides for the following rights:
5
<PAGE>
"SECTION 15. Registration of the Representative's Securities and/or the
Underlying Securities. The Company agrees that it will, upon request by any 50%
Holder (as defined below) within the period commencing one year after the
Effective Date, and for a period of four years thereafter, on one occasion only
at the Company's sole expense, cause the Representative's Securities and/or the
underlying securities issuable upon exercise of the Representative's Securities,
to be the subject of a post-effective amendment, or a new Registration
Statement, if appropriate (hereinafter referred to as the "demand Registration
Statement"), so as to enable the Representative and/or its assigns to offer
publicly the Representative's Securities and/or the underlying securities. The
Company agrees to register such securities expeditiously and, where possible,
within forty-five (45) business days after receipt of such requests. The Company
agrees to use its "best efforts" to cause the post-effective amendment, or new
Registration Statement to become effective and for a period of nine (9) months
thereafter to reflect in the post-effective amendment or the new Registration
Statement, financial statements which are prepared in accordance with Section
10(a)(3) of the Act and any facts or events arising which, individually or in
the aggregate, represent a fundamental and/or material change in the information
set forth in such post-effective amendment or new Registration Statement. The
holders of the Representative's Securities may demand registration without
exercising such Warrants and, in fact, are never required to exercise same. The
term "50% Holder" as used in this section shall mean the registered holder of at
least a majority of the Representative's Securities and/or the underlying
securities. (The registration rights provided herein apply to the
Representative's Securities in their entirety and do not provide a separate
demand registration right per security.)
The Company understands and agrees that if, at any time within the period
commencing one year after the Effective Date and ending seven years after the
Effective Date, it should file a registration statement with the Commission
pursuant to the Act, regardless of whether some of the holders of the
Representative's Warrants and underlying securities shall have theretofore
availed themselves of the right above provided, the Company, at its own expense,
will offer to said holders the opportunity to register such securities. This
paragraph is not applicable to a Registration Statement filed by the Company
with the Commission on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the Company will cooperate with
the then holders of the Representative's Securities and underlying securities in
preparing and signing a Registration Statement, on one occasion only in addition
to the Registration Statements discussed above, required in order to sell or
transfer the aforesaid Representative's Securities and underlying securities and
will supply all
6
<PAGE>
information required therefor, but such additional Registration Statement shall
be at the then holders' cost and expense unless the Company elects to register
additional shares of the Company's Shares in which case the cost and expense of
such Registration Statement will be prorated between the Company and the holders
of the Representative's Securities and underlying securities according to the
aggregate sales price of the securities being issued. The holders of the
Representative's Securities may include such Warrants in any such filing without
exercising the Representative's Securities, and in fact, are never required to
exercise same."
10. The Company agrees to indemnify and hold harmless the holder of this
Warrant and/or the Common Stock Purchase Warrants issuable or issued upon the
exercise hereof, from and against any claims and liabilities caused by any
untrue statement of a material fact, or omission to state a material fact
required to be stated, in any such registration statement, prospectus,
notification or offering circular under Regulation A, except insofar as such
claims or liabilities are caused by any such untrue statement or omission based
on information furnished in writing to the Company by such holder, or by any
other such holder affiliated with the holder who seeks indemnification, as to
which the holder hereof, by acceptance hereof, agrees to indemnify and hold
harmless the Company.
11. If this Warrant and/or the Common Stock Purchase Warrants require
qualification or registration with, or approval of, any governmental official or
authority (other than registration under the Act, or any similar Federal statute
at the time in force), before such securities may be issued on the exercise
hereof, the Company, at its expense, will take all requisite action in
connection with such qualification, and will use its best efforts to cause this
Warrant to be duly registered or approved, as may be required.
12. This Warrant is exchangeable, upon its surrender by the registered
holder at such office or agency of the Company as may be designated by the
Company, for new Representative's Warrants of like tenor, representing, in the
aggregate, the right to subscribe for and purchase the number of Common Stock
Purchase Warrants that may be subscribed for and purchased hereunder, each of
such new Representative's Warrants to represent the right to subscribe for and
purchase such number of Common Stock Purchase Warrants as shall be designated by
the registered holder at the time of such surrender. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity satisfactory to the Company, or in the case of
such mutilation, upon surrender or cancellation of this Warrant, the Company
will issue to the registered holder a new Representative's Warrant of like
tenor, in lieu of this Warrant, representing the right to subscribe for and
purchase the number of Common Stock Purchase Warrants that may be subscribed for
and
7
<PAGE>
purchased hereunder. Nothing herein is intended to authorize the transfer of
this Warrant except as permitted under Paragraph 8.
13. Every holder hereof, by accepting the same, agrees with any subsequent
holder hereof and with the Company that this Warrant and all rights hereunder
are issued and shall be held subject to all of the terms, conditions,
limitations and provisions set forth in this Warrant, and further agrees that
the Company and its transfer agent may deem and treat the registered holder of
this Warrant as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
14. All notices required hereunder shall be given by first-class mail,
postage prepaid; if given by the holder hereof, addressed to the Company at 270
Oser Avenue, Hauppauge, New York 11788 or such other address as the Company may
designate in writing to the holder hereof; and if given by the Company,
addressed to the holder at the address of the holder shown on the books of the
Company.
15. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York and jurisdiction is hereby vested
in the Courts of said State in the event of the institution of any legal action
under this Warrant.
IN WITNESS WHEREOF, SUPERIOR SUPPLEMENTS, INC. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal, to be dated
as of _________, 1996.
SUPERIOR SUPPLEMENTS, INC.
By:__________________________________
Attest:
__________________________
(Corporate Seal)
8
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _____________Common Stock
Purchase Warrants evidenced by the within Representative's Warrant, according to
the terms and conditions thereof, and herewith makes payment of the purchase
price in full. The undersigned requests that certificates for such Common Stock
Purchase Warrants shall be issued in the name set forth below.
Dated: ,19
___________________________________
Signature
___________________________________
Print Name of Signatory
___________________________________
Name to whom certificates are to
be issued if different from above
Address:___________________________
___________________________
Social Security No.________________
or other identifying number
If said number of Common Stock Purchase Warrants shall not be all the
Common Stock Purchase Warrants purchasable under the within Warrant, the
undersigned requests that a new Representative's Warrant for the unexercised
portion shall be registered in the name of:
___________________________
(Please Print)
Address:___________________________
___________________________
Social Security No.________________
or other identifying number
___________________________________
Signature
9
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby
sells assigns and transfers to , Soc. Sec. No.
[ ] the within Representative's Warrant, together with
all rights, title and interest therein, and does hereby irrevocably
constitute and appoint attorney to transfer
such Representative's Warrant on the register of the within named
Company, with full power of substitution.
___________________________________
Signature
Dated: , 19
Signature Guaranteed:
__________________________________
10
<PAGE>
NON-EXCLUSIVE SUPPLY AGREEMENT
This Non-Exclusive Supply Agreement (the "Agreement") is made and entered
into as of the 14th day of May, 1996 by and between Superior Supplements, Inc.,
a Delaware corporation ("SSI"), and PDK Labs Inc., a New York corporation
("PDK").
W I T N E S S E T H:
WHEREAS, SSI is engaged in the business of manufacturing and distributing
certain vitamins and food supplements in bulk tablet form; and
WHEREAS, SSI owns and operates a factory for the manufacture of vitamins
and food supplements in bulk tablet form; and
WHEREAS, PDK is engaged in the business of marketing and distributing
vitamin and food supplement products.
NOW, THEREFORE, the parties for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, agree as follows:
1. Purchase and Sale of Products.
(a) During the term hereof (the "Term"), as defined at paragraph 3
hereof, PDK, its successors, assigns, subsidiaries and affiliates (collectively,
"PDK") shall purchase from SSI, non-exclusively, all "Pills" (the "Pills") which
PDK distributes, markets or otherwise sells within the United States ("US"). For
purposes of this Agreement, the term "Pills" shall include all vitamins and food
supplements manufactured in bulk tablet form.
(b) SSI shall use its best efforts to fulfill all of PDK's orders on a
timely basis. SSI shall comply with applicable laws and regulations regarding
the manufacture and delivery of Pills for and on behalf of PDK.
(c) SSI will supply all materials used in connection with the
manufacture of the Pills. All Pills shall meet PDK's specifications.
1
<PAGE>
(d) All sales by SSI to PDK will be FOB, SSI's manufacturing facility
in Hauppauge, New York or such other manufacturing facility of SSI of SSI's
choice. Title to and risk of loss of the products shall pass from SSI to PDK
upon acceptance by the carrier of PDK's choice.
(e) Nothing herein shall restrict or limit in any manner the right of
SSI to sell Pills, or any other products, to any party other than PDK.
2. Purchase Price and Payment. PDK will pay for the Pills as follows:
(a) PDK will pay to SSI, SSI's material cost ("Material Cost") plus
fifteen percent (15%). For purposes of this Agreement "Material Cost" shall mean
SSI's actual material expenses incurred in the manufacture of the Pills. Such
expenses shall not exceed the fair market value of materials used in production
at the time of purchase by SSI. PDK reserves the right to supply any and all
materials used in production; provided that PDK shall notify SSI of the material
expenses incurred in PDK's purchase of such materials and SSI shall be entitled
to fifteen percent (15%) of such expenses as payment for the manufacture of the
related Pills.
(b) SSI shall invoice PDK upon delivery of each order and all invoices
shall be paid by PDK within thirty (30) days of the date of shipment. PDK shall
pay all costs and expenses, including reasonable attorney's fees, reasonably
incurred by SSI in the collection of any sum payable hereunder by PDK to SSI. In
addition to paying the price in effect under this Agreement, PDK shall pay all
sales or use taxes applicable to the sale or delivery by SSI or the subsequent
use by PDK of any items delivered hereunder.
3. Term of Agreement.
(a) The term of this Agreement (the "Term") shall commence on the date
hereof (the "Effective Date") and shall continue for a period of three (3)
years, and thereafter will be automatically renewed for successive one (1) year
terms unless either party provides written notice of intent to terminate the
Agreement at least ninety (90) days prior to the end of any Agreement Year, as
defined below.
2
<PAGE>
(b) For purposes of this Agreement, an "Agreement Year" shall commence
on the Effective Date and on each anniversary thereof and shall end on the day
before the first anniversary of each such Agreement Year.
4. Placement and Acceptance of Orders; Delivery Schedule.
(a) Written Orders. PDK will place all orders for the purchase of
Pills from SSI, by written purchase order executed by an authorized agent of
PDK, no less than forty-five (45) days in advance. Such orders shall be filled
by SSI, within such forty-five (45) day period, unless an order is significantly
in excess of previous orders, in which case SSI will use its best efforts to
process the order, or a substantial portion thereof, within a forty-five (45)
day period or a reasonable time period (subject to raw material availability).
(b) Rejection of Orders. SSI shall not be obligated to manufacture or
distribute to PDK any item, and shall have the right to reject any order, in
whole or in part, based upon SSI's determination that such manufacture or
distribution might violate existing regulatory standards, requirements,
regulations, or concerns.
(c) Resale of Products. PDK will not sell or distribute any product
purchased from SSI hereunder to any party or entity that PDK knows, or has
reason to know, will utilize such product in any manner that is inconsistent
with or contrary to prevailing federal and state regulations or laws, including
the rules and regulations of any state or federal regulatory organization.
(d) Obligation for Cost of Raw Materials. Upon placement of any order,
PDK shall become liable for all costs incurred by SSI in connection with the
purchase of raw materials to be used in fulfilling such order.
5. Force Majeure. SSI shall not be liable for any delay or failure to
perform in accordance with this Agreement if such delay or failure to perform is
a result of a strike, lock-out or other labor dispute; riot, insurrection, civil
disturbance or other hostility; embargo; inability or delay in obtaining fuel,
energy, equipment or power; inability or delay in obtaining labor or materials;
inability or delay in obtaining government approvals, permits or licenses;
inability or delay in obtaining transportation or other services; fire, flood,
lightning, storm, earthquake, or other Act of God; or is a result of causes
beyond SSI's reasonable control (each of the foregoing being hereinafter
referred to as an "Event of Force Majeure"). In
3
<PAGE>
such event, SSI's obligation to perform hereunder shall be suspended for the
duration of such Event of Force Majeure. SSI will use reasonable efforts to
promptly notify PDK, either orally or in writing, upon learning of the
occurrence or potential occurrence of such Event of Force Majeure.
6. Indemnification.
6.1 Indemnification. PDK hereby agrees to indemnify and hold SSI, its
officers, directors, agents, servants, employees, subsidiaries and affiliates,
harmless from and against any and all claims, suits, demands, losses,
liabilities, damages, court costs, (including reasonable attorneys' fees),
whether based in contract or in tort, arising out of or related to, or as a
consequence of any act or omission of PDK relating to the Pills.
6.2 Termination of this Agreement.
(a) SSI shall have the right to terminate this Agreement at its sole
discretion, at any time, upon being advised that any regulatory authority
objects to the sale of the Pills by SSI to PDK.
(b) Upon the termination of this Agreement any then unpaid accounts
receivable fees shall accrue and become immediately due and payable.
7. Minimum Annual Purchase by PDK. PDK hereby covenants with SSI, and
agrees to purchase from SSI during each year of the Term hereof Pills having a
minimum aggregate sales price of $2,500,000 per annum (the "Minimum Sales
Amount"). In the event that PDK fails to purchase the Minimum Sales Amount
during any year falling during the Term hereof, PDK shall pay SSI the sum of
$100,000 (or such lesser sum pro-rated by reference to the percentage of the
Minimum Sales Amount actually purchased by PDK during such year) as liquidated
damages. PDK's obligations pursuant to this Section 7 shall be terminated in the
event that (a) the Pills do not meet PDK's specifications, (b) SSI is unable to
purchase materials for production at fair market value unless PDK supplies the
materials used in production pursuant to Section 2, or (c) in the event that
this Agreement is terminated pursuant to Section 8 below.
8. Termination of Agreement.
(a) In the event of the occurrence of any of the following events: (i)
insolvency or the making by a party hereto of an assignment for the benefit of
4
<PAGE>
creditors; (ii) the filing by or against a party hereto of, or the entry of an
order for relief against a party hereto in, a voluntary or involuntary
proceeding under any bankruptcy, insolvency, reorganization or receivership law;
(iii) the appointment of a receiver for all or a substantial portion of PDK's
property; (iv) the assumption of custody, attachment or sequestration by a court
of competent jurisdiction of all or a significant portion of a party's property;
(v) a party hereto or any principal thereof is charged with a felony or crime of
moral turpitude; (vi) notification to a party hereto from the United States Drug
Enforcement Administration, or any other federal or state regulatory agency,
that such party should discontinue business relations with the other party; or
(vii) fraudulent conduct by a party hereto in any of its dealings with the other
party, the non-defaulting party shall have the right to terminate this
Agreement, by written notice to the other party. No assignee for the benefit of
creditors, receiver, liquidator, trustee in bankruptcy, sheriff or any other
officer of the court or official charged with taking over custody of the assets
or business or a party shall have any right to continue performance of this
Agreement, and this Agreement may not be assigned by PDK by operation of law.
(b) Any failure by either party to terminate this Agreement by reason
of one or more of the foregoing acts or events shall not constitute a waiver of
the right to terminate this Agreement upon reoccurrence or continuance of such
acts or events.
9. Representations and Warranties of PDK. PDK (including all of its
subsidiaries and affiliates) represents and warrants to SSI as follows:
9.1 Organization and Qualification. PDK is a corporation validly existing
and in good standing under the laws of the State of New York, and has all
requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted. PDK is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the business of PDK.
9.2 Subsidiaries and Affiliates. Except as set forth on Schedule 9.2
hereof, PDK has no subsidiaries or affiliates.
5
<PAGE>
9.3 Validity and Execution of Agreement. PDK has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and thereunder. The stockholders and the board of directors of PDK has approved
the transactions contemplated pursuant to this Agreement. This Agreement has
been duly executed and delivered by PDK and constitutes the valid and binding
obligation of PDK enforceable against it in accordance with its terms.
9.4 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by PDK of the transactions contemplated hereby will: violate or
conflict with (a) any of the provisions of the Certificate of Incorporation or
Bylaws or other organizational documents of PDK; (b) result in the acceleration
of, or entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any lien in or upon their respective assets or constitute a default (or an event
which might, with the passage of time or the giving of notice, or both,
constitute a default) under any contract, (c) any order, judgment, regulation or
ruling of any governmental or regulatory body to which PDK are a party or by
which any of its property or assets may be bound or affected or with any
provision of any law, rule, regulation, order, judgment, or ruling of any
governmental or regulatory body applicable to PDK.
