<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1997
REGISTRATION NO. 333-9761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
------------------------
AMENDMENT NO. 5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUPERIOR SUPPLEMENTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2833 11-3320172
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
------------------------
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:
<TABLE>
<S> <C>
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)
</TABLE>
------------------------
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<PAGE>
<TABLE>
<CAPTION> PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER SECURITY MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) (2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, consisting of two (2) shares
of Common Stock, par value $.0001 per
share and two (2) Class A Warrants..... 250,000 $12.00 $3,000,000 $ 909.10
Common Stock, par value $.0001 per
share.................................. 500,000 - - -
Class A Warrants(3)..................... 500,000 - - -
Common Stock, par value $.0001 per
share underlying Class A Warrants(4)... 500,000 $5.25 $2,625,000 $ 795.45
Underwriters' Unit Purchase Option(5)... 50,000 $.001 $50.00 $ 0.02
Units, consisting of two (2) shares of
Common Stock, par value $.0001 per
share and two (2) Class A Warrants.... 50,000 $19.80 $990,000 $ 300.00
Common Stock, par value $.0001 per
share, underlying Underwriters' Unit
Purchase Option(5)..................... 100,000 - - -
Class A Warrants, underlying
Underwriters' Unit Purchase Option..... 100,000 - -
Common Stock, par value $.0001 per share
underlying Class A Warrants in
Underwriters' Unit Purchase Option...... 100,000 $5.25 $525,000 $ 159.09
Selling Securityholder................... - - - -
</TABLE>
(Cover continued on next page)
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER SECURITY MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) (2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, consisting of two (2) shares of
Common Stock, par value $.0001 per
share and two (2) Class A
Warrants(6)............................ 325,000 $12.00 $ 3,900,000 $ 1,181.82
Common Stock, par value $.0001 per
share(7)............................... 650,000 - - -
Class A Warrants(7)..................... 650,000 - - -
Common Stock, par value $.0001 per share
underlying Class A Warrants............ 650,000 $5.25 $ 3,412,500 $ 1,034.10
TOTAL................................... - - - $ 4,379.58
Amount previously paid.................. - - - $11,404.83
----------
Amount Due.............................. - - $14,452,550 $ 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.
(3) 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.
(4) 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.
(5) The Underwriters' Unit Purchase Option entitles the Underwriters to purchase
up to 50,000 Units consisting of 100,000 shares of Common Stock and 100,000
Class A Warrants at 165% of the offering price (the 'Underwriters' Option').
(6) Represents the resale of Units, each Unit consisting of two (2) shares of
Common Stock par value $.0001 per share and two (2) Class A Warrants held by
the Selling Securityholder.
(7) Includes 75,000 Units consisting of 150,000 shares of Common Stock and
150,000 Class A Warrants subject to the Underwriters' over-allotment option
(the 'Over-Allotment Option').
<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)
<TABLE>
<CAPTION>
ITEM IN FORM SB-2 PROSPECTUS CAPTION
-------------------------------------- -------------------------------------
<S> <C> <C>
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 Securityholder................ Description of Securities; Selling
Securityholder
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
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............... *
</TABLE>
- ------------------
* Omitted because Item is not applicable.
i
<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering ('Offering') of
Units, consisting of two (2) shares of Common Stock and two (2) Class A Warrants
by (a) Superior Supplements, Inc. (the 'Company') and (b) a certain selling
securityholder ('Selling Securityholder'). The Company is registering, under the
primary prospectus ('Primary Prospectus'), 250,000 Units consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants. The Company is registering
on behalf of the Selling Securityholder, under the Primary Prospectus, 325,000
Units consisting of 650,000 shares of Common Stock and 650,000 Class A Warrants
including 75,000 Units consisting of 75,000 shares of Common Stock and 75,000
Class A Warrants issuable upon exercise of the Over-Allotment Option. The
Company will not receive any proceeds of the sale of Units by the Selling
Securityholder.
ii
<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.
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1997
PROSPECTUS
SUPERIOR SUPPLEMENTS, INC.
500,000 UNITS, EACH UNIT CONSISTS OF TWO (2) SHARES
OF COMMON STOCK, PAR VALUE $.0001 PER SHARE, AND
TWO (2) CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
OFFERING PRICE PER UNIT--$12.00
------------------------
Of the securities being offered hereby, 250,000 Units will be sold by
Superior Supplements, Inc. and 250,000 Units will be sold by the Selling
Securityholder. The Company will not receive any of the proceeds from the sale
of the Units by the Selling Securityholder. See 'Description of Securities,'
'Selling Securityholder,' and 'Underwriting.'
------------------------
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 two (2) Class A Redeemable Common Stock Purchase Warrants (the
'Class A Warrants' and 'Warrants'). The securities comprising the Units will be
separately transferable immediately upon the date of this Offering (the 'Company
Offering'). See 'Description of Securities.' The Risk Factor section begins on
page 8 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.'
In addition, this Prospectus also covers the offer for sale by PMF, Inc.
('PMF'), a company wholly-owned and controlled by Barry Gersten, the founder of
the Company, of 250,000 Units consisting of 500,000 shares of Common Stock and
500,000 Class A Warrants at a price of 12.00 per Unit (the 'Selling
Securityholder Offering'). PMF is referred to as the 'Selling Securityholder.'
The Company Offering and the Selling Securityholder Offering are herein
collectively referred to as the 'Offering.' The terms of the Class A Warrants
included in the Units offered for sale by the Selling Securityholder are
identical to the terms of the Class A Warrants included in the Units offered for
sale by the Company. 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 included in the Units being registered on behalf of PMF
constitute 14.3% of such outstanding shares prior to the Offering and 12.5% of
the outstanding shares of Common Stock upon completion of the Offering. The
Company will not receive any of the proceeds on the sale of the Units by the
Selling Securityholder. The costs incurred in connection with the sale of these
250,000 Units will be borne by the Company.
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 assurance 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.'
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, the Selling Securityholder 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.'
------------------------
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 8 AND 'DILUTION' BEGINNING ON
PAGE 18.
------------------------
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.
[CAPTION]
<TABLE>
PROCEEDS TO
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) SECURITYHOLDER
<S> <C> <C> <C> <C>
Per Unit....................................... $12.00 $1.20 $10.80 $10.80
Total(3)....................................... $6,000,000(4) $600,000(5) $2,700,000 $2,700,000
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriters
in the form of: (i) a non-accountable expense allowance of $180,000
($207,000 if the Over-Allotment Option (as hereinafter defined) is exercised
in full), (ii) a two (2) year financial advisory and investment banking
agreement providing for fees of $72,000 payable in advance at the closing of
this Offering, and (iii) an option to purchase 50,000 Units at $19.80 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, and the Selling Securityholder 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 $677,000 including the Underwriters' non-accountable expense allowance
and the financial advisory fee referred to in Footnote (1) (not assuming
exercise of the Over-Allotment Option (as hereinafter defined), registration
fees, transfer agent fees, NASD fees, Blue Sky filing fees and expenses,
legal fees and expenses, and accounting fees and expenses. See 'Use of
Proceeds' and 'Underwriting.'
(3) Does not include 75,000 additional Units to cover over-allotments which the
Underwriters have an option to purchase from the Selling Securityholder 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 payable by the Company including the Underwriters' non-accountable
expense allowance will be $6,900,000, $690,000, and $704,000, respectively,
and the total proceeds to the Company and the Selling Securityholder will be
$1,996,000 and $3,510,000 respectively. See 'Underwriting.'
(4) Of this amount, $3,000,000 represents 250,000 Units offered by the Company
at $12.00 per Unit, and $3,000,000 represents 250,000 Units offered by the
Selling Securityholder at $12.00 per Unit.
(5) Of this amount, $300,000 is underwriting discounts and commissions on
250,000 Units offered by the Company and $300,000 is underwriting discounts
and commissions on 250,000 Units offered by the Selling Securityholder. 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.
VTR CAPITAL, INC.
INVESTMENT BANKERS
THE DATE OF THIS PROSPECTUS IS , 1997
<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). The Company
has filed with the Commission a registration statement on Form SB-2 (herein
together with all amendments and exhibits referred to as the 'Registration
Statement') under the Act of which this Prospectus forms a part. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information reference is made to the
Registration Statement.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY 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.
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.
2
<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) 500,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Units offered by the Company,
(ii) 500,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Units offered on behalf of the Selling Securityholder,
(iii) 75,000 Units consisting of 150,000 shares of Common Stock and 150,000
Class A Warrants issuable upon exercise of the Over-Allotment Option; (iv)
150,000 shares of Common Stock issuable upon exercise of the Class A Warrants
included in the Over-Allotment Option; (v) 50,000 Units consisting of 100,000
shares of Common Stock and 100,000 Class A Warrants issuable upon exercise of
the Underwriters' Option; (vi) 100,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Underwriters' Option; (vii)
2,500,000 shares of Common Stock issuable upon exercise of the Class A Warrants
held by PMF, Inc. ('PMF'), a company wholly-owned and controlled by Barry
Gersten, the founder of the Company, which are not being offered for sale in
this Offering, and (viii) employee stock options. See 'Description of
Securities,' 'Certain Transactions,' 'Selling Securityholder', '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.
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' trademark
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
3
<PAGE>
Stock of the Company pursuant to a Voting Trust Agreement with PMF. Messrs.
Spinello, Durchslag, Simon and Harriton 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. PMF is offering 250,000 Units for sale in this
Offering and is hereinafter referred to as the 'Selling Securityholder' or
'PMF.'
The Company intends to use the proceeds from this Offering received by the
Company to 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.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by
the Company(1)....................... 250,000 Units at a price of $12.50 per
per Unit. Each Unit consists of two (2)
shares of Common Stock and two (2) Class
A Warrants. 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.'
Securities Offered by the Selling
Securityholder(2).................... 250,000 Units at a price of $12.00 per
Unit. Each Unit is identical to the
Units being offered by the Company and
each Class A Warrant included in the
Units is identical in all respects to
the Class A Warrants offered by the
Company.
