<PAGE>
As filed with the Securities and Exchange Commission on February 6, 1997
Registration No. 333-9761
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------------
AMENDMENT NO. 4
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>
Units, consisting of two (2) shares of
Common Stock, par value $.0001 per
share and one (1) Class A Warrant(3) 287,500 $10.00 $2,875,000 $871.21
Common Stock, par value $.0001 per
share(3) 575,000 ____ _________ ________
Class A Warrants(4) 287,500 ______ ________ ________
Common Stock, par value $.0001 per
share underlying Class A Warrants(5) 287,500 $5.25 $1,509,375 $457.39
Underwriters' Unit Purchase Option(6) 25,000 $.001 $25.00 $0.01
Units, consisting of two (2) shares of
Common Stock, par value $.0001 per
share and one (1) Class A Warrant 25,000 $16.50 $412,500 $125.00
Common Stock, par value $.0001 per
share, underlying Underwriters' Unit
Purchase Option(6) 50,000 ____ _______ ______
Class A Warrants, underlying
Underwriters' Unit Purchase Option 25,000 ____ _______ _______
Common Stock, par value $.0001 per
share underlying Class A Warrants in
Underwriters' Unit Purchase Option 25,000 $5.25 $131,250 $39.77
Selling Securityholders
Class A Warrants issuable upon conversion
of the Convertible Bridge Notes(7) 1,000,000 $0.10 $100,000 $30.30
Common Stock, par value $.0001 per
share, underlying Class A Warrants
issuable upon conversion of the
Convertible Bridge Notes(5) 1,000,000 $5.25 $5,250,000 $1,590.91
Common Stock, par value $.0001 per
share (8) 2,000,000 $5.00 $10,000,000 $3,030.30
Class A Warrants (9) 2,000,000 $0.10 $200,000 $60.61
Common Stock, par value $.0001 per
share underlying Class A Warrants held by
Selling Securityholder 2,000,000 $5.25 $10,500,000 $3,181.82
Total $ 9,387.32
Amount previously paid $11,404.83
---------
Total Amount Due ----- ------ $30,978,150 $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 Class A Warrants and the Underwriters' Unit Purchase
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.
<PAGE>
(3) Includes 75,000 shares of Common Stock and 37,500 Class A Warrants
subject to the Underwriters' over-allotment option (the "Over-Allotment
Option").
(4) The Class A Warrants are exercisable over a four (4) year period
commencing one (1) year following the effective date of this Offering
into one (1) share of Common Stock per Class A Warrant at an exercise
price of $5.25 per share.
(5) The number of shares of Common Stock specified is the number which may
be acquired upon exercise of the Class A Redeemable Common Stock
Purchase Warrants ("Class A Warrants") at the maximum exercise price
thereof.
(6) The Underwriters' Unit Purchase Option entitles the Underwriters to
purchase up to 25,000 Units consisting of 50,000 shares of Common Stock
and 25,000 Class A Warrants at 165% of the offering price (the
"Underwriters' Option").
(7) Represents the resale of 1,000,000 Class A Warrants issuable upon
conversion of the Convertible Bridge Notes.
(8) Represents the resale of shares of Common Stock held by one of the
Selling Securityholders.
(9) Represents the resale of Class A Warrants held by one of the Selling
Securityholders.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
CROSS REFERENCE SHEET
(Showing Location in the Prospectus of
Information Required by Items 1 through 23, Part
I, of Form SB-2)
Item in Form SB-2 Prospectus Caption
1. Front of Registration
Statement and Outside Front
Cover of Prospectus................ Facing Page of Registration
Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution........................... Dilution; Risk Factors
7. Selling Securityholders............ Description of Securities; Selling
Securityholders
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
9. Legal Proceedings.................. Business-Litigation
10. Directors, Executive Officers,
Promoters and Control Persons...... Management
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
i
<PAGE>
Item in Form SB-2 Prospectus Caption
12. Description of Securities.......... Description of Securities;
Underwriting
13. Interest of Named Experts and
Counsel............................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Underwriting; Certain Transactions
15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business
16. Description of Business............ Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property............ Business - Facilities
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
21. Executive Compensation............. Management - Executive
Compensation
22. Financial Statements............... Selected Financial Data;
Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures.......... *
- ----------
* Omitted because Item is not applicable.
ii
<PAGE>
Explanatory Note
This registration statement covers the primary offering ("Offering") of
Units, consisting of two (2) shares of Common Stock and one (1) Class A Warrant
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"),
287,500 Units consisting of 575,000 shares of Common Stock and 287,500 Class A
Warrants including 75,000 shares of Common Stock and 37,500 Class A Warrants
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 FEBRUARY 6, 1997
SUPERIOR SUPPLEMENTS, INC.
250,000 Units, Each Unit Consists of Two (2) Shares of Common Stock,
Par Value $.0001 Per Share, and
One (1) Class A Redeemable Common Stock Purchase Warrant
Offering Price Per Unit - $10.00
-----------
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI") hereby offers 250,000 Units (each, a "Unit"), each Unit consisting of two
(2) shares of common stock, par value $.0001 per share (the "Common Stock" and
"Shares") and one (1) Class A Redeemable Common Stock Purchase Warrant (the
"Class A Warrants" and "Warrants"). The securities comprising the Units will be
separately transferable immediately upon the date of this Offering (the
"Offering"). See "Description of Securities." The Risk Factor section begins on
page 14 of this Prospectus.
The Class A Warrants shall be exercisable commencing one (1) year after
the date hereof (the "Effective Date"). Each Class A Warrant entitles the holder
to purchase one (1) share of Common Stock at a price of $5.25 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 ________ __, 1998, upon thirty (30) days' prior written notice, if the
average closing price or bid price of the Common Stock, as reported by the
principal exchange on which the Common Stock is traded, the NASD OTC Bulletin
Board or the National Quotation Bureau Incorporated, as the case may be, equals
or exceeds $10.00 per share, for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending five (5) days prior to the date of
the notice of redemption. Upon thirty (30) days' written notice to all holders
of the Class A Warrants, the Company shall have the right to reduce the exercise
price and/or extend the term of the Class A Warrants. See "Description of
Securities."
The Company has applied for inclusion of the Units, the Common Stock
and the Class A Warrants on the NASD OTC Bulletin Board, under the symbols
SPSUU, SPSU and SPSUW, 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 Units, Common Stock and
Class A Warrants; No Assurance of Public Trading Market" and "Penny Stock
Regulations May Impose Certain Restrictions on Marketability of Securities."
<PAGE>
Prior to this Offering, there has been no public market for the Units,
the Common Stock or the Class A Warrants. The price of the Units, 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 Units and the exercise price of the Class A Warrants, see
"Risk Factors - No Prior Public Market; Possible Volatility of Stock Price,"
"Description of Securities" and "Underwriting."
The registration statement of which this Prospectus forms a part also
covers the resale of (a) 1,000,000 Class A Warrants issuable to certain bridge
lenders (the "Bridge Lenders") in connection with the Company's recent bridge
financings (the "Bridge Loans") and 1,000,000 shares of Common Stock issuable
upon exercise of the Class A Warrants and (b) (i) 2,000,000 shares of Common
Stock, and (ii) (x) 2,000,000 Class A Warrants and (y) 2,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants, all of which are
held by PMF, Inc. ("PMF"), a company wholly-owned and controlled by Barry
Gersten. The Bridge Lenders and PMF are hereinafter collectively referred to as
the "Selling Securityholders." The terms of the Class A Warrants offered for
resale by the Selling Securityholders are identical to the terms of the Class A
Warrants included in the Units. 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 14 AND "DILUTION" BEGINNING ON PAGE 28.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
2
<PAGE>
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price Proceeds
To Underwriting Discounts To
Public And Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Unit...... $10.00 $1.00 $9.00
Total (3).... $2,500,000 $250,000 $2,250,000
- --------------------------------------------------------------------------------
The date of this Prospectus is , 1997
-------------
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
$75,000 ($86,250 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 25,000 Units at $16.50 per Unit (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 $572,000 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
<PAGE>
(3) Does not include 37,500 additional Units 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 $2,875,000, $287,500, and $583,250, respectively, and the total
proceeds to the Company will be $2,004,250. See "Underwriting."
The Units are offered by the Underwriters on a "firm commitment" basis,
when, as and if delivered to and accepted by the Underwriters, and subject to
prior sale, allotment and withdrawal, modification of the offer with notice,
receipt and acceptance by the Underwriters named herein and subject to their
right to reject orders in whole or in part and to certain other conditions. It
is expected that the delivery of the certificates representing the Common Stock
and Class A Warrants and payment therefor will be made at the offices of the
Representative on or about , 1997.
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 UNITS,
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 UNITS 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 UNITS OR THE COMMON STOCK AND/OR THE CLASS A WARRANTS
THROUGH AND/OR WITH THE UNDERWRITERS.
5
<PAGE>
ALTHOUGH THEY HAVE NO OBLIGATION TO DO SO, THE UNDERWRITERS MAY FROM
TIME TO TIME ACT AS MARKET MAKERS AND OTHERWISE EFFECT TRANSACTIONS IN THE
COMPANY'S SECURITIES. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY
BECOME A DOMINATING INFLUENCE IN THE MARKET FOR THE UNITS OR THE COMMON STOCK
AND CLASS A WARRANTS CONTAINED THEREIN. 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 UNITS, 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) 250,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Units, (ii) 37,500 Units
consisting of 75,000 shares of Common Stock and 37,500 Class A Warrants issuable
upon exercise of the Over-Allotment Option; (iii) 37,500 shares of Common Stock
issuable upon exercise of the Class A Warrants included in the Over-Allotment
Option; (iv) 25,000 Units consisting of 50,000 shares of Common Stock and 25,000
Class A Warrants issuable upon exercise of the Underwriters' Option; (v) 25,000
shares of Common Stock issuable upon exercise of the Class A Warrants included
in the Underwriters' Option; (vi) 1,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants issuable upon conversion of Convertible Bridge
Notes, (vii) 3,000,000 shares of Common Stock issuable upon exercise of the
Class A Warrants held by PMF, Inc.,a company wholly-owned and controlled by
Barry Gersten, the founder of the Company, and (viii) employee stock options.
See "Description of Securities," "Certain Transactions," "Underwriting," and
"Management - Stock Option Plans and Agreements." Each prospective investor is
urged to read this Prospectus in its entirety.
THE COMPANY
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI"), was formed on April 24, 1996. The Company is engaged in the development,
manufacture, marketing and sale of dietary supplements including vitamins,
minerals, herbs and specialty nutritional supplements, in bulk tablet, capsule
and powder form. The Company intends to manufacture a wide variety of products
for companies which package and sell through many different channels of
distribution, including health food, drug, convenience and mass market stores.
Prior to the completion 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 fully 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.
7
<PAGE>
On May 31, 1996, the Company entered into an exclusive supply agreement
with Compare Generiks, Inc., a Delaware corporation ("CGI"), pursuant to which
the Company agreed to supply CGI with all of CGI's requirements for vitamins on
an exclusive basis (other than any vitamins sold under the "Energex" trade mark
or as part of the "Energex" product line) for a three (3) year period, renewable
for successive one (1) year periods thereafter. CGI is a development stage
company with limited revenues and a limited operating history. The Company's
supply arrangements with PDK and CGI form the core of its current business.
PDK supplies certain management and personnel to the Company and
Reginald Spinello, one of the Company's directors, is also the Executive Vice
President of PDK. In addition, one of the Company's directors, Daniel Durchslag
is also a director of CGI. In addition, Reginald Spinello and Daniel Durchslag
together with Lawrence Simon have voting power over more than fifty percent
(50%) of the Common Stock and the Preferred Stock of the Company pursuant to a
Voting Trust Agreement with PMF. Messrs. Spinello, Durchslag and Simon may be
deemed to be founders of the Company. See "Risk Factors - Conflicts of Interest"
and "Business - Conflicts of Interest".
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an unrelated party, for a forty thousand (40,000) square foot
facility to be utilized for manufacturing, distribution and for its executive
offices.
Upon completion, the Company's manufacturing facility will have sixteen
production machines consisting of twelve tablet presses and four encapsulating
machines with a capacity of producing per annum, in excess of one billion two
hundred million (1,200,000,000) tablets and capsules of various sizes and
shapes. The Company will manufacture single ingredient herbal products and
multi-ingredient vitamins in tablet and capsule form. Governmental approval of
the manufacturing facility is not required. All manufacturing will be conducted
in accordance with Good Manufacturing Practice Standards of the United States
Food and Drug Administration and other applicable regulatory standards. The
Company believes that the capacity of its manufacturing facility is adequate to
meet the requirements of its current business and will be adequate to meet the
requirements of anticipated increases in net sales.
The Company was founded by Barry Gersten with the assistance of
Lawrence Simon, with the intention of starting a manufacturing company. Messrs.
Simon and Gersten developed the Company's business plan and subsequently
negotiated the Company's supply agreements which form the core of its business.
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>
<TABLE>
THE OFFERING
<S> <C>
Securities Offered
by the Company(1).................. 250,000 Units at a price of $10.00 per
Unit. Each Unit consists of two (2)
shares of Common Stock and one (1) Class
A Warrant. The securities comprising the
Units are separately transferable
immediately upon the Effective Date of
this Offering. The Class A Warrants
shall be exercisable commencing one (1)
year from the Effective Date. Each Class
A Warrant entitles the holder to
purchase one (1) share of Common Stock
at a price of $5.25 per share during the
four (4) year period commencing one (1)
year from the Effective Date of this
Offering. See "Description of
Securities".
Terms of Redemption of
Class A Warrants.................... The Class A Warrants are each redeemable
by the Company for $.05 per Warrant, at
any time after _______, 1998, upon
thirty (30) days' prior written notice,
if the average closing price or bid
price of the Common Stock, as reported
by the principal exchange on which the
Common Stock is quoted, the NASD OTC
Bulletin Board or the National Quotation
Bureau Incorporated, as the case may be,
equals or exceeds $10.00 per share for
any twenty (20) consecutive trading days
within a period of thirty (30)
consecutive trading days ending five (5)
days prior to the date of the notice of
redemption. Upon thirty (30) days'
written notice to all holders of the
Class A Warrants, the Company shall have
the right to reduce the exercise price
and/or extend the term of the Class A
Warrants. See "Description of
Securities."
Securities Outstanding Prior
to the Offering:
Common Stock................. 3,500,000 Shares
Series A Preferred Stock..... 5,000,000 Shares
Class A Warrants.............. 3,000,000 Warrants
</TABLE>
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<PAGE>
Securities Outstanding
Subsequent to
the Offering(2):
Common Stock................. 4,000,000 Shares
Series A Preferred Stock.... 5,000,000 Shares
Class A Warrants.............. 3,250,000 Warrants
Use of Proceeds................ The net proceeds to the Company from the
sale of the 250,000 Units offered
hereby, after deducting Offering
expenses and the $72,000 financial
advisory fee, are estimated to be
$1,678,000. 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 Volatility of Stock
Price; Lack of Prior Market for Units,
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
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<PAGE>
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 included in the
Units 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)............. Units - SPSUU
Common Stock - SPSU
Class A Warrants - SPSUW
- ----------
(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) 250,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Units, (ii) 1,000,000
Class A Warrants issuable upon conversion of the Convertible Bridge
Notes, or (iii) 1,000,000 shares of Common Stock issuable upon exercise
of the Class A Warrants issuable upon conversion of the Convertible
Bridge Notes, or (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.
(3) Although the Company intends to apply for inclusion of the Units, 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 Units,
Common Stock and Class A Warrants; No Assurance of Public Trading
Market."
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<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 six months ended
December 31, 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 Six Months Ended Cumulative During
(Inception) to June 30, 1996 December 31, 1996 Development Stage
---------------------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 857,398 $1,406,493 $2,263,891
Gross Profit $ 119,358 $ 114,631 $ 233,989
Operating Income (Loss) $ 48,389 $ (169,831) $ (121,442)
Loss on Sale of Securities --- $ (382,500) $ (382,500)
Interest expense (net) --- $ (21,705) $ (21,705)
Net Income(Loss) $ 35,189 $ (574,036) $ (538,847)
Net Income(Loss) $ .01 $ (.16) $ (.15)
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000 3,500,000 3,500,000
SUMMARY BALANCE SHEET DATA
<CAPTION>
December 31, 1996
June 30, 1996(1) December 31, 1996(1) as Adjusted (2)(3)
---------------- -------------------- ------------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (363,042) $1,486,958
Total Assets $2,565,537 $2,670,755 $4,220,755
Total Liabilities $1,285,448 $1,962,102 $1,662,102
Retained Earnings(Deficit) $ 35,189 $ (538,847) $ (538,847)
Stockholders'
Equity $1,280,089 $ 708,653 $ 2,558,653
</TABLE>
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<PAGE>
(1) Does not include the sale of 250,000 Units consisting of 500,000 shares
of Common Stock and 250,000 Class A Warrants offered hereby.
(2) Reflects initial application of net proceeds of the 250,000 Units
offered hereby at the assumed initial public offering price of $10.00
per Unit.
(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.
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<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
$574,036 for the six months ended December 31, 1996 and a cumulative net loss of
$538,847 during the development stage of April 24, 1996 (inception) to December
31, 1996. The Company's independent auditor's report includes an explanatory
paragraph stating that the Company is in the development stage, and the
Company's ability to continue in the normal course of business is dependent upon
successful completion of its planned public offering of securities to raise
capital and the success of future operations. These uncertainties raise
substantial doubt about its ability to continue as a going concern. There can be
no assurance that the Company will not incur net losses in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business, " "Use of Proceeds, " and "Financial Statements and
Notes."
2. Development Stage Enterprise. The Company is a development stage
enterprise that has devoted substantially all its efforts since inception to
establishing its manufacturing facility and operating as a wholesaler for the
products it intends to manufacture and only commenced manufacturing operations
on October 1, 1996. The Company is dependent upon the proceeds of this Offering
in order to fully establish its manufacturing operations. The likelihood of
success must be considered in light of the problems, experiences, difficulties,
complications and delays frequently encountered in various degrees in connection
with the operation and development of new businesses. The Company must surmount
a number of hurdles before it can properly commence manufacturing operations.
The most significant of these are obtaining financing, which is expected to be
satisfied through the Offering, the acquisition of additional manufacturing
equipment and repaying indebtedness owed to the Bridge Lenders. See "Use of
Proceeds." There can be no assurance that the Company will be able to complete
all of these items in a timely manner, or at all, in order to allow the Company
to fully commence manufacturing operations. See "Business."
