<PAGE>
As filed with the Securities and Exchange Commission on December 6, 1996
Registration No. 333-9761
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
------------------
AMENDMENT NO. 2
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>
================================================================================
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered (1) Offering Price Per Aggregate Offering Price Fee
Security (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per
share(3) 575,000 $ 6.00 $ 3,450,000 $ 1,189.66
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriters' Option to purchase shares of
Common Stock(4) 50,000 $ .001 $ 50.00 $ 0.02
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Common Stock, par value $.0001 per
share, underlying Underwriters' Option 50,000 $ 9.90 $ 495,000 $ 170.69
- ------------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants issuable upon conversion
of the Convertible Bridge Notes(5) 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(6) 1,000,000 $ 5.25 $ 5,250,000 $ 1,810.34
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share (7) 2,000,000 $ 6.00 $12,000,000 $ 4,137.93
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (8) 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 $ 5.25 $10,500,000 $ 3,620.69
- ------------------------------------------------------------------------------------------------------------------------------------
Total $11,032.78
Amount previously paid $11,404.83
Total Amount Due -- -- $31,995,050 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</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 as may be issued by reason of adjustments in the
number of shares of Common Stock pursuant to anti-dilution provisions
contained in the Underwriters' Option. Because such additional shares of
Common Stock 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 75,000 shares of Common Stock subject to the Underwriters'
over-allotment option (the "Over-Allotment Option").
(4) The Underwriters' option entitles the Underwriters to purchase up to
50,000 shares of Common Stock at 165% of the offering price (the
"Underwriters' Option").
(5) Represents the resale of 1,000,000 Class A Redeemable Common Stock
Purchase Warrants (the "Class A Warrants") issuable upon conversion of the
Convertible Bridge Notes. 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 $5.25 per share.
<PAGE>
(6) 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.
(7) Represents the resale of shares of Common Stock held by one of the Selling
Securityholders.
(8) 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
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<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 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"), 575,000 shares of Common Stock including 75,000 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) 1,000,000 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 DECEMBER 6, 1996
SUPERIOR SUPPLEMENTS, INC.
500,000 Shares of Common Stock par value $.0001 per share,
Offering Price Per Share - $6.00
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI") hereby offers 500,000 shares of common stock, par value $.0001 per share
(the "Common Stock" and "Shares"). See "Description of Securities." The Risk
Factor section begins on page 13 of this Prospectus.
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. See "Risk
Factors - Lack of Prior Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market" and "Penny Stock Regulations May Impose
Certain Restrictions on Marketability of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Class A Warrants. The price of the Shares, 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 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 Redeemable Common Stock Purchase
Warrants (the "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
<PAGE>
collectively referred to as the "Selling Securityholders." 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 $5.25 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."
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 50% 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 13 AND "DILUTION" BEGINNING ON PAGE 27.
------------------
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.
2
<PAGE>
- --------------------------------------------------------------------------------
Price Proceeds
To Underwriting Discounts To
Public And Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Share...... $6.00 $0.60 $5.40
Total (3).... $3,000,000 $300,000 $2,700,000
- --------------------------------------------------------------------------------
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
$90,000 ($103,500 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 50,000 Shares at
$9.90 per Share (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 $587,000 including the Underwriters' non-accountable expense allowance
and the financial advisory fee referred to in Footnote (1) (not assuming
exercise of the Over-Allotment Option (as hereinafter defined),
registration fees, transfer agent fees, NASD fees, Blue Sky filing fees
and expenses, legal fees and expenses, and accounting fees and expenses.
See "Use of Proceeds" and "Underwriting."
(3) Does not include 75,000 additional Shares 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
$3,450,000, $345,000, and $600,500, respectively, and the total proceeds
to the Company will be $2,504,500. See "Underwriting."
The Shares are offered by the Underwriters on a "firm commitment" basis,
when, as and if
3
<PAGE>
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 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 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 TO BE SOLD IN THIS OFFERING MAY BE SOLD
TO CUSTOMERS OF THE UNDERWRITERS WHICH MAY AFFECT THE MARKET FOR AND LIQUIDITY
OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL BROKER-DEALERS DO NOT
MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE CAN NO ASSURANCE. SUCH
CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE SALE OR PURCHASE OF
THE COMMON STOCK AND/OR THE CLASS A WARRANTS THROUGH AND/OR WITH THE
UNDERWRITERS.
ALTHOUGH THEY HAVE NO OBLIGATION TO DO SO, THE UNDERWRITERS
5
<PAGE>
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) 75,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option; (ii) 50,000 shares of Common Stock
issuable upon exercise of the Underwriters' Option; (iii) 1,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants issuable upon
conversion of Convertible Bridge Notes, (iv) 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, the founder of the Company, and
(v) 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 been using numerous supply
sources to purchase products for resale until its manufacturing facility is
completed. The Company has no commitments or formal arrangements with its
suppliers. Manufacturing operations for tableting and encapsulating of single
ingredient products commenced on October 1, 1996, although the manufacturing
facility is not yet completed. The manufacturing facility is expected to be
fully operational within sixty (60) days following the completion of the
Offering hereby proposed.
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
7
<PAGE>
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.
PMF, a company wholly owned and controlled by Barry Gersten, the Company's
founder, maintains a passive investment interest in the Company and has granted
a voting trust on the 5,000,000 shares of preferred stock held by PMF to three
(3) of the Company's directors.
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)............ 500,000 Shares of Common Stock at a price of
$6.00 per Share. 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................... 4,000,000 Shares
Series A Preferred Stock....... 5,000,000 Shares
Class A Warrants............... 3,000,000 Warrants
Use of Proceeds................ The net proceeds to the Company from the sale
of the 500,000 Shares of Common Stock offered
hereby, after deducting Offering expenses and
the $72,000 financial advisory fee, are
estimated to be $2,113,000. 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
9
<PAGE>
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;
Inexperience of Representative. 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 -
- ----------
(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.
(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."
10
<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."
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
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30, 1996
June 30, 1996(1) September 30, 1996(1) as Adjusted (2)(3)
---------------- --------------------- ------------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (698,396) $ 1,586,604
Total Assets $ 2,565,537 $ 3,165,703 $ 5,150,703
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 $ 3,504,106
</TABLE>
(1) Does not include the sale of 500,000 shares of Common Stock offered
hereby.
11
<PAGE>
(2) Reflects initial application of net proceeds of the 500,000 shares of
Common Stock offered hereby at the assumed initial public offering price
of $6.00.
(3) Reflects an aggregate principal amount of $100,000 of the Bridge Loans
converted into 1,000,000 Class A Warrants immediately after the effective
date of this Offering.
12
<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 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,
13
<PAGE>
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 should a reappointment or redirection of the funds be
determined to be in the best interest of the Company. The Company believes that
it is imperative that the Company's management have such discretion over both
the 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 available to the Company in the future. 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."
14
<PAGE>
6. Use of Offering Proceeds for Repayment of Debt. As described in the
"Use of Proceeds" section of this Prospectus, 9.4% 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 the conversion of the Convertible
Bridge Notes into 1,000,000 Class A Warrants, assuming no exercise of the
Over-Allotment Option, and without giving effect
15
<PAGE>
to the exercise of the Underwriters' Option, the net tangible book value per
share of the Company's Common Stock will be $.84. At the initial public offering
price of $6.00 per Share, investors in this Offering will experience an
immediate dilution of approximately $5.16 or 86% in net tangible book value per
share and existing investors will experience an increase of approximately $.53
per share. The exercise of the Class A Warrants held by PMF 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 75% 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 100% 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. As a result of these transactions the
Company believes that the potential for conflicts of interest exist as follows:
(i) a conflict resulting from PMF's ownership interest and PMF's role as a
creditor of the Company; (ii) a conflict resulting from the voting control over
PMF's preferred stock to certain of the Company's directors who also hold board
and management positions with two (2) of the Company's most significant
customers and (iii) a conflict resulting from CGI's ownership interest and CGI's
role as a customer of the Company. 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 and mineral supplements which the FDA
determines are unapproved drugs or food additives rather than
16
<PAGE>
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.
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
17
<PAGE>
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; Voting Trust Agreement Granted to Certain Directors.
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 75% 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 88.9%, and 100% of the outstanding Class A
Warrants. See "Principal Stockholders." After the resale of securities by the
Selling Securityholders, PMF will own approximately 25% 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
66.7%, and 33.3% 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 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 55.6% of the voting shares of the
Company, and would
18
<PAGE>
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 completed, PMF would continue to
own 100% 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 42.8% 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 66.7%. 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 initial public offering price of the Shares, 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
19
<PAGE>
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 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
20
<PAGE>
amount of the Shares may be sold to customers of the Underwriters.
The Common Stock 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."
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, in the event of the
conversion of the Convertible Bridge Notes owned by the Bridge Lenders within a
reasonably short period of time after their right to exercise commences, the
resulting increase in the amount of Common Stock of the Company in the trading
market could substantially affect the market price of the Common Stock. See
"Description of Securities - Class A Warrants."
21
<PAGE>
22. Underwriters' Option. In connection with this Offering, the Company
will sell to the Underwriters, for nominal consideration, an option to purchase
50,000 Shares of Common Stock (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 $9.90
per Share 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 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 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-
22
<PAGE>
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."
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
23
<PAGE>
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."
30. Inexperience of Representative. This is the ninth public offering
underwritten by VTR Capital, Inc. 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 Company's securities,
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.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 500,000 shares of
Common Stock offered hereby, are estimated to be $2,113,000 (after deducting
approximately $300,000 in underwriting discounts, other expenses of this
Offering estimated to be $587,000, which includes the Underwriters'
non-accountable expense allowance of $90,000, and a $72,000 financial consulting
24
<PAGE>
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 57.0%
Expansion of Marketing(2) $ 215,000 10.1%
Repayment of Certain Indebtedness(3) $ 200,000 9.4%
Working Capital(4) $ 498,000 23.5%
----------- -----
Total................... $ 2,113,000 100%
- ----------
(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 cash repayment of Bridge Loans in the aggregate principal
amount of $200,000. An additional aggregate principal amount of $100,000
of the Bridge Loans is automatically convertible into 1,000,000 Class A
Warrants immediately after the effective date of this Offering. 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.