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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(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
SECURITIES OUTSTANDING SUBSEQUENT
TO THE OFFERING(3):
Common Stock......................... 4,000,000 Shares
Series A Preferred Stock............. 5,000,000 Shares
Class A Warrants..................... 3,500,000 Warrants
Use of Proceeds........................ The net proceeds to the Company from
the sale of the 250,000 Units offered
by the Company hereby, after deducting
Offering expenses and the $72,000
financial advisory fee, are estimated
to be $2,023,000. The net proceeds are e
expected to be applied for the following
purposes: acquisition of machinery and
equipment, marketing, 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; Benefits of
Offering to Selling Securityholder;
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; Voting Trust Agreement Granted to
Certain Directors; 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 of Delaware;
Inexperience of Representative. An
investment in the securities offered
hereby
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
involves a high degree of risk and 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(4)............................ Units--SPSUU Common Stock--SPSU Class A
Warrants--SPSUW
</TABLE>
- ------------------
(1) The Company is registering the sale of 250,000 Units, consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants. on behalf of the
Selling Securityholder. See 'Selling Securityholder' and 'Certain
Transactions.' If all of the Class A Warrants included in the Units offered
by the Company are exercised, of which there is no assurance, the Company
will receive gross proceeds therefrom aggregating up to an additional
$2,625,000. See 'Description of Securities.'
(2) The Selling Securityholder is wholly-owned and controlled by Barry Gersten,
the Company's founder. The Company will not receive any of the proceeds from
the sale of Units by the Selling Securityholder. See 'Selling
Securityholder.' If all of the Class A Warrants included in the Units
offered by the Selling Securityholder are exercised, of which there is no
assurance, the Company will receive gross proceeds therefrom aggregating up
to an additional $2,625,000. See 'Description of Securities.'
(3) Does not include (i) 500,000 shares of Common Stock issuable upon exercise
of the Class A Warrants included in the Units offered by the Company, (ii)
500,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Units offered by the Selling Securityholder, or
(iii) 2,500,000 shares of Common Stock issuable upon exercise of the Class A
Warrants held by the Selling Securityholder, PMF, Inc., a company
wholly-owned and controlled by Barry Gersten, which are not being offered
for sale in this Offering.
(4) 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.'
6
<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) Per Share(1).................. $ .01 $ (.16) $ (.15)
Weighted Average Number of Common Shares
Outstanding(1)................................ 3,500,000 3,500,000 3,500,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31, DECEMBER 31, 1996
1996(1) 1996(1) AS ADJUSTED(2)
---------- ---------- -----------------
<S> <C> <C> <C>
Working Capital (Deficit)................................. $ 560 $ (363,042) $ 1,731,958
Total Assets.............................................. $2,565,537 $2,670,755 $ 4,765,755
Total Liabilities......................................... $1,285,448 $1,962,102 $ 1,962,102
Retained Earnings (Deficit)............................... $ 35,189 $ (538,847) $ (538,847)
Stockholders' Equity...................................... $1,280,089 $ 708,653 $ 2,803,653
</TABLE>
- ------------------
(1) Does not include the sale of 250,000 Units consisting of 500,000 shares of
Common Stock and 500,000 Class A Warrants offered hereby by the Company.
(2) Reflects initial application of net proceeds of the 250,000 Units offered
hereby by the Company at the assumed initial public offering price of $12.00
per Unit.
7
<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 fully commence manufacturing operations. The
most significant of these are obtaining financing, which is expected to be
satisfied through the Offering, the acquisition of additional manufacturing
equipment and repaying indebtedness owed to the Bridge Lenders. See 'Use of
Proceeds.' There can be no assurance that the Company will be able to complete
all of these items in a timely manner, or at all, in order to allow the Company
to fully commence manufacturing operations. See 'Business.'
3. Limited Operating History, No Assurance that the Company will
Successfully Implement Business. The Company was organized on April 24, 1996
and is in its early stage of development. The Company's core business consists
of the supply agreements with PDK and CGI, although at the date of this
Prospectus, almost 100% of the Company's revenues are received from PDK. The
Company's prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by a small business in a highly competitive
industry. As of 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
expansion 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
8
<PAGE>
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
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. Benefits of Offering to Selling Securityholder. The Registration
Statement, of which this Prospectus forms a part, includes 250,000 Units,
consisting of 500,000 shares of Common Stock and 500,000 Class A Warrants owned
by the Selling Securityholder. Although the costs incurred with the registration
of these securities are to be borne by the Company, the Selling Securityholder,
and not the Company, will receive the proceeds from their sale, thus receiving a
benefit from the Company. After payment of underwriting discounts, an aggregate
of $2,700,000 (or an aggregate of $3,672,000 if the Over-Allotment Option is
exercised) will be received by the Selling Securityholder for the sale of its
securities. The Company believes that except for $90,000 (or $117,000
Over-Allotment Option is exercised) representing the non-accountable expense
allowance payable to the Underwriter on behalf of the Units offered for sale
under this Prospectus by the Selling Securityholder, any increase in expenses
attributable to the inclusion in the Registration Statement, of which this
Prospectus forms a part, of the Units owned by the Selling Securityholder is
minimal. Payment by the Company of these expenses (including the non-accountable
expense allowance and the 25,000 Units included in the Underwriters' Option
attributable to the Units offered by the Selling Securityholder) results in
benefits to the Selling Securityholder and in less of the net proceeds of this
Offering being available for use by the Company. See 'Certain Transactions,'
'Description of Securities,' 'Selling Securityholder,' and 'Underwriting.'
7. Significant Industry Competition. The market for dietary supplement
products is highly competitive in each of the Company's existing and anticipated
product lines and methods of distribution. Numerous manufacturers and
distributors compete for customers throughout the United States and
internationally in the 'bulk' packaged dietary supplement industry, selling
products to distributors who service health food, drug, convenience and mass
market stores, companies that market a branded or generic line of products but
do not manufacture these items ('repackagers'), and other manufacturers who
'outsource' a portion of their needs to supplement their own capacities. Many of
the Company's competitors are substantially larger and more experienced than the
Company, have longer operating histories and have materially greater financial
and other resources than the Company. Many of these competitors are private
companies, and therefore, the Company cannot compare its revenues with respect
to the sales volume of each competitor. The Company's significant competitors
include Nature's Bounty and International Vitamin Corporation, both of whom have
longer operating histories and materially greater financial and other resources
than the Company (although, no implication is intended hereby regarding the
Company's industry ranking in comparison to such competitors). There can be no
assurance that the Company will be able to compete successfully with its more
established and better capitalized competitors.
9
<PAGE>
8. Dilution; Equity Securities Sold Previously at Below Offering Price.
Upon completion of the sale of the Company's Units in this Offering, 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 $.66. At the initial
public offering price of $6.00 per share offered hereby (assuming no value
attributable to the Class A Warrants), investors in this Offering will
experience an immediate dilution of approximately $5.34 or 89% in net tangible
book value per share and existing investors will experience an increase of
approximately $.50 per share. Neither the sale of the Selling Securityholder's
Units in this Offering nor the exercise of the Over-Allotment Option have any
effect upon the net tangible book value per share. The exercise of the Class A
Warrants sold to the public (including any Class A Warrants issuable upon
exercise of the Over-Allotment Option) or held by PMF will result in future
dilution to the public investors. See 'Dilution.' The present stockholders of
the Company have acquired their respective equity interest at costs
substantially below the public offering price. Accordingly, to the extent that
the Company incurs losses, the public investors will bear a disproportionate
risk of such losses.
9. Conflicts of Interest. After this Offering, PMF, a company wholly-owned
and controlled by Barry Gersten, will continue to own 62.5% 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 71.4% 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.
10. 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
10
<PAGE>
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 operations although it believes they will not have a
material adverse effect.
On June 18, 1993, the FDA published an Advance Notice of Proposed
Rulemaking ('ANPR') soliciting comments on the concept of the overall regulatory
strategy to assure the safety of vitamins, minerals, herbs, amino acids and
other supplements. This follows a study by an internal FDA committee on the
current regulatory framework for dietary supplements and an FDA commissioned
study by the Federation of American Societies for Experimental Biology ('FASEB')
on the safety of amino acids. Although the internal FDA report has not yet been
issued, agency representatives have indicated that it will include a
recommendation that certain manufactured amino acids be available by
prescription only. The FASEB report, published in September 1992, concluded that
there was insufficient research and information on amino acids to allow them to
assert that single or incomplete mixtures of amino acids were safe and,
therefore, recommended that further research be conducted. The internal FDA
report, issued in conjunction with the publication of the ANPR, contains
recommendations concerning the possible regulation of dietary supplements by
category, including the regulation of single and incomplete mixtures of amino
acids either as drugs, 'food additives' or 'generally recognized as safe'
substances with potencies low enough to ensure safety. The ANPR has requested
input and comments from 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 Regulation.'
11. 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.
12. Dependence on Key Personnel. The Company is substantially dependent on
the continued services of Lawrence D. Simon. The Company has entered into a one
(1) year employment agreement 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.'
13. 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 62.5% of the outstanding Common Stock and
100% of the outstanding Preferred Stock representing a combined percentage of
the total combined vote after the Offering of 83.3%, and 71.4% of the
outstanding Class A Warrants. See 'Principal Stockholders.' Since holders of
Common Stock do not have any cumulative voting rights and directors are elected
by a majority
11
<PAGE>
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, PMF would continue to own 71.4% of the outstanding Class A
Warrants, which, if exercised, would mean that PMF would own a further 2,500,000
shares of the outstanding Common Stock representing 38.5% 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 65.2%. 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.'
14. 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.
15. 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.'
16. Product Liability Risks. In view of the nature of its business, the
Company is subject to the inherent risk of products liability claims in the
event that, among other things, the use or ingestion of its products results in
injury. Accordingly, currently the Company maintains product liability insurance
as a named insured on each of its suppliers' policies. Upon completion of the
Offering, the Company will purchase its own product liability insurance;
however, there can be no assurance that existing or future insurance coverage
will be sufficient to cover any possible product liability risks or that such
insurance will continue to be available to the Company on economically feasible
terms. See 'Business--Product Liability Insurance.'
17. 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, the Selling Securityholder 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.'
18. 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
12
<PAGE>
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 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.'
19. Current Prospectus and State Blue Sky Registration in Connection with
the Exercise of the Warrants. The Company will be able to issue the securities
offered hereby, shares of its Common Stock upon the exercise of the Class A
Warrants and Underwriters' Option only if (i) there is a current prospectus
relating to the Common Stock issuable upon the exercise 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 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
13
<PAGE>
or sold. Accordingly, the market for the Warrants may be limited because of the
Company's obligation to fulfill both of the foregoing requirements. See
'Description of Securities.'