3. Limited Operating History, No Assurance that the Company will
Successfully Implement Business. The Company was organized on April 24, 1996 and
is in its early stage of development. The Company's core business consists of
the supply agreements with PDK and CGI, although at the date of this Prospectus,
almost 100% of the Company's revenues are
14
<PAGE>
received from PDK. The Company's prospects must be considered in light of the
risks, expenses, and difficulties frequently encountered by a small business in
a highly competitive industry. As of December 31, 1996, the Company had
stockholder's equity of $708,653 and working capital deficiency of $363,042. The
Company's operating expenses can be expected to increase significantly as a
result of the Company's start up of manufacturing operations and proposed
expansion of distribution, marketing and sales efforts. Since the Company has a
limited operating history as a separate corporation, it is impossible to
determine whether its operations will be profitable or that it will ever
generate sufficient revenues to meet its expenses and support its activities.
Like any relatively new business enterprise operating in a specialized and
intensely competitive market, the Company is subject to many business risks
which include, but are not limited to, unforeseen marketing and promotional
expenses, unforeseen negative publicity, competition, product liability and lack
of operating experience. Many of the risks may be unforeseeable or beyond the
control of the Company. There can be no assurance that the Company will
successfully implement its business plan in a timely or effective manner, or
that management of the Company will be able to distribute and sell enough
products to generate sufficient revenues and continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," Use of Proceeds," "Certain Transactions" and "Financial
Statements."
4. Dependence on Offering Proceeds; Possible Need for Additional
Financing. The Company's cash requirements will be significant. The Company is
dependent on the proceeds from this Offering to generate cash for the
acquisition of additional machinery, and expansion of its product lines and
marketing efforts. The Company anticipates, based on its currently proposed
plans, that the proceeds of this Offering, together with funds generated from
operations, will be sufficient to satisfy its anticipated cash requirements for
approximately twelve (12) months following the consummation of this Offering. In
the event that these plans change, or the costs of development of operations
prove greater than anticipated, the Company could be required to modify its
operations, curtail its expansion or seek additional financing sooner than
currently anticipated. The Company believes that its operations would be
restricted absent expansion. The Company has no current arrangements with
respect to such additional financing and there can be no assurance that such
additional financing, if available, will be on terms acceptable to the Company.
See "Use Of Proceeds."
5. Broad Discretion in Application of Proceeds by Management. While the
Company presently intends to use the net proceeds of this Offering, as described
in the "Use of Proceeds" section of this Prospectus, management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of this Offering as well as any proceeds received upon any exercise of
the Class A Warrants should a reappointment or redirection of the funds be
determined to be in the best interest of the Company. Such a reappointment or
redirection of the proceeds is not currently contemplated by the Company and
would be triggered by events or circumstances that the Board of Directors
determines in its business judgment require such change. 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
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<PAGE>
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."
6. Use of Offering Proceeds for Repayment of Debt. As described in the
"Use of Proceeds" section of this Prospectus, 11.9% 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
16
<PAGE>
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 to the exercise of the
Underwriters' Option, the net tangible book value per Share of the Company's
Common Stock will be $.60. At the initial public offering price of $5.00 per
Share offered hereby (assuming no value attributable to the Class A Warrants),
investors in this Offering will experience an immediate dilution of
approximately $4.40 or 88% in net tangible book value per share and existing
investors will experience an increase of approximately $.44 per share. The
exercise of the Class A Warrants sold to the public or held by the Bridge
Lenders or 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 92.3% of the Company's outstanding Class A Warrants. In
addition, in June 1996, PMF made a loan of $200,000 to the Company pursuant to a
promissory note. At present, PDK is a major customer of the Company, accounting
for essentially all of the Company's total sales revenue and also supplies
certain management and personnel to the Company. In addition, Reginald Spinello,
one of the Company's Directors, holds a management position with PDK. Daniel
Durchslag, one of the Company's Directors, is also a Director of CGI, a customer
and stockholder of the Company. Reginald Spinello and Daniel Durchslag, together
with Lawrence Simon, have voting power over more than fifty percent (50%) of the
Common Stock and Preferred Stock of the Company pursuant to a voting trust
agreement with PMF. It is anticipated that PDK will continue to purchase a
significant percentage of the Company's products, at or near its minimum
requirement of $2,500,000 per annum. 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.
17
<PAGE>
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 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
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<PAGE>
potencies low enough to ensure safety. The ANPR has requested input and comments
form interested parties. Whether regulations will or will not be recommended and
adopted and, if adopted, on what dietary supplements, is presently unclear.
Implementation of an ANPR normally involves longer time periods than those cited
above in connection with the proposed NLEA regulations. The legislation
sponsored by the dietary supplement industry would impact the FDA's ability to
issue and implement any such regulations. See "Business-Government Regulation"
for a description of the legislation.
The Company cannot determine what effect this proposed rule-making, or
other governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, require the
recall or discontinuance of certain products not capable of reformulation, or
impose additional recordkeeping, expanded documentation of the properties of
certain products, expanded or different labeling, and scientific substantiation.
Any or all of such requirements could adversely affect the Company's operations
and its financial condition. See "Business - Government Regulations."
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
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<PAGE>
Stock and 100% of the outstanding Preferred Stock representing a combined
percentage of thetotal combined vote after the Offering of 88.9%, and 92.3% 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 30.8% of the outstanding Class A
Warrants. Since holders of Common Stock do not have any cumulative voting rights
and directors are elected by a majority vote, PMF is in a position to control
the election of directors as well as the affairs of the Company. In the event
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 thereby be in a position to
continue to control the election of directors and officers of the Company.
However, PMF granted a voting trust over the Preferred Stock on May 1, 1996 for
a period of five (5) years to Lawrence Simon, Reginald Spinello and Daniel
Durchslag and, accordingly, PMF does not have actual control over the election
of directors and officers of the Company. In addition, in the event PMF were to
sell all of its shares of the Company's Common Stock, and if the resale of
securities referred to above is not completed, PMF would continue to own 92.3%
of the outstanding Class A Warrants, which, if exercised, would mean that PMF
would own a further 3,000,000 shares of the outstanding Common Stock
representing 42.8% 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
20
<PAGE>
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 Units, Common Stock or
Class A Warrants. The initial public offering price of the Units, as well as the
exercise price for the Class A Warrants, was determined by negotiation between
the Company and the Representative, and may not be indicative of the market
price for such securities in the future, and does not necessarily bear any
relationship to the Company's assets, book value, net worth or results of
operations of the Company or any other established criteria of value. Among the
factors considered in determining the price of the Units 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 Units 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 Units, Common Stock and Class A Warrants;
No Assurance of Public Trading Market. Prior to this Offering, no public trading
market existed for the Units, Common Stock and Class A Warrants. There can be no
assurances that a public trading market for the Units, 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 Units, Common Stock and Class A Warrants will be eligible for
inclusion on the NASD OTC Bulletin Board, no assurance can be given that the
Units, 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 Units, 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 Units, Common Stock and Class A
Warrants offered hereby, there can be no assurance that it will be maintained.
If for any reason the Units, 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 Units, 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
21
<PAGE>
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 Units, Common Stock and Class A Warrants. See "Risk Factors -
Penny Stock Regulations May Impose Certain Restrictions on Marketability of
Securities."
Although it has no legal obligation to do so, the Underwriters from
time to time may act as market makers and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Underwriters will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Underwriters'
participation in the market. The Underwriters may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely affected by the fact that a significant
amount of the Units may be sold to customers of the Underwriters.
The Units, Common Stock and Class A Warrrants 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 Units, Common Stock 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
22
<PAGE>
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 offered as part of the Units or
owned by PMF or upon the conversion of the Convertible Bridge Notes owned by the
Bridge Lenders, the resulting increase in the amount of Common Stock of the
Company in the trading market could substantially affect the market price of the
Common Stock. See "Description of Securities - Class A Warrants."
22. Underwriters' Option. In connection with this Offering, the Company
will sell to the Underwriters, for nominal consideration, an option to purchase
25,000 Units consisting of 50,000 shares of Common Stock and 25,000 Class A
Warrants (the "Underwriters' Option"). The Underwriters' Option will be
exercisable commencing one year from the Effective Date of this Offering and
ending four (4) years from such date, at an exercise price of $16.50 per Unit
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 Units,
Warrants and/or 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."
23
<PAGE>
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 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.
Therefore, if either the market price of the Common Stock or Warrants is less
than $5.00 per security, then such security would fall within the definition of
"penny stock." 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-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
24
<PAGE>
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
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
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<PAGE>
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 250,000 Units
offered hereby, are estimated to be $1,678,000 (after deducting approximately
$250,000 in underwriting discounts, other expenses of this Offering estimated to
be $572,000, which includes the Underwriters' non-accountable expense allowance
of $75,000, and a $72,000 financial consulting fee payable to the Representative
at the closing) (but not considering any exercise of the Over-Allotment Option,
or the Underwriters' Option). The Company based upon all currently available
information, intends to utilize such proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage(%)
Amount of of Net
Net Proceeds Proceeds
<S> <C> <C>
Acquisition of Additional Machinery(1) $ 900,000 53.6%
Expansion of Marketing(2) $ 215,000 12.8%
Repayment of Certain Indebtedness(3) $ 200,000 11.9%
Working Capital(4) $ 363,000 21.7%
----------- ---------
Total................... $ 1,678,000 100%
</TABLE>
- ----------
(1) The Company is acquiring additional tablet presses, encapsulating
machines, blending equipment and laboratory instruments.
26
<PAGE>
(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.
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.
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<PAGE>
DILUTION
At December 31, 1996, the Company had outstanding an aggregate of
3,500,000 shares of Common Stock having an aggregate net tangible value of
$553,814 or $.16 per share, based upon operating activity through December 31,
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 250,000 Units
consisting of 500,000 shares of Common Stock and 250,000 Class A Warrants by the
Company (assuming no value is attributable to the Class A Warrants) with net
proceeds of $1,750,000 (without deducting the $72,000 financial advisory fee),
the pro forma net tangible book value of the Common Stock would have been
$2,403,814 or approximately $.60 per share. This represents an immediate
increase in pro forma net tangible book value of $.44 per share to the present
stockholders and an immediate dilution of $4.40 per share (88%) 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price of each Share offered hereby (1)(4) $5.00
Net tangible book value
per share ........................................ $.16
Increase per share attributable
to Shares offered hereby.......................... $.44
Pro Forma net tangible book value
per share after Offering(3)....................... $.60
Dilution of net tangible book
value per share to purchasers
in this Offering (2)(3)......................... $4.40
</TABLE>
- ----------
(1) Before deduction of underwriting discounts, commissions, fees and
Offering expenses.
(2) Assuming no exercise of the Over-Allotment Option, Underwriters' Option
or the Class A Warrants. See "Underwriting" and "Description of
Securities."
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<PAGE>
(3) Assuming no exercise of the 1,000,000 Class A Warrants issuable in
connection with the conversion of the Bridge Notes. Assuming no
exercise of the 3,000,000 Class A Warrants held by PMF, a company
wholly-owned and controlled by Barry Gersten. See "Selling
Securityholders" and "Certain Transactions."
(4) No portion of the per Unit price has been assigned to the Class A
Warrants.
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 December 31, 1996
and to be paid by purchasers pursuant to this Offering (based upon the
anticipated public offering price of $10.00 per Unit 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% $2,500,000 65.7% 5.00
Existing
Stockholders 3,500,000 87.5% $1,305,000(1) 34.3% .37
TOTAL 4,000,000 100% $3,805,000 100% $0.95
</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 and Class A Warrants underlying the Units offered hereby but
without giving effect to the exercise of the Underwriters' Option, or
any securities issuable upon the exercise of the Over-Allotment Option
or any outstanding options or warrants, including those held by the
Bridge Lenders and PMF.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 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 250,000 Units consisting of 500,000 shares of Common Stock and 250,000 Class
A Warrants 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.
<TABLE>
<CAPTION>
As Adjusted for
Actual (1) the Offering (2)
------------- ----------------
<S> <C> <C>
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 $ 3,154,100
Deficit................................... $ (538,847) $ (538,847)
Unrealized loss on available
for sale investments...................... $ (57,500) $ (57,500)
TOTAL STOCKHOLDERS'
EQUITY ................................... $ 708,653 $ 2,558,653
-------------- -----------
TOTAL CAPITALIZATION. $ 1,208,653 $ 2,758,653
============== ===========
</TABLE>
30
<PAGE>
- ----------
(1) Does not include the sale of 250,000 Units offered hereby.
(2) As Adjusted balance sheet reflects the sale of 250,000 Units offered
hereby and the anticipated application of the net proceeds of
$1,750,000 therefrom, after deducting estimated Offering expenses of
$750,000, 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.
31
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when,
as and if declared by the Board of Directors out of funds legally available
therefore. The Company has not in the past and does not currently anticipate the
declaration or payment of any dividends in the foreseeable future. The Company
intends to retain earnings, if any, to finance the development and expansion of
its business. Future dividend policy will be subject to the discretion of the
Board of Directors and will be contingent upon future earnings, if any, the
Company's financial condition, capital requirements, general business conditions
and other factors. Therefore, there can be no assurance that any dividends of
any kind will ever be paid.
BRIDGE FINANCING
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investments Ltd., two (2) unaffiliated parties (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Notes bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 or (ii) the closing of an
initial underwritten public offering of the Company's securities. The Company
intends to use a portion of the proceeds of this Offering to repay the Bridge
Lenders. See "Use of Proceeds." In addition, each Convertible Bridge Note
converts into a number of Class A Warrants of the Company equal to ten (10)
times the principal amount of such Convertible Bridge Note upon the consummation
of this Offering. The Company entered into the bridge financing transactions
because it required additional financing and no other sources of financing were
available to the Company at that time. Further, the Company agreed to register
the resale of the Class A Warrants issuable upon conversion of the Convertible
Bridge Notes, as well as the shares of Common Stock issuable upon exercise of
the Class A Warrants in the first registration statement filed by the Company
following the date of the loan. Therefore, the Registration Statement, of which
this Prospectus forms a part, relates to resale of the 1,000,000 Class A
Warrants issuable upon conversion of the Convertible Bridge Notes and 1,000,000
shares of Common Stock issuable upon exercise of the Class A Warrants. See
"Selling Securityholders" "Certain Transactions" and "Underwriting."
32
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial data presented below for the Company's statement
of operations for the period April 24, 1996 (Inception) to June 30, 1996 is
derived from financial statements of the Company, which have been audited by
Holtz Rubenstein & Co., LLP, independent accountants, whose reports are included
elsewhere herein. The statement of operations data for the six months ended
December 31, 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 Six Months Ended Cumulative During
(Inception) to June 30, 1996 December 31, 1996 Development Stage
---------------------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 857,398 $ 1,406,493 $2,263,891
Gross Profit $ 119,358 $ 114,631 $ 233,989
Operating Income (Loss) $ 48,389 $ (169,831) $ (121,442)
Loss on Sale of Securities --- $ (382,500) $ (382,500)
Interest expense (net) --- $ (21,705) $ (21,705)
Net Income(Loss) $ 35,189 $ (574,036) $ (538,847)
Net Income(Loss) $ .01 $ (.16) $ (.15)
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000 3,500,000 3,500,000
SUMMARY BALANCE SHEET DATA
<CAPTION>
December 31, 1996
June 30, 1996(1) December 31, 1996(1) as Adjusted (2)(3)
---------------- -------------------- ------------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (363,042) $1,486,958
Total Assets $2,565,537 $ 2,670,755 $4,220,755
Total Liabilities $1,285,448 $ 1,962,102 $1,662,102
Retained Earnings(Deficit) $ 35,189 $ (538,847) $ (538,847)
Stockholders'
Equity $1,280,089 $ 708,653 $2,558,653
</TABLE>
- ----------
(1) Does not include the sale of 250,000 Units consisting of 500,000 shares
of Common Stock and 250,000 Class A Warrants offered hereby.
(2) Reflects initial application of net proceeds of the 250,000 Units
offered hereby at the assumed initial public offering price of $10.00
per Unit.
(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.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Since its inception, the Company's primary activities have consisted of
leasing a facility, acquiring machinery and equipment and operating as a
wholesaler for the products it intends to manufacture. As of December 31, 1996,
the Company has not fully commenced manufacturing operations.
The Company's cumulative results of operations during the development
stage (April 24, 1996 (inception) to December 31, 1996) reflect revenues of
approximately $2,264,000. Approximately 99 percent of these sales were derived
from PDK Labs Inc. ("PDK"). The gross profit on cumulative sales during the
development stage was approximately $234,000 or 10 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.
In December 1996, the Company sold 170,000 shares of Compare Generiks,
Inc. common stock in two separate transactions. In connection with the sale of
such shares, the Company received proceeds of $595,000 and realized a loss of
$382,500.
In January 1997, the Company sold 30,000 shares of Compare Generiks,
Inc. common stock and received proceeds of $105,000. The Company realized a loss
of $67,500 in connection with the sale of such shares.
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,
34
<PAGE>
the Company intends to purchase additional production equipment to increase
capacity to meet future demand.
As of December 31, 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 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 December 31, 1996, the Company had a working capital deficit of
$363,042. The Company remains in the development stage as it has not fully
commenced its manufacturing operations and requires the proceeds of this
Offering or alternative financing to acquire additional machinery, execute
meaningful marketing activities, and become fully operational. 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 expand manufacturing activities and implement its sales and
marketing plans. The Company's management believes that the net proceeds of this
Offering (excluding any proceeds from the Underwriters' Over-Allotment Option or
the Underwriters' Option) will be sufficient to fund its liquidity needs for at
least the next twelve months.
35
<PAGE>
BUSINESS
General
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI"), was formed on April 24, 1996. The Company is engaged in the development,
manufacture, marketing and sale of dietary supplements including vitamins,
minerals, herbs and specialty nutritional supplements, in bulk tablet, capsule
and powder form. The Company intends to manufacture a wide variety of products
for companies which package and sell through many different channels of
distribution, including health food, drug, convenience and mass market stores.
Prior to the completion 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 fully 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. Messrs. Spinello, Durchslag and Simon may be
deemed to be founders of the Company. See "Risk Factors - Conflicts of Interest"
and "Business - Conflicts of Interest".
36
<PAGE>
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an unrelated party, for a forty thousand (40,000) square foot
facility to be utilized for manufacturing, distribution and for its executive
offices.
Upon completion, the Company's manufacturing facility will have sixteen
production machines consisting of twelve tablet presses and four encapsulating
machines with a capacity of producing per annum, in excess of one billion two
hundred million (1,200,000,000) tablets and capsules of various sizes and
shapes. The Company will manufacture single ingredient herbal products and
multi-ingredient vitamins in tablet and capsule form. Governmental approval of
the manufacturing facility is not required. All manufacturing will be conducted
in accordance with Good Manufacturing Practice Standards of the United States
Food and Drug Administration and other applicable regulatory standards. The
Company believes that the capacity of its manufacturing facility is adequate to
meet the requirements of its current business and will be adequate to meet the
requirements of anticipated increases in net sales.
