<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1996
Registration No. 333-9761
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
------------------------
AMENDMENT NO. 1
TO
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 to be Amount to be Proposed Maximum Proposed Maximum Amount of
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 $ 8.25 $ 495,000 $ 170.69
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Warrants, underlying
Underwriters' Option 60,000 $ 0.165 $ 9,900 $ 3.41
- ---------------------------------------------------------------------------------------------------------------------------------
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 -- -- $33,073,960 $ 11,404.83
Amount previously paid $ 11,357.35
Total Amount Due $ 47.48
=================================================================================================================================
</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 165% 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 OCTOBER __, 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, the NASD OTC Bulletin Board 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 NASD OTC Bulletin Board, under the symbols ______, and _____,
respectively, although there can be no assurances that an active trading market
will develop even if the securities are accepted for quotation. The Common Stock
and Warrants may be purchased separately and are intended to be immediately
traded separately. 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."
<PAGE>
Prior to this Offering, there has been no public market for the Common
Stock or the 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. The Bridge Lenders and PMF are hereinafter collectively referred to as
the "Selling Securityholders." Without taking into account the 3,000,000 shares
of Common Stock issuable upon exercise of the 3,000,000 Class A Warrants held by
PMF, 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 Security holders. The resale of securities by the Selling Security
holders is not being underwritten.
--------------------
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 4 AND "DILUTION" BEGINNING ON PAGE 28.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
2
<PAGE>
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.
- --------------------------------------------------------------------------------
Price Underwriting Proceeds
To Discounts And To
Public 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
$8.25 per Share and 60,000 Class A Warrants at $0.165 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
<PAGE>
(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 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 Website 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). 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 OVER-ALLOT 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
NASD OTC BULLETIN BOARD 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.
5
<PAGE>
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 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, 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 maintaining sales relationships with PDK Labs
Inc. and Compare Generiks, Inc. The Company has numerous supply sources from
which it can purchase products for resale until its manufacturing facility is
completed. Manufacturing operations commenced on October 1, 1996, although the
manufacturing facility is not yet completed.
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.
Prior to the full commencement of manufacturing operations, the Company is
operating as a wholesale supplier to PDK. All wholesale purchases made by PDK
are to offset the minimum aggregate sales per annum under the Supply Agreement
dated May 14, 1996.
7
<PAGE>
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. CGI is a development stage
company with limited revenues and a limited operating history. The Company's
supply arrangements with PDK and CGI form the core of its current business.
PDK supplies certain management and personnel to the Company and Reginald
Spinello, one of the Company's directors, is also the Executive Vice President
of PDK. In addition, one of the Company's directors, Daniel Durchslag is also a
director of CGI. In addition, Reginald Spinello and Daniel Durchslag together
with Lawrence Simon have voting power over more than fifty percent (50%) of the
common stock and the preferred stock of the Company pursuant to a Voting Trust
Agreement with PMF. See "Risk Factors - Conflicts of Interest" and "Business
Conflicts of Interest".
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. The Company will manufacture single ingredient herbal products and
multi-ingredient vitamins in tablet and capsule form. Governmental approval of
the manufacturing facility is not required. 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 NASD OTC
Bulletin Board 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; Broad
Discretion in Application of
Proceeds by Management; Use of
Offering Proceeds for Repayment of
Debt; 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;
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 OTC Bulletin Board
Symbols (3).......................... Common Stock -
Class A Warrants -
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, 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 NASD OTC Bulletin Board, 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 financial data presented below for the Company's statement of
operations for the period April 24, 1996 (Inception) to June 30, 1996 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 statement of operations data for the three months ended
September 30, 1996 and cumulative during the development stage is derived from
unaudited financial statements. 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."
<TABLE>
<CAPTION>
SUMMARY STATEMENT OF OPERATIONS
Period April 24, 1996 Three Months Ended Cumulative During
(Inception) to June 30, 1996 September 30, 1996 Development Stage
---------------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues $ 857,398 $ 770,954 $ 1,628,352
Gross Profit $ 119,358 $ 100,490 $ 219,848
Operating Income (Loss) $ 48,389 $ (37,083) $ 11,306
Net Income(Loss) $ 35,189 $ (37,083) $ (1,894)
Net Income(Loss) $ .01 $ (.01) $ (.01)
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000 3,500,000 3,500,000
<CAPTION>
SUMMARY BALANCE SHEET DATA
September 30, 1996
June 30, 1996(1) September 30, 1996(1) as Adjusted (2)
---------------- --------------------- ---------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (698,396) $ 1,538,804
Total Assets $ 2,565,537 $ 3,165,703 $ 5,102,903
Total Liabilities $ 1,285,448 $ 1,946,597 $ 1,646,597
Retained Earnings(Deficit) $ 35,189 $ (1,894) $ (1,894)
Stockholders'
Equity $ 1,280,089 $ 1,219,106 $ 3,456,306
</TABLE>
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 incurred a net loss of
$37,083 for the three months ended September 30, 1996 and a cumulative net loss
of $1,894 during the development stage of April 24, 1996 (inception) to
September 30, 1996. The Company's independent auditor's report includes an
explanatory paragraph stating that 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 only commenced manufacturing operations
on October 1, 1996. The Company is dependent upon the proceeds of this Offering
in order to fully 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 properly 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 fully 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
14
<PAGE>
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 September 30, 1996, the Company had
stockholder's equity of $1,219,106 and working capital deficiency of $698,396.
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. Broad Discretion in Application of Proceeds by Management. 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."
15
<PAGE>
6. Use of Offering Proceeds for Repayment of Debt. As described in the
"Use of Proceeds" section of this Prospectus, fourteen percent (14%) of the net
proceeds of this Offering will be used to repay certain indebtedness of the
Company. See "Use of Proceeds."
7. 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 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."
8. 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.
9. 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
16
<PAGE>
of the Company's Common Stock will be $.81. At the initial public offering price
of $5.00 per Share, investors in this Offering will experience an immediate
dilution of approximately $4.19 or 84% in net tangible book value per share and
existing investors will experience an increase of approximately $.50 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.
10. Conflicts of Interest. After this Offering, PMF, a company wholly-
owned and controlled by Barry Gersten, 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. Reginald Spinello and Daniel Durchslag, together
with Lawrence Simon, have voting power over more than fifty percent (50%) of the
Common Stock and Preferred Stock of the Company pursuant to a voting trust
agreement with PMF. 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, the voting control of certain management over PMF's Preferred Stock,
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. In circumstances where a conflict of
interest exists, members of the Board of Directors who also hold a management
position with PDK or are members of the CGI Board of Directors may be precluded
from participating in corporate decisions. Although the Board of Directors of
the Company has not adopted any written policy on this matter, the General
Corporation Law of the State of Delaware contains specific provisions governing
such conflicts.
11. 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
17
<PAGE>
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
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.
18
<PAGE>
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."
12. 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.
13. 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 maintain key personnel life
insurance for any of its employees. See "Management."
14. Control by PMF. Prior to this Offering, PMF, a company wholly-owned
and controlled by Barry Gersten, 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. The principal business of PMF and Mr. Gersten is as a private
investor. 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." After the resale of securities by the Selling Securityholders,
PMF will own approximately 24.4% of the outstanding Common Stock and 100% of the
outstanding Preferred Stock representing a combined percentage of the total
combined vote after both the Offering and said resale of 65.9%, and 27.8% of the
outstanding Class A Warrants. 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
19
<PAGE>
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.
However, PMF granted a voting trust over the Preferred Stock on May 1, 1996 for
a period of five (5) years to Lawrence Simon, Reginald Spinello and Daniel
Durchslag and, accordingly, PMF does not have actual control over 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, and if the resale of
securities referred to above is not completed, 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."
15. Limited Number of Management Personnel. There is currently only one
(1) executive officer of the Company. In addition, the Company is provided
certain management and personnel relating to accounting and administrative
functions by PDK. There is no written agreement relating to such services.
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.
16. 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."
17. 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 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."
18. 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
20
<PAGE>
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."
19. 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 NASD OTC Bulletin Board, no assurance can be given that the Common Stock
and Class A Warrants will be listed on the NASD OTC Bulletin Board 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 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 NASD OTC Bulletin Board 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
21
<PAGE>
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.
The Common Stock and Class A Warrants offered hereby will be traded 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."
20. 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 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."
22
<PAGE>
21. 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."
22. 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 $8.25 per Share and $0.165 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 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."
23. 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. However, PMF granted a five (5) year voting trust
over the Preferred Stock to Reginald Spinello, Daniel Durchslag and Lawrence
Simon, commencing on May 1, 1996. Any transfer of the Preferred Stock by PMF
could result in a change of control of the Company. See "Description of
Securities -Preferred Stock."
24. "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 NASD OTC Bulletin Board, such securities will
not be exempt from the definition of "penny stock." The Company's securities may
become subject to rules that
23
<PAGE>
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.
25. 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. The Company does not
intend to redeem the Class A Warrants at a time when a current prospectus is not
in effect. 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."
26. 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."
24
<PAGE>
27. 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."
28. 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 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."
29. 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 including the
installation of a management information system ($50,000), establishing a
network of brokers and manufacturers representatives ($10,000), hiring of
additional administrative, sales, production and warehouse employees
($150,000) and the funding of raw material 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.
26
<PAGE>
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 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 September 30, 1996, the Company had outstanding an aggregate of
3,500,000 shares of Common Stock having an aggregate net tangible value of
$1,089,019 or $.31 per share, based upon operating activity through September
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 $3,326,219 or approximately $.81 per
share. This represents an immediate increase in pro forma net tangible book
value of $.50 per share to the present stockholders and an immediate dilution of
$4.19 per share (84%) 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 book value
per share ..................................... $ .31
Increase per share attributable
to Shares offered hereby ...................... $ .50
Pro Forma net tangible book value
per share after Offering(3) ................... $ .81
Dilution of net tangible book
value per share to purchasers
in this Offering (2)(3) ..................... $ 4.19
- ----------
(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."
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<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. 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 September 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 $1,150,000, 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
September 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
Deficit .................................. $ (1,894) $ (1,894)
Unrealized loss on available
for sale investments ..................... $ (84,000) $ (84,000)
TOTAL STOCKHOLDERS'
EQUITY ................................... $ 1,219,106 $ 3,456,306
----------- -----------
TOTAL CAPITALIZATION ..................... $ 1,719,106 $ 3,656,306
=========== ===========
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 financial data presented below for the Company's statement of
operations for the period April 24, 1996 (Inception) to June 30, 1996 is 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 statement of operations data for the three months ended
September 30, 1996 and cumulative during the development stage is derived from
unaudited financial statements. 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
<TABLE>
<CAPTION>
Period April 24, 1996 Three Months Ended Cumulative During
(Inception) to June 30, 1996 September 30, 1996 Development Stage
---------------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues $ 857,398 $ 770,954 $ 1,628,352
Gross Profit $ 119,358 $ 100,490 $ 219,848
Operating Income (Loss) $ 48,389 $ (37,083) $ 11,306
Net Income(Loss) $ 35,189 $ (37,083) $ (1,894)
Net Income(Loss) $ .01 $ (.01) $ (.01)
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000 3,500,000 3,500,000
SUMMARY BALANCE SHEET DATA
September 30, 1996
June 30, 1996(1) September 30, 1996(1) as Adjusted (2)
---------------- --------------------- ---------------
Working Capital(Deficit) $ 560 $ (698,396) $ 1,538,804
Total Assets $ 2,565,537 $ 3,165,703 $ 5,102,903
Total Liabilities $ 1,285,448 $ 1,946,597 $ 1,646,597
Retained Earnings(Deficit) $ 35,189 $ (1,894) $ (1,894)
Stockholders'
Equity $ 1,280,089 $ 1,219,106 $ 3,456,306
</TABLE>
(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.
33
<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 September 30, 1996,
the Company has not commenced manufacturing operations.
The Company's cumulative results of operations during the development stage
(April 24, 1996 (inception) to September 30, 1996) reflect revenues of
approximately $1,628,000. Approximately 98 percent of these sales were derived
from PDK Labs Inc. ("PDK"). The gross profit on cumulative sales during the
development stage was approximately $220,000 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 September 30, 1996, the Company employed a total of eight (8)
employees on a full time basis (six (6) 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.
34
<PAGE>
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 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 September 30, 1996, the Company had a working capital deficit of
$698,396. 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.
35
<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 maintaining sales relationships with PDK Labs
Inc. and Compare Generiks, Inc. The Company has numerous supply sources from
which it can purchase products for resale until its manufacturing facility is
completed. Manufacturing operations commenced on October 1, 1996, although the
manufacturing facility is not yet completed.
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.
Prior to the full commencement of manufacturing operations, the Company is
operating as a wholesale supplier to PDK. All wholesale purchases made by PDK
are to offset the minimum aggregate sales per annum under the Supply Agreement
dated May 14, 1996.
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. CGI is a development stage
company with limited revenues and a limited operating history. The Company's
supply arrangements with PDK and CGI form the core of its current business.
PDK supplies certain management and personnel to the Company and Reginald
Spinello, one of the Company's directors, is also the Executive Vice President
of PDK. In addition, one of the Company's directors, Daniel Durchslag is also a
director of CGI. In addition, Reginald Spinello and Daniel Durchslag together
with Lawrence Simon have voting power over more than fifty percent (50%) of the
Common Stock and the Preferred Stock of the Company pursuant to a Voting Trust
Agreement with PMF. See "Risk Factors - Conflicts of Interest" and "Business -
Conflicts of Interest".
36
<PAGE>
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. The Company will manufacture single ingredient herbal products and
multi-ingredient vitamins in tablet and capsule form. Governmental approval of
the manufacturing facility is not required. 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.
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 and testing of finished
tablets or capsules. 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
37
<PAGE>
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,
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, such as PDK and
CGI, 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 does not intend to rely on distributors or distribution
channels affiliated with PDK or CGI. The Company markets and distributes
products in bulk tablet, capsule and powder form whereas PDK and CGI sell these
products in bottled or packaged form. The market the Company intends to serve
includes customers marketing numerous brand names whereas the market served by
PDK and CGI is specific to a brand or affiliated brand of PDK or CGI.
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.
38
<PAGE>
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.
Arrangements with brokers and manufacturing representatives will be decided
on an individual basis, generally relating to a region or territory on a month
to month basis with commissions ranging up to five percent (5%) on paid customer
invoices.
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
will compete favorably with other vitamin and dietary supplement companies
because of its access to products, competitive pricing, quality of products, and
sales support.
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."
39
<PAGE>
Management and Employees
As of September 30, 1996, the Company employed a total of eight (8)
employees on a full time basis (six (6) 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 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
40
<PAGE>
("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.
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.
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<PAGE>
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, 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.
Reginald Spinello and Daniel Durchslag, together with Lawrence Simon, have
voting power over more than fifty percent (50%) of the Common Stock and
Preferred Stock of the Company pursuant to a voting trust agreement with PMF. 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, the voting control
of certain management over PMF's Preferred Stock, 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.
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 with coverage up to $1,000,000 on claims made. 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
42
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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 was the National Sales Director
for Futurebiotics, Inc. ("Futurebiotics") from October 1, 1995, until his
resignation on April 30, 1996. 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.
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.
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.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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
$5.00 per share exercisable one year from the effective date of the
Company's initial public offering.
<TABLE>
<CAPTION>
Option/SAR Grants -
Individual Grants
- ---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Lawrence Simon, President 100,000 100% $5.00 May 1, 2001
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises -
and FY-End Option/SAR Values
- ---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
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.
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<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 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 award
and, if applicable, the number of shares to be covered by the award. During any
calendar
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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 exercise the Option.
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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.
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
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<PAGE>
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.
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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>
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of Percentage Percentage Shares of Percentage Percentage Percentage
Common (%) of (%) of Preferred (%) of Total (%) of Total (%) Total
Stock Owned Common Common Stock Combined Combined Combined
Stock Before Stock After Vote Before Vote After Vote After
Offering Offering Offering Offering Offering and
Resale by
Selling
Security
holders
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and
Address of
Beneficial Owner
- ------------------------------------------------------------------------------------------------------------------------------------
PMF, Inc.(1)(2) 3,000,000 85.7 73.2 5,000,000 94.1 87.9 65.9
- ------------------------------------------------------------------------------------------------------------------------------------
Compare 500,000 14.3 12.2 0.0 6.25 5.5 5.5
Generiks, Inc.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence D. 0.0 0.0 0.0 5,000,000 58.8 54.9 54.9
Simon
(1)(4)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Reginald 0.0 0.0 0.0 5,000,000 58.8 54.9 54.9
Spinello
(1)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew L. 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Harriton
(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Daniel
Durchslag 0.0 0.0 0.0 5,000,000 58.8 54.9 54.9
(1)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Steven F.
Wasserman (5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
All officers and
directors as a
group (five (5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
persons)
- ------------------------------------------------------------------------------------------------------------------------------------
</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. PMF, Inc. has retained all
other rights of beneficial ownership in such shares.
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<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, 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 Agreement is for
a period of three (3) years, automatically renewable for successive one (1) year
terms. See "Risk Factors - Conflicts of Interest."
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<PAGE>
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 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
53
<PAGE>
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.
The Company believes that all transactions with PDK, the Bridge Lenders and
officers or shareholders of the Company and their affiliates were made on terms
no less favorable to the Company than those available from unaffiliated parties.
The Company intends that in the future any such transactions shall also be made
on terms no less favorable than those available from unaffiliated parties.
54
<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.
55
<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 NASD OTC Bulletin Board 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
56
<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
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<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.
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Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the "Transfer Agent").
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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. 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 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, assuming the
completion of both the Offering and the offering by Selling Securityholders.
60
<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>
61
<PAGE>
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
Selling Securityholders are not required to effect sales through VTR Capital,
Inc. 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.
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. The Underwriters do not intend to sell any of the Company's
securities to accounts for which they exercise discretionary authority. 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.
63
<PAGE>
The Company has agreed to sell to the Underwriters, or their designees, for
an 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 sixty five percent (165%) 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 to be provided to the Company for no more than two (2) business days per
month.
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
64
<PAGE>
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 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. Unless granted an exemption by the
Securities and Exchange Commission from Rule 10b-6, the Underwriters and any
solicitation broker-dealers are prohibited from engaging in any market making
activities with regard to the issuer's securities for the period from two or
nine business days prior to any solicitation of the exercise of warrants until
the later of termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriters and soliciting
broker-dealers may have to receive a fee for the exercise of warrants following
such solicitation. As a result, the Underwriters and soliciting broker-dealers
may be unable to continue to provide a market for the Company's securities
during certain periods while the 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.
