<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1996
REGISTRATION NO. 333-5738
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VITA FOOD PRODUCTS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
NEVADA 2091 #36-3171548
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
2222 W. LAKE STREET
CHICAGO, ILLINOIS 60612
(312) 738-4500
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
STEPHEN D. RUBIN, PRESIDENT
VITA FOOD PRODUCTS, INC.
2222 W. LAKE STREET
CHICAGO, ILLINOIS 60612
(312) 738-4500
(Name, Address and Telephone Number of Agent for Service)
Please address a copy of all communications to:
<TABLE>
<S> <C>
MICHAEL J. GAMSKY LESLIE J. WEISS
MUCH SHELIST FREED DENENBERG AMENT BELL & RUBENSTEIN, P.C. SUGAR, FRIEDBERG & FELSENTHAL
200 N. LASALLE STREET, SUITE 2100 30 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60602
TELEPHONE NO: (312) 346-3100 TELEPHONE NO: (312) 704-9400
FAX NO: (312) 621-1750 FAX NO: (312) 372-7951
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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, 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
<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE OFFERING
REGISTERED REGISTERED PER SECURITY(1) PRICE(1)
<S> <C> <C> <C>
UNITS CONSISTING OF:
Common Stock ($.01 par value)(2)................. 862,500 $7.00 $6,037,500
Redeemable Common Stock Purchase Warrants(3)..... 862,500 $0.10 $86,250
Common Stock, par value $.01 per share, issuable on
exercise of Redeemable Common Stock Purchase
Warrants(5)..................................... 862,500 $11.20 $9,660,000
Representative's Warrants(4)(6).................. 75,000 (6) $10
Common Stock par value $0.01 per share issuable
upon exercise of Representative's
Warrants(4)(5).................................. 75,000 $11.55 $866,250
Redeemable Common Stock Purchase Warrants issuable
upon exercise of Representative's Warrants(4)... 75,000 $0.165 $12,375
Common Stock, par value $0.01 per share, issuable
upon exercise of Redeemable Common Stock Purchase
Warrants issuable upon exercise of
Representative's Warrants(4)(5)................. 75,000 $11.20 $840,000
Total........................................ $17,502,385
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO BE REGISTRATION
REGISTERED FEE(8)
<S> <C>
UNITS CONSISTING OF:
Common Stock ($.01 par value)(2)................. $2,081.89
Redeemable Common Stock Purchase Warrants(3)..... $29.74
Common Stock, par value $.01 per share, issuable on
exercise of Redeemable Common Stock Purchase
Warrants(5)..................................... $3,331.03
Representative's Warrants(4)(6).................. $0.01
Common Stock par value $0.01 per share issuable
upon exercise of Representative's
Warrants(4)(5).................................. $298.71
Redeemable Common Stock Purchase Warrants issuable
upon exercise of Representative's Warrants(4)... $4.27
Common Stock, par value $0.01 per share, issuable
upon exercise of Redeemable Common Stock Purchase
Warrants issuable upon exercise of
Representative's Warrants(4)(5)................. $289.65
Total........................................ $6,035.30(8)
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 112,500 shares of Common Stock subject to the Underwriters'
over-allotment option.
(3) Includes 112,500 Warrants subject to the Underwriter's over-allotment
option.
(4) To be issued to Representative of the Underwriters.
(5) Reserved for issuance upon exercise of the Redeemable Common Stock Purchase
Warrants and Representative's Warrants.
(6) Representative's Warrants will be issued for nominal consideration totaling
$10.
(7) Pursuant to Rule 416, this Registration Statement also relates to an
indeterminate number of additional shares as may be issued as a result of
anti-dilution provisions of the Redeemable Common Stock Purchase Warrants
(the "Warrants"), and Representative's Warrant's and the Warrants underlying
the Representative's Warrants.
(8) Registration fee of $10,059.71 was previously paid.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
VITA FOOD PRODUCTS, INC.
CROSS REFERENCE SHEET FOR PROSPECTUS UNDER FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus....................... Facing Page of Registration Statement; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Pages of Prospectus
3. Summary Information and Risk Factors............ Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Risk Factors; Underwriting
6. Dilution........................................ Risk Factors; Dilution
7. Selling Security-Holders........................ *
8. Plan of Distribution............................ Inside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings............................... Business
10. Directors, Executive Offices, Promoters and
Control Persons................................. Management
11. Security Ownership of Certain Beneficial Owners
and Management.................................. Principal Shareholders; Management
12. Description of Securities....................... Description of Company Securities
13. Interest of Named Experts and Counsel........... Experts; Certain Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Description of Company's Securities x Limitations on
Directors Liability
15. Organization within Last Five Years............. Business; Certain Transactions
16. Description of Business......................... Prospectus Summary; Business
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
19. Certain Relationships and Related
Transactions.................................... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters......................................... Risk Factors; Description of Company's Securities
21. Executive Compensation.......................... Management
22. Financial Statements............................ Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. *
</TABLE>
* Not applicable or answer in negative
i
<PAGE>
(Redherring appears on the left side of page rotated. The language is as
follows.)
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 OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 8, 1996
PROSPECTUS
[LOGO]
VITA FOOD PRODUCTS, INC.
750,000 SHARES OF COMMON STOCK AND
750,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(INITIALLY SHARES OF COMMON STOCK AND WARRANTS MAY ONLY BE PURCHASED TOGETHER ON
THE BASIS OF ONE SHARE OF COMMON STOCK AND ONE WARRANT, BUT WILL TRADE
SEPARATELY IMMEDIATELY AFTER THE OFFERING IS COMPLETED)
Vita Food Products, Inc., ("VITA" or the "COMPANY") hereby offers 750,000
shares of the Company's common stock, $.01 par value per share (the "COMMON
STOCK"), and 750,000 Redeemable Common Stock Purchase Warrants (the
"WARRANTS"). The shares of Common Stock and the Warrants are sometimes
hereinafter together referred to as the "SECURITIES." Until the completion of
this offering, the shares of Common Stock and the Warrants offered hereby may
only be purchased together on the basis of one share of Common Stock and one
Warrant, but will trade separately immediately after the offering. Each Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
an initial exercise price of $ [160% of the initial public offering price] per
share at any time during the period commencing one year from the date of this
Prospectus and terminating five years from the date of the Prospectus. The
Warrant exercise price is subject to adjustment under certain circumstances.
Commencing 18 months after the date of the Prospectus, the Company may redeem
the Warrants at $0.01 per Warrant on 30 days' prior written notice to the
warrantholders if the average closing bid price of the Common Stock as reported
on the Chicago Stock Exchange (the "CHX") equals or exceeds $ [200% of the
initial public offering price] per share (subject to adjustment under certain
circumstances) for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption. See "Description of Company's Securities."
Prior to this offering, there has been no public market for the Common
Stock or Warrants, and there can be no assurance that such a market will develop
after the completion of this offering or, if developed, that it will be
sustained. It is currently estimated that the initial public offering price per
share of Common Stock will be between $6.00 and $7.00, and that the initial
public offering price per Warrant will be $0.10. For information regarding the
factors considered in determining the initial public offering price of the
Common Stock and the Warrants and the terms of the Warrants, see "Risk Factors",
"Description of Company's Securities" and "Underwriting." The Company has
applied to have the Common Stock and Warrants listed on the Chicago Stock
Exchange.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION."
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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share of Common Stock........................... $ $ $
Per Warrant......................................... $ $ $
Total(3)............................................ $ $ $
</TABLE>
(1) Excludes a non-accountable expense allowance payable to National Securities
Corporation, the representative (the "REPRESENTATIVE") of the several
underwriters (the "UNDERWRITERS"), equal to 3% and the value of the five
year warrants (the "REPRESENTATIVE'S WARRANTS") entitling the Representative
to purchase up to 75,000 shares of Common Stock and/or 75,000 Warrants.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company of $ ,
excluding the Representative's non-accountable expense allowance (
if the over-allotment option granted to the Underwriters is exercised in
full).
(3) The Company has granted to the Underwriters an option exercisable within 45
days after the date of this Prospectus to purchase up to an additional
112,500 shares of Common Stock and/or 112,500 Warrants upon the same terms
and conditions as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public, Underwriting
Discounts and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The Securities are offered by the Underwriters, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to the
right to reject any order in whole or in part and to certain other conditions.
It is expected that delivery of the certificates for the Common Stock and
Warrants will be made against payment at the offices of National Securities
Corporation, 1001 Fourth Avenue, Seattle, Washington on or about ,
1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
Vita(Register mark) and its design is a federally registered trademark of
the Company. The Company has applied to federally register the trademarks of
Heavenly Hommus!(TM) and Vita Lean(TM). Elf(TM), Royal Highland(TM) and
Highland Crest(TM) are trademarks which the Company has licensed from third
parties.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE REINCORPORATION
OF THE COMPANY FROM ILLINOIS TO NEVADA EFFECTED IN SEPTEMBER, 1996, (II) ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (III) DOES NOT GIVE
EFFECT TO THE ISSUANCE OF UP TO 750,000 SHARES OF COMMON STOCK UPON EXERCISE
OF THE WARRANTS, (IV) DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO 75,000
SHARES OF COMMON STOCK AND 75,000 WARRANTS UPON EXERCISE OF THE REPRESENTATIVE'S
WARRANTS, (V) DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO 75,000 SHARES OF
COMMON STOCK UPON EXERCISE OF WARRANTS UNDERLYING THE REPRESENTATIVE'S WARRANTS,
(VI) DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO 400,000 ADDITIONAL SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE UPON EXERCISE OF ADDITIONAL STOCK OPTIONS
THAT MAY BE GRANTED UNDER THE COMPANY'S 1996 EMPLOYEE STOCK OPTION PLAN AND
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS; AND (VII) DOES NOT GIVE
EFFECT TO THE ISSUANCE OF UP TO 150,000 ADDITIONAL SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE IN CONNECTION WITH THE COMPANY'S 1996 EMPLOYEE STOCK
PURCHASE PLAN.
THE COMPANY
The Company has been engaged in the sale of specialty food products under
the Vita brand name for over 65 years. The Company believes that its long
history of producing and marketing quality products has created a strong
recognition of the VITA brand name among consumers and has enabled the Company
to build an extensive national distribution network of established food brokers
for the sale of its products to supermarket chains and wholesale clubs
(collectively "SUPERMARKETS") and to institutional/food service operations, such
as restaurant chains, hotels, country clubs, cruise lines and other bulk
purchasers (collectively "INSTITUTIONAL PURCHASERS"). Historically, the Company
has increased its sales through acquisitions which have enabled the Company to
add new product lines and expand its existing product lines. The Company intends
to focus on acquisitions as a means to increase its growth. The Company believes
that "VITA" with its accompanying logo is the most widely recognized, and the
only nationally recognized, brand name in herring products, and cured and smoked
salmon products. The Company believes that it will be able to capitalize on the
goodwill associated with the VITA brand name and the strength of its national
distribution network to increase its market share for its existing products and
to introduce and market complementary new specialty food products, which will be
sold under either the Vita brand name or other brand names purchased or licensed
from third parties.
The Company is one of the leading processors of herring products, and cured
and smoked salmon products in the United States, which products it has been
producing and marketing for over 65 years and 25 years, respectively. The
Company's products include a variety of cuts of pickled herring in cream and
wine based sauces, and lox and nova salmon. The Company markets other
complementary specialty food products, such as cream cheese with salmon, shrimp
cocktail, hommus products, horseradish products, and cocktail and tartar sauces,
that it purchases from third party food producers and markets under the VITA
brand name pursuant to co-packing arrangements. The Company markets and, in some
cases, also produces related specialty food products under other brand names
that have been licensed to the Company. These products include
Scandinavian-style herring which is produced and marketed by the Company under
the ELF brand name, which is widely recognized in the Midwest region of the
country, and imported Scottish smoked salmon, which is distributed by the
Company under the brand names ROYAL HIGHLAND and HIGHLAND CREST.
The Company's acquisition strategy is to acquire, or enter into joint
ventures with, companies producing complementary specialty food products. The
Company, under its current management, became a major producer of smoked salmon
products through the acquisition of Royal Enterprises, Inc., a major Chicago
based smoked salmon processor, in 1984. In 1995, the Company purchased the
herring product line of Lyon Food Products, Inc. and secured licensing rights to
the ELF brand name, an established regional brand of herring, which increased
its market share in herring products and its penetration of the market in the
Midwest region of the country. The Company's lack of capital in the past has
limited its ability to pursue its acquisition strategy. As a result, the Company
has expanded its product lines by establishing a number of co-packing
arrangements with companies that produce complementary specialty food products.
Products which the Company markets pursuant to co-packing arrangements generally
have a percentage gross margin that is one-third lower than the percentage gross
margin of products which are produced and marketed by the Company. The Company
intends to implement its
3
<PAGE>
long-term growth strategy, in part, by shifting its focus from co-packing
arrangements to acquisitions and joint ventures.
The Company also intends to employ the following strategy to increase its
growth:
(i) Developing, introducing and marketing new specialty food products, such
as salmon burgers and hommus, that complement its current line of products while
at the same time enabling the Company to expand into products that are less
seasonal and that appeal to a broader base of consumers than its current
products.
(ii) Expanding its use of promotions to both Supermarkets and Institutional
Purchasers, increasing consumer advertising and securing additional shelf space
for its products in Supermarkets.
(iii) Expanding sales of VITA brand name products in international markets.
The Company's production facility is currently often operating at full
capacity and the Company intends to either purchase a facility to replace its
current office, production and storage facility; construct a new facility; or
expand and upgrade its current facility to accommodate its anticipated growth.
See "Business -- Production."
All of the Company's salmon and herring products and most of its other
specialty food products are kosher and receive the (u in a circle) symbol of
certification from the Union of Orthodox Jewish Congregations of America (the
"ORTHODOX UNION"). The Company also receives the (u in a circle) symbol of
certification for the use of many of its products for Passover from the Orthodox
Union. The Company believes that the market for kosher foods will grow in the
next few years and that this represents a significant opportunity for the
Company. See "Business -- Products."
On September 20, 1996, the Company reincorporated in the State of Nevada
through a merger of Vita Food Products, Inc., an Illinois corporation
("VITA-ILLINOIS"), and V-F Acquisition, Inc., an Illinois corporation that was
the largest shareholder of Vita-Illinois, into the Company, a Nevada corporation
formed for purposes of effecting the reincorporation (the "REINCORPORATION
MERGER"). References to "VITA" or the "COMPANY" herein and throughout this
Prospectus include the Nevada corporation and its predecessor, the Illinois
corporation, unless otherwise specified. The Company's executive offices are
located at 2222 West Lake Street, Chicago, Illinois 60612, and its telephone
number is (312) 738-4500.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by the Company..................... 750,000 shares of Common Stock and 750,000 Warrants.
Until the completion of this offering, the shares of
Common Stock and the Warrants offered hereby may only be
purchased together on the basis of one share of Common
Stock and one Warrant, but will trade separately
immediately after the offering. See "Description of
Company's Securities."
Exercise Price of Warrants............................ Each Warrant entitles the registered holder thereof to
purchase, at any time over a four year period commencing
one year after the date of this Prospectus, one share of
Common Stock at a price of $ [160% of the initial
public offering price] per share. The Warrant exercise
price is subject to adjustment under certain
circumstances. See "Description of Company's Securities."
Redemption of Warrants................................ Commencing 18 months after the date of this Prospectus,
the Warrants are subject to redemption by the Company at
$0.01 per Warrant on 30 days' prior written notice to the
warrantholders if the average closing bid price of the
Common Stock equals or exceeds $ [200% of the
initial public offering price] per share of Common Stock
for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the
date of the notice of redemption. See "Description of
Company's Securities."
Securities to be Outstanding after this Offering...... 3,700,000 shares of Common Stock and 750,000 Warrants
Use of Proceeds....................................... To (i) partially fund the purchase of a facility to
replace its current office, production and storage
facility, the construction of a new facility or the
expansion and improvement of its current facility; (ii)
fund the purchase of additional capital equipment; (iii)
pay for promotions and increased consumer advertising in
the retail and institutional markets; (iv) pay for costs
associated with securing additional shelf space in
Supermarkets; and (v) fund acquisitions or joint
ventures. See "Use of Proceeds."
Risk Factors.......................................... The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
CHX Market Symbols.................................... Common Stock -- . Warrants -- .
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, (1)
1994 1995(3) 1995 1996
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................................... $17,793 $21,410 $13,045 $13,969
Cost of goods sold............................................ 12,735 15,014 9,364 9,953
Gross margin.................................................. 5,058 6,396 3,681 4,016
Selling, marketing and administrative expenses................ 4,410 5,397 3,709 4,036
Operating profit (loss)....................................... 648 999 (28) (20)
Interest and other expense, net............................... 376 868(4) 727(4) 308
Income (loss) before income taxes (benefit)................... 272 131 (755) (328)
Income taxes (benefit)(5)..................................... -- -- -- (300)
Net income (loss)............................................. $ 272 $ 131 $ (755) $ (28)
Net income (loss) per common share............................ $ .09 $ .04 $ (.26) $ (.01)
Supplemental net income per common share(6)................... $ .08 $ .04
Weighted average number of common shares
outstanding................................................ 2,950,000 2,950,000 2,950,000 2,950,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
AS
DECEMBER 31, 1995 ACTUAL(1) ADJUSTED(2)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 3,302 $ 2,899 $ 3,063
Total assets......................................................... 10,415 9,639 9,639
Current liabilities.................................................. 5,146 4,497 4,497
Long-term debt....................................................... 5,501 5,402 1,504
Shareholders' equity (deficit)....................................... (232) (260) 3,638
</TABLE>
(1) Historically, the Company's net sales and net income have been the highest
in the fourth quarter of each year. The Company's business is seasonal
because its sales volume increases significantly during the Christmas
holiday season and, to a lesser extent, around other holidays in the Fall
and Spring and during periods of colder weather in certain sections of the
country. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Seasonality; Quarterly Results."
(2) Adjusted to give effect to the sale by the Company of 750,000 shares of
Common Stock and 750,000 Warrants offered hereby at an assumed offering
price of $6.50 per share and $0.10 per Warrant and the application of the
estimated net proceeds therefrom to temporarily repay a portion of the
borrowings under the Company's Bank Credit Facilities. See "Use of Proceeds"
and "Capitalization."
(3) The increase in net sales, cost of goods sold and selling, marketing and
administrative expenses in 1995 compared to 1994 was primarily attributable
to sales of herring products following the Company's acquisition of a
product line in March, 1995 and the sale of a smoked salmon product which
the Company began distributing in January, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) Included in interest and other expense, net, in 1995 is an expense of
$356,000 representing an arbitration award requiring the Company to pay the
adverse party's legal fees. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Growth
Strategy."
(5) Income taxes are not presented in 1994 and 1995 due to the Company's
utilization of net operating loss carryforwards to offset taxable income and
due to the 100% valuation allowance applied against the deferred
6
<PAGE>
tax asset. The Company recognized $172,000 of the prior year's deferred tax
asset valuation allowance during 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Financial Statements.
(6) Supplemental net income per common share is computed by dividing
supplemental net income (which includes net income (loss) plus interest
expense, net of related income taxes) by the weighted average number of
common shares that would have been outstanding after giving effect to the
number of common shares that would be required to be sold to repay a portion
of the borrowings under the Company's Bank Credit Facilities.
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I)
REFLECTS THE REINCORPORATION OF THE COMPANY FROM ILLINOIS TO NEVADA EFFECTED IN
SEPTEMBER, 1996, (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, (III) DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO 750,000 SHARES OF
COMMON STOCK UPON EXERCISE OF THE WARRANTS, (IV) DOES NOT GIVE EFFECT TO THE
ISSUANCE OF UP TO 75,000 SHARES OF COMMON STOCK AND 75,000 WARRANTS UPON
EXERCISE OF THE REPRESENTATIVE'S WARRANTS, (V) DOES NOT GIVE EFFECT TO THE
ISSUANCE OF UP TO 75,000 SHARES OF COMMON STOCK UPON EXERCISE OF WARRANTS
UNDERLYING THE REPRESENTATIVE'S WARRANTS, (VI) DOES NOT GIVE EFFECT TO THE
ISSUANCE OF UP TO 400,000 ADDITIONAL SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UPON EXERCISE OF ADDITIONAL STOCK OPTIONS THAT MAY BE GRANTED UNDER THE
COMPANY'S 1996 EMPLOYEE STOCK OPTION PLAN AND 1996 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS; AND (VII) DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO
150,000 ADDITIONAL SHARES OF COMMON STOCK RESERVED FOR ISSUANCE IN CONNECTION
WITH THE COMPANY'S 1996 EMPLOYEE STOCK PURCHASE PLAN.
AFTER THE REINCORPORATION MERGER, THE COMPANY HAD 2,950,000 SHARES OF
COMMON STOCK ISSUED AND OUTSTANDING. THE EARNINGS PER SHARE CALCULATION AND ALL
SHARE INFORMATION IN THE PROSPECTUS HAVE BEEN RETROACTIVELY ADJUSTED TO REFLECT
THE INCREASES IN AUTHORIZED, ISSUED AND OUTSTANDING SHARES OF COMMON STOCK
RESULTING FROM THE REINCORPORATION MERGER.
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RISK FACTORS
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING INFORMATION IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED
HEREBY.
FLUCTUATIONS IN COST AND SUPPLY OF HERRING AND SALMON
The Company's primary specialty food products are herring products and
cured and smoked salmon products. The Company purchases herring and salmon from
third party suppliers for use in the production of its products. Consequently,
an interruption in the supply or a significant increase in the price of either
herring or salmon could have a material adverse effect on the Company's results
of operations and financial condition. If the price of herring or salmon
increases, there is no assurance that the Company will be able to maintain its
gross margins by increasing the prices of its products. There can be no
assurance that herring or salmon will be delivered on a timely basis or on terms
favorable to the Company. In such event, the Company may not be able to
profitably produce herring products or cured and smoked salmon products. Should
the Company lose its present sources of supply for herring or salmon, be unable
to obtain the herring or salmon on favorable terms or experience delays in
receiving them, a material adverse impact on the Company's results of operations
and financial condition may result. The Company believes, however, that
alternative sources of both herring and salmon are currently available. See
"Business -- Production."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
The Company expects to use between $1,200,000 and $1,500,000 of the net
proceeds of this offering to partially fund either the purchase of a facility to
replace its current office, production and storage facility; the construction of
a new facility; or the expansion and upgrading of its current facility (each of
these facilities collectively referred to as the "IMPROVED FACILITY"), and to
purchase additional capital equipment. In addition, the Company expects that it
will use approximately $300,000 for promotions to Supermarkets and
Institutional Purchasers, increased consumer advertising and to secure
additional shelf space in Supermarkets. The Company intends to use the remaining
net proceeds to either acquire, or enter into joint ventures with, companies
producing complementary food products. The Company intends to use the net
proceeds of this offering to temporarily repay a portion of the Company's
indebtedness under its revolving loan and term loan facilities with American
National Bank and Trust Company of Chicago (the "BANK CREDIT FACILITIES"). The
Company anticipates a significant short-term savings in interest expense as a
result of this temporary repayment of debt. The Company anticipates borrowing
under its Bank Credit Facilities to fund future acquisitions or joint ventures
as needed. Accordingly, investors will not know with certainty how the Company
will use a substantial portion of the net proceeds of the offering.
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION
Purchasers of Securities in this offering will experience immediate and
substantial dilution in the net tangible book value of the shares of Common
Stock and Warrants purchased by them in this offering. The immediate dilution to
purchasers of the Securities offered hereby is $5.60 or 86.2%, per share of
Common Stock. Additional
dilution to future net tangible book value per share may occur upon the exercise
of the Warrants, the Representative's Warrants, the Warrants underlying the
Representative's Warrants, options to be issued under the Company's 1996 Stock
Option Plans and shares to be issued pursuant to the Stock Purchase Plan. The
current shareholders of the Company, including the Company's directors and
persons or entities affiliated with them, acquired their shares of Common Stock
for consideration substantially less than the public offering price of the
shares of Common Stock offered hereby. See "Capitalization" and "Dilution."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY AND ACQUISITIONS OUTSIDE THE
COMPANY'S MARKET NICHE
The Company's acquisition/joint venture strategy is primarily based on
identifying and acquiring, or entering into joint ventures with companies which
produce complementary specialty food products in its market niche: ready-to-eat
refrigerated (or frozen) specialty food products sold to Supermarkets and
Institutional Purchasers. There can be no assurance, however, that the Company
will be able to identify, negotiate and consummate any acquisitions or enter
into any joint ventures or that such acquisitions or joint ventures can be
operated profitably or integrated successfully into the Company's operations.
Acquisitions and joint ventures may require investment of operational and
financial resources and could require integration of dissimilar operations,
assimilation of new employees, diversion of management time and resources,
increases in administrative costs, potential loss of key employees of the
acquired company or joint venture company and additional costs associated with
debt or equity financing. Any future acquisition or joint venture completed by
the Company could have an adverse effect on the Company's results of operations
or could result in dilution to existing shareholders, including those purchasing
Securities in this offering. There can be no assurance that the Company will
complete any acquisitions or enter into any joint ventures, that such
acquisitions or joint ventures will be profitable, or that such future
acquisitions or joint ventures will not materially and adversely affect the
Company's results of operations or financial condition. See "Use of Proceeds"
and "Business -- Growth Strategy."
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The Company has, in the past, encountered difficulties when it attempted to
expand its product line beyond its market niche and its management's experience.
The Company, through the acquisition of three companies in the mid-1980's, began
to sell "fresh" smoked fish to delicatessens in New York City. Prior to 1985,
the Company did not sell fresh smoked fish products and had no experience
selling directly to delicatessens. The Company believed, however, that the
particularly strong recognition of the Vita brand name in New York City would
compensate for management's lack of prior experience in selling fresh smoked
fish directly to delicatessens. During the next few years, the Company
determined that it had underestimated both the difficulties of entering the New
York City fresh smoked fish market and the long-term difficulties of effectively
competing in this market. Accordingly, the Company determined to exit this
market and refocus its growth strategy on its market niche. The Company, in
exiting this market, combined the operations of two of these companies. The
surviving company subsequently declared bankruptcy. Although the Company does
not currently anticipate acquiring or entering into joint ventures with
companies outside its market niche, should the Company do so in the future, such
acquisitions or joint ventures would be subject to the general risks associated
with the Company's acquisition strategy and the specific risks associated with
acquisitions outside the Company's market niche such as those encountered in the
New York City fresh smoked fish products acquisitions. See "Business -- Growth
Strategy."