The Company intends to use the proceeds from this Offering to repay
certain of the Company's indebtedness, acquire additional manufacturing
equipment, expand its marketing efforts, and for general working capital
purposes. See "Use of Proceeds."
The Company maintains its executive offices at 270 Oser Avenue,
Hauppauge, New York 11788, telephone number (516) 231-0783.
Investment in CGI
Although the Company accepted part payment for CGI's subscription for
shares of Common Stock in the Company in the form of shares of Common Stock of
CGI, the Company does not intend to invest in any other company.
Manufacturing
The vitamin production process includes the following stages: testing
of raw materials, pharmacy, blending, compression, coating and testing of
finished tablets or capsules. The vitamin production process involves sending
the raw materials through each stage of production in order to form vitamin
products.
The principal raw materials needed in the manufacturing process are
natural and synthetic vitamins which will be purchased from manufacturers in the
United States, Japan and Europe. The Company can purchase raw materials from
numerous sources and is not dependent on any major supplier. The Company
believes that the materials to be purchased from these suppliers are readily
available from numerous sources and the loss of these suppliers would not
adversely affect its operations.
The Company has one large Gemco blender-mixer and one PK blender to
handle mixing for dry batches of production. The plant will be equipped with
twelve tablet presses, four encapsulating machines, and one capsule imprint
machine available for customizing each capsule. The production machines have the
combined capacity of producing per annum, in excess of one billion two hundred
million (1,200,000,000) tablets and capsules of various sizes and shapes.
Several of the tablet presses have the capability to encode a name or logo on
the
37
<PAGE>
tablets based on the punches used. In addition, the plant will have one tablet
imprint machine for customizing tablet products.
Quality Control
All of the Company's products will be manufactured in accordance with
the Good Manufacturing Practices of the FDA and all other applicable regulatory
standards. The Company places special emphasis on quality control. All raw
materials and finished products are subjected to sample testing, weight testing,
and purity testing. The Company has adopted formal written quality control
procedures which will be rigorously followed. The Company intends to maintain
well documented records on all material testing, production processes,
inspections carried out in the manufacturing process, and labeling procedures.
All products are subject to the Company's rigorous quality control procedures.
The Company will maintain a modern well-equipped pharmaceutical laboratory. The
Company believes that the laboratory will have the capability of adhering to any
current and anticipated agency requirements.
The Company's manufacturing operations will include a modern quality
control laboratory and testing facilities. All raw materials used in production
are to be initially held in quarantine during which time the Company's quality
assurance department assay the product against the manufacturer's certificate of
analysis. Once cleared, a lot number will be assigned, samples are to be
retained and the material is to be processed by formulating, blending,
compressing and where required, coating operations. Throughout the manufacturing
process the quality control department will conduct "in process" testing
procedures. After tablets are manufactured, the quality assurance department
will test for weight, purity, potency, dissolution and stability.
Marketing and Distribution Strategies
The Company intends to manufacture a full line of dietary supplements
including vitamins, minerals, herbs and speciality nutritional supplements in
bulk tablet and capsule form, which are marketed to companies, such as PDK and
CGI, that package and sell through many different channels of distribution,
including health food, drug, convenience and mass market stores. In addition,
the Company supplies other manufacturers which "outsource" a portion of their
needs on an ongoing basis to supplement their own capacities.
The Company does not intend to rely on distributors or distribution
channels affiliated with PDK or CGI. The Company markets and distributes
products in bulk tablet, capsule and powder form whereas PDK and CGI sell these
products in bottled or packaged form. The market the Company intends to serve
includes customers marketing numerous brand names whereas the market served by
PDK and CGI is specific to a brand or affiliated brand of PDK or CGI.
The Company has begun working to capitalize on the global opportunities
created by an increasing worldwide recognition of the benefits of dietary
supplements and the perception that "American made supplements" offer the safest
and highest quality products available The company is establishing relationships
with brokers, manufacturer representatives and distributors in Canada, Latin
America, Europe and parts of Asia.
The Company intends to use a portion of the proceeds from the Offering
to establish a
38
<PAGE>
network of manufacturer representatives throughout the United States for the
purposes of obtaining new customers who purchase dietary supplements in bulk
tablet and capsule form.
Arrangements with brokers and manufacturing representatives will be
decided on an individual basis, generally relating to a region or territory on a
month to month basis with commissions ranging up to five percent (5%) on paid
customer invoices.
Competition
The market for dietary supplement products is highly competitive in
each of the Company's existing and anticipated product lines and methods of
distribution. Numerous manufacturers and distributors compete with the Company
for customers throughout the United States and internationally in the bulk
packaged dietary supplement industry, selling products to distributors who
service health food, drug, convenience and mass market stores, companies that
market a branded or generic line of products but do not manufacture these items
("repackagers"), and other manufacturers who "outsource" a portion of their
needs to supplement their own capacities. Many of the Company's competitors are
substantially larger and more experienced than the Company, have longer
operating histories and have materially greater financial and other resources
than the Company. Many of these competitors are private companies, and
therefore, the Company cannot compare its revenues with respect to the sales
volume of each competitor. The Company's significant competitors include
International Vitamin Corporation and Nature's Bounty both of whom have longer
operating histories and materially greater financial and other resources than
the Company (although, no implication is intended hereby regarding the Company's
industry ranking in comparison to such competitors). There can be no assurance
that the Company will be able to compete successfully with its more established
and better capitalized competitors.
Although certain of the Company's competitors are substantially larger
than the Company and have greater financial resources, the Company believes that
it will compete favorably with other vitamin and dietary supplement companies
because of its access to products, competitive pricing, quality of products, and
sales support.
Financing
On May 31, 1996, the Company entered into a revolving credit agreement
with Dune Holdings, Inc. ("Dune"), one of the Company's Bridge Lenders, pursuant
to which the Company can borrow up to $200,000 for a period of twenty four (24)
months at an interest rate of fifteen percent (15%) per annum. The Company paid
Dune a commitment fee of $2,000 (one percent (1%) of the maximum amount
available under the revolving credit agreement). As of 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."
39
<PAGE>
Management and Employees
As of December 31, 1996, the Company employed a total of eight (8)
employees on a full time basis (six (6) employees in manufacturing and sales and
two (2) employees in administration and finance). See "Management" and
"Executive Compensation."
The Company has experienced no work stoppages and considers its
employee relations to be satisfactory. The Company's employees are not
represented by a labor union.
Government Regulation
The Company's products and/or its business operations are subject to
regulation by one or more federal agencies, including The United States Postal
Service, the Federal Trade Commission ("FTC"), the Food and Drug Administration
("FDA") and the Consumer Product Safety Commission and the United States
Department of Agriculture. The FDA in particular, is primarily responsible for
regulation of the labeling, manufacture and sale of vitamins and mineral
supplements which the FDA believes to be unapproved drugs or food additives
rather than food supplements. The Company's activities are also regulated by
various agencies of the states and localities in which the Company's products
are sold and the Department of Health for the State of New York monitors the
facility, checks for cleanliness, audits the record keeping and observes the
control and labeling. It is this latter agency that issues the Company the
license which allows the Company to carry out its operations.
The Company markets vitamins, minerals, herbs, amino acids and other
similar nutritional substances ("dietary supplements"). These products are
primarily regulated by the FDA under the auspices of the Federal Food, Drug and
Cosmetic Act (the "FFDCA"). Under the FFDCA, most dietary supplements are
currently regulated as foods, which require no approval from the FDA prior to
marketing. Therefore, the regulation of dietary supplements is far less
restrictive than that imposed upon manufacturers and distributors of
prescription drugs. Dietary supplements, however, must be labeled correctly to
avoid being misbranded under the FFDCA. Health claims made by vitamin and
dietary supplement companies with respect to their products are specifically
regulated by the FDA. If such products make unapproved health claims, the FDA
may consider them to be unapproved drugs, which require approval by the FDA
prior to marketing.
For the production of the Company's products deemed by the FDA now or
in the future to be a food, the operation of the Company's manufacturing
facilities will be subject to regulation by the FDA as a food manufacturing
facility and to compliance with good food manufacturing practices. Although the
Company does not anticipate any difficulties in complying with the necessary
good food manufacturing practices, any such difficulties that are encountered
could have a material adverse effect on the Company.
Marketing misbranded or adulterated food or unapproved new food
additives, can result in civil or criminal penalties, including, but not limited
to, product seizure, injunction and fines.
On January 4, 1994, the FDA issued final regulations concerning dietary
supplements. It did so partially in response to the Nutritional Labeling and
Education Act of 1990 ("NLEA") and the Dietary Supplement Act of 1992 in order
to amend its food labeling
40
<PAGE>
regulations, setting forth specific regulations for the nutrition labeling of
vitamins and mineral supplements, establish up to date reference standards for
nutrients and food components and establish procedures for FDA approval of
health claim messages. The regulations subject dietary supplement labels to the
same standards as food labels under the Nutrition Labeling and Education Act
with regard to health claim messages and nutrition labeling information. The
regulations concerning health claim messages went into effect on July 1, 1994
and the regulations concerning nutrition labeling went into effect on July 5,
1995.
The regulations prohibit the use of any health claim on a dietary
supplement unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has approved the use
of health claims only in connection with calcium products and osteoporosis, and
folic acid and neural tube defects. Accordingly, most dietary supplements will
be precluded from bearing most health claims. The Company's products include
single ingredient vitamins, minerals, herbs and amino acids in tablet and
capsule form. In addition, the Company produces a wide spectrum of
multi-ingredient combinations of vitamins, minerals, herbs and amino acids based
on customer specifications. The FDA regulations do not at present limit consumer
access to dietary supplements, unless such products present safety concerns. The
Company cannot determine at this time whether the new regulations will have any
adverse effect on its operations, although it believes that they will not have a
material adverse effect.
In addition, the FDA issued an Advanced Notice of Proposed Rulemaking
on June 18, 1993 ("ANPR") requesting comments on the general regulation of
certain dietary supplements, such as herbs, fish and plant oils, fatty acids,
fibers and vegetable gums, and amino acids. Some of these substances are sold by
the Company. In connection therewith, the FDA commissioned the Federation of
American Societies for Experimental Biology ("FASEB") to conduct a study of the
safety of amino acids. The FASEB report published in September 1992 concluded
that there was insufficient research and information on amino acids to conclude
that added, manufactured, or incomplete mixtures of amino acids are safe and,
therefore, recommended that further research be conducted. The internal FASEB
report issued in connection with the ANPR contains recommendations concerning
the possible regulation of dietary supplements by category.
The Company cannot determine whether separate regulations will be
issued for these substances, or what effect any new regulations for such
substances, when and if promulgated, will have on its business in the future.
The FDA or other governmental regulations or administrative orders concerning
such substances, when and if promulgated, could require the reformulation of
certain products to meet new standards or require the recall or discontinuance
of certain products not capable of reformulation.
The Dietary Supplement Act of 1992 requires that the Comptroller
General of the United States and the Director of the Office of Technology
Assessment undertake separate studies of FDA regulation of dietary supplements
and make recommendations in Congress which would reduce or modify the FDA's
authority to regulate dietary supplements. While these bills have not been
enacted as law, there is a strong likelihood that Congress will again consider
such legislation. There is no assurance, however, that these bills will
ultimately be passed and signed into law.
41
<PAGE>
Any such legislation reducing the FDA's authority to modify dietary
supplements could result in the Company being subject to fewer regulatory
requirements and would, therefore, have no adverse impact on the Company. Any
modification which increases the FDA's regulatory authority could subject the
Company to additional expenses in order to comply with more stringent
requirements and could have a materially adverse impact on the Company by
limiting products or causing the Company to incur additional expenses in order
to comply with these regulations.
Conflict of Interests
After this Offering, PMF, a company wholly-owned and controlled by
Barry Gersten, will continue to own 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 92.3% of the
Company's outstanding Class A Warrants. In addition, in June 1996, PMF made a
loan of $200,000 to the Company pursuant to a promissory note. At present, PDK
is a major customer of the Company, accounting for essentially all of the
Company's total sales revenue and also supplies certain management and personnel
to the Company. In addition, Reginald Spinello, one of the Company's Directors,
holds a management position with PDK. Daniel Durchslag, one of the Company's
Directors, is also a Director of CGI, a customer and stockholder of the Company.
Reginald Spinello and Daniel Durchslag, together with Lawrence Simon, have
voting power over more than fifty percent (50%) of the Common Stock and
Preferred Stock of the Company pursuant to a voting trust agreement with PMF. It
is anticipated that PDK will continue to purchase a significant percentage of
the Company's products, at or near its minimum requirement of $2,500,000 per
annum. Because of PMF's ownership interest in the Company, PMF's role as a
creditor of the Company, the identity of certain management, the voting control
of certain management over PMF's Preferred Stock, CGI's role as a customer and
stockholder of the Company, and PDK's role as a significant customer to the
Company, certain conflicts of interest may occur between the Company and PMF,
CGI or PDK.
Product Liability Insurance
The Company, like other manufacturers of products that are ingested,
faces inherent risk of exposure to product liability claims. Accordingly,
currently the Company maintains product liability insurance as a named insured
on each of its suppliers' policies. The Company requires that its suppliers have
minimum coverage of $1,000,000 and that the Company is named insured on the
policy. Upon completion of the Offering, the Company will purchase its own
product liability insurance with coverage up to $1,000,000 on claims made. While
management believes that its insurance coverage is adequate, there can be no
assurance that any judgment against the Company will not exceed liability
coverage. A judgment significantly in excess of the amount of insurance coverage
would have a material adverse effect on the Company.
Facilities
The Company's headquarters, plant operations, warehousing and shipping
facilities are housed in a modern forty thousand (40,000) square foot building.
The Company leases the building pursuant to an agreement with Park Associates,
the Landlord, which expires on October 14, 1998. The lease provides for the
Company to pay rent in the following amounts:
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<PAGE>
from May 1, 1996 through August 1, 1996 no base rent shall be due. From August
1, 1996 through May 31, 1997 the base rent shall be $23,000 monthly. From June
1, 1997 through October 14, 1997 the base rent shall be $19,166.67 monthly. From
October 15, 1997 through October 14, 1998 the base rent shall be $20,833.33
monthly. In the judgment of management, the lease with the Landlord reflects a
rent at current fair market value.
The Facility is equipped with a modern, state-of-the-art dust
collection system which extracts dust particles from the air and recycles the
air through massive filters. The dust collection system is designed to ensure
that no contaminants are emitted into the environment.
The Facility will maintain a modern and well equipped pharmaceutical
laboratory. The Company believes that the one thousand five hundred (1,500)
square foot laboratory will have the capability of adhering to any current or
anticipated regulatory requirement.
Litigation
There is no material litigation pending or threatened against the
Company nor are there any such proceedings to which the Company is a party.
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<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 39 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."
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<PAGE>
Matthew L. Harriton has been a Director and Secretary of the Company since May
1, 1996. He has also been a director of Decor Group, Inc. since March 1996.
Decor Group, Inc. is the holding company of a subsidiary company formed to
acquire a business specializing in the design, manufacture and marketing of
metal wall, table and freestanding sculptures. Mr. Harriton has been the Chief
Financial Officer of Embryo Development Corporation since January 1996. Embryo
Development Corporation is a public company which specializes in developing and
distributing medical devices. Prior to joining Embryo Development Corporation,
Mr. Harriton's professional experience included positions at CIBC Wood Gundy
Securities Corporation as an associate (from June 1994 to December 1995),
Coopers & Lybrand as a senior associate (from December 1990 to May 1994), and
The First Boston Corporation as a senior accountant (from June 1986 to May
1988). Mr. Harriton has also served as a director of Perry's Majestic Beer, Inc.
since January 1996, a company involved in the microbrewery industry. He is a
graduate of Lehigh University and received his M.B.A. from Duke University's
Fuqua School of Business.
Steven F. Wasserman has been a Director of the Company since May 1, 1996. He has
also been a Director of Embryo Development Corporation since March , 1995.
Embryo Development Corporation is a public company which specializes in
developing and distributing medical devices. Mr. Wasserman has been engaged in
the practice of law at the firm of Bernstein & Wasserman, LLP, since 1984. See
"Legal Matters." Mr. Wasserman is a graduate of Union College and received his
J.D. from the Benjamin N. Cardozo School of Law.
Dr. Daniel Durchslag, DDS. has been a Director of the Company since May 1, 1996
and has practiced General Cosmetic and Sports Dentistry in Beverly Hills,
California since 1980. From 1973 until 1979, he was an Associate Professor and
Director of Clinics at the University of Southern California School of
Dentistry. He is a graduate of the University of Wisconsin and Loyola
University/Chicago College of Dental Surgery. He is presently team dentist for
the Oakland Raiders. In addition, he has been a Director of CGI since October
1995. See "Risk Factors - Conflicts of Interest."
There are no family relationships between the officers and directors of
the Company.
Executive Compensation
Details of the cash or other compensation paid or accrued by the
Company to or on behalf of the Company's President, Chairman and Chief Financial
Officer of the Company since its formation to the end of the Company's fiscal
year, June 30, 1996, are set forth in the tables listed below. Each director of
the Company is entitled to receive reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors of the Company. The members of the
Board of Directors intend to meet at least quarterly during the Company's fiscal
year, and at such other times duly called.
45
<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 included in the Units
hereby offered.
46
<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 included in the Units 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
47
<PAGE>
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 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
48
<PAGE>
exercise the Option.
Shares received by an optionee upon exercise of a Non-Incentive Option
may not be sold or otherwise disposed of for a period determined by the Board
upon grant of the Option, which period shall be not less than six (6) months nor
more than three (3) years from the date of acquisition of the shares (the
"Restricted Period"), except that, during the Restricted Period (i) the optionee
may offer the shares to the Company and the Company may, in its discretion,
purchase up to all the shares offered at the exercise price and (ii) if the
optionee's employment terminates during the Restricted Period (except in limited
instances), the optionee, upon written request of the Company, must offer to
sell the shares to the Company at the exercise price within seven (7) business
days. The Restricted Period shall terminate in the event of a Change in Control
of the Company (as defined), or at the discretion of the Board. After the
Restricted Period, an optionee wishing to sell must first offer such shares to
the Company at the Fair Market Value.
Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable restrictive period,
restricted stock that is at the time subject to restrictions shall be forfeited
and reacquired by the Company. Except as otherwise provided by the Committee at
the time of grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited. Until such time as the stock which is the subject
of the award is issued, the recipient of the award has no rights as a
stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient
the right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a free standing award.
Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee
49
<PAGE>
to grant shares as a bonus, or to grant shares or other awards in lieu of
obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall be determined by the Committee. The 1996
Plan also authorizes the Committee to grant other forms of awards based upon,
payable in, or otherwise related in whole or in part to, Common Stock,
including, without limitation, convertible or exchangeable debentures or other
debt securities, other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by reference to the book value of shares of Common Stock or awards
determined by reference to the value of securities of, or the performance of,
specified subsidiaries.