9.5 Licenses and Permits. PDK maintains all governmental permits, licenses,
registrations and other governmental consents (federal, state and local) which
are necessary in connection with its operations and properties, and no others
are required. All such permits, licenses, registrations and consents are in full
force and effect and in good standing and shall continue to be in full force and
effect and in good standing following the consummation of the transactions
contemplated by this Agreement.
9.6 Compliance with Laws. PDK has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental or regulatory body, court or arbitrator
affecting the business or the assets the failure to comply with which could have
a material adverse effect on the business of PDK.
9.7 Products. There are no statements, citations or decisions by any
governmental or regulatory body that any product marketed or distributed at any
time by PDK is defective or fails to meet in any material respect any standards
promulgated by any such governmental or regulatory body. There have been no
6
<PAGE>
recalls ordered by any such governmental or regulatory body with respect to any
product. To the best knowledge of PDK, there is no (a) fact relating to any
product that may impose upon the Companies a duty to recall any product or a
duty to warn customers of a defect in any product, other than defects about
which PDK has issued appropriate and adequate warnings or (b) latent or overt
design, manufacturing or other defect in any product.
9.8 Survival. All of the representations and warranties of PDK contained
herein shall survive the date hereof until the date upon which the liability to
which any claim relating to any such representation or warranty is barred by all
applicable statutes of limitations.
10. Representations and Warranties of SSI.
10.1 Organization and Qualification. SSI is a corporation validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted. SSI is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the business of SSI.
10.2 Subsidiaries and Affiliates. Except as set forth on Schedule 10.2
hereof, SSI has no subsidiaries or affiliates.
10.3 Validity and Execution of Agreement. SSI has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and thereunder. The stockholders and the board of directors of SSI has approved
the transactions contemplated pursuant to this Agreement. This Agreement has
been duly executed and delivered by SSI and constitutes the valid and binding
obligation of SSI enforceable against it in accordance with its terms.
10.4 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by SSI of the transactions contemplated hereby will: violate or
conflict with (a) any of the provisions of the Certificate of Incorporation or
By-
7
<PAGE>
laws or other organizational documents of SSI; (b) result in the acceleration
of, or entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any lien in or upon their respective assets or constitute a default (or an event
which might, with the passage of time or the giving of notice, or both,
constitute a default) under any contract, (c) any order, judgment, regulation or
ruling of any governmental or regulatory body to which SSI are a party or by
which any of its property or assets may be bound or affected or with any
provision of any law, rule, regulation, order, judgment, or ruling of any
governmental or regulatory body applicable to SSI.
10.5 Licenses and Permits. SSI maintains all governmental permits,
licenses, registrations and other governmental consents (federal, state and
local) which are necessary in connection with its operations and properties, and
no others are required. All such permits, licenses, registrations and consents
are in full force and effect and in good standing and shall continue to be in
full force and effect and in good standing following the consummation of the
transactions contemplated by this Agreement.
10.6 Compliance with Laws. SSI has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental or regulatory body, court or arbitrator
affecting the business or the assets the failure to comply with which could have
a material adverse effect on the business of SSI.
10.7 Products. To SSI's knowledge, there are no statements, citations or
decisions by any governmental or regulatory body that any product marketed or
distributed at any time by SSI is defective or fails to meet in any material
respect any standards promulgated by an governmental or regulatory body. There
have been no recalls ordered by any such governmental or regulatory body with
respect to any product. To the knowledge of SSI, there is no (a) fact relating
to any product that may impose upon SSI a duty to recall any product or a duty
to warn customers or a defect in any product, other than defects about which SSI
has issued appropriate and adequate warning, or (b) latent or overt design,
manufacturing or other defect in any product.
10.8 Survival. All of the representations and warranties of SSI contained
herein shall survive the date hereof until the date upon which the liability to
which
8
<PAGE>
any claim relating to any such representation or warranty is barred by all
applicable statutes of limitations.
11. Nondisclosure. Neither party, nor any person controlled by it, shall
for any reason other than fulfilling its obligations hereunder, directly or
indirectly, for itself or any other person, use or disclose any trade secrets or
confidential information, know-how or proprietary information relating to the
other party, except to the extent (i) within the public domain; or (ii) pursuant
to a subpoena, court order or applicable law.
12. Relationship of the Parties. The relationship of the parties created
hereby is that of independent contractors, and neither party shall have any
right or authority to create or assume any obligation of any kind on behalf of
the other.
13. Disclaimer of Warranties. SSI makes no other representations or
warranties except as set forth in this Agreement, and SSI expressly disclaims
any implied warranties of merchantability, fitness for use or fitness for a
particular purpose.
14. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier, same day or overnight messenger or certified, registered
or express mail, postage prepaid. Any such notice shall be deemed to have been
given (a) when received, if delivered in person, telegraphed, telexed, sent by
facsimile transmission and confirmed in writing within three (3) Business Days
thereafter or sent by prepaid air courier, same day or overnight messenger or
(b) three (3) Business Days following the mailing thereof, if mailed by
certified first class mail, postage prepaid, return receipt requested, in any
such case as follows (or to such other address or addresses as a party may have
advised the other in the manner provided in this Section 14):
If to SSI, to:
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, NY 11788
Attn: Lawrence D. Simon
9
<PAGE>
with copy to:
Bernstein & Wasserman, LLP
950 Third Avenue, 10th Floor
New York, NY 10022
Attn: Hartley T. Bernstein
If to PDK, to:
PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Attn: Michael Krasnoff
15. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither party shall assign any of its rights or delegate any of its
duties or obligations hereunder without the prior written consent of the other
party. Notwithstanding the foregoing, the parties hereto do not intend to create
hereby, and this Agreement shall not be read or construed to create or grant,
any rights or benefits in or for any person or entity other than the parties
hereto and any and all such third party rights or benefits are hereby expressly
disclaimed and denied.
16. Governing Laws. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
principles of conflicts of law, and the parties irrevocably agree to submit any
controversy or claim arising out of or relating to this Agreement to a court of
competent jurisdiction located in the State of New York. The parties agree that
any proceedings arising out of, relating to, or brought for the purpose of
enforcing this Agreement, or remedying any breach thereof shall be instituted in
the courts of the State of New York, and in no other jurisdiction.
17. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same instrument.
10
<PAGE>
18. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
19. Amendment. This Agreement may be amended only by a writing signed by
all parties hereto.
20. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to its subject matter and supersedes any prior
arrangements or understandings (written or otherwise) between them.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the first date written above.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
----------------------------
PDK LABS INC.
By: /s/ Michael Krasnoff
----------------------------
11
<PAGE>
EXCLUSIVE SUPPLY AGREEMENT
This Exclusive Supply Agreement (the "Agreement") is made and entered into
as of the 31st day of May, 1996 by and between Superior Supplements, Inc., a
Delaware corporation ("SSI"), and Compare Generiks, Inc., a Delaware corporation
("CGI").
W I T N E S S E T H:
WHEREAS, SSI is engaged in the business of manufacturing and distributing
certain vitamins in bulk tablet form; and
WHEREAS, SSI owns and operates a factory for the manufacture of vitamins in
bulk tablet form; and
WHEREAS, CGI is engaged in the business of marketing and distributing
vitamin products.
NOW, THEREFORE, the parties for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, agree as follows:
1. Exclusive Purchase and Sale of Products.
(a) During the term hereof (the "Term"), as defined at paragraph 3
hereof, CGI, its successors, assigns, subsidiaries and affiliates (collectively,
"CGI") shall purchase from SSI, exclusively, all "Pills" (the "Pills") which CGI
distributes, markets or otherwise sells within the United States ("US"). For
purposes of this Agreement, the term "Pills" shall include all vitamins
manufactured in bulk tablet form, other than any vitamins now or hereafter sold
under the "Energex" trade mark or as part of the "Energex" product line, as set
forth on Schedule 1(a) attached hereto and as notified in writing by CGI to SSI
from time to time.
(b) SSI shall use its best efforts to fulfill all of CGI's orders on a
timely basis. SSI shall comply with applicable laws and regulations regarding
the manufacture and delivery of Pills for and on behalf of CGI.
<PAGE>
(c) SSI will supply all materials used in connection with the
manufacture of the Pills. All Pills shall meet CGI's specifications.
(d) All sales by SSI to CGI will be FOB, SSI's manufacturing facility
in Hauppauge, New York or such other manufacturing facility of SSI of SSI's
choice. Title to and risk of loss of the products shall pass from SSI to CGI
upon acceptance by the carrier of CGI's choice.
(e) Nothing herein shall restrict or limit in any manner the right of
SSI to sell Pills, or any other products, to any party other than CGI.
2. Purchase Price and Payment. CGI will pay for the Pills as follows:
(a) CGI will pay to SSI, SSI's material cost ("Material Cost") plus
fifteen percent (15%). For purposes of this agreement "Material Cost" shall mean
SSI's actual material expenses incurred in the manufacture of the Pills.
(b) SSI shall invoice CGI upon delivery of each order and all invoices
shall be paid by CGI within thirty (30) days of the date of shipment. CGI shall
pay all costs and expenses, including reasonable attorney's fees, reasonably
incurred by SSI in the collection of any sum payable hereunder by CGI to SSI. In
addition to paying the price in effect under this Agreement, CGI shall pay all
sales or use taxes applicable to the sale or delivery by SSI or the subsequent
use by CGI of any items delivered hereunder.
3. Term of Agreement.
(a) The term of this Agreement (the "Term") shall commence on the date
hereof (the "Effective Date") and shall continue for a period of three (3)
years, and thereafter will be automatically renewed for successive one (1) year
terms unless either party provides written notice of intent to terminate the
Agreement at least ninety (90) days prior to the end of any Agreement Year, as
defined below.
(b) For purposes of this Agreement, an "Agreement Year" shall commence
on the Effective Date and on each anniversary thereof and shall end on the day
before the first anniversary of each such Agreement Year.
2
<PAGE>
4. Placement and Acceptance of Orders; Delivery Schedule.
(a) Written Orders. CGI will place all orders for the purchase of
Pills from SSI, by written purchase order executed by an authorized agent of
CGI, no less than forty-five (45) days in advance. Such orders shall be filled
by SSI, within such forty-five (45) day period, unless an order is significantly
in excess of previous orders, in which case SSI will use its best efforts to
process the order, or a substantial portion thereof, within a forty-five (45)
day period or a reasonable time period (subject to raw material availability).
(b) Rejection of Orders. SSI shall not be obligated to manufacture or
distribute to CGI any item, and shall have the right to reject any order, in
whole or in part, based upon SSI's determination that such manufacture or
distribution might violate existing regulatory standards, requirements,
regulations, or concerns. In the event, SSI declines to manufacture any item
requested by CGI, or rejects any order placed by CGI, CGI shall have the right
to purchase such item or items, or fill such requested order or such portion of
an order, through another manufacturer or distributor.
(c) Resale of Products. CGI will not sell or distribute any product
purchased from SSI hereunder to any party or entity that CGI knows, or has
reason to know, will utilize such product in any manner that is inconsistent
with or contrary to prevailing federal and state regulations or laws, including
the rules and regulations of any state or federal regulatory organization.
(d) Obligation for Cost of Raw Materials. Upon placement of any order,
CGI shall become liable for all costs incurred by SSI in connection with the
purchase of raw materials to be used in fulfilling such order.
5. Force Majeure. SSI shall not be liable for any delay or failure to
perform in accordance with this Agreement if such delay or failure to perform is
a result of a strike, lock-out or other labor dispute; riot, insurrection, civil
disturbance or other hostility; embargo; inability or delay in obtaining fuel,
energy, equipment or power; inability or delay in obtaining labor or materials;
inability or delay in obtaining government approvals, permits or licenses;
inability or delay in obtaining transportation or other services; fire, flood,
lightning, storm, earthquake, or other Act of God; or is a result of causes
beyond SSI's reasonable control (each of the foregoing being hereinafter
referred to as an "Event of Force Majeure"). In
3
<PAGE>
such event, SSI's obligation to perform hereunder shall be suspended for the
duration of such Event of Force Majeure. SSI will use reasonable efforts to
promptly notify CGI, either orally or in writing, upon learning of the
occurrence or potential occurrence of such Event of Force Majeure. If any Event
of Force Majeure is not remedied by SSI within five (5) days of its occurrence,
CGI shall have the right to purchase Pills from another manufacturer or
distributor until such time as SSI can again fully meet CGI's needs and has
given CGI at least thirty (30) days written notice of such fact.
6. Exclusivity Provisions.
6.1 Exclusivity. This Agreement shall automatically terminate in the event
during any year of the Term CGI purchases Pills from any other parties in
violation of this Agreement.
6.2 Indemnification. CGI hereby agrees to indemnify and hold SSI, its
officers, directors, agents, servants, employees, subsidiaries and affiliates,
harmless from and against any and all claims, suits, demands, losses,
liabilities, damages, court costs, (including reasonable attorneys' fees),
whether based in contract or in tort, arising out of or related to, or as a
consequence of any act or omission of CGI relating to the Pills.
6.3 Termination of this Agreement.
(a) SSI shall have the right to terminate this Agreement at its sole
discretion, at any time, upon being advised that any regulatory authority
objects to the sale of the Pills by SSI to CGI.
(b) Upon the termination of this Agreement any then unpaid accounts
receivable fees shall accrue and become immediately due and payable.
7. Termination of Agreement.
(a) In the event of the occurrence of any of the following events: (i)
insolvency or the making by a party hereto of an assignment for the benefit of
creditors; (ii) the filing by or against a party hereto of, or the entry of an
order for relief against a party hereto in, a voluntary or involuntary
proceeding under any bankruptcy, insolvency, reorganization or receivership law;
(iii) the appointment
4
<PAGE>
of a receiver for all or a substantial portion of CGI's property; (iv) the
assumption of custody, attachment or sequestration by a court of competent
jurisdiction of all or a significant portion of a party's property; (v) a party
hereto or any principal thereof is charged with a felony or crime of moral
turpitude; (vi) notification to a party hereto from the United States Drug
Enforcement Administration, or any other federal or state regulatory agency,
that such party should discontinue business relations with the other party; or
(vii) fraudulent conduct by a party hereto in any of its dealings with the other
party, the non-defaulting party shall have the right to terminate this
Agreement, by written notice to the other party. No assignee for the benefit of
creditors, receiver, liquidator, trustee in bankruptcy, sheriff or any other
officer of the court or official charged with taking over custody of the assets
or business or a party shall have any right to continue performance of this
Agreement, and this Agreement may not be assigned by CGI by operation of law.
(b) Any failure by either party to terminate this Agreement by reason
of one or more of the foregoing acts or events shall not constitute a waiver of
the right to terminate this Agreement upon reoccurrence or continuance of such
acts or events.
8. Representations and Warranties of CGI. CGI (including all of its
subsidiaries and affiliates) represents and warrants to SSI as follows:
8.1 Organization and Qualification. CGI is a corporation validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted. CGI is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the business of CGI.
8.2 Subsidiaries and Affiliates. Except as set forth on Schedule 9.2
hereof, CGI has no subsidiaries or affiliates.
8.3 Validity and Execution of Agreement. CGI has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and
5
<PAGE>
thereunder. The stockholders and the board of directors of CGI has approved the
transactions contemplated pursuant to this Agreement. This Agreement has been
duly executed and delivered by CGI and constitutes the valid and binding
obligation of CGI enforceable against it in accordance with its terms.
8.4 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by CGI of the transactions contemplated hereby will: violate or
conflict with (a) any of the provisions of the Certificate of Incorporation or
Bylaws or other organizational documents of CGI; (b) result in the acceleration
of, or entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any lien in or upon their respective assets or constitute a default (or an event
which might, with the passage of time or the giving of notice, or both,
constitute a default) under any contract, (c) any order, judgment, regulation or
ruling of any governmental or regulatory body to which CGI are a party or by
which any of its property or assets may be bound or affected or with any
provision of any law, rule, regulation, order, judgment, or ruling of any
governmental or regulatory body applicable to CGI.
8.5 Licenses and Permits. CGI maintains all governmental permits, licenses,
registrations and other governmental consents (federal, state and local) which
are necessary in connection with its operations and properties, and no others
are required. All such permits, licenses, registrations and consents are in full
force and effect and in good standing and shall continue to be in full force and
effect and in good standing following the consummation of the transactions
contemplated by this Agreement.