RISK OF PRODUCT RECALL; PRODUCT LIABILITY
The marketing, distribution and sale of food products entails an inherent
risk of product liability and product recall. There can be no assurance that
product liability claims will not be asserted against the Company or that the
Company will not be obligated to recall its products. Although the Company
maintains product liability insurance coverage, there can be no assurance that
an adequate level of coverage is presently in place or will be available in the
future. Any losses that the Company may suffer from future liability claims,
including the successful assertion against the Company of one or a series of
large claims in excess of the Company's insurance coverage, may have a material
adverse effect on the Company. In addition, a product recall or lawsuits
resulting from tampering, food poisoning or other problems could also have a
material adverse effect on the Company. See "Business -- Product Liability
Insurance" and " -- Product Return Policy."
RISK OF NON-COMPLIANCE WITH FDA REGULATION
The manufacture, processing, packaging, storage, distribution and labeling
of food products are subject to extensive federal and state laws and
regulations. In the United States, the Company's business is subject to
regulation by the Food and Drug Administration (the "FDA"). Applicable statutes
and regulations governing food products include "standards of identity" for the
content of specific types of foods, nutritional labeling and serving size
requirements. The Company believes that its current products satisfy, and its
new products will satisfy, all applicable regulations and that all of the
ingredients used in its products are "generally recognized as safe" by the FDA
for the intended purposes for which they will be used. Failure to comply with
applicable laws and regulations could subject the Company to civil remedies,
including fines, injunctions, recalls or seizures, as well as potential criminal
sanctions, which could have a material adverse effect on the Company.
RISK OF STORAGE FACILITY DESTRUCTION
The Company stores most of the raw herring and salmon used in its products
and its finished products in storage facilities managed by third parties. Raw
herring and salmon and the Company's finished products are subject to spoilage,
damage or destruction from fire, power loss, refrigeration failure or a similar
event occurring at one or more of these storage facilities. Although the Company
receives monthly reports relating to each facility and maintains insurance which
the Company believes is adequate to protect itself against losses resulting from
such events, the occurrence of such events is beyond the control of the Company.
The Company's insurance carrier also periodically inspects primary facilities.
If any of such events occur, they could have a material adverse effect on the
Company's results of operations and financial condition. In addition, the
Company may not have adequate insurance coverage to compensate the Company for
all losses incurred. The Company intends to increase its internal storage
facilities through either the purchase or construction of an Improved Facility
which will give the Company greater control over the risks associated with
storing food products and significantly decrease the Company's dependence on
third party storage facilities. However, the risks of loss from storage problems
will still exist. See "Business -- Production."
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DEPENDENCE ON MAJOR CUSTOMERS
The Company's major customers are primarily large regional supermarket
chains and wholesale clubs. The Company does not have any long-term contractual
relationships with any of its customers. The Company's largest customer
represented 12% and 11% of net sales in 1995 and 1994, respectively. This
customer is a large supermarket chain with five regional divisions located in
the Southeast. The purchasing decisions of each regional division are made
independently. The Company believes the loss of this customer would have a
material adverse affect on the Company's business, financial condition and
results of operations. However, the Company believes the loss of this customer
is unlikely. In addition, because each regional division makes its purchasing
decisions independently, the Company believes that it is not likely to lose all
of the divisions even if it were to lose one or more of such divisions. The loss
of a number of significant customers or any material reduction in orders given
to the Company by a number of significant customers, including reductions due to
economic or competitive pressures in the market for herring products and cured
and smoked salmon products, could adversely affect the Company's business,
financial condition and results of operations. The Company is aware that its
customers are continually reviewing their purchasing decisions which may result
in such customers changing their current orders from higher margin to lower
margin products or reducing the amount of a product or products purchased. Any
material change in orders or reduction in the amount of a product or products
purchased by one or more significant customers could adversely affect the
Company's business, financial condition and results of operations. The Company's
ability to maintain or increase its sales levels in the future will depend in
part upon its ability to obtain orders from new customers as well as the
financial condition and success of its current customers and the general
economy. There can be no assurance that the Company will be able to maintain or
continue to increase the level of its sales in the future or that the Company
will be able to retain existing customers or attract new customers. See
"Business -- Product Distribution and Sales" and " -- Customers/Sales by
Region."
CHANGE IN CONSUMER PREFERENCES
The Company's success depends, in part, on its ability to correctly and
consistently anticipate, gauge and respond in a timely manner to changing
consumer preferences. The Company is attempting to minimize the risks relating
to changing consumer trends by offering a wider variety of products, analyzing
consumer purchases of specialty foods products, maintaining active product
development efforts and increasing the monitoring of sales of its products.
However a decrease in the consumer demand for herring products or cured and
smoked salmon products, any misjudgment by the Company of the market for any of
its new products, or its failure to correctly anticipate changes in consumer
preferences could have a material adverse impact on its results of operations
and financial condition. See "Business -- Growth Strategy" and " -- Products."
PRODUCT CONCENTRATION RISK
Substantially all of the Company's revenues are derived from sales of
herring products and cured and smoked salmon products. The Company anticipates
that these products will continue to account for most of its sales in the
foreseeable future. A decline in the demand for either of these product lines,
whether as a result of competition or other factors, could have a material
adverse effect on the Company's results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Competition."
FUTURE CAPITAL REQUIREMENTS
To the extent that the proceeds from this offering, cash flow from
operations and funds available under the Company's Bank Credit Facilities are
insufficient to fund the Company's activities, the Company will be required to
raise additional funds through equity or debt financings. During the next 12 to
18 months, the Company anticipates either purchasing or constructing an Improved
Facility. The Company intends to partially finance the Improved Facility with
approximately $1,200,000 to $1,500,000 of the net proceeds of this offering. The
Company currently anticipates obtaining the additional required funds that are
projected to be between $4,000,000 and $7,000,000, through the use of one or
more financing options which may include, among others, conventional bank
financing, industrial revenue bond financing, and, possibly, tax incentives for
Federal Empowerment Zones and Enterprise Communities to the extent available. No
assurance can be given that any of these
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<PAGE>
financing options will be available on terms acceptable to the Company, if at
all. Any equity financing and certain debt financing with an equity component
will result in further dilution to the Company's shareholders. Any debt
financing will result in the Company incurring higher interest expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Production" and
"Risk Factors -- Non-Compliance with Covenants under Bank Credit Facilities."
SCHEDULED EXPIRATION OF BANK CREDIT FACILITIES
The Company intends to use the net proceeds of this offering to temporarily
repay a portion of the Company's indebtedness under its Bank Credit Facilities.
The Company anticipates a significant short-term savings in interest expense as
a result of this temporary repayment of debt. The Company anticipates borrowing
under the Bank Credit Facilities, as needed, to fund the intended uses of
the net proceeds of the offering. Pursuant to a letter dated November 8, 1996,
the Company's lender, American National Bank and Trust Company of
Chicago ("ANB"), issued a commitment to extend the maturity date
of the Bank Credit Facilities from April, 1997 until April, 1998. There
can be no assurance that the Company will be able to renew, replace
or extend its Bank Credit Facilities on acceptable terms beyond April,
1998. The Company's failure to obtain additional bank financing may
prevent the Company from pursuing its acquisition strategy,
which is a significant part of its long-term growth strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Growth Strategy."
RISKS ASSOCIATED WITH PURCHASE OR CONSTRUCTION OF IMPROVED FACILITY
During the next 12 to 18 months, the Company anticipates either purchasing
or constructing an Improved Facility. Although the Company believes the Improved
Facility will result in increased production capacity, increased production
efficiencies, additional internal storage facilities and overall cost savings,
the Company may experience delays in all aspects of its operations and incur
substantial unanticipated costs in purchasing or constructing an Improved
Facility. There can be no assurance the Company will not encounter quality or
capacity difficulties, or experience production delays, in connection with this
purchase or construction. These factors could have an adverse short-term effect
on the Company's results of operations. See "Business -- Production," "Use of
Proceeds" and Management's Discussion and Results of Operations -- Liquidity and
Capital Resources."
RISKS ASSOCIATED WITH DEVELOPING NEW PRODUCTS
The Company is developing and introducing new products, such as the salmon
burger, and intends to continue to develop and introduce other new products in
the future. The development process involves significant expenditures of
management time and financing resources in connection with developing the new
product, the purchase of additional equipment, if required, producing the new
product, and marketing the new product. Despite such investment, the Company may
be unable to market and sell the product due to lack of market acceptance. The
Company's future growth and profitability will in part be dependent on achieving
market acceptance of its new products and the Company's ability to distribute
and sell such products through its national distribution network of food
brokers. Although management intends to introduce and develop new food products
which are complementary to the Company's existing products, the Company may
encounter production and marketing obstacles which would adversely impact sales
of these new products and the Company's results of operations. There can be no
assurance that efforts to develop and introduce new products, and market and
sell such new products will be successful. See "Business -- Growth Strategy."
COMPETITION
The market for the Company's products is highly competitive. The Company
believes that consumers select herring products and cured and smoked salmon
products as well as its other specialty food products based primarily on product
quality and price. Although the Company's competitors are primarily small,
regional food processors and producers, certain of the Company's competitors may
have greater financial and other resources than the Company and may offer lower
prices on comparable products. Since a key competitive factor among producers of
cured and smoked salmon products and herring products is price, even smaller
regional companies may be able to compete effectively against the Company due to
reduced shipping costs. Increased competition
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<PAGE>
could result in product price reductions, reduced margins and loss of market
share, all of which could have a material adverse effect on the Company's
results of operations and financial condition. While the Company believes its
prices are competitive for the quality level of its products, the Company relies
primarily on the recognition of the VITA brand name and its reputation for
selling quality products. There can be no assurance that the Company will be
able to compete successfully with its competitors in the future. See
"Business -- Competition."
NON-COMPLIANCE WITH COVENANTS UNDER BANK CREDIT FACILITIES
During the fiscal year ended December 31, 1995, the Company was not in
compliance with certain financial and operating covenants contained in its Bank
Credit Facilities relating to capital expenditures, net income, tangible net
worth, and contributions to employee pension benefit plans. ANB waived these
covenant violations for the 1995 fiscal year. During the nine month period ended
September 30, 1996, the Company was not in compliance with the capital
expenditures covenant in its Bank Credit Facilities. ANB waived this covenant
violation for this nine month period. ANB subsequently increased the amount of
capital expenditures permitted by this covenant. As of November 8, 1996, the
Company believes it is in compliance with the covenants contained in its Bank
Credit Facilities. The Company believes that its relationship with ANB is good
and expects ANB to continue to grant covenant waivers, if required, and to
renew, if requested, the Company's Bank Credit Facilities on substantially the
same terms as the terms of the current Bank Credit Facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Risk Factors -- Future
Capital Requirements."
DEPENDENCE ON SUPPLIERS/SOLE HERRING SUPPLIER
The Company currently purchases most of its herring from Barry's Limited
(the "SUPPLIER"), a specialty herring harvester and processor located in Canada,
pursuant to a supply agreement. The Company has been purchasing herring from the
Supplier since the Company began operations over 65 years ago. Under the
agreement, the Supplier has the option to supply 90% of the Company's annual
requirements for herring, provided it sells the herring at the same prices which
the Company would pay if it purchased the herring elsewhere. The Supplier
guarantees the Company the first priority on its supply of herring, in an amount
necessary to satisfy the Company's requirements. Though the Company to date has
not experienced any difficulties as a result of this relationship, the Company's
reliance on this single supplier for its herring subjects the Company to a
number of risks, including possible delays or interruption in supplies,
diminished control over quality and a potential lack of adequate supply. The
Company currently purchases its salmon from a number of sources. Any disruption
in the supply of or in the quality of the herring and/or salmon provided by its
suppliers could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, such disruptions in
supply or degradations in quality could have a long-term detrimental impact on
the Company's strong brand identity and loyal customer base. There may be other
herring harvesters that could meet the Company's herring requirements, but the
Company believes it is currently purchasing a quality product at favorable
prices. The Company currently has no plans to develop an alternate source for
its herring requirements. The Company believes that there are alternate sources
that could meet its salmon requirements, if necessary. See
"Business -- Production."
VARIABILITY IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has in the past and expects in the future to experience
significant fluctuation in quarterly operating results. Historically, the
Company's net sales and net income have been the highest in the fourth quarter
of each year. The Company's business is seasonal because its sales volume
increases significantly during the Christmas holiday season and, to a lesser
extent, during other holidays in the Fall and Spring and during periods of
colder weather in certain sections of the country. Certain of these holidays,
including Passover, Easter, Yom Kippur and Rosh Hashanah, may fall in different
quarters in different years and could cause the Company's quarterly operating
results to fluctuate in the future. Accordingly, the Company's results of
operations for any particular quarter may not necessarily be indicative of net
income or loss that may be expected for any other particular quarter or the
whole year. Significant variability in orders during any period may have an
adverse impact on the Company's cash flow or work flow, and any significant
decrease in orders could have a material adverse impact on the Company's results
of operation and financial condition. The Company intends to continue
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to introduce, and in some cases, develop new products under the VITA brand name,
such as salmon burgers and hommus, that are not seasonal. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Seasonality; Quarterly Results."
ENVIRONMENTAL COMPLIANCE
In the ordinary course of its production process, spillage and cleaning
results in a high concentration of sugars and vinegars, which create Biological
Oxygen Demands ("BODS") as well as fats, oils and greases ("FOGS"), both of
which enter the waste water treatment system. The Company is assessed a user
charge by the Metropolitan Water Reclamation District of Chicago (the
"DISTRICT"), based in part on the costs of treating this waste water. The
Company is currently appealing the user charges assessed for 1994 and 1995. The
Company believes it has established sufficient reserves for such charges based
on the Company's experience in resolving such appeals in prior years and on
estimates provided by an independent consultant. Although the Company has no
reason to believe that an assessment of user charges which exceeds the Company's
reserves will be made, the Company believes such an assessment, if made, will
not have a materially adverse effect on the Company's business, financial
condition or results of operations. Should the level of FOGs entering the waste
water treatment system exceed a specified level over a specified period of time,
the District, following certain procedural requirements, has the authority to
temporarily close the Company's production facility. The level of FOGs resulting
from the Company's production process has occasionally exceeded this specified
level in the past on a temporary basis but not for any extended period of time.
The Company has no reason to believe that this level will be exceeded for any
extended period of time in the future. The District has not in the past
initiated, or threatened to initiate, proceedings to close the Company's
production facility. The Company has no reason to believe the District will do
so in the future if the specified level of FOGs is exceeded on a temporary
basis. The Company also uses a number of smokers in the ordinary course of its
production process. Although the Company is not aware of any claim involving
violation of environmental or occupational safety and health laws and
regulations, there can be no assurance that such a claim may not arise in the
future, which may have a material adverse effect on the Company. See
"Business -- Environmental Matters."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in large part, upon the efforts and
abilities of its executive officers and key employees, particularly Stephen D.
Rubin and Clark L. Feldman, the Company's President and Executive Vice
President, respectively. The loss of the services of Mr. Rubin or Mr. Feldman or
one or more of the Company's other key employees could have a material adverse
effect on the Company's business. The Company will enter into employment
agreements which will become effective on the date of this Prospectus,
containing noncompetition provisions, with Mr. Rubin and Mr.
Feldman. As of the date of the Prospectus, the Company will carry key man life
insurance on Mr. Rubin in the amount of $1,500,000 and Mr. Feldman in the amount
of $750,000, of which the Company is the sole beneficiary. The success of the
Company will depend on, among other factors, the successful recruitment and
retention of quality management and personnel. See "Management."
CONTROL BY CERTAIN EXISTING SHAREHOLDERS
Upon completion of this offering, Mr. Rubin and Mr. Feldman will
beneficially own approximately 33.7% and 16.8%, respectively, of the outstanding
shares of Common Stock (approximately 32.7% and 16.3%, respectively, if the
over-allotment option is exercised in full). Upon completion of this offering,
the principal shareholders, directors, nominees and executive officers of the
Company (including Mr. Rubin and Mr. Feldman) will beneficially own
approximately 66.6% of the outstanding shares of Common Stock (approximately
64.7% if the over-allotment option is exercised in full). Because of their stock
ownership and positions with the Company, Mr. Rubin and Mr. Feldman will be in a
position to continue to control the affairs and management of the Company,
including the election of directors and most corporate actions. Such
concentration of ownership and control may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Principal
Shareholders" and "Description of Company's Securities."
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EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of Preferred
Stock with such designations, rights and preferences as may be determined from
time to time by the Company's Board of Directors. Accordingly, the Board of
Directors is empowered, without shareholder approval, to issue Preferred Stock
with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. Issuance of the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its Preferred Stock, there can be no assurance that the Company
will not do so in the future. See "Description of Company's
Securities -- Preferred Stock."
POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS
At the consummation of the offering, the Company will sell to the
Representative and/or its designees, for nominal consideration, warrants to
purchase up to 75,000 shares of Common Stock and/or 75,000 Warrants (the
"REPRESENTATIVE'S WARRANTS"). The Representative's Warrants will be exercisable
for a period of four years commencing one year after the date of this
Prospectus, at an exercise price of $ [165% of the initial public offering
price] per share and $ [165% of the initial public offering price] per
Warrant. The Warrants obtained upon exercise of the Representative's Warrants
will be exercisable for a period of four years commencing one year after the
date of this Prospectus, at an exercise price of $ [160% of the
initial public offering price] per share. For the term of the Representative's
Warrants, the holders thereof will have, at nominal cost, the opportunity to
profit from a rise in the market price of the Securities without assuming the
risk of ownership, with a resulting dilution in the interest of other security
holders. As long as the Representative's Warrants remain unexercised, the
Company's ability to obtain additional capital might be adversely affected.
Moreover, the Representative may be expected to exercise the Representative's
Warrants at a time when the Company would, in all likelihood, be able to obtain
any needed capital through a new offering of its securities on terms more
favorable than those provided by the Representative's Warrants. See "Description
of Company's Securities -- Warrants" and "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Commencing 18 months after the date of this Prospectus, the Warrants are
subject to redemption by the Company at $0.01 per Warrant on 30 days' prior
written notice to the warrantholders if the average closing bid price of the
Common Stock equals or exceeds $ [200% of the initial public offering
price] per share of Common Stock for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. If the Warrants are redeemed, holders of the Warrants
will lose their rights to exercise the Warrants after the expiration of the 30
day notice of redemption period. Upon receipt of a notice of redemption, holders
would be required to: (i) exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for them to do so, (ii) sell the Warrants at
the current market price, if any, when they might otherwise wish to hold the
Warrants or (iii) accept the redemption price which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Company's Securities -- Warrants."
POTENTIAL ADVERSE EFFECT OF SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK
RESERVED
The Company has reserved a total of 1,450,000 shares of Common Stock for
issuance as follows: (i) 750,000 shares for issuance upon exercise of the
750,000 Warrants (plus any shares for issuance upon exercise of the Warrants
sold as a result of any exercise of the Representative's over-allotment
option); (ii) 75,000 shares for issuance upon exercise of the
Representative's Warrants; (iii) 75,000 shares for issuance upon exercise
of the Warrants issuable upon exercise of the Representative's Warrants;
(iv) 400,000 shares for issuance pursuant to the 1996 Employee Stock Option
Plan and the 1996 Stock Option Plan for Non-Employee Directors (collectively
the "1996 STOCK OPTION PLANS"); and (v) 150,000 shares for issuance
pursuant to the 1996 Employee Stock Purchase Plan (the "STOCK PURCHASE
PLAN"). As of the date of this Prospectus, the Company has not granted any
options pursuant to the 1996 Stock Option Plans or issued any shares
pursuant to the Stock Purchase Plan. However, the Company has entered into
a letter agreement with the Company's Chief Financial Officer pursuant
to which he will receive options to purchase 80,000 shares of Common Stock
at the fair market value per share of the Common Stock. See "Management--
Executive Compensation." The existence of the Warrants, the Representative's
Warrants and the future grant of options may adversely affect the Company's
ability to consummate future equity financing. Further, the holders of
the Warrants, Representative's
14
<PAGE>
Warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Shares Eligible for Future Sale."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock or the Warrants. There can be no assurance that an active trading market
will develop or, if developed, will be sustained upon completion of this
offering or that the market price of the Common Stock or the Warrants will not
decline below the initial public offering price. The market price of the Common
Stock or the Warrants may be subject to significant fluctuations in response to
variations in quarterly operating results, the gain or loss of significant
contracts, changes in management, announcements of new products by the Company
or its competitors, legislative or regulatory changes, general trends in the
industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have affected the market
price of the common stock and warrants of many companies for reasons frequently
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common Stock
and the Warrants. Securities recently issued in an initial public offering are
particularly susceptible to volatility based on the short term trading
strategies of certain investors. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing shareholders under Rule 144 of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or otherwise could
have an adverse effect on the market price of the Securities. Upon the
completion of this offering, the Company will have 3,950,000 shares of Common
Stock and 1,000,000 Warrants outstanding. The 1,000,000 shares of Common Stock
which are sold in this offering (plus any shares sold as a result of any
exercise of the Representative's over-allotment option) by the Company and,
subject to certain conditions commencing one year after the date of this
Prospectus, up to 1,000,000 shares of Common Stock issuable upon exercise of the
Warrants, and, commencing approximately 12 months after the date of this
Prospectus, up to 100,000 shares of Common Stock that are issuable upon exercise
of the Representative's Warrants and up to 100,000 shares of Common Stock that
are issuable upon exercise of the Warrants underlying the Representative's
Warrants, will, subject to any applicable state law restrictions on secondary
trading, be freely tradeable without restriction under the Securities Act,
except that any shares purchased by an "affiliate" of the Company (as that term
is defined in Rule 144 under the Securities Act) will be subject to the resale
limitations of Rule 144. The remaining 2,950,000 shares of Common Stock
outstanding upon completion of the offering are "restricted securities" as that
term is defined in Rule 144. Rule 144 permits resale of restricted securities
subject to certain restrictions. On the date of this Prospectus, approximately
177,755 shares will be eligible for immediate sale without restriction pursuant
to Rule 144(k) and an additional 2,772,245 shares will be eligible for immediate
sale under Rule 144, subject to compliance with the provisions of Rule 144;
2,896,684 of such shares will, however, be subject to lock-up agreements for 13
months. The lock-up agreements provide that the Company and its shareholders,
who beneficially own more than 1% of the outstanding shares of Common Stock as
of the date of this Prospectus, will not offer, sell, grant any option for the
sale or otherwise dispose of any securities of the Company for a period of 13
months after the date of this Prospectus without the prior written consent of
the Representative (the "LOCK-UP AGREEMENTS"). See "Underwriting." After 13
months from the date of this Prospectus, these shares will be eligible for sale
in the public market, subject, in certain cases, to compliance with Rule 144.
See "Underwriting." The Company intends, immediately after the sale of the
Securities offered hereby, to register a total of 400,000 shares of Common Stock
reserved for issuance under the 1996 Stock Option Plans and 150,000 shares of
Common Stock reserved for issuance under the Employee Stock Purchase Plan.
Shares of Common Stock issuable upon the exercise of stock options to any person
who has entered into a lock-up agreement with the Representative will be subject
to the terms of such lock-up agreement. See "Shares Eligible for Future Sale."
15
<PAGE>
ARBITRARY DETERMINATION OF OFFERING PRICE
The initial public offering price of the Securities and the exercise price
and terms of the Warrants have been determined arbitrarily by negotiations
between the Company and the Representative. Factors considered in such
negotiations, in addition to prevailing market conditions, included the history
and prospects for the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital structure
and certain other factors deemed relevant. Therefore, the public offering price
of the Securities and the exercise price and terms of the Warrants do not
necessarily bear any relationship to established valuation criteria and may not
be indicative of prices that may prevail at any time or from time to time in the
public market for the Securities. See "Underwriting."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS
The Warrants are exercisable only if a current prospectus relating to the
Common Stock underlying such Warrants is then in effect, and only if such Common
Stock is qualified for sale or exempt from qualification under applicable state
securities law of the state in which such holders of the Warrants reside.
Although the Company has undertaken to maintain the effectiveness of a current
prospectus covering the Common Stock underlying the Warrants, there can be no
assurance that the Company will be able to do so. The Warrants may be deprived
of any value if a current prospectus covering the Common Stock issuable upon
exercise of the Warrants is not kept effective, or if such Common Stock is not
qualified or exempt from qualification in the states in which the holders of
Warrants reside.
The Common Stock and the Warrants are separately transferable immediately
upon issuance. In the event investors purchase the Warrants in the secondary
market or move to a jurisdiction in which the shares underlying the Warrants are
not registered or qualified during the period that the Warrants are exercisable,
the Company will be unable to issue shares to those persons desiring to exercise
their warrants unless and until the shares are qualified for sale in
jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdiction, and holders of the Warrants would
have no choice but to attempt to sell the Warrants in a jurisdiction where such
sale is permissible or allow them to expire unexercised. See "Description of
Securities -- Warrants."
NO CASH DIVIDENDS
The Company has not paid any cash dividends on the Common Stock. For the
foreseeable future, it is anticipated that earnings, if any, that may be
generated from the Company's operations will be used to finance the operations
of the Company and that cash dividends will not be paid to holders of the Common
Stock. The Company is currently not permitted to pay cash dividends
under its Bank Credit Facilities and future borrowings may contain similar
restrictions. See "Dividend Policy."
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements and information that is
based on management's beliefs and assumptions, as well as information currently
available to management. When used in this document, the words "anticipate,"
"estimate," "expect," "intend," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected. Among the key factors that may have a direct bearing on
the Company's operating results are fluctuations in the economy, the degree and
nature of competition, acceptance of, and demand for,
16
<PAGE>
specialty food products, the Company's anticipated purchase or construction of
an Improved Facility, the success of the Company's acquisition strategy and the
Company's ability to successfully implement its long-term growth strategy.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 shares of
Common Stock and the 750,000 Warrants offered hereby, after deducting
underwriting discounts and estimated offering expenses, including the
non-accountable expense allowance, are estimated to be approximately $3,898,000
($4,544,000 if the Underwriters' over-allotment option is exercised in full) at
the assumed public offering price of $6.50 per share of Common Stock and $0.10
per Warrant. The Company expects to use between $1,200,000 and $1,500,000 of the
net proceeds to partially fund the purchase or construction of an Improved
Facility and to purchase additional capital equipment. In addition, the Company
expects that it will use approximately $300,000 for promotions to Supermarkets
and Institutional Purchasers, increased consumer advertising and to secure
additional shelf space in Supermarkets. The Company intends to use the remaining
net proceeds to either acquire, or enter into joint ventures with, companies
producing complementary food products. Although the Company evaluates potential
acquisitions and joint ventures on an on-going basis, the Company currently has
no agreements, understandings or commitments with respect to any acquisition or
joint venture, nor is the Company engaged in negotiations with respect to any
acquisition or joint venture. There can be no assurance that the Company will
complete any acquisitions or enter into any joint ventures, that such
acquisitions or joint ventures will be profitable or that future acquisitions or
joint ventures will not materially and adversely affect the Company's results of
operations or financial condition. See "Risk Factors -- Risks Associated with
Purchase or Construction of Improved Facility," " -- Broad Discretion in
Application of Proceeds," " -- Risks Associated with Acquisition Strategy and
Acquisitions Outside the Company's Market Niche," "Business -- Growth Strategy"
and " -- Production."