20. Impact on Market of Warrant Exercise. In the event of the exercise of
a substantial number of Class A Warrants offered as part of the Units or owned
by PMF, the resulting increase in the amount of Common Stock of the Company in
the trading market could substantially affect the market price of the Common
Stock. See 'Description of Securities--Class A Warrants.'
21. Underwriters' Option. In connection with this Offering, the Company
will sell to the Underwriters, for nominal consideration, an option to purchase
50,000 Units consisting of 100,000 shares of Common Stock and 100,000 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 $19.80 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.'
22. Possible Adverse Effects of Ownership of Preferred Stock by PMF. The
Company's Certificate of Incorporation, as amended, authorizes the issuance of a
maximum of 10,000,000 shares of Preferred Stock on terms that may be fixed by
the Company's Board of Directors without further stockholder action. Prior to
this Offering, 5,000,000 shares of Preferred Stock have been issued by the
Company to PMF, a company wholly-owned and controlled by Barry Gersten. 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. '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.
14
<PAGE>
24. Redemption of Redeemable Warrants. The Class A Warrants are subject to
redemption by the Company, at any time, commencing one (1) year following the
date of this Prospectus, at a price of $.05 per Warrant if the closing bid price
for the Common Stock equals or exceeds $10.00 per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. In the
event that the Warrants are called for redemption by the Company, Warrantholders
will have thirty (30) days during which they may exercise their rights to
purchase shares of Common Stock. If holders of the Warrants elect not to
exercise them upon notice of redemption thereof, and the Warrants are
subsequently redeemed prior to exercise, the holders thereof would lose the
benefit of the difference between the market price of the underlying Common
Stock as of such date and the exercise price of such Warrants, as well as any
possible future price appreciation in the Common Stock. The Company does not
intend to redeem the Class A Warrants at a time when a current prospectus is not
in effect. As a result of an exercise of the Warrants, existing stockholders
would be diluted and the market price of the Common Stock may be adversely
affected. If a Warrantholder fails to exercise his rights under the Warrants
prior to the date set for redemption, the Warrantholder will be entitled to
receive only the redemption price, or $.05 per Warrant. In addition, the
Warrants may only be exercised when a Prospectus is current and meets the
requirements of Section 10 of the Securities Act of 1933. See 'Description of
Securities--Class A Warrants.'
25. No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
See 'Dividend Policy.'
26. Limitation on Director Liability. As permitted by Delaware corporation
law, the Company's Certificate of Incorporation limits the liability of
Directors to the Company or its stockholders to monetary damages for breach of a
Director's fiduciary duty except for liability in certain instances. As a result
of the Company's charter provision and Delaware law, stockholders may have a
more limited right to recover against Directors for breach of their fiduciary
duty other than as existed prior to the enactment of the law. See 'Description
of Securities--Limitation on Liability of Directors.'
27. Shares Eligible for Future Sale May Adversely Affect the Market. All
of the Company's currently outstanding shares of Common Stock are 'restricted
securities' and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding 'restricted securities' for a period of two (2)
years may sell only an amount every three (3) months equal to the greater of (a)
one percent (1%) of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four (4) calendar weeks preceding the
sale. The amount of 'restricted securities' which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for three (3) years if there is
adequate current public information available concerning the Company. It should
be noted, however, that the Commission is currently considering changing the two
(2) year holding period 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 3,500,000 shares are 'restricted securities', all of which
are eligible for resale in April 1998 and 500,000 shares of which are being
registered under the Registration Statement of which this Prospectus forms a
part.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop, and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See 'Description of
Securities.'
28. Anti-Takeover Effect of General Corporation Law of Delaware. The
Company is governed by the provisions of Section 203 of the General Corporation
Law of Delaware, an anti-takeover law enacted in 1988. As a result of Section
203, potential acquirors of the Company may be discouraged from attempting to
effect acquisition transactions with the Company, thereby possibly depriving
holders of the Company's securities of
15
<PAGE>
certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transactions. See 'Description of
Securities.'
29. 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.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 250,000 Units offered
hereby by the Company, are estimated to be $2,023,000 (after deducting
approximately $300,000 in underwriting discounts, other expenses of this
Offering estimated to be $677,000, which includes the Underwriters'
non-accountable expense allowance of $180,000, 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).................................... $1,200,000 59.3%
Expansion of Marketing(2)................................................. $ 215,000 10.6%
Working Capital(3)........................................................ $ 608,000 30.1%
------------ ------
Total..................................................................... $2,023,000 100.0%
</TABLE>
- ------------------
(1) The Company is acquiring additional tablet presses, encapsulating machines,
blending equipment and laboratory instruments.
(2) Attendance at trade shows and advertising in trade publications.
(3) 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. In the event of
exercise of the Over-Allotment Option, the Company will be required to pay
the Underwriters an additional non-accountable expense allowance in the
amount of $27,000 and working capital will be reduced accordingly.
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, 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 and/or the proceeds of
this Offering decrease as a result of expense payable by the Company in
connection with the exercise by the Underwriters of their Over-Allotment Option,
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 the sale of 250,000 Units consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants by the Company (assuming no
value is attributable to the Class A Warrants) with net proceeds of $2,095,000
(without deducting the $72,000 financial advisory fee), the pro forma net
tangible book value of the Common Stock would have been $2,648,814 or
approximately $.66 per share. This represents an immediate increase in pro forma
net tangible book value of $.50 per share to the present stockholders and an
immediate dilution of $5.34 per share (89%) to the public purchasers. Neither
the sale of the Selling Securityholder's Units in this Offering nor the exercise
of the Over-Allotment Option have any effect upon the net tangible book value
per share. 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>
<S> <C> <C>
Public offering price of each Share offered hereby(1)(4)................................ $6.00
Net tangible book value per share....................................................... $ .16
Increase per share attributable to the Shares offered hereby............................ $ .50
Pro Forma net tangible book value per share after Offering(3)........................... $ .66
Dilution of net tangible book value per share to purchasers in this Offering(2)(3)...... $5.34
</TABLE>
- ------------------
(1) Before deduction of underwriting discounts, commissions, fees and Offering
expenses.
(2) Assuming no exercise of the Underwriters' Option or the Class A Warrants
included in the Units offered by the Company and the Selling Securityholder
or issuable upon exercise of the Over-Allotment Option or Underwriters'
Option. See 'Underwriting' and 'Description of Securities.'
(3) Assuming no exercise of the 2,500,000 Class A Warrants held by PMF, a
company wholly-owned and controlled by Barry Gersten which are not being
offered for sale in this Offering. See 'Selling Securityholder' 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 $12.00 per Unit before deducting
underwriting discounts and commissions and estimated Offering expenses).
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
COMMON CASH PERCENT OF
STOCK PERCENT OF CONSIDERATION TOTAL CASH AVERAGE PRICE
PURCHASED EQUITY OWNED PAID CONSIDERATION PER SHARE
--------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
New Stockholders........... 500,000 12.5% $ 3,000,000 69.7% $ 6.00
Existing Stockholders...... 3,500,000 87.5% $ 1,305,000(1) 30.3% $ 0.37
--------- ------------ ------------- ------------- -------------
Total................. 4,000,000 100% $ 4,305,000 100% $ 1.08
</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 by the Company but without giving
effect to the exercise of the Underwriters' Option, or any outstanding options
or warrants, including those held by PMF.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted gives effect to the sale by the Company of
250,000 Units consisting of 500,000 shares of Common Stock and 500,000 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 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 $ 500,000
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 $3,399,100
Deficit........................................... $ (538,847) $ (538,847)
Unrealized loss on available for sale
investments..................................... $ (57,500) $ (57,500)
Total Stockholders' Equity........................ $ 708,653 $2,803,653
Total Capitalization.............................. $1,208,653 $3,303,653
</TABLE>
- ------------------
(1) Does not include the sale of 250,000 Units offered hereby by the Company.
(2) As Adjusted balance sheet reflects the sale of 250,000 Units offered hereby
by the Company and the anticipated application of the net proceeds of
$2,095,000 therefrom, after deducting estimated Offering expenses of
$905,000. 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.
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.
19
<PAGE>
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. 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. In order to
expedite NASD approval of the Offering, in February 1997, the Company repaid its
obligations under the Principal Bridge Notes and the Convertible Bridge Notes.
As a result, the holders of the Convertible Bridge Notes have forfeited their
right to convert such Notes into Class A Warrants.
20
<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) Per Share(1).................. $ .01 $ (.16) $ (.15)
Weighted Average Number of Common Shares
Outstanding(1)................................ 3,500,000 3,500,000 3,500,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER
31, DECEMBER 31, 1996
JUNE 30, 1996(1) 1996(1) AS ADJUSTED(2)
---------------- ---------- -----------------
<S> <C> <C> <C>
Working Capital (Deficit)................................ $ 560 $ (363,042) $ 1,731,958
Assets................................................... $2,565,537 $2,670,755 $ 4,765,755
Total Liabilities........................................ $1,285,448 $1,962,102 $ 1,962,102
Retained Earnings (Deficit).............................. $ 35,189 $ (538,847) $ (538,847)
Stockholders' Equity..................................... $1,280,089 $ 708,653 $ 2,803,653
</TABLE>
- ------------------
(1) Does not include the sale of 250,000 Units consisting of 500,000 shares of
Common Stock and 500,000 Class A Warrants offered hereby by the Company.
(2) Reflects initial application of net proceeds of the 250,000 Units offered
hereby by the Company at the assumed initial public offering price of $12.00
per Unit.
21
<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, 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,
production 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.
22
<PAGE>
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' Option) will be sufficient to
fund its liquidity needs for at least the next twelve months.
In order to expedite NASD approval of the Offering, in February 1997, the
Company repaid its obligations under the Principal Bridge Notes and the
Convertible Bridge Notes. As a result, the holders of the Convertible Bridge
Notes have forfeited their right to convert such Notes into Class A Warrants.
23
<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' trademark
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, Simon and Harriton 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.
24
<PAGE>
The Company intends to use the proceeds from this Offering received by the
Company to acquire additional manufacturing equipment, expand its marketing
efforts, and for general working capital purposes. See 'Use of Proceeds.'
The Company maintains its executive offices at 270 Oser Avenue, Hauppauge,
New York 11788, telephone number (516) 231-0783.
INVESTMENT IN CGI
Although the Company accepted part payment for CGI's subscription for
shares of Common Stock in the Company in the form of shares of common stock of
CGI, the Company does not intend to invest in any other company.