8.6 Compliance with Laws. CGI has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental or regulatory body, court or arbitrator
affecting the business or the assets the failure to comply with which could have
a material adverse effect on the business of CGI.
8.7 Products. There are no statements, citations or decisions by any
governmental or regulatory body that any product marketed or distributed at any
time by CGI is defective or fails to meet in any material respect any standards
promulgated by any such governmental or regulatory body. There have been no
recalls ordered by any such governmental or regulatory body with respect to any
product. To the best knowledge of CGI, there is no (a) fact relating to any
product that may impose upon the Companies a duty to recall any product or a
duty to warn customers of a defect in any product, other than defects about
which CGI has
6
<PAGE>
issued appropriate and adequate warnings or (b) latent or overt design,
manufacturing or other defect in any product.
8.8 Survival. All of the representations and warranties of CGI contained
herein shall survive the date hereof until the date upon which the liability to
which any claim relating to any such representation or warranty is barred by all
applicable statutes of limitations.
9. Representations and Warranties of SSI.
9.1 Organization and Qualification. SSI is a corporation validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted. SSI is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the business of SSI.
9.2 Subsidiaries and Affiliates. Except as set forth on Schedule 10.2
hereof, SSI has no subsidiaries or affiliates.
9.3 Validity and Execution of Agreement. SSI has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and thereunder. The stockholders and the board of directors of SSI has approved
the transactions contemplated pursuant to this Agreement. This Agreement has
been duly executed and delivered by SSI and constitutes the valid and binding
obligation of SSI enforceable against it in accordance with its terms.
9.4 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by SSI of the transactions contemplated hereby will: violate or
conflict with (a) any of the provisions of the Certificate of Incorporation or
Bylaws or other organizational documents of SSI; (b) result in the acceleration
of, or entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any lien in or upon their respective assets or constitute a default (or an event
which might, with
7
<PAGE>
the passage of time or the giving of notice, or both, constitute a default)
under any contract, (c) any order, judgment, regulation or ruling of any
governmental or regulatory body to which SSI are a party or by which any of its
property or assets may be bound or affected or with any provision of any law,
rule, regulation, order, judgment, or ruling of any governmental or regulatory
body applicable to SSI.
9.5 Licenses and Permits. SSI maintains all governmental permits, licenses,
registrations and other governmental consents (federal, state and local) which
are necessary in connection with its operations and properties, and no others
are required. All such permits, licenses, registrations and consents are in full
force and effect and in good standing and shall continue to be in full force and
effect and in good standing following the consummation of the transactions
contemplated by this Agreement.
9.6 Compliance with Laws. SSI has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental or regulatory body, court or arbitrator
affecting the business or the assets the failure to comply with which could have
a material adverse effect on the business of SSI.
9.7 Products. To SSI's knowledge, there are no statements, citations or
decisions by any governmental or regulatory body that any product marketed or
distributed at any time by SSI is defective or fails to meet in any material
respect any standards promulgated by an governmental or regulatory body. There
have been no recalls ordered by any such governmental or regulatory body with
respect to any product. To the knowledge of SSI, there is no (a) fact relating
to any product that may impose upon SSI a duty to recall any product or a duty
to warn customers or a defect in any product, other than defects about which SSI
has issued appropriate and adequate warning, or (b) latent or overt design,
manufacturing or other defect in any product.
9.8 Survival. All of the representations and warranties of SSI contained
herein shall survive the date hereof until the date upon which the liability to
which any claim relating to any such representation or warranty is barred by all
applicable statutes of limitations.
10. Nondisclosure. Neither party, nor any person controlled by it, shall
for any reason other than fulfilling its obligations hereunder, directly or
indirectly,
8
<PAGE>
for itself or any other person, use or disclose any trade secrets or
confidential information, know-how or proprietary information relating to the
other party, except to the extent (i) within the public domain; or (ii) pursuant
to a subpoena, court order or applicable law.
11. Relationship of the Parties. The relationship of the parties created
hereby is that of independent contractors, and neither party shall have any
right or authority to create or assume any obligation of any kind on behalf of
the other.
12. Disclaimer of Warranties. SSI makes no other representations or
warranties except as set forth in this Agreement, and SSI expressly disclaims
any implied warranties of merchantability, fitness for use or fitness for a
particular purpose.
13. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier, same day or overnight messenger or certified, registered
or express mail, postage prepaid. Any such notice shall be deemed to have been
given (a) when received, if delivered in person, telegraphed, telexed, sent by
facsimile transmission and confirmed in writing within three (3) Business Days
thereafter or sent by prepaid air courier, same day or overnight messenger or
(b) three (3) Business Days following the mailing thereof, if mailed by
certified first class mail, postage prepaid, return receipt requested, in any
such case as follows (or to such other address or addresses as a party may have
advised the other in the manner provided in this Section 13):
If to SSI, to:
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, NY 11788
Attn: Larry Simon
with copy to:
Bernstein & Wasserman, LLP
950 Third Avenue, 10th Floor
9
<PAGE>
New York, NY 10022
Attn: Hartley T. Bernstein
If to CGI, to:
Compare Generiks, Inc.
300 Oser Avenue
Hauppauge, NY 11788
Attn: Thomas A. Keith
14. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither party shall assign any of its rights or delegate any of its
duties or obligations hereunder without the prior written consent of the other
party. Notwithstanding the foregoing, the parties hereto do not intend to create
hereby, and this Agreement shall not be read or construed to create or grant,
any rights or benefits in or for any person or entity other than the parties
hereto and any and all such third party rights or benefits are hereby expressly
disclaimed and denied.
15. Governing Laws. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
principles of conflicts of law, and the parties irrevocably agree to submit any
controversy or claim arising out of or relating to this Agreement to a court of
competent jurisdiction located in the State of New York. The parties agree that
any proceedings arising out of, relating to, or brought for the purpose of
enforcing this Agreement, or remedying any breach thereof shall be instituted in
the courts of the State of New York, and in no other jurisdiction.
16. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
18. Amendment. This Agreement may be amended only by a writing signed by
all parties hereto.
10
<PAGE>
19. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to its subject matter and supersedes any prior
arrangements or understandings (written or otherwise) between them.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the first date written above.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
----------------------------
COMPARE GENERIKS, INC.
By: /s/ Thomas A. Keith
----------------------------
12
<PAGE>
SUBSCRIPTION AGREEMENT
May 31, 1996
Superior Supplements, Inc.
Hauppauge, NY
Gentlemen:
1. Subscription. Subject to the terms and conditions of this Subscription
Agreement, the undersigned (the "Investor") hereby subscribes for and agrees to
acquire Five Hundred Thousand (500,000) newly issued shares of Common Stock (the
"Shares") of Superior Supplements, Inc. (the "Corporation"), at an aggregate
purchase price of (x) One Hundred Thousand Dollars ($100,000) and (y) the
issuance to the Corporation of Two Hundred Thousand (200,000) newly issued
shares of Common Stock of the Investor (the "Consideration Shares").
2. Acceptance. If the Investor's subscription is accepted, the Corporation
will return to the Investor one executed copy of this Subscription Agreement.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Corporation as follows:
(a) The Investor is fully aware that the Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or under any applicable state securities laws. The Investor further understands
that the securities are being issued in reliance on the exemption from the
registration requirements of the Securities Act provided by Section 4(2) thereof
or Regulation D promulgated under the Securities Act, and in reliance on
exemptions from the registration requirements of certain state Securities laws,
on the grounds that the offering involved has been made to a limited number of
potential investors.
(b) The Investor is acquiring the Shares for its own account as a
principal and not with a present view to resale or distribution.
(c) The Investor is able to bear the economic risk of the investment
in the Shares and has such knowledge and experience in financial and business
matters, and knowledge of the business of the Corporation.
(d) The Investor has received all information with respect to the
Corporation it has requested.
<PAGE>
(e) The Investor has been given the opportunity to ask questions of,
and receive answers from, officers of the Corporation concerning the terms and
conditions of the offering and to obtain such additional information which the
Corporation possesses or can acquire without unreasonable effort or expense that
is necessary to verify information that was otherwise provided.
(f) The Investor recognizes that investment in the Shares involves
substantial risks. In deciding whether to invest in the Shares, the Investor has
weighed these risks against the potential return. Considering all relevant
factors in its financial and personal circumstances, the Investor is able to
bear the economic risk of the investment. The Investor has adequate means of
providing for its current needs and possible personal contingencies and has no
need in the foreseeable future for liquidity of its investment in the Shares.
(g) The Investor has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its investment in the Shares.
(h) The Investor is aware that no Federal or state agency has (i) made
any finding or determination as to the fairness of any aspect of the investment
in the Shares or (ii) passed on or endorsed the merits of the offering of the
Shares.
(i) The Investor agrees not to sell, pledge, transfer or otherwise
encumber the Shares for a period of two years following the date hereof unless
the Shares are registered for sale to the public or an exemption from
registration is available to the holder of the Shares.
(j) The Investor has not retained any broker or finder in connection
with the transactions contemplated herein so as to give rise to any valid claim
against the Corporation or any of its subsidiaries for any broker's or finder's
fee, commission or similar compensation.
(k) Any information that such Investor has heretofore furnished to the
Corporation with respect to its respective financial position, and investment
experience is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to the Closing,
such Investor will immediately furnish such revised or corrected information to
the Corporation.
(l) The Investor acknowledges that the Corporation has only recently
been organized and has no operating or financial history.
(m) The Investor has the full legal right and power and all authority
and approval required to enter into, execute and deliver this Subscription
Agreement and to perform fully its obligations hereunder. This Subscription
Agreement has been duly executed and delivered and is the valid and binding
obligation of the Investor, enforceable in accordance with its terms, except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other such laws affecting the enforcement of
creditors' rights generally and by
2
<PAGE>
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). The execution, delivery and performance of this
Subscription Agreement by such Investor will not: (i) require the approval or
consent of any Person or (ii) conflict with or result in any breach or violation
of any of the terms and conditions of, or constitute (or with notice or lapse of
time or both constitute) a default under, any statute, regulation, order,
judgment or decree of or applicable to the Investor, or any instrument, contract
or other agreement to which the Investor is a party or by or to which the
Investor is bound or subject.
(n) The Investor is neither a member of, affiliated with or employed
by a member of the National Association of Securities Dealers, nor is it
employed by or affiliated with a broker-dealer registered with the Securities
and Exchange Commission or with any state regulatory authority.
4. Representations and Warranties of the Corporation. The Corporation
hereby represents and warrants to the Investor as follows:
(a) The Corporation is fully aware that the Consideration Shares have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or under any applicable state securities laws. The
Corporation further understands that the securities are being issued in reliance
on the exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereof or Regulation D promulgated under the
Securities Act, and in reliance on exemptions from the registration requirements
of certain state Securities laws, on the grounds that the offering involved has
been made to a limited number of potential investors.
(b) The Corporation is acquiring the Consideration Shares for its own
account as a principal and not with a present view to resale or distribution.
(c) The Corporation is able to bear the economic risk of the
investment in the Consideration Shares and has such knowledge and experience in
financial and business matters, and knowledge of the business of the Investor.
(d) The Corporation has received all information with respect to the
Investor it has requested.
(e) The Corporation has been given the opportunity to ask questions
of, and receive answers from, officers of the Investor concerning the terms and
conditions of the offering and to obtain such additional information which the
Investor possesses or can acquire without unreasonable effort or expense that is
necessary to verify information that was otherwise provided.
(f) The Corporation recognizes that investment in the Consideration
Shares involves substantial risks. In deciding whether to invest in the
Consideration Shares, the Corporation has weighed these risks against the
potential return. Considering all relevant factors in its financial
3
<PAGE>
and personal circumstances, the Corporation is able to bear the economic risk of
the investment. The Corporation has adequate means of providing for its current
needs and possible personal contingencies and has no need in the foreseeable
future for liquidity of its investment in the Consideration Shares.
(g) The Corporation has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its investment in the Consideration Shares.
(h) The Corporation is aware that no Federal or state agency has (i)
made any finding or determination as to the fairness of any aspect of the
investment in the Consideration Shares or (ii) passed on or endorsed the merits
of the offering of the Consideration Shares.
(i) The Corporation agrees not to sell, pledge, transfer or otherwise
encumber the Consideration Shares for a period of two years following the date
hereof unless the Consideration Shares are registered for sale to the public or
an exemption from registration is available to the holder of the Consideration
Shares.
(j) The Corporation has not retained any broker or finder in
connection with the transactions contemplated herein so as to give rise to any
valid claim against the Investor or any of its subsidiaries for any broker's or
finder's fee, commission or similar compensation.
(k) Any information that such Corporation has heretofore furnished to
the Investor with respect to its respective financial position, and investment
experience is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to the Closing,
such Corporation will immediately furnish such revised or corrected information
to the Investor.
(l) The Corporation acknowledges that the Investor has only recently
been organized and has no operating or financial history.
(m) The Corporation has the full legal right and power and all
authority and approval required to enter into, execute and deliver this
Subscription Agreement and to perform fully its obligations hereunder. This
Subscription Agreement has been duly executed and delivered and is the valid and
binding obligation of the Corporation, enforceable in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other such laws affecting the
enforcement of creditors' rights generally and by principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). The execution, delivery and performance of this Subscription Agreement
by such Corporation will not: (i) require the approval or consent of any Person
or (ii) conflict with or result in any breach or violation of any of the terms
and conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, any statute, regulation, order, judgment or decree
of or applicable to the Corporation, or any instrument, contract or other
agreement to
4
<PAGE>
which the Corporation is a party or by or to which the Corporation is bound or
subject.
(n) The Corporation is neither a member of, affiliated with or
employed by a member of the National Association of Securities Dealers, nor is
it employed by or affiliated with a broker-dealer registered with the Securities
and Exchange Commission or with any state regulatory authority.
5. Registration Rights of Corporation. If, at any time after the date
hereof and from time to time thereafter, the Investor proposes to register any
of its shares of Common Stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration on Form S-8 or Form S-4, or any successor form), the
Investor shall, at such time, promptly give the Corporation written notice of
such registration. Upon the written request of the Corporation given within
twenty (20) days after the giving of such notice by the Investor, the Investor
shall use its best efforts to effect the registration under the Securities Act
of all of the Consideration Shares that the Corporation has requested to be
registered subject to reduction by the managing underwriter, if any. Whenever
under this Section 5 the Investor is required to effect the registration of the
Consideration Shares, the Investor shall bear and pay all expenses incurred in
connection with any registration, other than underwriting discounts and
commissions relating to the Consideration Shares and the fees of the
Corporation's counsel.
6. Modification. This Subscription Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and may not be modified, discharged or terminated except by a written instrument
duly executed by each party.
7. Binding Effect. The provisions of this Subscription Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
8. Governing Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of law.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of this 31st day of May, 1996.
COMPARE GENERIKS, INC.
By: /s/ Thomas A. Keith
----------------------------
Thomas A. Keith, President
Accepted and Agreed to as
of the date first above written:
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Larry Simon
- ----------------------------
Larry Simon, President
6
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 1, 1996, by and between Superior
Supplements, Inc., a Delaware corporation (the "Company"), and Lawrence D.
Simon, an individual residing at 410 Terrace Road, Bayport, New York 11705 (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to secure the services of the Executive upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Executive desires to render services to the Company upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
Section 1. Employment. The Company hereby employs Executive and the
Executive hereby accepts such employment, as the President of the Company,
subject to the terms and conditions set forth in this Agreement.
Section 2. Duties. The Executive shall serve as President of the Company
and shall properly perform such duties as may be assigned to him from time to
time by the Board of Directors of the Company. If requested by the Company, the
Executive shall serve on the Board of Directors or any committee thereof without
additional compensation. During the term of this Agreement, the Executive
<PAGE>
shall devote all of his business time to the performance of his duties hereunder
unless otherwise authorized by the Board of Directors.
Section 3. Term of Employment. The term of the Executive's employment shall
be for a period of one (1) year commencing on the date hereof (the "Term"),
subject to earlier termination by the parties pursuant to Sections 6 and 7
hereof.
Section 4. Compensation of Executive.
4.1 Salary. Company shall pay to Executive the following annual
compensation for his services hereunder, less such deductions as shall be
required to be withheld by applicable law and regulations: a base salary of
Seventy Five Thousand ($75,000) Dollars per annum (the "Base Salary"). All
salaries payable to Employee shall be paid at such regular weekly, biweekly or
semi-monthly time or times as the Company makes payment of its regular payroll
in the regular course of business.