25
<PAGE>
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to increase its annual revenues through the expansion of its business
and customer base. As a result, the Company believes that the net proceeds of
this Offering, together with increased revenues 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.
26
<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. 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 (i) the conversion of an aggregate principal amount
of $100,000 of bridge loans into 1,000,000 Class A Warrants immediately after
the effective date of this Offering and (ii) the sale of 500,000 shares of
Common Stock by the Company with net proceeds of $2,185,000 (without deducting
the $72,000 financial advisory fee), the pro forma net tangible book value of
the Common Stock would have been $3,374,019 or approximately $.84 per share.
This represents an immediate increase in pro forma net tangible book value of
$.53 per share to the present stockholders and an immediate dilution of $5.16
per share (86%) 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) $6.00
Net tangible book value
per share .............................. $.31
Increase per share attributable
to Shares offered hereby................ $.53
Pro Forma net tangible book value
per share after Offering(3)............. $.84
Dilution of net tangible book
value per share to purchasers
in this Offering (2)(3)............... $5.16
- ----------
(1) Before deduction of underwriting discounts, commissions, fees and Offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option, or the Underwriters'
Option. 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 $6.00 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 500,000 12.5% $3,000,000 69.7% 6.00
Existing
Stockholders 3,500,000 87.5% $1,305,000(1) 30.3% .37
- --------------------------------------------------------------------------------
TOTAL 4,000,000 100% $4,305,000 100% $1.07
</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.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted gives effect to (i) the conversion of an
aggregate principal amount of $100,000 of bridge loans into 1,000,000 Class A
Warrants immediately after the effective date of this Offering and (ii) the sale
of 500,000 shares of Common Stock offered hereby and the application of net
proceeds therefrom. The table is not adjusted to give effect to 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
(4,000,000 shares outstanding
as adjusted) ............................... $ 350 $ 400
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 $ 3,589,100
Deficit .................................... $ (1,894) $ (1,894)
Unrealized loss on available
for sale investments ....................... $ (84,000) $ (84,000)
TOTAL STOCKHOLDERS'
EQUITY ..................................... $ 1,219,106 $ 3,504,106
----------- -----------
TOTAL CAPITALIZATION ....................... $ 1,719,106 $ 3,704.106
=========== ===========
29
<PAGE>
- ----------
(1) Does not include the sale of 500,000 shares of Common Stock offered
hereby.
(2) As Adjusted balance sheet reflects the sale of 500,000 shares of Common
Stock offered hereby and the anticipated application of the net proceeds
of $2,185,000 therefrom, after deducting estimated Offering expenses of
$815,000, the cash repayment of bridge loans of $200,000 payable with the
proceeds of the Offering and the conversion of an aggregate principal
amount of $100,000 of bridge loans into 1,000,000 Class A Warrants
immediately after the effective date of this 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.
30
<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."
31
<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
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30, 1996
June 30, 1996(1) September 30, 1996(1) as Adjusted (2)(3)
---------------- --------------------- ------------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (698,396) $ 1,586,604
Total Assets $ 2,565,537 $ 3,165,703 $ 5,150,703
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 $ 3,504,106
</TABLE>
(1) Does not include the sale of 500,000 shares of Common Stock offered
hereby.
(2) Reflects initial application of net proceeds of the 500,000 shares of
Common Stock offered.
(3) Reflects an aggregate principal amount of $100,000 of Bridge Loans
converted into 1,000,000 Class A Warrants immediately after the effective
date of this Offering.
32
<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. 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
33
<PAGE>
intends to hire additional administrative, sales, productions and warehouse
employees. In addition, the Company intends to install a detailed Management
Information System in order to effectively manage production, quality assurance,
inventory and to properly service its customer base.
Liquidity and Capital Resources
As of 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.
34
<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 been using numerous supply
sources to purchase products for resale until its manufacturing facility is
completed. The Company has no commitments or formal arrangements with is
suppliers. Manufacturing operations for tableting and encapsulating of single
ingredient products commenced on October 1, 1996, although the manufacturing
facility is not yet completed. The manufacturing facility is expected to be
fully operational within sixty (60) days following the completion of the
Offering hereby proposed.
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".
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an
35
<PAGE>
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 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.
36
<PAGE>
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.
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
37
<PAGE>
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 September 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), the Company's founder, at an
annual interest rate of eight percent (8%) pursuant to a promissory note dated
June 26, 1996 repayable on June 25, 1998. See "Certain Transactions."
Management and Employees
As of 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."
38
<PAGE>
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 ("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.
39
<PAGE>
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.
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 75% of the Company's outstanding shares of Common
Stock, 100% of the
40
<PAGE>
shares of Series A Preferred Stock of the Company, par value $.0001 per share
(the "Series A Preferred Stock") and 100% 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 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.
41
<PAGE>
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.
42
<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."
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
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<PAGE>
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>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ---------- --------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus Compensation ($) SARs(#) ($) ($)
- --------------------------- ---- --------- ----- ------------ ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence Simon, President 1996 $12,692 $-0- $ -0- $ -0- 100,000(1) $ -0- $ -0-
</TABLE>
(1) Represents issuance of options to acquire 100,000 shares of common stock
at $5.00 per share exercisable one year from the effective date of the
Company's initial public offering.
Option/SAR Grants -
Individual Grants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Lawrence Simon, President 100,000 100% $5.00 May 1, 2001
</TABLE>
Aggregated Option/SAR Exercises -
and FY-End Option/SAR Values
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ---- ----------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Lawrence Simon, President -0- -0- 0/100,000 $-0-/-0- (2)
</TABLE>
(2) The exercise price of the options is equal to the public offering price of
the shares of common stock of the Company hereby offered.
45
<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
46
<PAGE>
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.
47
<PAGE>
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
48
<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.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the Company's outstanding
voting securities 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 75.0 5,000,000 94.1 88.9 66.7
- ------------------------------------------------------------------------------------------------------------------------------------
Compare 500,000 14.3 12.5 0.0 6.25 5.6 5.6
Generiks, Inc.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence D. 0.0 0.0 0.0 5,000,000 58.8 55.6 55.6
Simon
(1)(4)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Reginald 0.0 0.0 0.0 5,000,000 58.8 55.6 55.6
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 55.6 55.6
(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 5,000,000 58.8 55.6 55.6
persons)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
CERTAIN TRANSACTIONS
50
<PAGE>
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."
On May 31, 1996, the Company agreed to exclusively supply Compare
Generiks, Inc.
51
<PAGE>
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 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."
52
<PAGE>
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.
53
<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 500,000 shares of Common Stock, par value $.0001
per share.
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.
Series A Preferred Stock
54
<PAGE>
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 $5.25 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 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
55
<PAGE>
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 $5.25 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 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
56
<PAGE>
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.
Transfer Agent & Registrar
57
<PAGE>
The transfer agent and registrar for the Company's securities is
American Stock Transfer & Trust Company (the "Transfer Agent").
58
<PAGE>
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
covers the resale of (i) (a) 1,000,000 Class A Warrants issuable upon conversion
of the Convertible Bridge Notes, and (b) 1,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants and (ii) (a) 2,000,000 shares of
Common Stock, (b) 2,000,000 Class A Warrants, and (c) 2,000,000 shares of Common
Stock issuable upon exercise of the Class A Warrants all of which are held by
PMF, Inc. ("PMF") (hereinafter collectively referred to as the "Selling
Securityholders"). The Selling Securityholders cannot resell any of the
securities owned by them until the Over-Allotment Option has either been
exercised in full or terminated. PMF is wholly-owned and controlled by Barry
Gersten. 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 50% 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.
59
<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 25.0 33.3
- ------------------------------------------------------------------------------------------------------------------------------------
Dune Holdings, 0 800,000 0 800,000 0 0 0 0
Inc.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Clinthill Investments, 0 200,000 0 200,000 0 0 0 0
Ltd.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 3,000,000 4,000,000 2,000,000 3,000,000 1,000,000 1,000,000 25.0 33.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The principal stockholder, officer and director of Dune Holdings, Inc.
is Randolph K. Pace. The Company has been advised that there is no affiliated
relationship between Dune Holdings, Inc., and Clinthill Investments, Ltd. Dune
Holdings, Inc. owns 200,000 shares of Common Stock of PDK Labs, Inc.
60
<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.
61
<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 500,000 shares of Common Stock 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 $6.00 per Share
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,
of which not in excess of $ per Share may be reallowed to other dealers who
are members of the NASD. The Underwriters do not intend to sell any of the
Company's Shares 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
- ----------- ----------------
VTR Capital, Inc.......... ----
..........
..........
The public offering price of the Shares was 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 75,000 additional Shares 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, including any Shares purchased pursuant to the Over-Allotment Option.
The Company has agreed to sell to the Underwriters, or their designees,
for an aggregate purchase price of $50, an option (the "Underwriters' Option")
to purchase up to an aggregate of 50,000 Shares. The Underwriters' Option shall
be exercisable during a four (4) year period
62
<PAGE>
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 issuable upon exercise of the Underwriters' Option may be
deemed to be additional underwriting compensation. The exercise price of the
Shares 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. The exercise of the Underwriters' Option
and the number of Shares 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 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 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 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
63
<PAGE>
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. The Underwriter has been the underwriter or co-underwriter in the
eight firm commitment offerings listed below: U.S. Opportunity Search, Inc.,
Interiors, Inc., Conolog, Inc., New Day Beverage, Inc., Perry's Majestic Beer,
Inc., Micro-Energy, Inc., Compare Generiks, Inc. and Decor Group, Inc. The
Company's offering is expected to be VTR's ninth firm commitment offering. 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 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 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
the exercise price of the Class A Warrants does not necessarily bear any
relationship to assets, earnings, book value or other criteria of value
applicable to the Company.