MANUFACTURING
The vitamin production process includes the following stages: testing of
raw materials, pharmacy, blending, compression, coating and testing of finished
tablets or capsules. The vitamin production process involves sending the raw
materials through each stage of production in order to form vitamin products.
The principal raw materials needed in the manufacturing process are natural
and synthetic vitamins which will be purchased from manufacturers in the United
States, Japan and Europe. The Company can purchase raw materials from numerous
sources and is not dependent on any major supplier. The Company believes that
the materials to be purchased from these suppliers are readily available from
numerous sources and the loss of these suppliers would not adversely affect its
operations.
The Company has one large Gemco blender-mixer and one PK blender to handle
mixing for dry batches of production. The plant will be equipped with twelve
tablet presses, four encapsulating machines, and one capsule imprint machine
available for customizing each capsule. The production machines have the
combined capacity of producing per annum, in excess of one billion two hundred
million (1,200,000,000) tablets and capsules of various sizes and shapes.
Several of the tablet presses have the capability to encode a name or logo on
the tablets based on the punches used. In addition, the plant will have one
tablet imprint machine for customizing tablet products.
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,
25
<PAGE>
convenience and mass market stores. In addition, the Company supplies other
manufacturers which 'outsource' a portion of their needs on an ongoing basis to
supplement their own capacities.
The Company does not intend to rely on distributors or distribution
channels affiliated with PDK or CGI. The Company markets and distributes
products in bulk tablet, capsule and powder form whereas PDK and CGI sell these
products in bottled or packaged form. The market the Company intends to serve
includes customers marketing numerous brand names whereas the market served by
PDK and CGI is specific to a brand or affiliated brand of PDK or CGI.
The Company has begun working to capitalize on the global opportunities
created by an increasing worldwide recognition of the benefits of dietary
supplements and the perception that 'American made supplements' offer the safest
and highest quality products available. The Company is establishing
relationships with brokers, manufacturer representatives and distributors in
Canada, Latin America, Europe and parts of Asia.
The Company intends to use a portion of the proceeds from the Offering to
establish a network of manufacturer representatives throughout the United States
for the purposes of obtaining new customers who purchase dietary supplements in
bulk tablet and capsule form.
Arrangements with brokers and manufacturing representatives will be decided
on an 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 December 31, 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.'
26
<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 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
27
<PAGE>
determine at this time whether the new regulations will have any adverse effect
on its operations, although it believes that they will not have a material
adverse effect.
In addition, the FDA issued an Advanced Notice of Proposed Rulemaking on
June 18, 1993 ('ANPR') requesting comments on the general regulation of certain
dietary supplements, such as herbs, fish and plant oils, fatty acids, fibers and
vegetable gums, and amino acids. Some of these substances are sold by the
Company. In connection therewith, the FDA commissioned the Federation of
American Societies for Experimental Biology ('FASEB') to conduct a study of the
safety of amino acids. The FASEB report published in September 1992 concluded
that there was insufficient research and information on amino acids to conclude
that added, manufactured, or incomplete mixtures of amino acids are safe and,
therefore, recommended that further research be conducted. The internal FASEB
report issued in connection with the ANPR contains recommendations concerning
the possible regulation of dietary supplements by category.
The Company cannot determine whether separate regulations will be issued
for these substances, or what effect any new regulations for such substances,
when and if promulgated, will have on its business in the future. The FDA or
other governmental regulations or administrative orders concerning such
substances, when and if promulgated, could require the reformulation of certain
products to meet new standards or require the recall or discontinuance of
certain products not capable of reformulation.
The Dietary Supplement Act of 1992 requires that the Comptroller General of
the United States and the Director of the Office of Technology Assessment
undertake separate studies of FDA regulation of dietary supplements and make
recommendations in Congress which would reduce or modify the FDA's authority to
regulate dietary supplements. While these bills have not been enacted as law,
there is a strong likelihood that Congress will again consider such legislation.
There is no assurance, however, that these bills will ultimately be passed and
signed into law.
Any such legislation reducing the FDA's authority to modify dietary
supplements could result in the Company being subject to fewer regulatory
requirements and would, therefore, have no adverse impact on the Company. Any
modification which increases the FDA's regulatory authority could subject the
Company to additional expenses in order to comply with more stringent
requirements and could have a materially adverse impact on the Company by
limiting products or causing the Company to incur additional expenses in order
to comply with these regulations.
CONFLICT OF INTERESTS
After this Offering, PMF, a company wholly-owned and controlled by Barry
Gersten, will continue to own 62.5% 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 71.4% 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
28
<PAGE>
$1,000,000 and that the Company is named insured on the policy. Upon completion
of the Offering, the Company will purchase its own product liability insurance
with coverage up to $1,000,000 on claims made. While management believes that
its insurance coverage is adequate, there can be no assurance that any judgment
against the Company will not exceed liability coverage. A judgment significantly
in excess of the amount of insurance coverage would have a material adverse
effect on the Company.
FACILITIES
The Company's headquarters, plant operations, warehousing and shipping
facilities are housed in a modern forty thousand (40,000) square foot building.
The Company leases the building pursuant to an agreement with Park Associates,
the landlord, which expires on October 14, 1998. The lease provides for the
Company to pay rent in the following amounts: from May 1, 1996 through August 1,
1996 no base rent shall be due. From August 1, 1996 through May 31, 1997 the
base rent shall be $23,000 monthly. From June 1, 1997 through October 14, 1997
the base rent shall be $19,166.67 monthly. From October 15, 1997 through October
14, 1998 the base rent shall be $20,833.33 monthly. In the judgment of
management, the lease with the landlord reflects a rent at current fair market
value.
The Facility is equipped with a modern, state-of-the-art dust collection
system which extracts dust particles from the air and recycles the air through
massive filters. The dust collection system is designed to ensure that no
contaminants are emitted into the environment.
The Facility will maintain a modern and well equipped pharmaceutical
laboratory. The Company believes that the one thousand five hundred (1,500)
square foot laboratory will have the capability of adhering to any current or
anticipated regulatory requirement.
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.
29
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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.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD WITH THE COMPANY
- ----------------------- --- ----------------------------------------------
<S> <C> <C>
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
</TABLE>
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Lawrence D. Simon has been the President, Chairman, Chief Financial Officer
and a Director of the Company since May 1, 1996. He was the National Sales
Director for Futurebiotics, Inc. ('Futurebiotics') from October 1, 1995, until
his resignation on April 30, 1996. Futurebiotics distributes, markets and sells
vitamins, minerals, herbal formulations and specialty nutritional supplements
principally to health food stores through regional distributors. Prior to
joining Futurebiotics Mr. Simon was Regional Sales Manager for PDK Labs Inc.,
(from April 10, 1992 to September 30, 1995). Prior to PDK Labs Inc., Mr. Simon
was President of LDS Products Inc. (from March 1990 to March of 1991). LDS
Products Inc., is a brokerage corporation specializing in sales to wholesale
companies in Eastern Europe. Prior to LDS Products Inc., Mr. Simon was an
Auditor with Coopers & Lybrand LLP (from December 1988 to March 1990). He is a
graduate of Cleveland State University with a Bachelors Degree in Business
Administration.
Reginald Spinello has been a Director of the Company since May 1, 1996. He
has been the President and a Director of Futurebiotics since its formation in
March, 1994. Futurebiotics distributes, markets and sells vitamins, minerals,
herbal formulations and specialty nutritional supplements principally to health
food stores through regional distributors. In addition, he is the Executive Vice
President of PDK Labs Inc., a position he has held since September 1993. Mr.
Spinello joined PDK Labs Inc. in September 1991 as Vice President of Operations.
Prior to joining PDK Labs Inc. Mr. Spinello was President and Founder of
Internal Reinforcements from 1985 to 1991, a specialty distributor and marketer
of natural vitamins and supplements. Prior to Internal Reinforcements, Mr.
Spinello was Founder and President of Superior Supplements (a company with no
affiliation to the Company). Mr. Spinello sold his entire interest in this
company in 1985 and the company was dissolved in 1992. Mr. Spinello graduated
from Bryant College with a B.S. Degree in Business Administration. Additionally,
he has studied in the field of nutrition and is a non-practicing nutrition
consultant. See 'Risk Factors--Conflicts of Interest.'
Matthew L. Harriton has been a Director and Secretary of the Company since
May 1, 1996. He has also been a director of Decor Group, Inc. since March 1996.
Decor Group, Inc. is the holding 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
30
<PAGE>
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.
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- --------- -------------------
(E) (F) (H) (I)
OTHER RESTRICTED (G) LTIP ALL OTHER
(A) (B) (C) (D) ANNUAL STOCK OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION AWARDS($) SARS(#) ($) ($)
- ----------------------------------- ---- --------- ----- ------------ --------- -------- ------- ------------
<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
$5.00 per share exercisable one year from the Effective Date of the
Company's initial public offering.
OPTION/SAR GRANTS
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO (D) (E)
(A) OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE ($/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>
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
(B) FY-END (#) FY-END ($)
(A) SHARES ACQUIRED (C) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) 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.
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
32
<PAGE>
employees with the interests of stockholders of the Company by linking benefits
to stock performance and to retain the services of such employees, as well as to
attract new key employees. In furtherance of that purpose, the 1996 Plan
authorizes the grant to executives and other key employees of the Company and
its subsidiaries of stock options, restricted stock, deferred stock, bonus
shares, performance awards, dividend equivalent rights, limited stock
appreciation rights and other stock-based awards, or any combination thereof.
The 1996 Plan is expected to provide flexibility to the Company's compensation
methods, after giving due consideration to competitive conditions and the impact
of federal tax laws.
The maximum number of shares of Common Stock with respect to which awards
may be granted pursuant to the 1996 Plan is initially 2,000,000 shares. Shares
issuable under the 1996 Plan may be either treasury shares or authorized but
unissued shares. The number of shares available for issuance will be subject to
adjustment to prevent dilution in the event of stock splits, stock dividends or
other changes in the capitalization of the Company.
The 1996 Plan will be administered by a committee consisting of not less
than two (2) members of the Board of Directors who are 'disinterested' within
the meaning of Rule 16b-3 promulgated under the Exchange Act and 'outside
directors' within the meaning of Section 162(m) of the Code (including persons
who may be deemed outside directors by virtue of any transitional rule which may
be adopted by the Internal Revenue Service implementing such Section). The Board
will determine the persons to whom awards will be granted, the type of award
and, if applicable, the number of shares to be covered by the award. During any
calendar 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
33
<PAGE>
result of the stock-for-stock payment method is that the optionee can generally
avoid immediate tax liability with respect to any appreciation in the value of
the stock utilized to exercise the Option.