65
<PAGE>
The Company anticipates that the Common Stock and the Class A Warrants will
be listed for quotation on the NASD OTC Bulletin Board under the symbols, ______
and _____, 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)
REPORT ON AUDIT OF
FINANCIAL STATEMENTS
PERIOD APRIL 24, 1996 (INCEPTION)
TO JUNE 30, 1996
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance sheets as of June 30, 1996 and September 30, 1996 (unaudited) F-2
Statements of operations for the period April 24, 1996 (inception)
to June 30, 1996, three months ended September 30, 1996
(unaudited), and cumulative during development stage (unaudited) F-3
Statement of stockholders' equity for the period April 24, 1996
(inception) to June 30, 1996, and three months ended September 30,
1996 (unaudited) F-4
Statements of cash flows for the period April 24, 1996 (inception)
to June 30, 1996, and three months ended September 30, 1996
(unaudited), and cumulative during development stage (unaudited) F-5
Notes to financial statements F-6 - F-12
<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 operations,
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 SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 594,175 $ 134,427
Accounts receivable (Note 10) 392,247 486,027
Inventory 99,586 413,623
Prepaid expense -- 14,124
----------- -----------
Total current assets 1,086,008 1,048,201
PROPERTY AND EQUIPMENT, net (Note 3) 341,328 828,824
INVESTMENT IN AVAILABLE-FOR-SALE
SECURITIES (Note 7) 1,067,000 1,034,000
DEFERRED TAX ASSET (Note 8) 33,700 45,200
OTHER ASSETS, net 37,501 209,478
----------- -----------
$ 2,565,537 $ 3,165,703
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bridge notes payable (Note 4) $ 300,000 $ 300,000
Accounts payable and accrued expenses 761,448 1,435,297
Income taxes payable (Note 8) 24,000 11,300
----------- -----------
Total current liabilities 1,085,448 1,746,597
----------- -----------
NOTE PAYABLE (Note 5) 200,000 200,000
----------- -----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY: (Note 7)
Common stock, $.0001 par value; authorized 25,000,000
shares; 3,500,000 issued and outstanding 350 350
Preferred stock, $.0001 par value; authorized 10,000,000
shares; 5,000,000 shares issued and outstanding 500 500
Additional paid-in capital 1,304,150 1,304,150
Unrealized loss on available-for-sale investments (60,100) (84,000)
(Deficit) retained earnings accumulated
during the development stage 35,189 (1,894)
----------- -----------
1,280,089 1,219,106
----------- -----------
$ 2,565,537 $ 3,165,703
=========== ===========
</TABLE>
See notes to financial statements
F-2
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Period Three Months Cumulative
April 24, 1996 Ended During
(Inception) September 30, Development
June 30, 1996 1996 Stage
------------- ------------ -----------
(Unaudited) (Unaudited)
REVENUE (Note 10) $ 857,398 $ 770,954 $ 1,628,352
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 738,040 670,464 1,408,504
General and administrative (Note 9) 70,969 123,123 194,092
Interest expense -- 14,450 14,450
----------- ----------- -----------
809,009 808,037 1,617,046
----------- ----------- -----------
EARNINGS (LOSS) FROM OPERATIONS
BEFORE INCOME TAX 48,389 (37,083) 11,306
PROVISION FOR INCOME TAX (Note 8) 13,200 -- 13,200
----------- ----------- -----------
NET (LOSS) INCOME $ 35,189 $ (37,083) $ (1,894)
=========== =========== ===========
NET (LOSS) INCOME PER SHARE (Note 2) $ .01 $ (.01) $ (.01)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING (Note 2) 3,500,000 3,500,000 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>
(Deficit)
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
Unrealized loss on investment
available-for-sale (unaudited) -- -- -- -- -- (23,900) -- (23,900)
Net loss (unaudited) -- -- -- -- -- -- (37,083) (37,083)
--------- ---- --------- ---- ---------- -------- -------- -----------
Balance, September 30, 1996 (unaudited) 3,500,000 $350 5,000,000 $500 $1,304,150 $(84,000) $ (1,894) $ 1,219,106
========= ==== ========= ==== ========== ======== ======== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Three Months Cumulative
April 24, 1996 Ended During
(Inception) September 30, Development
June 30, 1996 1996 Stage
-------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 35,189 $ (37,083) $ (1,894)
--------- --------- -----------
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Deferred income taxes (10,800) (2,400) (13,200)
Depreciation -- 13,486 13,486
Amortization 1,666 5,330 6,996
Increase in assets:
Accounts receivable (392,247) (93,780) (486,027)
Inventory (99,586) (314,037) (413,623)
Prepaid expense -- (14,124) (14,124)
Other assets (39,167) (177,307) (216,474)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 761,448 673,849 1,435,297
Taxes payable 24,000 (12,700) 11,300
--------- --------- -----------
Total adjustments 245,314 78,317 323,631
--------- --------- -----------
Net cash provided by operating activities 280,503 41,234 321,737
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (341,328) (500,982) (842,310)
--------- --------- -----------
Net cash used in investing activities (341,328) (500,982) (842,310)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 155,000 -- 155,000
Proceeds from notes payable 200,000 -- 200,000
Proceeds from bridge notes payable 300,000 -- 300,000
--------- --------- -----------
Net cash provided by financing activities 655,000 -- 655,000
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 594,175 (459,748) 134,427
CASH AND CASH EQUIVALENTS,
beginning of period -- 594,175 --
--------- --------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 594,175 $ 134,427 $ 134,427
========= ========= ===========
</TABLE>
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
AND THREE MONTHS ENDED SEPTEMBER 30, 1996
(Information with respect to the three months ended
September 30, 1996 is unaudited)
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. To date, 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 reflected in the accompanying financial statements, the Company has
incurred cumulative losses of approximately $1,900. 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 (Loss) Income Per Share
Net (loss) 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.
F-7
<PAGE>
3. Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows:
June 30, September 30,
1996 1996
(Unaudited)
-------- --------
Equipment $277,832 $517,416
Leasehold improvements 63,496 288,814
Furniture and fixtures -- 17,780
Computer equipment -- 18,300
-------- --------
341,328 842,310
Less accumulated depreciation -- 13,486
-------- --------
$341,328 $828,824
======== ========
No depreciation has been recorded as of June 30, 1996 as none of the
productive equipment has been put into operation.
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 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 September
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.
F-8
<PAGE>
7. Stockholders' Equity: (Cont'd)
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.
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
September 30, 1996 and 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 $1,034,000 and $1,067,000,
respectively. Unrealized loss, which is reported as a part of stockholders'
equity, was approximately $84,000 as of September 30, 1996, net of deferred
income taxes of $32,000 and $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 September 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.
F-9
<PAGE>
8. Income Taxes:
Income tax provision (benefit) consists of the following:
Period Three Months
April 24, 1996 Ended
(Inception) September 30,
June 30, 1996 1996
-------------- -------------
(Unaudited)
Federal:
Current $ 14,000 $ 1,400
Deferred (6,350) (1,350)
-------- -------
7,650 50
-------- -------
State:
Current 10,000 1,000
Deferred (4,450) (1,050)
-------- -------
5,550 (50)
-------- -------
$ 13,200 $ --
======== =======
Deferred income taxes are provided as a result of transactions being
reported in different periods for financial accounting and income tax purposes.
The difference between the corporation's effective income tax rate and the
United States Statutory rate is reconciled below:
Period Three Months
April 24, 1996 Ended
(Inception) September 30,
June 30, 1996 1996
-------------- ------
(Unaudited)
United States statutory rate 34.0% (34.0)%
State income taxes, net of Federal
income tax benefit 7.0 (7.0)
Effect of graduated rates (13.7) 14.0
Other -- 27.0
----- ----
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 September 30, 1996. Had compensation cost been determined on the basis of
FASB No. 123, net (loss) income and (loss) earnings per share would have been as
follows:
F-10
<PAGE>
9. Commitments: (Cont'd)
a. Employment agreement (Cont'd)
Period Three Months
April 24, 1996 Ended
(Inception) September 30,
June 30, 1996 1996
-------------- -------------
(Unaudited)
Net (loss) income:
As reported $35,189 $(37,083)
======= ========
Pro forma $32,604 $(44,832)
======= ========
(Loss) earnings per share:
As reported $.01 $(.01)
==== =====
Pro forma $.01 $(.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
and $55,655 as of June 30, 1996 and September 30, 1996, respectively, 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 100% and 96% of revenue for the
periods ended September 30, 1996 and June 30, 1996, respectively. Amounts due
from this customer included in accounts receivable approximated $492,553 at
September 30, 1996 and $357,087 at June 30, 1996.
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.
F-11
<PAGE>
11. Fair Value of Financial Instruments: (Cont'd)
The carrying amount and fair value of the Company's financial instruments
are as follows:
June 30, 1996 September 30, 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Cash and cash equivalents $ 594,175 $ 594,175 $ 134,427 $ 134,427
Accounts receivable 392,247 392,247 486,027 486,027
Investment available-for-sale 1,067,000 1,067,000 1,034,000 1,034,000
Notes payable 500,000 500,000 500,000 500,000
Other current liabilities 785,448 785,448 1,386,597 1,386,597
12. Supplementary Information - Statement of Cash Flows:
Cash paid for interest was $14,450 for the three months ended September 30,
1996.
In May 1996, Compare 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 (valued at $1,150,000).
13. Unaudited Financial Statements:
The financial statements as of September 30, 1996 and the three months
ended September 30, 1996 are unaudited; however, in the opinion of management
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial statements for this interim period have
been made. The results of the interim period are not necessarily indicative of
the results to be obtained for a full fiscal year.
F-12
<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 Security holders........
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 October __, 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, ("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 NASD OTC Bulletin Board 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
<PAGE>
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 NASD OTC Bulletin Board, 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."
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 __ AND "DILUTION" BEGINNING ON PAGE __.
----------
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 ("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, assuming the
completion of both the Offering and this offering by the Selling Securityholder.
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-1
<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
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* .......................... $ 39,000
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, 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 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
II-2
<PAGE>
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.
* Previously filed on August 8, 1996 as an exhibit to the Company's
Registration Statement on Form SB-2 and incorporated herein by
reference.
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 Securities
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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
II-5
<PAGE>
(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 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
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<PAGE>
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-7
<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 October 23, 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, October 23, 1996
- ------------------------- Chief Financial Officer,
Lawrence D. Simon Principal Accounting
Officer and Director
/s/ Reginald Spinello Director October 23, 1996
- -------------------------
Reginald Spinello
/s/ Matthew L. Harriton Director, Secretary October 23, 1996
- -------------------------
Matthew L. Harriton
/s/ Steven F. Wasserman Director October 23, 1996
- -------------------------
Steven F. Wasserman
/s/ Dr. Daniel Durchslag Director October 23, 1996
- -------------------------
Dr. Daniel Durchslag
<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 third business day after the effectivness of this Agreement, which
may be extended by the Representative to not later than the fifth business day
following the Effective Date (unless postponed in accordance with the provisions
of Section 14 hereof). 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
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<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 $8.25 per
share equal to 165% of the public offering price of the shares of Common Stock.
The Representative's Warrants will be exercisable at a price of $.165 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
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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
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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
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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.
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(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.
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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.
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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
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"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
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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
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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.
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(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
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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
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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
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<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
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<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 involving the United States 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
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<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
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<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;
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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
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<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.
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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.
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SCHEDULE I
================================================================================
Underwriter Firm Securities to be
Purchased
- --------------------------------------------------------------------------------
Number of Number of
Common Shares Warrants
- --------------------------------------------------------------------------------
VTR Capital, Inc.
Total 600,000 600,000
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
Incorporated Under the Law of the State of Delaware
COMMON STOCK
This certifies that ___________________________ is the owner of ________________
fully paid and non-assessable shares of $.0001 par value Common Stock of
Superior Supplements, Inc. transferable only on the books of the Corporation by
the holder hereof in person of by a duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation and Bylaws of the Corporation, and all amendments
thereto, copies of which are on file with the Transfer Agent, to all of which
the holder of this certificate, by acceptance hereof, assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
the facsimile signatures of its duly authorized officer and to be sealed with
the facsimile seal of the Corporation.
Dated:
President:
Secretary:
<PAGE>
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER _________ , 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SUPERIOR SUPPLEMENTS, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.0001 par value ("Common Stock"), of SUPERIOR SUPPLEMENTS, INC., a
Delaware corporation (the "Company"), at any time after , 1997 (as herein
defined) and the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock Transfer
and Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $5.00, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to Superior Supplements, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated _________, 1996,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_________, 2001, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not
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be entitled to receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.05 per Warrant, at any time after one (1) year from the Effective
Date, provided the Market Price (as defined in the Warrant Agreement) for the
Common Stock issuable upon exercise of such Warrant shall equal or exceed $10.00
per share. Notice of redemption shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
SUPERIOR SUPPLEMENTS, INC.
By: ______________________________
Its
Date: ___________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By: ______________________________
Its
Authorized Officer
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<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of ______ 1996, by and between
SUPERIOR SUPPLEMENTS, INC., a Delaware corporation ("Company"), and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with (i) a public offering of up to 690,000 shares
of the Company's common stock, $.0001 par value ("Common Stock")and 690,000 of
the Company's Class A Redeemable Common Stock Purchase Warrants (the "Class A
Warrants" or "Warrants") pursuant to an underwriting agreement (the
"Underwriting Agreement") dated _______, 1996 between the Company and VTR
Capital, Inc. ("VTR"), and (ii) the issuance to VTR or its designees of a
Purchase Option to purchase 60,000 additional shares of Common Stock and 60,000
additional Class A Warrants (the "Purchase Option"), and (iii) the issuance of
3,000,000 Class A Warrants to the founder of the Company, and (iv) the issuance
of 1,000,000 Class A Warrants to the Company's bridge lenders, the Company will
issue, or will have issued, up to 4,750,000 Class A Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall
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have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of 25,000,000 authorized shares, $.0001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (i) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants, or (ii) in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities or property provided for in such
section; or (iii) in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at 40 Wall Street,
New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean __________, __ 1997.
(e) "Purchase Price" shall mean the purchase price per
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<PAGE>
share to be paid upon exercise of each Warrant in accordance with the terms
hereof, which price shall be $5.00 per share for the Warrants, subject to
adjustment from time to time pursuant to the provisions of Section 9 hereof, and
subject to the Company's right, in its sole discretion, upon thirty (30) days'
written notice, to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on _________ __ , 2001 or the Redemption Date as defined in Section 8, whichever
is earlier; provided that if such date shall in the State of New York be a
holiday or a day on which banks are authorized or required to close, then 5:00
P.M. (New York time) on the next following day which in the State of New York is
not a holiday or a day on which banks are authorized or required to close. Upon
thirty (30) days' written notice to all warrantholders, the Company shall have
the right to extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold shall be executed by the Company and
delivered to the Warrant Agent. Upon written order of the Company signed by its
President or a Vice
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<PAGE>
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 4,750,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Purchase
Option; and (vi) those issued at the option of the Company, in such form as may
be approved by the its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, VTR may purchase
up to 690,000 shares of Common Stock and up to 690,000 Class A Warrants.
3. Form and Execution of Warrant Certificates.
(a) The Class A Warrant Certificates shall be substantially in the
forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem
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<PAGE>
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage or to the requirements of
Section 2(b). The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates) and issued in
registered form. Class A Warrant Certificates shall be numbered serially with
the letters WA.
(b) Warrant Certificates shall be executed on behalf of the Company
by its President, or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent
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<PAGE>
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) business days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a certificate for any remaining
unexercised Warrants of the Registered Holder), unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants. Upon the
exercise of any Warrant and clearance of the funds received, the Warrant Agent
shall promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or
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<PAGE>
approval and will use its reasonable efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws. With respect to any such
securities, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for such time
as it is acting as such to requisition the Company's Transfer Agent from time to
time for certificates representing shares of Common Stock issuable upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to comply
with all such proper requisitions. The Company will file with the Warrant Agent
a statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for
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<PAGE>
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered in Units with shares
of Common Stock pursuant to the Underwriting Agreement will be immediately
detachable from the Common Stock and transferable separately therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation)
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upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
8. Redemption.
(a) Subject to the provision of paragraph 2(e) hereof, on not less
than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the market price, as hereinafter
defined, of the Common Stock, equals or exceeds $10.00 per share (the "Class A
Target Price"), subject to adjustment as set forth in Section 8(f) below. Market
Price for the purpose of this Section 8 shall mean (i) the average closing bid
price for any twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days prior to the date of
the notice of redemption, which notice shall be mailed no later than five (5)
days thereafter, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or (ii) the last reported
sale price, for twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such
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notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Registered Holders of the Warrants shall have
no further rights except to receive, upon surrender of the Warrant, the
Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Class A
Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the
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total number of shares of Common Stock to be outstanding immediately after such
event.
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
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Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of the
Company, cause to be distributed to such Holder in substitution and replacement
for the Warrant Certificates held by him prior to the date of adjustment (and
upon surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately
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prior to such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2 (d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, the number of shares purchasable and
the Redemption Price therefor were expressed in the Warrant Certificates when
the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary
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thereof to be sent by ordinary first class mail to VTR and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants,
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or options shall consist of cash, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration payable to the Company upon the exercise
of such rights, warrants or options, plus the consideration received by the
Company for the issuance or sale of such rights, warrants or options, plus, in
the case of such Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants or options) is less than the
fair market value of the Common Stock on the date of the issuance or sale of
such rights, warrants or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities (as of the date
of the issuance or sale of such rights, warrants or options) shall be deemed to
be outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an amount equal to such
price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible
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<PAGE>
Securities) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold
for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the market
price on the date prior to such modification, the Purchase Price to be in effect
after such modification shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding multiplied by the
market price on the date prior to the modification plus the number of shares of
Common Stock which the aggregate consideration receivable by the Company for the
securities affected by the modification would purchase at the market price and
of which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to be issued
upon conversion, exchange, or exercise of the modified securities at the
modified rate. Such adjustment shall become effective as of the date upon which
such modification shall take effect.
(vi) On the expiration of any such right, warrant or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
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(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including
without limitation, the sale or exercise of any of the Warrants or Common Stock
comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in an exempt transaction unless the issuance or sale price is less
than 50% of the fair market value of the Common Stock on the date of issuance,
in which case the adjustment shall only be for the difference between 50% of the
fair market
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<PAGE>
value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges and/or consolidates
into or is acquired by the Company or from which the Company acquires assets and
some or all of the consideration consists of equity securities of the Company,
in proportion to their stock holdings of such corporation immediately prior to
the acquisition but only if no adjustment is required pursuant to any other
provision of this Section 9.
(vii) upon the issuance or exercise of options or upon the
issuance or grant of stock awards granted to the Company's directors, employees
or consultants under a plan or plans adopted by the Company's Board of Directors
and approved by its stockholders (but only to the extent that the aggregate
number of shares excluded hereby and issued after the date hereof shall not
exceed ten percent (10%) of the Company's Common Stock at the time of issuance).
For the purposes of determining whether the consideration received by the
Company is less than the Market Price in connection with any issuance of stock
to the Company's directors, employees or consultants under plans adopted by the
Company's Board of Directors and approved by its stockholders, the consideration
received shall be deemed to be the amount of compensation to the director,
employee or consultant reported by the Company in connection with such
issuances.