The Company anticipates that the Common Stock and the Class A Warrants
will be listed for quotation on the 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.
64
<PAGE>
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 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.
65
<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 Securityholders................................................
Underwriting...........................................................
Legal Matters..........................................................
Experts................................................................
Additional Information.................................................
Financial Statements...................................................
____________
Until _____, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
500,000 Shares of Common Stock, par value .0001
per share
SUPERIOR SUPPLEMENTS, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
______, 1996
____________
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 6, 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 50% 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 $5.25 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 of the Class A Warrants. See "Description
of Securities."
<PAGE>
The Company has applied for inclusion of the Common Stock and the Class A
Warrants on the 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 500,000
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 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 50% 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 25.0 33.3
- ------------------------------------------------------------------------------------------------------------------------------------
Dune Holdings, 0 800,000 0 800,000 0 0 0 0
Inc.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Clinthill Investments, 0 200,000 0 200,000 0 0 0 0
Ltd.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 3,000,000 4,000,000 2,000,000 3,000,000 1,000,000 1,000,000 25.0 33.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The principal stockholder, officer and director of Dune Holdings, Inc.
is Randolph K. Pace. The Company has been advised that there is no affiliated
relationship between Dune Holdings, Inc., and Clinthill Investments, Ltd. Dune
Holdings, Inc. owns 200,000 shares of Common Stock of PDK Labs, Inc.
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 public offering of
II-2
<PAGE>
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 Warrant.
5.01 Opinion of Bernstein & Wasserman, counsel to the Company.
9.01** Form of Voting Trust Agreement.
10.01* Supply Agreement between the Company and PDK dated as of May 14, 1996.
10.02* Supply Agreement between the Company and CGI dated as of May 31, 1996.
10.03** Lease between the Company and Park Associates dated as of May 1, 1996.
10.04* Subscription Agreement between the Company and CGI dated as of May 31,
1996.
10.05* Employment Agreement between the Company and Lawrence D. Simon dated
as of May
II-4
<PAGE>
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
- ----------
* Previously filed on August 8, 1996 as an exhibit to the Company's
Registration Statement on Form SB-2 and incorporated herein by reference.
** Previously filed on October 24, 1996 as an exhibit to Amendment No. 1 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;
(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
II-5
<PAGE>
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 contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the Offering of the
securities at that time as the initial bona fide Offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York, New York on December 5, 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, December 5, 1996
- ------------------------- Chief Financial Officer,
Lawrence D. Simon Principal Accounting
Officer and Director
/s/ Reginald Spinello Director December 5, 1996
- -------------------------
Reginald Spinello
/s/ Matthew L. Harriton Director, Secretary December 5, 1996
- -------------------------
Matthew L. Harriton
/s/ Steven F. Wasserman Director December 5, 1996
- ------------------------
Steven F. Wasserman
/s/ Dr. Daniel Durchslag Director December 5, 1996
- --------------------------
Dr. Daniel Durchslag
II-8
<PAGE>
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
UNDERWRITING AGREEMENT
VTR Capital, Inc. __________, 199__
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, 500,000
shares of Common Stock at a public offering price of $6.00 per share. The
500,000 shares of Common Stock are hereinafter sometimes 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 75,000 shares of Common Stock. Such additional shares
of Common Stock are hereinafter sometimes referred to as the "Optional
Securities." Both the Firm Securities and the Optional Securities are sometimes
collectively referred to herein as the "Securities." All of the securities which
are the subject of this Agreement are more fully described in the Prospectus of
the Company described below. 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
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) will be as set forth
in the Prospectus (hereinafter defined).
<PAGE>
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. 333-9761) 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 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.
2
<PAGE>
(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 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
3
<PAGE>
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
outstanding 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 will not have any and will not be issued in violation
of any preemptive rights. The Common Stock will be delivered in accordance with
this Agreement. 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
4
<PAGE>
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, 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 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 Warrants 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 Warrants in accordance
with the provisions thereof 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 to be paid by the
several Underwriters shall be $5.40 (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-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 as that set forth in the
preceding paragraph; and each Underwriter
5
<PAGE>
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 effectiveness 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). The time and date of such delivery and payment are hereby
defined as the Closing Date. It is understood that each Underwriter has
authorized the Representative, for the account of such Underwriter, to accept
delivery of, receipt for, and make payment of the purchase price for, the Firm
Securities which it has agreed to purchase. You, individually, and not as
Representative may (but shall not be obligated to) make payment of the purchase
price for the Firm Securities to be purchased by any Underwriter whose check
shall not have been received by the Closing Date, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from its
obligations hereunder.
(c) Payment for the Optional Securities shall be made at the offices
of the Representative, or its clearing agent or at such other place as shall be
agreed upon by the Representative and the Company, in accordance with the notice
delivered pursuant to Section 3(a) which shall be no later than seven business
days from the expiration of the thirty day option period.
(d) Certificates for the Firm Securities and for the Optional
Securities shall be registered in such name or names and 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.
6
<PAGE>
(e) At the time of making payment for the Firm Securities, the
Company also hereby agrees to sell to the Representative, Warrants to purchase
50,000 shares of Common Stock (the "Representative's Warrants") at any time on
or after the Effective Time until five years thereafter at a price of $.001 per
Warrant. The Representative's Warrants will be exercisable at a price of $9.90
per share equal to 165% of the public offering price of the shares of Common
Stock. From the Effective Date and until one (1) year thereafter, such
Representative Warrants 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 to the public
as soon as practicable after the Effective Date, at the initial offering price
of $6.00 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 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
7
<PAGE>
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 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
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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 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, upon the request of the Representative, the Company agrees to
utilize its best efforts to qualify its Common Stock for listing on the NASDAQ
System and will take all necessary and appropriate action in this regard. 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.
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(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.
(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 Under writers 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; and (v) 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.
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
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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 "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
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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 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
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<PAGE>
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
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
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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.
(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
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the extent that any decrease is disclosed in or contemplated by the Prospectus.
(f) The authorization of the Common Stock, 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 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 any outstanding options or
warrants and when issued in accordance with such terms, 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.
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(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 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 Warrants 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 Warrants, and such stock, when issued and paid
for upon exercise of the Representative's 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
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sell the Securities 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 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 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;
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(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 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
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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 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
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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.
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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 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
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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 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
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<PAGE>
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
Company or the securities market or (ii) the inability to market the securities.
SECTION 15. Registration of the Representative's Warrants 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 Warrants and/or the
underlying securities issuable upon exercise of the Representative's Warrants,
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 Warrants 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 Warrants 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 Warrants and/or the underlying
securities. (The registration rights provided herein apply to the
Representative's Warrants 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 Warrants and underlying
securities in
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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 Warrants and underlying securities and
will supply all information required therefor, but such additional Registration
Statement shall be at the then holders' cost and expense unless the Company
elects to register additional shares of the Company's Shares in which case the
cost and expense of such Registration Statement will be prorated between the
Company and the holders of the Representative's Warrants and underlying
securities according to the aggregate sales price of the securities being
issued. The holders of the Representative's Warrants may include such Warrants
in any such filing without exercising the Representative's Warrants 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 re-organizations 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 Class A 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 Class A Warrant was exercised was greater than the
Class A Warrant exercise price on that date; (2) exercise of the Class A Warrant
was solicited by a member of the NASD and the NASD member is designated in
writing by the Class A Warrant holder; (3) the Class A 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 Class A Warrant;
and (5) the solicitation of the exercise of the Class A 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 Class A 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 Class A Warrant certificate which has been properly
completed and delivered for exercise by holders of Class A 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 Class A
Warrants. It is understood that this agreement is on an exclusive basis to
solicit the exercise of the Class A Warrants and that the Company may not engage
other broker-dealers to solicit the exercise of Class A Warrants without the
consent of VTR. It is understood that no solicitation fee will be paid where the
Class A 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 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.
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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 Common Shares
- -----------------------------------------------------------
VTR Capital, Inc.
Total 500,000
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SUPERIOR SUPPLEMENTS, INC.
500,000 Shares of Common Stock
AGREEMENT AMONG UNDERWRITERS
____________, 199__
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Dear Sirs:
1. Underwriting Agreement. Superior Supplements, Inc., a Delaware
corporation (the "Company"), proposes to enter into an underwriting agreement in
the form of the Underwriting Agreement attached hereto as Exhibit "A" (the
"Underwriting Agreement") with the underwriters named in Schedule I to the
Underwriting Agreement (the "Underwriters"), acting severally and not jointly,
with respect to the purchase from the Company of 500,000 Shares of Common Stock
(the "Shares"). Such Shares are hereinafter sometimes referred to as the "Firm
Securities." Upon our request, and as provided in Section 3 of the Underwriting
Agreement, the Company will also issue and sell to the Underwriters up to a
maximum of an additional 75,000 Shares of Common Stock. Such additional
Securities are hereinafter sometimes referred to as the "Optional Securities."
Both the Firm Securities and the Optional Securities are sometimes collectively
referred to herein as the "Securities." All of the Securities which are the
subject of this Agreement are more fully described in the Prospectus of the
Company described below. Under the terms of the Underwriting Agreement, each of
the Underwriters will agree, in accordance with the terms thereof to purchase
the aggregate number of Firm Securities set forth opposite its name in said
Schedule I, subject to adjustment pursuant to Section 12 hereof and Section 14
of the Underwriting Agreement.