Shares received by an optionee upon exercise of a Non-Incentive Option may
not be sold or otherwise disposed of for a period determined by the Board upon
grant of the Option, which period shall be not less than six (6) months nor more
than three (3) years from the date of acquisition of the shares (the 'Restricted
Period'), except that, during the Restricted Period (i) the optionee may offer
the shares to the Company and the Company may, in its discretion, purchase up to
all the shares offered at the exercise price and (ii) if the optionee's
employment terminates during the Restricted Period (except in limited
instances), the optionee, upon written request of the Company, must offer to
sell the shares to the Company at the exercise price within seven (7) business
days. The Restricted Period shall terminate in the event of a Change in Control
of the Company (as defined), or at the discretion of the Board. After the
Restricted Period, an optionee wishing to sell must first offer such shares to
the Company at the Fair Market Value.
Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ('LSAR'), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable restrictive period,
restricted stock that is at the time subject to restrictions shall be forfeited
and reacquired by the Company. Except as otherwise provided by the Committee at
the time of grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited. Until such time as the stock which is the subject
of the award is issued, the recipient of the award has no rights as a
stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient the
right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a free standing award.
Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall 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.
34
<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>
PERCENTAGE (%)
NAME AND SHARES OF PERCENTAGE (%) OF PERCENTAGE (%) OF OF TOTAL
ADDRESS OF COMMON COMMON STOCK COMMON STOCK SHARES OF COMBINED VOTE
BENEFICIAL OWNER STOCK OWNED BEFORE OFFERING AFTER OFFERING PREFERRED STOCK BEFORE OFFERING
- ------------------------------ ----------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
PMF, Inc.(1)(2) .............. 3,000,000 85.7 62.5 5,000,000 94.1
Compare Generiks, Inc.(3) .... 500,000 14.3 12.5 0.0 5.89
Lawrence D. Simon(1)(4)(6) ... 0.0 0.0 0.0 5,000,000 58.8
Reginald Spinello(1)(6) ...... 0.0 0.0 0.0 5,000,000 58.8
Matthew L. Harriton(1) ....... 0.0 0.0 0.0 0.0 0.0
Dr. Daniel
Durchslag(1)(6) ............ 0.0 0.0 0.0 5,000,000 58.8
Steven F. Wasserman(5) ....... 0.0 0.0 0.0 0.0 0.0
All officers and directors as
a group (five (5)
persons)(6) ................ 0.0 0.0 0.0 5,000,000 58.8
<CAPTION>
PERCENTAGE (%)
NAME AND OF TOTAL
ADDRESS OF COMBINED VOTE
BENEFICIAL OWNER AFTER OFFERING
- ------------------------------ --------------
<S> <C>
PMF, Inc.(1)(2) .............. 83.3
Compare Generiks, Inc.(3) .... 5.6
Lawrence D. Simon(1)(4)(6) ... 55.6
Reginald Spinello(1)(6) ...... 55.6
Matthew L. Harriton(1) ....... 0.0
Dr. Daniel
Durchslag(1)(6) ............ 55.6
Steven F. Wasserman(5) ....... 0.0
All officers and directors as
a group (five (5)
persons)(6) ................ 55.6
</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.
35
<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.'
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' trademark 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.
36
<PAGE>
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. 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. In order to expedite NASD
approval of the Offering, in February 1997, the Company repaid its obligations
under the Principal Bridge Notes and the Convertible Bridge Notes. As a result,
the holders of the Convertible Bridge Notes have forfeited their right to
convert such Notes into Class A Warrants.
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.
37
<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 two (2) Class A Warrants.
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
of which 3,500,000 shares will be issued and outstanding as of the date of this
Prospectus. All of the issued and outstanding shares of Common Stock will be
fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See 'Dividend Policy.'
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any preemptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one (1) vote for
each share held at all stockholders' meetings including the annual meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 10,000,000 shares of
'blank check' Preferred Stock, whereby the Board of Directors of the Company
shall have the authority, without further action by the holders of the
outstanding Common Stock, to issue shares of Preferred Stock from time to time
in one or more classes or series, to fix the number of shares constituting any
class or series and the stated value thereof, if different from the par value,
and to fix the term of any such series or class, including dividend rights,
dividend rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the redemption price and the
liquidation preference of such class or series. As of the date of this
Prospectus, there are 5,000,000 shares of Series A Preferred Stock issued and
outstanding. The Company has agreed with the Underwriters that it will not issue
any additional shares of preferred stock for a period of twenty four (24) months
from the date of this Prospectus without the prior written consent of the
Underwriter.
SERIES A PREFERRED STOCK
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, all 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.
38
<PAGE>
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 within a period of thirty (30) trading days
ending on the fifth trading day prior to the date of the notice of redemption.
Upon thirty (30) days' written notice to all holders of Class A Warrants, the
Company shall have the right, subject to compliance with Rule 13E-4 under the
Securities Exchange Act of 1934 and the filing of Schedule 13E-4 and, if
required, a post-effective amendment to this registration statement, to reduce
the exercise price and/or extend the term of the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a holder
of Class A Warrant certificates resides, such holder might not be permitted to
exercise the Warrants. See 'Risk Factors--Current Prospectus and State Blue Sky
Registration in Connection with the Exercise of the Warrants.'
Each Class A Warrant may be exercised by surrendering the Warrant
certificate, with the form of election to purchase on the reverse side of the
Class A Warrant certificate properly completed and executed, together with
payment of the exercise price, or $5.25 per share, to the Transfer Agent. The
Class A Warrants may be exercised in whole or from time to time in part. If less
than all of the Class A Warrants evidenced by a Warrant certificate are
exercised, a new Class A Warrant certificate will be issued for the remaining
number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the Class A Warrants will result in the dilution
of the then book value of the Common Stock of the Company held by the public
investors and would result in a dilution of their percentage ownership of the
Company.
DELAWARE ANTI-TAKEOVER LAW
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a 'business
combination' with an 'interested stockholder' for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.
LIMITATION ON LIABILITY OF DIRECTORS
In connection with the Offering, the Underwriters have agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the Registration Statement or the Prospectus or any amendment or supplement
thereto if such
39
<PAGE>
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.
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the 'Transfer Agent').
40
<PAGE>
SELLING SECURITYHOLDER
The Registration Statement of which this Prospectus forms a part also
covers the registration of an aggregate of 250,000 Units, consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants, all of which are held by
PMF, Inc. ('PMF') (hereinafter referred to as the 'Selling Securityholder'). 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 included in the Units being registered on behalf of PMF constitute 14.3%
of such outstanding shares prior to the Offering and 12.5% of the outstanding
shares of Common Stock upon completion of the Offering. The Underwriter is
purchasing from the Selling Securityholder an aggregate of 250,000 Units on a
firm commitment basis for offer and sale to the public concurrently with the
offer and sale of 250,000 Units by the Company. The Company will not receive any
proceeds from the sale of these Units on behalf of the Selling Securityholder.
With respect to these Units, the Underwriter will receive from the Company a
non-accountable expense allowance equal to three percent of the total proceeds
of the offering of these additional 250,000 Units or $90,000 (or $117,000 if the
Over-Allotment Option is exercised). See 'Underwriting.' The costs of qualifying
these additional 250,000 Units under federal and state securities laws, together
with legal and accounting fees, printing and other costs in connection with this
Offering, will be paid by the Company. The Selling Securityholder has granted an
option to the Underwriters, exercisable during the thirty (30) day period from
the date of this Prospectus, to purchase up to a maximum of 75,000 additional
Units at the Offering price, less the underwriting discount, to cover
over-allotments, if any. In addition, as part of the Underwriter's Option, the
Company has agreed to sell to the Underwriter, for nominal consideration, an
option to acquire from the Company up to an additional 25,000 Units, which
amount represents ten percent of the aggregate number of Units being offered by
the Selling Securityholder.
The following table sets forth the holders of the shares of Common Stock
and Class A Warrants included in the Units which are being offered by the
Selling Securityholder and the number of Shares and Class A Warrants owned
before the Offering, the number of Shares and Class A Warrants being offered and
the number of Shares and Class A Warrants and the percentage of the class to be
owned after the Offering is complete, assuming the completion of the Offering.
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF PERCENT OF
COMMON WARRANTS COMMON CLASS A SHARES OF CLASS A PERCENT OF CLASS A
STOCK OWNED OWNED STOCK WARRANTS STOCK OWNED WARRANTS COMMON WARRANTS
BEFORE BEFORE OFFERED OFFERED AFTER OWNED AFTER STOCK AFTER AFTER
NAME OFFERING OFFERING HEREBY HEREBY OFFERING OFFERING OFFERING OFFERING
----- ----------- --------- --------- -------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PMF, Inc....... 3,000,000 3,000,000 500,000 500,000 2,500,000 2,500,000 62.5 71.4
Total.......... 3,000,000 3,000,000 500,000 500,000 2,500,000 2,500,000 62.5 71.4
</TABLE>
41
<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, Inc. is acting as the Representative, have agreed to purchase (a) from
the Company 250,000 Units consisting of 500,000 shares of Common Stock and
500,000 Class A Warrants, and (b) from the Selling Securityholder 250,000 Units
consisting of 500,000 shares of Common Stock and 500,000 Class A Warrants,
offered hereby 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 $12.00 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 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.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS UNITS
- ------------------------------ ---------
<S> <C>
VTR Capital, Inc.............. --
Investors Associates, Inc..... --
---------
</TABLE>
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,
the Selling Securityholder 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 Selling Securityholder has granted an option to the Underwriters,
exercisable during the thirty (30) day period from the date of this Prospectus,
to purchase up to a maximum of 75,000 additional Units at the Offering price,
less the underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
(a) the Company and the Underwriters, and (b) the Company and the Selling
Securityholder, 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 been advised by each of the Company's officers and
directors that none of the Company's officers, directors or any of their
respective affiliates intend to purchase securities in the Offering.
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
offered by the Company and the Selling Securityholder, including any Units
purchased pursuant to the Over-Allotment Option.
The Company has agreed to sell to the Underwriters, or their designees, for
an aggregate purchase price of $25, an option (the 'Underwriters' Option') to
purchase up to an aggregate of 50,000 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
42
<PAGE>
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 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
Regulation M (formerly 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 Regulation M
(formerly 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 one or five 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 Units, 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.
43
<PAGE>
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, the Selling Securityholder 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.