(viii) upon the issuance of Common Stock to the Company's
directors, employees or consultants under a plan or plans which are qualified
under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona fide public
offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i)
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only shares of such class designated in the Company's Certificate of
Incorporation as Common Stock on the date of the original issue of the Units or
(ii) in the case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Section 9(c) hereof, the stock,
securities or property provided for in such section or (iii) in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 91 or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or
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<PAGE>
to distribute certificates that evidence fractional shares. In such event, the
Company may at its option elect to round up the number of shares to which the
Holder is entitled to the nearest whole share or to pay cash in respect of
fractional shares in accordance with the following: With respect to any fraction
of a share called for upon any exercise hereof, the Company shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current market
value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise),
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<PAGE>
or to receive notice of meetings, or to receive dividends or subscription
rights, until such Holder shall have exercised such Warrants and been issued
shares of Common Stock in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same shall thereupon be delivered to the Warrant Agent and
canceled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
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15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
its President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand reasonably believed by it to be
22
<PAGE>
genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving thirty
(30) days' prior written notice to the Company. At least fifteen (15) days prior
to the date such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the Registered Holder
of each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of fifteen (15) days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the Registered
Holder of any Warrant Certificate may apply to any court of competent
jurisdiction in the State of New York for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall
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forthwith cause a copy of such notice to be mailed to the Registered Holder of
each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally
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executed or are made in compliance with applicable law.
17. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 270 Oser Avenue, Hauppauge, NY 11788, or at such other address
as may have been furnished to the Warrant Agent in writing by the Company; and
if to the Warrant Agent, at its corporate office.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Warrant Agent, and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim, in equity or at law, or to impose upon any
other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
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21. Counterparts. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SUPERIOR SUPPLEMENTS, INC.
By:_________________________________
Its
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_________________________________
Its
Authorized Officer
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EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER _________, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SUPERIOR SUPPLEMENTS, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.000l par value ("Common Stock"), of SUPERIOR SUPPLEMENTS, INC., a
Delaware corporation (the "Company"), at any time after ____, 1997 (as herein
defined) and the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock Transfer
and Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $5.00, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to Superior Supplements, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________, 1996,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_____________, 2001, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax qr other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not
2
<PAGE>
be entitled to receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.05 per Warrant, at any time after one (1) year from the Effective
Date, provided the Market Price (as defined in the Warrant Agreement) for the
Common Stock issuable upon exercise of such Warrant shall equal or exceed $10.00
per share. Notice of redemption shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
SUPERIOR SUPPLEMENTS, INC.
By:________________________________
Its
Date:______________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By:_______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
_______________________________________________________
(please insert taxpayer identification or other identifying number)
and be delivered to
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
_______________________________________________________
_______________________________________________________
_______________________________________________________
(Address)
_______________________________________
(Date)
_______________________________________
(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
_______________________________________________________
(please insert taxpayer identification or other identifying number)
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _____________________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
___________________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
VOTING TRUST AGREEMENT
THIS AGREEMENT, dated as of May 1, 1996 by and between PMF, Inc., a
shareholder (the "Shareholder") of Superior Supplements, Inc., a Delaware
corporation (the "Corporation"), and Reginald Spinello, Lawrence Simon, and
Daniel Durchslag (collectively, hereinafter referred to as the "Voting
Trustees").
WHEREAS, the Shareholder is presently the owner of five million
(5,000,000) shares of the issued and outstanding Series A Preferred Stock of the
Corporation, par value $.0001 per share, (the "Shares"); and
WHEREAS, it is deemed in the best interest of the Corporation and the
Shareholder that the voting power of the Shares held by the Shareholder be
vested in the Voting Trustees, to the extent and upon the terms and conditions
stated herein;
NOW, THEREFORE, the parties hereto agree as follows: 1. Simultaneously
with the execution of this Agreement, the Shareholder shall deliver to the
Voting Trustees, undated proxies representing the Shares owned by the
Shareholder, duly
<PAGE>
executed by the Shareholder on its behalf, in blank (collectively, the
"Proxies").
2. The Voting Trustees shall vote the Shares represented by the Proxies
under the terms and conditions set forth herein.
3. Shareholder shall be entitled to all cash dividends and other
distributions, if any, with respect to the Shares, including for splits or
dividends.
4. As long as this Agreement is in effect, the Voting Trustees, in their
unrestricted discretion, shall have and are empowered and authorized to have,
the power and right to represent the holder of the Shares, and to vote said
Shares by exercising the Proxies, as in the sole judgement of the Voting
Trustees may be in the best interest of the Corporation, at all meetings of the
shareholders of the Corporation, in the election of directors and upon any and
all matters and questions which may be brought before such meetings, as fully as
the Shareholder might do if personally present. In the event of a disagreement
among the Voting Trustees pertaining to how the Shares should be voted, a
majority of the Voting Trustees shall determine the vote.
2
<PAGE>
5. The Voting Trustees shall serve without compensation as Trustees and
shall not be required to give bond or security for the discharge of their duties
under this Agreement. They will exercise the powers and perform the duties of a
voting trustee hereunder according to their best judgment in the interest of the
Corporation.
6. The Voting Trustees may employ counsel and such agents as they may deem
desirable, may remove them with or without cause, and may fix the powers, duties
and compensation of such attorneys and agents.
7. The Voting Trustees shall have the right to cause the Corporation, to
the extent the Corporation is legally able to do so, to indemnify and hold
harmless the Voting Trustees, against any and all losses, claims, damages or
liabilities, to which the Voting Trustees may become subjected, by reason of any
action taken by each as Voting Trustee under this Agreement. The Voting Trustees
shall not incur any responsibility as shareholder, trustee or otherwise for any
mistake, act or omission of any attorney, agent or by reason of any kind taken
or omitted by them except for their own individual gross negligence.
3
<PAGE>
8. In the event that a Voting Trustee shall die, resign, become
incapacitated or unable to serve as a Voting Trustee, then his successor as a
director of the Corporation (and any subsequent successors) shall automatically
be deemed to replace him with the same power and authority as said Voting
Trustee.
9. The Voting Trust hereby created shall continue for five (5) years from
the date hereof and shall then terminate; provided, however, that this Voting
Trust shall automatically terminate with respect to any Shares that are sold by
the Shareholder immediately upon the sale of said Shares.
10. A duplicate copy of this Voting Trust Agreement shall be filed in the
principal office of the Corporation in the State of New York.
11. Any and all notices required or permitted to be given under any of the
provisions of this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or mailed by certified or registered
mail, or by private overnight mail service (e.g. Federal Express) addressed to
the addresses set forth below, or at such other address as any
4
<PAGE>
party entitled to receive notice may specify by notice to all other parties
given as aforesaid:
If to Shareholder: PMF, Inc.
c/o Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
If to Corporation: Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, NY 11788
If to Voting Trustees: c/o Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
Copy to: Bernstein & Wasserman
950 Third Avenue, 10th Fl.
New York, New York 10022
Attn: Hartley T. Bernstein, Esq.
12. The validity of this Agreement, or any part hereof, and the Voting
Trust Certificate, and the interpretation of all the provisions herein, shall be
governed by the laws of the State of New York and each of the parties hereto
consents to the jurisdictions of the federal and state courts located in the
State of New York.
5
<PAGE>
13. The invalidity of any term or provision of this Agreement shall not
affect the validity of the remainder of this Agreement.
14. This Agreement shall bind and benefit the parties hereto, their heirs,
administrators, executors, successors, and assigns.
15. This Agreement may be executed simultaneously in one or more original
or facsimile counterparts, each of which shall be deemed an original, all of
which together shall constitute one and the same instrument. This Agreement may
only be modified by a writing signed by all of the parties hereto.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in duplicate on the date first above written.
PMF, Inc., as Shareholder of
Superior Supplements, Inc.
____________________________________
By: Barry Gersten, President
____________________________________
Reginald Spinello, as Voting Trustee
____________________________________
Lawrence Simon, as Voting Trustee
____________________________________
Daniel Durchslag, as Voting Trustee
SUPERIOR SUPPLEMENTS, INC.
____________________________________
By: Lawrence Simon, President
7
<PAGE>
RIDER ANNEXED TO AND MADE PART OF THE LEASE (the "Lease"), dated as of the
30th day of April, 1996, between PARK ASSOCIATES, a New York partnership having
an office at 1 Executive Drive, Edgewood, New York 11717 (hereafter referred to
as "Landlord") and Superior Supplements, Inc., a corporation duly organized and
existing under the laws of the State of Delaware, with an office at 270 Oser
Avenue, Hauppauge, New York 11788, (hereafter referred to as "Tenant").
W I T N E S S E T H :
In consideration of the execution and delivery of the Lease, Landlord and
Tenant hereby agree as follows:
1. In case of any conflict or inconsistency between any of the provisions
of this Rider, and the provisions of the within Lease, the provisions of this
Rider shall prevail and control.
2. Tenant shall have the right to increase the capacity of the electrical
service at the building. In doing such work, Tenant shall use only licensed,
experienced, reputable and insured electricians who have, prior to the
commencement of any work, first obtained all permits and/or certificates
required therefor. Tenant further agrees that the work will be diligently
prosecuted to completion, in a good and workmanlike manner, using only new
materials. All such work shall be in compliance with all rules, regulations,
orders, laws, etc. of all governmental entities and insurance companies having
jurisdiction over the Premises. Landlord shall have no obligation to in any way
assist Tenant with such work, it being specifically understood and agreed that
said work is solely for the convenience of Tenant. Upon installation, all work
shall immediately become and remain the property of Landlord. At such later
date, if, in connection with Landlord's Certificate of Occupancy for the
Premises, the town, or any subdivision thereof, or any other entity or entities
having jurisdiction over the Premises, require changes, modifications,
explanations, plans, assistance, or any other matter or thing in connection with
the Certificate of Occupancy, by reason of Tenant's work, Tenant shall, at its
sole cost and expense, do, make, or provide the same. During the full term of
this Lease, and for so long as Tenant's occupancy of the Premises continues,
Tenant shall, notwithstanding any other provisions to the contrary, be fully
responsible, at its sole cost and expense, for any and all maintenance, repairs,
replacements and restorations with regard to any of its work, and any and all
damage to the Premises caused by or in any way connected with Tenant's work, and
hereby agrees to indemnify and save Landlord harmless in connection therewith in
connection with Tenant's indemnification obligations under this Lease. It is
expressly agreed that Landlord shall have no obligation whatsoever with regard
to Tenant's work and Tenant
<PAGE>
hereby expressly releases Landlord in connection therewith.
Upon completion of the increase of the electrical capacity of the building
in accordance with the prior paragraph, as evidenced by the presentation to
Landlord of the "underwriter's certificate" for the work, a true and complete
copy of each bill actually paid by Tenant for such work, and a duly executed
waiver of all liens by the contractors performing such work, Landlord agrees to
reimburse Tenant for one-half (1/2) of the entire cost of the work, as evidenced
by the paid bills provided to Landlord, provided, however, that notwithstanding
the entire cost of the work, Landlord's obligation to reimburse Tenant shall not
exceed $6,000.00.
3. Landlord agrees that the loading docks at the Premises shall be in
working order.
4. The last sentence of subparagraph (A) of Section 14 of the Lease is
deleted in its entirety and the following shall be substituted in place and
stead thereof:
"In addition, subject to obtaining Landlord's prior consent, Tenant shall
not have the right to sublet the Premises more than once during the term of
this Lease in addition to the subletting to PDK Labs, Inc. as approved in
this subparagraph (A)."
5. Without creating any obligation on the part of Tenant, Landlord agrees
that Tenant shall have no responsibility hereunder for any petroleum products,
if any, at the Premises at the date hereof, which resulted from the oil heating
system which previously serviced the Premises.
In Witness Whereof, Landlord and Tenant have set their respective hands
hereunto as of the date first above written.
Landlord: Park Associates
By: /s/ Gerald Wolkoff
-------------------------
Gerald Wolkoff, Partner
Tenant: Superior Supplements Inc.
By: /s/ Larry Simon pres
---------------------------
Larry Simon, President
<PAGE>
LEASE
BY AND BETWEEN
PARK ASSOCIATES, LANDLORD
AND
SUPERIOR SUPPLEMENTS, INC., TENANT
FOR THE PREMISES KNOWN AS
270 OSER AVENUE
HAUPPAUGE, NEW YORK
<PAGE>
THIS INDENTURE OF LEASE (the "Lease"), dated as of the 30th day of April,
1996, between PARK ASSOCIATES, a New York partnership having an office at 1
Executive Drive, Edgewood, New York 11717 (hereafter referred to as "Landlord")
and Superior Supplements, Inc., a corporation duly organized and existing under
the laws of the State of Delaware, with an office at 270 Oser Avenue, Hauppauge,
New York 11788, (hereafter referred to as "Tenant").
W I T N E S S E T H:
Landlord and Tenant agree with each other as follows:
SECTION 1. PREMISES:
Landlord hereby leases unto Tenant and Tenant hereby hires from Landlord the
premises known as 270 Oser Avenue, Hauppauge, New York, also known as District
800, Section 182, Block 0001, Lot 029.010 (Said premises together with the
building thereon sometimes referred to as the "Premises" or "Demised Premises").
The building on the Premises is approximately 40,000 square feet in area.
SECTION 2. TERM:
A. To have and to hold the Premises for that term commencing on May 1, 1996, and
ending on October 14, 1998, both dates inclusive, unless such term shall cease
or sooner expire as hereinafter provided. Landlord and Tenant agree to confirm
in writing the actual commencement and termination dates of the term of this
Lease within five (5) days of a request from Landlord. Tenant's failure to so
confirm the term of this Lease as required shall be deemed an agreement by
Tenant that the term of this Lease is as set forth in Landlord's request.
B. Nothing contained in this Lease shall be construed to prohibit Landlord from
placing any mortgage or mortgages against the Premises to which this Lease shall
be subject and subordinate to, in accordance with the provisions herein set
forth.
C. This Lease is subject to:
(1) the same estates, interests, matters and defects in title, if any, and
such covenants, declarations, easements, restrictions, and utility easements as
are of record, including said covenants and declarations substantially in the
form attached hereto as Exhibit "C" dated May 11, 1973, and recorded on May 24,
1973, in Liber 7404, cp 558 and Exhibit "D" dated November 20, 1974, and
recorded on December 11, 1974, in Liber 7764, cp 407. This Lease shall also be
subject to such further covenants and restrictions as Landlord may reasonably
impose subsequent to the date hereof, provided such further covenants and
restrictions do not materially interfere with Tenant's use of the Premises, nor
impose any additional monetary burden on Tenant.
<PAGE>
(2) the right of Landlord to grant easements to utility and other companies
for service to the Premises.
D. This Lease, and/or any memorandum thereof, shall not be recorded by Tenant,
or any person(s) or entity(s) claiming under or through Tenant.
SECTION 3: ANNUAL FIXED RENTAL RATE:
A. (1) Annual Fixed Rate: Tenant covenants and agrees to pay Landlord, in
lawful money of the United States, at the office of Landlord, or at
such place as Landlord may designate, without previous demand
therefor, and without any setoff or deduction whatsoever, annual base
rental ("Base Rent"), payable in equal monthly installments, in
advance, on the first day of each and every calendar month for each
and every year of the term of this Lease, or any extension thereof, as
follows:
(i) For any period of occupancy prior to August 1, 1996, no Base Rent
shall be due.
(ii) For the period August 1, 1996 through May 31, 1997, both dates
inclusive, Base Rent shall be twenty-three thousand and 00/100
($23,000.00) dollars monthly.
(iii) For the period June 1, 1997 through October 14, 1997, Base Rent
shall be nineteen thousand one hundred sixty-six and 67/100
($19,166.67) dollars monthly.
(iv) For the period October 15, 1997 through October 14, 1998, Base
Rent shall be two hundred fifty thousand and 00/100 ($250,000.00)
Dollars, payable twenty thousand eight hundred thirty-three and
33/100 ($20,833.33) dollars monthly.
Tenant agrees that the first payment of Base Rent Lease shall be due and
payable to Landlord upon the execution of this agreement. Said annual base
rental shall be in addition to all other payments to be made by Tenant as
hereinafter provided.
(2) All monthly rental payments shall be paid in advance on the first day
of each and every calendar month included within said periods. Any
monthly installments of Base Rent not paid within ten (10) days of the
due date shall be subject to a late payment and administrative charge
of five hundred and 00/100 ($500.00) dollars in each instance that a
monthly installment of Base Rent is not timely made. Notwithstanding
the foregoing, for the
2
<PAGE>
first instance only in any Lease Year during the term of this Lease if
Base Rent is not paid within ten (10) days of the due date, no late
payment and administrative charge shall be due, unless Landlord must
institute summary proceedings or other legal proceedings or other
legal proceedings or actions to collect the Base Rent. All other
payments becoming due hereunder shall bear interest, as defined in
Section 16 hereof, from and after the first calendar day when the same
shall be due and payable. Such late payment and administrative charge
shall be due as additional rent, and shall be in addition to all of
Landlord's other rights and remedies hereunder, in the event of
Tenant's default. In the event Tenant makes payment to Landlord of the
total Base Rent and additional rent due Landlord (including any late
payment charges and interest), acceptance by Landlord of such payment
by Tenant shall be deemed to cure the default by Tenant with respect
to the overdue amount. In the event that a late payment and
administrative charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then Base Rent
shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding any other provision of this Lease
to the contrary. In the event any check delivered by Tenant to
Landlord is returned uncollected, for non-sufficient funds, or for any
like reason, then, in addition to any and all other rights and
remedies available to Landlord hereunder, Tenant shall pay to
Landlord, as additional rent, a fee of $20.00 per check to compensate
Landlord for the additional administrative cost and expense incurred
by Landlord by reason of such check.
(3) All costs and expenses which Tenant assumes or agrees to pay pursuant
to this Lease shall at Landlord's election be treated as additional
rent and, in the event of nonpayment, Landlord shall have all the
rights and remedies herein provided for in the case of nonpayment of
rent or of a breach of condition. If Tenant shall default in making
any payment required to be made by Tenant (other than the payment of
Base Rent required by Section "3" of this Lease) or shall default in
performing any term, covenant or condition of this Lease on the part
of Tenant to be performed which shall involve the expenditure of money
by Tenant, Landlord, at Landlord's option may, but shall not be
obligated to, make such payment on behalf of Tenant, or expend such
sum as may be necessary to perform and fulfill such term, covenant or
condition and any and all sums so expended by Landlord, with interest
thereon as defined in Section 16, from the date of such
3
<PAGE>
expenditure, shall be deemed to be additional rent, in addition to the
Base Rent, and shall be repaid by Tenant to Landlord, on demand, but
no such payment or expenditure by Landlord shall be deemed a waiver of
Tenant's default or shall it affect any other remedy of Landlord by
reason of such default.