50
<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
Generiks, Inc.(3) 500,000 14.3 12.5 0.0 6.25 5.6 5.6
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.
51
<PAGE>
CERTAIN TRANSACTIONS
On April 24, 1996, the Company was formed in the State of Delaware.
On April 24, 1996, PMF, Inc., a company wholly-owned and controlled by
Barry Gersten, acquired (i) (a) 3,000,000 shares of Common Stock of the Company,
par value $.0001 per share, and (b) 3,000,000 Class A Warrants for a cash
consideration of $50,000, and (ii) 5,000,000 shares of Series A Preferred Stock
of the Company, par value $.0001, per share, for a cash consideration of $5,000.
The Series A Preferred Stock has no dividend rights and has a liquidation right
of $.02 per share. Each share of Series A Preferred Stock shall be entitled to
one (1) vote per share on all matters presented to stockholders of the Company.
See "Description of Securities." Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock of the Company at the initial public
offering price, commencing one (1) year after the Effective Date of the
Company's initial public offering.
On May 1, 1996 PMF, Inc. granted a voting trust for a period of five
(5) years to Lawrence D. Simon, Reginald Spinello and Dr. Daniel Durchslag over
the 5,000,000 Preferred Shares owned by PMF, Inc. The voting trust provides for
the majority decision to control the vote in the event of any disagreement
between the trustees.
As of May 1, 1996, the Company entered into a one (1) year employment
agreement with Lawrence D. Simon, pursuant to which Mr. Simon serves as the
Company's President. The agreement provides for Mr. Simon to receive a salary of
$75,000 per annum. In addition, Mr. Simon has been granted the right to the
delivery, after the Effective Date hereof, of an option to purchase 100,000
shares of the outstanding Common Stock of the Company exercisable (i) at an
exercise price equal to the public offering price of the shares of Common Stock
of the Company included in the Units 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."
52
<PAGE>
On May 31, 1996, the Company agreed to exclusively supply Compare
Generiks, Inc. with vitamins in bulk tablet form (other than any vitamins sold
under the "Energex" trade mark or as part of the "Energex" product line) at the
Company's cost plus fifteen percent (15%) pursuant to a supply agreement between
the Company and Compare Generiks, Inc. (the "Compare Agreement"). The term of
the Compare Agreement is for a period of three (3) years, automatically
renewable for successive one (1) year terms. See "Risk Factors Conflicts of
Interest."
On May 31, 1996, Compare Generiks, Inc., acquired 500,000 shares of
Common Stock of the Company (14.29% of the issued and outstanding shares of
Common Stock prior to the Offering), par value $.0001 per share (i) for a cash
consideration of $100,000, and (ii) in consideration of the issuance of 200,000
shares of common stock of Compare Generiks, Inc. In June, 1996, a registration
statement filed by Compare Generiks, Inc. was declared effective by the
Securities and Exchange Commission registering the 200,000 shares of common
stock owned by the Company.
On May 31, 1996, the Company entered into a revolving credit agreement
with Dune Holdings, Inc., ("Dune") one of the Bridge Lenders, pursuant to which
the Company can borrow up to $200,000 for a period of twenty four (24) months at
an interest rate of fifteen percent (15%) interest per annum. The Company paid
Dune a commitment fee of $2,000 (one percent (1%) of the maximum amount
available under the revolving credit agreement). As of December 31, 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
53
<PAGE>
A Warrants issuable upon conversion of the Convertible Bridge Notes and
1,000,000 shares of Common Stock issuable upon exercise of the Class A Warrants.
See "Selling Securityholders" "Bridge Financings" and "Underwriting."
In June, 1996, the Company borrowed $200,000 from PMF, Inc., the
Company's founder, at an annual interest rate of eight percent (8%) pursuant to
a promissory note dated June 26, 1996, repayable on June 25, 1998.
On December 3, 1996, the Company sold 70,000 shares of common stock of
Compare Generiks, Inc. for $4.25 per share for proceeds of $297,500.
On December 10, 1996, the Company sold 100,000 shares of common stock
of Compare Generiks, Inc. for $2.975 per share for proceeds of $297,500.
On January 29, 1997, the Company sold its remaining 30,000 shares of
Common Stock of Compare Generiks, Inc. for $3.50 per share for proceeds of
$105,000.
The Company believes that all transactions with PDK, the Bridge Lenders
and officers or shareholders of the Company and their affiliates were made on
terms no less favorable to the Company than those available from unaffiliated
parties. The Company intends that in the future any such transactions shall also
be made on terms no less favorable than those available from unaffiliated
parties.
54
<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 250,000 Units, each Unit consisting of two (2)
shares of Common Stock, par value $.0001 per share and one (1) Class A Warrant.
Common Stock
The Company is authorized to issue up to 25,000,000 shares of Common
Stock, of which 3,500,000 shares will be issued and outstanding as of the date
of this Prospectus. All of the issued and outstanding shares of Common Stock
will be fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See "Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one (1) vote for
each share held at all stockholders' meetings including the annual meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 10,000,000 shares
of "blank check" Preferred Stock, whereby the Board of Directors of the Company
shall have the authority, without further action by the holders of the
outstanding Common Stock, to issue shares of Preferred Stock from time to time
in one or more classes or series, to fix the number of shares constituting any
class or series and the stated value thereof, if different from the par value,
and to fix the term of any such series or class, including dividend rights,
dividend rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the redemption price and the
liquidation preference of such class or series. As of the date of this
Prospectus, there are 5,000,000 shares of Series A Preferred Stock issued and
outstanding. The Company has agreed with the Underwriters that it will not issue
any additional shares of preferred stock for a period of twenty four (24) months
from the date of this Prospectus without the prior written consent of the
Underwriter.
55
<PAGE>
Series A Preferred Stock
Designation and Amount; Par Value. The shares of such series are
designated as Series A Preferred Stock and the number of shares constituting
such series is 5,000,000, 5,000,000 of which are issued and outstanding prior to
the Effective Date of the Offering. The Series A Preferred Stock has $.0001 par
value per share.
Dividends. Holders of the Series A Preferred Stock do not have any
right to the payment of any dividend.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the shares
of Series A Preferred Stock shall have a liquidation preference in the aggregate
amount of $100,000 or $.02 per share of Series A Preferred Stock.
Voting Rights. Each holder of Series A Preferred Stock shall be
entitled to one (1) vote per share on all matters presented to the stockholders
of the Company.
Rank. The shares of Series A Preferred Stock rank senior to all series
of preferred stock and the Common Stock in all respects.
Class A Warrants
Each Class A Warrant entitles the holder to purchase one (1) share of
Common Stock at a price of $5.25 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 ____, 1998, upon thirty (30) days' prior written notice, if
the closing price of the Common Stock, as reported by the principal exchange on
which the Common Stock is traded, the NASD OTC Bulletin Board or the National
Quotation Bureau Incorporated, as the case may be, exceeds $10.00 per share for
twenty (20) consecutive trading days prior to the date of the notice of
redemption. Upon thirty (30) days' written notice to all holders of Class A
Warrants, the Company shall have the right, subject to compliance with Rule
13E-4 under the Securities Exchange Act of 1934 and the filing of Schedule 13E-4
and, if required, a post-effective amendment to this registration statement, to
reduce the exercise price and/or extend the term of the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a
56
<PAGE>
holder of Class A Warrant certificates resides, such holder might not be
permitted to exercise the Warrants. See "Risk Factors - Current Prospectus and
State Blue Sky Registration in Connection with the Exercise of the Warrants."
Each Class A Warrant may be exercised by surrendering the Warrant
certificate, with the form of election to purchase on the reverse side of the
Class A Warrant certificate properly completed and executed, together with
payment of the exercise price, or $5.25 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
57
<PAGE>
or the Prospectus or any amendment or supplement thereto if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Underwriters specifically for or in connection with the
preparation of the registration statement, the prospectus, or any such amendment
or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102 of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage
for its officers and directors.
Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
58
<PAGE>
Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is
American Stock Transfer & Trust Company (the "Transfer Agent").
59
<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.
60
<PAGE>
<TABLE>
<CAPTION>
Name Shares of Class A Shares of Class A Shares of Class A Percent of Percent of
Common Warrants Common Warrants Stock Owned Warrants Common Class A
Stock Owned Owned Stock Offered After Owned After Stock After Warrants
Before Before Offered Hereby Offering Offering Offering After
Offering Offering Hereby Offering
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PMF, Inc. 3,000,000 3,000,000 2,000,000 2,000,000 1,000,000 1,000,000 25.0 30.8
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 30.8
</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. In
1987, Mr. Pace entered into a settlement of claims brought by the Securities and
Exchange Commission pursuant to which he consented, without admitting or denying
liability, to a suspension from associating with a broker or dealer for a period
of twelve (12) months and from serving as a principal of a broker or dealer for
an additional period of five (5) years. In 1988, Mr. Pace entered into a
settlement of claims brought by the National Association of Securities Dealers
(the "NASD") pursuant to which he consented without admitting or denying
liability, to a censure, fine and suspension from associating with an NASD
member for a period of two (2) years and from acting in a supervisory capacity
at an NASD member for a period of five (5) years. Dune Holdings Inc. and
Clinthill Investments Ltd. may be deemed to be founders of the Company.
61
<PAGE>
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
Selling Securityholders are not required to effect sales through VTR Capital,
Inc. and the Company has been advised by VTR Capital Inc. that it has no current
or future plans, proposals, arrangements or understandings with respect to
engaging in transactions with the Selling Securityholders, including
transactions involving short selling. 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.
The Company has undertaken that it will file a post-effective amendment
to this Registration Statement at such time as it is notified by any named
underwriter that it has directly or indirectly entered into a transaction with
any Selling Securityholder involving more than 10% of the aggregate securities
registered for resale and a sticker supplement will be filed in the event such
an arrangement involves 5% to 10% of the aggregate securities registered by
Selling Securityholders. The above undertaking will no longer be applicable once
the distribution of securities in connection with this Offering is deemed to be
completed, which determination entails a facts-and-circumstances analysis.
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.
62
<PAGE>
Resales of securities by the Selling Securityholders or even the
potential of such resales would likely have an adverse effect on the market
prices of the securities offered hereby.
63
<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 250,000 Units consisting of 500,000 shares of Common Stock and 250,000
Class A Warrants offered hereby from the Company on a "firm commitment" basis,
if any are purchased. The Underwriters have advised the Company that they
propose to offer the Units to the public at $10.00 per Unit 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 Unit, of which not in excess of $
per Unit may be reallowed to other dealers who are members of the NASD. The
Underwriters do not intend to sell any of the Company's Units 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 Units
- ----------- ---------------
VTR Capital, Inc.......... ----
..........
..........
The public offering price of the Units and the exercise price and the
terms of the Warrants were arbitrarily determined by negotiations between the
Company and the Representative and do not necessarily relate to the assets, book
value or results of operations of the Company or any other established criteria
of value.
The Company has granted an option to the Underwriters, exercisable
during the thirty (30) day period from the date of this Prospectus, to purchase
up to a maximum of 37,500 additional Units 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
Units, including any Units purchased pursuant to the Over-Allotment Option.
64
<PAGE>
The Company has agreed to sell to the Underwriters, or their designees,
for an aggregate purchase price of $25, an option (the "Underwriters' Option")
to purchase up to an aggregate of 25,000 Units. The Underwriters' Option shall
be exercisable during a four (4) year period commencing one (1) year from the
Effective Date. The Underwriters' Option may not be assigned, transferred, sold
or hypothecated by the Underwriters until twelve (12) months after the Effective
Date of this Prospectus, except to officers of the Representative or the
Underwriters or to selling group members or their officers or partners in this
Offering. Any profits realized upon the sale of the Units issuable upon exercise
of the Underwriters' Option may be deemed to be additional underwriting
compensation. The exercise price of the Units 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 Units. The
exercise of the Underwriters' Option and the number of Units 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 Units,
Common Stock and Warrants with a resulting dilution in the interest of other
stockholders. The Company may find it more difficult to raise capital for its
business if the need should arise while the Underwriters' Option is outstanding.
At any time when the holders of the Underwriters' Option might be expected to
exercise it, the Company would probably be able to obtain additional capital on
more favorable terms.
If the Company enters into a transaction (including a merger, joint
venture, equity financing, debt financing, or the acquisition of another entity)
introduced to the Company by the Representative, the Company has agreed to pay
the Representative a finder's fee equal to five percent (5%) of the first
$4,000,000 of consideration involved in the transaction, ranging in $1,000,000
increments down to two percent (2%) of the excess, if any, over $6,000,000.
Upon the closing of the sale of the Units 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
65
<PAGE>
Class A Warrant is held in a discretionary account; (d) disclosure of this
compensation agreement is made prior to or upon the exercise of such Class A
Warrant; (e) solicitation of the exercise is not in violation of Rule 10b-6 of
the Exchange Act; and (f) solicitation of the exercise is in compliance with
NASD Notice to Member 81-38. Unless granted an exemption by the Securities and
Exchange Commission from Rule 10b-6, the Underwriters and any solicitation
broker-dealers are prohibited from engaging in any market making activities with
regard to the issuer's securities for the period from two or nine business days
prior to any solicitation of the exercise of warrants until the later of
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriters and soliciting broker-dealers may
have to receive a fee for the exercise of warrants following such solicitation.
As a result, the Underwriters and soliciting broker-dealers may be unable to
continue to provide a market for the Company's securities during certain periods
while the warrants are exercisable. See "Risk Factors - Lack of Prior Market for
Units, 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 Units,
Common Stock and the Class A Warrants. The initial public offering price for the
Units 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 Units and
the exercise price of the Class A Warrants do not necessarily bear any
relationship to assets, earnings, book value or other criteria of value
applicable to the Company.
66
<PAGE>
The Company anticipates that the Units, Common Stock and the Class A
Warrants will be listed for quotation on the NASD OTC Bulletin Board under the
symbols SPSUU, SPSU and SPSUW, respectively, but there can be no assurances that
an active trading market will develop, even if the securities are accepted for
quotation. The Underwriters intend to make a market in all of the
publicly-traded securities of the Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY
10022. Bernstein & Wasserman, LLP, has served, and continues to serve, as
counsel to the Underwriters in matters unrelated to this Offering. Certain legal
matters will be passed upon for the Underwriters by Lester Morse, P.C., 111
Great Neck Road, Great Neck, N.Y. 11021. Steven F. Wasserman, a partner at
Bernstein & Wasserman, LLP, is one of the Directors of the Company. See
"Management" and "Principal Stockholders."
EXPERTS
Certain of the financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been examined by Holtz Rubenstein &
Co., LLP, independent certified public accountants, whose reports contain an
explanatory paragraph regarding uncertainties as to the ability of the Company
to continue as a going concern, which appear elsewhere herein and in the
Registration Statement.
ADDITIONAL INFORMATION
This Prospectus constitutes part of a Registration Statement on Form
SB-2 filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act and omits certain information contained
in the Registration Statement. Reference is hereby made to the Registration
Statement and to its exhibits for further information with respect to the
Company and the Common Stock 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.
67
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance sheets as of June 30, 1996 and December 31, 1996 (unaudited) F-2
Statements of operations for the period April 24, 1996 (inception) to June
30, 1996, six months ended December 31, 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 six months ended
December 31, 1996 (unaudited) F-4
Statements of cash flows for the period April 24, 1996 (inception) to June
30, 1996, and six months ended December 31, 1996
(unaudited), and cumulative during development stage (unaudited) F-5
Notes to financial statements F-6 - F-12
</TABLE>
<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 statements 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, December 31,
ASSETS 1996 1996
------ ------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 594,175 $ 13,278
Accounts receivable (Note 10) 392,247 67,608
Inventory 99,586 981,648
Prepaid expense and other current assets - 21,201
Note receivable(Note 7) - 315,325
------------- -------------
Total current assets 1,086,008 1,399,060
PROPERTY AND EQUIPMENT, net(Note 3) 341,328 981,605
INVESTMENT IN AVAILABLE-FOR-SALE
SECURITIES(Notes 7 and 14) 1,067,000 115,000
DEFERRED TAX ASSET (Note 8) 33,700 -
DEFERRED OFFERING COSTS - 145,085
OTHER ASSETS, net 37,501 30,005
------------- -------------
$ 2,565,537 $ 2,670,755
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bridge notes payable (Note 4) $ 300,000 $ 300,000
Accounts payable and accrued expenses 761,448 1,462,102
Income taxes payable (Note 8) 24,000 -
------------- -------------
Total current liabilities 1,085,448 1,762,102
------------- -------------
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) (57,500)
(Deficit) retained earnings accumulated
during the development stage 35,189 (538,847)
------------- -------------
1,280,089 708,653
------------- -------------
$ 2,565,537 $ 2,670,755
============= =============
</TABLE>
See notes to financial statements
F-2
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period Six Months Cumulative
April 24, 1996 Ended During
(Inception) December 31, Development
June 30, 1996 1996 Stage
--------------- -------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE (Note 10) $ 857,398 $ 1,406,493 $ 2,263,891
----------- ------------ ------------
COSTS AND EXPENSES:
Cost of sales 738,040 1,291,862 2,029,902
General and administrative (Note 9) 70,969 284,462 355,431
----------- ------------ ------------
809,009 1,576,324 2,385,333
----------- ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS
BEFORE INCOME TAX 48,389 (169,831) (121,442)
----------- ------------ ------------
OTHER EXPENSE:
Interest, net - 21,705 21,705
Loss on sale of investment - 382,500 382,500
----------- ------------ ------------
- 404,205 404,205
----------- ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 48,389 (574,036) (525,647)
----------- ------------ ------------
PROVISION FOR INCOME TAX (Note 8) 13,200 - 13,200
----------- ------------ ------------
NET (LOSS) INCOME $ 35,189 $ (574,036) $ (538,847)
=========== ============ ============
NET (LOSS) INCOME PER SHARE (Note 2) $.01 $(.16) $(.15)
==== ===== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING (Note 2) 3,500,000 3,500,000 3,500,000
========= ============ =========
</TABLE>
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) - - - - - 2,600 - 2,600
Net loss (unaudited) - - - - - - (574,036) (574,036)
--------- ----- --------- ----- ----------- ---------- ----------- -----------
Balance, December 31,
1996 (unaudited) 3,500,000 $ 350 5,000,000 $ 500 $ 1,304,150 $ (57,500) $ (538,847) $ 708,653
--------- ----- --------- ----- ------------ ---------- ----------- -----------
--------- ----- --------- ----- ------------ ---------- ----------- -----------
</TABLE>
See notes to financial statements
F-4
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Six Months Cumulative
April 24, 1996 Ended During
(Inception) December 31, Development
June 30, 1996 1996 Stage
--------------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 35,189 $ (574,036) $ (538,847)
----------- ---------- ------------
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Deferred income taxes (10,800) 10,800 -
Depreciation - 64,706 64,706
Amortization 1,666 9,998 11,664
Loss on sale of investment - 382,500 382,500
Increase in assets:
Accounts receivable (392,247) 324,639 (67,608)
Inventory (99,586) (882,062) (981,648)
Prepaid expense - (21,201) (21,201)
Notes receivable - (315,325) (315,325)
Other assets and deferred offering costs (39,167) (147,587) (186,754)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 761,448 700,654 1,462,102
Taxes payable 24,000 (24,000) -
----------- ---------- ------------
Total adjustments 245,314 103,122 348,436
----------- ---------- ------------
Net cash provided by (used in)
operating activities 280,503 (470,914) (190,411)
----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (341,328) (704,983) (1,046,311)
Proceeds from sale of investment - 595,000 595,000
----------- ---------- ------------
Net cash used in investing activities (341,328) (109,983) (451,311)
----------- ---------- -------------
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 (580,897) 13,278
CASH AND CASH EQUIVALENTS,
beginning of period - 594,175 -
----------- ---------- ------------
CASH AND CASH EQUIVALENTS,
end of period $ 594,175 $ 13,278 $ 13,278
=========== ========== ============
</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 SIX MONTHS ENDED DECEMBER 31, 1996
(Information with respect to the six months ended December 31, 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 $539,000. The Company has entered
into a letter of intent with an underwriter for the public sale of the Company's
securities (Note 7e). Management is of the opinion that the proceeds of this
proposed offering will be sufficient to meet the working capital needs of the
Company for the twelve-month period following the successful completion of this
proposed offering, including the payment of certain indebtedness of the Company.