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 assurance 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, N.W., Washington, D.C. 20549 at prescribed
rates.
44
<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 TO 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>
i
<PAGE>
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.
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,
1996 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
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 (Notes 4 and 14).............................................. $ 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
APRIL 24, SIX MONTHS CUMULATIVE
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.
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
F-6
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
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
F-7
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
4. BRIDGE NOTES PAYABLE:--(CONTINUED)
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. See subsequent
event footnote 14(b).
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.
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
F-8
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
7. STOCKHOLDERS' EQUITY:--(CONTINUED)
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 two Class A Warrants. The unit offering price
will be dependent upon market conditions on the effective date.
Accordingly, the extent to which this transaction will be successful, or if
it will be successful at all, cannot be ascertained prior to its
completion.
f. Stock option plan
The Company has adopted a Stock Option Plan (the 'Plan') covering
2,000,000 shares of common stock of the Company. Options under the Plan are
granted at terms set by the Board of Directors at the time of issuance. To
date, no options have been granted under the Plan.
8. INCOME TAXES:
Income tax provision (benefit) consists of the following:
<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.
F-9
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
8. INCOME TAXES:--(CONTINUED)
The difference between the Corporation's effective income tax rate and the
United States Statutory rate is reconciled below:
<TABLE>
<CAPTION>
PERIOD
APRIL 24, 1996
(INCEPTION)
JUNE 30, 1996
--------------
<S> <C>
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%
------
------
</TABLE>
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:
<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.
F-10
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
9. COMMITMENTS:--(CONTINUED)
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.
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).
F-11
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
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 EVENTS:
a. 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.
b. In February 1997, the Company repaid its obligations under the Principal
Bridge Notes and the Convertible Bridge Notes. As a result, the holders of the
Convertible Bridge Notes have forfeited their right to convert such Notes into
Class A Warrants.
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................................ 2
Prospectus Summary............................................... 3
The Company...................................................... 3
The Offering..................................................... 4
Summary Financial Information.................................... 7
Risk Factors..................................................... 8
Use of Proceeds.................................................. 17
Dilution......................................................... 18
Capitalization................................................... 19
Dividend Policy.................................................. 19
Bridge Financing................................................. 20
Selected Financial Information................................... 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 22
Business......................................................... 24
Management....................................................... 30
Principal Stockholders........................................... 35
Certain Transactions............................................. 36
Description of Securities........................................ 38
Selling Securityholder........................................... 41
Underwriting..................................................... 42
Legal Matters.................................................... 44
Experts.......................................................... 44
Additional Information........................................... 44
Financial Statements............................................. F-1
</TABLE>
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
500,000 UNITS
EACH UNIT CONSISTS OF TWO (2) SHARES OF
COMMON STOCK, PAR VALUE $.0001 PER
SHARE AND TWO (2) CLASS A REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
SUPERIOR SUPPLEMENTS, INC.
------------------------
PROSPECTUS
------------------------
VTR CAPITAL, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
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:
<TABLE>
<S> <C>
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
--------
--------
</TABLE>
- ------------------
* Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
In April, 1996, the Company issued (i) (a) 3,000,000 shares of Common Stock
to PMF, Inc., a company wholly-owned and controlled by Barry Gersten, and (b)
3,000,000 Class A Warrants for a cash consideration of $50,000 and (ii)
5,000,000 shares of Preferred Stock to PMF, Inc. for a cash consideration of
$5,000.
In May, 1996, the Company issued 500,000 shares of Common Stock to Compare
Generiks, Inc. ('CGI') (i) for a cash consideration of $100,000, and (ii) in
exchange for the issuance of 200,000 shares of common stock of CGI.
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investment Ltd., two (2) unaffiliated lenders (the
'Bridge Lenders'). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the 'Bridge Notes'). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the 'Principal Bridge
Notes') and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the 'Convertible Bridge Notes'). Each of the Bridge Note bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 and (ii) the closing of an
initial underwritten public offering of the Company's securities. 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. In order to expedite NASD approval
of the Offering, in February 1997, the Company repaid its obligations under the
Principal Bridge Notes and the Convertible Bridge Notes. As a result, the
holders of the Convertible Bridge Notes have forfeited their right to convert
such notes into Class A Warrants.
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-2
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
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.
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
</TABLE>
- ------------------
* 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.
**** Previously filed on February 6, 1997 as an exhibit to Amendment No. 4 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
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.--(CONTINUED)
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
'Calculation of Registration Fee' table in the effective registration
statement;
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the Offering of such securities at that time shall be deemed
to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
2. For any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the Offering of the
securities at that time as the initial bona fide Offering of those securities.
II-4
<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 20, 1997.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ LAWRENCE D. SIMON
----------------------------------
Lawrence D. Simon
President, Chairman,
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 20, 1997
- ------------------------------ Chief Financial Officer,
Lawrence D. Simon Principal Accounting
Officer and Director
/s/ REGINALD SPINELLO Director February 20, 1997
- ------------------------------
Reginald Spinello
/s/ MATTHEW L. HARRITON Director, Secretary February 20, 1997
- ------------------------------
Matthew L. Harriton
/s/ STEVEN F. WASSERMAN Director February 20, 1997
- ------------------------------
Steven F. Wasserman
/s/ DR. DANIEL DURCHSLAG Director February 20, 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 "Company Units"), each Unit consisting of two
shares of Common Stock, par value $.0001 ("Common Stock"), and two Redeemable
Class A Common Stock Purchase Warrants (the "Warrants") of the Company at a
public offering price of $12.00 per Unit. In addition, 250,000 Units (the
"Selling Security Holder Units") will be sold to the Underwriters named in
Schedule I by PMF, Inc. (the "Selling Security Holder") also at a public
offering price of $12.00 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 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 within a period of
thirty (30) consecutive trading days 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 Company Units and the Selling Security Holder Units are hereinafter
referred to as the "Firm Units."
Upon the request of the Representative, and as provided in Section 3
hereof, the Selling Security Holder will sell to the Underwriters up to a
maximum of an additional 75,000 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.
1
<PAGE>
The Company and the Selling Security Holder understand 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 and the Selling Security Holder
hereby confirm their 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 and the
Selling Security Holder. 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 the Act and the public offering of the Units as contemplated by
this Agreement is therefore authorized to commence, is herein called the
"Effective Date." The Registration Statement and Prospectus, as finally amended
and revised immediately prior to the Effective Date, are herein called
respectively the "Registration Statement" and the "Prospectus." If, however, a
prospectus is filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations which differs from the Prospectus, the term "Prospectus" shall also
include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time
it becomes effective under the Act, (as thereafter amended or as supplemented
if the Company shall have filed with the Commission an amendment or
supplement), and, with respect to all such documents, on the Closing Date
(hereinafter defined), will in all material respects comply with the provisions
of the Act and the Rules and Regulations, and will not contain an untrue
statement of a material fact and will not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subsection (b) shall extend to the Underwriters in respect of
any statements in or omissions from the Registration Statement and/or the
Prospectus, based upon information furnished in writing to the Company by the
Underwriters specifically for use in connection with the preparation thereof.
2
<PAGE>
(c) The Company has been duly incorporated and is now, and on
the Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware, having all required corporate power
and authority to own its properties and conduct its business as described in
the Prospectus. The Company is now, and on the Closing Date will be, duly
qualified to do business as a foreign corporation in good standing in all of
the jurisdictions in which it conducts its business or the character or
location of its properties requires such qualifications except where the
failure to so qualify would not materially adversely affect the Company's
business, properties or financial condition. The Company has no subsidiaries,
except as are set forth in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present fairly
the financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company.
(e) Holtz Rubenstein & Co. LLP, independent 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.
3
<PAGE>
(h) The Company has no material contingent obligations, nor
are its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending
or, to the knowledge of the Company, threatened against the Company before or
by any Federal or State Commission, regulatory body, or administrative agency
or other governmental body, wherein an unfavorable ruling, decision or finding
would materially adversely affect the business, properties or net worth or
financial condition or income of the Company, which are not disclosed in the
Prospectus.
(j) All of the outstanding shares of Common Stock and
preferred stock are duly authorized and validly issued and outstanding, fully
paid, non-assessable, and do not have any and were not issued in violation of
any preemptive rights. All of the Common Stock as described in the Prospectus
when paid for shall be duly authorized and validly issued and outstanding,
fully paid, non-assessable, and will not have any and will not be issued in
violation of any preemptive rights. The Common Stock issuable upon exercise of
the Warrants when issued and paid for in accordance with the Warrant Agreement
shall be duly authorized and validly issued and outstanding, fully paid,
non-assessable, and 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.
4
<PAGE>
(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 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.
5
<PAGE>
The Selling Security Holder represents and warrants to, and agrees
with, the several Underwriters that:
(i) There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation before any court or
beneficiary, public body or board pending, threatened, or in prospect (or any
basis therefor known to the Selling Security Holder) with respect to the
Selling Security Holder. The Selling Security Holder is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment, or
decree; nor is the Selling Security Holder required to take any action in order
to avoid such violation or default.
(ii) The Selling Security Holder has all requisite power and
authority to execute, deliver, and perform this Agreement. This Agreement has
been duly executed and delivered by or on behalf of the Selling Security
Holder, is the legal, valid and binding obligation of the Selling Security
Holder, and is enforceable as to the Selling Security Holder in accordance with
its terms. No consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state, local or
other governmental authority or any court or other tribunal is required by the
Selling Security Holder for the execution, delivery or performance of this
Agreement (except filings under the Act which have been made before the
applicable Closing Date and such consents consisting only of consent under
"blue sky" or securities laws which have been obtained at or prior to the date
of this Agreement) by the Selling Security Holder. No consent of any party to
any contract, agreement, instrument, lease, license, indenture, mortgage, deed
of trust, note, arrangement or understanding to which the Selling Security
Holder is a party, or to which any of the Selling Security Holder's properties
or assets are subject, is required for the execution, delivery or performance
of this Agreement; and the execution, delivery and performance of this
Agreement will not violate, result in a breach of, conflict with, or (with or
without the giving of notice of the passage of time or both) entitle any party
to terminate or call a default under such contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note, arrangement or
understanding, or violate, result in a breach of, or conflict with, any law,
rule, regulation, order, judgment or decree binding on the Selling Security
Holder.
(iii) The Selling Security Holder has good title to the
Selling Security Holder Units to be sold by the Selling Security Holder
pursuant to this Agreement, free and clear or all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and voting trusts.