(4) It is fully understood and Landlord and Tenant agree that this is a
"net, net, net lease", and Tenant is to be fully responsible, liable
and is to pay for all taxes, fees, expenses, assessments, insurance,
repairs, both interior and exterior, nonstructural, ordinary or
extraordinary, foreseen and unforeseen and any other charges for the
Premises, except as otherwise set forth in this Lease and Landlord
shall be indemnified and saved harmless by Tenant from and against all
costs and expenses arising from nonpayment of or noncompliance with
the same. Landlord is to be fully responsible for all costs and
expenses of all "Structural Repairs" required during the term of this
Lease, except "Structural Repairs" necessitated by the negligent,
grossly negligent or willful acts of Tenant, its employees, officers,
agents, servants, and the like. "Structural Repairs" are defined as
repair to exterior walls, foundation, window frames and sanitary
sewers. During the first year only of the term of this Lease, Landlord
shall make all repairs to the roof not caused by the negligent,
grossly negligent or willful acts of Tenant, its employees, officers,
agents, servants, and the like. Thereafter, Tenant shall be fully
responsible, at its sole cost and expense, for all roof repairs.
B. In addition to all other payments to be made by Tenant pursuant to this
Lease, for the full term of this Lease, as for so long as Tenant's
occupancy of the Premises continues, Tenant further covenants and agrees to
pay, as additional rent under this Lease, within ten (10) days of receipt
of a statement therefor, an annual charge, in advance, for the use and
operation of the sewer treatment facility which services the Premises. Such
annual charge shall be the same as Landlord is charged by the Suffolk
County Sewer Agency or such other entity as may own the sewer treatment
plant which services the Premises.
Tenant also covenants and agrees to pay, as additional rent, prior to the
date the same shall be due without penalty, any sewer rent, charge or any
other tax, rent, levy or charge which now or hereafter is assessed,
imposed, or a lien upon the Premises pursuant to law, order or regulation
made or issued in connection with the use, consumption, maintenance or
supply of water, water system or sewage connection or system.
4
<PAGE>
Tenant shall be responsible for the charges set forth in this paragraph B
assessed during the term of this Lease, or any extension thereof, whether or
not the same are billed during the term. Tenant's obligations hereunder
shall survive the expiration or sooner termination of this Lease.
Tenant covenants and agrees that THE WASTE ENTERING THE SEWER PLANT SHALL BE
LIMITED ONLY TO NORMAL LAVATORY WATER AND WASTE BUT SHALL EXPRESSLY EXCLUDE
ALL INDUSTRIAL WATER AND WASTE. Tenant's failure to abide by this covenant
shall be a default under this Lease.
SECTION 4. TAXES:
(1) Tenant covenants and agrees to bear, pay and discharge any and all
increases in Real Estate Taxes (as hereafter defined) above Real
Estate Taxes for the Base Tax Year (as hereinafter defined) imposed,
assessed or levied against the Premises, both land and building,
during the term of this Lease, or any extension thereof, whether or
not billed prior to the end of the term of this Lease. Tenant's
obligation hereunder shall survive the expiration or sooner
termination of this Lease. For the purposes of this Lease, Tenant's
obligation to pay Real Estate Taxes shall only be to pay increases in
Real Estate Taxes above Real Estate Taxes in the Base Tax Year.
If at any time during the term of this Lease, or any extension
thereof, Real Estate Taxes increase above Real Estate Taxes in the
Base Tax Year, such increase in Real Estate Taxes shall be due and
Tenant shall pay such increase in Real Estate Taxes, as additional
rent, on a semiannual basis, forty-five (45) days prior to the date
Landlord is required to make said tax payment(s) to the taxing
authority, without penalty, or at Landlord's election, on a monthly
basis, along with each payment of Base Rent, in accordance with the
procedure set forth below.
Landlord shall estimate the increase in the annual Real Estate Taxes
above Real Estate Taxes in the Base Tax Year and one-twelfth (1/12th)
of the amount so estimated shall be due with each payment of Base
Rent. Within one hundred twenty days after the end of the fiscal year,
Landlord shall furnish Tenant with a statement which provides the
actual Real Estate Taxes for the prior fiscal year. Thereupon an
adjustment shall be made between Landlord and Tenant, with payment to
Landlord, as additional rent, of any amounts due Landlord but not yet
paid. Estimated payments for each succeeding year shall be based upon
the
5
<PAGE>
prior year's payments. It is agreed that the intent of this paragraph
is that Tenant shall have made tax payments to Landlord totalling the
full amount due, prior to the date Real Estate Taxes are payable to
the taxing authority.
Real Estate Taxes for partial Lease Years shall be prorated.
Tenant's failure to make any payment of increases in Real Estate Taxes
above Real Estate Taxes for the Base Tax Year, as in this Lease
provided shall be a default under this Lease. In the event Tenant
fails to make the payment(s) as required above, Landlord shall be
entitled to interest, at the rate set forth in Section 16 hereof, on
all sums due, from the date payment was due, until payment in full to
Landlord, in addition to all other remedies available to Landlord for
nonpayment of Base Rent. Tenant shall also be responsible for the
payment of all interest, fines, late fees and penalties by reason of
said non-payment.
(2) "Real Estate Taxes" shall mean the sum of all taxes, real estate and
real property taxes, assessments, special assessments, impositions,
levies, including, but not limited to, town taxes, village taxes,
school taxes, county taxes, etc., whether general, special, ordinary
or extraordinary, foreseen or unforeseen, imposed, assessed or levied
against or upon the Premises, land and building, and any rights or
interests appurtenant to either, by Federal, State or local
governmental authority, or any other taxing authority having
jurisdiction thereover. Real Estate Taxes shall also include any taxes
which may be assessed, levied or imposed in lieu of, in substitution
for, or in addition or supplementary to such taxes. Real Estate Taxes
shall also include any taxes attributable to improvements of whatever
kind and to whom belonging, situated or installed in or upon the
Premises, whether or not affixed to the realty. If at any time during
the term of this Lease the methods of taxation prevailing at the
commencement of the term hereof shall be altered so that in lieu of,
as an addition to, or as a substitute for the whole or any part of the
taxes, assessments, levies, impositions, or charges now levied,
assessed or imposed on real estate and the improvements thereon, there
shall be levied, assessed, or imposed (i) a tax, assessment, levy,
imposition or charge wholly or partially as capital levy or otherwise
on the rents received therefrom, or (ii) a tax, assessment, levy,
imposition or charge measured by or based in whole or in part upon the
Premises and imposed upon Landlord, or (iii) a license fee or charge
measured by the rents payable by Tenant to Landlord, then all such
taxes, assessments, levies, impositions or charges, or
6
<PAGE>
the part thereof so measured or based, shall be deemed to be included
within the term "Real Estate Taxes" for the purposes hereof.
(3) Either party to this Lease shall promptly notify the other in writing
of any change in the assessed value of the Premises of which the
Landlord or Tenant is or becomes aware, in order to permit a timely
contest of such change. Tenant shall have the right to initiate and
prosecute, at its own cost and expense, including, but not limited to
counsel fees, in Landlord's name, proceedings to reduce assessments
for Real Estate Taxes. Prior to initiating any such proceeding, Tenant
shall give Landlord notice of its intention to initiate the same not
less than (a) thirty (30) days prior to initiation or (b) such number
of days (plus ten (10) days) as will permit the timely initiation of
such a proceeding, whichever is less. Following such notice and within
the notice period set forth in the preceding sentence, Landlord shall
notify Tenant in writing, of its election to initiate such proceeding
itself, or give its consent to Tenant to prosecute such proceeding in
the Landlord's name. Landlord shall have the right to initiate such
proceedings in the event Tenant elects not to initiate the same or
fails to timely notify Landlord. In the event Landlord elects to
initiate any proceeding to reduce assessments of Real Estate Taxes and
in the further event that Landlord receives any Real Estate Tax refund
or refunds as a result thereof, such refund shall be payable to
Landlord. Landlord shall pay over to Tenant any such Real Estate Tax
refunds, less counsel fees and/or other expenses relating to such
proceeding, to the extent that such refunds relate to Real Estate
Taxes theretofore paid by Tenant to Landlord, pursuant to this Section
4. In any event, Tenant agrees that it will not stipulate or settle
any proceeding initiated by it unless the terms of such stipulation or
settlement are approved by Landlord, said approval not to be
unreasonably withheld.
(4) For the purposes hereof, the period December 1, 1995 through November
30, 1996 shall be the Base Tax Year. Real Estate Taxes during the
period December 1, 1995 through November 30, 1996 are $37,141.92.
SECTION 5. NO WORK:
A. Tenant acknowledges and agrees that Landlord has not offered to do, and
shall not do or have any obligation to do, any work, alterations,
improvements, decorations, additions, repairs, changes, etc., at, or to the
Premises to make the same ready for Tenant's occupancy. Tenant further
acknowledges that, prior into entering into this Lease, Tenant has had a
full and
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fair opportunity to inspect the Premises, or Tenant has expressly waived
the right to do so. Tenant hereby accepts the Premises in "as-is"
condition, except that on the date possession of the Premises is delivered
to Tenant the Premises will be vacant and broom clean and the air
conditioning system shall be in working order.
B. If Landlord is unable to give possession of the Premises on the date of
commencement of the term hereof, because of the holding-over or retention
of possession of any tenant, undertenant or occupants or if the Premises
has not been sufficiently completed to make the Premises ready for
occupancy or if Landlord has not completed any work required to be
performed by Landlord, or for any other reason, Landlord shall not be
subject to any liability for failure to give possession on said date and
the validity of the Lease shall not be impaired under such circumstances,
nor shall the same be construed in any wise to extend the term of this
Lease (except as may be agreed), but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Landlord's inability to
obtain possession or complete any work required) until after Landlord shall
have given Tenant notice that the Premises are substantially ready for
Tenant's occupancy. The provisions of this Section are intended to
constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
C. Improvements to be paid by Tenant: If, during the construction of the
Premises, Tenant wishes to substitute any materials or alter any work to be
done by Landlord, a "change-order" shall be issued by Landlord indicating
such change or substitution and the cost that will be incurred by Tenant by
reason thereof. Landlord shall be authorized to undertake such change or
substitution only if Tenant approves such "change-order" in writing. In
such event, the additional total cost as set forth on each "change-order"
shall be paid for in each case by Tenant one-half (1/2) upon execution of
the "change-order" and the balance in accordance with the progress of the
work set forth in the "change- order". In the event Tenant fails to make
the payments as in this paragraph provided Landlord shall be entitled to
all remedies available in the event of nonpayment of Base Rent, including a
late payment and administrative charge and interest as set forth in Section
16.
D. Landlord has heretofore delivered to Tenant a copy of the certificate of
occupancy for the Premises.
E. Landlord represents that, to the best of Landlord's knowledge: (i) the
Premises have not heretofore been used for the production or disposal of
toxic or hazardous substances as hereinafter defined; and (ii) there
presently exists at
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the Premises no hazardous or toxic substances (as hereafter defined) in
violation of any law.
SECTION 6. DELIVERY OF POSSESSION:
A. Possession of the Premises shall be deemed delivered to Tenant on the date
which is the earlier to occur of: (i) May 1, 1996; and (ii) the date Tenant
occupies all or any part of the Premises.
B. On the commencement date of the term of this Lease, Landlord agrees that
the Premises shall be broom clean, the HVAC, plumbing, electrical,
sprinkler and other mechanical systems at the Premises shall be in working
order and the roof shall be free of leaks. Except as set forth herein,
Landlord makes no representations or warranties with respect to the
Premises and any agreements set forth in the preceding sentence shall not
survive Tenant's occupancy of the Premises. After Tenant occupies the
Premises, Tenant shall have no right to cancel this Lease, seek a
diminution of rent, sue for damages or assert any contractual, legal or
equitable remedy based either on a claim that Landlord failed to deliver
possession in accordance with the terms of this Lease or based on a claim
that the size, location, layout, dimensions or construction of the building
or service area(s) (if any), sidewalks, parking or other areas (if any), or
any other facilities to be furnished by Landlord, were not completed or
furnished in accordance with the terms of this Lease. Notwithstanding the
foregoing, if after Tenant occupies the Premises and during the term hereof
Landlord is in default under any of its Lease obligations, Tenant shall
have such rights at law or in equity to which it may be entitled except
that Tenant hereby waives any right to cancel or terminate this Lease or to
seek a diminution of rent unless such right is explicitly reserved to
Tenant under the terms of this Lease. Tenant's occupancy of the Premises
shall be deemed a certification to Landlord and the holder of any mortgage
to which this Lease is, or shall thereafter be, subject and subordinate,
that the Premises have been delivered to it in accordance with the terms of
this Lease and that possession thereof has been fully and completely
accepted by Tenant who is then in possession of the same, and that the term
of this Lease and the use of the Premises for business and the date for the
payment of rent hereunder have all theretofore commenced and that the
building, the parking area, and all other portions of the Premises have
been completed in accordance with the requirements and terms of this Lease,
and that there is not then any offset of any rental(s) nor any violation of
any of the Lease terms on the part of the Landlord. Notwithstanding the
immediately preceding sentence, Tenant's occupancy of the Premises shall
not be deemed a certification that there are no latent defects in the
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Premises. However, any claim by Tenant that a latent defect exists must be
made within one (1) year of Tenant's occupancy of the Premises. In the
event of a claim timely made for a latent defect Tenant shall have no right
to cancel or otherwise terminate this Lease, or have any right to setoff or
deduct any amount from Base Rent or additional rent; Landlord agrees to
promptly, after receipt of notice from Tenant, to commence the correction
of the defect and diligently prosecute the same to completion. The
foregoing provisions shall be self-operative and no further instrument,
letter or certificate shall be required by Landlord or any such mortgagee
unless either Landlord or mortgagee shall deem same appropriate in which
event, in confirmation of the foregoing, Tenant shall, without cost to
Landlord, promptly execute, in writing, any instrument, letter and/or
certificate containing the foregoing and such other like provisions in
regard to the condition of the Premises, the building, the rental(s), term
and date of the use of the Premises for business as shall be reasonably
requested by Landlord and/or said mortgagee.
SECTION 7. TENANT'S USES:
Tenant covenants that it shall use the Premises subject to and in accordance
with all present and future rules, regulations, laws, ordinances, statutes,
directions and requirements of all governmental and quasi-governmental
authorities and the Fire Insurance Rating Organization and Board of Fire
Insurance Underwriters and insurance companies issuing policies for the
Premises, and any similar bodies, having jurisdiction thereof, and subject to
the restrictions contained in Exhibit "C" and "D" annexed hereto, and provided
the same complies with the certificate of occupancy for the Premises, solely for
manufacturing, warehousing and distribution of vitamins and other pharmaceutical
products and office use associated therewith, and for no other purpose. Tenant
may not conduct any dangerous, hazardous, noxious or offensive use. Without
limiting the foregoing, Tenant agrees that no part of the Premises will be used
for the treatment, storage, disposal, generation, refining, transporting,
handling, production, processing, burial, dispersal or placement of any
Hazardous Substance (as defined in Section 37), pollutants or contaminants, and
that Tenant shall not release or permit the release of any Hazardous Substance,
petroleum products, pollutants, or contaminants onto the Premises or unto the
subsurface thereof or onto any property whatsoever, including, without
limitation, surface water and ground waters unless in compliance with all
applicable law(s), permit(s), order(s) or other valid governmental approval(s).
Tenant shall first obtain all governmental permits and licenses as may be
required for Tenant's use and occupancy of the Premises, and Tenant at all times
shall promptly comply with all present and future laws, ordinances,
requirements, orders, directions, rules and regulations of the federal, state,
interstate, county, local and municipal governments and all other
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governmental authorities, agencies or regulatory bodies having a claim or
jurisdiction over or affecting the Premises, or any part thereof, or the
activities of Tenant, and all of their respective departments, bureaus and
officials, and of the Board of Fire Underwriters, and all of the insurance
companies writing policies affecting the Premises or any part thereof, whether
such laws, ordinances, requirements, orders, directions, rules or regulations
relate to structural alterations, changes, additions, improvements,
replacements, restorations or repairs, either inside or outside, extraordinary
or ordinary, foreseen or unforeseen, or otherwise, to or in and about the
Premises, or any part thereof, or connected with the use, occupation and
enjoyment thereof, or to alterations, changes, additions, improvements,
replacements, restorations or repairs incident to or as a result of any use or
occupation thereof, or otherwise, or any obligation arising from any restriction
on title to the Premises, and whether the same are in force at the commencement
of the term or may in the future be passed, enacted or directed. Tenant shall
not do or permit anything to be done in or about the Premises, or bring or keep
anything in the Premises that will in any way increase the normal premium rates
or cause suspension or termination of the fire or other insurance upon the
building. Tenant will not perform any act or carry on any practices that may
injury the building or be a nuisance or menace to tenants of adjoining premises.
Tenant shall not permit open storage on the Premises detrimental to the
appearance of a garden-type industrial development; and shall require loading
and unloading and parking of cars for employees, customers and visitors, in
connection with Tenant's business to be done in the designated areas on the
premises and not on any street.
In connection with Tenant's proposed use of the Premises, upon request by
Landlord Tenant shall deliver to Landlord:
(i) a letter, on Tenant's business stationery, for the Town of Smithtown
Building Department, indicating the nature of Tenant's business and
the utilization of the Premises in square foot terms (for example: how
many square feet will be used for warehouse, plant and/or office
purposes). This letter shall be addressed to Landlord.
(ii) a letter on Tenant's business stationery, for the Suffolk County
Department of Health Services, responsive to the questions set forth
on the specimen letter attached hereto as Exhibit "E".
(iii) a completed application (on the form submitted by Landlord) to the
Long Island Lighting Company for service to the Premises.
SECTION 8. INSURANCE:
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Throughout the term of this Lease and any extensions and renewals thereof,
Tenant, at its own cost and expense, shall:
A. Provided and keep in force a comprehensive policy of liability
insurance in the name of and for the benefit of Tenant, Landlord and
any designee(s) of Landlord against any liability for injury to
person(s) and/or property and death of any person(s) occurring in, at,
on, or about the Premises, or any appurtenances thereto. Each such
policy is to be written by one or more responsible insurance companies
satisfactory to Landlord, licensed to do business in the State of New
York, with a Best's rating of A, or greater, and a financial size
category of X, or greater, and the limits of liability thereunder
shall not be less than $1,000,000 combined single limit bodily injury,
death and/or property damage per occurrence, and a $2,000,000
aggregate limit and a $4,000,000 umbrella liability policy, or a
combined single limit of $5,000,000 per occurrence for bodily injury,
death and/or property damage, and against claims arising from
contractual obligations.
B. (1) Keep the building and all other buildings and improvements and
all furnishings and equipment on, at, in or appurtenant to the
Premises at the commencement of the term, and/or thereafter
erected thereon or therein (including all alterations,
rebuildings, replacements, changes, additions and improvements)
insured in an amount equal to the full replacement cost thereof
against loss or damage from all risk perils and insurable risks,
including fire, casualty (including rental income coverage) and
all available additional extended coverage, including damage by
lightning, hail, explosion, windstorm, tornado, cyclone, riot,
disorder or civil commotion, smoke damage, vandalism, malicious
mischief (when obtainable and if not included in such extended
coverage).
(2) Provide and keep in force business interruption insurance,
contingent business interruption insurance, extra expense and
contingent extra expense insurance, in amount not less than the
annual base rental plus the annual estimated Real Estate Taxes
and insurance premiums.