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering based on its current growth plans and
business conditions. The Company reserves the right to change such use when and
if market conditions or unexpected changes in operating conditions or results
occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future sales growth and the amount
of cash generated by the Company's operations. The Company intends to use the
net proceeds of this offering to temporarily repay a portion of the Company's
indebtedness under its Bank Credit Facilities except the $247,025 subject to
the subordinated participations in the term loan facility under the Bank Credit
Facilities held by certain Company shareholders. Any net proceeds not used for
this purpose will be invested in short-term interest-bearing securities. The
Company anticipates a significant short-term savings in interest expense as a
result of this temporary repayment of debt. The interest rate on the Bank Credit
Facilities is 5/8% over ANB's prime rate. The Company anticipates borrowing, as
needed, under its Bank Credit Facilities for the purposes described above.
Accordingly, investors will not know with certainty how the Company will use a
substantial portion of the net proceeds of the offering. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations, that the net proceeds of this offering, together with projected cash
flow from operations and existing capital resources, including its Bank Credit
Facilities, will be sufficient to fund the Company's operations for at least 12
to 18 months following the consummation of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Risk Factors -- Scheduled Expiration of
Bank Credit Facilities" and " -- Broad Discretion in Application of Proceeds."
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock. The Company
anticipates that all future earnings, if any, will be retained for use in the
Company's business and it does not anticipate paying any cash dividends. The
payment of dividends by the Company is currently not permitted under the Bank
Credit Facilities. Payment of future dividends, if any, will be as permitted
under the Bank Credit Facilities and at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, operating results, current and anticipated cash needs and
plans for expansion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to give effect to the sale of the 750,000
shares of Common Stock and 750,000 Warrants offered hereby at an initial
public offering price of $6.50 per share of Common Stock and $0.10 per Warrant
and the application of the net proceeds of $3,898,000.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
AS
ACTUAL ADJUSTED
<S> <C> <C>
(IN THOUSANDS)
Long-term debt (1)............................................................................ $5,402 $1,504
Shareholders' equity (deficit):
Preferred Stock, $.01 par value:
1,000,000 shares authorized, none issued.................................................... -- --
Common Stock, $.01 par value:
10,000,000 shares authorized; 2,950,000 shares issued and outstanding, 3,700,000 shares as
adjusted................................................................................. 29 39
Additional paid-in capital.................................................................... 196 4,084
Accumulated deficit........................................................................... (485) (485)
Total shareholders' equity (deficit)........................................................ (260) 3,638
Total capitalization..................................................................... $5,142 $5,142
</TABLE>
(1) See Note 3 of Notes to Financial Statements for a description of the
Company's long-term obligations.
DILUTION
As of September 30, 1996, the Company had a negative net tangible book
value of approximately $(724,000), or $(0.25) per share. "Net tangible book
value" per share represents the amount of total tangible assets less total
liabilities divided by the number of shares of Common Stock issued and
outstanding. After giving effect to the sale of the 750,000 shares of Common
Stock offered hereby based on a price to the public of $6.50 per share of Common
Stock and 750,000 Warrants based on a price to the public of $0.10 per Warrant
and assuming no other changes in the net tangible book value after September 30,
1996, the Company's net tangible book value (after deduction of underwriting
discounts and commissions and estimated offering expenses, including the
non-accountable expense allowance) at September 30, 1996 would have been
approximately $3,338,000, or $0.90 per share. This represents an immediate
increase in net tangible book value of $1.15 per share to existing shareholders
and an immediate dilution to new investors of $5.60 per share. Dilution is
determined by subtracting net tangible book value per share after the offering
from the amount of cash paid by a new investor for a share of Common Stock. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share......................................................... $6.50
Negative net tangible book value per share at September 30, 1996 before the offering.......... $(0.25)
Increase in net tangible book value per share at September 30, 1996 attributable to new
investors.................................................................................. 1.15
Net tangible book value per share at September 30, 1996 after the offering...................... 0.90
Dilution per share to new investors............................................................. $5.60
</TABLE>
18
<PAGE>
The following table summarizes, on an as adjusted basis as of September 30,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by existing shareholders and to be paid by new investors purchasing Common Stock
offered hereby. The calculation in this table with respect to shares of Common
Stock to be purchased by new investors in this offering assumes an initial
public offering price of $6.50 per share of Common Stock (before deducting the
underwriting discounts and commissions and other estimated expenses of the
offering, including the non-accountable expense allowance, payable by the
Company).
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders................................. 2,950,000 79.7% $ 225,500 4.4% $0.08
New investors......................................... 750,000 20.3% $4,875,000 95.6% $6.50
Total.......................................... 3,700,000 100.0% $5,100,500 100.0%
</TABLE>
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of operations data for the years ended December 31, 1994 and 1995 and
balance sheet data at December 31, 1995 are derived from the audited financial
statements of the Company included elsewhere in this Prospectus that have been
audited by BDO Seidman, LLP, independent certified public accountants. The
balance sheet data as of September 30, 1996, and the statement of operations
data for the nine month periods ended September 30, 1995 and 1996 have been
derived from the Company's unaudited financial statements, which in the opinion
of the Company, reflect all adjustments of a normal recurring nature which the
Company considers necessary for a fair presentation of the results for such
periods. The results of operations for the nine months ended September 30, 1996
are not necessarily indicative of the results of operations to be expected for
any future quarter or the fiscal year ending December 31, 1996. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes related thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,(1)
1994 1995(3) 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $17,793 $21,410 $13,045 $13,969
Cost of goods sold...................................... 12,735 15,014 9,364 9,953
Gross margin............................................ 5,058 6,396 3,681 4,016
Selling, marketing and administrative expenses.......... 4,410 5,397 3,709 4,036
Operating profit (loss)................................. 648 999 (28) (20)
Interest and other expense, net......................... 376 868(4) 727(4) 308
Income (loss) before income taxes (benefit)............. 272 131 (755) (328)
Income taxes (benefit)(5)............................... -- -- -- (300)
Net income (loss)....................................... $ 272 $ 131 $ (755) $ (28)
Net income (loss) per common share...................... $ .09 $ .04 $ (.26) $ (.01)
Supplemental net income per common share(6)............. $ .08 $ .04
Weighted average number of common shares
outstanding.......................................... 2,950,000 2,950,000 2,950,000 2,950,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
AS
DECEMBER 31, 1995 ACTUAL(1) ADJUSTED(2)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 3,302 $ 2,899 $ 3,063
Total assets......................................................... 10,415 9,639 9,639
Current liabilities.................................................. 5,146 4,497 4,497
Long-term debt....................................................... 5,501 5,402 1,504
Shareholders' equity (deficit)....................................... (232) (260) 3,638
</TABLE>
(1) Historically, the Company's net sales and net income have been the highest
in the fourth quarter of each year. The Company's business is seasonal
because its sales volume increases significantly during the Christmas
holiday season and, to a lesser extent, around other holidays in the Fall
and Spring and during periods of colder weather in certain sections of the
country. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Seasonality; Quarterly Results."
(2) Adjusted to give effect to the sale by the Company of 750,000 shares of
Common Stock and 750,000 Warrants offered hereby at an assumed offering
price of $6.50 per share and $0.10 per Warrant and the application of the
estimated net proceeds therefrom to temporarily repay a portion of the
borrowings under the Company's Bank Credit Facilities. See "Use of Proceeds"
and "Capitalization."
20
<PAGE>
(3) The increase in net sales, cost of goods sold and selling, marketing and
administrative expenses in 1995 compared to 1994 was primarily attributable
to sales of herring products following the Company's acquisition of a
product line in March, 1995 and the sale of a smoked salmon product which
the Company began distributing in January, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) Included in interest and other expense, net, in 1995 is an expense of
$356,000 representing an arbitration award requiring the Company to pay the
adverse party's legal fees. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Growth
Strategy."
(5) Income taxes are not presented in 1994 and 1995 due to the Company's
utilization of net operating loss carryforwards to offset taxable income
and due to the 100% valuation allowance applied against the deferred tax
asset. The Company recognized $172,000 of the prior year's deferred tax
asset valuation allowance during 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Financial Statements.
(6) Supplemental net income per common share is computed by dividing
supplemental net income (which includes net income (loss) plus interest
expense, net of related income taxes) by the weighted average number of
common shares that would have been outstanding after giving effect to the
number of common shares that would be required to be sold to repay a
portion of the borrowings under the Company's Bank Credit Facilities.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION INCLUDES FORWARD-LOOKING STATEMENTS, THE
REALIZATION OF WHICH MAY BE IMPACTED BY CERTAIN IMPORTANT FACTORS DISCUSSED
UNDER "RISK FACTORS -- FORWARD LOOKING STATEMENTS."
OVERVIEW
The Company is one of the leading processors of herring products, and cured
and smoked salmon products in the United States, which products it has been
producing and marketing for over 65 years and 25 years, respectively. The
Company's products include a variety of cuts of pickled herring in cream and
wine based sauces, and lox and nova salmon. The Company markets other
complementary specialty food products, such as cream cheese with salmon, shrimp
cocktail, hommus products, horseradish products, and cocktail and tartar sauces,
that it purchases from third party food producers and markets under the VITA
brand name pursuant to co-packing arrangements. The Company markets and, in
some cases, also produces related specialty food products under other brand
names that have been licensed to the Company. These products include
Scandinavian-style herring, which is produced and marketed by the Company under
the ELF brand name, which is widely recognized in the Midwest region of the
country, and imported Scottish smoked salmon, which is distributed by the
Company under the brand names ROYAL HIGHLAND and HIGHLAND CREST.
The Company's long-term growth strategy is to capitalize on the goodwill
associated with the VITA brand name and the strength of its national
distribution network to increase its market share for its existing products and
to introduce and market complementary new specialty food products, which will be
sold under either the VITA brand name or other brand names purchased or licensed
from third parties. The Company intends to implement its growth strategy through
acquiring, or entering into joint ventures with, companies producing
complementary specialty food products, introducing and developing new products
and increasing its marketing efforts.
In March, 1995, the Company purchased the herring production line of Lyon
Food Products, Inc. ("LYON FOOD") and secured licensing rights from Lyon Food to
the ELF brand name, a recognized regional herring brand (the "LYON PRODUCT LINE
ACQUISITION"). The Company financed the $726,000 cost of the Lyon Product Line
Acquisition through borrowings under its Bank Credit Facilities. The Company
subsequently consolidated the herring production line operations of Lyon Food
into its existing production facilities. The Company retained a limited number
of Lyon Food employees resulting in only a slight increase in selling, marketing
and administrative expenses while increasing its market share and sales of
herring products. The Company believes it has achieved and will continue to
achieve operational efficiencies based on this consolidation of operations while
only marginally increasing its selling, marketing and administrative expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
of Operations. This table and discussion below should be read in conjunction
with the financial statements and notes thereto, which appear elsewhere in this
Prospectus. The Company believes this unaudited information has been prepared on
the same basis as the audited and unaudited information presented elsewhere in
this Prospectus and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented.
22
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................................... 71.6 70.1 71.8 71.2
Gross margin............................................................... 28.4 29.9 28.2 28.8
Selling, marketing and administrative expenses............................. 24.8 25.2 28.4 28.9
Operating profit (loss).................................................... 3.6 4.7 (.2) (.1)
Interest and other expense, net............................................ 2.1 4.1 5.6 2.2
Income (loss) before income taxes (benefit)................................ 1.5 0.6 (5.8) (2.3)
Income taxes (benefit)..................................................... -- -- -- (2.1)
Net income (loss).......................................................... 1.5% 0.6% (5.8)% (0.2)%
</TABLE>
REVENUES. The Company's gross sales for the years ended December 31, 1994
and 1995 were $19.3 million and $23.2 million, respectively. In 1994, herring,
cured and smoked salmon and other specialty products constituted 57%, 38% and 5%
of the Company's gross sales, respectively. In 1995, herring, cured and smoked
salmon and other specialty products constituted 60%, 36% and 4% of the Company's
gross sales, respectively. The Company's net sales for the years ended December
31, 1994 and 1995 were $17.8 million and $21.4 million, respectively.
Net sales of the Company represent gross sales less the amounts of
discounts, credits and payments for products not sold prior to expiration date
and certain other sales allowances. The Company generally provides its customers
with a net 10-day payment term. The amounts of discounts, credits and payments
for products not sold prior to expiration date and certain other sales
allowances have historically remained relatively consistent from year to year
and were approximately 8% of gross sales for the years ended December 31, 1994
and 1995. Net sales for any of the Company's products can be influenced by a
number of factors, especially the pricing policies of the Company's competitors.
COSTS. Cost of goods sold consists primarily of the costs of herring,
salmon, curing ingredients, packaging, other raw materials, direct labor and
overhead used in the Company's production process.
GROSS MARGIN. The Company's gross margin, which is net sales less the cost
of goods, was 29.9% for the year ended December 31, 1995 and was 28.8% for the
nine months ended September 30, 1996. The Company anticipates that its gross
margin for the year ended December 31, 1996 will remain relatively constant
compared to the gross margin for 1995. Products which the Company markets
pursuant to co-packing arrangements generally have a percentage gross margin
that is one-third lower than the percentage gross margin of products which are
produced and marketed by the Company.
EXPENSES. Selling, marketing and administrative expenses consist primarily
of brokers' commissions, marketing expenses, costs of shipping products,
advertising expenses and administrative expenses, which include salaries and
other general office expenses. The Company expects that selling, marketing and
administrative expenses will increase in 1996 due, in part, to the hiring of a
chief financial officer in October, 1996, increased marketing expenses,
increased expenses related to product development and the introduction of new
products, and increased expenses incurred in connection with this offering.
However, the Company believes that, based on its expected net sales in 1996,
such expenses should remain relatively consistent as a percentage of net sales
with the 1995 level.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1995
REVENUES. Net sales for the nine months ended September 30, 1996 were
$13,969,000 compared to $13,045,000 for the same period in 1995, an increase of
$924,000 or 7.1%. This increase was attributable to increased sales of cured and
smoked salmon products of $610,000, increased sales of the Company's other
specialty food products of $210,000 and increased sales of herring products of
$100,000, consisting primarily of ELF
23
<PAGE>
brand herring products which the Company began selling following the Lyon
Product Line Acquisition in March, 1995 and were included for the full nine
months in 1996 as opposed to only six months in 1995. Of the $924,000 increase
in net sales, net sales attributable to the Company's new products introduced in
1996 were $30,000. The increase in net sales of the Company's existing products
was primarily attributable to increases in sales volume.
COSTS. Cost of goods sold for the nine months ended September 30, 1996 was
$9,953,000 compared to $9,364,000 for the same period in 1995, an increase of
$589,000 or 6.3%. This reflects a proportional increase attributable to the
increase in net sales for the nine months ended September 30, 1996, which was
partially offset by a decrease in the cost of salmon estimated to be
approximately $100,000 and certain lower per unit costs resulting from more
frequent utilization of the production facilities at full capacity.
GROSS MARGIN. Gross margin for the nine months ended September 30, 1996 was
$4,016,000 compared to $3,681,000 for the same period in 1995, an increase of
$335,000 or 9.1%. As a percentage of net sales, gross margin increased to 28.8%
for the nine months ended September 30, 1996 from 28.2% for the same period in
1995. This increase was primarily attributable to a decrease in the cost of
salmon estimated to be approximately $100,000 and certain lower per unit costs
resulting from more frequent utilization of the production facilities at full
capacity. The increase in gross margin was slightly offset by an increase in the
sale of co-packed products in the nine months ended September 30, 1996 compared
to the same period in 1995 because the co-packed products generally have lower
gross margins than products produced and marketed by the Company.
EXPENSES. Selling, marketing and administrative expenses for the nine
months ended September 30, 1996 were $4,036,000 compared to $3,709,000 for the
same period in 1995, an increase of $327,000 or 8.8%. As a percentage of net
sales, selling, marketing and administrative expenses increased to 28.9% for the
nine months ended September 30, 1996, from 28.4% for the same period in 1995.
This increase was primarily attributable to increased advertising expenses of
$200,000 and increases in brokers' commissions of $73,000.
INTEREST. Interest and other expense, net, for the nine months ended
September 30, 1996 was $308,000 compared to $727,000 for the same period in
1995, a decrease of $419,000 or 57.6%. This decrease was primarily attributable
to the non-recurring, unusual expenses incurred by the Company in 1995, which
included the Arbitration Award of $356,000, and other income of $83,000 in 1996
partially offset by an increase in interest expense of $21,000 due to an
increase in average amounts outstanding under the Bank Credit Facilities during
this period.
INCOME TAXES. For the nine month period ended September 30, 1996, the
Company has provided for an income tax benefit of $300,000 compared to no
income tax expense for the same period in 1995. The income tax benefit is
comprised of $128,000 of expected future income tax benefits resulting from
losses incurred through September 30, 1996 and $172,000 representing a partial
recognition of the deferred tax asset valuation allowance.
NET LOSS. Net loss for the nine months ended September 30, 1996 was $28,000
compared to $755,000 for the same period in 1995, a decrease in net loss of
$727,000.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31,
1994
REVENUE. Net sales for the year ended December 31, 1995 were $21,410,000
compared to $17,793,000 for the same period in 1994, an increase of $3,617,000
or 20.3%. This increase was primarily attributable to sales of ELF brand herring
products of $2,800,000, which the Company began selling following the Lyon
Product Line Acquisition in March, 1995, sales of imported Scottish smoked
salmon of $500,000, which the Company began distributing in January, 1995 and
increased sales of the Company's VITA brand cured and smoked salmon products of
$300,000. Of the $3,617,000 increase in net sales, net sales attributable to the
Company's new products introduced in 1995 were $3,300,000. The increase in net
sales of the Company's existing products was primarily attributable to increases
in sales volume.
COSTS. Cost of goods sold for the year ended December 31, 1995 was
$15,014,000 compared to $12,735,000 for the same period in 1994, an increase of
$2,279,000 or 17.9%. This increase reflects a proportional increase attributable
to the increase in net sales in 1995, which was partially offset by certain
manufacturing efficiencies estimated to be approximately $200,000 achieved from
consolidating the herring production line operations of Lyon Food with the
Company's existing production facilities, resulting in certain lower per unit
costs achieved by more frequent utilization of the production facilities at full
capacity.
GROSS MARGIN. Gross margin for the year ended December 31, 1995 was
$6,396,000 compared to $5,058,000 for the same period in 1994, an increase of
$1,338,000 or 26.5%. As a percentage of net sales, gross margin increased to
29.9% in 1995 from 28.4% in 1994. The increase was primarily attributable to
certain manufacturing efficiencies estimated to be approximately $200,000
achieved from consolidating the herring production line operations of Lyon Food
with the Company's existing production facilities, resulting in certain lower
per unit
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<PAGE>
costs achieved by more frequent utilization of the production facilities at full
capacity. The increase in gross margin was partially offset by an increase in
the sale of co-packed products in 1995 compared to 1994 because the co-packed
products generally have lower gross margins than products produced and marketed
by the Company.
EXPENSES. Selling, marketing and administrative expenses for the year ended
December 31, 1995 were $5,397,000 compared to $4,410,000 for the same period in
1994, an increase of $987,000 or 22.4%. As a percentage of net sales, selling,
marketing and administrative expenses increased to 25.2% in 1995 from 24.8% in
1994. This increase was primarily attributable to increased advertising expenses
of $92,000, increased expenses associated with securing additional shelf space
of $149,000, increased brokers' commissions and increased regional sales
managers' salaries totaling $242,000. The increase in brokers' commissions and
regional sales managers' salaries were primarily attributable to the Lyon
Product Line Acquisition and the resulting increase in sales of Elf brand
herring products.
INTEREST. Interest and other expense, net, for the year ended December 31,
1995 was $868,000 compared to $376,000 for the same period in 1994, an increase
of $492,000 or 130.9%. This increase was primarily attributable to the payment
of an award in an arbitration proceeding which required the Company, which
initiated the arbitration but did not prevail on its claims, to reimburse the
respondent for its legal fees and expenses in the amount of $356,000 (the
"ARBITRATION AWARD"). In addition, $50,000 of this increase was attributable to
a higher average interest rate under the Bank Credit Facilities and $50,000 was
attributable to increased borrowings under the Bank Credit Facilities to finance
the Lyon Product Line Acquisition and the resulting consolidation of operations
and to finance the acquisition of new capital equipment. See "Business -- Growth
Strategy."
INCOME TAXES. The Company had no income tax expense for the nine month
period ended September 30, 1995 or for the years ended December 31, 1995 and
1994, respectively. Based on its past results of operations, the Company has
generated net operating loss carryforwards which have been used to offset
taxable income. As of December 31, 1995, the Company had net operating loss
carryforwards from prior years of $200,000 which expire in specified amounts
through 2007. The Company also has net deferred tax assets, resulting from
temporary differences between financial and tax reporting of the allowance for
doubtful receivables and product returns, accrued liabilities and net operating
loss carryforwards. Although the Company expects to be able to realize a large
portion of the net deferred tax assets, it is not certain it will be able to
fully realize the net deferred tax assets based on its historical levels of
pre-tax income. Accordingly, the Company has created a valuation allowance, or
reserve, for a portion of the net deferred tax assets. As the Company generates
pre-tax income in future years, the valuation allowance will be recognized and
reduce the Company's future income tax expense.
NET INCOME. Net income for the year ended December 31, 1995 was $131,000
compared to $272,000 for the same period in 1994, a decrease of $141,000 or
51.8%. Net income for the year ended December 31, 1995, excluding non-recurring,
unusual expenses, was $742,000 compared to $372,000 for the same period in 1994,
an increase of $370,000 or 99.5%. The unusual expenses incurred in 1995 were the
Arbitration Award of $356,000, expenses of $110,000 incurred in consolidating
the herring production line operations of Lyon Food with the Company's existing
production facilities, expenses of $83,000 incurred in establishing the Bank
Credit Facilities and legal fees and expenses totaling $62,000 paid to Company
counsel in connection with the Arbitration. Legal fees and expenses paid to
Company counsel in connection with the Arbitration in 1994 were $100,000. All of
these expenses were reflected as "selling, marketing and administrative
expenses," with the exception of the Arbitration Award of $356,000, which was
reflected as "interest and other expense, net."
25
<PAGE>
SEASONALITY; QUARTERLY RESULTS
The following table sets forth net sales information for each of the
Company's last 15 quarters. This unaudited net sales information has been
prepared on the same basis as the annual information presented elsewhere in this
Prospectus and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net sales for any quarter are not necessarily
indicative of sales for any future period.
<TABLE>
<CAPTION>
NET SALES
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1993............................................... $ 4,145 $ 2,749 $ 3,858 $ 6,019
1994............................................... 4,285 3,108 3,892 6,508
1995............................................... 4,454 4,011 4,580 8,365
1996............................................... 5,516 3,692 4,761
</TABLE>
The following table sets forth net income (loss) information for each of
the Company's last 15 quarters. This unaudited net income information has been
prepared on the same basis as the annual information presented elsewhere in this
Prospectus and, in the opinion of the management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net income (loss) for any quarter is not necessarily
indicative of net income (loss) for any future period.
<TABLE>
<CAPTION>
NET INCOME (LOSS) (3)
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1993............................................... $ (91) $(577) $ 141 $ 626
1994............................................... 10 (427) (121) 810
1995(1)............................................ 63 (270) (548)(2) 886
1996............................................... 69 (100) 3
</TABLE>
(1) The Company incurred, non-recurring unusual, expenses in 1995 which
consisted of the Arbitration Award of $356,000, expenses of $110,000
incurred in consolidating the herring production line operations of Lyon
Food with the Company's existing production facilities, expenses of $83,000
incurred in establishing the Bank Credit Facilities and legal fees and
expenses totaling $62,000 paid to Company counsel in connection with the
Arbitration.
(2) The Arbitration Award of $356,000 was paid in the third quarter of 1995.
(3) Income taxes (benefit) are not presented in 1993, 1994 and 1995 due to the
Company's utilization of net operating loss carryforwards to offset taxable
income and due to the 100% valuation allowance applied against the deferred
tax asset. In 1996, the Company recognized $172,000 of the prior year's
deferred tax asset valuation allowance.
The Company has in the past and expects in the future to experience
significant fluctuation in quarterly operating results. As the tables indicate,
historically the Company's net sales and net income have been the highest in the
fourth quarter of each year. The Company's business is seasonal because its
sales volume increases significantly during the Christmas holiday season and, to
a lesser extent, during other holidays in the Fall and Spring and periods of
colder weather in certain sections of the country. Certain of these holidays,
including Passover, Easter, Yom Kippur and Rosh Hashanah, may fall in different
quarters in different years and could cause the Company's quarterly operating
results to fluctuate in the future. Significant variability in orders during any
period may have an adverse impact on the Company's cash flow or work flow, and
any significant decrease in orders could have a material adverse impact on the
Company's results of operations and financial condition. The Company's new
product strategy includes expanding into products such as salmon burgers and
hommus that are less seasonal and appeal to a broader range of consumers.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $3,302,000 at December 31, 1995 as
compared to working capital of $2,899,000 at September 30, 1996. Historically,
due to the seasonality of the Company's business, the Company has less working
capital at the end of the third quarter than at year-end. The Company has
historically satisfied its working capital requirements principally through cash
flow from operations and bank borrowings. The Company
26
<PAGE>
has never paid any dividends on its Common Stock. The Company anticipates that
all future earnings, if any, will be retained for use in the Company's business
and it does not anticipate paying any cash dividends.
Net cash provided by operating activities was $342,000 for the year ended
December 31, 1995, compared to net cash provided by operating activities of
$459,000 for the year ended December 31, 1994. The decrease in net cash provided
by operating activities in 1995 was primarily due to increases in accounts
receivable, inventories and accounts payable reflecting an increase in net
sales. Net cash provided by operating activities was $474,000 for the nine
months ended September 30, 1996 compared to net cash provided by operating
activities for the same period in 1995 of $545,000. The decrease in net cash
provided by operating activities was primarily attributable to decreases in
accounts receivable net of an increase in inventories and a decrease in accounts
payable. For the years ended December 31, 1994 and 1995, and the nine months
ended September 30, 1995 and 1996, the Company used net cash in investing
activities in the amounts of $411,000, $446,000, $321,000 and $337,000,
respectively, to purchase additional capital equipment and to pay for capital
improvement of its production facility. Further, in 1995 the Company used net
cash in investing activities in the amount of $726,000 to acquire the Lyon
Product Line.