(iv) Neither the Selling Security Holder nor any of the
Selling Security Holder's affiliates (as defined in the Regulations) has taken
or will take, directly or indirectly, prior to the termination of the
underwriting syndicate contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Selling Security
Holder Units.
(v) All information furnished or to be furnished to the
Company by or on behalf of the Selling Security Holder for use in connection
with the preparation of the Registration
6
<PAGE>
Statement and the Prospectus is true in all respects and does not and will not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(vi) Except as may be set forth in the Prospectus, the
Selling Security Holder has not incurred any liability for a fee, commission or
other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
(vii) The Selling Security Holder has no knowledge that, and
does not believe that, any representation or warranty of the Company in Section
2 is incorrect.
(viii) The Selling Security Holder has not, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment.
(ix) The Selling Security Holder Units to be sold by the
Selling Security Holder pursuant to this Agreement are duly and validly
authorized and issued, fully paid and non-assessable, and have not been issued
and are not owned or held in violation of any preemptive right of stockholders,
optionholders, warrant holders or other persons.
(x) No transaction has occurred between the Selling Security
Holder and the Company that is required to be described in the Registration
Statement or the Prospectus.
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 and sell the
Company Units and the Selling Security Holder agrees to sell the Selling
Security Holder Units to the several Underwriters, and the Underwriters,
severally and not jointly, agree to purchase from the Company and the Selling
Security Holder, 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.
The purchase price of the Units to be paid by the several
Underwriters shall be $10.80 per Unit ($12.00 per Unit less a ten percent
discount equal to $1.20 per Unit).
In addition, and upon the same basis, and subject to the same
terms and conditions, the Selling Security Holder 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
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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 Selling
Security Holder, copy to the Company. Such dates are herein defined as the
Additional Closing Date(s).
(b) Payment for the Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company and the Selling Security Holder, as the case may be, 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 Firm 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 Selling Security Holder 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 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 and the Selling
Security Holder 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
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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
50,000 Units for an aggregate purchase price of $25 (hereinafter referred to as
the "Underwriters' Warrants"). The 50,000 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 $19.80 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
$12.00 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 and the Selling Security Holder hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will
furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for
distribution to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed
copies of a Preliminary Prospectus and of the Prospectus as the Representative
may request for the purposes contemplated by this Agreement. If, while the
Prospectus is required to be delivered under the Act or the Rules and
Regulations, any event known to the Company relating to or affecting the
Company shall occur which should be set forth in a supplement to or an
amendment of the Prospectus in order to comply with the Act (or other
applicable law) or with
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<PAGE>
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 and the Selling Security Holder authorize 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 participating broker-dealer ("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
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such applications, instruments and papers as may be required, in the opinion of
the Underwriters' 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 1934 Act 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). 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.
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(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 five (5) 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
American Stock Transfer & Trust Company transfer agent (the "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
upon request of the Underwriter, 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 at closing; the second such survey shall be delivered within five
business days of publication of the Company in Standard & Poor's Corporation
Records and, thereafter upon request of the Underwriter.
(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.
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
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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
($7,500 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; and (iv) the fees and disbursements of counsel for the Company and
the accountants for the Company. 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 sale of the Units contemplated by
this Agreement for the fees and disbursements of counsel to the Underwriters
and for costs of otherwise unreimbursed advertising, traveling, postage,
telephone and telegraph expenses and other miscellaneous expenses incurred by
or on behalf of the Representative and the Underwriters in preparation for, or
in connection with the offering and sale and distribution of the 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
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against any
and all losses, claims, damages and liabilities, joint or several (including
any reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under
the Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the Registration
Statement or the statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any
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amendment thereof or supplement thereto, or arise out of or are based upon any
omission or alleged omission to state therein such fact required to be stated
therein or necessary to make such statements therein not misleading. The
Selling Security Holder agrees to indemnify each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the Act, the
Exchange Act or other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities, joint or
several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact with respect to the Selling Security Holder
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto (which amendments or
supplements are furnished to the Selling Security Holder), or which arise out
of or are based upon any omission or alleged omission to state therein such
fact required to be stated therein or necessary to make such statements therein
not misleading, but only with reference to information relating to the Selling
Security Holder furnished in writing to the Company by or on behalf of the
Selling Security Holder expressly for use in connection with the preparation of
the Registration Statement and Prospectus or any amendment thereof or
supplement thereto (which amendments or supplements are furnished to the
Selling Security Holder), or which arise out of or are based upon any omission
or alleged omission to state therein such fact required to be stated therein or
necessary to make such statements therein not misleading.
(b) Such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of any
losses, claims, damages or liabilities arising from the sale of the Units to
any person by such Underwriter if such untrue statement or alleged untrue
statement or omission was made in such preliminary prospectus, the Registration
Statement or the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein. The
obligations of the Selling Security Holder, pursuant to this Section 9(a) shall
be limited to an amount not exceeding the product of the Per Unit Price to
Public of the Units as set forth on the cover page of the Prospectus and the
number of Units being sold by each of them. In no event shall the
indemnification agreement contained in this Section 9(a) inure to the benefit
of any Underwriter on account of any losses, claims, damages, liabilities or
actions arising from the sale of the Units upon the public offering to any
person by such Underwriter if such losses, claims, damages, liabilities or
actions arise out of, or are based upon, a statement or omission or alleged
omission in a preliminary prospectus and if, in respect to such statement,
omission or alleged omission, the Prospectus differs in a material respect from
such preliminary prospectus and a copy of the Prospectus has not been sent or
given to such person at or prior to the confirmation of such
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sale to such person. This indemnity agreement will be in addition to any
liability which the Company and the Selling Security Holder may otherwise have.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each director of the Company, and each officer of the Company who
signs the Registration Statement and the Selling Security Holder, to the same
extent as the foregoing indemnity from the Company and the Selling Security
Holder to each Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which was made in any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, which were made in
reliance upon and in conformity with information furnished in writing to the
Company by the Representatives on behalf of any Underwriter for specific use
therein; provided, however, that the obligation of each Underwriter to
indemnify the Company (including any controlling person, director or officer
thereof) and the Selling Security Holder shall be limited to the net proceeds
received by the Company and the Selling Security Holder, respectively, from
such Underwriter. For all purposes of this Agreement, the amounts of the
selling concession and reallowance set forth in the Prospectus constitute the
only information furnished in writing by or on behalf of any Underwriter
expressly for inclusion in any Preliminary Prospectus, any Rule 430A
Prospectus, the Registration Statement or the Prospectus or any amendment or
supplement thereto.
(d) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 9(a) 9(b), or 9(c) shall be available
to any party who shall fail to give notice as provided in this Section 9(d) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, 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 and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of
counsel
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by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party, or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which
cases the reasonable fees and expenses of counsel shall be at the expense of
the indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its
written consent.
(e) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Sections 9(a) and
(b) is due in accordance with its terms but for any reason is held to be
unavailable from the Company, the Selling Security Holder or the Underwriters,
the Company, the Selling Security Holder and the Underwriters shall contribute
to the aggregate losses, claims, damages and liabilities (including any
investigation, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting any contribution received by the Company
from persons other than the Underwriters, such as the Selling Security Holder,
persons who control the company within the meaning of the Act, officers of the
Company who signed the Registration Statement and directors of the Company, who
may also be liable for contribution) to which the Company and the Selling
Security Holder and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Security Holder on the one hand and the Underwriters on
the other from the offering of the Units or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided herein in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company and the Selling Security
Holder on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant omissions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Security Holder and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or the Selling Security Holder from the sale
of the Units, as set forth in the table on the cover page of the Prospectus
(but not taking into account the use of the proceeds of such sale of Units by
the Company), bear to (y) the underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company, the Selling Security Holder and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to
information supplied by the Company, the Selling Security Holder or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
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Company, the Selling Security Holder and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable consideration referred to above. Notwithstanding
the provisions of this Section 9, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Units purchased by such Underwriter hereunder, (ii) in no case shall the
Selling Security Holder be liable or responsible for any amount in excess of
the product of the Per Unit Price to Public of the Units as set forth on the
cover page of the Prospectus and the number of Units being sold by each of them
subject to the limitation expressed in Section 9(a), and (iii) the Company
shall be liable and responsible for any amount in excess of the underwriting
discount and the amount referred to in clause (ii) provided, however (i) that
no person guilty of 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. For purposes of this Section 9,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i),
(ii) and (iii) in the immediately preceding sentence of this Section 9. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section, notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriters' obligations to contribute
pursuant to this Section 9 are several in proportion to their respective
underwriting commitments and not joint.
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 Date and the Additional
Closing Date(s), if any, (together, the "Closing Dates"), of all of the
representations and warranties of the Company and the Selling Security Holder
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, 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, 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
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assets, or entered into any material transaction, and (C) the Company shall not
have suffered or experienced any material adverse change in its business,
affairs or in its condition, financial or otherwise. On the Closing Date, the
capital stock and surplus accounts of the Company shall be substantially as
great as at its last financial report without considering the proceeds from the
sale of the 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 and the Selling Security Holder 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
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of capital stock of the Company, or any security convertible into, or
exchangeable for, any shares of any class of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no
consents, approvals, authorizations or orders of agencies, officers or other
regulatory authorities are necessary for the valid authorization, issue or sale
of the 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.
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(x) This Agreement has been duly authorized and
executed by the Company and the Selling Security Holder and is a valid and
binding agreement of the Company and the Selling Security Holder enforceable in
accordance with its terms subject to bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors rights generally and except that
no opinion need be given with regard to the enforceability of Section 9 hereof
or the availability of equitable relief.
(xi) To the best knowledge of such counsel: (a) 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 the Selling Security
Holder, of any indenture, mortgage, deed of trust, note or any other agreement
or instrument to which the Company or the Selling Security Holder is a party or
by which it or its business or its properties may be bound or affected, except
where such default would not have a material adverse effect on the business of
the Company and except as disclosed in the Prospectus; (b) the Selling Security
Holder has full power and legal authority to sell the Selling Security Holder
Units to the Underwriters free and clear of all liens and encumbrances; (c) 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; (d) 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, clearance with the NASD and such other consent, approval, authorization
or order as has been obtained and is in full force and effect; and (e) 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 material indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the Company and the
Selling Security Holder 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 or the Selling Security Holder,
or any order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or the Selling Security Holder or its business or
properties.