4.2 Expenses. During the Term, the Company shall reimburse the Executive
for all reasonable and necessary travel expenses and other bona fide
disbursements incurred by the Executive on behalf of the Company, in performance
of the Executive's duties hereunder. The Executive shall also be provided
2
<PAGE>
with the full use of an automobile (and the cost of insurance of such
automobile).
4.3 Options. As additional consideration, upon completion of the Company's
initial public offering, the Company shall deliver to Executive an option to
purchase 100,000 shares of the Company's Common Stock exercisable at the initial
public offering price of the shares of Common Stock of the Company offered for
sale in such initial public offering commencing one (1) year from and after the
effective date of such initial public offering. The option shall be exercisable
only during a time period when Executive is employed by the Company.
5. Vacations. The Executive shall be entitled to a vacation of two (2)
weeks per year, during which period his salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Company shall determine is mutually convenient.
6. Disability or Death of the Executive. If the Executive is incapacitated
or disabled by accident, sickness or otherwise (including, without limitation,
as a result of abuse of alcohol or other drugs or controlled substances) so as
to render the Executive mentally or physically incapable of performing the
services required to be performed under this Agreement for a period of sixty
3
<PAGE>
(60) consecutive days or longer or for any ninety (90) days in any period of one
hundred eighty (180) consecutive days (a "Disability"), the Company may, at that
time or any time thereafter, at its option, terminate the employment of the
Executive under this Agreement immediately upon giving the Executive notice to
that effect.
Section 7. Termination.
The Company may terminate the employment of the Executive and all of the
Company's obligations under this Agreement at any time with or without cause
upon ninety (90) days notice.
For convenience of reference, the date upon which any termination of the
employment of the Executive pursuant to Sections 6 or 7 shall be effective
hereinafter referred to as the ("Termination Date").
8. Effect of Termination of Employment. Upon the termination of the
Executive's employment for a Disability or with or without cause, neither the
Executive nor the Executive's beneficiaries or estate shall have any further
rights under this Agreement or any claims against the Company arising out of
this Agreement.
Section 9. Disclosure of Confidential Information. The Executive recognizes
that he has had and will continue to have
4
<PAGE>
access to secret and confidential information regarding the Company, including
but not limited to its customer list, products, formulae, know-how, and business
and marketing plans ("Confidential Information"). The Executive acknowledges
that such information is of great value to the Company, is the sole property of
the Company, and has been and will be acquired by him in confidence. In
consideration of the obligations undertaken by the Company herein, the Executive
will not, at any time, during or after his employment hereunder, reveal, divulge
or make known to any person, any Confidential Information acquired by the
Executive during the course of his employment. The provisions of this Section 9
shall survive the Executive's employment hereunder.
Section 10. Covenant Not To Compete.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of Company that the Executive agree, and
accordingly, the Executive does hereby agree, that he shall not, directly or
indirectly, at any time during the term of the Agreement and the "Restricted
Period" (as defined in Section 10(e) below):
(i) except as provided in Subsection (c) below, be engaged in the
sale, distribution or manufacture of
5
<PAGE>
any products or provide technical assistance, advice or
counseling regarding any products competitive to the Company's
products in any state in the United States or any other country
in which the Company or any affiliate thereof is engaged in
business, either on his own behalf or as an officer, director,
stockholder, partner, consultant, associate, employee, owner,
agent, creditor, independent contractor, or co-venturer of any
third party; or
(ii) employ or engage, or cause or authorize, directly or indirectly,
to be employed or engaged, for or on behalf of himself or any
third party, any employee or agent of Company or any affiliate
thereof.
(b) The Executive hereby agrees that he will not, directly or indirectly,
for or on behalf of himself or any third party, at any time during the term of
the Agreement and during the Restricted Period solicit any customers of the
Company or any affiliate thereof.
(c) If any of the restrictions contained in this Section 10 shall be deemed
to be unenforceable by reason of the extent, duration or geographical scope
thereof, or otherwise, then the
6
<PAGE>
court making such determination shall have the right to reduce such extent,
duration, geographical scope, or other provisions hereof, and in its reduced
form this Section shall then be enforceable in the manner contemplated hereby.
(d) This Section 10 shall not be construed to prevent Executive from
owning, directly or indirectly, in the aggregate, an amount not exceeding one
percent (1%) of the issued and outstanding voting securities of any class of any
company whose voting capital stock is traded on a national securities exchange
or on the over-the-counter market other than securities of the Company.
(e) The term "Restricted Period," as used in this Section 10, shall mean
the period of the Executive's actual employment hereunder plus the twenty four
(24) months after the Termination Date.
(f) The provisions of this Section 10 shall survive the end of the
Restricted Period as provided in Section 10(e) hereof.
Section 11. Miscellaneous.
11.1 Injunctive Relief. The Executive acknowledges that the services to be
rendered under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, the Executive agrees that any breach or threatened
7
<PAGE>
breach by him of Sections 9 or 10 of this Agreement shall entitle the Company,
in addition to all other legal remedies available to it, to apply to any court
of competent jurisdiction to seek to enjoin such breach or threatened breach.
The parties understand and intend that each restriction agreed to by Executive
hereinabove shall be construed as separable and divisible from every other
restriction, that the unenforceability of any restriction shall not limit the
enforceability, in whole or in part, of any other restriction, and that one or
more or all of such restrictions may be enforced in whole or in part as the
circumstances warrant. In the event that any restriction in this Agreement is
more restrictive than permitted by law in the jurisdiction in which Company
seeks enforcement thereof, such restriction shall be limited to the extent
permitted by law.
11.2 Assignments. Neither the Executive nor the Company may assign or
delegate any of their rights or duties under this Agreement without the express
written consent of the other.
11.3 Entire Agreement. This Agreement constitutes and embodies the full and
complete understanding and agreement of the parties with respect to the
Executive's employment by the Company, supersedes all prior understandings and
agreements, whether oral or written, between the Executive and the Company, and
shall not be
8
<PAGE>
amended, modified or changed except by an instrument in writing executed by the
party to be charged. The invalidity or partial invalidity of one or more
provisions of this Agreement shall not invalidate any other provision of this
Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
11.4 Binding Effect. This Agreement shall inure to the benefit of, be
binding upon and enforceable against, the parties hereto and their respective
successors, heirs, beneficiaries and permitted assigns.
11.5 Headings. The headings contained in this Agreement are for convenience
of reference only and shall not affect in any way the meaning or interpretation
of this Agreement.
11.6 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by registered or
certified mail, return receipt requested, postage prepaid, or by private
overnight mail service (e.g. Federal Express) to the party at the address set
forth above or to such other address as either party may hereafter give notice
of in accordance with the provisions hereof. Notices
9
<PAGE>
shall be deemed given on the sooner of the date actually received or the third
business day after sending.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to such
State's conflicts of laws provisions and each of the parties hereto irrevocably
consents to the jurisdiction and venue of the federal and state courts located
in the State of New York, County of New York.
11.8 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one of the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
SUPERIOR SUPPLEMENTS, INC.
By:/s/ Reginald Spinello
----------------------------
Name: Reginald Spinello
Title: Director
/s/ Lawrence D. Simon
----------------------------
Lawrence D. Simon
10
<PAGE>
May 31, 1996
Mr. Lawrence D. Simon
President
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, N.Y. 11788
Re: Bridge Loan
Dear Mr. Simon:
This letter summarizes our agreement as follows:
1. Bridge Loan. Upon the execution of this letter, the undersigned
("Lender") shall loan (the "Loan") two hundred thousand dollars ($200,000) to
Superior Supplements, Inc., a Delaware corporation (the "Company"), pursuant to
the terms of (i) a certain promissory note in the amount of $120,000 payable on
the earlier of April 30, 1997 or the closing (the "Closing") of the Company's
next public offering (the "First Note") and (ii) a promissory note in the amount
of $80,000 payable on April 30, 1997 which is automatically convertible,
immediately after the Closing, into eight hundred thousand (800,000) Class A
Redeemable Common Stock Purchase Warrants (the "Bridgeholder's Warrants") of the
Company (the "Second Note"). The forms of the First Note and Second Note are
attached hereto as Exhibits A and B, respectively (collectively, the "Notes").
Concurrently, with the execution of this letter, the Company shall execute and
deliver the Notes to Lender.
2. Issuance of Bridgeholder's Warrants Upon conversion of the Second Note,
the Company shall issue to Lender the Bridgeholder's Warrants. Each
Bridgeholder's Warrant will be identical to the terms and conditions of the
Class A Warrants being offered to the public pursuant to the Company's next
Public Offering (the "Public Offering"). Immediately after the date on which the
next registration statement (the "Registration Statement") filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as
<PAGE>
Mr. Lawrence D. Simon
May 31, 1996
Page 2
amended (the "Securities Act") is declared effective by the Commission, the
Second Note shall be converted into the Bridgeholder's Warrants and the Company
will deliver to Lender certificates representing each of the Bridgeholder's
Warrants.
3. Registration Rights. The Company agrees to include the Bridgeholder's
Warrants and the shares of Common Stock issuable upon exercise of the
Bridgeholder's Warrants (collectively, the "Registrable Securities") in the
Registration Statement at no cost or expense to Lender.
Anything in this Section 3 to the contrary notwithstanding, in the event
that the managing underwriter of the Public Offering informs the Company in
writing that the inclusion of the Registrable Securities in the Public Offering
will result in the inability to effect the Public Offering or qualify the Public
Offering in one or more states which such managing underwriter, in its sole
discretion, deems necessary for the Public Offering to proceed, Lender shall
agree to withhold some or all of the Registrable Securities from registration in
accordance with the instructions of such managing underwriter. In such event,
upon Lender's request, the Company shall file a registration statement with the
Commission for the purpose of registering the Registrable Securities as soon as
practicable after the closing date of such Public Offering at no cost or expense
to Lender.
4. Representations of Lender. Lender represents that in the event of the
conversion of the Second Note, he will be acquiring the Bridgeholder's Warrants
for investment purposes only and not with a view to any resale or public
distribution thereof. Lender has had full access to the books and records of the
Company and has had the opportunity to question the officers, counsel and
independent accountants of the Company. Lender is an "accredited investor" as
defined in section 2(15) of the Securities Act and Regulation D promulgated by
the Commission.
The Lender is neither a member of, affiliated with or employed by a member
of the National Association of Securities Dealers, nor is he employed by or
affiliated with a broker-dealer registered with the Commission or with any state
regulatory authority.
5. Governing Law; Jurisdiction and Venue. Regardless of the place of
execution or performance, this letter and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to such State's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
2
<PAGE>
Mr. Lawrence D. Simon
May 31, 1996
Page 3
Please acknowledge your consent to the foregoing terms by countersigning
the enclosed duplicate copy of this letter and returning it to us together with
the Notes.
Very truly yours,
DUNE HOLDINGS, INC.
By:
----------------------------
AGREED TO AND ACKNOWLEDGED:
SUPERIOR SUPPLEMENTS, INC.
By:
----------------------------
Lawrence D. Simon, President
<PAGE>
PROMISSORY NOTE
$120,000 May 31, 1996
New York, New York
FOR VALUE RECEIVED, SUPERIOR SUPPLEMENTS, INC., a Delaware corporation
("Maker"), promises to pay to Dune Holdings, Inc. ("Holder") at such place as
Holder may designate in writing, the entire principal sum of one hundred twenty
thousand dollars ($120,000), together with interest at the rate of eight percent
(8%) per annum, (i) on the earlier of April 30, 1997 or (ii) the closing date of
the next underwritten public offering of Maker's securities, at which time all
principal and interest shall be due and owing.
All payments of principal and interest hereunder shall be payable in lawful
money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, provided, that Maker is not contesting in good faith by appropriate
proceedings such uncured event of default; (ix) the existence of any judgment
against, or any attachment of property of Maker; or (x) any other condition
which, in the good faith determination of Holder, would materially impair the
timely repayment of this Note.
Upon the occurrence of any event or condition of default hereunder, or at
any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
<PAGE>
If this Note is not paid when due, whether at maturity or by acceleration,
Maker agrees to pay all reasonable costs of collection and such costs shall
include without limitation all costs, attorneys' fees and expenses incurred by
Holder hereof in connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving Holder, or involving any endorser
or guarantor hereof, which in any way affects the exercise by Holder hereof of
its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and non-payment
of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
SUPERIOR SUPPLEMENTS, INC.
By:
----------------------------
Lawrence D. Simon
President
2
<PAGE>
PROMISSORY NOTE
$80,000 May 31, 1996
New York, New York
FOR VALUE RECEIVED, SUPERIOR SUPPLEMENTS, INC., a Delaware corporation
("Maker"), promises to pay to Dune Holdings, Inc. ("Holder") at such place as
Holder may designate in writing, the entire principal sum of eighty thousand
dollars ($80,000), together with interest at the rate of eight percent (8%) per
annum, (i) on the earlier of April 30, 1997 or (ii) the closing date of the next
underwritten public offering of Maker's securities (the "Public Offering"), at
which time all principal and interest shall be due and owing.
Immediately after the Effective Date of the Public Offering and before the
closing of the Public Offering, this Note shall be converted into 800,000 Class
A Redeemable Common Stock Purchase Warrants (the "Class A Warrants") of Maker.
The Class A Warrants shall be identical to the terms and conditions of the Class
A Warrants being offered to the public in the Public Offering.
All payments of principal and interest hereunder shall be payable in lawful
money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, provided, that Maker is not contesting in good faith by appropriate
proceedings such uncured event of default; (ix) the existence of any judgment
against, or any attachment of property of Maker; or (x) any other condition
which, in the good faith determination of Holder, would materially impair the
timely repayment of this Note.
<PAGE>
Upon the occurrence of any event or condition of default hereunder, or at
any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by acceleration,
Maker agrees to pay all reasonable costs of collection and such costs shall
include without limitation all costs, attorneys' fees and expenses incurred by
Holder hereof in connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving Holder, or involving any endorser
or guarantor hereof, which in any way affects the exercise by Holder hereof of
its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and non-payment
of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
SUPERIOR SUPPLEMENTS, INC.
By:
----------------------------
Lawrence D. Simon
President
2
<PAGE>
May 30, 1996
Mr. Lawrence D. Simon
President
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, N.Y. 11788
Re: Bridge Loan
Dear Mr. Simon:
This letter summarizes our agreement as follows:
1. Bridge Loan. Upon the execution of this letter, the undersigned
("Lender") shall loan (the "Loan") one hundred thousand dollars ($100,000) to
Superior Supplements, Inc., a Delaware corporation (the "Company"), pursuant to
the terms of (i) a certain promissory note in the amount of $80,000 payable on
the earlier of April 30, 1997 or the closing (the "Closing") of the Company's
next public offering (the "First Note") and (ii) a promissory note in the amount
of $20,000 payable on April 30, 1997 which is automatically convertible,
immediately after the Closing, into two hundred thousand (200,000) Class A
Redeemable Common Stock Purchase Warrants (the "Bridgeholder's Warrants") of the
Company (the "Second Note"). The forms of the First Note and Second Note are
attached hereto as Exhibits A and B, respectively (collectively, the "Notes").
Concurrently, with the execution of this letter, the Company shall execute and
deliver the Notes to Lender.
2. Issuance of Bridgeholder's Warrants Upon conversion of the Second Note,
the Company shall issue to Lender the Bridgeholder's Warrants. Each
Bridgeholder's Warrant will be identical to the terms and conditions of the
Class A Warrants being offered to the public pursuant to the Company's next
Public Offering (the "Public Offering"). Immediately after the date on which the
next registration statement (the "Registration Statement") filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as
<PAGE>
Mr. Lawrence D. Simon
May 30, 1996
Page 2
amended (the "Securities Act") is declared effective by the Commission, the
Second Note shall be converted into the Bridgeholder's Warrants and the Company
will deliver to Lender certificates representing each of the Bridgeholder's
Warrants.
3. Registration Rights. The Company agrees to include the Bridgeholder's
Warrants and the shares of Common Stock issuable upon exercise of the
Bridgeholder's Warrants (collectively, the "Registrable Securities") in the
Registration Statement at no cost or expense to Lender.