Net cash provided by financing activities was $507,000 for the year ended
December 31, 1995 compared to $311,000 for the year ended December 31, 1994. Net
cash provided by financing activities for 1995 and 1994 reflects borrowings
under the Company's Bank Credit Facilities to use as working capital and to
partially fund the Lyon Product Line Acquisition. Net cash used in financing
activities was $87,000 for the nine months ended September 30, 1996 compared to
net cash provided by financing activities of $223,000 for the nine months ended
September 30, 1995. This change reflects the repayment of certain long-term debt
and capital lease obligations. At September 30, 1996, the Company had cash of
$92,327.
On March 20, 1995, the Company entered into a Loan and Security Agreement
(the "BANK AGREEMENT") with NBD Bank ("NBD"). The Bank Agreement provides the
Company with an asset-based revolving loan facility and a term loan facility.
ANB subsequently acquired all of NBD's right, title and interest in, to and
under the Bank Credit Facilities. The borrowings under the Bank Credit
Facilities are generally limited to eligible accounts, eligible inventory and
real estate collateral as defined in the Bank Agreement. All of the assets of
the Company are pledged as collateral for borrowings under the Bank Credit
Facilities. Pursuant to a letter dated November 8, 1996, ANB issued
a commitment to extend the maturity date of the Bank Credit Facilities,
including the subordinated participations in the term loan facility, from
April, 1997 until April, 1998. The revolving loan facility has a maximum
borrowing limit of $5,000,000 while the term loan facility has a maximum
borrowing limit of $1,750,000. The interest rate on borrowings under the Bank
Credit Facilities is 5/8% over the prime rate established by ANB. The Bank
Agreement provides that the Company must comply with certain operating
covenants. During the fiscal year ended December 31, 1995, the Company was not
in compliance with certain financial and operating covenants contained in its
Bank Credit Facilities relating to capital expenditures (covenant limit:
$100,000/Company's expenditures: $446,109), net income (covenant requirement:
$350,000/Company's net income: $131,000), tangible net worth (covenant
requirement: not less than negative $75,000 as of December 31, 1995/Company's
tangible net worth: negative $430,836), and contributions to employee pension
benefit plans (covenant limit: no contribution/Company contribution: $60,000).
ANB waived these covenant violations for the 1995 fiscal year. During the nine
month period ended September 30, 1996, the Company was not in compliance with
the capital expenditures covenant (covenant limit: $100,000/Company's
expenditures: $337,080) in its Bank Credit Facilities. ANB waived this
covenant violation for this nine month period. ANB subsequently increased the
amount of capital expenditures permitted by this covenant. As of November 8,
1996, the Company believes that it is in compliance with the covenants contained
in its Bank Credit Facilities. The Company believes that its relationship with
ANB is good and expects ANB to continue to grant covenant waivers, if required.
See "Business -- Growth Strategy," "Risk Factors -- Scheduled Expiration of Bank
Credit Facilities," " -- Non-Compliance with Covenants Under Bank Credit
Facilities" and "Certain Relationships and Related Transactions."
During the next 12 to 18 months, the Company anticipates either purchasing
or constructing an Improved Facility. The Company intends to partially finance
the Improved Facility with approximately $1,200,000 to $1,500,000 of the net
proceeds of this offering. The Company currently anticipates obtaining the
additional required funds, that are projected to be between $4,000,000 and
$7,000,000, through the use of one or more financing options which may include,
among others, conventional bank financing, industrial revenue bond financing,
and, possibly, tax incentives for Federal Empowerment Zones and Enterprise
Communities to the
27
<PAGE>
extent available. See "Business -- Production," "Use of Proceeds," "Risk
Factors -- Broad Discretion in Application of Proceeds," " -- Risks Associated
with Acquisition Strategy and Acquisitions Outside the Company's Market Niche"
and " -- Future Capital Requirements."
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the net proceeds of this offering, together
with projected cash flow from operations and existing capital resources,
including its Bank Credit Facilities, will be sufficient to fund the Company's
operations for at least 12 to 18 months following the consummation of this
offering.
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement Number 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which requires the Company to review long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The assessment of
the impairment is based upon the estimated undiscounted future cash flows from
operating activities compared with the carrying value of the assets. If the
undiscounted future cash flows of an asset are less than the carrying value, a
write-down would be recorded measured by the amount of the difference between
the carrying value of the asset and the fair value of the asset. The Statement
is required for financial statements for fiscal years beginning after December
15, 1995. The Company will adopt this Statement during 1996 and based upon
management's estimates of future cash flows no impairment losses will be
necessary.
In December 1995, the FASB issued Statement Number 123, "Accounting for
Stock-Based Compensation." Statement Number 123 is effective for fiscal years
beginning after December 15, 1995, and requires either the application of an
option pricing model measurement for stock compensation, or, if a Company elects
to continue to measure stock compensation based on the difference between the
market price of the Company's common stock and the exercise price of the
employer stock option, disclosure of what the effects of the application of
option pricing model measurement would have been. The Company will initially
apply Statement Number 123 in fiscal 1996, and will elect to disclose the effect
that the application of option pricing model measurement would have had for
options granted from January 1, 1995.
28
<PAGE>
BUSINESS
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS.
ACTUAL RESULTS COULD DIFFER MATERIALLY. SEE "RISK FACTORS -- FORWARD LOOKING
STATEMENTS."
INTRODUCTION
The Company has been engaged in the sale of specialty food products under
the VITA brand name for over 65 years. The Company believes that its long
history of producing and marketing quality products has created a strong
recognition of the VITA brand name among consumers and has enabled the Company
to build an extensive national distribution network of established food brokers
for the sale of its products to Supermarkets and Institutional Purchasers.
Historically, the Company has increased its sales through acquisitions which
have enabled the Company to add new product lines and expand its existing
product lines. The Company believes that "VITA" with its accompanying logo is
the most widely recognized, and the only nationally recognized, brand name in
herring products and cured and smoked salmon products. The Company is one of the
leading processors of herring products, and cured and smoked salmon products in
the United States and has been producing and selling herring products for over
65 years and cured and smoked salmon products for over 25 years. The Company's
products include a variety of cuts of pickled herring in cream and wine based
sauces, and lox and nova salmon. The Company markets other complementary
specialty food products, such as cream cheese with salmon, shrimp cocktail,
hommus products, horseradish products, and cocktail and tartar sauces, that it
purchases from third party food producers and markets under the VITA brand name
pursuant to co-packing arrangements. The Company markets and, in some cases,
also produces related specialty food products under other brand names, some of
which are recognized regional brand names, in certain regions of the country,
that have been licensed to the Company.
COMPANY BACKGROUND
Although it had been selling herring products for a number of years prior
to its incorporation, the Company was originally incorporated as Vita Food
Products, Inc. in 1928. In 1968, Brown and Williamson Tobacco Company, a British
company, purchased the Company. The Company was then acquired by Dean Foods
Company in 1978. In 1982, Mr. Stephen D. Rubin and Mr. Clark L. Feldman, on
behalf of the current shareholders, negotiated the acquisition of the Company
from Dean Foods Company and became the Company's largest shareholders. On
September 20, 1996, the Company reincorporated in the State of Nevada through a
merger of Vita Food Products, Inc., an Illinois corporation ("VITA-ILLINOIS"),
and V-F Acquisition, Inc., an Illinois corporation that was the largest
shareholder of Vita-Illinois, into the Company, a Nevada corporation formed for
the purpose of effecting the reincorporation.
GROWTH STRATEGY
The Company's long-term growth strategy is to focus on acquisitions and
capitalize on the goodwill associated with the VITA brand name and the strength
of its national distribution network to increase its market share for its
existing products and to introduce and market complementary new specialty food
products, which will be sold under either the VITA brand name or other brand
names purchased or licensed from third parties. The Company intends to implement
its growth strategy through acquiring, or entering into joint ventures with,
companies producing complementary specialty food products, introducing and
developing new products and increasing its marketing efforts. The Company's
production facility is currently often operating at full capacity and the
Company, in order to accommodate its anticipated growth, intends to purchase or
construct an Improved Facility.
ACQUISITION STRATEGY
The Company's acquisition strategy is to acquire, or enter into joint
ventures with, companies producing complementary specialty food products. The
Company, under its current management, became a major producer of smoked salmon
products through the acquisition of Royal Enterprises, Inc., a major Chicago
based smoked salmon processor, in 1984 (the "ROYAL ACQUISITION"). In 1995, the
Company purchased the herring product line of Lyon Food Products, Inc. and
secured licensing rights to the ELF brand name, an established regional brand of
herring (the "LYON PRODUCT LINE ACQUISITION"), which increased its market share
in herring products and its penetration of the market in the Midwest region of
the country. The Company believes that the Royal Acquisition
29
<PAGE>
and the Lyon Product Line Acquisition have demonstrated its ability to
capitalize on the VITA brand name and its national distribution network to
increase its market share and its sales through acquisitions. The Royal
Acquisition involved the acquisition of a company that processed smoked salmon
products which the Company now produces and markets through its national
distribution network under the VITA brand name. The Lyon Product Line
Acquisition involved the acquisition of a herring product line and an
established regional brand name which the Company now produces and markets
through its national distribution network under the ELF brand name.
The Company's lack of capital in the past has limited its ability to pursue
its acquisition strategy. As a result, the Company has expanded its product
lines by establishing a number of co-packing arrangements with companies that
produce complementary specialty food products. Pursuant to these co-packing
arrangements, the Company purchases products produced and packaged by third
parties and resells these products through its national distribution network
under the VITA brand name. Co-packing arrangements permit the Company to expand
or increase its product lines and increase the exposure of the VITA brand name,
but require only a minimal capital investment by the Company. The Company's
co-packing arrangements generally do not include minimum purchase requirements
and permit the Company to purchase only the amount of products that it will be
able to resell. Products which the Company markets pursuant to co-packing
arrangements generally have a percentage gross margin that is one-third lower
than the percentage gross margin of products which are produced and marketed
by the Company.
The Company intends to implement its long-term growth strategy, in part, by
shifting its focus from co-packing arrangements to acquisitions and joint
ventures. The Company believes that acquisitions and joint ventures, although
often requiring a substantial capital investment, will provide the Company with
a better opportunity to increase sales and market share, and to penetrate new
markets than co-packing arrangements. The Company believes that the acquisition
of, or joint ventures with, companies producing complementary specialty food
products will enable the Company to: (i) produce certain products that it
currently purchases from third parties and resells, which the Company expects
will result in increased margins on those products; (ii) produce additional
products which can be sold not only under the VITA brand name but also can be
sold under the private labels of existing customers such as Supermarkets, in
bulk to Institutional Purchasers or under co-packing arrangements to
competitors; and (iii) produce and market products under recognized regional
brand names acquired by the Company. See "Risk Factors -- Broad Discretion in
Application of Proceeds" and " -- Risks Associated with Acquisition Strategy and
Acquisitions Outside the Company's Market Niche."
The Company, as part of its acquisition strategy, has also determined that
it will focus its acquisition and joint venture activities on companies which
produce complementary specialty food products in its market niche: ready-to-eat
refrigerated (or frozen) specialty food products sold to Supermarkets and
Institutional Purchasers. The Company has, in the past, encountered difficulties
when it attempted to expand its product line beyond its market niche and its
management's experience. The Company, through the acquisition of three companies
in the mid-1980's, began to sell "fresh" smoked fish to delicatessens in New
York City. Prior to 1985, the Company did not sell fresh smoked fish products
and had no experience selling directly to delicatessens. The Company believed,
however, that the particularly strong recognition of the VITA brand name in New
York City would compensate for management's lack of prior experience in selling
fresh smoked fish directly to delicatessens. During the next few years, the
Company determined that it had underestimated both the difficulties of entering
the New York City fresh smoked fish market and the long-term difficulties of
effectively competing in this market. Accordingly, the Company determined to
exit this market and refocus its growth strategy on its market niche. The
Company, in exiting this market, combined the operations of two of these
companies. The surviving company (the "DEBTOR") subsequently declared bankruptcy
and initiated a Chapter 11 bankruptcy proceeding in the Federal District Court
in the Northern District of Illinois (the "BANKRUPTCY COURT") in May, 1988. This
proceeding was converted to a Chapter 7 bankruptcy proceeding in July, 1988. A
bankruptcy trustee (the "TRUSTEE") was subsequently appointed by the Bankruptcy
Court. In July, 1990 the Trustee filed a complaint in the Bankruptcy Court
against the Company and its directors seeking monetary damages and equitable
relief relating primarily to a purported transfer of the Debtor's assets before
initiating the bankruptcy proceeding. This proceeding was dismissed by the
Trustee in August, 1991 pursuant to a settlement agreement entered into between
the Trustee and the Company and its directors. The Company sold the third
company in December, 1990. Each of these three companies was a subsidiary of the
Company and Mr. Rubin and Mr. Feldman were the principal executive officers of
each of these companies. In addition, the Company initiated an arbitration
proceeding against the three principals of the third company claiming that
certain representations and warranties made in the stock purchase agreement had
been breached. In an Award of Arbitrators dated June 30, 1994, supplemented by a
subsequent fee award dated January 30, 1995, the arbitrators found against the
Company on all counts in its claim, except a
30
<PAGE>
portion of one count, and awarded the respondent its legal fees and expenses,
which the Company was required to pay, in the amount of $356,000 (the
"ARBITRATION"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEW PRODUCT STRATEGY
The Company's new product strategy is to continue to introduce and, in some
cases, develop and market new specialty food products under the VITA brand name
that complement its current line of products while at the same time enabling the
Company to expand into products that are less seasonal and appeal to a broader
base of consumers, including younger consumers and health conscious consumers,
than its current products.
DEVELOPMENT/INTRODUCTION. The Company's new products are either products
developed by the Company, products acquired through acquisitions of other
companies, or products marketed under co-packing arrangements or distribution
agreements. The Company introduced "VITA HEAVENLY HOMMUS!" in September, 1996
and introduced the "VITA LEAN Salmon Burger" in November, 1996. The salmon
burger was developed by the Company while the hommus products will be marketed
under a co-packing arrangement. The Company expects these low fat products to
appeal to a broader base of consumers. The Company intends to capitalize on its
national distribution network and the strong recognition of the VITA brand name
as well as its new marketing strategy to generate sales of these products. The
Company believes that through the introduction of new non-seasonal products, it
can, over time, reduce the variability in its quarterly operating results by
increasing sales during the second and third quarters of each year.
New products developed by the Company are developed either internally
through its Quality Control Department or through retaining independent
consultants. New products are also developed with the input of food brokers and
are tested by focus groups for taste and market acceptance. The Company's lack
of capital in the past has limited its product development activities. Upon
completion of this offering, the Company anticipates that its Improved Facility,
additional production equipment and increased availability of financing will
enable it to increase its product development activities. The Company estimates
that it spent approximately $45,000 in 1995 developing new products. See "Risk
Factors -- Risks Associated with Developing New Products."
The Company has introduced new products through the acquisition of
companies producing complementary specialty food products with recognized
regional brand names. Through the Lyon Product Line Acquisition, the Company
added a Scandinavian-style herring that is marketed under the ELF brand name
which is well recognized in the Midwest region of the country. The Company also
introduces new products through its use of co-packing arrangements. Co-packing
arrangements enable the Company to purchase products produced and packaged by
third parties and resell these products through its national distribution
network under the VITA brand name. The Company currently markets its horseradish
products, cocktail and tartar sauces, shrimp cocktail and hommus products under
co-packing arrangements. The Company has also introduced new products by
entering into distributorship agreements. The Company currently distributes
imported Scottish smoked salmon under the ROYAL HIGHLAND and HIGHLAND CREST
brand names pursuant to a distribution agreement.
RECENT NEW PRODUCTS. The VITA LEAN Salmon Burger was developed for the
Company by an independent consultant who has authored over 30 cookbooks. The
salmon burger, which is a blend of smoked salmon and spices, is 97% fat free.
The salmon used in the production of the salmon burger is salmon that the
Company could not previously use in the production of its other salmon products.
The Company is marketing the salmon burger frozen to Supermarkets and
Institutional Purchasers. It is marketed as a low-fat substitute for hamburgers
and is expected to compete directly with turkey burgers and veggie burgers. The
Company believes that the salmon burger will be a less seasonal product and will
appeal to a broader base of consumers than the Company's current products.
VITA HEAVENLY HOMMUS! is marketed by the Company under a co-packing
arrangement. Hommus is a spread made primarily of chickpeas and sesame paste of
Middle Eastern origin that can be used as a snack food or with meals. Hommus was
introduced to the United States mass market within the past five years and is
rapidly gaining in popularity. The Company believes that hommus is not a
seasonal food and, accordingly, expects sales of its hommus products to be
fairly constant throughout the year with a slight increase in sales during the
summer months. The Company's hommus products contain no saturated fat and have
no cholesterol. The Company
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believes its hommus products will appeal to consumers of various ages and
particularly to higher income, health conscious consumers. The Company's hommus
products, packed in eight oz. containers, are available in eight varieties such
as roasted red pepper and garlic, and are sold refrigerated to Supermarkets and
Institutional Purchasers. The Company anticipates that sales of hommus products
will increase as consumers become aware that hommus can be used as a substitute
for cream cheese and spread on bagels, which have become increasingly popular
with consumers in recent years.
MARKETING STRATEGY
The Company's marketing strategy is to expand its use of promotions to both
Supermarkets and Institutional Purchasers, increase consumer advertising, secure
additional shelf space for its products in Supermarkets and expand its
international sales. The Company intends to use a portion of the net proceeds of
this offering to implement this strategy.
PROMOTIONS AND CONSUMER ADVERTISING. The Company intends to use promotions
and consumer advertising to increase sales of its existing products and new
products to Supermarkets and Institutional Purchasers which currently purchase
VITA products as well as those which have not yet purchased VITA products. The
Company currently uses promotions which reduce the price Supermarkets and
Institutional Purchasers pay for certain of its products during a specified
period of time. The Company believes that its products are price sensitive and
that, historically, selective use of promotions has resulted in increased sales
of its products. The Company selectively uses promotions to increase sales made
by food brokers and sales made directly by the Company. However, the Company's
limited capital has prevented it from expanding its use of promotions. The
Company's products are primarily advertised in the circulars and newspaper
inserts distributed by Supermarkets, for which the Company pays a fee. The
Company intends to increase such advertising, particularly during holiday
seasons and in regions west of the Rocky Mountains where the Company intends to
focus future marketing efforts. The Company also intends to participate in a
greater number of food shows to increase its visibility. The Company will
attempt to increase its visibility by encouraging its regional sales managers to
increase their participation in joint local sales calls to Supermarkets and
Institutional Purchasers made by food brokers.
SECURING SHELF SPACE. The Company intends to secure additional shelf space
in Supermarkets for both its existing products as well as its new products. The
Company secures additional shelf space primarily by paying the fees charged by
Supermarkets for such shelf space. The Company also secures additional shelf
space by using more aggressive promotions at targeted Supermarkets or by selling
its products through food brokers to food distributors that have access to shelf
space for resale to Supermarkets. The Company, throughout its history, has
incurred, and continues to incur, costs associated with securing additional
shelf space for its products. The Company's ability to pay the costs associated
with securing additional shelf space has been limited by its available capital.
The Company believes that its payment of such costs, when warranted, has helped
contribute to the development of its national distribution network of food
brokers and that future payments of such costs will further strengthen its
distribution network. The Company also believes that it has benefited by adding
additional shelf space in the past and will continue to increase sales by adding
additional shelf space in the future.
INTERNATIONAL SALES. The Company believes that international markets
provide an additional opportunity to increase sales of its herring and salmon
products. In 1995, international sales constituted less than one percent of the
Company's gross sales. The Company intends to pursue additional international
sales opportunities in a number of foreign markets including, among others,
Canada, Central America, Mexico, Europe and South America, by capitalizing on
the international growth of both wholesale clubs and institutional distributors
which currently purchase or distribute the Company's products. The Company
believes that by capitalizing on the international growth of its current
customers, the total cost incurred to increase international sales will not
exceed the total cost incurred to achieve a comparable increase in sales in the
United States. The Company believes that the costs incurred in using promotions
and consumer advertising to increase international sales may be higher than the
costs incurred to achieve a comparable increase in sales in the United States
but that such costs will be partially offset because Supermarkets in certain
countries, such as Canada, do not charge fees to secure shelf space. The Company
will initially focus on increasing sales of its products in Canada where the
Company believes that the VITA brand name is recognized by consumers. The
Company currently anticipates beginning to market VITA brand herring products
and shrimp cocktail, that it produces, to Supermarkets in the Canadian provinces
of Ontario and Quebec by December 31, 1996.
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PRODUCTS
The Company's products include herring products and cured and smoked salmon
products and a variety of related ready to eat specialty food products. Most of
the Company's products are refrigerated and can be located in either the dairy
department, meat and fish department or deli department of Supermarkets. Many of
the Company's products are also sold in bulk to Institutional Purchasers. The
Company believes that, although the market for herring products has been and is
expected to remain constant, the market for salmon products and other specialty
products is increasing. Consumption of fresh and frozen seafood in the United
States is increasing, especially consumption of salmon. This increase contrasts
with the consumption of beef and pork which is declining and has been declining
for at least the last five years. All of the Company's salmon and herring
products and most of its other specialty food products are kosher and receive
the (u in a circle) symbol of certification from the Orthodox Union. The Company
also receives the (u in a circle) symbol of certification for the use of many of
its products for Passover from the Orthodox Union. The Company believes that the
market for kosher foods will grow in the next few years and that this represents
a significant opportunity for the Company. See "Business -- Products." According
to the National Kosher Food Trade Association in New York, the market for kosher
foods is almost two billion dollars annually and growing at more than ten
percent a year. The increase in consumption of kosher food products is at least
partially the result of (i) the perception by certain consumers who are not
bound by Judaism's religious dietary restrictions that kosher certification
indicates a superior product, and (ii) an increase in the population of members
of other religious groups such as Islam, Hinduism and some branches of
Christianity that observe dietary restrictions similar to many Jewish people.
HERRING
The Company, generally using the best available grade of ocean herring,
cures the herring and mixes the cured herring with a variety of high quality
spices, wines and other ingredients according to the Company's proprietary
formulations to produce a number of herring products. These products are then
either packaged in vacuum-sealed glass jars to preserve flavor for sale to
Supermarkets or packaged in bulk containers for sale to Institutional
Purchasers. The Company believes it is the only producer of herring products to
offer two different taste profiles, an Eastern European taste and a Scandinavian
taste. Herring is a traditional Eastern European and Scandinavian staple, being
one of the most widely consumed fish in the world. In the United States,
however, herring is more of a specialty product that is served at parties or
holiday gatherings. Herring products are often served as appetizers, part of a
buffet, between-meal snacks or an ingredient in salads. The Company's most
popular herring products are its "VITA Herring Party Snacks" and "VITA Herring
in Sour Cream." The Company also sells a variety of other herring products under
the VITA and ELF brand names.
SALMON
The Company, using only premium and quality grades of salmon primarily from
Southeastern Alaska and Canada, cures and slices the salmon, most of which is
then smoked. The Company's retail salmon products are packaged and sold either
refrigerated or frozen to Supermarkets. The institutional cured and smoked
salmon products are packaged in bulk containers, including three pound trays,
and sold refrigerated or frozen to Institutional Purchasers. Salmon consumption
has been increasing over the past five years and salmon now represents the
fourth most popular type of seafood consumed in the United States. The Company's
salmon products are generally served as part of buffets at parties, particularly
during the Christmas holiday season, or as a traditional brunch item with
bagels. The salmon products are also served as appetizers at formal parties and
are being more frequently used as light meals. The Company's salmon products
include "VITA Lox Salmon," "VITA Nova Salmon," and "VITA Pastrami Salmon." The
Company also distributes imported Scottish smoked salmon under the "ROYAL
HIGHLAND" and "HIGHLAND CREST" licensed brand names.
OTHER SPECIALTY PRODUCTS
The Company sells a number of spreads and condiments, including horseradish
products, cream cheese with smoked salmon, cocktail and tartar sauces, shrimp
cocktail and hommus products. These products are used as appetizers, snacks, and
condiments to accompany light meals and holiday trays. Some of these products
are produced and marketed by the Company under the VITA brand name and others
are marketed by the Company, but produced by third parties pursuant to
co-packing arrangements.
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PRODUCT DISTRIBUTION AND SALES
The Company's specialty food products are currently sold through a national
distribution network of approximately 50 established retail and
institutional/food service brokers. The Company believes that it is the only
processor of herring products and cured and smoked salmon products that has
established such an extensive national distribution network. The Company
believes it has been successful in developing this network for a number of
reasons, including the recognition of the VITA brand name and the Company's
reputation for producing quality products. The Company has also been able to
develop and strengthen its distribution network by providing adequate shelf
space for its products. The Company's current marketing efforts and its
long-term relationship with many of the food brokers has also contributed to the
strength of this network. The Company, through its marketing efforts, attempts
to maintain good relationships with the Supermarkets and Institutional
Purchasers that purchase its products. The Company believes that its national
distribution network has, in turn, helped strengthen the VITA brand name and has
been a important factor in the Company's ability to introduce new products into
the marketplace.
The Company's regional sales managers oversee its national distribution
network. The Company employs five full-time regional sales managers who maintain
contact with the food brokers in their region and monitor their performance. The
regional sales managers also assist the food brokers in their selling efforts
by, among other things, accompanying the food brokers on local sales calls. The
Company believes that it is one of the few companies in its market niche to
employ regional sales managers and that the presence of the regional sales
managers has solidified the Company's relationship with its national
distribution network.
The Company enters into an agreement with each food broker which grants the
food broker an exclusive territory in which to sell VITA products and sets forth
the amount of commissions to be paid on such sales by the Company. Such
agreements do not permit the Company to make sales directly to Supermarkets
located in a food broker's exclusive territory unless the Company pays the food
broker the commission which it would have earned. The agreements are terminable
by either party upon 30 days' notice. The Company believes such terms are
standard in the Company's industry. The food brokers sell the Company's products
in both the retail and institutional/food service markets. In 1995, the retail
market, consisting of Supermarkets accounted for approximately 80% of the
Company's net sales while Institutional Purchasers accounted for the remaining
20% of net sales. Approximately 90% of the Company's net sales to Supermarkets
are made through food brokers while the remaining 10% of net sales to
Supermarkets are made directly by the Company. Products purchased through food
brokers by Supermarkets that are shipped directly to the Supermarkets'
warehouses accounted for 65% of the 90% of net sales to the retail market.