There can be no assurance that additional financing will not be required to
successfully penetrate the market and for continued operations. If additional
financing is required, there is no assurance that such funds will be available
to the Company. In addition, there is no assurance that the proposed public
offering will occur.
The above factors raise substantial doubt about the ability of the
Company to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
the recorded asset amounts and classifications of liabilities that might result
should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
a. Inventory
Inventory at June 30, 1996, consisting of finished goods, are valued
at lower of cost (first-in, first-out method) or market. Inventory at December
31, 1996 has been estimated using the gross profit method.
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. A significant estimate has been made by management with
respect to the valuation of the Company's investment in the shares of common
stock of Compare Generiks, Inc. (see Note 7c). Actual results could differ
significantly from these estimates making it reasonably possible that a change
in these estimates could occur in the near term. See Note 14 for additional
information with respect to this estimate.
g. Concentration of credit risk
Financial instruments which potentially expose the Company to credit
risk, as defined by Statement of Financial Accounting Standards Board Statement
No. 105 ("FASB 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 123") 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:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1996
--------- ------------
(Unaudited)
<S> <C> <C>
Equipment $277,832 $ 584,182
Leasehold improvements 63,496 391,397
Furniture and fixtures - 33,252
Computer equipment - 37,480
---------- -------------
341,328 1,046,311
Less accumulated depreciation - 64,706
---------- -------------
$ 341,328 $ 981,605
========== =============
</TABLE>
No depreciation has been recorded as of June 30, 1996 as none of the
productive equipment has been put into operation. Depreciation expense was
$64,706 for the six months ended December 31, 1996.
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 equals $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 December
31, 1996, the Company had no outstanding balance under the facility.
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
December 31, 1996 and June 30, 1996, available-for-sale investments were
composed of the aforementioned Compare shares with a historical cost basis of
$172,500 and $1,150,000 and an approximate market value of $115,000 and
$1,067,000, respectively. Unrealized loss, which is reported as a part of
stockholders' equity, was approximately $57,500 as of December 31, 1996 and
$60,100 as of June 30, 1996, net of deferred income taxes of $22,900 in June 30,
1996.
In December 1996, in two separate transactions, the Company sold
170,000 shares of common stock of Compare Generiks, Inc. In connection with the
sale of such shares, the Company received an aggregate of $595,000, of which
$315,325 was included in notes receivable at December 31, 1996, which amount was
subsequently collected in January 1997. These transactions resulted in a
realized loss of $382,500.
d. Reserved shares
At December 31, 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:
<TABLE>
<CAPTION>
Period Six Months
April 24, 1996 Ended
(Inception) December 31,
June 30, 1996 1996
----------------- ------------
(Unaudited)
<S> <C> <C>
Federal:
Current $ 14,000 $ -
Deferred (6,350) -
---------- ---------
7,650 -
---------- ---------
State:
Current 10,000 -
Deferred (4,450) -
---------- ---------
5,550 -
---------- ---------
$ 13,200 $ -
========== =========
</TABLE>
Deferred income taxes are provided as a result of transactions being
reported in different periods for financial accounting and income tax purposes.
A 100% valuation allowance has been provided for the deferred tax asset
resulting from the net operating loss and capital loss carryforwards.
The difference between the Corporation's effective income tax rate and
the United States Statutory rate is reconciled below:
Period
April 24, 1996
(Inception)
June 30, 1996
--------------
United States statutory rate 34.0%
State income taxes, net of Federal income tax benefit 7.0
Effect of graduated rates (13.7)
Other -
------
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 December 31, 1996. Had compensation cost been determined on the
basis of FASB 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)
<TABLE>
<CAPTION>
Period Six Months Cumulative
April 24, 1996 Ended During
(Inception) December 31, Development
June 30, 1996 1996 Stage
-------------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Net (loss) income:
As reported $ 35,189 $ (574,036) $ (538,847)
========= ============ ============
Pro forma $ 32,604 $ (589,546) $ (556,942)
========= ============ ============
(Loss) earnings per share:
As reported $.01 $(.16) $(.15)
==== ===== =====
Pro forma $.01 $(.17) $(.16)
==== ===== =====
</TABLE>
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 June 1997 to October 14, 1997 and $20,833 per month from
October 15, 1997 to October 14, 1998. Accordingly, the Company has given effect
to such rent concessions and has accrued rent expense aggregating $38,500 and
$34,830 as of June 30, 1996 and December 31, 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 99% and 96% of revenue for the
periods ended December 31, 1996 and June 30, 1996, respectively. Amounts due
from this customer included in accounts receivable approximated $37,000 at
December 31, 1996 and $357,000 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:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1996
------------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 594,175 $ 594,175 $ 13,278 $ 13,278
Accounts receivable 392,247 392,247 67,608 67,608
Note receivable - - 315,325 315,325
Investment available-for-sale 1,067,000 1,067,000 115,000 115,000
Notes payable 500,000 500,000 500,000 500,000
Other current liabilities 785,448 785,448 1,462,102 1,462,102
</TABLE>
12. Supplementary Information - Statement of Cash Flows:
Cash paid for interest was $0 for the six months ended December 31, 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 at December 31, 1996 and for the six months
ended December 31, 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.
14. Subsequent Event:
In January 1997, the Company sold the remaining 30,000 shares of common
stock of Compare Generiks, Inc. (see Note 7c). In connection with the sale of
such shares, the Company received an aggregate of $105,000. This transaction
resulted in a realized loss of $67,500.
F-12
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
TABLE OF CONTENTS
Page
Available Information.........
Prospectus Summary..........
The Company...................
The Offering....................
Summary Financial
Information....................
Risk Factors.....................
Use of Proceeds.................
Dilution...............
Capitalization......................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Security holders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
Until , 1997 (90 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.
250,000 Units
Each Unit consists of Two (2) Shares of Common
Stock, par value $.0001 per share and One (1)
Class A Redeemable Common Stock Purchase
Warrant
SUPERIOR SUPPLEMENTS, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
, 1997
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 1997
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 , 1998, 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 Units, 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 Units,
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 Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define"penny stock" to be any 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. Therefore, if either the
market price of the Common Stock or Warrants is less than $5.00 per security,
then such security would fall within the definition of "penny stock." 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-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.
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
Alt - ii
<PAGE>
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 _____________, 1997
Alt - iii
<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 250,000
Units (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 - iv
<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 30.8
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 30.8
</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. In
1987, Mr. Pace entered into a settlement of claims brought by the Securities and
Exchange Commission pursuant to which he consented, without admitting or denying
liability, to a suspension from associating with a broker or dealer for a period
of twelve (12) months and from serving as a principal of a broker or dealer for
an additional period of five (5) years. In 1988, Mr. Pace entered into a
settlement of claims brought by the National Association of Securities Dealers
(the "NASD") pursuant to which he consented without admitting or denying
liability, to a censure, fine and suspension from associating with an NASD
member for a period of two (2) years and from acting in a supervisory capacity
at an NASD member for a period of five (5) years. Dune Holdings, Inc. and
Clinthill Investments Ltd. may be deemed to be founders of the Company.
Alt - v
<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
Selling Securityholders are not required to effect sales through VTR Capital,
Inc. and the Company has been advised by VTR Capital Inc. that it has no current
or future plans, proposals, arrangements or understandings with respect to
engaging in transactions with the Selling Securityholders, including
transactions involving short selling. 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.
Resales of securities by the Selling Securityholders or even the
potential of such resales would likely have an adverse effect on the market
prices of the securities offered hereby. See "Company Offering."
<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.
, 1997
Alt - vii
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Underwriters agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriters specifically for or in connection
with the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
II-1
<PAGE>
The Company does not currently have any liability insurance coverage
for its officers and directors.
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee*.......................... $ 10,000
NASD filing fee......................... $ 2,000
Accounting fees and expenses*........... $ 75,000
Legal fees and expenses*................ $175,000
Blue Sky fees and expenses*............. $ 55,000
Printing and engraving*................. $ 65,000
Transfer Agent's and Registrar's fees*.... $ 4,000
Miscellaneous expenses*................... $ 39,000
Total...................................... $425,000
- ----------------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the Company sold
by it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
In April, 1996, the Company issued (i) (a) 3,000,000 shares of Common
Stock to PMF, Inc., a company wholly-owned and controlled by Barry Gersten, and
(b) 3,000,000 Class A Warrants for a cash consideration of $50,000 and (ii)
5,000,000 shares of Preferred Stock to PMF, Inc. for a cash consideration of
$5,000.
In May, 1996, the Company issued 500,000 shares of Common Stock to
Compare Generiks, Inc. ("CGI") (i) for a cash consideration of $100,000, and
(ii) in exchange for the issuance of 200,000 shares of common stock of CGI.
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investment Ltd., two (2) unaffiliated lenders (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Note bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 and (ii) the closing of an
initial underwritten
II-2
<PAGE>
public offering of the Company's securities. The Company intends to use a
portion of the proceeds of this Offering to repay the Bridge Lenders. See "Use
of Proceeds." In addition, each Convertible Bridge Note converts into a number
of Class A Warrants equal to ten (10) times the principal amount of such
Convertible Bridge Note upon consummation of the Offering. The Company entered
into the bridge financing transactions because it required additional financing
and no other sources of financing were available to the Company at that time.
Further, the Company agreed to register the Class A Warrants issuable upon
conversion of the Convertible Bridge Notes, as well as the shares of Common
Stock issuable upon exercise of the Class A Warrants in the first registration
statement filed by the Company following the date of the loan. Therefore, the
Registration Statement, of which this Prospectus forms a part, relates to the
1,000,000 Class A Warrants issuable upon conversion of the Convertible Bridge
Notes and 1,000,000 shares of Common Stock issuable upon exercise of the Class A
Warrants. See "Selling Securityholders," "Certain Transactions," "Bridge
Financing" and "Underwriting."
The Company has relied on Section 4(2) of the Securities Act of 1933,
as amended, and the provisions of Regulation D promulgated thereunder for its
private placement exemption, such that the sales of the securities were
transactions by an issuer not involving any public offering.
Reference is also made hereby to "Certain Transactions," "Dilution,"
"Principal Stockholders" and "Description of Securities" in the Prospectus for
more information with respect to the previous issuance and sale of the Company's
securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities" as defined in Rule 144 of the
rules and the regulations of the Securities and Exchange Commission, Washington
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is able to bear the economic risk
of his investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold until
they have been so registered or until the availability of an exemption
therefrom. The Transfer Agent and registrar of the Registrant will be instructed
to mark "stop transfer" on its ledgers to assure that these securities will not
be transferred absent registration or until the availability of an exemption
therefrom is determined.
II-3
<PAGE>
Item 27. Exhibits.
1.01 Form of Underwriting Agreement.
1.02 Form of Agreement Among Underwriters
1.03 Form of Consulting Agreement.
1.04 Form of Selected Dealer Agreement.
1.05 Form of Warrant Exercise Fee Agreement.
3.01* Certificate of Incorporation of the Company dated April 24,
1996.
3.02* By-Laws of the Company.
3.03* Form of Certificate of Designation of Series A Preferred
Stock.
4.01** Specimen Certificate for shares of Common Stock.
4.02*** Specimen Certificate for shares of Series A Preferred Stock.
4.03** Specimen Certificate for Class A Redeemable Common Stock
Purchase Warrant.
4.04 Form of Warrant Agreement by and among the Company and
American Stock Transfer & Trust Company.
4.05 Form of Underwriters' Unit Purchase Warrant.
5.01 Opinion of Bernstein & Wasserman, counsel to the Company.
9.01** Form of Voting Trust Agreement.
10.01* Supply Agreement between the Company and PDK dated as of May
14, 1996.
10.02* Supply Agreement between the Company and CGI dated as of
May 31, 1996.
10.03** Lease between the Company and Park Associates dated as of May
1, 1996.
10.04* Subscription Agreement between the Company and CGI dated as of
May 31, 1996.
II-4
<PAGE>
10.05* Employment Agreement between the Company and Lawrence D. Simon
dated as of May 1, 1996.
10.06* Form of May, 1996 Bridge Loan Agreements.
10.07* Revolving Credit Agreement between the Company and Dune dated
May 31, 1996.
10.08* Promissory Note in favor of PMF dated June 26, 1996.
10.09* 1996 Stock Plan.
23.01 Consent of Bernstein & Wasserman (to be included in Exhibit
5.01).
23.02 Consent of Holtz Rubenstein & Co., LLP
- ----------
* 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.
*** Previously filed on December 6, 1996 as an exhibit to Amendment No. 2
to the Company's Registration Statement on Form SB-2 and incorporated
herein by reference.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
II-5
<PAGE>
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
2. For any liability under the Act, treat each post-effective amendment
that
II-6
<PAGE>
contains a form of prospectus as a new registration statement for the securities
offered in the Registration Statement, and that the Offering of the securities
at that time as the initial bona fide Offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York, New York on February 5, 1997.
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Lawrence D. Simon President, Chairman, February 5, 1997
- ------------------------- Chief Financial Officer,
Lawrence D. Simon Principal Accounting
Officer and Director
/s/ Reginald Spinello Director February 5, 1997
- -------------------------
Reginald Spinello
/s/ Matthew L. Harriton Director, Secretary February 5, 1997
- -------------------------
Matthew L. Harriton
/s/ Steven F. Wasserman Director February 5, 1997
- -------------------------
Steven F. Wasserman
/s/ Dr. Daniel Durchslag Director February 5, 1997
- -------------------------
Dr. Daniel Durchslag
</TABLE>
<PAGE>
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
UNDERWRITING AGREEMENT
VTR Capital Inc. __________, 1997
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, an aggregate
of 250,000 Units (the "Units"), each Unit consisting of two shares of Common
Stock, par value $.0001 ("Common Stock"), and one Redeemable Class A Common
Stock Purchase Warrant (the "Warrants") of the Company at a public offering
price of $10.00 per Unit. Each Warrant shall entitle the holder to purchase one
share of Common Stock for a four year period commencing one year from the
Effective Date (hereinafter defined) at a price of $5.25 per share. The Unit
Warrants will be immediately detachable from the Common Stock on the Effective
Date. The Warrants may be called by the Company commencing one year from the
Effective Date upon at least thirty days prior written notice at a price of $.05
per Warrant at any time provided the closing bid for the Common Stock is at
least $10.00 during each day of the twenty (20) trading day period ending on the
fifth day preceding the date of the written notice. The Warrant Agreement will
provide that no such notice will be given until there is a current Registration
Statement and Prospectus on file with the Securities and Exchange Commission
(the "Commission") at the time such notice is given to Warrant Holders and that
the notice may not be mailed to Warrant Holders during the aforesaid one-year
period from the Effective Date. The Units are sometimes hereinafter sometimes
referred to as the "Firm Units." 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 37,500 Units for the purpose of
covering over-allotments. Such additional Units are hereinafter sometimes
referred to as the "Optional Units." Both the Firm Units and the Optional Units
are sometimes collectively referred to herein as the "Units." 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 Units.
1
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration Statement hereinafter referred to becomes effective. The Company
hereby confirms its agreement with the Representative and the other Underwriters
as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants and other securities will be as set forth in the Prospectus
(hereinafter defined).
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments
thereto (No. 333-9761 with respect to the Units, including a form of prospectus
relating thereto, copies of which have been previously delivered to you, have
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations (the "Rules and Regulations") of 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 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
2
<PAGE>
Delaware, having all required corporate power and authority to own its
properties and conduct its business as described in the Prospectus. The Company
is now, and on the Closing Date will be, duly qualified to do business as a
foreign corporation in good standing in all of the jurisdictions in which it
conducts its business or the character or location of its properties requires
such qualifications except where the failure to so qualify would not materially
adversely affect the Company's business, properties or financial condition. The
Company has no subsidiaries, except as are set forth in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present fairly
the financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company.
(e) Holtz Rubenstein & Co. LLP, independent auditors, 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.
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(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and
preferred stock are duly authorized and validly issued and outstanding, fully
paid, non-assessable, and do not have any and were not issued in violation of
any preemptive rights. All of the Common Stock as described in the Prospectus
when paid for shall be duly authorized and validly issued and outstanding, fully
paid, non-assessable, and will not have any and will not be issued in violation
of any preemptive rights. The Common Stock issuable upon exercise of the
Warrants when issued and paid for in accordance with the Warrant Agreement shall
be duly authorized and validly issued and outstanding, fully paid,
non-assessable, and will not have any and will not be issued in violation of any
preemptive rights. The Common Stock and Warrants will be delivered in accordance
with this Agreement and the Warrant Agreement between the Company and American
Stock Transfer & Trust Company. The Underwriters will receive good and
marketable title to the Units 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 Units 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 (i) as disclosed in the Prospectus,
(ii) such defaults as have been waived by all parties who would otherwise have a
remedy or right with respect thereto or (iii) such defaults which will not cause
any material adverse change in the
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business, net worth, properties or conditions (financial or otherwise), of the
Company. The Company has full power and lawful authority to authorize, issue and
sell the Units to be sold by it hereunder on the terms and conditions set forth
herein and in the Registration Statement and in the Prospectus. No consent,
approval, authorization or other order of any regulatory authority is required
for such authorization, issue or sale, except as may be required under the Act
or State securities laws. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, and compliance with the
terms hereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or affected; the Certificate of Incorporation and any
amendments thereto; the by-laws of the Company, as amended; 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.