Anything in this Section 3 to the contrary notwithstanding, in the event
that the managing underwriter of the Public Offering informs the Company in
writing that the inclusion of the Registrable Securities in the Public Offering
will result in the inability to effect the Public Offering or qualify the Public
Offering in one or more states which such managing underwriter, in its sole
discretion, deems necessary for the Public Offering to proceed, Lender shall
agree to withhold some or all of the Registrable Securities from registration in
accordance with the instructions of such managing underwriter. In such event,
upon Lender's request, the Company shall file a registration statement with the
Commission for the purpose of registering the Registrable Securities as soon as
practicable after the closing date of such Public Offering at no cost or expense
to Lender.
4. Representations of Lender. Lender represents that in the event of the
conversion of the Second Note, he will be acquiring the Bridgeholder's Warrants
for investment purposes only and not with a view to any resale or public
distribution thereof. Lender has had full access to the books and records of the
Company and has had the opportunity to question the officers, counsel and
independent accountants of the Company. Lender is an "accredited investor" as
defined in section 2(15) of the Securities Act and Regulation D promulgated by
the Commission.
The Lender is neither a member of, affiliated with or employed by a member
of the National Association of Securities Dealers, nor is he employed by or
affiliated with a broker-dealer registered with the Commission or with any state
regulatory authority.
5. Governing Law; Jurisdiction and Venue. Regardless of the place of
execution or performance, this letter and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to such State's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
<PAGE>
Mr. Lawrence D. Simon
May 30, 1996
Page 3
Please acknowledge your consent to the foregoing terms by countersigning
the enclosed duplicate copy of this letter and returning it to us together with
the Notes.
Very truly yours,
CLINTHILL INVESTMENTS LTD.
By:
----------------------------
AGREED TO AND ACKNOWLEDGED:
SUPERIOR SUPPLEMENTS, INC.
By:
----------------------------
Lawrence D. Simon, President
<PAGE>
PROMISSORY NOTE
$80,000 May 30, 1996
New York, New York
FOR VALUE RECEIVED, SUPERIOR SUPPLEMENTS, INC., a Delaware corporation
("Maker"), promises to pay to Clinthill Investments Ltd. ("Holder") at such
place as Holder may designate in writing, the entire principal sum of eighty
thousand dollars ($80,000), together with interest at the rate of eight percent
(8%) per annum, (i) on the earlier of April 30, 1997 or (ii) the closing date of
the next underwritten public offering of Maker's securities, at which time all
principal and interest shall be due and owing.
All payments of principal and interest hereunder shall be payable in lawful
money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, provided, that Maker is not contesting in good faith by appropriate
proceedings such uncured event of default; (ix) the existence of any judgment
against, or any attachment of property of Maker; or (x) any other condition
which, in the good faith determination of Holder, would materially impair the
timely repayment of this Note.
Upon the occurrence of any event or condition of default hereunder, or at
any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
<PAGE>
If this Note is not paid when due, whether at maturity or by acceleration,
Maker agrees to pay all reasonable costs of collection and such costs shall
include without limitation all costs, attorneys' fees and expenses incurred by
Holder hereof in connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving Holder, or involving any endorser
or guarantor hereof, which in any way affects the exercise by Holder hereof of
its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and non-payment
of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
SUPERIOR SUPPLEMENTS, INC.
By:
----------------------------
Lawrence D. Simon
President
2
<PAGE>
PROMISSORY NOTE
$20,000 May 30, 1996
New York, New York
FOR VALUE RECEIVED, SUPERIOR SUPPLEMENTS, INC., a Delaware corporation
("Maker"), promises to pay to Clinthill Investments Ltd. ("Holder") at such
place as Holder may designate in writing, the entire principal sum of twenty
thousand dollars ($20,000), together with interest at the rate of eight percent
(8%) per annum, (i) on the earlier of April 30, 1997 or (ii) the closing date of
the next underwritten public offering of Maker's securities (the "Public
Offering"), at which time all principal and interest shall be due and owing.
Immediately after the Effective Date of the Public Offering and before the
closing of the Public Offering, this Note shall be converted into 200,000 Class
A Redeemable Common Stock Purchase Warrants (the "Class A Warrants") of Maker.
The Class A Warrants shall be identical to the terms and conditions of the Class
A Warrants being offered to the public in the Public Offering.
All payments of principal and interest hereunder shall be payable in lawful
money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, provided, that Maker is not contesting in good faith by appropriate
proceedings such uncured event of default; (ix) the existence of any judgment
against, or any attachment of property of Maker; or (x) any other condition
which, in the good faith determination of Holder, would materially impair the
timely repayment of this Note.
<PAGE>
Upon the occurrence of any event or condition of default hereunder, or at
any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by acceleration,
Maker agrees to pay all reasonable costs of collection and such costs shall
include without limitation all costs, attorneys' fees and expenses incurred by
Holder hereof in connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving Holder, or involving any endorser
or guarantor hereof, which in any way affects the exercise by Holder hereof of
its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and non-payment
of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
SUPERIOR SUPPLEMENTS, INC.
By:
----------------------------
Lawrence D. Simon
President
2
<PAGE>
================================================================================
$200,000
REVOLVING CREDIT AGREEMENT
between
SUPERIOR SUPPLEMENTS, INC.
and
DUNE HOLDINGS, INC.
Dated May 31, 1996
================================================================================
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS AGREEMENT is made as of May 31, 1996, by and between
Superior Supplements, Inc., a Delaware corporation (the "Borrower"), and Dune
Holdings, Inc., a New York corporation (the "Lender").
SECTION 1. DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have the
respective meanings set forth below:
"Affiliate" of a Person shall mean any Person controlling, controlled by,
or under common control with, such person.
"Bankruptcy Law" shall mean Title 11 of the U.S. Code, as in effect from
time to time, or any similar Federal or state law for the relief of debtors.
"Borrowing Date" shall mean the date of any borrowing by the Borrower
pursuant hereto.
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required by law to close in New
York City.
"Commitment Fee" shall mean one percent (1%) of the Loan Commitment.
"Custodian" shall have the meaning assigned to it in Section 7.1.
"Debt" shall mean any indebtedness, contingent or otherwise, of the
Borrower, including, without limitation, (i) indebtedness evidenced by
guarantees or in effect guarantees by the Borrower of Debt of any other Person,
(ii) indebtedness evidenced by notes, debentures, bonds or similar instruments
or letters of credit, (iii) indebtedness representing the deferred and unpaid
balance of the purchase price of any property or interest therein and
obligations of the Borrower under any agreement to lease, or lease of, any real
or personal property in each case which, in accordance with generally accepted
accounting principles then in effect, appears as a liability upon a balance
sheet of the Borrower, and (iv) obligations of the Borrower under interest rate
swaps, caps, collars, calls and similar arrangements, and foreign currency
hedges entered into in respect of any indebtedness or obligations.
"Default" shall mean any event which, with the giving of notice or lapse of
time or both, would constitute an Event of Default.
<PAGE>
"Event of Default" shall have the meaning assigned to it in Section 7.1.
"Governmental or Regulatory Body" shall mean any government or political
subdivision thereof, whether federal, state, county, local or foreign, or any
agency, authority or instrumentality of any such government or political
subdivision.
"Initial Loan" shall have the meaning assigned to it in Section 2.1.
"Lender Group" shall have the meaning assigned to it in Section 8.11.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing).
"Loan" or "Loans" shall have the respective meanings assigned to such terms
in Section 2.1.
"Loan Commitment" shall have the meaning assigned to it in Section 2.1.
"Loan Commitment Period" shall mean the period from the date hereof through
the Termination Date.
"Loss" or "Losses" shall have the respective meaning assigned to such terms
in Section 8.11.
"Material Adverse Effect" or "Material Adverse Change" shall mean any
change or changes or effect or effects that individually or in the aggregate are
or may reasonably be expected to be materially adverse to (a) the business or
the assets, operations, income, prospects or conditions (financial or otherwise)
of the Borrower or its Subsidiaries or (b) the ability of the Borrower to
perform its obligations under this Agreement.
"Note" shall have the meaning assigned to it in Section 2.2.
"Person" shall mean an individual, a corporation, a partnership, a joint
venture, a firm, an enterprise, a trust, an unincorporated organization, a
government or any agency or political subdivision thereof.
"Termination Date" shall mean the date falling 2 years following the date
hereof.
2
<PAGE>
SECTION 2. AMOUNT AND TERMS OF LOAN COMMITMENT AND LOANS
2.1 The Loan Commitment. Subject to the terms and conditions of this
Agreement, the Lender agrees to make revolving credit loans (individually, a
"Loan"; the first such Loan, the "Initial Loan"; and, collectively, the "Loans")
to the Borrower from time to time during the Loan Com mitment Period in an
aggregate principal amount at any one time outstanding not to exceed $200,000
(the "Loan Commitment").
2.2 The Note. The Loans made by the Lender shall be evidenced by a
promissory note of the Borrower substantially in the form of Exhibit A, with
appropriate insertions, which shall be payable to the order of the Lender and
shall represent the obligation of the Borrower to pay the amount of the Loan
Commitment or, if less, the aggregate unpaid principal amount of all Loans made
by the Lender, with interest thereon as prescribed in Section 2.5. The date and
amount of each Loan made by the Lender and each payment of principal with
respect thereto may be endorsed by the Lender on the schedule annexed to and
constituting a part of the Note, which endorsement, absent manifest error, shall
constitute prima facie evidence of the accuracy of the information endorsed. The
Note shall (a) be dated the date hereof, (b) be stated to mature on the
Termination Date and (c) bear interest for the period from the date hereof until
paid in full on the unpaid principal amount thereof from time to time
outstanding at the rates prescribed in Section 2.5.
2.3 Procedure for Borrowing Under Loan Commitment. The Borrower may borrow
under the Loan Commitment at any time during the Loan Commitment Period,
provided that the Borrower shall give the Lender irrevocable notice at least
five (5) Business Days prior to the requested Borrowing Date, specifying (i) the
requested Borrowing Date (which shall be a Business Day) and (ii) the amount of
the requested borrowing. Not later than 12:00 noon, New York time, on the date
specified in such notice from the Borrower, the Lender shall make available to
the Borrower at such account of the Borrower as the same may designate from time
to time, in immediately available funds, the amount to be then loaned by it;
provided that the aggregate amount of any outstanding Loans and the requested
borrowing do not exceed the Loan Commitment.
2.4 Optional Prepayment The Borrower may, at its option, prepay the Note
without premium or penalty, in whole or in part, upon at least two Business
Day's prior notice to the Lender, specifying the date and amount of prepayment.
Such notice shall be irrevocable and the payment amount specified in such notice
shall be due and payable on the date specified.
2.5 Interest Rates. (a) The Loans shall bear interest (calculated on the
basis of a 360-day year for the actual number of days elapsed) on the unpaid
principal amount thereof at a rate per annum equal to 15%, payable quarterly in
arrears on the last day of each June, September, December and March in each
year.
(b) If all or a portion of the principal amount of any of the Loans shall
not be paid when
3
<PAGE>
due (whether at the stated maturity, by acceleration or otherwise), such overdue
principal amount shall bear interest at the rate of 18% per annum, to the extent
permitted by law.
2.6 Use of Proceeds. The Borrower covenants that it will apply all of the
proceeds of the Loan for the Borrower's general corporate purposes.
2.7 Payment. All payments made by the Borrower to the Lender shall be made
in federal or other immediately available funds in lawful money of the United
States for credit, not later than 12:00 noon, New York time, on the day when
due, or in any case by such other reasonable method or at such other address as
the Lender shall have from time to time notified the Borrower.
2.8 Maturity of Loans. The aggregate outstanding principal amount of the
Loans shall be due and payable on the Termination Date.
2.9 Payment of Commitment Fee. The Borrower shall pay the Commitment Fee to
the Lender on the date of execution of this Agreement.
SECTION 3. COVENANTS
3.1 Payment of Note. The Borrower shall pay the principal of, and interest
on, the Note on the dates and in the manner provided herein and in the Note.
3.2 Financial and Business Information. The Borrower covenants and agrees
that so long as the Loan Commitment shall be in effect or any debt under the
Note shall be outstanding, the Borrower will deliver to the Lender:
(a) as soon as available, but not later than one hundred twenty (120) days
after the close of each fiscal year of the Borrower, the consolidated balance
sheet of the Borrower as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and changes in financial
position of the Borrower for such fiscal year, setting forth in each case in the
comparative form the figures for the previous year, reported on by independent
certified public accountants of nationally recognized standing selected by the
Borrower;
(b) promptly on their becoming available, any such other financial data,
information or reports as from time to time may be furnished to all stockholders
of the Borrower in their capacity as stockholders.
3.3 Notice of Default. If any one or more events occur which constitute a
Default or an Event of Default, upon obtaining knowledge thereof, the Borrower
will forthwith give notice to the Lender, specifying the nature and status of
the Default or Event of Default.
4
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the
Loans hereunder, the Borrower hereby represents and warrants as follows:
4.1 Organization and Qualification. The Borrower is a corporation validly
existing and in good standing under the laws of the state of Delaware, and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and as proposed to be conducted. The
Borrower is duly qualified to do business in each jurisdiction in which the
nature of its business or properties makes such qualification necessary, except
where the failure to do so would not have a Material Adverse Effect. The
jurisdictions in which the Borrower is qualified are set forth on Schedule 4.1.
4.2 Capitalization; Subsidiaries and Affiliates. Schedule 4.2 sets forth
the par value, number of authorized shares of capital stock and number of issued
and outstanding shares of each class of its capital stock of the Borrower. All
of the issued and outstanding shares of capital stock of the Borrower are duly
authorized, validly issued, fully paid and non-assessable. All of the issued and
outstanding shares of the Borrower are owned of record by the shareholders
attached to Schedule 4.2 as of May 30, 1996. Except for those certain warrants
set forth on Schedule 4.2, there are no securities outstanding which are
exchangeable or exercisable for, or convertible into shares of capital stock of
the Borrower. Except as set forth on Schedule 4.2, the Borrower has no
subsidiaries nor does any Affiliate of the Borrower or any subsidiaries thereof
own any equity interest in any other corporation, partnership, joint venture or
other entity. To the best knowledge of the Borrower, no officer, director or
five percent (5%) or greater stockholder of the Borrower has been convicted of
any felony, securities law violation or been a party to any agreement,
understanding or consent with any state or federal securities commission or the
National Association of Securities Dealers.
4.3. Validity and Execution of Agreement. The Borrower has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its respective
obligations hereunder and thereunder. The board of directors of the Borrower has
approved the transactions contemplated pursuant to this Agreement and each of
the other agreements required to be entered into pursuant hereto by the
Borrower. This Agreement and such other agreements and instruments have been
duly executed and delivered by the Borrower and each constitutes the valid and
binding obligation of the Borrower enforceable against it in accordance with its
terms, subject to the qualifications that enforcement of the rights and remedies
created hereby is subject to (i) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors, and (ii) general principals of equity (regardless of
whether such enforcement is considered in a proceedings in equity or at law).
4.4. No Conflict. Neither the execution and delivery of this Agreement nor
the
5
<PAGE>
performance by the Borrower of the transactions contemplated hereby will violate
or conflict with (a) any of the provisions of the Articles of Incorporation or
By-Laws of the Borrower; (b) or result in the acceleration of, or entitle any
party to accelerate the maturity or the cancellation of the performance of any
obligation under, or result in the creation or imposition of any Lien in or upon
the assets of the Borrower or constitute a default (or an event which might,
with the passage of time or the giving of notice, or both, constitute a default)
under any contract, (c) to the best of Borrower's knowledge, any order,
judgment, regulation or ruling of any Governmental or Regulatory Body to which
the Borrower is a party or by which any of its property or assets may be bound
or affected or to the best of Borrower's knowledge, with any provision of any
law, rule, regulation, order, judgment, or ruling of any Governmental or
Regulatory Body applicable to the Borrower.
4.5 Disclosure. To the best knowledge of the Borrower, neither this
Agreement, nor any Schedule or Exhibit to this Agreement contains an untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading. To the best knowledge of
the Borrower, all statements, documents, certificates or other items prepared or
supplied by the Borrower with respect to the transactions contemplated hereby
are true, correct and complete and contain no untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
not misleading.
4.6 Survival. All of the representations and warranties of the Borrower
contained herein shall survive the Closing Date until the date upon which the
liability to which any claim relating to any such representation or warranty is
barred by all applicable statutes of limitations.