Products purchased through food brokers by food distributors for resale to
Supermarkets accounted for 35% of the 90% of net sales to the retail market.
Approximately 90% of the Company's net sales to Institutional Purchasers are
made through food brokers, including international distributors, while the
remaining 10% of net sales are made to Institutional Purchasers directly by the
Company.
CUSTOMERS/SALES BY REGION
The Company's customers include large regional supermarket chains and
wholesale clubs throughout the country. The Company had net sales of $21.4
million in 1995. The Company's products sold under the VITA brand name are
particularly well known in New York City and the surrounding metropolitan area
("NYC"). Approximately 13% of the Company's 1995 net sales were to customers
located in NYC, including Waldbaum's, A & P, Shop-Rite and Supermarket General.
Approximately 17% of the Company's 1995 net sales were to customers located in
the Northeast, excluding NYC, including Stop & Shop, Shaw's and Wegman's.
Approximately 25% of the Company's 1995 net sales were to customers in the
Southeast, including Publix and Winn-Dixie. Approximately 32% of the Company's
1995 net sales, including sales of the ELF brand of herring, were to customers
located in the Midwest, including Super Valu, Jewel, Dominick's and Meijer's.
Approximately 13% of the Company's 1995 net sales were to customers located in
the West, including Safeway, Fred Meyer and Albertson's.
The Company's largest customer represented 12% and 11% of its net sales in
1995 and 1994, respectively. This customer is a large supermarket chain with
five regional divisions located in the Southeast. The purchasing decisions of
each regional division are made independently. The Company does not have a
long-term contractual relationship with this customer. The Company believes the
loss of this customer would have a material adverse
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affect on the Company's business, financial condition and results of operations.
However, the Company believes the loss of this customer is unlikely. In
addition, because each regional division makes its purchasing decisions
independently, the Company believes that it is not likely to lose all of the
divisions even if it were to lose one or more of such divisions. See "Risk
Factors -- Dependence on Major Customers."
The Company is aware that its customers are continually reviewing their
purchasing decisions which may result in such customers changing their current
orders from higher margin to lower margin products or reducing the amount of a
product or products purchased. Any material change in orders or reduction in the
amount of a product or products purchased by one or more significant customers
could adversely affect the Company's business, financial condition and results
of operations. See "Risk Factors -- Dependence on Major Customers."
PRODUCT RETURN POLICY
The Company guarantees the sale of its products sold in Supermarkets, which
sales represent approximately 80% of all the Company's sales. This guarantee
helps ensure that consumers receive fresh products. Under the guarantee,
products not sold before their expiration date are either returned to the
Company through its food brokers or are disposed of by the Supermarkets or food
distributor. A credit is then issued to the Supermarket or food distributor. The
Company has established a reserve to be used for credits for product returns and
believes, based on its historical return rates which have been fairly consistent
over the past several years, that this reserve is adequate to fund all
foreseeable product return credits.
PRODUCTION
PRODUCTION FACILITY
The Company produces, packages, stores, and distributes its herring and
salmon products at the Company-owned facility located in Chicago, Illinois. The
Company's facility is located on 125,600 square feet of contiguous land. The
facility contains approximately 82,200 square feet of space, including
approximately 65,000 square feet of production space, approximately 13,900
square feet of refrigerated storage space, and approximately 3,300 square feet
of office space. The Company stores and distributes its products through 30
warehouse facilities owned by third parties which are located throughout the
United States.
During the next 12 to 18 months, the Company anticipates either purchasing
or constructing an Improved Facility. The Company believes the Improved Facility
is necessary to implement the Company's growth strategy and will result in
increased production capacity, increased production efficiencies, additional
internal storage facilities and other overall cost savings. The Company believes
that these overall cost savings can be achieved through, among the things, the
use of improved water treatment facilities in the Improved Facility that the
Company expects to reduce or eliminate the user charges it currently pays and
the availability of increased internal storage facilities in the Improved
Facility which the Company expects to decrease the costs of using outside
storage facilities. However, the Company may experience delays in all aspects of
its operations and incur substantial unanticipated costs in either purchasing or
constructing an Improved Facility. There can be no assurance that the Company
will not encounter quality or capacity difficulties, or experience production
delays, in connection with the anticipated purchase or construction of an
Improved Facility. These factors could have an adverse short-term effect on the
Company's results of operations. The Company intends to partially finance this
purchase or construction of an Improved Facility with approximately $1,200,000
to $1,500,000 of the net proceeds of this offering. The Company currently
anticipates obtaining the additional required funds that are projected to be
between $4,000,000 to $7,000,000, through the use of one or more financing
options which may include, among others, conventional bank financing, industrial
revenue bond financing, and, possibly, tax incentives for Empowerment Zones and
Enterprise Communities to the extent available. No assurance can be given that
any of these financing options will be available on terms acceptable to the
Company, if at all. See "Risk Factors -- Risks Associated with Purchase or
Construction of Improved Facility" and "Use of Proceeds."
SUPPLIERS
The Company relies on outside suppliers for its herring and salmon
requirements. The Company currently purchases most of its herring from Barry's
Limited (the "SUPPLIER"), a specialty herring harvester and processor located in
Canada, pursuant to a supply agreement. The Company has been purchasing herring
from the Supplier
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since the Company began operations over 65 years ago. Under the agreement, the
Supplier has the option to supply 90% of the Company's annual requirements for
herring, provided it sells the herring at the same prices which the Company
would pay if it purchased herring elsewhere. The Supplier guarantees the first
priority of supply of herring to the Company, in an amount necessary to satisfy
the Company's requirements. The Company currently purchases its salmon from a
number of sources. The Company believes that there are other suppliers of
herring and salmon from which the Company could meet its requirements, if
necessary. Pursuant to a distributorship agreement, the Company distributes
imported Scottish smoked salmon under the licensed brand names ROYAL HIGHLAND
and HIGHLAND CREST. See "Business -- Intellectual Property." Any significant
interruption in the supply of or in the quality of the herring or salmon
provided by its suppliers or the salmon products supplied by the distributor
could have a material adverse effect on the Company's business and results of
operations. The Company believes that supplies of the other ingredients used in
the Company's products are readily available and that there are a number of
suppliers of these ingredients that could meet its requirements if its current
suppliers were unable to do so. See "Risk Factors -- Fluctuations in Cost and
Supply of Herring and Salmon" and " -- Dependence on Suppliers/Sole Herring
Supplier."
QUALITY CONTROL
The Company believes that it was one of the first processors of herring
products and cured and smoked salmon products to institute quality control
procedures and that its quality control procedures are among the most stringent
in this market. The Company has two full-time employees in its Quality Control
Department. The primary responsibility of these employees is to insure the
quality of VITA brand name products by overseeing the production process and by
frequent testing of the consistency of the products as they are produced. The
products produced through co-packing arrangements are subject to both the
quality control procedures of the co-packing company and the same frequent
product testing that is required of the Company's products under its quality
control procedures.
COMPETITION
The market for the Company's products is highly competitive. The Company
believes that consumers choose herring products and cured and salmon products as
well as its other specialty products based primarily on product quality and
price. Although the Company's competitors are primarily small, regional food
processors and producers, certain of the Company's competitors may have greater
financial and other resources than the Company and may offer lower prices on
comparable products. Since a key competitive factor among producers of cured and
smoked salmon products and herring products is price, even smaller regional
companies may be able to compete effectively against the Company due to reduced
shipping costs. While the Company believes its prices are competitive for the
quality level of its products, the Company relies primarily on the recognition
of the VITA brand name, its reputation for selling quality products and the
strength of its distribution network. The Company's main competitors in the
herring product and cured and smoked salmon product market are Lasco, Mama's and
Nathan's, among others. The Company believes it is the only independent company
with national distribution capabilities in this market. See "Risk
Factors -- Product Concentration Risk" and " -- Competition."
ENVIRONMENTAL MATTERS
In the ordinary course of its production process, spillage and cleaning
results in a high concentration of sugars and vinegars, which create Biological
Oxygen Demands ("BODs") as well as fats, oils and greases ("FOGs"), both of
which enter the waste water treatment system. The Company is assessed a user
charge by the Metropolitan Water Reclamation District (the "DISTRICT"), based in
part on the costs of treating this waste water, the amount of which the Company
is currently appealing. The Company has provided accruals of $285,000 and
$486,000 as of December 31, 1995 and September 30, 1996, respectively, for user
charges. These accruals are based on the Company's experience in resolving
appeals in prior years and on estimates provided by an independent consultant.
If the Company is not successful in its appeal, the Company would be required to
pay an additional $300,000 in user charges. The Company believes that the
eventual liability will not materially exceed its presently established accruals
and that any potential additional liability will not be significant and will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
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If the level of FOGs entering the waste water treatment system exceed a
specified level over a specified period of time, the District, following certain
procedural requirements, has the authority to fine the Company or to temporarily
close the Company's production facility. The level of FOGs resulting from the
Company's production process has occasionally exceeded this specified level in
the past on a temporary basis but not for any extended period of time. The
Company has no reason to believe that this level will be exceeded for any
extended period of time in the future. The District has not in the past
initiated, or threatened to initiate, proceedings against the Company. The
Company has no reason to believe the District will do so in the future if the
specified level of FOGs is exceeded on a temporary basis. The Company has
employed a consultant to assist in its user charge appeals and to recommend
methods to reduce the level of BODs and FOGs entering the waste water treatment
system. The Company expects the purchase or construction of an Improved Facility
to significantly decrease or eliminate BODs and, therefore, reduce the user
charges. The Company also uses a number of smokers in the ordinary course of its
production process. The Company is not aware of any pending or threatened claim
involving violation of environmental or occupational safety and health laws and
regulations. See "Risk Factors -- Environmental Compliance."
INTELLECTUAL PROPERTY
Trademarks and trade names are of critical importance to producers of food
products. A recognized trademark or trade name allows the consumer to
immediately identify the source of a product, even if the product is new to the
marketplace. The Company owns the federally registered trademark "VITA" (with
accompanying design). The Company believes that this mark is widely recognized,
and provides immediate identification of the source of its products to
consumers. Based upon its ability to maintain a significant share of the
national market for refrigerated herring products and cured and smoked salmon
products, the Company believes the "VITA" brand name and trademark has a
substantial amount of goodwill associated with it. The Company believes the VITA
mark and its accompanying design are critical to its ability to market new
products and to its marketing strategy in general. In addition, the Company
intends to apply for a federal trademark for the name "VITA" without the
accompanying design.
The Company has also licensed certain brand names, such as ELF, ROYAL
HIGHLAND and HIGHLAND CREST. Based on sales of the herring products marketed
under the "ELF" trademark, the Company believes there is widespread consumer
recognition of that brand name in the Midwest region of the country. The Company
obtained all of Lyon Food's rights to the "ELF" trademark in connection with
herring and smoked fish products pursuant to the Lyon Product Line Acquisition.
Lyon Food licensed the right to use the "ELF" trademark in connection with
herring products from Food Marketing Corp. pursuant to the terms of a letter
agreement (the "LETTER AGREEMENT"). Ownership of the "ELF" trademark was
transferred by Food Marketing Corp. to SuperValu, Inc., which affirmed Lyon
Food's right to use the mark as set forth in the Letter Agreement and
consented to the right to use the trademark in connection with smoked fish
products. The Letter Agreement is terminable upon six months notice to the
Company. The Company has licensed the ROYAL HIGHLAND and HIGHLAND CREST brand
names, under which the Company distributes imported Scottish smoked salmon.
The Company believes that these brand names will develop substantial goodwill
over time. The Company has the right to use the HIGHLAND CREST and ROYAL
HIGHLAND brand names under the terms of an exclusive distributorship agreement
that expires in December, 1999, but is renewable for successive 5-year intervals
upon written agreement of both parties. The Company sells its hommus products
under the recently applied for federal trademark "HEAVENLY HOMMUS!," and sells
its salmon burger under the recently applied for federal trademark "VITA LEAN."
The Company is not aware of any names or marks which infringe any of those the
Company uses. Although the Company sells products under a number of other brand
and trade names, such other brand or trade names are not material to the
Company's marketing strategy. The Company also uses various recipes and
proprietary formulations in its products which it maintains as trade secrets.
The Company does not believe its business is otherwise dependent upon any
patent, license, trademark, service mark or copyright.
PRODUCT LIABILITY INSURANCE
The Company currently maintains product liability insurance for its
products with limits of $1,000,000 per occurrence and $5,000,000 in the
aggregate, per annum. There can be no assurance that the Company's insurance
will be adequate to cover future product liability claims, or that the Company
will be able to maintain adequate
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product liability insurance at commercially reasonable rates. See "Risk
Factors -- Risk of Product Recall; Product Liability."
EMPLOYEES
At September 30, 1996, the Company had 116 full-time employees, including
14 administrative employees, seven sales and marketing employees, 90 production
employees and five maintenance employees. Additionally, approximately 80 workers
are hired on a temporary basis each year to meet seasonal production demands.
All production employees are represented by the Local 546 United Food &
Commercial Workers, International Union and the five maintenance employees are
represented by the Local 399 International Union of Operating Engineers. The
Local 546 collective bargaining agreement expires, unless renewed, in April,
1997 and the agreement covering the Local 399 collective bargaining agreement
expires, unless renewed, in March, 1997. The Company has not experienced any
work stoppages since the Company was acquired by the present shareholders in
1982. The Company considers its relations with its employees to be good.
FACILITIES
The Company's facility is located on 125,600 square feet of contiguous
land. The facility contains approximately 82,200 square feet of space, including
approximately 65,000 square feet of production space, approximately 13,900
square feet of refrigerated storage space, and approximately 3,300 square feet
of office space. Pursuant to the Bank Credit Facilities, ANB has a mortgage on
this facility. The Company intends to purchase or construct an Improved
Facility. See "Business -- Production" and "Risk Factors -- Risks Associated
with Purchase or Construction of Improved Facility."
LEGAL PROCEEDINGS
The Company is not currently involved in any material pending legal
proceedings and is not aware of any material legal proceedings threatened
against it.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, nominees, and executive officers of the Company, and their
ages as of October 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Stephen D. Rubin 57 President and Director
Clark L. Feldman 61 Executive Vice President, Secretary
and Director
Jay H. Dembsky 35 Vice President, Chief Financial
Officer and Treasurer
Sam Gorenstein(2) 49 Director
Jeffrey Rubenstein(1) 54 Director
Neal Jansen(1) 59 Director
Michael Horn(2) 60 Director
Steven A. Rothstein 46 Nominee for Director
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
MR. RUBIN has served as a director and President of the Company since 1982.
Mr. Rubin is responsible for the overall operations of the Company with an
emphasis on production, finance and quality control. Previously, Mr. Rubin was
the owner and chief operating officer of several other companies which included
food, manufacturing and industrial companies. Mr. Rubin received a B.B.A. from
the University of Wisconsin and a J.D. from the University of Wisconsin Law
School.
MR. FELDMAN has served as a director and Executive Vice President and
Secretary of the Company since the Company was acquired in 1982. Mr. Feldman has
an extensive background in strategic financial planning and marketing and is
responsible for all sales personnel, including brokers. Mr. Feldman received a
B.S. from Indiana University.
MR. DEMBSKY became Vice President, Chief Financial Officer and Treasurer of
the Company in October, 1996 and is responsible for all financial matters for
the Company. From 1988 until joining the Company in 1996, Mr. Dembsky held a
number of positions with Duff & Phelps, LLC, a corporation valuation advisory
and investment banking firm. Mr. Dembsky served as a Vice President of Duff &
Phelps, LLC, from 1992 to 1996. Mr. Dembsky has a 12-year background in
corporate finance, accounting, and strategic and financial planning and received
his CPA certification in 1984 and CFA certification in 1991. Mr. Dembsky
received a M.M. from the J.L. Kellogg Graduate School of Management at
Northwestern and a B.S. from the Wharton School of the University of
Pennsylvania.
MR. GORENSTEIN has served as a director of the Company since February,
1990. For the past 20 years, Mr. Gorenstein has served as Secretary of Three G
Care Management, Inc., a nursing home management company. Mr. Gorenstein is also
a major shareholder of Three G Care Management, Inc. Mr. Gorenstein attended the
University of Manitoba in Winnipeg, Canada.
MR. RUBENSTEIN has served as a director of the Company since November,
1984. For the past five years Mr. Rubenstein has been a principal in the law
firm of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Mr.
Rubenstein is also currently a director of Miller Building Systems, Inc. and
Selfix, Inc. Mr. Rubenstein received an A.B. and a J.D. from the University of
Michigan and an L.L.M in taxation from John Marshall Law School.
MR. JANSEN has served as a director of the Company since April, 1983. Mr.
Jansen is currently a self-employed consultant in the food industry. From 1986
to 1996, he served as President and CEO of Pies, Inc. and was a major
shareholder until it was sold to Flowers Industries in 1991. Prior to 1986 he
was President of Gordon Fleming and Associates, a food brokerage company in
Minnesota, and a Senior Vice President of Red Owl Stores, Inc., a large
Midwestern supermarket chain. Mr. Jansen received a B.A. from St. Norbert
College and an M.B.A. from Michigan State University.
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<PAGE>
MR. HORN has served as a director of the Company since April, 1983. For the
past six years, Mr. Horn, as the largest shareholder of Save More Foods
Supermarkets and a significant shareholder of Performance Foods of Wisconsin,
Inc., has acted in a management advisory role to both companies. Prior to that
Mr. Horn was president of the Green Bay Division of Super Valu Stores, Inc., a
national grocery food wholesaler and distributor. Mr. Horn is also a Vice
President and a director on the Executive Committee of the Green Bay Packer Hall
of Fame. Mr. Horn has a B.A. degree in business from the University of Minnesota
at Duluth.
MR. ROTHSTEIN will be appointed to the Board of Directors effective upon
the closing of this offering. Mr. Rothstein has been Chairman of the Board of
National Securities Corporation, a securities broker-dealer and the
Representative of the Underwriters, since 1995. From 1994 to 1995, Mr. Rothstein
was employed by H.J. Meyers & Co., a securities broker-dealer, and from 1992 to
1994, he was employed by Rodman and Renshaw, a securities broker-dealer, in both
cases as a Managing Director. From 1989 to 1992, Mr. Rothstein served as a
Managing Director of Oppenheimer & Co., a securities broker-dealer. From 1979 to
1989, Mr. Rothstein was a limited partner of Bear Stearns & Co., a securities
broker-dealer. Mr. Rothstein currently is a director of SigmaTron International,
Inc. and New World Coffee, Inc., both of which are publicly held companies. Mr.
Rothstein is being appointed as the designee of the Representative. Mr.
Rothstein received an A.B. from Brown University in Providence, Rhode Island.
See "Underwriting."
The Company's Bylaws provide that the authorized number of directors of the
company must be no less than six (6) and no more than ten (10). The number of
authorized directors, which is currently six, may be set from time to time
within this range by either the Board of Directors or the affirmative vote of a
majority of the Company's shareholders. Directors are elected annually to serve
until the next annual meeting of shareholders and until their successors are
elected and qualified. Executive officers are elected annually by the Board of
Directors and serve at the Board's discretion, subject to any written employment
agreements with the Company.
BOARD COMMITTEES
The Compensation Committee consists of Messrs Gorenstein and Horn. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for officers and other employees, administers incentive
compensation and benefit plans, including the Company's 1996 Stock Option Plans
and the Stock Purchase Plan and recommends policies relating to such plans.
The Audit Committee consists of Messrs. Rubenstein and Jansen. The Audit
Committee, which meets periodically with management and independent auditors,
reviews the results and scope of audits and other services provided by the
Company's independent auditors. The Audit Committee also evaluates the need for
internal auditing procedures and the adequacy of internal controls.
COMPENSATION OF DIRECTORS
STANDARD COMPENSATION
Directors who are not employees of the Company or its subsidiaries receive
$1,000 for each meeting of the Board of Directors or committee meeting that they
attend, plus reimbursement of any expenses that they incur with respect to
attendance at such meetings. In addition, non-employee directors are eligible to
participate in the 1996 Stock Option Plan for Non-Employee Directors. Directors
who are employees of the Company serve as directors without compensation.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's 1996 Stock Option Plan for Non-Employee Directors (the
"DIRECTOR PLAN") was adopted by the Board of Directors in September, 1996 and
was approved by the shareholders in September, 1996. A total of 75,000 shares of
Common Stock have been authorized for issuance under the Director Plan. Each
non-employee director of the Company, including Mr. Rothstein, will be
automatically granted an option to purchase 2,000 shares of Common Stock on the
closing date of this offering. Each non-employee director, other than Mr.
Rothstein, who becomes a director after the date of this Prospectus will be
automatically granted, as of the first business day following the non-employee
director's election or appointment, a non-qualified option to purchase 2,000
shares of Common Stock. Each non-employee director will automatically receive on
the first business day of each fiscal year, beginning with the 1997 fiscal year,
an additional non-qualified option to purchase 2,000 shares of Common Stock. In
the event of a change in capitalization of the Company, through merger,
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<PAGE>
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, dividend, stock split,
reverse stock split, spin-off, split-off or other distribution with respect to
such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment will be made in (i) the maximum number and kind of
shares reserved for issuance under the Director Plan, (ii) the number and kind
of shares or other securities subject to then outstanding options under the
Director Plan, and (iii) the price of each share subject to any then outstanding
options under the Director Plan. The exercise price of all options granted under
the Director Plan will be equal to the fair market value of the Common Stock on
the date of grant. No option grant under the Director Plan may be exercised
before the expiration of the fiscal year for which it was granted, provided that
any option granted under the Plan shall become immediately exercisable upon the
retirement of the Director because of age, death or disability. All such options
will expire ten years from the date of grant unless terminated sooner pursuant
to the provisions of the Director Plan. The Board may amend the Director Plan at
any time, subject to certain limitations included in the Director Plan. The
Director Plan will terminate in September, 2006.
EXECUTIVE COMPENSATION
The following table shows certain information concerning the compensation
of the Chief Executive Officer and each other executive officer of the Company
where aggregate compensation for services in all capacities rendered during the
year ended December 31, 1995 exceeded $100,000 (collectively the "NAMED
EXECUTIVE OFFICERS.").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
<S> <C> <C> <C> <C>
Stephen D. Rubin 1995 $207,001 $15,000 $23,000
President, Treasurer and Director 1994 $207,785 0 $20,778
1993 $196,385 $25,000 $22,136
Clark L. Feldman 1995 $218,068 $15,000 --
Executive Vice President, 1994 $219,473 0 --
Secretary and Director 1993 $219,473 $25,000 --
</TABLE>
(1) This column reflects perquisite compensation which exceeds the lesser of
$50,000 or 10% of the Named Executive Officer's total salary and bonus. For
fiscal years ended December 31, 1995, 1994, and 1993, respectively, Mr.
Rubin's perquisites included $8,505, $11,042 and $20,254 for lease payments
for a car which were paid by the Company. For the fiscal year ended December
31, 1995, Mr. Rubin's perquisites included $7,644 for health insurance
payments for Mr. Rubin's family members which were paid by the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1995, the Company's Board of Directors
established the levels of compensation for certain of the Company's executive
officers prior to the formation of the Compensation Committee. The current
members of the Company's Compensation Committee are Messrs. Gorenstein and Horn.
During 1995, neither of these individuals served as an officer or employee of
the Company.
EMPLOYMENT AGREEMENTS
In September, 1996, the Company entered into a three-year employment
agreement with both Mr. Stephen D. Rubin and Mr. Clark L. Feldman (the
"EMPLOYMENT AGREEMENTS"). The terms of the Employment Agreements are identical
except for the capacity in which Mr. Rubin and Mr. Feldman are employed. Under
the Employment Agreements, the Company agrees to employ Mr. Rubin as its
President and Mr. Feldman as its Executive Vice President, each at a salary of
$215,000 per year (adjusted for cost of living increases) plus certain
additional perquisites, not to exceed $30,000 per year, including, among other
things, a car payment allowance, reimbursement of country club or health club
membership dues and expenses, the right to designate a charitable contribution
to be paid by the Company and a non-accountable business expense allowance. The
Employment Agreements also provide that Mr. Rubin and Mr. Feldman may receive an
annual bonus based on Company
41
<PAGE>
and individual performance as determined by the Board of Directors and the
Compensation Committee and a special bonus for any consulting work developed
by Mr. Rubin or Mr. Feldman as determined by the Board of Directors. The
Employment Agreements provide for termination of Mr. Rubin or Mr. Feldman
(i) for "cause" as defined in the Employment Agreements, (ii) upon Mr. Rubin's
or Mr. Feldman's death or "total disability," as defined in the Employment
Agreements, or (iii) if Mr. Rubin or Mr. Feldman terminates his employment
because of a breach of the Employment Agreements by the Company. The Employment
Agreements contain provisions that restrict Mr. Rubin's and Mr. Feldman's
ability to compete with the Company or solicit its employees or customers for
a specified period following the termination of their employment.
The Company and Mr. Jay H. Dembsky, in connection with his employment as
the Company's Chief Financial Officer, have signed a letter agreement which
provides that the parties will enter into a two-year employment agreement
containing provisions which are substantially similar to the provisions of the
Employment Agreements of Mr. Rubin and Mr. Feldman except that Mr. Dembsky will
receive: (i) a salary of $110,000 per year with a guaranteed bonus of $20,000 in
1997; (ii) options to purchase 80,000 shares of Common Stock at the fair market
value per share of the Common Stock which will vest in 20% increments over
a 5-year period; and (iii) a payment in an amount equal to twice his salary
and bonus for the previous fiscal year in the event of change in control
of the Company.
1996 EMPLOYEE STOCK OPTION PLAN
The Company's 1996 Employee Stock Option Plan (the "STOCK OPTION PLAN") was
adopted by the Board of Directors in September, 1996 and was approved by the
shareholders in September, 1996. The purpose of the Stock Option Plan is to
attract and retain qualified personnel, to provide additional incentives to
employees of the Company and to promote the success of the Company's business. A
total of 325,000 shares of Common Stock have been authorized for issuance under
the Stock Option Plan. The Stock Option Plan provides for the granting to
employees, including directors who are employees, of incentive stock options and
nonstatutory stock options. As of the date of this Prospectus, no options have
been granted under the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors, unless the
Board of Directors delegates administration to a committee of disinterested
directors. No vesting schedule is required under the Stock Option Plan, provided
that each option shall vest and become exercisable at the rate of not less than
20% per year over five years from the date such option is granted. The maximum
term of a stock option under the Stock Option Plan is ten years, but if the
optionee at the time of grant holds more than 10% of the voting power of the
Company's outstanding capital stock, then the maximum term of an incentive stock
option is five years. The exercise price of incentive stock options granted
under the Stock Option Plan must be at least equal to 100% (or 110% with respect
to holders of more than 10% of the voting power of the Company's outstanding
capital stock) of the fair market value of the Common Stock subject to the
option on the date of grant. The exercise price of non-qualified stock options
granted under the Stock Option Plan is determined by the Board of Directors but
must not be less than 85% of the fair market value of the Common Stock subject
to the option on the date of grant. Options granted under the Stock Option Plan
are generally non-transferable. The exercise price may be paid in cash, check,
promissory note or any other form of consideration if authorized by the Board of
Directors in connection with the grant of an option.