(3) If a sprinkler system shall be located in the Building, provide
and keep in force sprinkler leakage insurance. In addition,
Tenant shall obtain, at its sole cost and expense, a sprinkler
supervisory and alarm service contract for the sprinkler system
at the Premises.
(4) Provide and keep in force insurance coverage on all plate and
other glass in the building. Notwithstanding
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the foregoing, Tenant may self insure for plate glass and be
responsible for the replacement of all glass at the Premises at
Tenant's sole cost and expense.
(5) Provide and keep in force such other insurance covering such
risks and in such amounts as may from time to time be reasonably
required by Landlord or any mortgagee against any other insurable
hazards as Landlord can show at the time are commonly insured
against in cases of premises similarly situated and/or such other
insurance and in such amount and form as may from time to time be
required by the holder of any mortgage(s) to which this Lease is
subject and/or subordinate.
(6) Tenant shall maintain insurance for the full replacement value of
its own contents, inventory and trade fixtures.
C. Each party hereby releases the other party (which term as used in this
subdivision includes the employees, agents, officers and directors of
the other party) from all liability, whether for negligence or
otherwise, in connection with loss covered by any insurance policy
which the releasor carries with respect to the Premises or any
interest or property therein or thereon (whether or not such insurance
is required to be carried under this Lease), but only to the extent
that such loss is collected under said insurance policies. Such
release is also conditioned upon the inclusion in the policy or
policies of a provision whereby any such release shall not adversely
affect said policies or prejudice any right of the releasor to recover
thereunder. Each party agrees that its insurance policies, aforesaid,
will include such a provision, if obtainable. If the inclusion of such
provision requires an additional premium, the party for whose benefit
the provision is obtained shall, on demand, pay such extra premium to
the party carrying the insurance.
D. Unless otherwise requested by Landlord all insurance provided by
Tenant under this Section 8, except Tenant's contents and inventory
insurance, shall be carried in favor of Landlord (including the
officers, directors and stockholders of any corporation which is the
Landlord and the partners and spouses of any partnership which is the
Landlord) and the holder of any mortgage(s) affecting the Premises as
additional named insured and loss payee, as their respective interests
may appear. Such policies shall be in companies licensed and admitted
to do business in the State of New York, as Landlord and/or any
mortgagee shall approve, with a Best's Rating of A or greater, and a
financial size category of 10, or greater, and in such policies shall
provide that proceeds shall be payable to Landlord and, at Landlord's
request, any such mortgagee as
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their respective interests may appear. Landlord acknowledges that
Tenant's insurance policies shall initially be written by Chubb
Insurance Company and, as of the date hereof, Chubb Insurance Company
is an acceptable insurance company, whether or not Chubb Insurance
Company currently maintains the Best rating required by this Lease. At
such later date as the Best Rating for Chubb Insurance Company shall
be adversely affected or should Tenant change its insurance carrier,
the rating requirements set forth above must be satisfied. Tenant
shall not carry separate insurance, concurrent in coverage and
contributing in the event of loss with any insurance required to be
furnished by Tenant under the provisions of this Section 8 if the
effect of such insurance would be to reduce the protection or the
payment to be made under said insurance required to be furnished by
Tenant, unless Landlord and any mortgagee as aforesaid are included as
insured with loss payable as hereinabove provided. Tenant shall
promptly notify Landlord of the issuance of any such separate
insurance and shall cause such policies to be delivered to Landlord,
as hereinafter provided.
E. With respect to any policies of insurance provided by Tenant under any
provision of this Section 8, Tenant shall deliver to Landlord and/or
any designee of Landlord, prior to occupancy of the Premises by
Tenant, or at least twenty (20) days prior to the time such insurance
is first required to be carried by Tenant, and thereafter at least
twenty (20) days prior to the expiration of any such policy, either a
duplicate original of such policy or a certificate of all polices
procured by Tenant in compliance with its obligations hereunder
together with evidence of payment therefor and including an
endorsement which states that such insurance may not be cancelled
except upon thirty (30) days written notice to Landlord and/or
designee of Landlord. At least twenty (20) days prior to the
expiration of each policy, Tenant shall procure renewal insurance and
within such period shall deliver to Landlord and/or any designee of
Landlord the original renewal policy.
F. Property Loss or Damage and Indemnity: Tenant shall forever indemnify
and save Landlord harmless from and against (i) any and all liability,
loss, damage, cost and expense, including counsel fees, arising from
any injury to person or property of third persons occurring during the
term of this Lease wholly or in part by reason of any act or omission
of Tenant or of its employees, guests, invitees, agents, assigns or
undertenants; and (ii) any other matter or thing arising or growing
out of the occupation of the Premises by Tenant; and, at Landlord's
election, Tenant shall at its cost and expense defend any
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suit or proceeding instituted against Landlord by reason of any such
injury or alleged injury to person or property or by reason of any
other such matter or thing. Landlord shall not be liable for any loss
or damage which may be sustained by Tenant or any other person from
any act or omission on the part of the Landlord or of any other tenant
or agent or employee of any tenant or of Landlord unless caused by the
negligence of Landlord, its agents or employees.
G. Tenant shall pay all premiums and charges for all such policies, and
if Tenant shall fail to make any such payment when due, or to carry
any such policy, Landlord, at its option, may but shall not be
obligated to, make such payment or carry such policy, and the amounts
paid by Landlord, with interest thereon from the date of payment,
shall become due and payable by Tenant as additional rent with the
next succeeding installment of Base Rent. Payment by Landlord of any
such premiums or the carrying by Landlord of any such policies shall
not be deemed to waive or release the default of Tenant with respect
thereto, or the right of Landlord to take such action as may be
permissible hereunder as in the case of default in the payment of Base
Rent.
H. Tenant shall not violate or permit to be violated, any of the
conditions or provisions of any such policy, and Tenant shall perform
and satisfy the requirements of the companies writing such policies
that at all times companies licensed by the State of New York
satisfactory to Landlord or any mortgagee shall be willing to write
and/or continue such insurance.
I. Tenant and Landlord shall cooperate in connection with the collection
of any insurance monies that may be due in the event of a loss and
Tenant shall execute and deliver to Landlord such proofs of loss and
other instruments which may be required for the purpose of obtaining
the recovery of any insurance monies.
J. Tenant agrees that during the term of the Lease, or any extension
thereof, the limits of the insurance required by this Section shall be
increased if necessary to afford Landlord the same protection as
provided to Landlord at the commencement of the term of this Lease. In
no event shall the limits of insurance be reduced below what they were
at the commencement of the term.
SECTION 9. DESTRUCTION:
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A. If during the term of this Lease, or any extension thereof, any portion of
the Premises or any building, structure or improvement thereof, thereon or
therein, or appurtenant thereto, is damaged or destroyed by fire or other
casualty as a result of a peril insured against pursuant to this Lease,
Tenant shall forthwith give notice thereof to Landlord and then Landlord
shall thereafter commence promptly, after adjustments of insurance, and
building weather permitting, at its own cost, to repair, replace and
rebuild the Premises, but to the extent only of proceeds received by
Landlord from insurance and to the extent only of Landlord's work prior to
occupancy of the Premises by Tenant. In no event shall Landlord be
obligated to expend a greater sum for the restoration of the Premises than
the sum Landlord received as insurance proceeds due to said damage or
destruction. Notwithstanding anything to the contrary, Landlord will
commence making repairs immediately following such damage or destruction
provided that Tenant advances the necessary funds to Landlord to cover the
cost thereof. If Tenant, after obtaining Landlord's permission, makes the
necessary repairs, Landlord will make reimbursement to Tenant of the actual
cost thereof, not to exceed the insurance proceeds received by Landlord.
Nothing in this paragraph shall require Landlord to restore, replace or
repair any inventory, furniture, chattels, signs, contents, fixtures,
(including trade fixtures) or personal property of Tenant located, on, in,
or about the Premises, or which serve the Premises or rebuild the Premises
in the condition and state that existed before any such damage or
destruction.
B. Notwithstanding anything to the contrary contained in this Lease, in the
event of any destruction of the building to the extent of more than forty
(40%) percent of the cost of total replacement thereof, at a time when less
than three (3) years remain in the term hereof, Landlord may elect to
terminate this lease on thirty (30) days notice to Tenant, given at any
time within sixty (60) days after such damage or destruction, and in such
case all proceeds shall be paid and belong to Landlord and upon such
termination neither party shall be thereafter under any obligation to the
other for any liability under this Lease which shall thereafter accrue.
C. Except to the extent Landlord receives rent insurance as hereinabove
provided, neither the rent payable by Tenant nor any of Tenant's other
obligations under the other provisions of this Lease shall be affected by
any damage to or destruction of the Premises, and Tenant expressly waives
such additional rights as it might otherwise have under any law or statute
by reason of damage or destruction of the Premises by fire or any other
cause.
D. Landlord agrees that any repairs Landlord is required to make pursuant to
paragraph A of this Section 9 shall be
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substantially complete not later than six (6) months subsequent to the date
Landlord receives the insurance proceeds, unless Landlord is delayed by
Tenant or by reason of forces beyond Landlord's reasonable control, in
which case such six (6) month period shall be extended for a period equal
to the period through in which Landlord is delayed by Tenant or forces
beyond Landlord's reasonable control. In the event Landlord has not
substantially completed the repairs within six (6) months after receipt of
the insurance proceeds, or such later date as may be extended by Tenant's
acts, or forces beyond Landlord's reasonable control, Tenant may cancel
this Lease upon not less than thirty (30) days notice to Landlord. However,
in the event the repairs are substantially complete prior to the date set
forth in Tenant's notice, Tenant's notice shall be ineffective to cancel
this Lease, and this Lease shall remain in full force and effect. In the
event this Lease is cancelled pursuant to this paragraph, this Lease shall
terminate on the date set forth in Tenant's notice as if the date were the
date set forth in the Lease for the expiration of the term hereof and
Landlord shall have no obligation or liability to Tenant hereunder.
SECTION 10. REPAIRS, MAINTENANCE AND ALTERATIONS:
A. Tenant shall at all times, during the term, or any extension term, and at
its own cost and expense put, keep, repair, restore, replace and maintain
in thorough repair and good, safe, clean and substantial order and
condition, the Premises, all buildings and other portions thereof, all
glass therein, all equipment therein, and all appurtenances thereto, both
inside and outside, nonstructural, extraordinary and ordinary, foreseen or
unforeseen, at the commencement of the term or thereafter erected thereon
or therein and howsoever the necessity or desirability thereof may occur,
normal wear, tear and obsolescence excepted. However, Landlord shall, at
all times during the term and at its own cost and expense, replace or make
all "Structural Repairs" as described in Section 3(A)(4) hereof, except
those necessitated by the negligence, gross negligence or willful conduct
of Tenant, its officers, employees, agents, servants and the like. Tenant
shall use all reasonable precaution to prevent waste, damage or injury to
the Premises, or any part thereof. Tenant shall also, at its own cost and
expense, put, keep, repair, restore, replace and maintain in thorough
repair and good order and safe condition and free from dirt, snow, ice,
rubbish and other obstructions or encumbrances, any sidewalks, parking
fields and curbs which are part of, in front of, and of or adjacent to the
Premises, normal wear, tear and obsolescence excepted.
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Tenant shall refrain from committing, or suffering any waste upon the
Premises, or any nuisance, or any other act or thing which may disturb the
quiet enjoyment of any other tenant in the Heartland Executive Park. Tenant
shall make all ordinary repairs, replacements and restorations, as needed
(except as provided in Section 9A), including without limitation by their
inclusion, interior and exterior repainting, replacement of glass injured
or broken; and of floor and wall covering worn or damaged; keeping roofs
and exterior windows and doors water tight, and all plumbing, lighting,
heating, air-conditioning, and other utility systems in good operating
condition. Tenant shall keep the Premises properly painted and decorated;
Tenant shall paint all exterior trim and all exposed metal beams and
girders as reasonably required. Tenant shall notify Landlord in writing for
Landlord's written approval should any penetrations or additional loads to
the roof be contemplated, which approval may be withheld for any reason
notwithstanding anything in this Lease.
Tenant shall maintain as presented to Tenant all landscaped and planted
areas including but not limited to lawns, trees, and shrubs, on the
Premises, and keep in good repair all parking and loading areas in use,
clean and free of snow and ice, and the exterior of the Premises neat and
clean.
Tenant shall indemnify and save harmless Landlord against and from all
costs, expenses, liabilities, losses, damages, suits, fines, penalties,
claims and demands, including reasonable counsel fees, because of Tenant's
failure to comply with the foregoing and Tenant shall not call upon
Landlord for any disbursement or outlay whatsoever in connection therewith
and hereby expressly releases and discharges Landlord of and from any
liability therefor.
B. Except as otherwise specifically set forth in this Lease, Tenant shall not
make any alterations, improvements, and/or additions to the Premises or any
part thereof without Landlord's prior written consent.
C. If any repair or alteration which are not Structural Repairs and which are
required or permitted to be performed by Tenant under any provision of this
Lease shall cost in excess of three thousand five hundred and 00/100
($3,500.00) dollars during the Lease term, same shall not be commenced
until Tenant, provides at least fifteen (15) days prior written notice of
such repairs or alterations to Landlord (except in the case of an
emergency, where only prior notice as is reasonable under the circumstances
is required, but Tenant shall immediately notify Landlord thereafter if no
prior notice is given); provided, however, Tenant shall remove any
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such repairs or alterations upon Landlord's written request promptly after
termination of this Lease.
SECTION 11. COVENANT AGAINST LIEN:
Tenant shall not do any act, or make any contract which would create or be the
foundation for any lien or other encumbrance upon any interest of Landlord in
any portion of the Premises. If, because of any act or omission (or alleged act
or omission) of Tenant, any mechanic's or other lien, charge or order for the
payment of money or other encumbrance shall be filed against Landlord and/or any
portion of the Premises (whether or not such lien, charge or encumbrance is
valid or enforceable as such), Tenant shall, at its own cost and expense, cause
same to be discharged of record or bonded within thirty (30) days after notice
to Tenant of the filing thereof; and Tenant shall indemnify and save harmless
Landlord against and from all costs, liabilities, suits, penalties, claims and
demands, including reasonable counsel fees resulting therefrom. If Tenant fails
to comply with the foregoing provisions, Landlord shall have the option of
discharging or bonding any such lien, charge, order or encumbrance from any
funds of Tenant in Landlord's possession, and Tenant agrees to reimburse
Landlord for all costs, expenses, reasonable attorneys fees, and other sums of
money in connection therewith (as additional rental) with interest thereon, at
the rate specified in Section 16, promptly upon demand. All materialmen,
contractors, artisans, mechanics, laborers and any other persons now or
hereafter contracted with Tenant for the furnishing of any labor, services,
materials, supplies or equipment with respect to any portion of the Premises at
any time from the date hereof until the end of the term of this Lease, or any
extension thereof, are hereby charged with notice that they must look
exclusively to Tenant to obtain payment for same. Nothing in this Lease
contained shall be construed in any way as constituting the consent or request
of the Landlord, expressed or implied, to any contractor, subcontractor, laborer
or materialmen for the performance of any labor or the furnishing of any
materials for any improvement, alteration or repair of the Premises, nor as
giving any right or authority to contract for the rendering of any services or
the furnishing of any materials that would give rise to the filing of any
mechanic's liens against the Premises.
SECTION 12. CONDEMNATION:
A. If the whole of the Premises shall be taken for any public or quasi-public
use under any statute or by right of eminent domain, or by private purchase
in lieu thereof, then this Lease shall automatically terminate as of the
date that title
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shall be taken. If fifteen (15%) percent or more of the building shall be
so taken, then Landlord and Tenant shall each have the right to terminate
this Lease on thirty (30) days written notice to the other given within
sixty (60) days after the date of such taking.
B. If any part of the building shall be so taken and this Lease shall not
terminate or be terminated under the provisions of Paragraph "A" hereof,
then the Base Rent shall be equitably apportioned according to the building
floor space so taken and Landlord shall make all necessary repairs or
alterations to the Premises so as to constitute that portion of the
building and other improvements on the Premises not taken as a complete
architectural unit and/or as nearly similar in character as practicable to
what they were before the taking.
C. All compensation awarded or paid upon such a total or partial taking of the
Premises shall belong to and be the property of Landlord without any
participation by Tenant; provided, however, that nothing contained herein
shall be construed to preclude Tenant from prosecuting any claim, directly
against the condemning authority in such condemnation proceedings for loss
of business, and/or depreciation to, damage to and/or cost of removal of,
and/or for the value of stock and/or trade fixtures, furniture and other
personal property belonging to Tenant; provided, however, that no such
claim shall diminish or otherwise adversely affect Landlord's award nor any
award(s) of the holder(s) of any and all mortgages affecting the Premises.
In no event shall Tenant make any claim for the value of the unexpired term
of the Lease.
SECTION 13. ACCESS TO PREMISES:
A. Landlord and its designees shall have the right, but shall not be obligated
to, without notice, to enter upon the Premises at all reasonable hours (but
in emergencies at all times without notice and without being accompanied by
a representative of Tenant): (1) to inspect the same, (2) to make repairs,
additions or alterations to the Premises or the building or any property
owned or controlled by Landlord, and (3) for any lawful purpose. Landlord
agrees that a representative of Tenant may accompany Landlord and, if
Tenant desires to accompany Landlord, Tenant agrees that a representative
of Tenant will be available to accompany Landlord or else Landlord may
enter unaccompanied. If Landlord makes or causes any repairs to made
pursuant to Section 23 hereof, Landlord shall not be responsible to Tenant
for any loss or damage that may accrue to its stock or business by reason
thereof. During its entry, Landlord
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agrees to use reasonable efforts to minimize interference with the business
operation of Tenant at the Premises.
B. If, at reasonable hours, admission to the Premises for the purpose
aforesaid cannot be obtained, or if at any time an entry shall be deemed
necessary for the inspection or protection of the property or for making
any repairs, whether for the benefit of Tenant or not, Landlord or
Landlord's agents or representatives may enter the Premises by force or
otherwise, without rendering Landlord or Landlord's agent or representative
liable to any claim or cause of action for damages by reason thereof, and
accomplish such purpose. The provisions contained in this Section 13 are
not to be construed as an increase of Landlord's obligations under this
Lease; it being expressly agreed that the right and authority hereby
reserved does not impose nor does Landlord assume by reason thereof, any
responsibility or liability whatsoever for the repair, care or supervision
of the Premises, or any building, equipment or appurtenance on the
Premises.
C. For a period commencing six (6) months prior to the end of the term, or any
extension thereof, Landlord may have reasonable access to the Premises for
the purpose of exhibiting the same to prospective tenants and to post any
"To Lease" signs upon the Premises.
SECTION 14. ASSIGNMENT AND SUBLETTING:
A. Without the Landlord's prior written consent, and subject to this Section
14, neither the Tenant nor the Tenant's legal representatives or successors
in interest by operation of law or otherwise (except as set forth in
Paragraph "C" of this Section 14) shall directly or indirectly
assign,mortgage, pledge, transfer, hypothecate or encumber this Lease.