SECTION 5. CONDITIONS TO INITIAL LOAN
The obligation of the Lender to make the Initial Loan pursuant to this
Agreement shall be subject to compliance by the Borrower with its agreements
herein contained, and, to the satisfaction, prior to or substantially
contemporaneously with, the making of such Initial Loan, of the following
conditions:
5.1 Note. The Borrower shall have executed and delivered to the Lender the
Note in the form of Exhibit A hereto (appropriately completed).
5.2 Payment of Commitment Fee. The Borrower shall, on the date of this
Agreement, have paid the Commitment Fee to the Lender.
5.3 Corporate Proceedings. The Lender shall have received a copy of the
resolutions, in form and substance reasonably satisfactory to the Lender, of the
board of directors of the Borrower authorizing the execution, delivery and
performance of thus this Agreement and the Note, in each case, certified by a
duly authorized officer of the Borrower as of the date hereof; and such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate.
6
<PAGE>
5.4 Representations and Warranties. Each of the representations and
warranties made by the Borrower pursuant to this Agreement shall be true and
correct in all material respects on and as of the date hereof, as if made on and
as of such date.
SECTION 6. CONDITIONS TO ALL LOANS
Except with respect to the Initial Loan, the obligation of the Lender to
make a Loan on any Borrowing Date is subject to fulfillment of the following
conditions precedent to the satisfaction of the Lender:
6.1 Representations and Warranties. The representations and warranties made
by the Borrower in this Agreement and in any certificate, document or financial
or other statement furnished at any time hereunder shall be true and correct in
all material respects unless stated to relate to a specific earlier date.
6.2 No Default or Event of Default. No Default or Event of Default shall
have occurred and be continuing on such Borrowing Date.
SECTION 7. DEFAULTS AND REMEDIES
7.1 Events of Default. "Event of Default" whenever used herein means any of
the following events:
(a) the Borrower defaults in the due and punctual payment of principal of,
interest on, or any other amount owing in respect of, the Note when and as the
same shall become due and payable, and such default continues for a period of
five (5) Business Days after receipt of notice thereof; or
(b) the Borrower defaults in the performance or observance of any covenant
or agreement of the Borrower in this Agreement or the Note and such default
continues for a period of thirty (30) calendar days after a written notice
specifying such default and requiring it to be remedied has been given to the
Borrower by the Lender; or
(c) the Borrower shall (i) default in any payment of principal of or
interest on any Debt or (ii) default in the observance or performance of any
agreement or condition relating to any such Debt or any other event shall occur
or condition exist, the effect of which default or other event or condition is
to cause (immediately or with the giving of notice or lapse of time or both) any
such Debt to become due prior to its stated maturity; or
(d) the Borrower, either pursuant to or within the meaning of any
Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an
order for relief against it in an involuntary case, (iii) consents to the
appointment of a Custodian of it or for all or substantially all of its
property, or (iv) makes a general assignment for the benefit of its creditors;
or
7
<PAGE>
(e) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Borrower in an involuntary
case, (ii) appoints a custodian of the Borrower for any substantial part of all
the property of the Borrower, or (iii) orders the liquidation of the Borrower;
and the order or decree remains unstayed and in effect for sixty (60) days or
more.
The term "Custodian" means any receiver, trustee, assignee, custodian,
liquidator or similar official under any Bankruptcy Law.
7.2 Acceleration of Maturity. If an Event of Default occurs and is
continuing, then and in every such case the Lender may, declare the principal of
the Note to be due and payable immediately and the Loan Commitment to be
terminated, by a notice in writing to the Borrower, and upon any such
declaration the principal of the Note shall become immediately due and payable
and the Loan Commitment shall be terminated.
SECTION 8. MISCELLANEOUS
8.1 Amendments and Waiver. This Agreement and the Note may be amended, and
the terms hereof waived, only by a written instrument signed by the parties
hereto or, in the case of a waiver, by the party waiving compliance.
8.2 Notices. Any notice, demand or delivery pursuant to the provisions
hereof shall be sufficiently given or made if sent by hand or by registered or
certified mail, postage prepaid, addressed to the Lender at 132 Dune Road, P.O.
Box 380, Westhampton Beach, N.Y. 11978, Attention: President or, except as
otherwise expressly provided herein, to the Borrower at 270 Oser Avenue,
Hauppauge, New York, NY 11788 or such other address as shall have been furnished
to the party giving or making such notice, demand or delivery. Any such notice
shall be deemed given when so delivered personally or, if mailed, three days
after the date of deposit in the United States mails or one day following the
deposit with a reputable overnight courier.
8.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of law.
8.4 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
8.5 Successors and Assigns. This Agreement and each document and
certificate delivered pursuant thereto shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
permitted assigns, except that neither the Borrower nor the Lender may assign or
transfer any of its rights under this Agreement or the Note without the prior
8
<PAGE>
written consent of the other.
8.6 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Lender.
8.7 Severability. Any provision of this Agreement or the Note which is
prohibited, invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, invalidity or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition, invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction or
any other provision of this Agreement or the Note.
8.8 Investment. The Lender is acquiring the Note for its own account and
not with a view to resale.
8.9 Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto) and the agreements, certificates and other documents delivered pursuant
to this Agreement contain the entire agreement among the parties with respect to
the transactions described herein, and supersede all prior agreements, written
or oral, with respect thereto.
8.10 Agreement Regarding Transaction. The Lender represents and warrants
that it has had the opportunity to ask questions of and receive answers from
management of the Borrower. The Lender represents and warrants that it has
received any and all materials, documents, certificates, and other matters it
requested be made available and has reviewed and evaluated the same and, based
upon such review and evaluation as well as the representations, warranties and
covenants of the Borrower contained in this Agreement and the Exhibits hereto,
the Lender has entered into this Agreement with the Borrower. Lender hereby
acknowledges that given the current financial condition of the Borrower as of
the date of this Agreement and that as a result of such financial condition, the
Borrower is in immediate need for cash in order to continue its operations. The
Borrower hereby acknowledges and agrees that the transaction contemplated hereby
is based on the Borrower's independent review and analysis of the abilities
(financial or otherwise) of the Lender to perform its respective obligations
hereunder. The Borrower also agrees that any and all schedules attached to this
Agreement and any documents referred to therein have been prepared and
thoroughly reviewed by the Borrower and that the Borrower is responsible for its
own due diligence in connection with preparing such items, executing this
Agreement and agreeing to the transactions contemplated hereby. The Borrower has
made its independent analysis of such information and has not relied on any
factors, conversations or communications made by any other party.
8.11 Indemnification. The Borrower agrees to indemnify, defend and hold
harmless the Lender and its respective shareholders, officers, directors,
employees, and any Affiliates of the foregoing, and their successors and assigns
(collectively, the "Lender Group") from and against any
9
<PAGE>
and all losses, liabilities (including punitive or exemplary damages and fines
or penalties and any interest thereon), expenses (including reasonable fees and
disbursements of counsel and expenses of investigation and defense), claims,
Liens or other obligations of any nature whatsoever (hereinafter individually, a
"Loss" and collectively, "Losses") which, directly or indirectly, arise out of,
result form or relate to, (i) any inaccuracy in or any breach of any
representation or warranty of the Borrower contained in Section 4, and (ii) any
breach of any covenant of the Borrower contained in this Agreement or in any
other document contemplated by this Agreement.
8.12 Recourse. Except with respect to any potential claim based on any
fraud, any obligation or liability whatsoever of Borrower which may arise at any
time under this Agreement shall be satisfied, if at all, out of the Borrower's
assets only. No such obligation or liability shall be personally binding upon,
nor shall resort for the enforcement thereof be had to, the property of any of
Borrower's shareholders, directors, officers, employees or agents, regardless of
whether such obligation or liability is in the nature of contract, tort or
otherwise, unless such obligation or liability relates to fraudulent conduct on
the part of such entity or individuals. Notwithstanding the foregoing, nothing
in this Section shall be interpreted or construed as an agreement or admission
by the Borrower, its shareholders, directors, officers, employees or agents that
any such entity or person is or may be personally liable for any obligation or
liability (whether the result of fraud or otherwise) with respect to this
Agreement.
8.13 Validity and Execution of Agreement. The Lender has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its respective
obligations hereunder and thereunder. The board of directors of the Lender has
approved the transactions contemplated pursuant to this Agreement and each of
the other agreements required to be entered into pursuant hereto by the Lender.
This Agreement and such other agreements and instruments have been duly executed
and delivered by the Lender and each constitutes the valid and binding
obligation of the Lender enforceable against it in accordance with its terms,
subject to the qualifications that enforcement of the rights and remedies
created hereby is subject to (i) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors, and (ii) general principles of equity (regardless of
whether such enforcement is considered in a proceedings in equity or at law).
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
----------------------------
Name: Lawrence D. Simon
Title: President
DUNE HOLDINGS, INC.
By: /s/ Randolph K. Pace
----------------------------
Name:
Title:
11
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$200,000 May 31, 1996
FOR VALUE RECEIVED, the undersigned, Superior Supplements, Inc., a Delaware
corporation, hereby unconditionally promises to pay on May 30, 1998, to the
order of Dune Holdings, Inc., a New York corporation (the "Lender"), at the
account of the Lender maintained at_________________________________Bank Account
Number ___________ (or at such other account in the United States as the Lender
shall notify the undersigned), in lawful money of the United States of America
and in immediately available funds, the principal amount of the lesser of (i)
TWO HUNDRED THOUSAND DOLLARS ($200,000) and (ii) the aggregate unpaid principal
amount of all Loans made by the Lender to the undersigned pursuant to Section
2.1 of the Revolving Credit Agreement, dated as of the date hereof, between the
undersigned and the Lender (the "Credit Agreement"). Capitalized terms used
herein shall have the same meanings as set forth in the Credit Agreement, unless
otherwise defined herein.
The undersigned further agrees to pay interest in like money at such office
on the unpaid principal amount hereof from time to time from the date hereof
until such amount shall be paid (whether at the stated maturity, by acceleration
or otherwise) on the dates and at the applicable rates per annum as provided in
Section 2.5 of the Credit Agreement.
The holder of this Note is authorized to endorse the date and amount of
each Loan pursuant to Section 2.2 of the Credit Agreement, the date and amount
of each payment or prepayment of principal thereof and the interest rate with
respect thereto, on the schedule annexed hereto and made a part hereof or on a
continuation thereof, which endorsement, absent manifest error, shall constitute
prima facie evidence of the accuracy of the information so endorsed.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is the Note referred to in the Credit Agreement and is entitled
to the benefits thereof and is subject to the terms and conditions provided
therein.
Except as expressly provided herein, the undersigned hereby waives
presentation, demand,
<PAGE>
protest and all other notices of any kind.
This Note shall be governed by, and construed in accordance with, the laws
of the State of New York without regard to principles of conflicts of law.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon, Pres.
----------------------------
Name: Lawrence D. Simon
Title: President
<PAGE>
PROMISSORY NOTE
$200,000 June 26, 1996
Hauppauge, New York
FOR VALUE RECEIVED, SUPERIOR SUPPLEMENTS, INC., a Delaware corporation
("Maker"), promises to pay to PMF, Inc. ("Holder") at such place as Holder may
designate in writing, the entire principal sum of Two Hundred Thousand Dollars
($200,000), together with interest at the rate of eight percent (8%) per annum
on June 25, 1998, at which time all principal and interest shall be due and
owing.
All payments of principal and interest hereunder shall be payable in lawful
money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, provided, that Maker is not contesting in good faith by appropriate
proceedings such uncured event of default; (ix) the existence of any judgment
against, or any attachment of property of Maker; or (x) any other condition
which, in the good faith determination of Holder, would materially impair the
timely repayment of this Note.
Upon the occurrence of any event or condition of default hereunder, or at
any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by acceleration,
Maker agrees to pay all reasonable costs of collection and such costs shall
include without limitation all costs,
<PAGE>
attorneys' fees and expenses incurred by Holder hereof in connection with any
insolvency, bankruptcy, reorganization, arrangement or similar proceedings
involving Holder, or involving any endorser or guarantor hereof, which in any
way affects the exercise by Holder hereof of its rights and remedies under this
Note.
Presentment, demand, protest, notices of protest, dishonor and non-payment
of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon, Pres.
----------------------------
Lawrence D. Simon
President
<PAGE>
--------------------------------
SUPERIOR SUPPLEMENTS, INC.
--------------------------------
1996 Stock Plan
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
- --------------------------------------------------------------------------------
1996 Stock Plan
- --------------------------------------------------------------------------------
Page
- --------------------------------------------------------------------------------
1. Purposes .............................................................. 1
2. Definitions ........................................................... 1
3. Administration ........................................................ 3
4. Shares Subject to the Plan ............................................ 4
5. Persons Eligible; Annual Limitations .................................. 4
6. Specific Terms of Awards .............................................. 5
7. Certain Provisions Applicable to Awards ............................... 10
8. Change in Control Provisions .......................................... 13
9. Adjustments ........................................................... 14
10. General Provisions .................................................... 15
i
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
1996 STOCK PLAN
1. Purposes. The 1996 Stock Plan (the "Plan") is intended to promote the
interests of Superior Supplements, Inc. (the "Company") and its stockholders and
the security of its employees and other key employees who are in a position to
contribute substantially to the progress to seek such results; to closely align
the interests of such employees with the interests of stockholders of the
Company by linking rewards hereunder to stock performance; to retain in the
Company the benefits of the services of such employees; and to attract to the
service of the Company new key employees of high quality.
2. Definitions. In addition to terms defined in Sections 1 and 8 of the
Plan, the following terms used in the Plan shall have the meanings set forth
below:
(a) "Award" shall mean any Option, LSAR, Restricted Stock, Deferred
Stock, Shares granted as a bonus or in lieu of other awards, Dividend
Equivalent, or Other Share-Based Award, or any other right or interest
granted to a Participant under the Plan.
(b) "Change in Control" shall have the meaning specified in Section
8(b).
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References to any provisions of the Code shall be deemed
to include regulations and proposed regulations thereunder and successor
provisions and regulations thereto.
(d) "Committee" shall mean the Compensation Committee of the Board of
Directors, or such other Committee as may be designated by the Board of
Directors, subject to the requirements of Section 3.
(e) "Covered Employee" shall mean a person who is an executive officer
deemed by the Committee, prior to commencement of any fiscal year, as
reasonably likely to be a "named executive officer" in the Summary
Compensation Table of the Company's proxy statement reporting compensation
paid to such person for such fiscal year and whose compensation over $1
million would not be deductible under Section 162(m) of the Code, but for
the provisions of the Plan and any other "qualified performance-based
compensation" plan (as defined under Section 162(m) of the Code) of the
Company; provided, however, that the Committee may determine that a
Participant has ceased to be a Covered Employee prior to payout of any
Award.
(f) "Deferred Stock" shall mean a right, granted to a Participant
under Section
1
<PAGE>
6(e), to receive Shares at the end of a specified deferral period.
(g) "Directors," "Board of Directors" and "Board" shall mean the Board
of Directors of the Company as constituted from time to time.
(h) "Dividend Equivalent" shall mean a right, granted to a Participant
under Section 6(g), to receive cash, Shares, other Awards, or other
property equal in value to dividends paid with respect to a specified
number of Shares or other periodic payments. Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award, and
may be paid currently or on a deferred basis.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" of a Share shall be the mean average of the
bid and asked prices of a Share on The Nasdaq SmallCap Market (or, if the
Common Stock is not listed for trading on The Nasdaq SmallCap Market, such
principal exchange system on which such Shares are then listed or quoted)
on a specified date, or the last preceding date on which such prices were
reported; or if such Shares are not then listed on any exchange or quoted
in The Nasdaq SmallCap Market, then the Fair Market Value of such Shares
shall be the average of the bid and asked prices of the Shares in the
over-the-counter market on the specified date or the last preceding date on
which such bid and asked prices were quoted; or if no such prices are
available, the Fair Market Value shall be determined by the Committee in
its discretion using any reasonable method.
(k) "Incentive Stock Option" or "ISO" shall mean an incentive stock
option within the meaning of Section 422 of the Code.
(l) "LSAR" or "Limited Stock Appreciation Right" shall mean the right
granted to a Participant under Section 6(c) to be paid an amount, in the
event of a Change in Control, measured by the appreciation in the Fair
Market Value of a Share from the date of grant to the date of exercise of
the right, with payment to be made in cash, Shares, or other Awards as
specified in the Award or determined by the Committee.
(m) "Non-Incentive Stock Option" shall mean an Option which is not an
ISO.