2. Registration Statement and Prospectus. The Securities are described in
a registration statement and related prospectus which have been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). An amendment to such registration statement has
been or will be filed in which you have been or will be named as one of the
Underwriters of the Securities. Copies of the registration statement as filed
and as amended have been delivered to you, and you hereby authorize us to
approve on your behalf any further amendments or supplements which may be
necessary or appropriate. The registration statement, as amended at the time it
becomes effective, is called the "Registration Statement" and the final
prospectus relating to the Securities as filed by the Company with the
Commission pursuant to Rule 424(b) under the Act is referred to as the
"Prospectus."
3. Authority of Representative. You authorize us as your Representative to
execute the Underwriting Agreement with the Company in the form attached with
such
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insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Securities to be purchased by you except as
provided herein and therein) and to take such action as in our discretion we may
deem advisable in respect of all matters pertaining to the Underwriting
Agreement, this Agreement, the transactions for the accounts of the several
Underwriters contemplated thereby and hereby, and the purchase, carrying, sale
and distribution of the Securities.
4. Public Offering. In connection with the public offering of the
Securities, you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement become effective), the initial public offering
price, and the concessions and reallowances to dealers, to change the public
offering price and such concessions and reallowances after the initial public
offering, to furnish the Company with the information to be included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) with respect to the terms of the public offering, and to determine all
matters relating to the public advertisement of the Securities and any
communications with dealers or others;
(b) To reserve all or any part of your Securities for sale to retail
purchasers (including institutions) and to dealers selected by us ("Selected
Dealers") among which may be included any Underwriter (including ourselves) and
each of which shall be a member of the National Association of Securities
Dealers, Inc., and each of which shall agree that in making sales to purchasers
in the United States it will conform to the Rules of Fair Practice of said
Association (or, in the case of a foreign dealer not eligible for membership in
such Association, which shall agree not to reoffer, resell or deliver Securities
in the United States, its territories or its possessions, or to persons whom it
has reason to believe are citizens thereof or residents therein), such
reservations for sales to retail purchasers to be as nearly as practicable in
proportion to the respective underwriting obligations of the Underwriters and
such reservations for sales to Selected Dealers to be in such proportion as we
determine, and from time to time to add to the reserved Securities such
Securities retained by you remaining unsold and to release to you any of your
Securities reserved but not sold;
(C) To sell reserved Securities as nearly as practicable in
proportion to the respective reservations to retail purchasers at the public
offering price, and to Selected Dealers at the public offering price less the
Selected Dealer's concession pursuant to the Selected Dealers Agreement in
substantially the form attached; and
(d) To buy Securities for your account from Selected Dealers at the
public offering price less such amount not in excess of the Selected Dealer's
concession as we may determine.
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After advice from us that the Securities are released for public offering,
you will offer to the public in conformity with the terms of offering set forth
in the Prospectus, or any amendment or supplement, such of your Securities as we
advise you are not reserved.
You recognize the importance of a broad distribution of the Securities
among bona fide investors and you agree to use your best efforts to obtain such
broad distribution and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Securities to Selected Dealers we will
take such action as we deem appropriate to effect a broad distribution.
5. Repurchase of Securities Not Effectively Placed for Investment. You are
requested to place for investment those of your Securities which are not
reserved as aforesaid. Any Securities sold by you (otherwise than through us)
which may be delivered to us against a purchase contract made by us for the
account of any Underwriter prior to termination of the provisions referred to in
Section 11 of this Agreement, shall be purchased by you upon demand from us at
the cost of such purchase plus brokerage commissions and transfer taxes on
redelivery. Securities delivered on such repurchase need not be identical to
those purchased by you. In lieu of demand repurchase by you we may in our
discretion (I) sell for your account the Securities so purchased by us, at such
price and upon such terms as we may determine, and debit or credit your account
with the loss and expense or net profit resulting from such sale, or (ii) charge
your account with an amount not in excess of the Selected Dealer's concession
with respect to such Securities plus brokerage commissions and transfer taxes
paid in connection with such purchase.
6. Payment and Delivery. We shall give you at least 24 hours prior notice
of the Closing Date. You agree to deliver to us at or before 9:00 a.m., New York
City time, on such Closing Date and at or before 9:00 a.m. New York City time,
on the Additional Closing Date referred to in the Underwriting Agreement if the
Optional Securities are purchased, at the office of VTR Capital, Inc., 99 Wall
Street, New York, NY 10005 (or such other office as we may direct), a certified
check or bank cashier's check payable in New York Clearing House funds to the
order of VTR Capital, Inc., as Representative, for the full purchase price of
the Securities which you shall have agreed to purchase from the Company less the
concession to selected dealers. If you are a member or clear through a member of
the Depository Trust Company ("DTC"), you may, in your discretion, deliver
payment and receive Securities through the facilities of DTC. The proceeds shall
be delivered in the amounts required in each case for payment of the full
purchase price by us to the Company against delivery of the Securities to us for
your account. We are authorized to accept that delivery and to give a receipt
therefor. We may in our discretion make such payment on your behalf with our own
funds, in which event you will reimburse us promptly upon request. You authorize
us, as your custodian, to take delivery of your Securities, registered as we may
direct in order to facilitate deliveries. You also authorize us to hold for your
account such of your Securities as we have reserved for sale to retail
purchasers and to Selected Dealers, and to deliver your reserved Securities
against such sales. We will deliver your unreserved Securities to you promptly
and, after we receive payment for reserved Securities sold by us for your
account, we will remit to you, as
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promptly as practicable, an amount equal to the price paid by you for such
Securities. As soon as practicable after termination of Sections 4, 5 and 9 and
the first and penultimate sentences of Section 8 of this Agreement (pursuant to
Section 11 hereof) we will deliver to you any of your Securities reserved but
not sold. All Securities delivered to you pursuant to this Section will be
evidenced by certificates in such denominations as you shall direct by written
notice received by us not later than the second full business day preceding the
Closing Date.
7. Authority to Borrow. In connection with the purchase or carrying of any
Securities purchased hereunder for your account, you authorize us, in our
discretion, to advance funds for your account, charging current interest rates,
or to arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Securities. Any lender may rely on our instructions in all matters relating
to any such loan. Any of your Securities held by us for your account may be
delivered to you for carrying purposes only, and subject to our further
direction.
8. Stabilization and Over-Allotment. To facilitate the distribution of the
Securities, you authorize us during the term of this Agreement, or for such
longer period as may be necessary in our discretion, to make purchases and sales
of the Securities for your account in the open market or otherwise, for long or
short account, on such terms as we deem advisable and, in arranging sales, to
over-allot. You also authorize us to cover any short position incurred pursuant
to this Section on such terms as we deem advisable. Included in the authority
granted to us by you is the authority to exercise the over-allotment option to
purchase the Optional Securities granted by Section 3 of the Underwriting
Agreement. Except with respect to the exercise of such over-allotment option,
all such purchases and sales (other than purchases and sales of the Optional
Securities) shall be made for the accounts of the several Underwriters as nearly
as practicable in proportion to their respective underwriting obligations. Your
net commitment under this Section shall not, at the end of any business day,
exceed 15% of your maximum underwriting obligation. You will on our demand take
up at cost or deliver against payment any Securities purchased or sold or
over-allotted for your account and, if any such other Underwriter defaults in
its corresponding obligation, you will assume your proportionate share of such
obligation without relieving the defaulting Underwriter from liability. You will
be obligated in respect to purchases and sales made for your account hereunder
whether or not the proposed purchase of the Securities is consummated. Upon
request you will advise us of Securities retained by you and unsold and will
sell to us for the account of one or more of the Underwriters such of your
unsold Securities as we may designate, at the public offering price thereof less
such amount as we may determine, but not in excess of the Selected Dealer's
concession with respect thereto. Until the termination of this Agreement
pursuant to Section 11 hereof, or prior notification by us, we shall have the
sole right to effect stabilizing transactions in the Securities. You agree that
until such time you will not make any purchases or sales of any of such
securities except as provided in Section 9 hereof. You also agree to timely
provide us with the information required by Rule 17a-2(d) under the Securities
Exchange Act of 1934, as amended (the "1934 Act").
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9. Open Market Transactions. You agree not to bid for, purchase, attempt
to induce others to purchase, or sell, directly or indirectly, any Securities,
except as brokers pursuant to unsolicited orders and as otherwise provided in
this Agreement or in the Underwriting Agreement. You further agree not to offer
the Securities for sale until notified by us, as the Representative of the
Underwriters, that they are released for that purpose.
10. Expenses and Settlement. We may charge your account with Selected
Dealer's concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement, in excess of those reimbursed by the Company pursuant to
Section 8 of the Underwriting Agreement, or in connection with the purchase,
carrying, sale or distribution of the Securities. Our determination of the
amount and allocation of expenses shall be conclusive. As soon as practicable
after termination of the provisions referred to in Section 11, the accounts
hereunder will be settled, but we may reserve from distribution such amount as
we deem advisable to cover possible additional expenses. We may at any time make
partial distribution of credit balances or call for payment of debit balances.
Any of your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (I)
your proportionate share (based upon your underwriting obligation) of any
liability which may be incurred by the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association, partnership,
unincorporated business or other separate entity, and of any expenses incurred
by us, or by any other Underwriter with our approval, in contesting any such
liability, and (ii) any transfer taxes which may be assessed and paid after such
settlement on account of any sale or transfer for your account.