Each outstanding option shall become fully exercisable, unless such options
are assumed, in connection with a dissolution or liquidation of the Company, a
merger or consolidation in which the Company is not the surviving corporation,
or as a result of which the outstanding shares of the Company's Common Stock are
exchanged for or converted into cash or property or securities not of the
Company.
Options generally terminate thirty days after termination of the optionee's
employment unless such termination is caused by the permanent disability or
death of the optionee. The Stock Option Plan may be amended at any time by the
Board of Directors, although certain amendments would require stockholder
approval. The Stock Option Plan will terminate in September, 2006, unless
earlier terminated by the Board of Directors.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "STOCK PURCHASE PLAN")
was adopted by the board of directors in September, 1996 and was approved by the
shareholders in September, 1996. A total of 150,000 shares of Common Stock have
been authorized for issuance under the Stock Purchase Plan. No shares have been
issued under the Stock Purchase Plan. The Stock Purchase Plan, which is intended
to qualify under Section 423 of the Internal Revenue Code of 1986, as amended
(the "CODE"), will be administered by the Board
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<PAGE>
of Directors of the Company or by a committee appointed by the Board of
Directors. Under the Stock Purchase Plan, the Company will withhold a specified
percentage (not to exceed 15%) of each salary payment to participating employees
over certain offering periods. Any employee who is currently employed for at
least 20 hours per week and for at least five consecutive months in a calendar
year, either by the Company or by a majority-owned subsidiary of the Company,
will be eligible to participate in the Stock Purchase Plan. Unless the Board of
Directors or its committee determines otherwise, each offering period will run
for 24 months and will be divided into four consecutive purchase periods of
approximately six months. Unless the Board of Directors or its committee
determines otherwise, the first offering period and the first purchase period
will commence on the date of this Prospectus. New 24-month offering periods will
commence every six months thereafter. In the event of a change in control of the
Company, including a merger or sale of substantially all of the Company's
assets, each option under the Stock Purchase Plan may be assumed by any
successor corporation, or the offering periods then in progress may be shortened
and all options automatically exercised. The price at which Common Stock will be
purchased under the Stock Purchase Plan is equal to 85% of the fair market value
of the Common Stock on the first trading day of the applicable offering period
or the last day of the applicable purchase period, whichever is lower. Employees
may end their participation in the offering at any time during the offering
period, and participation ends automatically on termination of employment with
the Company. The maximum number of shares that a participant may purchase on the
last day of any offering period is determined by dividing the payroll deductions
accumulated during the offering period by the purchase price. However, no person
may purchase shares under the Stock Purchase Plan to the extent such person
would own 5% or more of the total combined value or voting power of all classes
of the capital stock of the Company or of any of its subsidiaries, or to the
extent that such person's rights to purchase stock under all employee stock
purchase plans would accrue at a rate that exceeds $25,000 worth of stock for
any calendar year. The Stock Purchase Plan will terminate in September, 2006.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation limit the personal liability of
directors to the fullest extent permitted by Nevada law. Nevada law provides
that directors or officers of a corporation will not be personally liable for
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law or (ii) unlawful payments of dividends. Such
limitation of liability does not apply to liabilities arising under the federal
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission. In addition, the Company's Articles of
Incorporation provide that the Company shall to the fullest extent permitted by
Nevada law, indemnify any and all persons whom it shall have the power to
indemnify under Nevada law from and against any and all expenses, liabilities or
other matters referred to or covered by Nevada law. This indemnification is in
addition to any other rights of indemnification to which such persons may be
entitled under the Company's by-laws, any agreement or vote of shareholders or
disinterested directors.
The Company's By-laws provide that the Company shall indemnify its
directors, and officers, employees and other agents for certain expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
by any such person in connection with any action or proceeding, including any
action by or in the right of the Company, arising out of such person's services
as a director, officer, employee or agent of the Company or any other company or
enterprise to which such person provides services at the request of the Company
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Company. The
Company's By-laws also permit it to secure insurance on behalf of any director,
officer, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the By-laws would permit
indemnification.
At present there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification. The Company
believes that the indemnification provisions in its Article of Incorporation and
By-laws are necessary to attract and retain qualified persons as directors and
officers. The Company does not have any separate indemnification agreements with
its directors or officers.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the initial purchase of the Company from Dean Foods in 1982,
the Company borrowed money at an interest rate of 10% per annum from certain
officers, directors and Company shareholders, evidenced by ten year unsecured
promissory notes entered into in March, 1982 (the "ORIGINAL NOTES") in the
following original principal amounts: (i) Stephen D. Rubin -- $98,591; (ii)
Clark L. Feldman -- $49,483; (iii) Sam Gorenstein -- $20,894; (iv) David
Gorenstein -- $20,894; (v) James Rubin -- $24,741; (vi) Edward Levine -- $9,897;
and (vii) Sachnoff Weaver & Rubenstein, Ltd. -- $11,842. The principal amounts
of all Original Notes remain outstanding except for the Original Note to
Sachnoff Weaver & Rubenstein, Ltd. which has been repaid. The scheduled maturity
of the Original Notes was extended for five years to February, 1997 by a
resolution of the Board of Directors in February, 1992 and was extended an
additional three years to February, 2000 by a resolution of the Board of
Directors in September, 1996. The Company borrowed additional amounts at an
interest rate of 8% per annum, evidenced by promissory notes dated February 1,
1993 (the "1993 NOTES") in the following original principal amounts: (i) Stephen
D. Rubin -- $52,500; (ii) Clark L. Feldman -- $26,250; (iii) Sam Gorenstein --
$11,037; (iv) David Gorenstein -- $11,037; (v) Edward Levine -- $5,225; and (vi)
Jeffrey C. Rubenstein -- $3,750; (vii) Arnold Pagniucci -- $460; and (viii)
Philip Wong -- $200. The principal amounts of the 1993 Notes remain outstanding
except the 1993 Notes to Mr. Pagniucci and Mr. Wong which have been repaid and
the 1993 Note to Mr. Feldman which was partially repaid and has a remaining
balance of $7,105. The scheduled maturity of the 1993 Notes is December 31,
1998. Interest on the Original Notes and the 1993 Notes is currently being paid
by the Company. The Bank Agreement required those officers, directors and
shareholders owning the 1993 Notes (the "1993 NOTEHOLDERS") to enter into
Subordination Agreements dated March 20, 1995 (the "SUBORDINATION AGREEMENTS")
subordinating the 1993 Notes to any amounts which the Company owes to ANB under
the Bank Agreement. The Subordination Agreements allow the Company to pay the
1993 Noteholders currently accruing interest as long as the Company is not in
default under the Bank Agreement. The 1993 Noteholders also have a security
interest in Company property, pursuant to a Security Agreement dated March 20,
1995 provided, however, that the security interest of the 1993 Noteholders is
subordinated to the security interest of ANB.
Certain shareholders, officers and directors also participated in the loan
from ANB to the Company pursuant to the Bank Agreement. Each participant is
entitled to the same rate of interest to which ANB is entitled, 5/8% over ANB's
prime rate. Subordinated Participation Agreements dated July 10, 1995 (the
"PARTICIPATION AGREEMENTS") were entered into by with these officers, directors
and shareholders in the following amounts: (i) Stephen D. Rubin -- $125,430;
(ii) Clark L. Feldman -- $62,700; (iii) Jeffrey Rubenstein -- $15,000; (iv)
Edward Levine -- $12,539; and (v) James Rubin -- $31,356. The Participation
Agreements document each participant's purchase of a subordinated participation
in the loan in those amounts. The interest payments due each participant are
subordinate to the rights of ANB, and upon default or certain other events, the
participants will receive their payment of principal after all payments have
first been made to ANB. Upon 30 days' written notice, ANB may repurchase any or
all of these loan participant's outstanding principal balance in the ANB loan
for a purchase price equal to the outstanding principle balance plus accrued
interest less expenses. The participants are currently being paid interest
pursuant to the Participation Agreements by ANB. In addition, the Company has
determined that each participant is entitled to an additional interest payment
of 6% per annum on the amounts subject to the Participation Agreements. The
Company is not currently paying this interest but is reflecting it as accrued
interest. The Participation Agreements terminate on the maturity date of the
Bank Agreement.
The Bank Agreement also required full payment of the balance due on two
equipment leases, pursuant to which the Company leased certain equipment from
the Rubin Feldman Equipment Leasing Partnership, wholly owned by Stephen Rubin
and Clark Feldman. The lease agreements leased the equipment without warranties
and retained ownership of the equipment with the partnership. The first lease
was for five years with 60 monthly payments of $3,003. The second lease was for
three years with 36 monthly payments of $1,930. The remaining balances on these
leases of $42,700 and $34,500 were repaid on March 20, 1995.
On February 26, 1990, David Gorenstein, Sam Gorenstein, Sid Gorenstein and
J.B.F. Enterprises (the "GORENSTEINS") entered into a Settlement Agreement and
General Release (the "SETTLEMENT AGREEMENT") with the Company, Stephen Rubin,
Clark Feldman, Jeffrey Rubenstein, Neal Jansen, Michael Horn and V-F
Acquisition, Inc. ("V-F ACQUISITION"). The Settlement Agreement released various
complaints and actions brought by the Gorensteins against the Company and the
other named parties and other claims that the Gorensteins and the
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<PAGE>
Company may have against one another through the date of the settlement. The
Settlement Agreement also required that Mr. Rubin, Mr. Feldman and V-F
Acquisition enter into a voting agreement with Sam Gorenstein and J.B.F.
Enterprises (the "VOTING AGREEMENT") that required each party to vote their
shares of Common Stock for the election of Sam Gorenstein, Stephen D. Rubin and
Clark L. Feldman as directors of the Company. The Voting Agreement terminates on
the date the first registration statement filed in connection with an
underwritten public offering of Common Stock is declared effective by the
Securities and Exchange Commission (the "COMMISSION"). The Settlement Agreement
also contains limits on the maximum compensation including bonuses and amounts
paid to family members that can be paid to Mr. Rubin and Mr. Feldman. The
maximum compensation allowable for the fiscal year ending August 31, 1990 was
$215,000 and increases each year by an amount tied to the Consumer Price Index
or five percent, whichever is greater. In 1996, the maximum compensation limit
was approximately $288,000. If salaries are paid in excess of that amount, then
pro-rata dividends must be paid to the shareholders of the Company. In addition,
Consulting Agreements, required by the Settlement Agreement, provided for
payments of consulting fees to Sam and David Gorenstein in the annual amount of
$12,500 through February, 1995, with fees paid quarterly. The Settlement
Agreement also provides that the Company will not attempt to force the
Gorensteins to relinquish ownership through any type of "freeze out"
transaction, except under defined circumstances.
On September 20, 1996, the Company, Stephen Rubin, Clark Feldman, the
Gorensteins and certain other parties entered into an agreement (the "GORENSTEIN
AGREEMENT") pursuant to which, among other things, Mr. Rubin, Mr. Feldman, Mr.
Rubenstein and Mr. James Rubin agree to vote their shares of Common Stock for
the election of Sam Gorenstein as a director of the Company for a period of
three years from the date of this Prospectus. The Gorenstein Agreement also
provides that the Company will grant certain "piggyback" registration rights to
the Gorensteins effective on the date of the closing of this offering. In
addition, the Gorenstein Agreement provides that the Settlement Agreement will
be terminated on the date of the closing of this offering.
It is the policy of the Company that all future transactions, including
loans, between the Company and its executive officers, employees, directors,
principal shareholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 31, 1996, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
(i) each person or entity who is known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each executive officer of the
Company, (iii) each director of the Company and nominee for director, and (iv)
all directors, nominees and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
NAME OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT NUMBER(2) PERCENT
<S> <C> <C> <C> <C>
Stephen D. Rubin............................................... 1,245,202 42.2% 1,245,202 33.7%
Clark L. Feldman............................................... 622,303 21.1 622,303 16.8
Sam Gorenstein(3).............................................. 23,924 * 23,924 *
J.B.F. Enterprises(4).......................................... 477,783 16.2 477,783 12.9
James Rubin(5)................................................. 282,870 9.6 282,870 7.6
Jeffrey C. Rubenstein(6)....................................... 96,239 3.3 96,239 2.6
Michael Horn(7)................................................ -- * -- *
Neal Jansen(8)................................................. -- * -- *
Steven A. Rothstein(9)......................................... -- * -- *
All directors, nominees and executive officers as a
group (7 persons)(10)........................................ 2,465,451 83.6% 2,465,451 66.6%
</TABLE>
<PAGE>
* Less than 1% of the outstanding shares of Common Stock
(1) The address of each of the executive officers and directors, unless noted
otherwise in the footnotes, is c/o Vita Food Products, Inc., 2222 West Lake
Street, Chicago, Illinois 60612.
(2) Includes, when applicable, shares owned of record by such person's minor
children and spouse and by other related individuals and entities over
whose shares of Common Stock such person has custody, voting control, or
power of disposition.
(3) Does not include 477,783 shares of Common Stock held by J.B.F. Enterprises,
an Illinois general partnership ("J.B.F."), which are listed as being
beneficially owned by J.B.F. Mr. Sam Gorenstein and his brother, David
Gorenstein, are general partners of J.B.F. The address of Mr. Sam
Gorenstein is 6770 North Lincoln Avenue, Suite 200, Lincolnwood, Illinois
60046.
(4) Mr. Sam Gorenstein, a director of the Company, and Mr. David Gorenstein,
the brother of Mr. Sam Gorenstein, are partners of J.B.F. The address of
J.B.F. is 6770 North Lincoln Avenue, Suite 200, Lincolnwood, Illinois
60046. These shares are not included in the number of shares beneficially
owned by Mr. Sam Gorenstein.
(5) James Rubin is the brother of Stephen D. Rubin. The address of James Rubin
is 719 Sycamore Lane, Glencoe, Illinois 60022.
(6) Mr. Rubenstein's address is 200 North LaSalle Street, Suite 2100, Chicago,
Illinois 60601.
(7) Mr. Horn's address is 835 Potts Avenue, Green Bay, Wisconsin 54303.
(8) Mr. Jansen's address is 6216 St. Albans Circle, Edina, Minnesota 55439.
(9) Mr. Rothstein's address is 875 North Michigan Avenue, Suite 1560, Chicago,
Illinois 60611.
(10) Includes 477,783 shares of Common Stock beneficially owned by J.B.F. which
are also deemed to be beneficially owned by Mr. Sam Gorenstein.
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<PAGE>
DESCRIPTION OF COMPANY'S SECURITIES
As of October 31, 1996, the authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, $.01 par value, and 1,000,000
shares of Preferred Stock, $.01 par value. No Shares of Preferred Stock are
currently issued and outstanding. As of October 31, 1996 there are 2,950,000
shares of Common Stock issued and outstanding and 18 shareholders of record.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and are entitled to receive such
dividends, if any, as may be declared from time-to-time by the Board of
Directors from funds legally available therefor, subject to the dividend
preferences of the Preferred Stock, if any. Each member of the Company's Board
of Directors stands for election at each annual meeting of the Company's
shareholders. Upon liquidation or dissolution of the Company, the holders of
Common Stock are entitled to share ratably in all assets available for
distribution after payment of liabilities and liquidation preferences of the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights, no
cumulative voting rights and no rights to convert their Common Stock into any
other securities. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of any series
of Preferred Stock which the Company may issue in the future.
PREFERRED STOCK
The Board of Directors may, without any further vote or action by the
Company's shareholders, authorize the issuance of up to 1,000,000 shares of
Preferred Stock from time to time in one or more series, establish the number of
shares to be included in each such series, and determine the powers, rights,
preferences, and limitations of any such series. The issuance of Preferred Stock
could adversely affect, among other things, the rights of existing shareholders
or could delay or prevent a change in control of the Company without further
action by the shareholders. The issuance of Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders of Common
Stock and satisfaction of any dividend preferences as outstanding shares of
Preferred Stock would reduce the amount of funds available for the payment of
dividends on Common Stock. Holders of Preferred Stock would be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. In addition, any such issuance could have the effect of delaying,
deferring or preventing a change in control of the Company and could make the
removal of the present management of the Company more difficult. The Company has
no current plans to issue any Preferred Stock.
WARRANTS
REPRESENTATIVE'S WARRANTS
In connection with this offering, the Company has authorized the issuance
of up to 75,000 Representative's Warrants and has reserved an equivalent number
of shares of Common Stock and Warrants for issuance upon exercise of the
Representative's Warrants and 75,000 shares of Common Stock issuable upon
exercise of the Warrants underlying the Representative's Warrants. Each
Representative's Warrant will entitle the holder to acquire one share of Common
Stock at an exercise price of $ [165% of the initial public offering price]
per share, and/or a Warrant, at an exercise price of $ , [165% of the initial
public offering price] per warrant, to acquire one share of Common Stock at an
exercise price equal to $ [160% of the initial public offering price] per
share. The other terms of the Representative's Warrants are substantially
similar to the Warrants, except that the Representative's Warrants (and the
Warrants included therein) will not be publicly tradeable and will not be
redeemable by the Company. The Representative's Warrants will be exercisable at
any time from the first anniversary of the date of this Prospectus until the
fifth anniversary of the date of this Prospectus.
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Reference is made to the actual text of the Warrant Agreement between the
Company and American Stock Transfer & Trust Company (the "WARRANT AGENT"), a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a
47
<PAGE>
part, for a more complete description of the Warrants. See "Additional
Information." Until the completion of this offering, the shares of Common Stock
and the Warrants offered hereby may only be purchased together on the basis of
one share of Common Stock and one Warrant, but will trade separately immediately
after the offering.
EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an initial exercise price of
$ [160% of the initial public offering price] per share at any time during the
period commencing one year from the date of this Prospectus and terminating five
years from the date of the Prospectus, subject to adjustment in accordance with
the anti-dilution and other provisions referred to below. The holder of any
Warrant may exercise such Warrant by surrendering the certificate representing
the Warrant to the Warrant Agent, with the subscription form thereon properly
completed and executed, together with payment of the exercise price. No
fractional shares will be issued upon exercise of the Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company,
in order to enable warrantholders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of Common Stock that might have been purchased upon the
exercise of the Warrant.
REDEMPTION PROVISIONS. Commencing 18 months after the date of this
Prospectus, the Warrants are subject to redemption at $0.01 per Warrant on 30
days' prior written notice to the Warrantholders if the average closing bid
price of the Common Stock as reported on the CHX equals or exceeds $ [200% of
the initial public offering price] per share of Common Stock (subject to
adjustment for stock dividends, stock splits, combinations or reclassifications
of the Common Stock), for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. In the event the Company exercises the right to redeem the Warrants,
such Warrants will be exercisable until the close of business on the business
day immediately preceding the date for redemption fixed in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to be
exercisable and the holder will be entitled only to the redemption price.
TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
WARRANTHOLDER NOT A SHAREHOLDER. The Warrants do not confer upon holders
any voting, dividend or other rights as shareholders of the Company.
MODIFICATION OF WARRANTS. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than 30 days on not less than 30 days' prior written notice to the
warrantholders and the Representative. Modification of the number of securities
purchasable upon the exercise of any Warrant, the exercise price and the
expiration date with respect to any Warrant requires the consent of two-thirds
of the warrantholders. No other modifications may be made to the Warrants
without the consent of two-thirds of the warrantholders.
A significant amount of the Securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Representative. Although it has no obligation to do so, the Representative
currently intends to make a market in the Company's Securities and may otherwise
effect transactions in such Securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the Securities described in the Prospectus. Such market-making activity may
be discontinued at any time. The price and liquidity of the
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<PAGE>
Common Stock and the Warrants may be significantly affected by the degree, if
any, of the Representative's participation in such market. See "Underwriting."
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
Until the completion of this offering, the shares of Common Stock and the
Warrants offered hereby may only be purchased together on the basis of one share
of Common Stock and one Warrant, but will trade separately immediately after the
offering. Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket in, or may move to,
jurisdictions in which the shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants, and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.
TRANSFER AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Until the completion of this offering, the shares of Common Stock and the
Warrants offered hereby may only be purchased together on the basis of one share
of Common Stock and one Warrant, but will trade separately immediately after the
offering. Prior to this Offering, there has been no market for the Common Stock
or Warrants of the Company. Future sales of substantial amounts of Common Stock
or Warrants in the public market could adversely affect market prices prevailing
from time to time. Sales of substantial amounts of Common Stock or Warrants of
the Company in the public market after various restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon the completion of this offering, the Company will have 3,700,000
shares of Common Stock and 750,000 Warrants outstanding. See "Description of
Company's Securities." The 750,000 shares of Common Stock which are sold in
this offering (plus any shares sold as a result of any exercise of the
Representative's over-allotment option) by the Company and, subject to certain
conditions commencing one year after the date of this Prospectus, up to
750,000 shares of Common Stock issuable upon exercise of the Warrants (plus
any shares issuable upon exercise of the Warrants sold as a result of any
exercise of the Representative's over-allotment option), and, commencing
approximately one year after the date of this Prospectus, up to 75,000 shares
of Common Stock that are issuable upon exercise of the Representative's
Warrants, and up to 75,000 shares of Common Stock that are issuable upon
exercise of the Warrants underlying the Representative's Warrants, will,
subject to any applicable state law restrictions on secondary trading, be
freely tradeable without restriction under the Securities Act, except that any
shares purchased by an "affiliate" of the Company (as that term is defined in
Rule 144 under the Securities Act) will be subject to the resale limitations
of Rule 144.
The remaining 2,950,000 shares of Common Stock outstanding upon completion
of this offering are "restricted securities" as that term is defined in Rule
144. As described below, Rule 144 permits resales of restricted securities
subject to certain restrictions. On the date of this Prospectus, approximately
177,755 shares will be eligible for immediate sale without restriction pursuant
to Rule 144(k) and an additional 2,772,245 shares will be eligible for immediate
sale under Rule 144, subject to compliance with the provisions of Rule 144;
2,896,684 of such shares will, however, be subject to the Lock-up Agreements.
After 13 months from the date of this Prospectus, these shares will be eligible
for sale in the public market, subject, in certain cases, to compliance with
Rule 144.
49
<PAGE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least two years (including the holding period of any immediate prior owner,
except an affiliate), shares of Common Stock that have not been registered under
the Securities Act or that were acquired from an "affiliate" of the Company (in
a transaction or chain of transactions not involving a public offering) is
entitled to sell in "broker's transactions" or to market makers, within any
three month period commencing 90 days after the date of this Prospectus, a
number of shares of Common Stock which does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding (approximately
37,000 shares immediately after this offering) or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
sale. Sales under Rule 144 are generally subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during a 90-day period
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years (including the holding period of any immediate prior
owner, except an affiliate), is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
The Commission has recently proposed regulations reducing the initial Rule
144 holding period to one year and the Rule 144(k) holding period to two years.
There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications will have a material effect on the times
when shares of the Company's Common Stock become eligible for resale.
The Company and its shareholders, who beneficially own more than 1% of the
outstanding shares of Common Stock as of the date of this Prospectus, have
agreed that for a period of 13 months after the date of this Prospectus, they
will not offer, sell, grant any option for the sale or otherwise dispose of any
Securities of the Company (other than intra-family transfers or transfers to
trusts for estate planning purposes), without the prior written consent of the
Representative, which consent may be given without prior public notice.
The Company has not yet issued options to purchase shares of Common Stock
under the 1996 Stock Option Plans. However, 400,000 shares of Common Stock are
reserved for issuance under the 1996 Stock Option Plans and 150,000 shares are
reserved for issuance under the Stock Purchase Plan. See
"Management -- Executive Compensation" and " -- Compensation of Directors." The
Company intends, immediately after the sale of the Securities offered hereby, to
register a total of 400,000 shares of Common Stock reserved for issuance under
the 1996 Stock Option Plans and may register 150,000 shares of Common Stock
reserved for issuance under the Stock Purchase Plan.
UNDERWRITING
The Underwriters named below, for whom National Securities Corporation is
acting as representative (the "REPRESENTATIVE"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the form of which has
been filed as an exhibit to the Registration Statement), to purchase from the
Company the respective number of shares of Common Stock and Warrants set forth
opposite their names in the table below. Until the completion of this offering,
the shares of Common Stock and the Warrants offered hereby may only be purchased
together on the basis of one share of Common Stock and one Warrant, but will
trade separately immediately after the offering. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters shall be obligated to purchase
all of the shares of Common Stock and Warrants offered hereby (other than the
shares of Common Stock and Warrants covered by the over-allotment option
described below) if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME SHARES OF COMMON STOCK WARRANTS
<S> <C> <C>
National Securities Corporation..............................................
Total........................................................................
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the Securities to the public at the initial public offering
prices set forth on the cover page of this Prospectus and to certain
50
<PAGE>
dealers at such price less a concession not in excess of $ per share of
Common Stock and $ per Warrant. The Underwriters may allow and such dealers
may reallow a concession not in excess of $ per share of Common Stock and
$ per Warrant to certain other dealers. After the initial public offering of
the Securities, the public offering price and such concessions may be changed.
The Representative has informed the Company that the Underwriters do not intend
to confirm sales to accounts over which they exercise discretionary authority.
The offering of the Common Stock and Warrants are made for delivery when,
as and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the offer without notice. The
Underwriters reserve the right to reject any order for the purchase of the
Securities.
The Company has granted an option to the Underwriters, exercisable during
the 45 day period after the date of this Prospectus, to purchase up to an
aggregate of 112,500 additional shares of Common Stock and/or 112,500 Warrants
at the prices to public set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. The Underwriters may exercise such
option only for the purpose of covering over-allotments made in connection with
the sale of the Securities offered hereby. To the extent that the Underwriters
exercise such option, each Underwriter may be committed, subject to certain
conditions, to purchase a number of additional Securities proportionate to such
Underwriter's initial commitment pursuant to the Underwriting Agreement.
The Company has agreed that if it elects to redeem the Warrants at any time
commencing one year after the date of this Prospectus, it will retain the
Representative as the Company's solicitation agent ("WARRANT SOLICITATION
AGENT"). The Company has agreed to pay the Warrant Solicitation Agent for its
services a solicitation fee equal to 3% of the total amount paid by the holders
of the Warrants whom the Warrant Solicitation Agent solicited to the Company to
exercise the Warrants. The exercise will be presumed to be unsolicited unless
the customer states in writing that the transaction was solicitation and
designates in writing the broker-dealer to receive compensation for the
exercise. The fee is not payable for the exercise of any Warrant held by the
Warrant Solicitation Agent in a discretionary account at the time of exercise,
unless the Warrant Solicitation Agent receives from the customer prior specific
written approval for such exercise. As a condition to receipt of a solicitation
fee, the warrantholder must acknowledge in writing that the exercise of the
Warrant was solicited by the Warrant Solicitation Agent.