(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 Units, the
Common Stock or the Warrants in the open market following the Closing Date or
any other type of action designed to, or that may reasonably be expected to
cause or result in such stabilization or manipulation, or that may reasonably be
expected to facilitate the initial sale, or resale, of any of the securities
which are the subject of this Agreement.
(o) The Warrants to be issued to the Representative (the
"Underwriters' Warrants") hereunder will be, when issued, 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 of the Underwriters'
Warrants, and such stock, when issued and paid for upon exercise of the
Underwriters' 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 Units.
SECTION 3. Issuance, Sale and Delivery of the Firm Units, the Optional
Units and the Underwriters' 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 issue to the
several Underwriters, and the Underwriters, severally and not jointly, agree to
purchase from the Company, the number of the Firm Units set forth opposite the
respective names of the Underwriters in Schedule I hereto, plus any additional
Units which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 14 hereof.
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The purchase price of the Units to be paid by the several
Underwriters shall be $9.00 per Unit ($10.00 per Unit less a ten percent
discount equal to $1.00 per Unit).
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 Units, or any portion
thereof, at the same price per Unit as that set forth in the preceding
sentence; and each Underwriter agrees, severally and not jointly, to purchase
Optional Units in the same proportion in which it has agreed to purchase
Firm Units. 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 Units and are not obligated to offer the Optional Units to the other
Underwriters. The Optional Units 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 Units 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 Company Firm Units 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 Units to the Representative for the
respective accounts of the Underwriters. In making payment to the Company with
respect to the Company Units, the Representative may first deduct all sums due
to it for the balance of the non-accountable expense allowance and under the
Financial Consulting Agreement (as hereinafter defined). Such delivery and
payment shall be made at 9:30 A.M., New York City Time on the third business day
after the Effective Date 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) or at such
other time as shall be agreed upon by the Representative and the Company. The
time and date of such delivery and payment are hereby defined as the Closing
Date. It is understood that each Underwriter has authorized the Representative,
for the account of such Underwriter, to accept delivery of, receipt for, and
make payment of the purchase price for, the Firm Units 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 Units 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 Units 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 30-day option period.
(d) Certificates for the Firm Units and for the Optional Units
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
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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 Units except upon tender of
payment by the Underwriters for all of the Firm Units agreed to be purchased by
them hereunder. The Representative, however, shall have the sole discretion to
determine the number of Optional Units, if any, to be purchased.
(e) At the time of making payment for the Firm Units, the
Company also hereby agrees to sell to the Representative, Warrants to purchase
25,000 Units for an aggregate purchase price of $25 (hereinafter referred to as
the "Underwriters' Warrants"). The 25,000 Units underlying the Underwriters'
Warrants shall be identical to the Units sold to the public. Each Underwriters'
Warrant shall entitle the owner thereof to purchase one Unit of the Company at
an exercise price of $16.50 per Unit. Such Underwriters' Warrants are to become
exercisable one year from the Effective Date, and shall remain exercisable for a
period of four years thereafter. From the Effective Date and until one (1) year
thereafter, such warrants may be transferred only to officers or partners of the
Underwriters and selling group members and their officers or partners.
The Underwriters' Warrants shall contain customary clauses
protecting the holders thereof in the event the Company pays stock dividends,
effects stock splits, or effects a sale of assets, merger or consolidation.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent and Depository Trust Company to
deliver to the Representative (at the Company's expense) for a period of five
years from the Closing Date, daily transfer sheets showing any transfers of the
Units, Common Stock and Warrants and in the case of the transfer agent, 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 Units to the public as
soon as practicable after the Effective Date, at the initial offering price of
$10.00 per Unit 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
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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 Units and all
dealers to whom any of the Units may be sold by the Underwriters, or by any
Selected Dealer, to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Units 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 (provided, however, the Company shall
not cause the Registration Statement to become effective without the written
consent of VTR) 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 its best efforts 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 Units, and will diligently use its best
efforts to cause the same to become effective.
(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, in
the opinion of the Underwriters'
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counsel, to qualify the Units 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 Units, provided,
however, that the Company shall not be required to qualify as a foreign
corporation or dealer in securities 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 Units.
(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 Units 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-Q or 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 cash flow for such
fiscal year (Form 10-K or 10-KSB), such balance sheet and statement of cash flow
for such fiscal year to be in reasonable 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 stockholders, and (iv) as soon as
available a copy of every non- confidential 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 (the "1934 Act"), or
any regulations of the Commission thereunder. If and for so long as 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 all of the Company's subsidiaries. The financial statements referred
to in (ii) shall also be furnished to all of the stockholders of the Company as
soon as practicable after the 105 days referred to therein.
(g) The Company represents that with respect to the Units, 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 Commission a General Form
of Registration of Common Stock (Form 8-A or Form 10). In addition, upon the
request of the Underwriter, the Company agrees to qualify its publicly traded
securities for listing on the NASDAQ System Small-Cap Issues on the Effective
Date and will take all necessary and appropriate action so that the such
securities continue to be listed for trading in the NASDAQ System Small-Cap
Issues for at least ten years from the Effective Date provided the Company
otherwise complies with the prevailing maintenance requirements of NASDAQ System
Small-Cap. In addition, at such time as the Company qualifies for listing its
publicly traded securities
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on the National Market System of NASDAQ, the Company will take all steps
necessary to have the Company's publicly traded securities listed on the
National Market System of NASDAQ in lieu of listing as Small-Cap Issues. The
Company shall comply with all periodic reporting and proxy solicitation
requirements imposed by the Commission pursuant to the 1934 Act, and shall
promptly furnish you with copies of all material filed with the Commission
pursuant to the 1934 Act or otherwise furnished to shareholders of the Company.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply
for listing in Standard and Poor's Corporation Records 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.
The Company will request accelerated treatment in the Daily News Supplement of
Standard and Poor's Corporation Records.
(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 Common Stock and as Warrant
Agent for the Warrants.
(k) Until such time as the Company's Common Stock is 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
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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.
SECTION 7. Expenses of the Company.
(a) The Company shall be responsible for and shall bear all
expenses directly and necessarily incurred in connection with the proposed
financing, including: (i) the preparation, printing and filing of the
Registration Statement and amendments thereto, including NASD and SEC filing
fees, preliminary and final Prospectus and the printing of the Underwriting
Agreement, the Agreement Among the Underwriters and the Selected Dealers'
Agreement, a Blue Sky Memorandum and material to be circulated to the
Underwriters by us; (ii) the issuance and delivery of certificates representing
the Common Stock and Warrants including original issue and transfer taxes, if
any; (iii) the qualifications of the Company's Units (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 Units 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
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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 Units; 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 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.
(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
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Prospectus or any such amendment thereof or supplement thereto, or any such
application. An Underwriter shall not be liable for amounts paid in settlement
of any such claim or litigation if such settlement was effected without its
consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the defendants in any such action include both the indemnified and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party or parties), it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for 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 Units. 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.
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(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any person entitled to indemnification
under this Section 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or liabilities 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 Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units 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 Units,
or the time, after the Registration Statement becomes effective, when the Units
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.
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SECTION 11. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Units which
the Underwriters have agreed to purchase hereunder are subject to: the accuracy,
as of the date hereof and as of the Closing Dates, of all of the representations
and warranties of the Company contained in this Agreement; the Company's
compliance with, or performance of, all of its covenants, undertakings and
agreements contained in this Agreement that are required to be complied with or
performed on or prior to each of the Closing Dates and to the following
additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to
the Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, 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 materially 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 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
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be substantially as great as at its last financial report without considering
the proceeds from the sale of the Units except to the extent that any decrease
is disclosed in or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of its counsel that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own and operate its properties and
to carry on its business as set forth in the Registration Statement and
Prospectus; it has authorized and outstanding capital as set forth in the
Registration Statement and Prospectus; and the Company is duly licensed or
qualified as a foreign corporation in all jurisdictions in which by reason of
maintaining an office in such jurisdiction or by owning or leasing real
property in such jurisdiction it is required to be so licensed or qualified
except where failure to be so qualified or licensed would have no material
adverse effect.
(ii) All of the outstanding shares of Common Stock and
Preferred Stock are duly and validly issued and outstanding, fully paid, and
non-assessable, and do not have any, and were not issued in violation of any,
preemptive rights. The Company will have duly authorized, reserved and set
aside shares of Common Stock issuable upon exercise of the Warrants and any
other outstanding options or warrants and when issued in accordance with such
terms contained in the Prospectus, will be duly and validly authorized and
issued, fully paid and non-assessable.
(iii) All of the Units 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 Units 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
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the valid authorization, issue or sale of the Units hereunder, except such as
may be required under the Act or state securities or Blue Sky Laws.
(vii) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and the Registration Statement and Prospectus,
and each amendment thereof and supplement thereto, comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial
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 Underwriter'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 Underwriter's Warrants and Underlying Warrants, and such
stock, when issued and paid for upon exercise of the Underwriter's Warrants and
Underlying Warrants in accordance with the provisions thereof, will be duly and
validly authorized and issued, fully-paid and non-assessable.
(ix) The Company holds by valid lease, its properties as
shown in the Prospectus, and is in all material respects complying with all
laws, ordinances and regulations applicable thereto.
(x) This Agreement has been duly authorized and executed
by the Company and is a valid and binding agreement of the Company.
(xi) To the best of the knowledge of such counsel, no
default exists, and no event has occurred which, with notice or lapse of time,
or both, would constitute a default in the due performance and observance of
any material term, covenant or condition by the Company or any other party, of
any indenture, mortgage, deed of trust, note or any other
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agreement or instrument known to counsel to which the Company is a party or by
which it or its business or its properties may be bound or affected, except as
disclosed in the Prospectus. The Company has full power and lawful authority to
authorize, issue and sell the Units 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 and a Vice-President 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 is 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;
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(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;
(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 material liabilities,
direct or contingent, or entered into any material 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 of executive officers of the
Company 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 each
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 each Closing
Date in form and substance reasonably satisfactory to the Representative, to the
effect that:
(i) They are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations of the
Commission;
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(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures in accordance with
standards established by the American Institute of Certified Public
Accountants, including (1) a reading of the latest available financial
statements of the Company (a copy of which shall be attached to such letter),
(2) a reading of the latest available minutes of the meetings of the
stockholders and the Board of Directors of the Company as set forth in the
minute books of the Company, officials of the Company having advised you and
them that the minutes of all such meetings through that date were set forth
therein, (3) consultations with officials of the Company responsible for
financial and accounting matters of the Company, which procedures do not
constitute an examination in accordance with generally accepted accounting
standards, and would not necessarily reveal material adverse changes in the
financial position or results of operations or inconsistencies in the
application of generally accepted accounting principles, nothing has come to
their attention which in their judgment would lead them to believe that (a) the
unaudited financial statements and related schedules of the Company included in
the Registration Statement and Prospectus do not 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, or were not
prepared in accordance with generally accepted accounting principles and
practices consistent in all material respects with those followed in the
preparation of the comparable financial statements and schedules covered by
their reports included in the Registration Statement and Prospectus, or would
require any material adjustments for a fair presentation of the information
purported to be shown thereby or (b) during the period from the date of the
Capitalization table included in the Prospectus to a specified date not more
than four business days prior to the date of such letter, there has been any
material change in the capital stock or debt of the Company, or (c) during the
period from the date of the latest balance sheet and related statements of
operations, changes in stockholders' equity and changes in financial position
included in the Prospectus and covered by their reports contained therein to the
date of the letter, there has been any material adverse change in the financial
condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in their
reports 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 "Capitalization", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Executive Compensation",
"Certain Transactions", "Selected 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.
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All the opinions, letters, certificates and evidence mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel to the Underwriters, 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 inabilities
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 Units 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 any matter materially affecting the Company or its
business or business prospects, is such that it would be undesirable,
impractical or inadvisable to proceed with, or consummate, this Agreement or the
public offering of the Units.
(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. In addition, the Underwriter shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses. In the event that the
Representative terminates this
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agreement pursuant to the provisions of Section 12(b), the Representative shall
be entitled to reimbursement of expenses on an accountable basis.
SECTION 13. Finder. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their
obligations to purchase and pay for Units hereunder and if the aggregate amount
of such Units which all Underwriters so defaulting have agreed to purchase does
not exceed 10% of the aggregate number of Units constituting the Units, the
non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the Units set forth opposite
their names in Schedule I) the full amount of the Units 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 Units 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
Units hereunder and if the aggregate amount of such Units which all Underwriters
so defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Units, or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Units
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 Units in such proportion as may be agreed among them,
at the Closing Date. If the Remaining Underwriters do not purchase and pay for
such Units at such Closing Date, the Closing Date shall be postponed for one
business day and the remaining Underwriters shall have the right to purchase
such Units, 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 Units by such postponed Closing Date, the Closing Date shall be
postponed for a further two business days and the Company shall have the right
to substitute another person or persons, satisfactory to you to purchase such
Units at such second postponed Closing Date. If the Company shall not have found
such purchasers for such Units 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
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Underwriter under this Section 14. Nothing in this subparagraph (b) will relieve
a defaulting Underwriter from its liability, if any, to the other Underwriters
for damages occasioned by its default hereunder (and such damages shall be
deemed to include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Units) or
obligate any Underwriter to purchase or find purchasers for any Units in excess
of those agreed to be purchased by such Underwriter under the terms of Sections
3 and 14 hereof.
SECTION 15. Registration of the Warrants and/or securities
underlying the Underwriters' Warrants. The Company agrees that it will, upon
request by the Representative or the holders of a majority of the Underwriters'
Warrants and Underlying Securities within the period commencing one year after
the Effective Date, and for a period of five years from the Effective Date, on
one occasion only at the Company's sole expense, cause the Underwriters'
Warrants and/or the Underlying Securities issuable upon exercise of the
Underwriters' Warrants, to be the subject of a post-effective amendment, 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 Underwriters' 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, new Registration Statement to become effective and for a period of
nine (9) months thereafter to reflect in the post-effective amendment, 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 Underwriters' Warrants may demand
registration without exercising such Warrants and, in fact, are never required
to exercise same.
The Company understands and will agree that if, at any time
within the period commencing one year after the Effective Date and ending seven
years after the Effective Date of the Company's Registration Statement, it
should file a Registration Statement with the Commission pursuant to the
Securities Act, regardless of whether some of the holders of the Underwriters'
Warrants and Underlying Securities shall have theretofore availed themselves
of the right provided above, the Company, at its own expense, will offer to
said holders the opportunity to register the Underwriters' Warrants and
Underlying Securities. This paragraph is not applicable to a Registration
Statement filed by the Company with the SEC 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 Underwriters' 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 Underwriters' 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 Common Stock in which case the cost and expense of such Registration
Statement will be prorated between the Company
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and the holders of the Underwriters' Warrants and underlying securities
according to the aggregate sales price of the securities being issued. The
holders of the Underwriters' Warrants may include such Warrants in any such
filing without exercising the Underwriters' Warrants, and in fact, are never
required to exercise same. The Company can, at any time for any reason, withdraw
any such registration except in connection with a Registration Statement filed
pursuant to the Company's demand Registration Statement.
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;
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.
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The fee payable to the Representative will be in the same form of
consideration as that paid by or to the Company, as the case may be, in any such
transactions.
(d) Commencing twelve months after the Effective Date, the
Company will pay the Representative as its Warrant solicitation agent an amount
equal to four percent (4%) of the aggregate exercise price of each Warrant
exercised of which a portion may be allowed to the dealer who solicited the
exercise (which may also be the Representative); provided: (1) the market price
of the Common Stock on the date the Warrant was exercised was greater than the
Warrant exercise price on that date; (2) exercise of the Warrant was solicited
by a member of the NASD and the NASD member is designated in writing by the
Warrant holder; (3) the Warrant was not held in a discretionary account; (4)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (5) the solicitation of
the exercise of the Warrant was not in violation of Rule 10b-6 promulgated under
the Securities Exchange Act of 1934. The Company agrees to pay over to the
Representative any fees due it within five business days after receipt by the
Company of Warrant proceeds. Within ten (10) days of the last day of each month
commencing one year from the Effective Date, the Company will instruct the
Warrant Agent to notify the Representative of each Warrant certificate which has
been properly completed and delivered for exercise by holders of Warrants during
each such month. The Company will instruct the Transfer Agent that the
Representative may at any time during business hours, at its expense, examine
the records of the Company and the Warrant Agent which relate to the exercise of
the Warrants. It is understood that this agreement is on an exclusive basis to
solicit the exercise of the Warrants and that the Company may not engage other
broker-dealers to solicit the exercise of Warrants without the consent of VTR.
It is understood that no solicitation fee will be paid where the Warrant
exercise was not solicited by VTR or another member of the NASD.
(e) For a period of two years from the Effective Date, the
Company will not file a Form S-8 or other Registration Statement for the benefit
of officers, directors, consultants and employees without the prior written
consent of the Representative.
SECTION 17. Notice. Except as otherwise expressly provided in
this Agreement, (A) whenever notice is required by the provisions hereof to be
given to the Company, such notice shall be given in writing, by certified mail,
return receipt requested, addressed to the Company at the address set forth
herein on the first page, copy to Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, New York 10022, Attention Steven F. Wasserman; and (B) whenever notice
is required by the provisions hereof to be given to the Underwriters, such
notice shall be in writing addressed to the Representative at VTR, at the
address set forth herein on the first page copy to Steven Morse, Esq., Lester
Morse P.C., Suite 420, 111 Great Neck Road, Great Neck, NY 11021. Any party may
change the address for notices to be sent by giving written notice to the other
persons.
SECTION 18. Representations and Agreements to Survive
Delivery. Except as the context otherwise requires, all representations,
warranties, covenants, and agreements contained in this Agreement shall be
deemed to be representations, warranties, covenants, and agreements as at the
date hereof and as at the Closing Date and the Additional Closing Date(s), and
all representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless
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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 Units 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: ____________________________________
For itself and as the Representative
of the other Underwriters named in
Schedule I hereto.
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SCHEDULE I
Underwriters Number of Units to be
Purchased
------------ ---------------------
VTR Capital Inc.
_________
Total 250,000
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
250,000 Units
Each Unit Consisting of two Shares of Common Stock
and one Class A Common Stock Purchase Warrant
AGREEMENT AMONG UNDERWRITERS
____________, 1997
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 250,000 Units, each unit
consisting of two shares of Common Stock and one Class A Common Stock Purchase
Warrant (the "Firm Units"). 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 37,500 Units (the "Optional
Units"). Both the Firm Units and the Optional Units are sometimes collectively
referred to herein as the "Units." All of the Units 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 Units 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 Units 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 Units. 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 Units as filed by the Company with the Commission pursuant to
Rule 424(b) under the Act is referred to as the "Prospectus."