11. Termination and Settlement. This Agreement will terminate (a) at the
close of business on the 30th day after the date of the Underwriting Agreement;
or (b) on such earlier or later date, not more than 30 days after the date
specified in (a), as we may determine; or (C) on the date of termination of the
Underwriting Agreement, if the same shall be terminated as provided by its
terms.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder will cease, except (a) the mutual obligation to settle
accounts hereunder, (b) your obligation to pay any claims referred to in the
last paragraph of this Section, (C) the obligations with respect to indemnity
set forth in Section 15 hereof (all obligations of which will continue until
fully discharged), and (d) your obligation with respect to purchases which may
be made by us from time to time thereafter to cover any short position with
respect to the offering, all of which will continue until fully discharged, and
except our authority with respect to matters to be determined by us, or by us
and the Company, pursuant to the terms of the Underwriting Agreement, which will
survive the termination of this Agreement.
The accounts arising pursuant to this Agreement will be settled and paid
as soon as practicable after termination. The determination by us of the amounts
to be paid to or by you will be final and conclusive.
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Notwithstanding any settlement upon the termination of this Agreement, you
will pay your proportionate share of any amount asserted against and discharged
by the Underwriters, or any of them, based upon the claim that the Underwriters
constitute an association, unincorporated business or other separate entity, or
based upon or arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any expense incurred
in defending against such claim, and will pay any transfer taxes which may be
assessed thereafter on account of any sale or transfer of Securities for our
account.
12. Default by Underwriters. Default by one or more Underwriters hereunder
or under the Underwriting Agreement shall not release the other Underwriters
from their obligations or affect the liability of any defaulting Underwriter to
the other Underwriters for damages resulting from such default. In case of
default under the Underwriting Agreement by one or more Underwriters, we may
arrange for the purchase by others, including non-defaulting Underwriters, of
Securities not taken up by such defaulting Underwriter and you will, at our
request, increase pro rata with the other non-defaulting Underwriters the
aggregate principal amount of Securities which you are to purchase, or both, by
an amount not exceeding one-ninth of your original underwriting obligations. In
the event any such arrangements are made, the respective Securities to be
purchased by non-defaulting Underwriters and by such others shall be taken as
the basis for the underwriting obligations under this Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. Position of Representative. We shall be under no liability to you for
any act or omission except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred. Nothing
shall constitute the Underwriters, or any of them, an association, partnership,
unincorporated business or other separate entity and the rights and liability of
ourselves and each of the Underwriters are several and not joint.
14. Compensation to Representative. As compensation for our services as
Representative, you agree to pay us $___ per share of Common Stock out of the
aggregate underwriting discount attributable to Securities which you agree to
purchase from the Company under the Underwriting Agreement. We are authorized to
charge your account with such an amount.
15. Indemnification. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees
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to indemnify the Company in the Underwriting Agreement. Such indemnity agreement
shall survive the termination of any of the provisions of this Agreement.
In the event that at any time any claim shall be asserted against us as or
as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Securities or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree to pay to us, on request, your proportionate share (based upon your
underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in investigating
and defending against such claim or claims, and your proportionate share (based
upon your underwriting obligation) of any liability incurred by us in respect of
such claim or claims, whether such liability shall be the result of a judgment
against us or as a result of any such settlement.
16. Blue Sky Matters. We shall not have any responsibility with respect to
the right of any Underwriter or other person to sell Securities in any
jurisdiction, notwithstanding any information we may furnish in that connection.
You hereby authorize us to take such action as may be necessary or advisable to
qualify the Securities for offering and sale in any jurisdiction. We have caused
to be filed Further State Notices respecting the Securities to be offered to the
public in New York in the form required by, and pursuant to, the provisions of
Article 23A of the General Business Law of the State of New York.
17. Title to Securities. The Securities purchased for the respective
accounts of the several Underwriters shall remain the property of those
Underwriters until sold; and no title to such securities shall in any event pass
to us, as Representative, by virtue of any of the provisions of this Agreement.
18. Capital Requirements. Unless the provisions of clause (b) of the
second sentence of the last paragraph of this Agreement are applicable to you,
you confirm that your commitment hereunder will not result in any violation of
Section 8(b) or 15(C) of the 1934 Act or in any violation of any of the rules
and regulations promulgated under the 1934 Act, including, without limitation,
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which you are subject or of any restriction imposed upon you by such
exchange.
19. Notices and Governing Laws. Any notice from you to us shall be mailed
or transmitted by any standard form of written telecommunication to us at 99
Wall Street. New York, NY 10005. Any notice from us to you shall be mailed or
transmitted by any standard from of written telecommunication to you at your
address as set forth in your
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Underwriter's Questionnaire. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or (b) a foreign dealer which is not
eligible for membership in such Association, in which event you will make sales
of any Securities only outside the United States and its territories and
possessions to persons who are not citizens or residents of the United States or
its territories or possessions, and that in making any such sales, you will
comply with such Association's Interpretation with respect to Free-Riding and
Withholding. You further represent that: (I) you will notify each of your
customers with respect to whose account you have investment discretion and to
whose account you intend to sell any Securities that you propose to sell
Securities to such account as a principal and you will obtain the customer's
written consent to such sale; and (ii) you will comply with the requirements of
Rule 15c2-8 under the 1934 Act and have distributed or are distributing copies
of a Preliminary Prospectus to all persons to whom you then expected to mail
confirmations of sale, not less than 48 hours prior to the time it is expected
to mail such confirmations.
Very truly yours,
VTR CAPITAL, INC.
By:________________________________
As Representative of the several
Underwriters
Confirmed and accepted as of
the date first above written.
____________________________________
Attorney-in-fact for the several
Underwriters named in Schedule I
to the Underwriting Agreement
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VTR Capital Inc.
99 Wall Street
New York, New York 10005
Superior Supplements, Inc.
500,000 Shares of Common Stock
SELECTED DEALER AGREEMENT
Dear Sirs: ___________________, 199__
We, as the Underwriter named in the below referred to Prospectus (the
"Underwriter") have agreed, subject to the terms and conditions of the
Underwriting Agreement dated this date (the "Underwriting Agreement") to
purchase from Superior Supplements, Inc. (the "Company"), at the price set forth
on the cover of such Prospectus, the above referred to 500,000 Shares of Common
Stock and up to an additional 75,000 Shares of Common Stock, collectively being
called the "Securities"). The Securities and certain of the terms on which they
are being purchased and offered are more fully described in the enclosed
Prospectus (the "Prospectus"). Additional copies of the Prospectus will be
supplied to you, in reasonable quantities upon request.
We, as the Underwriter, are offering to certain dealers ("Selected
Dealers"), among whom we are pleased to include you, part of the Securities, at
the public offering price less a concession of $._____ per Share of Common
Stock. The offering to Selected Dealers is made subject to the issuance and
delivery of the Securities to us and their acceptance by us, to the approval of
legal matters by our counsel, and to the terms and conditions hereof, and may be
made by us on the basis of the reservation of Securities or an allotment against
subscription, or otherwise in our discretion.
The initial public offering prices of the Securities are as set forth in
the Prospectus. With our consent, Selected Dealers may allow a discount of not
in excess of $____ per Share of Common Stock in selling the Shares to other
dealers meeting the requirements of the specifications set forth in the
affirmation of dealers contained in the attached Acceptance and Order. Upon our
request, you will notify us of the identity of any dealer to whom you allow such
a discount and any Selected Dealer from whom you receive such a discount.
All orders will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part, to
accept or reject orders in the order of their receipt or otherwise, and to
allot. You are not authorized to give any information or make any representation
other than as set forth in the Prospectus in connection with the sale of any of
the Securities. No dealer is authorized to act as agent for the Underwriter, or
for the Company, when offering any of the Securities. Nothing contained herein
shall constitute the Selected Dealers partners with us or with one another.
Upon release by us, you may offer the Securities at the public offering
prices, subject to the terms and conditions hereof. We may, and the Selected
Dealers may, with
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our consent, purchase Securities from and sell Securities to each other at the
public offering price less a concession not in excess of the concession to
Selected Dealers.
Payment for Securities purchased by you is to be made at our office (or at
such other place as instructed) at the public offering price, on such date as we
may advise, on one day's notice to you, by certified or official bank check in
New York Clearing House funds payable to our order. Delivery to you of
certificates for the Securities will be made as soon as is practicable
thereafter. Unless specifically authorized by us, payment by you may not be
deferred until delivery of certificates to you. The concession payable to you
will be paid as soon as practicable after the closing.
This Agreement shall terminate at the close of business on the 45th day
after the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Dealers based upon the claim that the Underwriter and the
Selected Dealers, or any of them, constitute a partnership, association,
unincorporated business or other entity, including in each case your
proportionate share of expenses incurred in defending against any such claim or
liability.
In the event that, prior to the termination of this Agreement we purchase
in the open market or otherwise any Securities delivered to you, you agree to
repay to us for the account of the Underwriter the amount of the above
concession to Selected Dealers plus brokerage commissions and any transfer taxes
paid in connection with such purchase; which amounts can be withheld from the
concession otherwise payable to you hereunder. Certificates for Securities
delivered on any such purchase need not be the identical certificates originally
issued to you.
At any time prior to the termination of this Agreement, you will, upon our
request, report to us the number of Securities purchased by you under this
Agreement which then remain unsold and will, upon our request, sell to us for
the account of the Underwriter the number of such unsold Securities that we may
designate, at the public offering price less an amount to be determined by us
not in excess of the concession allowed you.
We shall have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the offering, including, without
limitation, stabilization and over-allotment. We shall be under no liability to
you except for our lack of good faith and for obligations assumed by us in this
Agreement, except that you do not waive any rights that you may have under the
Securities Act of 1933 (the "1933 Act") or the rules and regulations thereunder.
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Securities
are qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell Securities in any jurisdiction. We have filed Further State
Notices with respect to the Securities with the Department of State of the State
of New York.
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You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Rule in connection with this offering.