The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act. The Company has been advised that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds from the sale of the Common Stock and the
Warrants offered hereby (including any Common Stock or Warrants purchased
pursuant to the Underwriter's over-allotment option), of which $ has been
paid to date. The Representative's expenses in excess of the non-accountable
expense allowance, including their legal expenses, will be borne by the
Representative.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 75,000 shares of Common Stock and/or 75,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ [165% of the initial public offering price] per
share of Common Stock and $ [165% of the initial public offering price] per
Warrant for a period of four years, commencing one year from the date of this
Prospectus and are restricted from sale, transfer, assignment or hypothecation
for one year from the date of this Prospectus, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock and Warrants issuable upon the exercise thereof
and in the exercise price of the Representative's Warrants as a result of
certain events, including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering price of the
Securities and the exercise price and terms of the Warrants have been determined
arbitrarily by negotiations between the Company and the Representative. Factors
considered in such negotiations, in addition to prevailing market conditions,
included the history and prospects for the industry
51
<PAGE>
in which the Company competes, an assessment of the Company's management, the
prospects of the Company, its capital structure and certain other factors deemed
relevant. Therefore, the public offering price of the Securities and the
exercise price and terms of the Warrants do not necessarily bear any
relationship to established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Securities. See "Underwriting."
The Company and its shareholders, who beneficially own more than 1% of the
outstanding shares of Common Stock as of the date of this Prospectus, have
agreed that for a period of 13 months after the date of this Prospectus, they
will not offer, sell, grant any option for the sale or otherwise dispose of any
securities of the Company (other than intra-family transfers or transfers to
trusts for estate planning purposes), without the prior written consent of the
Representative, which consent may be given without prior public notice. An
appropriate legend shall be marked on the face of certificates representing all
such securities.
The Company has agreed that, for three years after the date of this
Prospectus, it will use its best efforts to cause one individual designated by
the Representative, if any, to be elected to the Company's Board of Directors.
Such individual may be a director, officer, employee or affiliate of the
Representative. It is anticipated that Steven A. Rothstein, Chairman of the
Board of National Securities Corporation, will be designated by the
Representative. See "Management -- Directors and Executive Officers." In the
event the Representative elects not to designate a person to serve on the
Company's Board of Directors, the Representative may designate a person to
attend meetings of the Board of Directors. Such a designee would be reimbursed
by the Company for out-of-pocket expenses incurred in connection with attendance
at meetings of the Board of Directors, which reimbursement shall not exceed
reimbursements paid to non-employee directors.
Mr. Rubin and Mr. Feldman have granted the Representative an irrevocable
preferential right for a period of three years to purchase for its account or to
sell for the account of either Mr. Rubin or Mr. Feldman any Securities of the
Company which either Mr. Rubin or Mr. Feldman may seek to sell in the open
market (other than transfers pursuant to gifts, transfers to relatives or family
members, or trusts for the benefits of such relatives or family members,
provided that the transferee agrees to grant the Representative the same
preferential rights).
National Securities Corporation intends, though is not obligated, to make a
market in the Common Stock and Warrants of the Company upon completion of this
offering. The Company has applied to have the Common Stock and Warrants listed
on the Chicago Stock Exchange under the symbols " " and " ,"
respectively.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of the
Representative, the Company and the principal office of the Securities and
Exchange Commission, Washington, D.C. See "Additional Information."
LEGAL MATTERS
The validity of the Common Stock and the Warrants offered hereby will be
passed upon for the Company by Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C., Chicago, Illinois. Jeffrey C. Rubenstein, a principal of Much
Shelist Freed Denenberg Ament Bell & Rubenstein, P.C., beneficially owns 96,239
shares of Common Stock of the Company and is also a director of the Company. See
"Management" and "Principal Shareholders." Certain legal matters will be passed
upon for the Underwriters by Sugar, Friedberg & Felsenthal, Chicago, Illinois.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
52
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Midwest Regional Office of the Securities
and Exchange Commission in Chicago, Illinois, a Registration Statement on Form
SB-2 (together with all amendments thereto, the "REGISTRATION STATEMENT"), under
the Securities Act with respect to the Securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules filed therewith, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being deemed to be
qualified in its entirety by such reference. The Registration Statement,
including all exhibits and schedules thereto, may be inspected without charge at
the principal office of the Commission, at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Midwest Regional Office of
the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at the Northeast Regional office of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon
the payment of prescribed fees.
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company intends to
furnish its shareholders with annual reports containing financial statements
audited by its independent certified public accountants and quarterly reports
containing unaudited financial information for each of the
first three quarters of each fiscal year.
53
<PAGE>
VITA FOOD PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Balance Sheets at December 31, 1995 and at September 30, 1996 (Unaudited).................................. F-3
Statements of Operations for the Years Ended December 31, 1994 and 1995 and for the Nine Months Ended
September 30, 1995 (Unaudited) and 1996 (Unaudited)...................................................... F-4
Statements of Shareholders' Deficit for the Years Ended December 31, 1994 and 1995 and for the Nine Months
Ended September 30, 1996 (Unaudited)..................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for the Nine Months Ended
September 30, 1995 (Unaudited) and 1996 (Unaudited)...................................................... F-6
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
VITA FOOD PRODUCTS, INC.
We have audited the accompanying balance sheet of Vita Food Products, Inc.
as of December 31, 1995, and the related statements of operations, shareholders'
deficit and cash flows for the years ended December 31, 1994 and 1995. 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 audits.
We conducted our audits 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 audits provide 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 Vita Food Products, Inc. at
December 31, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Chicago, Illinois
July 25, 1996, except for
Note 9 as to which the date
is September 20, 1996 and
Note 3(a) as to which the date
is November 8, 1996
F-2
<PAGE>
VITA FOOD PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER 30,
31, 1995 1996
<S> <C> <C>
(UNAUDITED)
Assets (Note 3)
CURRENT ASSETS
Cash.............................................................................. $ 45,294 $ 92,327
Accounts receivable -- trade, net of allowance for doubtful accounts of $10,000 in
1995 and 1996.................................................................. 3,798,647 2,186,429
Inventories
Raw materials and supplies..................................................... 3,166,514 2,456,975
Work in process................................................................ 150,194 184,864
Finished goods................................................................. 1,158,146 1,992,338
Prepaid expenses and other current assets......................................... 128,963 183,571
Deferred income taxes (Note 4).................................................... -- 300,000
TOTAL CURRENT ASSETS................................................................ 8,447,758 7,396,504
PROPERTY, PLANT AND EQUIPMENT
Building and improvements......................................................... 1,354,941 1,366,978
Machinery and office equipment.................................................... 3,552,463 3,877,502
4,907,404 5,244,480
Less accumulated depreciation and amortization.................................... 3,045,221 3,273,321
1,862,183 1,971,159
Land.............................................................................. 35,000 35,000
NET PROPERTY, PLANT AND EQUIPMENT................................................... 1,897,183 2,006,159
OTHER ASSETS (including deferred Public Offering costs of $163,888 at September 30,
1996)............................................................................. 70,054 236,450
$10,414,995 $ 9,639,113
Liabilities and Shareholders' Deficit
CURRENT LIABILITIES
Current maturities of long-term obligations (Note 3).............................. $ 127,920 $ 304,000
Accounts payable.................................................................. 3,936,859 2,661,080
Accrued expenses (Notes 2 and 6).................................................. 1,081,331 1,532,244
TOTAL CURRENT LIABILITIES........................................................... 5,146,110 4,497,324
LONG-TERM OBLIGATIONS, less current maturities (Note 3)............................. 5,500,704 5,401,605
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
SHAREHOLDERS' DEFICIT (Note 9)
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 10,000,000 shares; issued and
outstanding 2,950,000 shares.................................................. 29,500 29,500
Additional paid-in capital........................................................ 196,000 196,000
Accumulated deficit............................................................... (457,319) (485,316)
TOTAL SHAREHOLDERS' DEFICIT......................................................... (231,819) (259,816)
$10,414,995 $ 9,639,113
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VITA FOOD PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net Sales (Note 8).................................. $17,792,945 $21,410,077 $13,045,122 $13,969,253
Cost of Goods Sold.................................. 12,734,471 15,013,763 9,364,192 9,953,104
Gross margin........................................ 5,058,474 6,396,314 3,680,930 4,016,149
Selling, Marketing and Administrative Expenses
Selling and marketing............................. 2,963,142 3,879,272 2,508,419 2,882,687
Administrative.................................... 1,447,295 1,518,079 1,200,651 1,153,172
4,410,437 5,397,351 3,709,070 4,035,859
Operating profit (loss)............................. 648,037 998,963 (28,140) (19,710)
Other (Income) Expense
Other income...................................... -- -- -- (83,333)
Lawsuit settlement (Note 6)....................... -- 355,527 355,527 --
Interest.......................................... 376,250 512,645 370,978 391,620
376,250 868,172 726,505 308,287
Income (loss) before income taxes (benefit)......... 271,787 130,791 (754,645) (327,997)
Income Taxes (Benefit) (Note 4)..................... -- -- -- (300,000)
Net Income (Loss)................................... $ 271,787 $ 130,791 $ (754,645) $ (27,997)
Net Income (Loss) Per Common Share.................. $ .09 $ .04 $ (.26) $ (.01)
Weighted Average Common Shares Outstanding.......... 2,950,000 2,950,000 2,950,000 2,950,000
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VITA FOOD PRODUCTS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Balance, at January 1, 1994 (Note 9).............. 2,950,000 $29,500 $196,000 $(859,897) $(634,397)
Net income, 1994.................................. -- -- -- 271,787 271,787
Balance, at December 31, 1994..................... 2,950,000 29,500 196,000 (588,110) (362,610)
Net income, 1995.................................. -- -- -- 130,791 130,791
Balance, at December 31, 1995..................... 2,950,000 29,500 196,000 (457,319) (231,819)
Net loss, nine months ended September 30, 1996
(unaudited)..................................... -- -- -- (27,997) (27,997)
Balance, at September 30, 1996 (unaudited)........ 2,950,000 $29,500 $196,000 $(485,316) $(259,816)
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VITA FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash Flows From Operating Activities
Net income (loss)................................... $ 271,787 $ 130,791 $ (754,645) $ (27,997)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization.................... 198,963 268,843 156,030 228,104
Deferred income taxes............................ -- -- -- (300,000)
Changes in assets and liabilities, net of effects
of product line acquisition
Decrease (increase) in accounts receivable..... (515,875) (504,025) 1,044,770 1,612,218
Decrease in note receivable.................... 5,000 -- -- --
Increase in inventories........................ (442,405) (907,408) (411,229) (159,323)
Decrease (Increase) in prepaid expenses and
other current assets........................ 74,274 (19,729) (84,113) (54,608)
Increase (decrease) in accounts payable........ 643,612 1,142,537 149,844 (1,275,779)
Increase in accrued expenses................... 243,659 231,137 444,067 450,913
Decrease in income taxes payable............... (20,000) -- -- --
Net cash provided by operating activities............. 459,015 342,146 544,724 473,528
Cash Flows From Investing Activities
Increase in other assets............................ (51,295) (29,432) (11,756) (2,508)
Acquisition of a product line....................... -- (725,915) (725,915) --
Capital expenditures................................ (410,556) (446,109) (321,462) (337,080)
Net cash used in investing activities................. (461,851) (1,201,456) (1,059,133) (339,588)
Cash Flows From Financing Activities
Deferred public offering costs...................... -- -- -- (163,888)
Borrowings under notes payable - bank................ 2,034,000 2,496,000 1,582,000 1,431,000
Payments under notes payable - bank.................. (1,394,191) (1,237,398) (1,002,773) (2,260,986)
Advances repaid to shareholders/officers............ (660) -- -- --
Long-term obligation proceeds....................... -- -- -- 1,125,556
Payments of long-term obligations................... (273,465) (647,894) (240,375) (212,400)
Payments of capital lease obligations............... (55,010) (103,750) (115,541) (6,189)
Net cash provided by (used in) financing
activities.......................................... 310,674 506,958 223,311 (86,907)
Net Increase (Decrease) in Cash....................... 307,838 (352,352) (291,098) 47,033
Cash, at beginning of period.......................... 89,808 397,646 397,646 45,294
Cash, at end of period................................ $ 397,646 $ 45,294 $ 106,548 $ 92,327
Supplemental Disclosure of Cash Flow Information
Cash paid for interest.............................. $ 376,144 $ 459,467 $ 297,950 $ 361,428
Income taxes paid (refunded)........................ 20,000 (7,451) -- --
</TABLE>
Supplemental Schedule of Noncash
Investing and Financing Activities
In March, 1995, the Company purchased the herring production line of Lyon
Food Products, Inc. ("Lyon") and secured licensing rights from Lyon to the ELF
brand name, a recognized regional herring brand (the "Lyon Product Line
Acquisition"). In conjunction with the Lyon Product Line Acquisition,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired................................................. $ 844,842
Cash paid..................................................................... 725,915
Liabilities assumed........................................................... $ 118,927
</TABLE>
Capital lease obligations of $57,400 and $26,977 were incurred when the
Company entered into leases for equipment in 1994 and 1995, respectively.
See accompanying notes to financial statements.
F-6
<PAGE>
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies utilized in the
preparation of the accompanying financial statements follows.
INDUSTRY
The Company processes and sells various herring, and cured and smoked
salmon products. In addition, the Company sells other complementary specialty
food products.
INTERIM FINANCIAL STATEMENTS
The financial information as of September 30, 1996 and with respect to the
nine months ended September 30, 1996 and 1995 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the results for such
periods. The information is not necessarily indicative of the results of
operations to be expected for the fiscal year end.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
The Company primarily provides credit in the normal course of business. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses, if necessary.
MERCHANDISE RETURNS
In accordance with industry practices, inventory is sold to customers with
the right to return if the merchandise is not sold prior to the expiration of
its shelf life. Sales are reduced by a provision for estimated future returns.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs are determined
by the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are being provided, on accelerated and straight-line methods, over
the estimated useful lives of the assets. Leasehold improvements are being
amortized on a straight-line basis over the lives of the respective leases or
the service lives of the improvements, whichever is shorter. Repair and
maintenance items are expensed as incurred.
DEFERRED PUBLIC OFFERING COSTS
Fees, costs and expenses related to the proposed public offering are
capitalized and will be charged against the proceeds therefrom. If the proposed
offering is not consummated, the deferred costs will be charged to expense.
ESTIMATES
The accompanying financial statements include estimated amounts and
disclosures based on management's assumptions about future events. Actual
results may differ from those estimates.
F-7
<PAGE>
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
ADVERTISING
Advertising costs are expensed as incurred and included in "selling and
marketing expenses". Advertising expenses amounted to approximately $330,000 in
1994, $425,000 in 1995 and $291,000 and $507,000 for the nine months ended
September 30, 1995 and 1996, respectively.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of certain assets and liabilities based upon currently
enacted tax rates expected to be in effect when such amounts are realized or
settled.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed based on the weighted
average number of common shares and common share equivalents outstanding, after
giving effect to the increase in the number of outstanding shares of common
stock of the Company as described in Note 9.
NOTE 2. -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Spoilage and merchandise return accrual............................................. $ 464,674 $ 570,593
Metropolitan Water Reclamation
District user charges............................................................. 285,000 486,000
Accrued interest.................................................................... 121,212 151,404
Accrued salaries and bonuses........................................................ 130,640 150,257
Other............................................................................... 79,805 173,990
$1,081,331 $ 1,532,244
</TABLE>
NOTE 3. -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Revolving loan facility due in April, 1998. Interest at prime (8.5% and 8.25% at
December 31, 1995 and September 30, 1996, respectively) plus 5/8% (a)(b).......... $4,830,379 $ 4,000,393
Term loan facility payable in monthly installments of $9,957 in 1995 and $24,787 in
1996 plus interest at prime plus 5/8% through March, 1998. Final payment of
principal and interest due in April, 1998 (a)(b).................................. 459,577 1,372,733
10% unsecured and 8% secured subordinated notes payable to the shareholders of the
Company. The notes are subordinated to the advances under the loan and security
agreement. Interest is payable each November 1, and the principal is payable
February 1, 2000 and December 31, 1998, respectively.............................. 315,154 315,154
Capitalized lease obligations....................................................... 23,514 17,325
5,628,624 5,705,605
Less current maturities............................................................. 127,920 304,000
$5,500,704 $ 5,401,605
</TABLE>
F-8
<PAGE>
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. -- LONG-TERM OBLIGATIONS -- Continued
(a) The Company has a loan and security agreement (the "Agreement") with a
bank consisting of a revolving loan facility and a term loan facility, with
maximum borrowing limits of $5,000,000 and $1,750,000, respectively. All assets
of the Company are pledged as collateral for all borrowings under the Agreement.
The Agreement provides that the Company must meet certain covenants including a
current ratio of at least .75 to 1 and an annual limit for capital expenditures,
and provides for restrictions on the payment of dividends. At December 31, 1995
the Company was not in compliance with various covenants and the bank has
granted a waiver. In November, 1996 the Company received a commitment from the
bank to extend the Agreement through April, 1998.
(b) Certain shareholders, officers and directors participate in this loan
pursuant to the Agreement. Each participant is entitled to the same rate of
interest that is paid to the bank. Further, the Company has determined that each
participant is entitled to an additional interest payment of 6% per annum on the
amounts subject to the participation agreements. Total amounts under the
participation agreements are $247,025.
Scheduled annual maturities of long-term obligations as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1996.................................................................................. $ 127,920
1997.................................................................................. 349,355
1998.................................................................................. 5,060,695
1999.................................................................................. --
2000.................................................................................. 90,654
$ 5,628,624
</TABLE>
The Company incurred interest expense with related parties of $29,700 for
the years ended December 31, 1994 and 1995, and $22,300 for the periods ended
September 30, 1995 and 1996.
The carrying value of long-term obligations approximates fair value,
because substantially all of the debt has interest rates that fluctuate with the
market.
The Company leases telephone equipment under a capitalized lease agreement.
The lease is noncancellable and expires in 1998. The following is a schedule of
future minimum payments under the capital lease as of December 31, 1995,
together with the present value of net minimum lease payments:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
<S> <C>
1996..................................................................................... $ 10,284
1997..................................................................................... 10,284
1998..................................................................................... 5,999
Net minimum lease payments............................................................... 26,567
Less amount representing interest........................................................ 3,053
Present value of net minimum lease payments.............................................. $ 23,514
</TABLE>
The equipment which is leased under the capitalized lease agreement and
classified as machinery and office equipment in the accompanying balance sheets
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Cost................................................................................ $ 26,977 $26,977
Accumulated amortization............................................................ 1,927 7,706
$ 25,050 $19,271
</TABLE>
F-9
<PAGE>
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4. -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
existing temporary differences that give rise to significant portions of the net
deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Deferred tax assets
Allowance for doubtful receivables and product returns............................ $ 170,000 $ 194,000
Uniform inventory capitalization.................................................. 30,000 30,000
Accrued liabilities............................................................... 111,000 82,000
Net operating loss carryforwards.................................................. 80,000 213,000
Alternative minimum tax credit carryforwards...................................... 12,000 12,000
403,000 531,000
Deferred tax liability
Depreciation...................................................................... (23,000) (23,000)
380,000 508,000
Less valuation allowance............................................................ (380,000) (208,000)
Net deferred tax asset.............................................................. $ -- $ 300,000
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $200,000, which
expire in various years through 2007. Additionally, the Company has alternative
minimum tax credit carryovers of approximately $12,000, which can be used to
reduce federal income tax liabilities in future years. These credits
carry forward indefinitely. During the years ended December 31, 1994 and 1995,
the Company utilized approximately $349,000 and $161,000, respectively, of net
operating loss carryforwards. Due to the uncertainty of realizing these net
deferred tax assets in the future, the Company has recorded a valuation
allowance. In 1994 and 1995, the valuation allowance decreased by $73,000 and
$55,000, respectively. For the nine months ended September 30, 1995, the
valuation allowance increased by $280,000. For the nine months ended September
30, 1996, $172,000 of the valuation allowance was recognized.
The reconciliation of income tax computed at the United States federal
statutory tax rate of 34% to income taxes (benefit) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Tax at federal statutory rate................................... $ 92,000 $ 44,500 $(256,600) $(111,500)
State income taxes, net of federal tax benefit.................. -- 6,000 -- (16,500)
Recognition of a portion of the deferred tax valuation
allowance..................................................... -- -- -- (172,000)
Net operating loss (utilization) carryforward................... (92,000) (50,500) 256,600 --
Income taxes (benefit).......................................... $ -- $ -- $ -- $(300,000)
</TABLE>
NOTE 5. -- ACQUISITION
In March, 1995, the Company purchased a product line of Lyon Food Products,
Inc. ("Lyon"), which was in the same business as the Company, and secured
licensing rights to a regional herring brand name. The product line, primarily
consisting of certain accounts receivable, inventories and equipment, and the
licensing rights were acquired for $725,915 and funded with additional bank
borrowings.
F-10
<PAGE>
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 6. -- COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into purchase
commitments for raw materials and does not anticipate any losses. The Company
purchases a majority of its herring from one supplier. The supplier has the
option to supply up to 90% of the Company's annual requirements for herring,
provided that the supplier agrees to supply the herring at competitive prices.
The Company is contesting the amount of user charges assessed by the
Metropolitan Water Reclamation District for 1994 and 1995. The Company has
provided accruals of $285,000 and $486,000 as of December 31, 1995 and September
30, 1996, respectively, for user charges. These accruals are based upon an
estimate provided by an independent consultant. If the Company is not successful
in its protest, the Company would be required to pay an additional $300,000.
However, the Company believes that any potential additional liability will not
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company further believes that the eventual liability
will not materially exceed its presently established accruals.
During 1995, the Company incurred an expense of $355,527 representing an
arbitration award requiring the Company to pay the adverse party's legal fees.
In the ordinary course of business, the Company becomes involved in
litigation as a defendant in various lawsuits. In the opinion of management,
after considering the advice of counsel, the ultimate resolution of these legal
proceedings will not have a material effect on the financial statements taken as
a whole and thus no provision has been made in the financial statements for any
loss contingencies.
NOTE 7. -- EMPLOYEE BENEFIT PLANS
The Company has established a qualified profit sharing plan covering its
nonunion employees. Participants may elect to defer a portion of annual
compensation. The Company may contribute amounts at the discretion of the Board
of Directors.
The Company made a contribution for the year ended December 31, 1995 of
$60,000. No contribution was made for the year ended December 31, 1994 or for
the nine months ended September 30, 1995 and 1996.
Additionally, the Company participates in two multi-employer plans that
provide benefits to the Company's union employees. Contributions to the plans
for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996 were $26,600, $28,900, $19,900 and $23,700,
respectively.
NOTE 8. -- MAJOR CUSTOMER
The Company had sales to one customer in 1994 and 1995 representing 11% and
12% of net sales, respectively.
NOTE 9. -- SUBSEQUENT EVENTS
In September, 1996, the Company reincorporated in the State of Nevada via a
merger of the Illinois corporation into the Company, which was a Nevada
corporation formed in September, 1996. The ratio of shares of the Illinois
corporation to the Nevada corporation is 5,412.745:1 and the ratio of shares of
V-F Acquisition, Inc., an investor group of the Illinois corporation, to the
Nevada corporation is 54.12745:1. The shares of the Illinois corporation held by
V-F Acquisition, Inc., the Illinois corporation's largest shareholder, were
cancelled in the merger. Further, the Nevada corporation changed its name to
Vita Food Products, Inc. upon completion of the merger. After the merger there
were 2,950,000 shares of common stock of the Company issued and outstanding. The
earnings per share calculation and all share information contained in these
financial statements have been retroactively adjusted to give effect to the
increases in authorized, issued and outstanding shares of common stock.
F-11
<PAGE>
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9. -- SUBSEQUENT EVENTS -- Continued
On September 11, 1996, the Company adopted the Vita Food Products, Inc.
1996 Employee Stock Option Plan (the "Plan") pursuant to which 325,000 shares of
common stock have been reserved for issuance upon the exercise of options
designated as either an "incentive stock option" or as a "nonqualified stock
option." These options may be granted to employees of the Company, including
members of the Board of Directors who are employees. On September 11, 1996, the
Company also adopted the Vita Food Products, Inc. 1996 Stock Option Plan for
Non-Employee Directors (the "Director Plan") pursuant to which 75,000 shares of
common stock have been reserved for issuance upon the exercise of options
designated as a "nonqualified stock option." These options may be granted to
directors who are not employees of the Company. Further, in September, 1996 the
Company adopted the 1996 Employee Stock Purchase Plan pursuant to which 150,000
shares of common stock have been reserved for issuance. The Company does not
intend to grant any options under the Plan or the Director Plan prior to the
completion of the proposed public offering.
The Company intends to enter into employment agreements with two officers
of the Company that extend through September, 1999. Under the terms of these
agreements, each officer is entitled to be paid a salary of $215,000 annually
(adjusted annually for increases in the cost of living index), plus bonuses, if
any, and certain perquisites.
F-12
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. 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 OF THIS PROSPECTUS
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 18
Selected Financial Data........................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................ 22
Business....................................... 29
Management..................................... 39
Certain Relationships and Related
Transactions................................. 44
Principal Shareholders......................... 45
Description of the Company's Securities........ 47
Shares Eligible for Future Sale................ 49
Underwriting................................... 50
Legal Matters.................................. 53
Experts........................................ 53
Additional Information......................... 53
Financial Statements........................... F-1
</TABLE>
UNTIL , 199 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
VITA FOOD
PRODUCTS, INC.
750,000 SHARES OF
COMMON STOCK
AND
750,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS
(INITIALLY SHARES OF COMMON STOCK AND WARRANTS MAY ONLY BE PURCHASED TOGETHER ON
THE BASIS OF ONE SHARE OF COMMON STOCK AND ONE WARRANT, BUT WILL TRADE
SEPARATELY IMMEDIATELY AFTER THE OFFERING IS COMPLETED)
[LOGO]
PROSPECTUS
NATIONAL SECURITIES CORPORATION
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limit the personal liability of
directors to the fullest extend permitted by Nevada law. Nevada law provides
that directors or officers of a corporation will not be personally liable for
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law or (ii) unlawful payments of dividends. Such
limitation of liability does not apply to liabilities arising under the federal
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission. In addition, the Company's Articles of
Incorporation provide that the Company shall to the fullest extent permitted by
Nevada law, indemnify any and all persons whom it shall have the power to
indemnify under Nevada law from and against any and all expenses, liabilities or
other matters referred to or covered by Nevada law. This indemnification is in
addition to any other rights of indemnification to which such persons may be
entitled under the Company's by-laws, any agreement or notice of shareholders or
disinterested directors.