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<PAGE>
3. Authority of Representative. You authorize us as your Representative
to execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Units 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 Units.
4. Public Offering. In connection with the public offering of
the Units, 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 Units and any communications
with dealers or others;
(b) To reserve all or any part of your Units 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 Units 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 Units
such Units retained by you remaining unsold and to release to you any of your
Units reserved but not sold;
(c) To sell reserved Units 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 Units 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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<PAGE>
After advice from us that the Units 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 Units as we
advise you are not reserved.
You recognize the importance of a broad distribution of the Units 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 Units to Selected Dealers we will take
such action as we deem appropriate to effect a broad distribution.
5. Repurchase of Units Not Effectively Placed for Investment. You are
requested to place for investment those of your Units which are not reserved as
aforesaid. Any Units 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. Units
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 Units 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 Units 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 Units 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 Units 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 Units 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 Units 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 Units, registered as
we may direct in order to facilitate deliveries. You also authorize us to hold
for your account such of your Units as we have reserved for sale to retail
purchasers and to Selected Dealers, and to deliver your reserved Units against
such sales. We will deliver your unreserved Units to you promptly and, after we
receive payment for reserved Units
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<PAGE>
sold by us for your account, we will remit to you, as promptly as practicable,
an amount equal to the price paid by you for such Units. 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 Units reserved but not sold. All Units 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 Units 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 Units. Any lender may rely on our instructions in all matters relating to
any such loan. Any of your Units 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 Units, 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 Units 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 Units 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 Units) 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 Units 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 Units is consummated. Upon request you will advise
us of Units retained by you and unsold and will sell to us for the account of
one or more of the Underwriters such of your unsold Units 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 Units. You agree that until such time you will not make any
purchases or sales of any of such Units except as provided in Section 9 hereof.
You also agree to timely provide us
4
<PAGE>
with the information required by Rule 17a-2(d) under the Securities Exchange Act
of 1934, as amended (the "1934 Act").
9. Open Market Transactions. You agree not to bid for, purchase,
attempt to induce others to purchase, or sell, directly or indirectly, any
Units, 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 Units 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 Units. 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
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<PAGE>
respect to matters to be determined by us, or by us and the Company, pursuant to
the terms of the Underwriting Agreement, which will survive the termination of
this Agreement.
The accounts arising pursuant to this Agreement will be settled and
paid as soon as practicable after termination. The determination by us of the
amounts to be paid to or by you will be final and conclusive.
Notwithstanding any settlement upon the termination of this Agreement,
you will pay your proportionate share of any amount asserted against and
discharged by the Underwriters, or any of them, based upon the claim that the
Underwriters constitute an association, unincorporated business or other
separate entity, or based upon or arising out of a claim that this Agreement or
the Underwriting Agreement is invalid or illegal for any reason, including any
expense incurred in defending against such claim, and will pay any transfer
taxes which may be assessed thereafter on account of any sale or transfer of
Units 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 Units 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 Units 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 Units 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.
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<PAGE>
14. Compensation to Representative. As compensation for our services as
Representative, you agree to pay us $____ per Unit out of the aggregate
underwriting discount attributable to Units which you agree to purchase from the
Company under the Underwriting Agreement. We are authorized to charge your
account with such an amount.
15. Indemnification. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees to indemnify the Company in the Underwriting Agreement. Such
indemnity agreement shall survive the termination of any of the provisions of
this Agreement.
In the event that at any time any claim shall be asserted against us as
or as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units 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 Units 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 Units for offering and sale in any jurisdiction. We have caused to
be filed Further State Notices respecting the Units 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 Units. The Units purchased for the respective accounts of
the several Underwriters shall remain the property of those Underwriters until
sold; and no title to such Units 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
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1934 Act, including, without limitation, Rule 15c3-1, or any provision of any
applicable rules of any securities exchange to which you are subject or of any
restriction imposed upon you by such exchange.
19. Notices and Governing Laws. Any notice from you to us shall be
mailed or transmitted by any standard form of written telecommunication to us at
99 Wall Street, New York, NY 10005. Any notice from us to you shall be mailed or
transmitted by any standard from of written telecommunication to you at your
address as set forth in your Underwriter's Questionnaire. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or (b) a foreign dealer which is not
eligible for membership in such Association, in which event you will make sales
of any Units 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 Units that you propose to sell Units 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
8
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Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, New York 11788
VTR Capital, Inc. _______________, 1997
99 Wall Street
New York, New York 10005
Gentlemen:
The following sets forth our understanding with respect to your
providing financial advisory services for this corporation.
l. For a period of two (2) years commencing on the date hereof,
you will render financial consulting services to this corporation as
such services shall be required but in no event shall such services
require more than two business days per month. Your services shall
include the following:
(a) to advise and assist in matters pertaining to
the financial requirements of our corporation and to assist, as and when
required, in formulating plans and methods of financing;
(b) to prepare and present financial reports required
by us and to analyze proposals relating to obtaining funds for our
business, mergers and/or acquisitions;
(c) to assist in our general relationship with the
financial community including brokers, stockholders, financial analysts,
investment bankers, and institutions; and
(d) to assist in obtaining financial management, and technical
and advisory services, and financial and corporate public relations, as may be
requested or advisable.
2. All services required to be performed hereunder shall be requested
by us in writing and upon not less than seven business days notice, unless such
notice is waived by you. Such notice shall be to the address specified above or
to such other place as you shall designate to us in writing.
3. For the services to be performed hereunder, and for your continued
availabil ity to perform such services, we will pay you a fee of $72,000, which
sum is payable in full in advance on the closing date of our proposed initial
public offering. Further, we will reimburse you for such reasonable
out-of-pocket expenses as may be incurred by you on our behalf, but only to the
extent authorized by us.
4. This Agreement has been duly approved by our
Board of Directors.
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VTR Capital, Inc.
Page 2
5. You shall have no authority to bind this corporation
to any contract or commitment, inasmuch as your services hereunder are
advisory in nature.
6. You will maintain in confidence all proprietary, non-published
information obtained by you with respect to our corporation during the course of
the performance of your services hereunder and you shall not use any of the same
for your own benefit or disclose any of the same to any third party, without our
prior written consent, both during and after the term of this Agreement.
7. This Agreement shall not be assignable by either of us
without the other party's prior written consent.
8. This Agreement shall be binding upon, and shall inure to
the benefit of, our respective successors and permitted assigns.
9. The foregoing represents the sole and entire agreement between us
with respect to the subject matter hereof and supersedes any prior agreements
between us with respect thereto. This Agreement may not be modified, amended or
waived except by a written instrument signed by the party to be charged. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
laws of such State.
Please signify your agreement to the foregoing by signing and returning
to us the enclosed copy of this Agreement which will thereupon constitute an
agreement between us.
Very truly yours,
SUPERIOR SUPPLEMENTS, INC.
BY______________________
Agreed and Consented to:
VTR CAPITAL, INC.
BY________________________________
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VTR Capital Inc.
99 Wall Street
New York, NY 10005
SUPERIOR SUPPLEMENTS, INC.
250,000 Units
SELECTED DEALER AGREEMENT
____________, 1997
Dear Sirs:
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 tp 250,000 Units and up to
an additional 37,500 Units, collectively being called the "Units"). The Units
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 Units, at the
public offering price less a concession of $___ per Unit. The offering to
Selected Dealers is made subject to the issuance and delivery of the Units 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 Units or an allotment against subscription, or otherwise in our
discretion.
The initial public offering price of the Units is set forth in the
Prospectus. With our consent, Selected Dealers may allow a discount of not in
excess of $___ per Unit in selling the Units 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 Units. No dealer is authorized to act as agent for the Underwriter, or for
the Company or the Selling Security Holder, when offering any of the Units.
Nothing contained herein shall constitute the Selected Dealers partners with us
or with one another.
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Upon release by us, you may offer the Units at the public offering
price, subject to the terms and conditions hereof. We may, and the Selected
Dealers may, with our consent, purchase Units from and sell Units to each other
at the public offering price less a concession not in excess of the concession
to Selected Dealers.
Payment for Units 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 Units 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 Units 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 Units 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 Units 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 Units 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 Units are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no
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responsibility with respect to your right to sell Units in any jurisdiction. We
have filed a Further State Notice with respect to the Units with the Department
of State of the State of New York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Rule in connection with this offering.
Any notice from us shall be deemed to have been duly given if
telephoned, and subsequently mailed or transmitted by any standard form of
written tele-communication to you at the address to which this Agreement is
mailed, or if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
telecommunication of the principal amount of Units 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, NY 10005
Dear Sirs:
We hereby enter our order for ______ Units 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 Units
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 Units 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: , 1997
______________________________
(Name of Selected Dealer)
By:___________________________
(Authorized Signature)
Address:______________________
______________________
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<PAGE>
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated this ____ day of ________, 1997, by and among VTR
Capital, Inc. ("VTR"), Superior Supplements, Inc. (the "Company") and American
Stock Transfer & Trust Company (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 250,000 Units (a
maximum of 287,500 Units including the over-allotment option), the Company
proposes to issue, in accordance with an agreement dated _______, 1997 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 _________, 1998 (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:
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(a) such Warrant is exercised on or after _______, 1998, which
represents one year from the effective date of the Company's Registration
Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in
writing, either in the Form of Election contained on the specimen Warrant
Certificates attached hereto as Exhibits A, or by written documents signed and
dated by the holders and specifically stating that the exercise of such Warrants
were solicited by VTR or another member of the NASD;
(d) Solicitation of the exercise was in compliance with NASD Notice
to Members 81-38; and
(e) VTR and/or the member of the NASD which solicited the exercise of
Warrants delivers a certificate to the Company within five (5) business days of
receipt of information relating to such exercised Warrants from the Company or
the Warrant Agent in the form attached hereto as Exhibit B, stating that:
(1) the Warrants exercised were not held in a discretionary
account;
(2) VTR or the member of the NASD which solicited the exercise
of Warrants did not, (unless granted an exemption by the Securities and Exchange
Commission from the provisions thereof), within the applicable number of
business days under Rule 10b-6 immediately preceding the date of exercise of the
Warrant bid for or purchase the Common Stock of the Company or any securities of
the Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive as part of the original offering and upon exercise
of the Warrant.
(4) in connection with the solicitation, it complied with NASD
Notice to Members 81-38.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to
pay over to VTR within two (2) business days after receipt by the Company of the
certificate described in Section 3(d) above, but in no event later than
simultaneously with the distribution of proceeds to the Company from such
exercise of Warrant the Exercise Fee out of the proceeds it received from the
applicable Exercise Price paid for the Warrants to which the certificate
relates.
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Section 5. Inspection of Records. VTR may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. Termination. VTR shall be entitled to terminate this
Agreement prior to the exercise of all Warrants at any time upon five (5)
business days' prior notice to the Company and the Warrant Agent.
Notwithstanding any such termination notice, VTR shall be entitled to receive an
Exercise Fee for the exercise of any Warrant for which it has already delivered
to the Company prior to any such termination the certificate required by Section
3(d) of this Agreement and shall be entitled to receive such Exercise Fee
simultaneously with the distribution of such proceeds to the Company.
Section 7. Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
270 Oser Avenue, Hauppauge, New York 11788; if to VTR at 99 Wall Street, New
York, NY 10005; and if to the Warrant Agent at 40 Wall Street, New York, NY
10005, or such other address as such party shall have given notice to other
parties hereto in accordance with this Section. All such notices or other
communications shall be deemed given three (3) business days after mailing, as
aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent
and VTR may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
VTR may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that VTR may
assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give any person or corporation other than the Company, the
Warrant Agent and VTR any legal or 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.
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Section 12. Descriptive Headings. The descriptive headings of the
sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and
all prior agreements between the parties with respect to the subject matter
hereof.
Section 14. Exclusive Agreement. It is understood that this agreement
is on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of VTR.
Section 15. Conflict with Warrant Agreement. Any conflict between any
term hereof and any term of the Warrant Agreement shall be resolved in favor of
such provision contained in the Warrant Agreement except that nothing contained
in the Warrant Agreement shall be construed to modify the amount of compensation
payable to VTR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SUPERIOR SUPPLEMENTS, INC.
By: _____________________________________
VTR CAPITAL, INC.
By: _____________________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: _____________________________________
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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 ________, 1997 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: ________________________
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WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______ 1997, by and between
SUPERIOR SUPPLEMENTS, INC., a Delaware corporation ("Company"), and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) a public offering of up to 287,500
Units, each consisting of two (2) shares of the Company's common stock, $.0001
par value ("Common Stock") and one (1) of the Company's Class A Redeemable
Common Stock Purchase Warrants (the "Class A Warrants" or "Warrants") pursuant
to an underwriting agreement (the "Underwriting Agreement") dated ________, 1997
between the Company and VTR Capital, Inc. ("VTR"), and (ii) the issuance to VTR
or its designees of a Purchase Option to purchase 25,000 additional Units,
consisting of 50,000 shares of Common Stock and 25,000 Class A Warrants (the
"Purchase Option"), and (iii) the issuance of 3,000,000 Class A Warrants to the
founder of the Company, and (iv) the issuance of 1,000,000 Class A Warrants to
the Company's bridge lenders, the Company will issue, or will have issued, up to
4,312,500 Class A Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
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(a) "Common Stock" shall mean the common stock of the Company
of which at the date hereof consists of 25,000,000 authorized shares, $.0001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (i) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants, or (ii) in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities or property provided for in such
section; or (iii) in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean _____ __, 1998.
(e) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $5.25 per share for the Warrants, subject to adjustment
from time to time pursuant to the
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provisions of Section 9 hereof, and subject to the Company's right, in its sole
discretion, upon thirty (30) days' written notice, to reduce the Purchase Price
upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on _________ __, 2002 or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 P.M. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon thirty (30) days' written notice to all warrantholders, the Company
shall have the right to extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant representing such Warrant to purchase one share of Common Stock upon
the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold shall be executed by the Company and
delivered to the Warrant Agent. Upon written order of the Company signed by its
President or a Vice President and by its Secretary or an Assistant Secretary,
the Warrant Certificates shall be countersigned, issued, and delivered by the
Warrant Agent.
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(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 4,312,500 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Purchase
Option; and (vi) those issued at the option of the Company, in such form as may
be approved by the its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, VTR may
purchase up to 25,000 Units, consisting of 50,000 shares of Common and 25,000
Class A Warrants.
3. Form and Execution of Warrant Certificates.
(a) The Class A Warrant Certificates shall be substantially in
the forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be
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listed, or to conform to usage or to the requirements of Section 2(b). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates) and issued in registered form. Class A Warrant
Certificates shall be numbered serially with the letters WA.
(b) Warrant Certificates shall be executed on behalf of the
Company by its President, or any Vice President and by its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) business days after the date of such
notice from the Warrant Agent,
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the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise (plus a certificate for any remaining unexercised Warrants of the
Registered Holder), unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will, to the extent the Purchase Price is less than
the Market Price (as hereinafter defined), in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval and will
use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws. With respect to any such securities,
however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered
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Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for
such time as it is acting as such to requisition the Company's Transfer Agent
from time to time for certificates representing shares of Common Stock issuable
upon exercise of the Warrants, and the Company will authorize the Transfer Agent
to comply with all such proper requisitions. The Company will file with the
Warrant Agent a statement setting forth the name and address of the Transfer
Agent of the Company for shares of Common Stock issuable upon exercise of the
Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
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(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like
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tenor representing an equal aggregate number of Warrants. Applicants for a
substitute Warrant Certificate shall comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
8. Redemption.
(a) Subject to the provision of paragraph 2(e) hereof, on not
less than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the market price, as hereinafter
defined, of the Common Stock, equals or exceeds $10.00 per share (the "Class A
Target Price"), subject to adjustment as set forth in Section 8(f) below. Market
Price for the purpose of this Section 8 shall mean (i) the average closing bid
price for any twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days prior to the date of
the notice of redemption, which notice shall be mailed no later than five (5)
days thereafter, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or (ii) the last reported
sale price, for twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it shall mail
a notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the
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<PAGE>
redemption price paid, and (iv) that the right to exercise the Warrant shall
terminate at 5:00 P.M. (New York time) on the business day immediately preceding
the date fixed for redemption. The date fixed for the redemption of the Warrant
shall be the Redemption Date. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a Registered Holder (a) to whom notice was not
mailed or (b) whose notice was defective and then only to the extent that the
Registered Holder is prejudiced thereby. An affidavit of the Warrant Agent or of
the Secretary or an Assistant Secretary of the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Registered Holders of the Warrants shall
have no further rights except to receive, upon surrender of the Warrant, the
Redemption Price.
(e) From and after the Redemption Date specified for, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the redemption price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, the
Class A Target Price shall be proportionally adjusted by the ratio which the
total number of shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of
Common Stock or Warrants.
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(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8) on the
date of the sale or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in subsection 9(f) below) for the issuance of such additional shares
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment
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<PAGE>
of the number of Warrants shall become that number of Warrants (calculated to
the nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of the
Company, cause to be distributed to such Holder in substitution and replacement
for the Warrant Certificates held by him prior to the date of adjustment (and
upon surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously
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with the consummation thereof the successor (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing assets
or other appropriate corporation or entity shall assume, by written instrument
executed and delivered to the Warrant Agent, the obligation to deliver to the
holder of each Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Agreement. The foregoing
provisions shall similarly apply to successive reclassification, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, the number of shares purchasable and
the Redemption Price therefor were expressed in the Warrant Certificates when
the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to VTR and to each registered holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder
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<PAGE>
whose notice was defective. The affidavit of an officer of the Warrant Agent or
the Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by or for
the account of the Company and the sale or issuance of such treasury shares or
the distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least $.10
in such price; provided that any adjustments which by reason of this subsection
(ii) are not required to be made shall be carried forward and shall be made at
the time of and together with the next subsequent adjustment which, together
with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash
of any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or exchangeable for
Common Stock without the payment of any further consideration other than cash,
if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants, or options
shall consist of cash, whether or not such rights, warrants or options, or the
right to convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (determined by dividing (x) the
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<PAGE>
minimum aggregate consideration payable to the Company upon the exercise of such
rights, warrants or options, plus the consideration received by the Company for
the issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than the fair market value
of the Common Stock on the date of the issuance or sale of such rights, warrants
or options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed
to have been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of
any Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights
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of conversion, exchange or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase Price
to be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
multiplied by the market price on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.