Any notice from us shall be deemed to have been duly given if telephoned,
and subsequently mailed or transmitted by any standard form of written
tele-communication to you at the address to which this Agreement is mailed, or
if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
telecommunication of the principal amount of Securities ordered by you and
confirm your agreement hereto by signing the Acceptance and Order on the
enclosed duplicate hereof and returning promptly such signed duplicate copy to
VTR Capital, Inc., 99 Wall Street, New York, NY 10005.
Upon receipt thereof, this instrument and such signed duplicate copy will
evidence the agreement between us.
Very truly yours,
VTR CAPITAL, INC.
By:_________________________________
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ACCEPTANCE AND ORDER
VTR Capital, Inc.
99 Wall Street
New York, New York 10005
Dear Sirs:
We hereby enter our order for ______ Shares of Common Stock of Superior
Supplements, Inc. under the terms and conditions of the foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing
Agreement. We acknowledge receipt of the Prospectus relating to the above
Securities and we further state that in entering this order we have relied upon
said Prospectus and no other statements whatsoever, written or oral. We affirm
that we are either (I) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories, or possessions
and not registered under the Securities Exchange Act of 1934 and not eligible
for membership in the NASD, who hereby agrees to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein, and in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding, as well as all other
pertinent interpretations of the NASD that may be applicable to us. We also
affirm and agree that we will promptly re-offer any Securities purchased by us
in conformity with the terms of the offering and in conformity with the Rules of
Fair Practice of the NASD, (including, without limitation, Sections 8, 24, 25
and 36 Article III thereof) and all applicable Rules and Regulations promulgated
under the Securities Exchange Act of 1934.
Date: ___________, 1996 ________________________________________
(Name of Selected Dealer)
By:_____________________________________
(Authorized Signature)
Address:________________________________
________________________________
________________________________
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WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated this ____ day of ________, 199__, by and among VTR
Capital, Inc. ("VTR"), Superior Supplements, Inc. (the "Company") and American
Stock Transfer & Trust Company (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue, in accordance with an agreement
dated _______, 199__ by and between the Company and the Warrant Agent (the
"Warrant Agreement"), Class A Warrants to purchase ________ shares of Common
Stock; and
WHEREAS, the parties hereto wish to provide VTR, a member of the National
Association of Securities Dealers, Inc. ("NASD") with certain rights on an
exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after _________, 199__ and expire at 5:00 p.m. New York time on
_______, 2002 (the "Expiration Date"), subject to the Company's right to extend
the Expiration Date, at which time all rights evidenced by the Warrants shall
cease and the Warrants shall become void. In accordance with the provisions of
the Warrant Agreement, the holder of each Warrant shall have the right to
purchase from the Company, and the Company shall issue and sell to such holders
of Warrants, one fully paid and non-assessable share of the Company's Common
Stock for every Warrant exercised at an Exercise Price of $5.25, subject to
adjustment as provided in the Warrant Agreement.
Section 2. Notification of Exercise. Within five (5) days of the last day
of each month commencing _________, 199__ (one year from the date of the
Company's Prospectus), the Warrant Agent or the Company will notify VTR of each
Warrant certificate which has been properly completed and delivered for exercise
by holders of Warrants during each such month, if any, the determination of the
proper completion to be in the sole and absolute reasonable discretion of the
Company and the Warrant Agent. The Company or the Warrant Agent will provide VTR
with such information, in connection with the exercise of each Warrant, as VTR
shall reasonably request.
Section 3. Payment to VTR. The Company hereby agrees to pay to VTR an
amount equal to four (4%) percent of the exercise price (i.e. $.21 per share
based on the initial exercise price of the Warrants) for each Warrant exercised
(the "Exercise Fee") a portion of which may be allowed by VTR to the dealer who
solicited the exercise (which may also be VTR) provided that:
(a) such Warrant is exercised on or after _______, 199__, which represents
one year from the effective date of the Company's Registration Statement;
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(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in writing,
either in the Form of Election contained on the specimen Warrant Certificates
attached hereto as Exhibits A, or by written documents signed and dated by the
holders and specifically stating that the exercise of such Warrants were
solicited by VTR or another member of the NASD;
(d) Solicitation of the exercise was in compliance with NASD Notice to
Members 81-38; and
(e) VTR and/or the member of the NASD which solicited the exercise of
Warrants delivers a certificate to the Company within five (5) business days of
receipt of information relating to such exercised Warrants from the Company or
the Warrant Agent in the form attached hereto as Exhibit B, stating that:
(1) the Warrants exercised were not held in a discretionary account;
(2) VTR or the member of the NASD which solicited the exercise of
Warrants did not, (unless granted an exemption by the Securities and Exchange
Commission from the provisions thereof), within the applicable number of
business days under Rule 10b-6 immediately preceding the date of exercise of the
Warrant bid for or purchase the Common Stock of the Company or any securities of
the Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive as part of the original offering and upon exercise
of the Warrant.
(4) in connection with the solicitation, it complied with NASD
Notice to Members 81-38.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to pay
over to VTR within two (2) business days after receipt by the Company of the
certificate described in Section 3(d) above, but in no event later than
simultaneously with the distribution of proceeds to the Company from such
exercise of Warrant the Exercise Fee out of the proceeds it received from the
applicable Exercise Price paid for the Warrants to which the certificate
relates.
Section 5. Inspection of Records. VTR may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
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Section 6. Termination. VTR shall be entitled to terminate this Agreement
prior to the exercise of all Warrants at any time upon five (5) business days'
prior notice to the Company and the Warrant Agent. Notwithstanding any such
termination notice, VTR shall be entitled to receive an Exercise Fee for the
exercise of any Warrant for which it has already delivered to the Company prior
to any such termination the certificate required by Section 3(d) of this
Agreement and shall be entitled to receive such Exercise Fee simultaneously with
the distribution of such proceeds to the Company.
Section 7. Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
270 Oser Avenue, Hauppauge, New York 11788; if to VTR at 99 Wall Street, New
York, NY 10005; and if to the Warrant Agent at 40 Wall Street, New York, NY
10005, or such other address as such party shall have given notice to other
parties hereto in accordance with this Section. All such notices or other
communications shall be deemed given three (3) business days after mailing, as
aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent and
VTR may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
VTR may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that VTR may
assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and VTR any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of,
and be binding upon, the Company, the Warrant Agent and VTR and their respective
successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and shall not control or
affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and all
prior agreements between the parties with respect to the subject matter hereof.
3
<PAGE>
Section 14. Exclusive Agreement. It is understood that this agreement is
on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of VTR.
Section 15. Conflict with Warrant Agreement. Any conflict between any term
hereof and any term of the Warrant Agreement shall be resolved in favor of such
provision contained in the Warrant Agreement except that nothing contained in
the Warrant Agreement shall be construed to modify the amount of compensation
payable to VTR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SUPERIOR SUPPLEMENTS, INC.
By:_____________________________________
VTR CAPITAL, INC.
By:_____________________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_____________________________________
4
<PAGE>
CERTIFICATE
The undersigned, being the ________________ of VTR Capital, Inc. ("VTR")
pursuant to Section 3(d) of the Warrant Exercise Fee Agreement relating to the
exercise of Warrants dated ________, 199__ between Superior Supplements, Inc.
(the "Company") and American Stock Transfer & Trust Company (the "Warrant
Agent") hereby certifies that:
1. The Company or the Warrant Agent has notified VTR that ______________
Warrants (as defined in the Agreement) have been exercised during _____________,
199___.
2. The exercise of ______________ of such Warrants was solicited by
__________________________.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately
preceding _______________ 199___, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Warrants) or otherwise engage in
any activity that would be prohibited by Rule 10b-6 under the Securities
Exchange Act of 1934, as amended, to one engaged in a distribution of the
Company's securities.
5. In connection with the solicitation of the exercise of the Warrants,
_____________ disclosed the compensation it will receive to holders of the
Warrants as part of the original offering and upon exercise of the Warrants.
6. In connection with the solicitation of the exercise of the Warrants, it
complied with NASD Notice to Members 81-38.
DATED: _______________, 199___
VTR CAPITAL, INC.
By:___________________________________
5
<PAGE>
================================================================================
NUMBER SHARES
BP 1 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
--------------------------
SUPERIOR SUPPLEMENTS, INC.
--------------------------
TOTAL AUTHORIZED ISSUE 35,000,000 SHARES See Reverse for
Certain Definitions
25,000,000 SHARES PAR VALUE $.0001 EACH 10,000,000 SHARES PAR VALUE $.0001 EACH
COMMON STOCK BLANK CHECK PREFERRED STOCK
SERIES A PREFERRED STOCK
5,000,000 SHARES PAR VALUE $.0001 EACH
This is to Certify that ______________________________________ is the owner of
________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A PREFERRED STOCK OF
SUPERIOR SUPPLEMENTS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
Witness, the seal of the Corporation and the Signatures of its duly authorized
officers.
Dated
__________________________________ ________________________________________
SECRETARY PRESIDENT
================================================================================
(C) 1967 CORPEX BANKNOTE CO., NEW YORK
<PAGE>
No sale, offer to sell or transfer of the securities represented by this
certificate or any interest therein shall be made unless a registration
statement under the Federal Securities Act of 1933, as amended, with respect to
such transaction is then in effect, or the issuer has received an opinion of
counsel satisfactory to it that such transfer does not require registration
under that Act.
This Warrant will be void after 5:00 p.m. New York time on __________,
200__ (i.e. five years from the effective date of the Registration Statement).
REPRESENTATIVE'S WARRANT
WARRANT NO. 1
To Subscribe for and Purchase Shares of
SUPERIOR SUPPLEMENTS, INC.