Without the Landlord's prior written consent, and subject to this Section
14, neither Tenant nor Tenant's legal representatives shall directly or
indirectly sublet the Premises, in whole or in part, or permit the same or
any portion thereof to be used or occupied by others except Tenant may
sublet the whole Premises or permit the whole Premises to be used or
occupied by others subject to Paragraph "B" and Paragraph "C" of this
Section 14. Landlord hereby consents to the subletting of 10,000 square
feet of the Premises to PDK, Labs, Inc., a true and complete copy of which
is attached hereto as Exhibit "_". In addition, subject to obtaining
Landlord's prior consent, Tenant shall not have the right to sublet the
Premises more than once during the term of this Lease.
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B. (1) In the event of a subletting pursuant to this Section 14, and the
rental income under such sublease exceeds the rental payable by Tenant
under this Lease, such rent differential shall be for the account of
the Landlord, and Tenant covenants to pay Landlord such differential
in equal monthly installments, together with the rental payable under
this Lease. The aforesaid payments shall be collectible as additional
rent.
(2) Anything to the contrary notwithstanding, should Tenant desire to
assign this Lease or sublet the entire Premises it shall give written
notice of its intention to do so to Landlord forty (40) days or more
before the effective date of such proposed subletting or assignment,
which notice shall include fully executed copies of all proposed
documentation in connection with the proposed assignment or
subletting. Landlord may, at any time within thirty (30) days after
the receipt of such notice and documentation from Tenant, cancel this
Lease by giving Tenant written notice of its intention to do so, in
which event such cancellation shall become effective twenty (20) days
after its receipt by Tenant, with the same force and effect as if such
cancellation date were the date originally set forth as the expiration
date of the term of this Lease. In the event Landlord cancels this
Lease Landlord may assign this Lease or sublet the Premises to
Tenant's proposed assignee or sublessee without any liability
whatsoever to Tenant.
C. Subparagraphs "A" and "B" of this Section 14 to the contrary
notwithstanding, Tenant shall have the right to assign this Lease or sublet
the entire Premises without Landlord's consent, provided that the assignee
or sublessee is an entity which is an affiliate or wholly owned subsidiary
of Tenant which may, as a result of a reorganization, merger or
consolidation succeed to the entire business carried on by Tenant at such
time, provided the following conditions are strictly and fully complied
with:
(1) The assignment must be, respectively, of all of Tenant's leasehold
interest and of the entire Premises and shall also transfer to the
assignee all of the Tenant's rights in and interest under this Lease
including the security deposited hereunder.
(2) At the time of such assignment or subletting this Lease must be in
full force and effect without any breach or default thereunder on the
part of Tenant, continuing beyond the period provided for curing same.
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(3) The assignment or subletting must be solely for the same purposes and
uses permitted by this Lease.
(4) The assignee (or sublessee, if sublease is for a term less than the
then remaining term of this Lease) shall assume, by written recordable
instrument, in form and content satisfactory to Landlord, the due
performance of all Tenant's obligations under the Lease including any
accrued obligations at the time of the assignment or subletting.
(5) A copy of the assignment or sublease and the original assumption
agreement (both in form and content satisfactory to Landlord) fully
executed and acknowledged by the assignee together (if a corporation)
with a copy of a properly executed corporate resolution authorizing
such assumption agreement, shall be delivered to Landlord within ten
(10) days from the effective date of such assignment or subletting.
(6) Such assignment and/or subletting shall be upon and subject to all the
provisions, terms, covenants and conditions of this Lease and Tenant
(and any assignee(s) and sublease(s)) shall continue to be and remain
liable thereunder.
(7) Tenant shall reimburse Landlord for Landlord's reasonable attorney's
fees for examination of and/or preparation of any documents in
connection with such assignment.
(8) Subject to the foregoing, Tenant may not effect a transaction the
result of which is that this Lease becomes an asset of a person, firm
or corporation having no bona fide and ongoing business relationship
to Tenant.
D. The transfer of more than forty (40%) percent of the voting stock of any
corporate tenant, whether by operation of law, or otherwise, or whether in
a single transaction or a series of transactions, to other than members of
the immediate family of the present shareholders, shall be deemed an
assignment within the meaning of this Section 14 of the Lease and shall
require Landlord's prior written consent, provided, however, the foregoing
limitation shall not apply to any corporate tenant whose shares are
publicly traded on a nationally recognized exchange.
E. Any consent by Landlord to any act of assignment or subletting shall be
held to apply only to the specific transaction thereby authorized. Such
consent shall not be construed as a waiver of the duty of Tenant, or the
legal representatives or assigns of Tenant, to obtain from Landlord consent
to any other or subsequent assignment or subletting, or as modifying or
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limiting the rights of Landlord under the foregoing covenant by Tenant not
to assign or sublet without such consent.
F. If Landlord does not deny Tenant's request for an assignment or sublet,
such consent shall be given subject to and provided Tenant strictly
complies with items (1) - (8) of subsection "C" of this Section 14.
SECTION 15. TENANT'S ADDITIONAL AGREEMENT:
A. Affirmative Obligations: Tenant agrees, at its own cost and expense, to:
(1) Keep Premises Clean: keep the Premises (including without limitation,
exterior and interior portions of all windows, doors and all other
glass) in a neat and clean condition;
(2) Keep Premises Attractive: maintain the Premises and Tenant's personal
property therein as an attractive area in accordance with the general
character of the Premises;
(3) Comply With Laws: promptly comply with all present and future laws,
ordinances, rules, directions and regulations of governmental or
quasi-governmental authorities (including zoning laws and building
codes) and Insurance Underwriters and insurance companies writing
policies for the Premises, and any other organization exercising
similar functions, affecting the Premises, whether same require
changes or alterations to the Premises of a structural or
nonstructural, foreseen or unforeseen, exterior or interior, or
ordinary or extraordinary, nature or otherwise;
(4) Labor Regulations: take no action which would violate Landlord's union
contracts, if any, affecting the Premises;
(5) Garbage: handle and dispose of all rubbish, garbage and waste from
Tenant's operations in accordance with all rules and regulations
established by Landlord and not permit the accumulation (unless in
concealed metal containers), or burning, or any rubbish or garbage in,
on or about any part of the Premises.
For the first three (3) months of this Lease only, the Landlord shall
contract for the disposal of all nonhazardous and non-toxic rubbish
and garbage generated from Tenant's normal business operation at the
Premises, at no cost to Tenant. Thereafter, Tenant shall be fully
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responsible, at its cost and expense, for removal of all rubbish and
garbage at the Premises.
(6) Outside Areas: maintain and keep in a clean and presentable manner all
lawns, shrubbery and plant areas including weeding and cutting of
lawns at least once a week between April 15 and November 15 in each
year of the term.
B. Negative Obligations: Tenant agrees that it shall not at any time without
first obtaining Landlord's consent:
(1) Not Change Exterior Architecture: change (whether by alteration,
replacement, rebuilding or otherwise) the exterior color and/or
architectural treatment of the building or any part thereof;
(2) Not Use Sidewalks: use, or permit to be used, the sidewalk adjacent
to, or any other space outside the building for display, sale or any
other similar undertaking;
(3) No Loud Speakers: use or permit to be used, any advertising medium
and/or loud speaker, and/or sound amplifier, and/or radio or
television broadcast which may be heard outside the building;
(4) Not Misuse Plumbing Facilities: use the plumbing facilities for any
purpose other than for which they were constructed, or dispose of any
garbage or other foreign substance therein, whether through the
utilization of so- called "disposal" or similar units, or otherwise;
(5) No Liens: subject any fixtures, furnishings or equipment in or on the
Premises which are affixed to the realty, to any mortgages, liens,
conditional sales agreement, security interests or encumbrances;
(6) Not Damage the Premises: perform any act or carry on any practice
which may damage, mar or deface the Premises;
(7) Not Exceed Floor Loads: place a load on any floor of the building
exceeding the floor load per square foot which such floor was designed
to carry, or install, operate or maintain therein any heavy item or
equipment except in such manner as to achieve a proper distribution of
weight;
(8) Not Exceed Electrical Load: install, operate or maintain in the
Premises any electrical equipment which will overload the electrical
system therein, or any part thereof, beyond its reasonable capacity
for proper and
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safe operation as reasonably determined by Landlord in light of the
overall system and requirements thereof, or which does not bear
underwriters' approval;
(9) Not Permit Odors, Etc.: suffer, allow or permit any offensive or
obnoxious vibration, noise, odor or other undesirable effect to
emanate from the building and/or Premises;
(10) Not Cause Injury, Etc.: use or occupy the building or do or permit
anything to be done thereon in any manner which will cause structural
injury to the same, or which would constitute a public or private
nuisance or which will violate any present or future laws, rules,
regulations, ordinances, directions or requirements (ordinary or
extraordinary, foreseen or unforeseen) of the federal, state, county,
local or municipal governments, or of any department, subdivisions,
bureaus or offices thereof, or of any other governmental, public or
quasi-public authorities, including insurance companies writing
policies for the Premises, now existing or hereafter created, having
jurisdiction in the Premises.
SECTION 16. INTEREST RATE:
A. Whenever this Lease refers to "interest" or Interest Rate, same shall be
computed at a rate equal to the Prime Rate (as hereafter defined) plus four
(4%) percent. If, however, payment of interest at such rate by Tenant (or
by the Tenant then in possession having succeeded to the Tenant's interest
in accordance with the terms of this Lease) should be unlawful, i.e.,
violative of the usury statutes or otherwise, then "interest" shall, as
against such party, be computed at the maximum lawful rate payable by such
party, and any payments received which may be in excess of the legal rate
shall be applied towards a reduction of the principal amount owing so as to
reduce the interest payments to a rate not violative of the usury laws.
B. "Prime Rate" shall mean the rate being charged at the time in question by
the Chase Manhattan Bank (National Association) for short term (90 day)
unsecured loans made to its preferred customers.
SECTION 17. EASEMENT FOR PIPES:
Tenant shall permit Landlord or its designees to erect, use, maintain and
repair pipes, cables, plumbing, vents and wires, in, to and through the
building and/or Premises, as and to the
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extent that Landlord may now or hereafter deem to be necessary or
appropriate for the proper operation and maintenance of the building or any
other portion of the Premises. All such work shall be done, so far as
practicable, in such manner as to avoid unreasonable interference with
Tenant's use of the Premises.
SECTION 18. UTILITIES:
Landlord represents that gas, water and electric service and sewer lines
are presently available at the Premises. Landlord shall not be required to
furnish any utilities, facilities or services to the Premises, including
but not limited to management and janitorial services, heat, water, sewer,
power, telephone or other communication service, gas or electric, and shall
not be liable for any failure of supply of any such utility service. Tenant
shall pay promptly, as and when the same become due and payable, all water
rents, rates and charges, all sewer rents and all charges for electricity,
gas, heat, steam, hot and/or chilled water and other utilities directly to
the utility company and shall indemnify Landlord against any liability or
damages on such account.
During the full term of the Lease, Tenant shall have the full
responsibility of repairing, replacing, restoring and maintaining the
heating and air conditioning systems, including maintaining a full service
maintenance contract, in form and content satisfactory to Landlord, for the
life of the Lease, covering the replacement of all parts, and the cost of
labor and preventative maintenance to be done on at least a quarterly basis
for the heating and air conditioning system. Landlord hereby assigns to
Tenant all assignable warranties, if any, which may exist with regard to
the mechanical systems at, and the roof for, the Premises.
SECTION 19. SIGNS:
A. Tenant shall not, without Landlord's prior written consent, place or
install any sign on the roof nor on any exterior wall of the building
(including, without limitation, both the interior and exterior surfaces of
windows and doors) nor on any part of the land except that Tenant may
install and maintain, at its own cost and expense, including payments for
permits and the sign, a single, flat faced sign on the front of the
building subject to the approval of Landlord as to dimensions, content,
material, location and design. The sign shall be substantially similar to
the type of sign presently permitted in the Heartland Executive Park.
Tenant agrees that
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the sign shall be union made and shall not be installed on the Premises or
the building until all approvals and permits are first obtained and copies
thereof delivered to Landlord together with evidence of payment for any
fees pertaining to Tenant's sign.
In the event Landlord or Landlord's representative shall deem it necessary
to remove such sign in order to make any repairs, alterations or
improvements in and upon the Premises, or the building, Landlord shall have
the right to do so, provided the same be removed and replaced at Landlord's
expense, whenever the said repairs, alterations or improvements shall be
completed. At the expiration or sooner termination of this Lease, unless
notified to the contrary by Landlord, Tenant shall, at its sole cost and
expense, remove its sign from the building and repair, replace and restore
the Premises to the condition existing prior to the placement of the sign.
B. As used in this Section 19, the word "sign" shall be construed to include
any placard, light or other advertising symbol or object irrespective of
whether same be temporary or permanent. The single identification sign
erected on the front of the building shall not project above the bottom of
the building parapet wall. Such type signs as "Help Wanted", "For Sale",
"To Let" or any advertising signs are specifically excluded from being
displayed on any part of the Premises or its adjacent land on a temporary
or permanent basis.
SECTION 20: EXTENSION TERM(S)
A. Provided Tenant is not in default under any of the material terms and
conditions of this Lease beyond the applicable cure period, if any, whether
at the time of the required exercise of the option to extend the term or
prior to the commencement of the First Extension Term (as hereafter
defined) Tenant shall have the option to extend the term of this Lease for
an additional two (2) years ("First Extension Term"), on the following
terms and conditions:
(i) Tenant shall notify Landlord of its intention to extend the term of
this Lease for an additional period of two (2) years. Said notice
shall be in writing and must be sent by Tenant in accordance with the
notice provisions of this Lease not less than six (6) months prior to
the expiration of the current term of this Lease, that is prior to
April 15, 1998. Time shall be of the essence with regard to this
notice requirement.
Tenant's notice to Landlord shall be irrevocable, and, in the event of
such notice, Tenant shall be liable for the rent, as determined below,
during the First Extension Term.
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Notwithstanding anything to the contrary contained herein, if at any
time this Lease is terminated prior to the expiration of the initial
term hereof, then, without the requirement of any notice, Tenant's
option to extend the term as set forth herein is likewise terminated.
(ii) For the period October 15, 1998 through October 14, 1999, Base Rent
shall be two hundred seventy thousand and 00/100 ($270,000.00)
Dollars, payable twenty-two thousand five hundred and 00/100
($22,500.00) dollars monthly.
(iii) For the period October 15, 1999 through October 14, 2000, Base Rent
shall be two hundred seventy thousand and 00/100 ($270,000.00)
Dollars, payable twenty-two thousand five hundred and 00/100
($22,500.00) dollars monthly.
(iv) The limits of insurance to be carried by Tenant pursuant to Section 8
of the Lease, shall be increased upward (not downward) by the
percentage change in the Consumer Price Index (for any region which
contains Long Island, New York,) between the commencement date of the
term of this Lease and the commencement date of the First Extension
Term.
(v) The same terms and conditions as set forth in the Lease (except for
rental and insurance which shall be as set forth in paragraphs A (ii),
(iii) and (iv)) shall remain binding upon Landlord and Tenant during
the First Extension Term of this Lease.
B. Provided Tenant is not in default under any of the material terms and
conditions of this Lease beyond the applicable cure period, if any, whether
at the time of the required exercise of the option to extend the First
Extension Term or prior to the commencement of the Second Extension Term
(as hereafter defined) Tenant shall have the option to extend the term of
this Lease for an additional two (2) years ("Second Extension Term"), on
the following terms and conditions:
(i) Tenant shall notify Landlord of its intention to extend the term of
this Lease for an additional period of two (2) years. Said notice
shall be in writing and must be sent by Tenant in accordance with the
notice provisions of this Lease not less than six (6) months prior to
the expiration of the current term of this Lease, that is prior to
April 15, 2000. Time shall be of the essence with regard to this
notice requirement.
Tenant's notice to Landlord shall be irrevocable, and, in the event of
such notice, Tenant shall be liable for the rent, as determined below,
during the Second Extension Term.
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Notwithstanding anything to the contrary contained herein, if at any
time this Lease is terminated prior to the expiration of the initial
term or First Extension Term hereof, then, without the requirement of
any notice, Tenant's option to extend the term as set forth herein is
likewise terminated.
(ii) For the period October 15, 2000 through October 14, 2001, Base Rent
shall be two hundred eighty-three thousand five hundred and 00/100
($283,500.00) Dollars, payable twenty-three thousand six hundred
twenty-five and 00/100 ($23,625.00) dollars monthly.
(iii) For the period October 15, 2001 through October 14, 2002, Base Rent
shall be two hundred ninety-seven thousand six hundred seventy-five
and 00/100 ($297,675.00) Dollars, payable twenty-four thousand eight
hundred six and 25/100 ($24,806.25) dollars monthly.
(iv) The limits of insurance to be carried by Tenant pursuant to Section 8
of the Lease, shall be increased upward (not downward) by the
percentage change in the Consumer Price Index (for any region which
contains Long Island, New York,) between the commencement date of the
First Extension Term and the commencement date of the Second Extension
Term.
(v) The same terms and conditions as set forth in the Lease (except for
rental and insurance which shall be as set forth in paragraphs B
(ii),(iii) and (iv)), shall remain binding upon Landlord and Tenant
during the Second Extension Term of this Lease.
C. Tenant shall have no further option to extend the term of this Lease other
than for the First Extension Term or Second Extension Term.
D. It is specifically agreed that a material term or condition of this Lease
shall include, but not be limited to, payment of any Base Rent or any
additional rent under this Lease.
SECTION 21. NON-LIABILITY OF LANDLORD:
Landlord and Landlord's agents and employees shall not be responsible or
liable for, and Tenant waives all claims for, loss or damage that may be
occasioned to Tenant's business or damage to person or property sustained
by Tenant resulting from any accident or occurrence (unless caused by or
resulting from the negligence of Landlord, other than accidents or
occurrences against which Tenant is insured) in or upon the Premises or the
building, including, but not limited to,
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claims for damage resulting from: (i) any equipment or appurtenances
becoming out of repair; (ii) injury done or occasioned by wind; (iii) any
defect in or failure of plumbing, heating or air conditioning equipment,
electric wiring or installation thereof, gas, water, fire, and steam pipes,
stairs, porches, railing or walks; (iv) broken glass; (v) the backing up of
any sewer pipe or downspout; (vi) the bursting, stoppage, leaking or
running of any tank, tub, washstand, water closet, waste pipe, drain or
other pipe or tank in, upon or about the building or the Premises; (vii)
the escape of steam or hot water; (viii) water, snow or ice being upon or
coming through the roof, skylight, trapdoor, stairs, doorways, show
windows, walks or any other place upon or near the building or the Premises
or otherwise; (ix) the falling of any fixture, plaster, tile or stucco; and
(x) any act, omission or negligence of other tenants, licensees or of any
other persons or occupants of the building or of adjoining or contiguous
buildings or of owners of adjacent or contiguous property, or any part
thereof.