(xii) Except as disclosed in the Registration
Statement and Prospectus, to the best 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 or the
Selling Security Holder which are not adequately covered by insurance and there
are no proceedings pending or, to the knowledge of such counsel, threatened
against the Company or the Selling Security Holder 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 and adversely affect the business, operation or condition (financial
or otherwise) of the Company or the Selling Security Holder, which are not
disclosed in the Prospectus.
Such opinion shall also cover such other matters incident to
the transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering
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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 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;
(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 and the Additional Closing Date(s), if any, such other
certificates of executive officers of the Company additional to those
specifically mentioned herein, as the Representative may
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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;
(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
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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.
(k) The Selling Security Holder shall have furnished to the
Representative on the Closing Date and the Additional Closing Date(s), if any,
insofar as it applies to the Selling Security Holder, such other certificates
of executive officers of PMF, Inc., 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 Selling Security Holder herein; the performance by the
Selling Security Holder 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.
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.
SECTION 12. Termination.
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(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 or the Selling Security Holder, 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 or the Selling Security Holder 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 or the Selling Security Holder's
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 the Selling
Security Holder, 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 or the Selling Security Holder 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 the Selling Security Holder 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
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terminates this 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, the Selling Security Holder 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 and the
Selling Security Holder 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 and the Selling Security Holder 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 Selling Security Holder nor the remaining Underwriters (including the
Representative) shall be under any obligation under this
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Agreement (except that the Company shall remain liable to the extent provided
in Section 7 hereof). As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 14.
Nothing in this subparagraph (b) will relieve a defaulting Underwriter from its
liability, if any, to the other Underwriters for damages occasioned by its
default hereunder (and such damages shall be deemed to include, without
limitation, all expenses reasonably incurred by each Underwriter in connection
with the proposed purchase and sale of the 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 Commission with the Commission on Form S-8 or any other
inappropriate form.
In addition to the rights above provided, the
Company will cooperate with the then holders of the 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
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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.
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 two (2) years 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) 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.
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.
(c) 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)
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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 or prior specific written approval was obtained from the
related customer; (4) disclosure of compensation arrangements was made both at
the time of the offering and at the time of exercise of the Warrant; (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; and (6) solicitation is
in compliance with NASD Notice to Members 81-38. 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
upon reasonable advance written notice, 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.
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; b) whenever notice is
required by the provisions hereof to be given to the Selling Security Holder,
such notice shall be given in writing, by certified mail, return receipt
requested, addressed to the Selling Security Holder at_______________________, ,
copy to_______________________; and (c) 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, the Company and the Selling Security Holder, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any of the Underwriters or any of their controlling persons,
and shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Units to the several Underwriters.
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SECTION 19. Miscellaneous. This Agreement is made solely for the
benefit of the Underwriters, the Company and the Selling Security Holder 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 Units. 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, the Selling Security Holder and the Underwriters in
accordance with its terms.
Very truly yours,
SUPERIOR SUPPLEMENTS, INC.
By:
--------------------------------------
(authorized officer)
PMF, INC.
BY:
--------------------------------------
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 500,000
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<PAGE>
SUPERIOR SUPPLEMENTS, INC.
500,000 Units
Each Unit Consisting of two Shares of Common Stock
and two Class A Common Stock Purchase Warrants
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 and from PMF,
Inc., the Selling Security Holder an additional 250,000 Units for a total of
500,000 Units (the "Firm Units"). Upon our request, and as provided in Section
3 of the Underwriting Agreement, the Selling Security Holder will also sell to
the Underwriters up to a maximum of an additional 75,000 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 Dealer 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 (as defined in the Underwriting Agreement). 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
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<PAGE>
payment for reserved Units 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 for the Common Stock and Warrants included in the Units 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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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 (without regard to conflicts of laws principles).
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
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VTR Capital Inc.
99 Wall Street
New York, NY 10005
SUPERIOR SUPPLEMENTS, INC.
500,000 Units
SELECTED DEALER AGREEMENT
Dear Sirs: ____________, 1997
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") and PMF, Inc. (The
"Selling Security Holder") at the price set forth on the cover of such
Prospectus, 250,000 Units and 250,000 Units, respectively, each consisting of
two (2) shares of Common Stock $.0001 par per share ("Common Stock") and two
(2) Class A Redeemable Common Stock Purchase Warrant ("Warrants") and up to an
additional 75,000 Units from the Selling Security Holder, offered pursuant to
an over-allotment option (collectively being called the "Units"). Each Warrant
is exercisable to purchase (1) share of Common Stock. 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
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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.
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 the Common Stock and Warrants included in the 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 the Common
Stock and Warrants included in the 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
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rights that you may have under the Securities Act of 1933, as amended, (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 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
NASD Conduct Rules of the NASD, (including, without limitation, Rules 2730,
2740, 2420 and 2750) 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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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 500,000 Units, each
Unit consisting of two shares of Common Stock, par value $.0001 ("Common
Stock") and two Redeemable Class A Common Stock Purchase Warrants (the
"Warrants") of the Company, which offering is comprised of 250,000 Units being
sold on behalf of the Company (the "Company Units") and 250,000 Units (plus an
over-allotment option of up to 75,000 Units) being sold on behalf of PMF, Inc.,
the "Selling Security Holder," (the "Selling Security Holder Units") to the
Underwriters named in Schedule I, at a public offering price of $12.00 per Unit,
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 up to 1,150,000 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 _________, 1998 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 (the "Exercise Price").
Section 2. Notification of Exercise. Within five (5) days of the last
day of each month commencing _________, 1998 (one year from the effective date
of the Company's Registration Statement), 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
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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
upon solicitation of the exercise of any Warrant by VTR or any other member of
the NASD an amount equal to four (4%) percent of the Exercise Price (i.e. $.21
per share based on the initial Exercise Price of the Warrants) for each Warrant
exercised (the "Exercise Fee") a portion of which may be allowed by VTR to the
dealer who solicited the exercise (which may also be VTR) provided that:
(a) such Warrant is exercised on or after _______, 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 or, if held in a discretionary account, prior specific written approval
for such exercise has been received from the related customer;
(2) VTR or the member of the NASD which solicited the
exercise of Warrants did not, within the applicable number of business days
under Rule 10b-6 (unless granted an exemption by the Securities and Exchange
Commission from the provisions thereof), 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 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;
(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; and
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(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(e) above, but in no event later than
simultaneously with the distribution of proceeds to the Company from such
exercise of Warrant the Exercise Fee out of the proceeds it received from the
applicable Exercise Price paid for the Warrants to which the certificate
relates.
Section 5. Inspection of Records. VTR may at any time during business
hours and upon reasonable prior written notice, , 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 written 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(e) 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 the 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
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be governed by and construed in accordance with the internal laws of said
State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give any person or corporation other than the Company,
the Warrant Agent and VTR any legal or equitable right, remedy or claim under
this Agreement; and this Agreement shall be for the sole and exclusive benefit
of, and be binding upon, the Company, the Warrant Agent and VTR and their
respective successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the
sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and
all prior agreements between the parties with respect to the subject matter
hereof.
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(e) 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 or, if held
in a discretionary account, prior specific written approval for such exercise
has been received from the related customer.
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, with 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, ____ complied with NASD Notice to Members 81-38.
DATED: ___________________, 199_
VTR CAPITAL, INC.
By:______________________________
Soliciting Broker-Dealer
By:______________________________
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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 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 two Class A Common
Stock Purchase Warrants (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 50,000
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) "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 and PMF, Inc. (the "Selling
Security Holder") 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
two Class A Warrants. 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 $19.80 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, the Selling Security
Holder and the Underwriter.
(j) "Underwriter's Warrants" shall refer to Warrants to
purchase an aggregate of up to 50,000 Units issued to the Underwriter or its
designees by the Company and the Selling Security Holder 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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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
corresponding adjustment to the Purchase Price shall become effective at the
close of
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business on the record date for such subdivision or combination. No adjustment
to the Purchase Price and the number of Common 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 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 an 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.
(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
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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:
(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
5
<PAGE>
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 payments 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 Common Stock 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 Act as then in force or any similar Federal
statute then in force, and all applicable "Blue Sky" laws.
9. The Holder of this Warrant, by acceptance hereof, agrees that,
prior to the disposition of this Warrant or of any Underlying Securities
theretofore purchased upon the exercise hereof, under circumstances that might
require registration of such securities under the Act, or any similar Federal
statute then in force, such Holder will give written notice to the Company
expressing such Holder's intention of effecting such disposition, and
describing briefly such Holder's intention as to the disposition to be made of
this Warrant and/or the Underlying Securities theretofore issued upon exercise
hereof. Promptly upon receiving such notice, the Company shall present copies
thereof to its counsel and the provisions of the following subdivisions shall
apply:
6
<PAGE>
(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 force, 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 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
7
<PAGE>
filed by the Company with the Commission on Form S-8 or any other
inappropriate form.
In addition to the rights above provided, the
Company will cooperate with the then holders of the 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.
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,
8
<PAGE>
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 _________Units,
consisting of _______________ 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>
BERNSTEIN & WASSERMAN, LLP
ATTORNEYS AT LAW
950 THIRD AVENUE
NEW YORK, NY 10022-2705
Hartley T. Bernstein
Steven F. Wasserman -----
Alan N. Forman
TELEPHONE (212) 826-0730
-----
TELECOPIER (212) 371-4730
Stewart E. Eichner
Peri Erlanger**
Anjanette Gold
Barry R. Lax
Stuart Neuhauser
Edward M. Slezak*
-----
February 20, 1997
* Also Member of New Jersey Bar
** Also Member of Massachusetts Bar
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 (a) by the Company 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 two (2) Class A Redeemable Common Stock Purchase
Warrants (the "Class A Warrants"), and (b) by a selling stockholder (the
("Selling Securityholder") of 250,000 Units, each of which is identical to the
Units offered by the Company (the "Selling Securityholder's Securities"). The
offering also involves the grant by the Selling Securityholder to the
Underwriters of an option to purchase an additional 75,000 of such Units to
cover over-allotments in connection with the offering and the sale by the
Company to the Underwriter of an option (the "Unit Purchase Option") to purchase
up to 50,000 of such Units.
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>
BERNSTEIN & WASSERMAN, LLP
Board of Directors
February 20, 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 Registration
Statement, 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 Registration
Statement, 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 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>
EXHIBIT 23.02
[HOLTZ RUBENSTEIN & CO., LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Superior Supplements,
Inc. on Amendment No. 5 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.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
February 20, 1997