(Transferability Restricted as Provided in Paragraph 8 Below)
THIS CERTIFIES THAT, for value received, _______________ or
registered assigns, is entitled to subscribe for and purchase from Superior
Supplements, Inc., incorporated under the laws of the State of Delaware (the
"Company") up to __________ fully paid and non-assessable shares of Common Stock
(the "Shares") of the Company, as hereinafter defined, at the "Purchase Price"
and during the period hereinafter set forth, subject, however, to the provisions
and upon the terms and conditions hereinafter set forth. This Warrant is one of
an issue of the Company's Common Stock Purchase Warrants (herein called the
"Warrants"), identical in all respects except as to the names of the holders
thereof and the number of Shares purchasable thereunder, representing on the
original issue thereof rights to purchase up to 50,000 Shares.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to the
Company's Common Stock, $.0001 par value, per share as more fully set forth in
Section 5 hereof.
(b) "Purchase Price" shall be $9.90 per share (165% of the public
offering price per share) which is subject to adjustment pursuant to Section 4
hereof.
(c) "Underwriter" or "Representative" shall refer to VTR CAPITAL,
INC.
(d) "Underwriting Agreement" shall refer to the Underwriting
Agreement dated as of _____________, 199__ between the Company and the
Underwriter.
(e) "Warrants" or "Representative's Warrants" shall refer to
Warrants to purchase an aggregate of up to 50,000 Shares issued to the
Underwriter or its designees by the Company pursuant to the Underwriting
Agreement, as such may be adjusted from time to time pursuant to the terms of
Section 4 and including any Warrants represented by
<PAGE>
any certificate issued from time to time in connection with the transfer,
partial exercise, exchange of any Warrants or in connection with a lost, stolen,
mutilated or destroyed Warrant certificate, if any, or to reflect an adjusted
number of Shares.
(f) "Underlying Securities" shall refer to and include the Common
Shares issuable or issued upon exercise of the Representative's Warrants.
(g) "Holders" shall mean the registered holder of such
Representative's Warrants or any issued Underlying Securities.
(h) "Effective Date" shall refer to the effective date of the Form
SB-2 Registration Statement File No. 333- 9761.
(i) Warrant Agreement shall refer to the agreement dated as of
___________, 199__ by and among the Company, the Representative and American
Stock Transfer & Trust Company.
2. The purchase rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part at any time, and from time to time, during
the period commencing on the Effective Date until _____________, 200__ (the
"Expiration Date"), by the presentation of this Warrant, with the purchase form
attached duly executed, at the Company's office (or such office or agency of the
Company as it may designate in writing to the Holder hereof by notice pursuant
to Section 14 hereof), and upon payment by the Holder to the Company in cash, or
by certified check or bank draft of the Purchase Price for such Shares of Common
Stock. The Company agrees that the Holder hereof shall be deemed the record
owner of such Underlying Securities as of the close of business on the date on
which this Warrant shall have been presented and payment made for such Shares as
aforesaid. Certificates for the Underlying Securities so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding five (5)
days, after the rights represented by this Warrant shall have been so exercised.
If this Warrant shall be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Representative's
Warrant evidencing the rights of the Holder hereof to purchase the balance of
the Shares which such Holder is entitled to purchase hereunder. Exercise in full
of the rights represented by this Warrant shall not extinguish the rights
granted under Section 9 hereof.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Representative's Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of Shares of Common
Stock as are purchasable hereunder; and (ii) this Warrant may be divided or
combined with other Representative's Warrants which carry the same rights, in
either case, upon presentation hereof at the aforesaid office of the Company
together with a written notice, signed by the Holder hereof, specifying the
names and denominations in which new Representative's Warrants are to be issued,
and the payment of any transfer tax due in connection therewith.
2
<PAGE>
4. Subject and pursuant to the provisions of this Section 4, the Purchase
Price and number of Common Shares subject to this Warrant shall be subject to
adjustment from time to time as set forth hereinafter.
(A) If the Company shall, at any time, subdivide its outstanding
Common Shares by recapitalization, reclassification, split up thereof, or other
such issuance without additional consideration, the appropriate Purchase Price
immediately prior to such subdivision shall be proportionately decreased, and if
the Company shall at any time combine the outstanding Common Shares by
recapitalization, reclassification or combination thereof, the Purchase Price
immediately prior to such combination shall be proportionately increased. Any
such adjustment to the Purchase Price or the corresponding adjustment to the
Purchase Price shall become effective at the close of business on the record
date for such subdivision or combination. No adjustment to the Purchase Price
and the number of shares issuable upon exercise of this Warrant shall be
required if such adjustment provides the holders of this Warrant with
disproportionate rights, privileges and economic benefits which are not provided
to the public shareholders.
(B) In the event that prior to the Representative's Warrant's
expiration date the Company adopts a resolution to merge, consolidate, or sell
percentages in all of its assets, each Warrant holder upon the exercise of his
Representative's Warrant will be entitled to receive the same treatment as a
holder of any other share of Common Stock. In the event the Company adopts a
resolution for the liquidation, dissolution, or winding up of the Company's
business, the Company will give written notice of such adoption of a resolution
to the registered holders of the Representative's Warrants. Thereupon all
liquidation and dissolution rights under this Warrant will terminate at the end
of thirty (30) days from the date of the notice to the extent not exercised
within those thirty (30) days.
(C) If any capital reorganization or reclassification of the capital
stock of the Company or consolidation or merger of the Company with another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Company or such successor
or purchasing corporation, as the case may be, shall execute with the Warrant
Agent a supplemental Warrant Agreement providing that each registered holder of
a Representative's Warrant shall have the right thereafter and until the
expiration date to exercise such Warrant for the kind and amount of stock,
securities, cash or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale by a holder of the number of
shares of Common Stock for the purchase of which such Warrant might have been
exercised immediately prior to such reorganization, reclassification,
consolidation, merger or sale, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4.
(D) In case at any time the Company shall declare a dividend or make
any other distribution upon any stock of the Company payable in Common Stock,
then such Common Stock issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
3
<PAGE>
(E) Upon any adjustment of the appropriate respective Purchase Price
as hereinabove provided, the number of Common Shares issuable upon exercise of
each class of Warrant shall be changed to the number of shares determined by
dividing (i) the aggregate Purchase Price payable for the purchase of all shares
issuable upon exercise of that class of Warrant immediately prior to such
adjustment by (ii) the appropriate Purchase Price per share in effect
immediately after such adjustment.
(F) No adjustment in the Purchase Price shall be required under
Section 4 hereof unless such adjustment would require an increase or decrease in
such price of at least 1% provided, however, that any adjustments which by
reason of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment, and provided further, however, that in case the Company
shall at any time subdivide or combine the outstanding Common Shares as a
dividend, said amount of 1% per share shall forthwith be proportionately
increased in the case of a combination or decreased in the case of a subdivision
or stock dividend so as to appropriately reflect the same.
(G) On the effective date of any new Purchase Price the number of
shares as to which this Warrant may be exercised shall be increased or decreased
so that the total sum payable to the Company on the exercise of this Warrant
shall remain constant.
(H) The form of Representative's Warrant need not be changed because
of any change pursuant to this Article, and Representative's Warrants issued
after such change may state the Purchase Price and the same number of shares as
is stated in the Representative's Warrants initially issued pursuant to this
Warrant. However, the Company may at any time in its sole discretion (which
shall be conclusive) make any change in the form of Representative's Warrant
that the Company may deem appropriate and that does not affect the substance
thereof, and any Representative's Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise, may
be in the form as so changed.
5. For the purposes of this Warrant, the terms "Common Shares" or
"Common Stock" shall mean (i) the class of stock designated as the Common Stock,
$.0001 par value, of the Company on the date set forth on the first page hereof
or (ii) any other class of stock resulting from successive changes or
re-classifications of such Common Stock consisting solely of changes in par
value, or from no par value to par value, or from par value to no par value. If
at any time, as a result of an adjustment made pursuant to Section 4, the
securities or other property obtainable upon exercise of this Warrant shall
include shares or other securities of the Company other than Common Shares or
securities of another corporation or other property, thereafter, the number of
such other shares or other securities or property so obtainable shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Shares contained in
Section 4 and all other provisions of this Warrant with respect to Common Shares
shall apply on like terms to any such other shares or other securities or
property. Subject to the foregoing, and unless the context requires otherwise,
all references herein to Common Shares shall, in the event of
4
<PAGE>
an adjustment pursuant to Section 4, be deemed to refer also to any other
securities or property then obtainable as a result of such adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by the
Representative's Warrant may be exercised, the Company shall, at all times,
reserve and keep available out of its authorized capital stock, solely for the
purposes of issuance upon exercise of this Warrant, such number of its Common
Shares as shall be issuable upon the exercise of this Warrant and at its expense
will obtain the listing thereof on all national securities exchanges on which
the Common Shares are then listed; and if at any time the number of authorized
Common Shares shall not be sufficient to effect the exercise of this Warrant,
the Company will take such corporate action as may be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose; the Company shall have analogous obligations with
respect to any other securities or property issuable upon exercise of this
Warrant.
(b) All Common Shares which may be issued upon exercise of the
rights represented by this Warrant will, upon issuance be validly issued, fully
paid, nonassessable and free from all taxes, liens and charges with respect to
the issuance thereof.
(c) All original issue taxes payable in respect of the issuance of
Common Shares upon the exercise of the rights represented by this Warrant shall
be borne by the Company but in no event shall the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any
Representative's Warrants.
7. Until exercised, this Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a shareholder of the Company, except that
the Holder of this Warrant shall be deemed to be a shareholder of this Company
for the purpose of bringing suit on the ground that the issuance of shares of
stock of the Company is improper under the New York Corporation Law.
8. This Warrant and the Underlying Securities shall not be sold,
transferred, assigned or hypothecated for a period of twelve (12) months from
the Effective Date, except to officers or partners of the Representative, and/or
the other underwriters and/or selected dealers who participated in such
offering, or the officers or partners of such underwriters and/or selected
dealers. In no event shall this Warrant and the Underlying Securities be sold,
transferred, assigned or hypothecated except in conformity with the applicable
provisions of the Securities Act of 1933, as then in force (the "Act"), or any
similar Federal statute then in force, and all applicable "Blue Sky" laws.