SECTION 22. INDEMNITY:
Tenant agrees to unconditionally indemnify, hold harmless and defend
Landlord, and its respective successors, assigns,agents and employees, from
and against, and reimburse such indemnified person for, any and all costs,
expenses, liabilities, causes of action, claims, penalties, fines or
demands, of any nature whatsoever (including without limitation all third
party public liability and property damage claims) which may be imposed on,
incurred by or asserted against Landlord, and its successors, assigns,
agents or employees, including any or all liabilities, obligations,
damages, costs, remedial costs, disbursements and expenses (including
without limitation, administration, and attorneys' fees and disbursements,
including fees in connection with appeals and enforcement of this
indemnity) of Tenant and Landlord in any way relating to or arising, or
alleged to arise out of this Lease, the Premises, the possession, use,
enjoyment or occupancy of all or any portion of the Premises, or related
thereto, including the acts or omissions of Tenant, or any concessionaire,
or subtenant or their respective licensees, servants, agents, employees and
contractors, including without limitation those in any way relating to or
arising or alleged to arise out of, for, or in connection with (a) any
claims based on strict liability in tort and any claim, penalty, or charge,
or any asserted or threatened claim that Tenant polluted or contaminated
the environment in any way or failed to obtain or comply with any and all
environmental permits, laws, regulations, ordinances, order, and any other
applicable environmental requirement in effect now or in the future in
connection with Tenant's operations or
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occupancy, (b) any injury whatsoever to or the death of any person or any
damage whatsoever to or loss of property in, on, about or near the
Premises, or any part thereof, including the sidewalks adjoining the same,
or in any manner growing out of or in connection with, or alleged to grow
out of or in connection with, the use, or business conducted at the
Premises, replacement, adaptation or maintenance of the Premises, or of any
other land and interests in land used or occupied in connection with the
Premises (whether owned or under the control of Landlord or Tenant), or
resulting or alleged to result from the condition of any thereof; (c) any
violation, or alleged violation, of any provision of this Lease (except by
Landlord) or of any agreement, law, rule, regulation, ordinance or
restriction, affecting or applicable to the Premises or Tenant's activities
at the Premises, or the leasing, use, replacement, adaptation or
maintenance thereof, or (d) any default under the Lease by Tenant which
would cause a default under any mortgage (except as to the payment of
principal or interest thereunder). Nothing in this Section 22 shall be
construed to make Tenant liable hereunder for matters directly resulting
from the wilful misconduct or gross negligence of the party otherwise to be
indemnified hereunder or resulting from acts unrelated to the Lease,
possession or use of the Premises. In case any action, suit or proceeding
is brought against Landlord, its successors or assigns, agents or
employees, in connection with any claim indemnified against hereunder,
Landlord or mortgagee may and Tenant will, at Tenant's expense, diligently
resist and defend such action, suit or proceeding, or cause the same to be
resisted or defended by counsel selected by Tenant and approved by Landlord
and, in the event of any failure by Tenant to do so, Tenant shall pay all
costs and expenses (including without limitation attorney's fees and
expenses) incurred by Landlord in connection with such action, suit or
proceeding. Tenant and Landlord each agree to promptly notify each other,
in writing, of any claim or liability hereby indemnified against, provided
the failure of either party to give prompt written notice to the other
shall not relieve either party of liability hereunder.
SECTION 23. RIGHT TO CURE DEFAULTS:
If Tenant shall fail to comply fully with any of its obligations under this
Lease (including, without limitation, its obligations to maintain various
policies of insurance, comply with all laws, ordinances and regulations and
pay all bills for utilities), then Landlord shall have the right, at its
option but without obligation to do so, and at Tenant's expense, to cure
such breach on behalf of Tenant. Tenant agrees to reimburse Landlord (as
additional rent) for all
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costs and expenses incurred as a result thereof together with interest
thereon promptly upon demand.
SECTION 24. BANKRUPTCY-INSOLVENCY:
Tenant agrees that if the estate created hereby shall be taken upon
execution, attachment or any other process of law, or if Tenant shall be
adjudged a bankrupt or insolvent, or any receiver or trustee shall be
appointed for the business or property of Tenant and be not discharged
within forty-five (45) days, or if Tenant shall make any assignment of its
property for the benefit of creditors, or if Tenant shall file a voluntary
petition in bankruptcy, or apply for reorganization, composition, extension
or other arrangement with its creditors under any federal or state law now
or hereafter enacted, and any such process, assignment, action or
proceeding be not vacated or set aside within thirty (30) days thereafter,
then each of the foregoing shall be deemed an Event of Default for the
purposes of the following Section 25 and Tenant shall remain liable as
provided in said Section 25. For the purpose of this Section 24, the term
"Tenant" shall be deemed to include the guarantor of this Lease, if any.
Notwithstanding anything to the contrary contained in this Lease, it is
specifically understood that this Lease is not intended to be an asset of
the Tenant.
SECTION 25. DEFAULT:
A. The following shall be defined and deemed as an "Event of Default":
(1) Any failure of Tenant to pay any Base Rent, Real Estate Taxes,
additional rent, or other sum of money due within five (5) days
after the same shall be due under this Lease; or
(2) Any failure of Tenant to maintain the insurance as required by
this Lease for more than ten (10) days after notice from
Landlord;
(3) Any failure of Tenant to correct any default with respect to
Section "7" within seven (7) days or such shorter period of time
as may be required by any rule, regulation, law, ordinance,
statute, direction and/or requirement of all governmental and
quasi-governmental authorities, etc. having jurisdiction over the
Premises, after notice of such default shall have been served
upon Tenant, unless the default or omission complained of shall
be of a nature that the same cannot be completely cured or
remedied within
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the applicable period, and Tenant shall not have diligently
commenced curing such default within such seven (7) day period
and shall not thereafter with reasonable diligence and in good
faith proceed to remedy or cure such default; or
(4) Any failure of Tenant to perform any other of the terms,
conditions or covenants of this Lease to be observed or performed
by Tenant for more than thirty (30) days after notice of default
shall have been served upon Tenant, unless the default or
omission complained of shall be of a nature that the same cannot
be completely cured or remedied within the applicable period, and
Tenant shall not have diligently commenced curing such default
within such thirty (30) day period and shall not thereafter with
reasonable diligence and in good faith proceed to remedy or cure
such default; or
(5) If Tenant shall abandon said Premises; or
(6) If by operation of law any interest of Tenant shall pass to
another and not revert to Tenant within thirty (30) days; or
(7) An Event of Default as defined in any other Section of this
Lease.
B. In case of any Event of Default not cured as hereinabove provided the
Landlord shall have the immediate right of re-entry and may remove all
persons and property from the Premises by summary proceedings,
reasonable force or otherwise. In addition, in any Event of Default
(whether or not Landlord shall elect to re-enter or to take possession
pursuant to legal proceedings or pursuant to any notice provided for
by law) Landlord shall have the right, at its option, to immediately
terminate this Lease on three (3) days notice to Tenant and/or it may
from time to time, whether or not this Lease be terminated, make such
alterations and repairs as may be necessary in order to relet the
Premises, and/or relet said Premises or any part thereof for such term
or terms (which may extend beyond the term of this Lease) and at such
rental(s) and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable; upon each such reletting all
rental(s) received by Landlord from such reletting shall be applied,
first, to the payment of any
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indebtedness (other than rental due hereunder) of Tenant to Landlord;
second, to the payment of any costs and expenses of such reletting,
including brokerage fees and attorney's fees and of costs of such
alterations and repairs; third, to the payment of rental(s) due and
unpaid hereunder, and the residue, if any, shall be held by Landlord
and applied in payment of future rental(s) as the same may become due
and payable hereunder, with the right reserved to Landlord to bring
such action(s) or proceeding(s) for the recovery of any deficits
remaining unpaid without being obliged to await the end of the term
for a final determination of Tenant's account, and the commencement or
maintenance of any one or more actions shall not bar Landlord from
bringing other or subsequent actions for further accruals pursuant to
the provisions of this Section.
If such rentals received from such reletting during any month be less
than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly subject to Landlord's right of action(s)
or proceeding(s) as aforesaid. No such re-entry or taking possession
of said Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention
be given to Tenant or unless the termination thereof be decreed by a
court of competent jurisdiction. Notwithstanding any such reletting
without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. Should Landlord at any
time terminate this Lease for any breach, in addition to any other
remedies it may have, it may recover from Tenant all damages it may
incur by reason of such breach as damages for loss of the bargain and
not as a penalty, including the cost of recovering the Premises,
reasonable attorneys' fees, and including the worth at the time of
such termination of the excess, if any, of the amount of all rent,
additional rent, and charges equivalent to rent reserved in this Lease
for the remainder of the stated term over the aggregate rental value
of the Premises for the remainder of the term, all of which shall be
immediately due and payable from Tenant to Landlord. In the event of a
breach or threatened breach by Tenant of any of its obligations under
this Lease, Landlord shall also have the right to appropriate
injunctive relief. The rights and remedies whether herein or anywhere
else in this Lease provided shall be cumulative and the exercise of
any one shall not preclude the exercise or act as a waiver of any
other right or remedy of Landlord hereunder, or which may be existing
at law, or in equity or by statute.
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SECTION 26. SUBORDINATION:
A. This Lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such
leases or the real property of which the Premises are a part and to
all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause
shall be self-operative and no further instrument of subordination
shall be required by any ground or underlying lessee or by any
mortgagee, affecting any lease or the real property of which the
Premises are a part. In confirmation of such subordination, Tenant
shall execute promptly any certificate that Landlord may reasonably
request.
B. Notwithstanding the provision of Paragraph A, should any mortgagee
require that this Lease be prior rather than subordinate to any such
mortgage, Tenant shall, promptly upon request therefor by Landlord or
such mortgagee, and without charge therefor, execute a document
effecting and/or acknowledging such priority, which document shall
contain, at the option of such requesting party, an attornment
obligation to the mortgagee as landlord in the event of foreclosure or
to any party acquiring title through such mortgage in such event.
C. Landlord agrees to use reasonable efforts to obtain a non- disturbance
agreement for the benefit of Tenant from the holder of any mortgage
affecting the Premises.
SECTION 27. SURRENDER OF PREMISES:
On the last day or sooner termination of the term, or any extension term, Tenant
shall quit and surrender the Premises broom clean, in good condition and repair
(reasonable wear and tear excepted; provided that damage to the Premises (such
as, but not limited to, walls, floors and ceilings) resulting from the specific
business use of the Premises by Tenant shall not be considered ordinary wear and
tear), together with all alterations, additions and improvements which may have
been made in, on or to the Premises, except movable furniture or unattached
movable trade fixtures put in at the sole expense of Tenant; provided, however,
that Tenant shall ascertain from Landlord at least thirty (30) days before the
end of the term whether Landlord desires to have the Premises or any part
thereof restored to the condition in which it was originally delivered to
Tenant, and if Landlord shall so desire, then Tenant, at its own cost and
expense, shall restore the same before the end of the term, remove from the
Premises all its property together with any alterations, additions and
improvements, the removal of which is requested by Landlord, and any or all of
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such property not so removed shall, at Landlord's option, become the exclusive
property of Landlord or be disposed of by Landlord, at Tenant's cost and
expense, without further notice to or demand upon Tenant. If the Premises be not
surrendered as and when aforesaid, Tenant shall indemnify Landlord against loss
or liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding occupant
founded on such delay. Tenant's obligations under this Section shall survive the
expiration or sooner termination of the term.
SECTION 28. RIGHT OF REDEMPTION:
Tenant waives any and all rights of redemption conferred by statute or
otherwise, to the extent legally authorized, upon the expiration or sooner
termination of the term or upon the entry of final unappealable judgment for
recovery of possession through any action or proceeding.
SECTION 29. EFFECT OF UNAVOIDABLE DELAYS:
The provisions of this Section shall be applicable if there shall occur, during
or prior to the term, any: (1) strike(s), lockout(s) or labor dispute(s); (2)
inability to obtain labor or materials or reasonable substitutes therefor; or
(3) Acts of God, governmental restrictions, regulations or controls, enemy or
hostile governmental restrictions, regulations or controls, enemy or hostile
governmental action, civil commotion, insurrection, revolution, sabotage, or
fire or other casualty, or other conditions similar to those enumerated in this
item (3) beyond the reasonable control of Landlord, or if Landlord is delayed or
impeded by acts of Tenant, its officers, employees, agents, servants and the
like or by weather conditions. If Landlord shall, as a result of any such event,
fail punctually to perform any Lease obligation, including, but not limited to,
Landlord's obligations set forth in Sections 2, 5 and 6 hereof, then such
obligation(s) shall be punctually performed as soon as practicable after such
event shall abate. If Landlord shall, as a result of any such event, be unable
to exercise any right or option within any time limit provided therefor in this
Lease such time limit shall be deemed extended for a period equal to the
duration of such event. Landlord shall under no circumstances be liable to
Tenant for any damages which may result from any such delays and Tenant shall
have no right to cancel or terminate this Lease by reason of any such delay
caused by an event in this paragraph.
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SECTION 30. CONSENTS:
Landlord agrees that whenever in this Lease Landlord's consent shall be
required, the same shall not unreasonably withheld or delayed. Landlord agrees
that if Landlord does not respond at all to any formal written request by Tenant
for consent or approval within thirty (30) days after written notice from
Tenant, such consent or approval shall be deemed granted or approved. However,
Tenant shall not be entitled to make, nor shall Tenant make, any claim for, and
Tenant hereby waives any claim for money damages; nor shall Tenant claim any
money damages by way of setoff, counterclaim or defense, based upon any claim or
assertion by Tenant that Landlord unreasonably withheld or unreasonably delayed
any consent or approval; but Tenant's sole remedy shall be an action or
proceeding to enforce any such provisions, or for specific performance,
injunction or declaratory judgment.
SECTION 31. TENANT'S SECURITY:
Tenant has deposited with Landlord the sum of nineteen thousand one hundred
sixty-seven and 00/100 ($19,167.00) Dollars as security for the faithful
performance and observance by Tenant of the terms, provisions and conditions of
this Lease. It is agreed that in the event Tenant defaults in respect of any of
the terms, provisions and conditions of this Lease, including, but not limited
to the payment of Base Rent and additional rent, Landlord may use, apply or
retain the whole or any part of the security so deposited to the extent required
for the payment of any Base Rent and additional rent or any other sum as to
which Landlord may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this Lease,
including, but not limited to, any damages or deficiency in the reletting of the
Premises, whether such damages or deficiency may accrue before or after summary
proceedings or other re-entry by Landlord. In the event that Tenant shall fully
and faithfully comply with all of the terms, provisions, covenants and
conditions of this Lease, the security or any balance thereof shall be returned
to Tenant within ten (10) business days after the date fixed as the end of this
Lease and after delivery of entire possession of the Premises to Landlord.
Tenant shall not be entitled to any interest on security. In the absence of
evidence satisfactory to Landlord of any assignment of the right to receive the
security, or the remaining balance thereof, Landlord may return the security to
the original Tenant, regardless of one or more assignments of the Lease itself.
In the event of a sale, or leasing, subject to this Lease, Landlord shall have
the right to transfer the security to the vendee or lessee and Landlord shall be
considered released by Tenant from all liability for the return of such
security; and Tenant agrees to look solely to the new landlord for the return of
the security and it is agreed that this shall apply to every
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transfer or assignment made of the security to a new landlord. No holder of a
mortgage to which the Lease is subordinate shall be responsible in connection
with the security deposited hereunder, by way of payment of rents, or otherwise,
unless such mortgagee shall have received the security deposited hereunder.
Tenant further covenants that it will not assign, mortgage, encumber or attempt
to assign, mortgage, or encumber the monies deposited herein as security and
that neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, mortgage, attempted assignment or attempted
encumbrance. It is expressly understood and agreed that the issuance of a
warrant and the re-entering of the Premises by Landlord for any default on part
of Tenant prior to the expiration of the term, or any extension thereof, shall
not be deemed such a termination of this Lease as to entitle Tenant to the
recovery of security; that any unapplied portion of such deposit shall be
retained and remain in possession of Landlord until the end of term.
SECTION 32. TENANT'S CERTIFICATE:
Tenant shall, without charge at any time and from time to time within ten
(10) days after request by Landlord, certify by written instrument, duly
executed, acknowledged and delivered, to any mortgagee, assignee of any
mortgagee or purchaser, or any proposed mortgagee, proposed assignee of any
mortgagee, or proposed purchaser, or any other person, firm, or corporation
specified by Landlord:
A. That this Lease is unmodified and in full force and effect (or, if
there has been modifications, that the same is in full force and
effect as modified and stating the modifications); and
B. Whether or not there are then existing any setoffs or defenses against
the enforcement of any of the agreements, terms, covenants or
conditions hereof upon the part of Tenant to be performed or complied
with (and, if so, specifying the same); and
C. The dates, if any, to which the Rental(s) and other charges hereunder
have been paid in advance; and
D. The termination date of the Lease; and
E. The amount of Base Rent currently being paid by Tenant; and
F. The amount of security deposited hereunder; and
G. That there are no options or rights other than as may be set forth in
the Lease; and
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H. Such other and further items as may reasonably be required by
Landlord, any mortgagee or any proposed assignee.
Tenant's failure to deliver such letter within the required time, or
failure of any such statement to contain the required certifications, shall
be conclusive upon Tenant that this Lease is in full force and effect
without any modification and that there are no defaults, or such items not
certified to are as set forth in this Lease, as the case may be.
Tenant further agrees that upon written request of Landlord, Tenant will
furnish to Landlord and to prospective mortgagees of the property such
financial statements and information as such prospective mortgagees may
reasonably request.
Tenant shall also furnish to Landlord and any mortgagee, within ninety (90)
days after the end of each fiscal year of the Tenant, copies of financial
statements of the Tenant for such fiscal year, certified by Tenant.
If an institution furnishing or intending to furnish a mortgage on the
Premises shall require a change or changes in this Lease as a condition of
such financing and if Tenant refuses to agree thereto, the Landlord may
terminate this Lease at any time, provided such changes shall not
substantially alter the obligations of the parties each to the other or to
impose on the Tenant any conditions more burdensome than as otherwise
exists hereunder.
Tenant's failure to deliver such letter within such time shall be
conclusive upon Tenant that this Lease is in full force and effect without
any modification and that there are no defaults.
SECTION 33. WAIVER OF TRIAL BY JURY:
Landlord and Tenant do hereby waive trial by jury in any action, proceeding
or counterclaim brought by either against the other upon any matters
whatsoever arising out of or in any way connected with this Lease, Tenant's
use or occupancy of the Premises, and/or any claim of injury or damage. It
is further mutually agreed that in the event Landlord commences any summary
proceedings for non-payment of any Base Rent and additional rent, Tenant
will not interpose any counterclaim of whatever nature or description in
any such proceeding.
SECTION 34. QUIET ENJOYMENT:
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Landlord covenants that upon Tenant paying the rental(s) and performing and
observing all Tenant's other Lease obligations, Tenant may peaceably and
quietly have, hold and enjoy the Premises for the term hereof and any
renewal thereof, subject and subordinate as provided in this Lease.