(n) "Option" shall mean an option of the purchase of Shares granted
under Section 6(b) of the Plan, which will be either an ISO or
Non-Incentive Stock Option.
(o) "Other Share-Based Award" shall mean a right, granted to a
Participant under Section 6(h), that relates to or is valued by reference
to Shares, other Awards relating to Shares, or other property.
2
<PAGE>
(p) "Participant" shall mean a person who, as an executive officer or
other key employee of the Company or a subsidiary, is selected by the
Committee to receive an Award under the Plan.
(q) "Restricted Stock" shall mean an award of Shares to a Participant
under Section 6(d) that may be subject to certain restrictions and to a
risk of forfeiture.
(r) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect
and applicable to the Plan and Participants, promulgated by the Securities
and Exchange Commission under Section 16 of the Exchange Act.
(s) "Share" shall mean a share of Common Stock, par value $.0001 per
share, of the Company, and such other securities as may be substituted or
resubstituted for Shares pursuant to Section 9.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee, which shall consist of not less than two Directors designated by
the Board of Directors. Directors who serve on the Committee shall be
"disinterested persons" within the meaning of Rule 16b-3 and shall be
"outside directors" within the meaning of Section 162(m) of the Code
(including persons deemed to be outside directors pursuant to any
transitional rules adopted by the Internal Revenue Service). The Board of
Directors may fill any vacancy in the Committee. The Secretary of the
Company shall be ex officio the Secretary of the Committee. Subject to the
terms of the Plan, the Committee shall have full authority in its sole
discretion to administer the Plan, including, but without limiting the
generality of the foregoing, determining the persons to whom Awards shall
be granted; the type of Award and the number of Shares to which each Award
shall relate; the time of such grants; the terms of payment, if any
relating to any Award; the dates on which Awards may be exercised or the
risk of forfeiture or deferral period relating to Awards shall lapse or
terminate, and the acceleration of any such dates; the expiration date of
Awards; whether, to what extent, and under what circumstances an Award may
be settled, or the exercise price of an Award may be paid, in cash, Shares,
other Awards, or other property; and all other terms and conditions of
Awards. The Committee shall also have full power, in its sole discretion,
to interpret the Plan, and to prescribe, amend, and rescind rules and
regulations relating thereto and agreements relating to Awards, and to make
all other determinations under the Plan, subject to the terms of the Plan.
Decisions of the Committee with respect to the administration and
interpretation of the Plan shall be final, conclusive, and binding upon all
persons interested in the Plan.
(b) Manner of Exercise of Committee Authority. Unless authority is
specifically reserved to the Board of Directors under the terms of the
Plan, the Company's Certificate of Incorporation or Bylaws, or applicable
law, the Committee shall have sole
3
<PAGE>
discretion in exercising authority under the Plan. The Committee shall
select one of its members as its chairman and shall hold meetings at such
times and places as it shall deem advisable. Any action of the Committee
shall be taken with the approval of a majority of its members present and
voting at a meeting duly called and held at which a quorum is present. A
majority of the Committee's members shall constitute a quorum. Any action
may be taken by a written instrument signed by all members of the Committee
and such action shall be fully as effective as if taken by a majority of
the members at a meeting duly called and held. The Committee may delegate
to officers or managers of the Company or any subsidiary of the Company the
authority, subject to such terms as the Committee shall determine, to
perform administrative functions and, with respect to Participants not
subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3
and applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other
information furnished to him by any officer or other employee of the
Company or any subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant, legal counsel or
other professional retained by the Company to assist in the administration
of the Plan. No member of the Committee, nor any officer or employee of the
Company or a subsidiary acting on behalf of the Committee, shall be
personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and such persons shall, to the
extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action, determination, or interpretation.
4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 9 hereof, the total
number of Shares reserved for delivery to Participants in connection with
Awards under the Plan shall be 2,000,000 shares.
(b) No Award (including an Award that may only be settled in cash) may
be granted if the number of Shares to which such Award relates, when added
to the number of Shares previously delivered under the Plan and the number
of Shares to which other then-outstanding Awards relate, exceeds the number
of Shares deemed available under this Section 4. The Committee may adopt
procedures for the counting of Shares under this Section 4 to ensure
appropriate counting, avoid double counting (in the case of tandem or
substitute Awards), and provide for adjustments in any case in which the
number of Shares actually delivered differs from the number of Shares
previously counted in connection with an Award or awards made pursuant to
other Company plans. Any Shares delivered pursuant to an Award may consist,
in whole or in part, of authorized and unissued Shares or treasury Shares.
5. Persons Eligible; Annual Limitations. Persons eligible to receive Awards
shall be the executive officers and other key employees of the Company and/or
any of its subsidiaries (including
4
<PAGE>
officers or key employees who may be members of the Board of Directors). During
any calendar year, no Participant may be granted, under the Plan, Options or
other Awards under Section 6(b) through 6(h) relating to more than 100,000
Shares and in no event shall the aggregate amount of such grant exceed at the
time of grant an amount equal to $100,000, subject to adjustment in accordance
with Section 9 hereof. With respect to any Award that may be settled in cash, no
Participant may be paid during any calendar year an amount that exceeds the
greater of the Fair Market Value of the number of Shares set forth in the
preceding sentence at the date of grant or the date of settlement of the Award
(this limitation is separate and not affected by the number of Awards granted
during such calendar year subject to the limitation in the preceding sentence).
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6 and otherwise in accordance with the Plan. In
addition, the Committee may impose on any Award or the exercise thereof, at
the date of grant or thereafter (subject to Section 10(e)), such additional
terms and conditions, not inconsistent with the provisions of the Plan, as
the Committee shall determine, including terms requiring forfeiture of
Awards in the event of termination of employment by the Participant. Except
as provided in Sections 6(f), 6(h), 7(a), or 7(b), or to the extent
necessary to comply with requirements of the New York Business Corporation
Law that lawful consideration be paid for Shares, only services may be
required as consideration for the grant (but not the exercise) of any
Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee; provided, however,
that, except as provided in Section 7(a), such exercise price
shall be not less than the Fair Market Value of a Share on the
date of grant of such Option and, in all cases, shall be not less
than par value of a Share.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part, the methods by which such exercise price may be paid or
deemed to be paid, the form of such payment, including, without
limitation, cash, Shares, other Awards or awards granted under
other Company plans, or other property (including notes or other
contractual obligations of Participants to make payment on a
deferred basis, such as through "cashless exercise" arrangements,
to the extent permitted by applicable law), and the methods by
which Shares will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that no ISO shall be
granted more than ten years
5
<PAGE>
after the effective date of the Plan. Anything in the Plan to the
contrary notwithstanding, no provision of the Plan relating to
ISOs shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be exercised, so
as to disqualify either the Plan or any ISO under Section 422 of
the Code.
(iv) Restriction on Sale or Disposition of Shares Subject to Non-ISOs.
Upon the grant of an Option which is not an ISO, the Committee
shall specify a period of time during which the sale or other
disposition of Shares acquired pursuant to such Option shall be
restricted, which period shall be not less than six months nor
more than three years after exercise of an Option ("Restricted
Period"). In the case of Shares purchased upon the exercise of
non-ISOs:
(A) During the Restricted Period, such Shares may not be sold,
transferred, pledged, assigned or otherwise disposed by the
holder thereof except that the optionee may offer the Shares
to the Company and the Company may purchase up to all the
Shares offered, in its sole discretion, during such period
at a price equal to the exercise price of the Shares.
Furthermore, upon termination of optionee's employment with
the Company during the Restricted Period for reasons other
than death, disability or retirement due to advanced age,
such optionee shall be required, upon written request of the
Company made during the Restricted Period, within seven (7)
business days to sell to the Company up to all of the Shares
purchased at the exercise price. If the Company does not
require such sale, the optionee shall continue to hold such
shares subject to the restrictions imposed by this clause
(A).
(B) After the end of the Restricted Period, in the event the
holder of such Shares desires to sell such Shares, such
holder shall first offer by written notice such Shares to
the Company at the Fair Market Value thereof on the date of
such notice and the Company shall have until the close of
business on the seventh business day after receipt of such
offer to accept it in whole or in part by written notice
thereof. If the Company shall elect to purchase such Shares
it shall pay cash therefor on the fifth business day
following the date of the notice of the acceptance of the
offer. If the Company shall not elect to purchase such
Shares, the offering holder shall then be free to sell all
Shares offered to and not acquired by the Company for a
period of 30 days beginning on the first business day after
the date the Company gives notice that it does not elect to
purchase such Shares or after expiration of the period
within which the Company can elect to purchase, whichever is
sooner. Upon the expiration of such 30 day period, the
6
<PAGE>
holder must again offer the Shares to the Company as
aforesaid before any sale thereof. The restrictions
contained in this clause (B) shall be applicable to persons
who succeed, by will or by reason of the laws of descent and
distribution, to the rights of holders of Non-Incentive
Stock Options or Shares acquired upon exercise thereof.
(v) Right of First Refusal Concerning Shares Subject to ISOs. The
right of first refusal granted to the Company with respect to the
sale or disposition of Shares acquired pursuant to the exercise
of a Non-Incentive Stock Option set forth in Clause (B) of
subparagraph (iv) above also shall be applicable to Shares
acquired pursuant to the exercise of ISOs from the date of
exercise of such Options. These restrictions shall also be
applicable to persons who succeed by will or by reason of the
laws of descent and distribution to the rights of the holders of
ISOs or shares acquired upon exercise thereof.
(vi) Exercise Price and Term for 10% Stockholders. The exercise price
of an ISO granted to a person possessing more than 10% of the
total combined voting power of all shares of stock of the Company
or a parent or subsidiary of the Company ("10% Stockholder")
shall in no event be less than 110% of the Fair Market Value of
the shares of the Common Stock at the time the ISO is granted.
The term of an ISO granted to a 10% Stockholder shall not exceed
five years from the date of grant.
(c) Limited Stock Appreciation Rights. The Committee is authorized to
grant LSARs to Participants on the following terms and conditions:
(i) Grant. The Committee, in connection with any Option, either at
the time the Option is granted or any other time thereafter while
the Option is outstanding, may grant to any optionee an LSAR
entitling the holder, in the event of a Change in Control of the
Company, to receive from the Company at any time during the
60-day period following such Change in Control, in lieu of
exercising such Option, an amount of cash equal to the excess of
(x) the Fair Market Value of the number of Shares as to which the
LSAR is exercised (determined as of the effective date of the
Change in Control) over (y) the exercise price, times the number
of Shares as to which such LSAR is exercised.
(ii) Payment. An optionee who exercises an LSAR will receive payment
of the amount of cash due within 20 business days after such
exercise.
(iii) Conditions to Exercise. An LSAR will be exercisable only when
the underlying Option is otherwise exercisable and will be
transferable only when the Option is otherwise transferable. In
the event of the death of an optionee, an LSAR may be exercised
following a Change in Control only to
7
<PAGE>
the extent the related Option may be exercised by such person's
executor or legal representative. In addition, in the case of an
ISO, any exercise of an LSAR can only be made when the Fair
Market Value of the Shares subject to the ISO exceeds the
exercise price of such Option.
(iv) Termination. Upon the exercise of an Option pursuant to the Plan,
the LSAR relating to the Shares covered by such Option shall
terminate. Upon the exercise of an LSAR, the related Option, to
the extent the number of Shares with respect to which such LSAR
was exercised, shall terminate. If any Option shall expire or
terminate for any reason without having been exercised in full,
the LSAR with respect thereto shall terminate.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any,
as the Committee may impose, which restrictions may lapse
separately or in combination at such time, under such
circumstances, in such installments, or otherwise, as the
Committee may determine. Except to the extent restricted under
the terms of the Plan and any Award agreement relating to the
Restricted Stock, a Participant granted Restricted Stock shall
have all of the rights of a stockholder including, without
limitation, the right to vote Restricted Stock and the right to
receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction
period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
provided, however, that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Stock will be waived in whole or in part
in the event of terminations resulting from specified causes.
(iii) Certificates of Shares. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in
the name of the Participant, such certificates shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, the Company
shall retain physical possession of the Certificate, and the
Participant shall have delivered a stock power to the Company,
endorsed in blank, relating to the Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either
paid at the
8
<PAGE>
dividend payment date in cash or in unrestricted Shares having a
Fair Market Value equal to the amount of such dividends, or the
payment of such dividends shall be deferred and/or the amount or
value thereof automatically reinvested in additional Restricted
Stock, other Awards, or other investment vehicles, as the
Committee shall determine or permit the Participant to elect.
Shares distributed in connection with a stock split or stock
dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Stock with respect to which such Shares
or other property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock to Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Delivery of Shares will occur upon
expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred
Stock shall be subject to such restrictions as the Committee may
impose, if any, which restrictions may lapse at the expiration of
the deferral period or at earlier specified times, separately or
in combination, in installments, or otherwise, as the Committee
may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment (as determined under criteria
established by the Committee) during the applicable deferral
period or portion thereof to which forfeiture conditions apply
(as provided in the Award agreement evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to
deferral (other than a deferral at the election of the
Participant) shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award
agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock
will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Deferred Stock.
(f) Bonus Shares and Awards in Lieu of Cash Obligations. The Committee
is authorized to grant Shares as a bonus, or to grant Shares or other
Awards in lieu of Company obligations to pay cash under other plans or
compensatory arrangements; provided, however, that, in the case of
Participants subject to Section 16 of the Exchange Act and unless otherwise
determined by the Board of Directors, such cash amounts are determined
under such other plans in a manner that complies with applicable
requirements of Rule 16b-3 so that the acquisition of Shares or Awards
hereunder shall be exempt from Section 16(b) liability. Shares or Awards
granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
9
<PAGE>
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Participants. The Committee may provide that
Dividend Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Shares, Awards, or other
investment vehicles as the Committee may specify.
(h) Other Share-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by
the Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debentures or other debt
securities, other rights convertible or exchangeable into Shares, purchase
rights for Shares, Awards with value and payment contingent upon
performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the book value of Shares or
the value of securities of or the performance of specified subsidiaries.
The Committee shall determine the terms and conditions of such Awards.
Awards for which Participants are required to pay consideration, and Shares
delivered pursuant to an Award in the nature of a purchase right granted
under this Section 6(h) shall be purchased for such consideration, paid for
at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, other Awards, or other property, as the Committee
shall determine. Cash awards, as an element of or supplement to any other
Awards under the Plan, shall also be authorized pursuant to this Section
6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or awards made pursuant to other Company
plans, any subsidiary, or any business entity to be acquired by the Company
or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. Awards granted in addition to or in
tandem with other Awards or awards made pursuant to other Company plans may
be granted either as of the same time as or a different time from the grant
of such other Awards or awards made pursuant to other Company plans. The
per share exercise price of any Option or purchase price of any other Award
conferring a right to purchase Shares:
(i) Granted in substitution for an outstanding Award or award made
pursuant to other Company plans shall be not less than the lesser
of the Fair Market Value of a Share at the date such substitute
Award is granted or such Fair Market Value at that date reduced
to reflect the Fair Market Value at that date of the Award or
award made pursuant to other Company plans required to be
surrendered by the Participant as a condition to receipt of the
substitute Award; or
(ii) Restoratively granted in tandem with an outstanding Award or
award made
10
<PAGE>
pursuant to other Company plans shall be not less than the lesser
of the Fair Market Value of a Share at the date of grant of the
later Award or at the date of grant of the earlier Award or award
made pursuant to other Company plans.
(b) Exchange or Buyout Provisions. The Committee may at any time offer
to exchange or buy out any previously granted Award for a payment in cash,
Shares, other Awards (subject to section 7(a)), or other property based on
such terms and conditions as the Committee shall determine and communicate
to the Participant at the time that such offer is made.
(c) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event
shall the term of any ISO or an LSAR granted in tandem therewith exceed a
period of ten years from the date of its grant (or such shorter period as
may be applicable under Section 422 of the Code).
(d) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award agreement, payments to be made by the Company or a
subsidiary upon the grant or exercise of an Award may be made in such forms
as the Committee shall determine, including, without limitation, cash,
Shares, other Awards, or other property, and may be made in a single
payment or transfer, in installments, or on a deferred basis. Such payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents in respect of installment or deferred
payments denominated in Shares.
(e) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise
exercise a derivative security or dispose of Shares delivered
upon exercise of a derivative security granted under the Plan
without incurring liability under Section 16(b) of the Exchange
Act, (x) Shares delivered under the Plan other than upon exercise
or conversion of a derivative security granted under the Plan
shall be held for at least six months from the date of
acquisition, and (y), with respect to a derivative security
granted under the Plan, at least six months shall elapse from the
date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise
or conversion) or its underlying equity security.