9. The Holder of this Warrant, by acceptance hereof, agrees that, prior to
the disposition of this Warrant or of any Underlying Securities theretofore
purchased upon the exercise hereof, under circumstances that might require
registration of such securities under the Act, or any similar Federal statute
then in force, such Holder will give written notice to the Company expressing
such Holder's intention of effecting such disposition, and describing briefly
such Holder's intention as to the disposition to be made of this Warrant
5
<PAGE>
and/or the Underlying Securities theretofore issued upon exercise hereof.
Promptly upon receiving such notice, the Company shall present copies thereof to
its counsel and the provisions of the following subdivisions shall apply:
(a) If, in the opinion of such counsel, the proposed disposition
does not require registration under the Act, or any similar Federal statute then
in force, of this Warrant and/or the securities issuable or issued upon the
exercise of this Warrant, the Company shall, as promptly as practicable, notify
the Holder hereof of such opinion, whereupon such holder shall be entitled to
dispose of this Warrant and/or such Underlying Securities theretofore issued
upon the exercise hereof, all in accordance with the terms of the notice
delivered by such Holder to the Company.
(b) If, in the opinion of such counsel, such proposed disposition
requires such registration or qualification under the Act, or similar Federal
statute then in effect, of this Warrant and/or the Underlying Securities
issuable or issued upon the exercise of this Warrant, the Company shall promptly
give written notice of such opinion to the Holder hereof and to the then holders
of the securities theretofore issued upon the exercise of this Warrant at the
respective addresses thereof shown on the books of the Company. Section 15 of
the Underwriting Agreement provides for the following rights:
"SECTION 15. Registration of the Representative's Warrants 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 Warrants and/or the
underlying Securities issuable upon exercise of the Representative's Warrants,
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 Warrants and/or the underlying Securities. The
Company agrees to register such Warrants 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 Warrants 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 Warrants and/or the underlying
Securities. (The registration rights provided herein apply to the
Representative's Warrants 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
6
<PAGE>
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 Warrants. 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 Warrants 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 Warrants and underlying
Securities and will supply all information required therefor, but such
additional Registration Statement shall be at the then holders' cost and expense
unless the Company elects to register additional shares of the Company's Shares
in which case the cost and expense of such Registration Statement will be
prorated between the Company and the holders of the Representative's Warrants
and underlying Securities according to the aggregate sales price of the Warrants
being issued. The holders of the Representative's Warrants may include such
Warrants in any such filing without exercising the Representative's Warrants,
and in fact, are never required to exercise same."
10. The Company agrees to indemnify and hold harmless the holder of this
Warrant, or of Warrants issuable or issued upon the exercise hereof, from and
against any claims and liabilities caused by any untrue statement of a material
fact, or omission to state a material fact required to be stated, in any such
registration statement, prospectus, notification or offering circular under
Regulation A, except insofar as such claims or liabilities are caused by any
such untrue statement or omission based on information furnished in writing to
the Company by such holder, or by any other such holder affiliated with the
holder who seeks indemnification, as to which the holder hereof, by acceptance
hereof, agrees to indemnify and hold harmless the Company.
11. If this Warrant, or any of the Warrants issuable pursuant hereto,
require qualification or registration with, or approval of, any governmental
official or authority (other than registration under the Act, or any similar
Federal statute at the time in force), before such Warrants may be issued on the
exercise hereof, the Company, at its expense, will take all requisite action in
connection with such qualification, and will use its best efforts to cause such
Warrants and/or this Warrant to be duly registered or approved, as may be
required.
12. This Warrant is exchangeable, upon its surrender by the registered
holder at such office or agency of the Company as may be designated by the
Company, for new Representative's Warrants of like tenor, representing, in the
aggregate, the right to subscribe for and purchase the number of Common Shares
that may be subscribed for and purchased hereunder, each of such new
Representative's Warrants to represent the right to subscribe for and purchase
such number of Common Shares as shall be designated by the registered holder at
the time of such surrender. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant, and, in the case
of any such loss, theft or destruction, upon delivery of a bond of indemnity
satisfactory to
7
<PAGE>
the Company, or in the case of such mutilation, upon surrender or cancellation
of this Warrant, the Company will issue to the registered holder a new
Representative's Warrant of like tenor, in lieu of this Warrant, representing
the right to subscribe for and purchase the number of Common Shares that may be
subscribed for and purchased hereunder. Nothing herein is intended to authorize
the transfer of this Warrant except as permitted under Paragraph 8.
13. Every holder hereof, by accepting the same, agrees with any subsequent
holder hereof and with the Company that this Warrant and all rights hereunder
are issued and shall be held subject to all of the terms, conditions,
limitations and provisions set forth in this Warrant, and further agrees that
the Company and its transfer agent may deem and treat the registered holder of
this Warrant as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
14. All notices required hereunder shall be given by first-class mail,
postage prepaid; if given by the holder hereof, addressed to the Company at 270
Oser Avenue, Hauppauge, New York 11788 or such other address as the Company may
designate in writing to the holder hereof; and if given by the Company,
addressed to the holder at the address of the holder shown on the books of the
Company.
15. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York and jurisdiction is hereby vested
in the Courts of said State in the event of the institution of any legal action
under this Warrant.
IN WITNESS WHEREOF, SUPERIOR SUPPLEMENTS, INC. has caused this
Warrant to be signed by its duly authorized officers under its corporate seal,
to be dated as of ________________, 1997.
SUPERIOR SUPPLEMENTS, INC.
By:___________________________________
Attest:
________________________________
(Corporate Seal)
8
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase ________ Common Shares
evidenced by the within Warrant, according to the terms and conditions thereof,
and herewith makes payment of the purchase price in full. The undersigned
requests that certificates for such shares shall be issued in the name set
forth below.
Dated: , 19
___________________________________
Signature
___________________________________
Print Name of Signatory
___________________________________
Name to whom certificates are to
be issued if different from above
Address:___________________________
___________________________
Social Security No.________________
or other identifying number
If said number of shares shall not be all the shares purchasable under the
within Warrant, the undersigned requests that a new Warrant for the unexercised
portion shall be registered in the name of:
___________________________________
(Please Print)
Address:___________________________
___________________________
Social Security No.________________
or other identifying number
9
<PAGE>
Signature
10
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED ___________________________, hereby sells assigns and
transfers to ___________________, Soc. Sec. No. [___________ ] the within
Warrant, together with all rights, title and interest therein, and does hereby
irrevocably constitute and appoint _______________ attorney to transfer such
Warrant on the register of the within named Company, with full power of
substitution.
___________________________________
Signature
Dated: ____________, 19__
Signature Guaranteed:
__________________________
11
<PAGE>
December 5, 1996
Board of Directors
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
Re: Superior Supplements, Inc.
Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel for Superior Supplements, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a registration statement (the "Registration Statement") on Form
SB-2, File No. 333-9761, under the Securities Act of 1933, relating to the
public offering of 500,000 shares of the Company's Common Stock, par value
$.0001 per share (the "Shares"). The offering also involves the grant to the
Underwriters of an option to purchase an additional 75,000 of such Shares to
cover over-allotments in connection with the offering, the sale to the
Underwriter of an option the ("Purchase Option") to purchase up to 50,000 of
such Shares and the registration of an additional 2,000,000 shares of Common
Stock and 3,000,000 Class A Redeemable Common Stock Purchase Warrants (the
"Class A Warrants") on behalf of selling stockholders (the "Selling
Securityholder's Securities").
We have examined the Certificate of Incorporation and the By-Laws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Shares, drafts of the Warrant Agreement and Purchase Option,
draft forms of certificates representing the Common Stock and the Class A
Warrants, originals or copies of such records of the Company, agreements,
certificates of public officials, certificates of officers and representatives
of the Company and others, and such other documents, certificates, records,
authorizations, proceedings, statutes and judicial decisions as we have deemed
necessary to form the basis of the opinion expressed below. In such examination,
we have assumed the genuiness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to originals of all
documents submitted to us as copies thereof. As to various questions of fact
material to such opinion, we have relied upon statements and certificates of
officers and representatives of the Company and others.
<PAGE>
Board of Directors
December 5, 1996
Page 2
- --------------------------------------------------------------------------------
Based on the foregoing, we are of the opinion that:
1. All shares of Common Stock have been duly authorized and, when issued
and sold in accordance with the Prospectus, will be validly issued.
2. The Class A Warrants and the Purchase Option have been duly authorized
and, when issued and sold in accordance with the Prospectus, will be validly
issued.
3. The shares of Common Stock and Class A Warrants included in the Selling
Securityholder's Securities have been duly authorized, validly issued, fully
paid and nonassessable; and, when sold in accordance with the appropriate
prospectus (the "Selling Securityholder Prospectus") forming a part of the
Registration Statement, will continue to be duly authorized, validly issued,
fully paid and nonassessable.
4. The shares of Common Stock issuable upon exercise of the Purchase
Option and the Class A Warrants included in the Selling Securityholders
Securities have been duly authorized and reserved for issuance and, when issued
in accordance with the terms of the Purchase Option or the Class A Warrants
included in the Selling Securityholders Securities, as the case may be, will be
duly authorized, validly issued, fully paid and nonassessable.
We hereby consent to be named in the Registration Statement, the
Prospectus and the Selling Securityholder Prospectus as attorneys who have
passed upon legal matters in connection with the offering of the securities
offered thereby under the caption "Legal Matters."
We further consent to your filing a copy of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
BERNSTEIN & WASSERMAN
B&W/jm
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Superior Supplements,
Inc. on Amendment No. 2 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
December 5, 1996