SECTION 35. SOLE BROKER:
Landlord represents that it did not give any broker an exclusive right to
lease the Premises. Tenant covenants, warrants and represents to Landlord
that there was no broker other than ASHLIND PROPERTIES CORP. (hereinafter
referred to as the "Broker") instrumental in consummating this Lease, and
that no conversations or prior negotiations were had with any broker other
than Broker concerning the renting of the Premises. Tenant further
acknowledges that Landlord would not have entered into this Lease without
such warranty and representation by Tenant. Tenant agrees to hold Landlord
harmless against any commissions, claims, costs, expenses, demands, suits,
causes of actions or liability whatsoever, including attorney's fees, with
respect to finder's or brokerage fees or commissions arising out of
transactions contemplated by this Lease asserted against Landlord by any
other broker or finder. Any payments due to Landlord hereunder shall be due
as additional rent. The representations contained in this section shall
survive the termination of this Lease. Tenant agrees, at Tenant's sole cost
and expense, to pay the Broker the commission due broker hereunder pursuant
to a separate agreement and shall hold Landlord harmless in connection
therewith, as aforesaid.
SECTION 36. ATTORNEY'S FEES:
In the event that Landlord institutes:
(a) summary or other proceedings to recover possession of the Premises
(including if Tenant remains in Premises at the expiration or sooner termination
of the term of this Lease) and is successful; or
(b) a lawsuit to recover rent, additional rent or other payments due under
the Lease and is successful; or
(c) a lawsuit to enforce or to recover damage for the breach of any of the
terms of the Lease and is successful; or
(d) any appearance by Landlord or its representatives at any of (a) - (c);
or
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(e) should Tenant desire to amend, modify or change the Lease, or desire to
assign the Lease or sublease the Premises or in any other situation where
Landlord needs the services of an attorney;
it is specifically agreed that Tenant shall pay Landlord and/or Landlord shall
be entitled to recover from Tenant, in addition to all items which Landlord may
be entitled to recover in law or in equity, whether or not Landlord does recover
any items, attorney's fees, and the costs and disbursements of said proceeding
or otherwise as set forth in (a) - (e) above. Said payment(s) shall be due as
additional rent, and Landlord's Petition and/or Pleadings may make demand for
payment of attorney's fees as an amount currently due and owing to Landlord as
of the date of the Petition and/or Pleadings without the necessity of any or
further demand therefor or invoice for the same.
For the purposes hereof, Landlord shall be successful in the event at any time
Landlord obtains a judgment, order or recovers, or Tenant agrees to or is
ordered to pay, or comply with, the whole or any part of the relief demanded in
Landlord's petition, complaint, pleadings or other moving papers, or there is a
settlement with Tenant, whether at, during or prior to any trial or hearing, by
stipulation, order or otherwise, whereby Landlord obtains or recovers, or Tenant
agrees to pay or comply with the whole or any part of the relief demanded in
Landlord's petition, complaint, pleading or other moving papers.
In the event Landlord shall recover possession of the Premises in any summary
proceeding Tenant shall remain liable to Landlord under the Lease, and in
addition to all other remedies available at law in equity or under the Lease,
Landlord may seek damages for failure to pay rent under the Lease or failure to
abide by the terms and conditions of the Lease.
SECTION 37. POLLUTION AND HAZARDOUS WASTE:
Tenant agrees that no part of the Premises will be used in any way for, and
Tenant shall not suffer, permit or allow the use of the Premises or any part
thereof, either directly or indirectly, for treatment, preparation, generation,
manufacture, use, refining, production, storage, maintenance, handling,
transfer, transporting processing,disposal, burial, dispersal, release,or
placement of any Hazardous Substance (as hereinafter defined), petroleum
products, pollutants or contaminants. Tenant shall not release, suffer or permit
the release of any Hazardous Substance, petroleum products, pollutants or
contaminants onto the Premises or into the subsurface thereof or onto any
property whatsoever, including without limitation, surface water and ground
waters unless in
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compliance with all applicable law(s), permit(s), order(s), or other valid
governmental approval(s), whether now in effect or hereafter enacted.
Furthermore, Tenant shall not cause or permit to occur any violation of any
federal, state or local law, ordinance, regulation or order now or hereafter
enacted, related to environmental conditions on, under or about the Premises, or
arising from Tenant's use or occupancy of the Premises, including, but not
limited to, soil and ground water conditions. Tenant shall, at Tenant's own
expense, comply with all laws regulating the treatment, preparation, generation,
manufacture, use, refining, production, storage, maintenance, handling,
transfer, transporting processing,disposal, burial, dispersal, release,or
placement of any Hazardous Substance, petroleum products, pollutants or
contaminants. Furthermore, Tenant shall, at Tenant's own expense, make all
submissions to, provide all information required by, and comply with all
requirements of all governmental authorities under all present and future laws.
Tenant shall provide all information regarding the treatment, preparation,
generation, manufacture, use, refining, production, storage, maintenance,
handling, transfer, transporting, processing, disposal, burial, dispersal,
release, or placement of any Hazardous Substance, petroleum products, pollutants
or contaminants that is requested by Landlord. Tenant agrees to provide Landlord
with an exact copy of any notice, directive,request, demand or any other
communication received by Tenant in connection with or relating to any matter or
thing covered by this Section 37.
The term Hazardous Substance means, without limitation, any pollutant,
contaminant, toxic or hazardous waste, dangerous substance, potentially
dangerous substance, noxious substance,toxic substance, flammable, explosive,
combustible, radioactive material, urea formaldehyde foam insulation, asbestos,
PCB's, chemicals known to cause cancer or reproductive toxicity, or any
manufacture,preparation, production, generation,use, maintenance, treatment,
storage, transfer, handling or ownership of which is restricted, prohibited,
regulated, penalized by any and all federal, state, local, county, or municipal
statutes, laws, or orders now or at any time hereafter in effect, including but
not limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss.ss. 9601 et seq.), the Hazardous Materials
Transportation Act ( 49 U.S. C. ss.ss. 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.), the Federal Water Pollution
Control Act ( 33 U.S.C. ss.ss. 1251 et seq.), the Clean Air Act (42 U.S.C.
ss.ss. 7401 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
ss.ss. 2601 et seq.), the Occupational Safety and Health Act (29 U.S.C.ss.ss.
651 et seq.), as these laws have been or may be amended or supplemented,and any
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
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Failure of Tenant to abide by all of the foregoing obligations shall be a
default under this Lease which, if not cured within five (5) days of Landlord's
notice, or sooner if an emergency, dangerous, or hazardous condition exists in,
at, on, upon or about the Premises, shall entitle Landlord to pursue all
remedies available in law, at equity and/or under the Lease.
In addition, Tenant shall indemnify and save Landlord and its successors and
assigns and their respective officers, directors, shareholders, partners, agents
and employees and the Premises and the building of which the Premises are part,
harmless against any and all claims, obligations, liabilities, violations,
penalties, fines, suits, governmental orders, causes of actions, judgments,
damages, costs and expenses, whether civil or criminal or both, of any and all
kind or nature which result from or are in any way connected with a breach or
default by Tenant of the foregoing agreement and/or which the Landlord may be
subject in connection with any Hazardous Substance at the Premises, including
,without limitation,resulting from or in connection with the discharge,
despoiler, release or escape of any Hazardous Substance, smoke, vapors, soot,
fumes, acids, alkalis, toxic or hazardous chemicals, liquids or gases, volatile
organics, waste materials or other irritants, contaminants or pollutants or
otherwise at the Premises, or caused by or resulting from the use and operation
of the Premises by Tenant, its successors and assigns and/or by reason of
Tenant's invitees, licensees, employees, officers, agents, servants, etc., in
any case whether or not Tenant has complied with its obligations pursuant to
this agreement. This indemnification and save harmless agreement shall also
cover any and all liens for hazardous waste clean up expenses in favor of the
United States, New York State, or any political subdivision thereof, including
the County of Suffolk, Town of Smithtown, and any governmental department of any
of the foregoing.
All payments due from Tenant hereunder shall be due and payable as additional
rent within ten (10) days of presentation of a statement therefor by Landlord.
This indemnification shall include, but not be limited to, legal fees and other
charges to which Landlord may be put, including cleanup costs, in defending
against any action or proceeding in connection with the foregoing.
This indemnification and save harmless agreement shall survive the termination
of this Lease until such time as Tenant shall forward to Landlord, and/or its
designee, a report by a certified chemist and/or engineer that the Premises are
free of pollution and/or toxic or hazardous substances. The cost of said report
shall be paid solely by Tenant.
SECTION 38. ADJACENT EXCAVATION-SHORING:
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If an excavation shall be made upon land adjacent to the Premises, or shall be
authorized to be made, Tenant shall afford to the person causing or authorized
to cause such excavation license to enter upon the Premises for the purpose of
doing such work as said person shall deem necessary to preserve the wall, the
property, or the building of the Premises from injury or damage and to support
the same by proper foundations without any claim for damages or indemnity
against Landlord, or diminution or abatement of rent. To the extent reasonably
possible, it is agreed that any entrance onto the Premises shall be done so as
to minimize interference with Tenant's business at the Premises.
SECTION 39. DEFINITION AND LIABILITY OF LANDLORD:
A. The term "Landlord" as used in this Lease means only the owner in fee or
the mortgagee in possession for the time being of the Premises, so that in
the event of any transfer of said fee title, Landlord shall be and hereby
is entirely freed and relieved of all obligations of Landlord hereunder and
it shall be deemed without further agreement between the parties and such
grantee(s) that the grantee has assumed and agreed to observe and perform
all obligations of Landlord hereunder.
B. It is specifically understood and agreed that there shall be no personal
liability on Landlord in respect to any of the covenants, conditions or
provisions of this Lease. This exculpation of personal liability shall be
absolute and without any exception whatsoever. In the event of a breach or
default by Landlord of any of its obligations under this Lease, Tenant
shall look solely to the equity of Landlord in the Premises for the
satisfaction of Tenant's remedies. Tenant shall have no rights of lien,
levy, execution or other enforcement proceedings against any other property
or assets of Landlord.
SECTION 40. RELATIONSHIP OF PARTIES:
Nothing contained in this Lease shall be construed to create the relationship of
principal and agent, partnership, joint venture or any other relationship
between the parties hereto other than the relationship of Landlord and Tenant.
SECTION 41. NOTICES:
Except as may be provided by the Civil Practice Law & Rules or Real Property
Actions and Proceedings Law, every notice, approval, consent or other
communication authorized or required by this Lease
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shall not be effective unless served in writing and sent by United States
certified mail, return receipt requested, directed, if to Tenant to the
Premises, with a copy to Michael A. Lulkin, Esq., 750 Lexington Avenue, Suite
2750, New York, New York 10022, and if to Landlord, at the address set forth on
the first page of this Lease, or such other address as either Tenant or Landlord
may designate, from time to time, by notice given as provided herein.
It is specifically agreed that Michael Lulkin and Howard Vingan are authorized
to give notices under this Lease on behalf of their respective clients and such
notices shall be given the same force and effect as if given by the client.
Notwithstanding anything contained herein, all pleadings, petitions, notices of
petitions, notices, summonses or other documents in connection with any
litigation, proceeding or hearing in connection with this Lease shall be valid
and effective provided the same is served in compliance with the statutory
requirements governing such litigation, proceeding or hearing.
Each and all of the rental(s) payable by Tenant to Landlord under any of the
provisions of this Lease shall be paid to Landlord at the same place where a
notice to Landlord is herein required to be directed. If either party shall
properly exercise any option or election herein given to terminate this Lease,
the term shall expire and come to an end on the date properly specified in the
notice of termination with the same force and effect as if said date had been
originally fixed herein as the expiration date of this Lease, except for the
continuation of Tenant's liability as set forth in Section 25 hereof.
SECTION 42. WAIVER:
One or more waivers of any covenant or condition by Landlord shall not be
construed as a waiver of a subsequent breach of the same or any other covenant
or condition, and the consent or approval by Landlord to or of any act by Tenant
requiring Landlord's consent or approval shall not be construed to waive or
render unnecessary Landlord's consent or approval to or of any subsequent
similar act by Tenant.
SECTION 43. MISCELLANEOUS DEFINITIONS:
A. Affiliate" means any person, firm or corporation which controls or is
controlled by the party in question, or is controlled by the same
person(s), or firm(s) or corporation(s), or which is a member with such
party in a relationship of joint venture, partnership or other form of
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business association which in any way affects the subject matter involved.
The term "control" means the ownership of stock possessing, and of the
right to exercise, at least fifty-one percent (51%) of the total combined
voting power of all classes of stock of the controlled corporation issued,
outstanding and entitled to vote for the election of directors, whether
such ownership be direct or indirect through control of another
corporation(s).
B. Wherever herein the singular number is used, the same shall include the
plural, and the masculine gender shall include the feminine and neuter
genders. The Section headings used herein are for reference and convenience
only. Each and every term and provision of this Lease which requires any
performance (whether affirmative or negative) by Tenant shall be deemed to
be both a covenant and a condition. The words "re-enter" and "re-entry" as
used herein are not restricted to their technical legal meaning.
SECTION 44. EXPIRATION OF LEASE:
In the event Tenant does not vacate the Premises on the expiration date of this
Lease, then and in that event, and with the written consent of Landlord,
Tenant's occupancy shall be strictly limited as a month-to-month Tenant on the
terms and conditions of this Lease, at a monthly rental which is the greater of
the market value of the Premises or twice the monthly rental payable for the
last month of this Lease, same payable in advance on the first day of each
month.
SECTION 45. UNDERSTANDING:
It is fully understood that Landlord and Tenant agree that this is a "net net
net lease" and Tenant is to be fully responsible, liable and is to pay all
taxes, fees, assessments, expenses, insurance, repairs both interior and
exterior, nonstructural, and any other charges for the Premises, except to the
extent expressly otherwise set forth in this Lease.
SECTION 46. JURISDICTION:
In any controversy concerning or related to this Lease or involving Landlord and
Tenant under this Lease agreement, it is hereby agreed that the courts of the
State of New York, in and for the County of Suffolk, be deemed the jurisdiction
for purposes of any controversy involving the Lease herein and the laws of the
State of New York shall be applicable. Tenant hereby further warrants and
represents to Landlord that is authorized to do business in the State of New
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York and hereby submits to the jurisdiction of the courts of the State of New
York.
SECTION 47. EXHIBITS:
Landlord and Tenant agree that all of the terms and conditions, restrictions and
covenants contained in the following:
Exhibit A - Intentionally deleted prior to execution
Exhibit B - Intentionally deleted prior to execution
Exhibit C - Covenants and Restrictions
Exhibit D - Covenants and Restrictions
Exhibit E - Department of Health Letter
are to be strictly adhered to and these Exhibits are to be attached hereto and
made part hereof.
SECTION 48. AUTHORITY:
Tenant warrants and represents that it is duly formed and in good standing, and
has corporate or partnership power and authority, as the case may be, to enter
into this Lease and has taken all corporate or partnership action, as the case
may be, necessary to carry out the transaction contemplated herein, so that when
executed, this Lease constitutes a valid and binding obligation enforceable in
accordance with its terms. Tenant represents that the execution of this Lease
has been authorized by resolution of the Board of Directors of any proposed
corporate Tenant hereunder, or if the proposed Tenant is a partnership, the
execution of this Lease has been consented to in writing by the partners
thereof. Prior to the execution of this Lease Tenant shall provide Landlord with
a certified copy of the corporate resolution(s), partnership consent, or other
proof in form acceptable to Landlord which shall authorize the execution of the
Lease at the time of execution and also evidence the authority of the signatory
to sign this Lease on behalf of and bind the Tenant.
SECTION 49 ENTIRE AGREEMENT:
No oral statement or prior written matter shall have any force or effect all of
which shall merge herein and be superseded hereby. No waiver of any provisions
of this agreement shall be effective unless in writing, signed by the waiving
party. Tenant agrees that it is not relying on any representations or agreements
other than those contained in this Lease and expressly agrees to accept the
Premises "as is", subject to the terms and conditions of this Lease. This
agreement shall not be modified except by a writing subscribed by all parties,
nor may this Lease be cancelled by Tenant except with the written consent of
Landlord, unless
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otherwise specifically provided herein. If any term, covenant or condition of
this Lease or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Lease shall be
valid and enforced to the fullest extent permitted by law. The submission by
Landlord of the within Lease in draft form shall be deemed submitted solely for
Tenant's consideration and not for acceptance and execution. Such submission
shall have no binding force or effect, shall confer no rights nor impose any
obligations, including brokerage obligations, upon either party unless and until
both Landlord and Tenant shall have executed this Lease and duplicate originals
thereof shall have been delivered to the respective parties. All captions herein
are solely for convenience and shall not be given any legal effect.
Expect as otherwise provided in this Lease, the covenants, conditions and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, executors,
administrators, successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands.
LANDLORD: PARK ASSOCIATES
By: /s/ Gerald Wolkoff
---------------------------------
Gerald Wolkoff, Partner
TENANT: SUPERIOR SUPPLEMENTS, INC.
By: /s/ Larry Simon pres
---------------------------------
Larry Simon, President
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Exhibit "E"
PARK ASSOCIATES
ONE EXECUTIVE DRIVE
EDGEWOOD, NEW YORK 11717
(516) 242-6300
Gentlemen,
We are required by the Suffolk County Department of Health to have each of our
tenants respond to the following questions. Please prepare a letter on your
company letterhead addressing each of the items. We will supply the information
requested on Item 10.
1. A general, but detailed, description of the nature of the business
including the products manufactured, raw materials used, manufacturing
processes employed and, in particular, a description of any wet processes
required.
2. A description of any plans for expansion or a change in the foreseeable
future.
3. A complete listing of all chemicals of any type to be used both at the
present and in the future, giving quantities to be stored at any time and
rates of consumption. This includes both solid and liquid materials.
4. A description of how each chemical is used.
5. A description of each type of waste produced, how it is to be managed and
the quantities expected.
6. A description of any treatment proposed for handling waste materials.
7. A description of any storage facilities proposed for containing toxic or
hazardous materials.
8. A statement that there will be no discharges from the facility that could
contain toxic or hazardous materials (in areas where prohibited).
<PAGE>
9. A statement that there will be no floor drains anywhere in the building, or
if floor drains are needed, then a complete justification for the need for
a floor drain system and plans for a proper closed drainage system and
holding tank.
10. A set of floor plans for the facility.
11. A statement signed by a responsible corporate officer (president or vice
president) attesting to the truth and completeness contained in the report.
With regard to item 11, please include the following language in your letter:
I certify that information included in this letter and all attachments have
been reviewed and that, based on my inquiry of those persons immediately
responsible for obtaining the information contained in this letter, I
believe that the information is true, accurate and complete. I understand
that false statements made herein are punishable as a class a misdemeanor
pursuant to Section 210.45 of the penal law.
Should you have any question, please don't hesitate to give me a call.
Sincerely,
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Superior Supplements,
Inc. on Amendment No. 1 to Form SB-2 of our report on Superior Supplements, 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.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
October 22, 1996