(vi) On the expiration of any such right, warrant
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants, options
or Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities and
(b) had adjustments been made on the basis of the Purchase Price as adjusted
under clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(vii) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price
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therefor without deducting therefrom any expense paid or incurred by the Company
or any underwriting discounts or commissions or concessions paid or allowed by
the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants
or to the number of shares of Common Stock purchasable upon the exercise of
each Warrant will be made, however,
(i) upon the sale or exercise of the Warrants,
including without limitation, the sale or exercise of any of the Warrants or
Common Stock comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities in an exempt transaction unless the issuance or sale
price is less than 50% of the fair market value of the Common Stock on the date
of issuance, in which case the adjustment shall only be for the difference
between 50% of the fair market value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or
Convertible Securities to shareholders of any corporation which merges and/or
consolidates into or is acquired by the Company or
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from which the Company acquires assets and some or all of the consideration
consists of equity securities of the Company, in proportion to their stock
holdings of such corporation immediately prior to the acquisition but only if no
adjustment is required pursuant to any other provision of this Section 9.
(vii) upon the issuance or exercise of options or upon
the issuance or grant of stock awards granted to the Company's directors,
employees or consultants under a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date hereof
shall not exceed ten percent (10%) of the Company's Common Stock at the time of
issuance). For the purposes of determining whether the consideration received by
the Company is less than the Market Price in connection with any issuance of
stock to the Company's directors, employees or consultants under plans adopted
by the Company's Board of Directors and approved by its stockholders, the
consideration received shall be deemed to be the amount of compensation to the
director, employee or consultant reported by the Company in connection with such
issuances.
(viii) upon the issuance of Common Stock to the
Company's directors, employees or consultants under a plan or plans which are
qualified under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona fide
public offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Units or (ii) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
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<PAGE>
provided for in such section or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. In such event, the Company may at its option elect
to round up the number of shares to which the Holder is entitled to the nearest
whole share or to pay cash in respect of fractional shares in accordance with
the following: With respect to any fraction of a
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share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the current market value
of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ Quotation System, the current value shall be
the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted
to unlisted trading privileges, the current value shall be the mean of the
last reported bid and asked prices reported by the National Quotation Bureau,
Inc. on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported,
the current value shall be an amount determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
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12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their mutual discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company,
and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not, by issuing and delivering Warrant
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Certificates or by any other act hereunder be deemed to make any representations
as to the validity, value or authorization of the Warrant Certificates or the
Warrants represented thereby or of any securities or other property delivered
upon exercise of any Warrant or whether any stock issued upon exercise of any
Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by its President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
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reasonable expenses hereunder; it further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
thirty (30) days' prior written notice to the Company. At least fifteen (15)
days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction in the State of New York for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new
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<PAGE>
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may
by supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law.
17. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to
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<PAGE>
have been made when delivered or mailed first class registered or certified
mail, postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, 270 Oser Avenue, Hauppauge,
NY 11788, or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; and if to the Warrant Agent, at its corporate
office.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier date
upon which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
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<PAGE>
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SUPERIOR SUPPLEMENTS, INC.
By: ______________________________
Its
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: ______________________________
Its
Authorized Officer
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<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER ___________, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SUPERIOR SUPPLEMENTS, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.0001 par value ("Common Stock"), of SUPERIOR SUPPLEMENTS, INC., a
Delaware corporation (the "Company"), at any time after , 1998 (the "Initial
Warrant Exercise Date") and the Expiration Date (as hereinafter defined), upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer and Trust Company, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $5.25, times the number of warrants
exercised (the "Purchase Price"), in lawful money of the United States of
America in cash or by official bank or certified check made payable to Superior
Supplements, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated , 1997, by and
between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant
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<PAGE>
represented hereby are subject to modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on ,
2002, or such earlier date as the Warrants shall be redeemed. If such date shall
in the State of New York be a holiday or a day on which the banks are authorized
to close, then the Expiration Date shall mean 5:00 p.m. (New York time) the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not
2
<PAGE>
be entitled to receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant, at any time after one (1) year from the
Effective Date, provided the Market Price (as defined in the Warrant Agreement)
for the Common Stock issuable upon exercise of such Warrant shall equal or
exceed $10.00 per share. Notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
SUPERIOR SUPPLEMENTS, INC.
By: ______________________________
Its
Date: ______________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
<PAGE>
(Taxpayer Identification Number)
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
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<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 (the "Act"), 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
___________, 2002 (i.e. five years from the effective date of the Registration
Statement).
Warrant No. 1
UNIT PURCHASE WARRANT
To Subscribe for and Purchase Units of
SUPERIOR SUPPLEMENTS, INC.
(Transferability Restricted as Provided in Paragraph 2 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 Units (the "Underwriter's Warrant")
consisting of two fully paid and non-assessable shares of Common Stock of the
Company and one Class A Common Stock Purchase Warrant (the "Underwriter's Class
A Warrants") of the Company, as hereinafter defined, at the "Purchase Price" and
during the period hereinafter set forth, subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. This Warrant is one of an
issue of the Company's Underwriter's Warrants identical in all respects except
as to the names of the holders thereof and the number of Units purchasable
thereunder, representing on the original issue thereof rights to purchase up to
25,000 Units.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to
the Company's common stock as more fully set forth in Section 5 hereof.
(b) The "Warrant Agreement" shall refer to the Warrant
Agreement dated as of ___________, 1997 between American Stock Transfer &
Trust Co. and the Company.
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(c) Class A Warrants shall refer to the Warrant(s) included in
the Units offered to the public by the Company through VTR CAPITAL INC.,
pursuant to a Registration Statement declared effective by the Securities and
Exchange Commission ("SEC") on __________, 1997 and issued or to be issued
subject to terms and conditions of the Warrant Agreement.
(d) "Underwriter's Class A Warrants" shall refer to the Class
A Warrants issuable upon exercise of this Warrant to the holder thereof and
shall be identical in all respects to the Class A Warrants issued in the public
offering.
(e) "Units" shall consist of two shares of Common Stock and
one Class A Warrant. The Common Stock included in the Units and issuable upon
the exercise of the Class A Warrant are subject to adjustment pursuant to
Section 4 hereof and the Warrant Agreement.
(f) "Effective Date" shall mean the date that the Securities
and Exchange Commission declares effective form SB-2, File No. 333-9761.
(g) "Purchase Price" shall be $16.50 which is subject to
adjustment pursuant to Section 4 hereof.
(h) "Underwriter" shall refer to VTR CAPITAL INC.
(i) "Underwriting Agreement" shall refer to the Underwriting
Agreement dated ___________, 1997 between the Company and the Underwriter.
(j) "Underwriter's Warrants" shall refer to Warrants to
purchase an aggregate of up to 25,000 Units issued to the Underwriter or its
designees by the Company pursuant to the Underwriting Agreement (including the
Warrants represented by this Certificate), as such may be adjusted from time to
time pursuant to the terms of Section 4 hereof (and including any Warrants
represented by any certificate issued from time to time in connection with the
transfer, partial exercise, exchange of any Warrants or in connection with a
lost, stolen, mutilated or destroyed Warrant certificate, if any, or to reflect
an adjusted number of Units).
(k) "Underlying Securities" shall refer to and include the
Common Shares and Underwriter's Class A Warrants issuable or issued upon
exercise of the Underwriter's Warrants as well as any Common Shares issued upon
the exercise of the Underwriter's Class A Warrants.
(l) "Holders" shall mean the registered holder of the
Underwriter's Warrants or any issued Underlying Securities.
2. The purchase rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part at any time, and from time
to time, for a period
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<PAGE>
commencing one year from the Effective Date and expiring on ___________, 2002
(the "Expiration Date"), by the surrender 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 Units.
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 Units 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 Underwriter's Warrant evidencing
the rights of the Holder hereof to purchase the balance of the Units 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.
In the event that the Underwriter's Class A Warrants have expired, this
Warrant will entitle the holder to purchase only the shares of Common Stock
included in the Units, subject to adjustment as provided for herein.
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 Underwriter's Warrants of different denominations entitling the Holder
thereof to purchase in the aggregate the same number of Units as are purchasable
hereunder; and (ii) this Warrant may be divided or combined with other
Underwriter'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 Underwriter's Warrants are to be issued, and the
payment of any transfer tax due in connection therewith.
4. The Underwriter's Class A Warrants included in the Units will be
subject to adjustment from time to time as set forth in the Warrant Agreement to
the same extent as the Class A Warrants which have been sold to the public.
Subject and pursuant to the provisions of this Section 4, the Purchase Price and
number of Common Shares included in the Units 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
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<PAGE>
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 Underwriter'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
Underwriter'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 Underwriter'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 Underwriter'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.
(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. For the purposes of the foregoing, no value
shall be given to the Underwriter's Class A Warrants.
4
<PAGE>
(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 Underwriter's Warrant need not be changed
because of any change pursuant to this Article, and Underwriter's Warrants
issued after such change may state the Purchase Price and the same number of
shares as is stated in the Underwriter'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 Underwriter's Warrant that
the Company may deem appropriate and that does not affect the substance thereof,
and any Underwriter'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
of the Company on the date set forth on the first page hereof or (ii) any other
class of stock resulting from successive changes or re-classifications of such
Common Stock consisting solely of changes in par value, or from no par value to
par value, or from par value to no par value. If at any time, as a result of an
adjustment made pursuant to Section 4, the securities or other property
obtainable upon exercise of this Warrant shall include shares or other
securities of the Company other than Common Shares or securities of another
corporation or other property, thereafter, the number of such other shares or
other securities or property so obtainable shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Shares contained in Section 4 and all
other provisions of this Warrant with respect to Common Shares shall apply on
like terms to any such other shares or other securities or property. Subject to
the foregoing, and unless the context requires otherwise, all references herein
to Common Shares shall, in the event of an adjustment pursuant to Section 4, be
deemed to refer also to any other securities or property then obtainable as a
result of such adjustments.
6. The Company covenants and agrees that:
5
<PAGE>
(a) During the period within which the rights represented by
this 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 the exercise of the
Underwriter's Class A Warrants and at its expense will obtain the listing
thereof on all national securities exchanges on which the Class A Warrants 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 and the exercise of the
Underwriter's Class A Warrants included therein, 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 or upon the exercise of the Underwriter's
Class A Warrants will, upon issuance and payment be validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof (except as may be concurrently discharged by the Company or the
Holder); and,
(c) All original issue taxes payable in respect of the
issuance of Common Shares upon the exercise of the rights represented by this
Warrant or the Underwriter's Class A Warrants 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 Underwriter'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 laws of the Company's state of
incorporation.
8. This Warrant shall not be sold, transferred, assigned or
hypothecated for a period of twelve (12) months from the effective date of the
Company's public offering with respect to which this Warrant has been issued,
except to officers of the Underwriter, 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 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
6
<PAGE>
notice to the Company expressing such Holder's intention of effecting such
disposition, and describing briefly such Holder's intention as to the
disposition to be made of this Warrant and/or the Underlying Securities
theretofore issued upon exercise hereof. Promptly upon receiving such notice,
the Company shall present copies thereof to its counsel and the provisions of
the following subdivisions shall apply:
(a) If, in the opinion of such counsel, the proposed
disposition does not require registration under the Act, or any similar Federal
statute then in force, of this Warrant and/or the securities issuable or issued
upon the exercise of this Warrant, the Company shall, as promptly as
practicable, notify the Holder hereof of such opinion, whereupon such holder
shall be entitled to dispose of this Warrant and/or such Underlying Securities
theretofore issued upon the exercise hereof, all in accordance with the terms of
the notice delivered by such Holder to the Company.
(b) If, in the opinion of such counsel, such proposed
disposition requires such registration or qualification under the Act, or
similar Federal statute then in effect, of this Warrant 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 Warrants and/or securities underlying
the Underwriters' Warrants. The Company agrees that it will, upon request by the
Representative or the holders of a majority of the Underwriters' Warrants and
Underlying Securities within the period commencing one year after the Effective
Date, and for a period of five years from the Effective Date, on one occasion
only at the Company's sole expense, cause the Underwriters' Warrants and/or the
Underlying Securities issuable upon exercise of the Underwriters' Warrants, to
be the subject of a post-effective amendment, 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
Underwriters' 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, new Registration Statement
to become effective and for a period of nine (9) months thereafter to reflect in
the post-effective amendment, 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
Underwriters' Warrants may demand registration without exercising such Warrants
and, in fact, are never required to exercise same.
The Company understands and will agree that if, at any time
within the period commencing one year after the Effective Date and ending
seven years after the
7
<PAGE>
Effective Date of the Company's Registration Statement, it should file a
Registration Statement with the Securities and Exchange Commission pursuant to
the Securities Act, regardless of whether some of the holders of the
Underwriters' Warrants and Underlying Securities shall have theretofore availed
themselves of the right provided above, the Company, at its own expense, will
offer to said holders the opportunity to register the Underwriters' Warrants and
Underlying Securities. This paragraph is not applicable to a Registration
Statement filed by the Company with the SEC 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 Underwriters' 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 Underwriters' 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 Common Stock in which case the cost and expense of such Registration
Statement will be prorated between the Company and the holders of the
Underwriters' Warrants and underlying securities according to the aggregate
sales price of the securities being issued. The holders of the Underwriters'
Warrants may include such Warrants in any such filing without exercising the
Underwriters' Warrants, and in fact, are never required to exercise same.
The Company can, at any time for any reason, withdraw any such registration
except in connection with a Registration Statement filed pursuant to the
Company's demand Registration Statement."
10. Whenever, pursuant to Section 9 hereof, a registration statement
relating to the Underwriter's Warrant or Underlying Securities is filed under
the Act, the Company agrees to indemnify and hold harmless the holder of this
Warrant, or of securities issuable or issued upon the exercise hereof, from and
against any claims and liabilities arising out of or based upon any untrue
statement of a material fact, or omission to state a material fact required to
be stated, in any such registration statement or prospectus, 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, in the same manner as set forth herein.
11. If this Warrant, or any of the securities issuable pursuant hereto,
require qualification or registration with, or approval of, any governmental
official or authority (other than registration under the Act, or any similar
Federal statute at the time in force), before such shares may be issued on the
exercise hereof, the Company, at its expense, will take all requisite action in
connection with such qualification, and will use its best efforts to cause such
securities and/or this Warrant to be duly registered or approved, as may be
required.
8
<PAGE>
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 Underwriter's Warrants of like tenor, representing, in the
aggregate, the right to subscribe for and purchase the number of Units or Common
Shares as the case may be that may be subscribed for and purchased hereunder,
each of such new Underwriter's Warrants to represent the right to subscribe for
and purchase such number of Units or Common Shares as the case may be as shall
be designated by the registered holder at the time of such surrender. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity satisfactory to the Company,
or in the case of such mutilation, upon surrender or cancellation of this
Warrant, the Company will issue to the registered holder a new Underwriter's
Warrant of like tenor, in lieu of this Warrant, representing the right to
subscribe for and purchase the number of Units or Common Shares as the case may
be that may be subscribed for and purchased hereunder. Nothing herein is
intended to authorize the transfer of this Warrant except as permitted under
Section 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, NY 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 Company will not merge or consolidate with or into any other
corporation, or sell or otherwise transfer its property assets and business
substantially as an entirety to another corporation, unless the corporation
resulting from such merger or consolidation (if not the Company), or such
transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement satisfactory in form to the Underwriter, the due and
punctual performance and observance of each and every covenant and condition of
this Warrant to be performed and observed by the Company.
16. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws provisions thereof and jurisdiction is hereby vested in the
Courts of said State in the event of the institution of any legal action under
this Warrant.
9
<PAGE>
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 _____________, 1997.
SUPERIOR SUPPLEMENTS, INC.
By:_________________________
Attest:
_________________________
(Corporate Seal)
10
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _____________ Common
Shares and _____________ Underwriter's Class A Warrants 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 and warrants shall be issued in the name set
forth below.
Dated: ,19
________________________________
Signature
________________________________
Print Name of Signatory
________________________________
Name to whom certificates are to
be issued if different from above
Address:________________________
Social Security No._____________
or other identifying number
If said number of shares and warrants shall not be all the shares and
warrants purchasable under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
________________________________
(Please Print)
Address:________________________
________________________________
Social Security No._____________
or other identifying number
________________________________
Signature
11
<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:
________________________________
12
<PAGE>
LETTERHEAD OF BERNSTEIN & WASSERMAN, LLP
February 5, 1997
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 250,000 units (the "Units"), each consisting of two (2)
shares of the Company's Common Stock, par value $.0001 per share (the "Common
Stock") and one (1) Class A Redeemable Common Stock Purchase Warrant (the "Class
A Warrants"). The offering also involves the grant to the Underwriters of an
option to purchase an additional 37,500 of such Units to cover over-allotments
in connection with the offering, the sale to the Underwriter of an option (the
"Unit Purchase Option") to purchase up to 25,000 of such Units and the
registration of an additional 2,000,000 shares of Common Stock and 3,000,000
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 Units, drafts of the Warrant Agreement and Unit 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
February 5, 1997
Page 2
- ------------------------------------------------------------------------------
Based on the foregoing, we are of the opinion that:
1. All shares of Common Stock included in the Units 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 Unit 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 Class A
Warrants, the Unit Purchase Option and the Class A Warrants included in the
Selling Securityholder's Securities have been duly authorized and reserved for
issuance and, when issued in accordance with the terms of the Class A Warrants,
the Unit Purchase Option or the Class A Warrants included in the Selling
Securityholder's 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, LLP
B&W/jm
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
Certified Public accountants
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Superior Supplements,
Inc. on Amendment No. 4 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
February 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-START> APR-24-1996 JUL-01-1996
<PERIOD-END> JUN-30-1996 DEC-31-1996
<CASH> 594,175 13,278
<SECURITIES> 1,067,000 115,000
<RECEIVABLES> 392,247 382,933
<ALLOWANCES> 0 0
<INVENTORY> 99,586 981,648
<CURRENT-ASSETS> 1,086,008 1,399,060
<PP&E> 341,328 981,605
<DEPRECIATION> 0 64,706
<TOTAL-ASSETS> 2,565,537 2,670,755
<CURRENT-LIABILITIES> 1,085,448 1,762,102
<BONDS> 500,000 500,000
0 0
500 500
<COMMON> 350 350
<OTHER-SE> 1,279,239 707,803
<TOTAL-LIABILITY-AND-EQUITY> 2,565,537 2,670,755
<SALES> 857,398 1,406,493
<TOTAL-REVENUES> 857,398 1,406,493
<CGS> 738,040 1,291,862
<TOTAL-COSTS> 738,040 1,291,862
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 21,705
<INCOME-PRETAX> 48,389 (574,036)
<INCOME-TAX> 13,200 0
<INCOME-CONTINUING> 35,189 (574,036)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 35,189 (574,036)
<EPS-PRIMARY> .01 (.16)
<EPS-DILUTED> .01 (.16)
</TABLE>