(ii) Reformation To Comply with Exchange Act Rules. It is the intent
of the Company that this Plan comply in all respects with
applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) under the
Exchange Act in connection with any grant of Awards to or other
transaction by a Participant who is subject to Section 16 of the
Exchange Act (except for transactions exempted under alternative
Exchange Act Rules or acknowledged in writing to be non-exempt
11
<PAGE>
by such Participant). Accordingly, if any provision of this Plan
or any Award agreement relating to an Award does not comply with
the requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then
applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to
the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so
that such Participant shall avoid liability under Section 16(b).
(f) Installment Payment Arrangements. Upon grant or exercise of an
Award, the Committee may, in its discretion, permit the payment of any
exercise or purchase price or other consideration, in whole or in part, in
installments, subject to the terms of this Section 7(f). Each such
installment payment arrangement will be evidenced by a promissory note, the
terms and conditions of which shall be determined by the Committee subject
to the following: (a) the maximum term of any note shall be 15 years from
date of the original payment obligation, (b) the minimum interest rate with
respect to amounts loaned hereunder shall be such rate as may be determined
by the Committee from time to time, but in no event shall such rate be less
than the rate required to avoid imputation of interest (or original issue
discount) under Section 483 or any similar provision of the Code, (c) the
note shall be secured as and to the extent determined by the Committee, but
the employee shall be personally liable despite any security pledged, (d)
the note may be prepaid in full or in part at any time without penalty, and
(e) the unpaid principal and interest of any note will become due and
payable on the earlier to occur of the sale of any Shares in connection
with which the payment obligation was incurred and 30 days after the
Participant's employment with the Company terminates (unless the Committee,
in its discretion, extends the note for an additional period). In addition,
the Committee may authorize the Company to make, guarantee, or arrange for
a loan or loans to a Participant to enable the Participant to pay any
federal, state, or local income or other taxes due in connection with an
Award. The Committee shall have the authority to forgive repayment of, or
waive rights relating to, any note or loan authorized hereunder, including
interest thereon. Any arrangement under this Section 7(f) entered into to
permit a Participant to purchase or carry securities shall comply with the
applicable provisions of Regulation G promulgated by the Federal Reserve
Board, and arrangements shall be entered into and continue only to the
extent that such arrangements otherwise shall comply with all applicable
laws, regulations, and contractual obligations of the Company.
(g) Performance-Based Awards to Covered Employees. Other provisions of
the Plan notwithstanding and unless otherwise determined by the Committee,
the provisions of this Section 7(g) shall apply to any Award the
exercisability or settlement of which is subject to the achievement of
performance conditions (other than an Option granted with an exercise price
at least equal to 100% of Fair Market Value of Shares on the date of grant)
if such Award is granted to a person who, at the time of grant, is a
Covered Employee. The terms used in this Section 7(g) shall be interpreted
in a manner consistent with Section 162(m) of the Code and regulations
thereunder (including Proposed Regulation 1.162-27). The performance
objectives for an Award subject to this Section 7(g) shall consist of one
or more business criteria and a targeted level or levels of performance
with respect to such
12
<PAGE>
criteria, as specified by the Committee but subject to this Section 7(g).
Performance objectives shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code and regulations thereunder
(including Proposed Regulation 1.162-27(e)(2)). The following business
criteria shall be used by the Committee in connection with a performance
objective:
(1) Consolidated net income;
(2) Pre-tax earnings from continuing operations of the Company, a
subsidiary or business unit;
(3) Revenues of the Company, a subsidiary or a business unit;
(4) Earnings per common share; and/or
(5) Return on common equity.
Achievement of performance objectives shall be measured over a period of
one, two, three, of four years, as specified by the Committee. No business
criteria other than those named for an Award to a Covered Employee under
this Section 7(g). For each such Award relating to a Covered Employee, the
Committee shall establish the targeted level or levels of performance for
each business criteria. Performance objectives may differ for Awards under
this Section 7(g) to different Covered Employees and from year to year. The
Committee may determine that an Award under this Section 7(g) shall be
payable upon achievement of any one of his performance objectives or may
require that two or more of the performance objectives must be achieved in
order for an Award to be payable. The Committee may, in its discretion,
reduce the amount of a payout otherwise to be made in connection with an
Award under this Section 7(g), but may not exercise discretion to increase
such amount, and the Committee may consider other performance criteria in
exercising such discretion. All determinations by the Committee as to the
achievement of performance objectives shall be made in writing. The
Committee may not delegate any responsibility under this Section 7(g).
8. Change in Control Provisions.
(a) Acceleration Provisions. In the event of a "Change in Control," as
defined in this Section 8, the following acceleration provisions shall
apply:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested,
subject only to the restrictions set forth in Sections 7(e)(i),
10(a), and 10(m); and
(ii) The restrictions, deferral limitations, and forfeiture conditions
applicable to any other Award granted under the Plan shall lapse
and such Awards shall be deemed fully vested, and any performance
conditions imposed with respect to Awards, shall be deemed to be
fully achieved (or in the case of an Award subject to Section
7(g), achieved to the extent of the actual achievement to the
date of the Change in Control), subject to the restrictions on
dispositions
13
<PAGE>
of equity securities set forth in Sections 7(e)(i), 10(a), and
10(m).
(b) Definition of "Change in Control." For purposes of the Plan, a
"Change in Control" shall have occurred if at any time prior to the
expiration or termination of the last Award granted under the Plan:
(i) The stockholders of the Company approve a merger or consolidation
of which the Company is not the surviving corporation, or a sale
or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation of the Company;
(ii) A tender offer or exchange offer for securities of the Company is
made by any person (as such term is used in Section 13(d) and
14(d)(3) of the Exchange Act), other than any person who is a
member of the existing Board of Directors of the Company, as
defined, with the intent to take over and control the Company;
(iii) Any person, other than any person who is a member of the
existing Board of Directors, is or becomes the beneficial owner
(as such term is defined in Rule 13d-3 under the Exchange Act) of
Shares representing 25% or more of the combined voting power of
the Company's then outstanding securities; or
(iv) The persons constituting the existing Board of Directors cease
for any reason whatsoever to constitute at least a majority of
the Company's Board of Directors;
provided, however, that no Change in Control shall be deemed to have occurred
with respect to any Award (other than an ISO or an LSAR in tandem with an ISO if
the exercise of discretion under this provision would cause such ISO to lose its
status as an Incentive Stock Option) if the Board shall determine, prior to the
occurrence of the event specified in Section 8(b)(i) through (iv) hereof, that
such event shall not constitute a Change in Control for purposes of the Plan;
and provided further, that a Change in Control shall not include increases in
the percentage of voting power of persons who beneficially own or control Shares
or other outstanding securities of the Company which occur solely as a result of
a reduction in the amount of Shares or other securities outstanding or as a
result of the exercise of Options or vesting of Awards granted hereunder.
(c) Definition of "existing Board of Directors." For purposes of the
Plan, the term "existing Board of Directors" shall mean the persons
constituting the Board of Directors of the Company on the date of adoption
of the Plan, together with each new Director whose election, or nomination
for election by the Company's stockholders, is approved by a vote of the
majority of the members of the existing Board of Directors who are in
office immediately prior to the election or nomination of such Director.
9. Adjustments. In the event that the Committee shall determine that any
dividend or
14
<PAGE>
other distribution (whether in the form of cash, Shares, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Shares such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of Shares
which may thereafter be delivered in connection with Awards, (ii) the number and
kind of Shares that may be delivered or deliverable in respect of outstanding
Awards, (iii) the number of shares with respect to which Awards may be granted
to a given Participant in the specified period as set forth in Section 5, and
(iv) the exercise price, grant price, or purchase price relating to any Award
or, if deemed appropriate, make provision for a cash payment with respect to any
outstanding Award; provided, however, in each case, that, with respect to ISOs,
no such adjustment shall be authorized to the extent that such authority would
cause the Plan to violate Section 422(b)(1) of the Code or previously issued
ISOs to lose their status as such. In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any subsidiary or the financial statements of the Company or any subsidiary, or
in response to changes in applicable laws, regulations, or accounting
principles, or tax rates and regulations, or accounting principles, or tax
adjustments are intended to be objectively determinable and non discretionary
and, as such, consistent with the qualification of Awards as "performance-based
compensation" under Section 162(m) of the Code, and shall be construed
accordingly. To the extent it shall be determined, based on an opinion of
counsel, that any such adjustment would likely cause compensation relating to an
Award to a Covered Employee to fail to be deductible under Section 162(m) of the
Code, such adjustment shall not be authorized or made, unless otherwise
determined by the Committee.
10. General Provisions.
(a) Compliance With Legal and Exchange Requirements. The Company shall
not be obligated to deliver Shares upon the exercise or settlement of any
Award or take other actions under the Plan until the Company shall have
determined that applicable federal and state laws, rules, and regulations
have been complied with and such approvals of any regulatory or
governmental agency have been obtained and contractual obligations to which
the Award may be subject have been satisfied. The Company, in its
discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange listing or registration or
qualification of such Shares or other required action under any federal or
state law, rule, or regulation as the Company may consider appropriate, and
may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance
or delivery of Shares under the Plan.
(b) Nontransferability. A Participant's rights under the Plan
(including any right that may constitute a "derivative security" under the
general definition of Rule 16a-1(c)(3)) may not be transferred, pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be subject
to claims of the Participant's creditors; provided, however, that the
15
<PAGE>
Committee may permit transfers of Options and other Awards for estate
planning purposes if and to the extent such transfers do not cause a
Participant who is then subject to Section 16 of the Exchange Act who then
or thereafter has transactions with respect to such Option or Award to lose
the benefit of the exemption under Rule 16b-3 for such transactions (unless
the Participant acknowledges in writing that such transfer is non-exempt),
or violate other rules or regulations of the Securities and Exchange
Commission or the Internal Revenue Service or materially increase the cost
of the Company's compliance with such rules or regulations.
(c) No Right to Continued Employment. Neither the Plan nor any action
taken hereunder shall be construed as creating any contract of employment
between the Company or any of its subsidiaries and any employee or
otherwise giving any employee the right to be retained in the employ of the
Company or any of its subsidiaries, nor shall it interfere in any way with
the right of the Company or any of its subsidiaries to terminate any
employee's employment at any time.
(d) Taxes. In the event that the Company or any of its subsidiaries
shall be required to withhold any amount by reason of any federal, state,
or local tax law, rule, or regulation or by reason of the grant or exercise
of any Award, the Company or its subsidiaries shall be entitled to deduct
and withhold such amount from any other cash payment or payments to be made
by the Company or its subsidiaries (including from payroll) to such person.
In any such event, the Participant shall make available to the Company or
its subsidiaries, promptly when required, sufficient funds to meet the
Company's or subsidiary's requirement of such withholding; and the Company
shall be entitled to take such steps as the Committee may deem advisable in
order to have such funds available to the Company or its subsidiary at the
required time or times. This Committee authority shall include authority to
withhold or receive Shares or other property, on a mandatory basis or at
the election of the Participant, and to make cash payments in respect
thereof in satisfaction of a Participant's tax obligations (which may
include mandatory withholding obligations and obligations of the
Participant in excess of such mandatory obligations relating to an Award).
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or
Participants, except that any such action shall be subject to the approval
of the Company's stockholders at or before the next annual meeting of
stockholders after such Board action if such stockholder approval is
require by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Shares may then be
listed or quoted, and the Board may otherwise, in its discretion, determine
to submit other such changes to the Plan to stockholders for approval;
provided, however, that, without the consent of an affected Participant, no
amendment, alteration, suspension, discontinuation, or termination of the
Plan may materially impair the rights of such Participant under any Award
theretofore granted to him. The Committee may waive any conditions or
rights under, or amend, alter, suspend, discontinue, or terminate, any
Award theretofore granted and any Award agreement relating thereto;
provided, however,
16
<PAGE>
that, without the consent of an affected Participant, no such amendment,
alteration, suspension, discontinuation, or termination of any Award may
materially impair the rights of such Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. Nothing contained in
the Plan shall be deemed to give any person eligible to receive an Award
hereunder, or any heir, distributee, executor, administrator or personal
representative of any such person, any interest or title to any specific
property of the Company, or any of its subsidiaries, or any other right
against the Company or any of its subsidiaries other than as set forth in
the Plan. Neither the establishment of the Plan nor any other action taken
now or at any time with regard thereto shall be construed as giving any
person whatsoever any legal or equitable right against the Company unless
such right shall be specifically provided for in the Plan. There is no
obligation for uniformity of treatment of Participants and employees under
the Plan. No Award shall confer on any Participant any of the rights of a
stockholder of the Company unless and until Shares are duly issued or
transferred and delivered to the Participant in accordance with the terms
of the Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give
any such Participant any rights that are greater than those of a general
creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Shares, other Awards,
or other property pursuant to any Award, which trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan unless the
Committee otherwise determines with the consent of each affected
Participant. If and to the extent authorized by the Committee, the Company
may deposit into such a trust Shares for delivery to the Participant in
satisfaction of the Company's obligations under any Award. If so provided
by the Committee, upon such a deposit of Shares or other assets for the
benefit of a Participant, there shall be substituted for the rights of the
Participant to receive delivery of Shares and other payments under this
Agreement a right to receive the assets of the trust (to the extent that
the deposited Shares or other assets represented the full amount of the
Company's obligation under the Award at the date of deposit). The trustee
of the trust may be authorized to dispose of trust assets and reinvest the
proceeds in alternative investments, subject to such terms and conditions
as the Committee may specify and in accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitation on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
17
<PAGE>
(i) Binding Effect. The provisions of the Plan shall be binding upon
the heirs, distributees, executors, administrators and personal
representatives of any person participating under the Plan. Any person
claiming any rights under the Plan as a beneficiary or otherwise through a
Participant shall be subject to all of the terms and conditions of the Plan
and any additional terms and conditions as may be imposed by the Committee.
(j) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other awards, or other property shall be issued or paid in
lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(k) Compliance with Code Section 162(m). It is the intent of the
Company that, unless otherwise determined by the Committee, Options and
other Awards subject to the performance objectives specified under Section
7(g) granted under the Plan to persons who are Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder (including
Proposed Regulation 1.162-27(c) (2) shall constitute "qualified
performance-based compensation" within the meaning of Code Section 162(m)
and regulations thereunder (including Proposed Regulation 1.162-27(e), and
subject to the transition rules under Proposed Regulation 1.162-27(h) (2)
thereunder. Accordingly, unless otherwise determined by the Committee, if
any provision of the Plan or any Award agreement relating to such Award
granted to a Covered Employee does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements, and no provision shall be deemed to confer
upon the Committee or any other person discretion to increase the amount of
compensation otherwise payable to a Covered Employee in connection with
such Award upon attainment of the performance objectives.
(l) Governing Law. The Plan and all related documents shall be
governed by, and construed in accordance with, the laws of the State of
Delaware (except to the extent provisions of federal law may be
applicable). If any provision hereof shall be held by a Court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of
the Plan shall continue to be fully effective.
(m) Effective Date; Plan Termination. The Plan shall become effective
as of June 1, 1996; provided, however, that the Plan shall have been
approved by the affirmative votes of the holders of a majority of voting
securities present in person or represented by proxy, and entitled to vote
at the next annual meeting of Company stockholders for which the record
date is after the effective date of the Plan, or any adjournment thereof,
or prior to such annual meeting at a special meeting of stockholders or by
the written consent of the holders of a majority of voting securities
entitled to vote, in accordance with applicable provisions of the New York
Business Corporation Law. Any Awards granted under the Plan prior to such
approval of stockholders shall not be effective unless and until
stockholder approval is obtained, and, if stockholders fail to approve the
Plan as specified hereunder, any previously granted Award shall be
forfeited and canceled, and Participants shall repay to the
18
<PAGE>
Company any payments received pursuant to Dividend Equivalents or dividend
payments on Restricted Stock. Unless earlier terminated under Section 10(e)
hereto, the Plan shall terminate on and no further Awards may be granted
under the Plan after May 31, 2006.
19
<PAGE>
[Letterhead of Holtz Rubenstein & Co., LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Superior Supplements,
Inc. on Form SB-2 of our report on Superior Supplement, Inc. dated July 11,
1996, appearing in the Prospectus which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
August 7, 1996