The Company's By-laws provide that the Company shall indemnify its
directors, and officers, employees and other agents for certain expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
by any such person in any action or proceeding, including any action by or in
the right of the Company, arising out of such person's services as a director,
officer, employee or agent of the Company if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Company or any other company or enterprise to which such person
provides services at the request of the Company. The Company's By-laws also
permit it to secure insurance on behalf of any director, officer, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the By-laws would permit indemnification. The
Company does not have any separate indemnification agreements with its directors
or officers.
The description of Nevada law is not intended to be complete. The
description of the Company's Article of Incorporation and its By-laws is not
intended to be complete and is respectively qualified in its entirety by such
Articles and By-laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions and the Representative's non-accountable expense
allowance) expected to be incurred in connection with the offering described in
this Registration Statement. All amounts are estimated except the SEC
Registration Fee and the NASD Fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee....................................................... $ 10,059.71
NASD Fee................................................................... 3,417.32
Chicago Stock Exchange Listing Fee......................................... 30,000.00
Printing and Engraving Costs............................................... 50,000.00
Accounting Fees and Expenses............................................... 85,000.00
Legal Fees and Expenses.................................................... 150,000.00
Blue Sky Fees and Expenses................................................. 20,000.00
Transfer Agent and Registrar Fees and Expenses............................. 7,500.00
Miscellaneous.............................................................. 52,498.97
Total.................................................................... $408,476.00
</TABLE>
All of the listed expenses of this offering will be paid by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
II-1
<PAGE>
ITEM 27. EXHIBITS.
See Exhibit Index E-1 which is incorporated herein by reference.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "SECURITIES ACT") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the provisions
described in Item 24, 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 Securities 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 of 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 Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, 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 together, represent a fundamental change in the
information in the registration statement.
(iii) Include any additional or changed material information on the
plan of dissolution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time 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.
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act,
the Registrant will treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part of
this registration statement as of the time the Commission declares it
effective.
For purposes of determining any liability under the Securities Act,
the Registrant will treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the securities
offered in this registration statement, and that offering of the securities
at that time as the initial bona fide offering of those securities.
The 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 underwriter to permit prompt delivery to each
purchaser.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the City of Chicago,
State of Illinois, on November 8, 1996.
VITA FOOD PRODUCTS, INC.
By: /s/ STEPHEN D. RUBIN
STEPHEN D. RUBIN
PRESIDENT
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the following
capacities on November 8, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C>
/s/ STEPHEN D. RUBIN Director and President
STEPHEN D. RUBIN (Principal Executive Officer)
/s/ CLARK L. FELDMAN Director, Executive Vice President and Secretary
CLARK L. FELDMAN
/s/ JAY H. DEMBSKY Vice President, Chief Financial Officer
JAY H. DEMBSKY and Treasurer (Principal Financial
and Accounting Officer)
/s/ SAM GORENSTEIN* Director
SAM GORENSTEIN
/s/ NEIL JANSEN* Director
NEIL JANSEN
/s/ MICHAEL HORN* Director
MICHAEL HORN
/s/ JEFFREY C. RUBENSTEIN* Director
JEFFREY C. RUBENSTEIN
* By: /s/ Stephen D. Rubin
STEPHEN D. RUBIN
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<S> <C> <C>
1.1 Form of Underwriting Agreement
2.1 Plan of Merger
3.1 Articles of Incorporation of the Company
3.2 By-laws of the Company
4.1 Form of Common Stock Certificate
4.2 Form of Representatives' Warrant Agreement between the Company and National
Securities Corporation and [Representative], as representative of the several
Underwriters (the "Representatives"), including Form of Representatives'
Warrant
*4.3 Form of Warrant Agreement between the Company and American Stock Transfer &
Trust Company and the Representative, including form of Warrant Certificate
*5.1 Opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
10.1 Voting Agreement dated as of February 26, 1990 by and between Sam Gorenstein
and J.B.F. Enterprises as first parties, and Stephen D. Rubin, Clark L.
Feldman and V-F Acquisition, Inc., as second parties
10.2 Settlement Agreement and General Release dated as of February 26, 1990
executed by David Gorenstein, Sam Gorenstein and Sid Gorenstein; by officers
and directors of the Company; by Stephen D. Rubin for Herring Haven
Investments, Inc.; by Stephen D. Rubin for V-F Acquisition, Inc.; and by
Herring Haven Investments, Inc. and Stephen D. Rubin for Herring Investments,
Ltd.
10.3 Loan and Security Agreement dated as of March 20, 1995 by and between the
Company and NBD Bank, as amended
10.4 Form of 1996 Employee Stock Option Plan
10.5 Form of 1996 Stock Option Plan for Non-Employee Directors
10.6 Form of 1996 Employee Stock Purchase Plan
10.7 Form of Employment Agreement between the Company and Stephen D. Rubin
10.8 Form of Employment Agreement between the Company and Clark L. Feldman
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<S> <C> <C>
10.9 Long Term Supply/Purchase Agreement dated as of September 1, 1992 by and
between the Company and Barry's Limited
10.10 Exclusive Distributorship Agreement dated as of December 1, 1994 by and
between the Company and Brookside Products, Ltd.
10.11 Agreement dated as of May 1, 1994 by and between the Company and Local 546,
United Food & Commercial Workers International Union, AFL-CIO
10.12 Agreement dated as of April 1, 1994 by and between the Company and the
International Union of Operating Engineers Local 399, AFL-CIO
10.13 Subordinated Participation Agreement dated as of July 10, 1995 by and between
NBD Bank and Stephen D. Rubin
10.14 Subordinated Participation Agreement dated as of July 10, 1995 by and between
NBD Bank and Clark L. Feldman
10.15 Subordinated Participation Agreement dated as of July 10, 1995 by and between
NBD Bank and Jeffrey Rubenstein
10.16 Subordinated Participation Agreement dated as of July 10, 1995 by and between
NBD Bank and Edward Levine
10.17 Subordinated Participation Agreement dated as of July 10, 1995 by and between
NBD Bank and James M. Rubin
10.18 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Stephen D. Rubin and delivered to NBD Bank.
10.19 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Clark L. Feldman and delivered to NBD Bank.
10.20 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Jeffrey Rubenstein and delivered to NBD Bank.
10.21 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Sam Gorenstein and delivered to NBD Bank
10.22 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and David Gorenstein and delivered to NBD Bank.
10.23 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Edward Levine and delivered to NBD Bank
<PAGE>
10.24 Requirements Manufacturing and Co-Packing Agreement dated as of August 30,
1996 by and between the Company and Cedar's Mediterranean Foods, Inc.
10.25 401(k) Profit Sharing Plan and Trust
*10.26 Gorenstein Agreement dated September 20, 1996 by and among the Company,
Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein, David Gorenstein and
J.B.F. Enterprises
*10.27 Commitment Letter dated November 8, 1996 from American National Bank and Trust
Company of Chicago agreeing to extend the maturity date of the Company's Bank
Credit Facilities until April 30, 1998
*23.1 Consent of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
(included as part of Exhibit 5.1)
*23.2 Consent of BDO Seidman, LLP
24.1 Power of Attorney (included on page S-4 of the Registration Statement on Form
SB-2)
*99.1 Consent of Steven A. Rothstein to serve as a director of Vita Food Products,
Inc.
</TABLE>
* Filed herewith, exhibits not marked with an asterisk were filed as part of the
Form SB-2 Registration Statement (File No. 333-5738) filed with the Securities
and Exchange Commission on September 23, 1996.
<PAGE>
VITA FOOD PRODUCTS, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
AND
NATIONAL SECURITIES CORPORATION
-----------------------
WARRANT AGREEMENT
Dated as of November ____, 1996
<PAGE>
AGREEMENT, dated this ___ day of _______, 1996, by and among VITA FOOD
PRODUCTS, INC., a Nevada corporation (the "Company"), AMERICAN STOCK TRANSFER &
TRUST COMPANY, a New York corporation, as Warrant Agent (the "Warrant Agent"),
and NATIONAL SECURITIES CORPORATION, its successors and assigns ("National" or
the "Representative").
W I T N E S S E T H:
WHEREAS, in connection with (i) the Company's offering to the public of
1,150,000 shares of Common Stock (as defined in Section 1), and 1,150,000
redeemable common stock purchase warrants (the "Warrants"), each warrant
entitling the holder thereof to purchase one additional share of Common Stock;
(ii) the over-allotment option to purchase up to an additional 172,500 shares of
Common Stock and/or 172,500 Warrants (the "Over-allotment Option"); and (iii)
the sale to National of warrants (the "Representative's Warrants") to purchase
up to 115,000 shares of Common Stock and/or 115,000 Warrants, the Company will
issue up to 1,437,500 Warrants; and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the Warrants
and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, National, the
holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "CHX" shall mean the Chicago Stock Exchange.
(c) "Common Stock" shall mean the authorized stock of the Company of
any class, whether now or hereafter authorized, which has the right to
participate in the voting and in the distribution of earnings and assets of the
Company without limit as to amount or percentage which at the date hereof
consists of 2,950,000 shares of Common Stock, par value $.01 per share.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its business in New York, New
York, shall be administered, which office is located on the date hereof c/o
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
<PAGE>
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant
Agent shall have received both (i) the Warrant Certificate representing such
Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment
in cash or by official bank or certified check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Exercise Price (as hereinafter
defined) in good funds.
(h) "Exercise Price" shall mean, subject to modification and
adjustment as provided in Section 8, $______ per share [150% of the initial
public offering price per share] and further subject to the Company's
right, in its sole discretion, to decrease the Exercise Price for a period of
not less than 30 days on not less than 30 days' prior written notice to the
Registered Holders and National.
(i) "Initial Warrant Exercise Date" shall mean ______ [the date
12 months after the date of Prospectus].
(j) "Initial Warrant Redemption Date" shall mean _____ [the date
18 months after the date of the Prospectus].
(k) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(l)"Redemption Date" shall mean the date (which may not occur before
the Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
(m) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.01 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof.
(n) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(o) "Representative's Warrant Agreement" shall mean the agreement dated
as of __________, 1996 between the Company and National relating to and
governing the terms and provisions of the Representative's Warrants.
(p) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting agreement
dated _________, 1996 between the Company and the several underwriters listed
therein relating to the purchase for resale to the public of 1,150,000 shares of
Common Stock and 1,150,000 Warrants.
(r) "Warrant Certificate" shall mean a certificate representing each of
the Warrants substantially in the form annexed hereto as Exhibit A.
2
<PAGE>
(s) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New York
time), on ___________ [5 years from the date of the Prospectus], or the
Redemption Date as defined herein, whichever date is earlier; PROVIDED that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (New York time) on the next following
day which, in the State of New York, is not a holiday or a day on which banks
are authorized to close. Upon five business days' prior written notice to the
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Exercise Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof in accordance with the
terms hereof, subject to modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold pursuant to the Underwriting Agreement (subject to
modification and adjustment as provided in Section 8) shall be executed by the
Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as provided therein,
Warrant Certificates representing all or a portion of 115,000 Warrants to
purchase up to an aggregate of 115,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8 hereof and in the
Representative's Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary.
(d) From time to time, up to the Warrant Expiration Date or the
Redemption Date, whichever date is earlier, the Warrant Agent shall countersign
and deliver Warrant Certificates in required denominations of one or whole
number multiples thereof to the person entitled thereto in connection with any
transfer or exchange permitted under this Agreement. Except as provided herein,
no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder and those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants held by the
exercising Registered Holder, (ii) Warrant Certificates issued upon any transfer
or exchange of Warrants, (iii) Warrant Certificates issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7,
(iv) Warrant Certificates issued pursuant to the Representative's Warrant
Agreement, and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Exercise Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be
3
<PAGE>
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter "W" on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Chief Executive Officer, President or any Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In any case any
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be such officer of the Company before the date of issuance of the
Warrant Certificates or before countersignature by the Warrant Agent and issue
and delivery thereof, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the same force and
effect as though the person who signed such Warrant Certificates had not ceased
to be such officer of the Company. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder promptly and without further action by the Company, except as otherwise
provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof
may be exercised by the Registered Holder thereof commencing at any time on or
after the Initial Warrant Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder, upon exercise thereof, as of the close
of business on the Exercise Date. If Warrants in denominations other than whole
number multiples thereof shall be exercised at one time by the same Registered
Holder, the number of full shares of Common Stock which shall be issuable upon
exercise thereof shall be computed on the basis of the aggregate number of full
shares of Common Stock issuable upon such exercise. As soon as practicable on or
after the Exercise Date and in any event within five business days after such
date, if one or more Warrants have been exercised, the Warrant Agent on behalf
of the Company shall cause to be issued to the person or persons entitled to
receive the same a Common Stock certificate or certificates for the shares of
Common Stock deliverable upon such exercise, and the Warrant Agent shall deliver
the same to the person or persons entitled thereto. Upon the exercise of any one
or more Warrants, the Warrant Agent shall promptly notify the Company in writing
of such fact and of the number of securities delivered upon such exercise and,
subject to subsection (b) below, shall cause all payments of an amount in cash
or by check made payable to the order of the Company, equal to the Exercise
Price, to be deposited promptly in the Company's bank account.
(b) The Company shall engage National as a Warrant solicitation agent,
and, at any time upon the exercise of any Warrants after one year from the date
hereof, the Company shall instruct the Warrant Agent to, and the Warrant Agent
shall, on a daily basis, within two business days after such exercise, notify
National of the exercise of any such Warrants and
4
<PAGE>
shall, on a weekly basis (subject to collection of funds constituting the
tendered Exercise Price, but in no event later than five business days after the
last day of the calendar week in which such funds were tendered), remit to
National an amount equal to three percent (3%) of the Exercise Price of such
Warrants then being exercised unless National shall have notified the Warrant
Agent that the payment of such amount with respect to such Warrant is violative
of the General Rules and Regulations promulgated under the Exchange Act, or the
rules and regulations of the NASD or applicable state securities or "blue sky"
laws, or the Warrants are those underlying the Representative's Warrants in
which event, the Warrant Agent shall have to pay such amount to the Company;
provided, that, the Warrant Agent shall not be obligated to pay any amounts
pursuant to this Section 4(b) during any week that such amounts payable are less
than $1,000 and the Warrant Agent's obligation to make such payments shall be
suspended until the amount payable aggregates $1,000, and provided further,
that, in any event, any such payment (regardless of amount) shall be made not
less frequently than monthly. Notwithstanding the foregoing, National shall be
entitled to receive the commission contemplated by this Section 4(b) as Warrant
solicitation agent only if: (i) National has provided actual services in
connection with the solicitation of the exercise of a Warrant by a Registered
Holder and (ii) the Registered Holder exercising a Warrant affirmatively
designates in writing on the exercise form on the reverse side of the Warrant
Certificate that the exercise of such Registered Holder's Warrant was
solicited by National.
(c) The Company shall not be required to issue fractional shares on the
exercise of Warrants. Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares. If
one or more Warrants shall be presented for exercise in full at the same time by
the same Registered Holder, the number of whole shares which shall be issuable
upon such exercise thereof shall be computed on the basis of the aggregate
number of shares purchasable on exercise of the Warrants presented. If any
fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed or admitted to unlisted
trading privileges on one or more national securities exchanges and/or is quoted
through the Nasdaq Stock Market, the current market value of a share of Common
Stock shall be the closing sale price of the Common Stock at the end of the
regular trading session on the last business day prior to the date of exercise
of the Warrants on whichever of such exchanges or stock market had the highest
daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange and is not quoted through
the Nasdaq Stock Market, but is traded in the over-the-counter market, the
current market value of a share of Common Stock shall be the average of the last
reported bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. (or any successor) on the last business day prior to the
date of exercise of the Warrants; or
(3) If neither clause (1) nor clause (2) immediately above is
applicable, the current market value of a share of Common Stock shall be an
amount, not less than the book value thereof as of the end of the most recently
completed fiscal quarter of the Company ending prior to the date of exercise,
determined by the Board of Directors of the Company exercising good faith and
using customary valuation methods.
5
<PAGE>
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery thereof, be duly and validly issued and
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each securities exchange, if any, on
which the other shares of outstanding Common Stock of the Company are then
listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment, use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except, if
in the opinion of counsel to the Company, such registration is not required
under the federal securities law or if the Company receives a letter from the
staff of the Commission stating that it would not take any enforcement action if
such registration is not effected). The Company will use its best efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws with respect to any such securities. However, Warrants may not be exercised
by, or shares of Common Stock issued to, any Registered Holder in any state in
which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
6
<PAGE>
(b) The Warrant Agent shall keep, at its office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with customary
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented for registration
of transfer, or for exchange or exercise, the subscription or exercise form, as
the case may be, on the reverse thereof shall be duly endorsed or be accompanied
by a written instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder thereof or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
shall be promptly canceled by the Warrant Agent and thereafter retained by the
Warrant Agent until termination of this Agreement.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or the
Warrant Agent that a new Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Exercise Price and Number of Shares of Common
Stock Purchasable. The Exercise Price in effect at any time and the number of
shares of Common Stock purchasable upon the exercise of the Warrants shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) Dividend, Subdivision and Combination. In case the Company shall
(i) declare a dividend or make a distribution on its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the record
7
<PAGE>
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(b) Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
shares of Common Stock issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest number of whole shares of
Common Stock by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of the applicable shares of
Common Stock issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
(c) Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Articles of Incorporation of the Company, or (ii) any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value.
(d) Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to each Registered Holder a supplemental
warrant agreement providing that the Registered Holder of each Warrant then
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger to which the Registered Holder would have been entitled
if the Registered Holder had exercised such Warrant immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(e) Post Adjustment Certificate. After each adjustment of the Exercise
Price pursuant to this Section 8, the Company will promptly prepare a
certificate signed by the Chairman, Chief Executive Officer or President, and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of the Company setting forth: (i) the Exercise Price as so adjusted,
(ii) the number of shares of Common Stock purchasable upon exercise of each
Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each Registered Holder at his last address as it shall
appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated herein.
8
<PAGE>
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made:
(i) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon exercise of the Warrants;
(ii) Upon the issuance or sale of Common Stock (or any other
security convertible, exercisable, or exchangeable into shares of Common Stock)
upon the direct or indirect conversion, exercise, or exchange of any options,
rights, warrants, or other securities or indebtedness of the Company outstanding
as of the date of this Agreement or granted pursuant to any stock option plan of
the Company in existence as of the date of this Agreement, pursuant to the terms
thereof, or issued pursuant to a stock purchase plan of the Company in existence
as of the date of this Agreement, pursuant to the terms thereof, or
(iii) If the amount of said adjustment shall be less than ten
cents ($.10) per share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to at least ten
cents ($.10) per share.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may,
on 30 days' prior written notice, redeem all the Warrants at one cent ($0.01)
per Warrant, PROVIDED, HOWEVER, that before any such call for redemption of
Warrants can take place, the average closing bid price for the Common Stock as
reported by the CHX, if the Common Stock is then traded on the CHX (or the
average closing sale price, if the Common Stock is then traded on any other
exchange or any Nasdaq Market) shall have equaled or exceeded $_____ per share
[200% of the initial public offering price per share of Common Stock] (the
"Minimum Price") 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 on
which the notice contemplated by (b) and (c) below is given. In the event that
at any time, or from time to time, the Exercise Price is adjusted pursuant to
Section 8, and if National gives its prior written consent to the giving of the
notice of redemption and the proposed redemption, then the Minimum Price shall
be adjusted by a corresponding percentage (e.g., if the Exercise Price is
increased by 50% the Minimum Price shall be increased by 50%, and if the
Exercise Price is decreased by 50% the Minimum Price shall be decreased by 50%).
(b) In case the Company shall exercise its right to redeem all of the
Warrants, it shall give or cause to be given notice to the Registered Holders of
the Warrants, by mailing to such Registered Holders a notice of redemption,
first class, postage prepaid, at their last address as shall appear on the
records of the Warrant Agent. Any notice mailed in the manner provide herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to National a
similar notice telephonically and confirmed in writing and assuming National is
engaged as a Warrant solicitation agent, the Company shall also deliver or cause
to be delivered to National a list of the Registered Holders (including their
respective addresses and number of Warrants beneficially owned) to whom such
notice of redemption has been or will be given.
9
<PAGE>
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the Redemption Date, which shall in no event be less than thirty (30) days
after the date of mailing of such notice, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, (iv) that
National shall receive the commission contemplated by Section 4(b) hereof if
they comply with that Section, and (v) that the right to exercise the Warrant
shall terminate at 5:00 p.m. (New York time) on the business day immediately
preceding the date fixed for redemption. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was not
mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or
the Secretary or Assistant Secretary of the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New
York time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) If National acts as the Warrant solicitation agent for the Company,
the Company shall indemnify National and each person, if any, who controls
National within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which any of them may become subject under the
Act, the Exchange Act or otherwise, arising from the registration statement or
prospectus referred to in Section 5(b) hereof to the same extent and with the
same effect (including the provisions regarding contribution) as the provisions
pursuant to which the Company has agreed to indemnify National contained in
Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall
furnish to National, as Warrant solicitation agent, (i) an opinion of counsel to
the Company, dated such date and addressed to National, and (ii) a "cold
comfort" letter dated such date addressed to National, signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company and National, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Exercise Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent
10
<PAGE>
of any such adjustments, when made, or with respect to the method employed in
making the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence, bad faith or
willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company or for National) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board of Directors, Chief Executive Officer, President or
any Vice President (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand reasonably believed by it to be
genuine.
(e) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities relating to any
period prior to such resignation or resulting as a result of the Warrant Agent's
own negligence, bad faith or willful misconduct), after giving 30 days' prior
written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint in writing
a new warrant agent. If the Company shall fail to make such appointment within a
period of 15 days after it has been notified in writing of such resignation by
the resigning Warrant Agent, then the Registered Holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the appointment
of a new warrant agent. Any new warrant agent, whether appointed by the Company
or by such a court, shall be a bank or trust company having a capital and
surplus, as shown by its last published report to its stockholders, of not less
than $10,000,000 or a stock transfer company. After acceptance in writing of
such appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(f) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust or stock transfer
business of the Warrant Agent or any new warrant agent shall be a successor
warrant agent under this Agreement without any further act, provided that such
11
<PAGE>
corporation is eligible for appointment as successor to the Warrant Agent under
the provisions of the preceding paragraph. Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed to
the Company and to the Registered Holders of each Warrant Certificate.
(g) The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall retain for a period of two years from the
date of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement. The Warrant Agent and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
PROVIDED, HOWEVER, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders representing not less than 66-2/3% of the Warrants then
outstanding; PROVIDED, FURTHER, that no change in the number or nature of the
securities purchasable upon the exercise of any Warrant, or increases in the
Exercise Price therefor or acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed. In addition,
this Agreement may not be modified, amended or supplemented without the prior
written consent of National, other than to cure any ambiguity or to correct any
provision which is inconsistent with any other provision of this Agreement or to
make any such change that is necessary or desirable and which shall not
adversely affect the interests of National and except as may be required by law.
SECTION 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first-class registered or certified mail, postage
prepaid, as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company at Vita Food Products, Inc., 2222 West Lake
Street, Chicago, Illinois 60612, Attention: President, or at such other address
as may have been furnished to the Warrant Agent in writing by the Company; and
if to the Warrant Agent, at 40 Wall Street, New York, New York 10005, or to such
other address as may have been furnished to the Company in writing by the
Warrant Agent. Copies of any notice delivered pursuant to this Agreement shall
also be delivered to National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154-1100, Attention: General Counsel, or at such
other address as may have been furnished to the Company and the Warrant Agent in
writing.
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without giving
effect to conflicts of laws.
12
<PAGE>
SECTION 14. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, National, the Warrant Agent and their
respective successors and assigns and the holders from time to time of Warrant
Certificates or any of them. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 15. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all of the Warrants or such earlier date upon
which all Warrants have been exercised or redeemed, except that the Warrant
Agent shall account to the Company for cash held by it and the provisions of
Section 10 hereof shall survive such termination.
SECTION 16. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the first date first above written.
VITA FOOD PRODUCTS, INC.
By:
--------------------------------------------------------
Name:
--------------------------------------------------------
Title:
--------------------------------------------------------
AMERICAN STOCK TRANSFER &
TRUST COMPANY,
as Warrant Agent
By:
--------------------------------------------------------
NATIONAL SECURITIES
CORPORATION, INC.
By:
--------------------------------------------------------
Name: Steven A. Rothstein
--------------------------------------------------------
Title: Chairman
--------------------------------------------------------
13
<PAGE>
EXHIBIT A
No. W _______ VOID AFTER DECEMBER ___, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
VITA FOOD PRODUCTS, INC.
CUSIP # __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or its registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share, of Vita Food Products, Inc. (the "Company"), at any time between
December __, 1997 [one year after the date of the Prospectus] (the "Initial
Warrant Exercise Date"), and the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $_____ per share [150% of the initial public
offering price per share], subject to adjustment (the "Exercise Price"), in
lawful money of the United States of America in cash or by check made payable to
the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
December ___ 1996 [the date of the Prospectus], by and among the Company,
National Securities Corporation ("National") and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional interests will be issued. In the
case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York
time) on the date which is four (4) years after the Initial Warrant Exercise
Date. If such date shall in the State of New York be a holiday or a day on which
the banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act'), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment for registration of
transfer of this Warrant Certificate at such office and payment of any tax or
other charge imposed in connection therewith or incident thereto, a new Warrant
Certificate or Warrant Certificates representing an equal aggregate number of
Warrants will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$0.01 per Warrant, at any time commencing after _______________ [the date 18
months from the date of the Prospectus], provided that the average closing bid
price for the Common Stock shall have equaled or exceeded $_____ 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 Notice of Redemption, as
defined below (subject to adjustment in the event of any stock splits or other
similar events as provided in the Warrant Agreement). Notice of redemption (the
"Notice of Redemption") shall be given not later than the thirtieth day before
the date fixed for redemption as provided in the Warrant Agreement. On and after
the date fixed for redemption, the Registered Holder shall have no rights with
respect to the Warrants except to receive the $0.01 per Warrant upon surrender
of this Warrant Certificate.
Upon certain circumstances, National may be entitled to
receive, as a Warrant solicitation fee, an aggregate of three percent (3%) of
the Exercise Price of the Warrants represented hereby.
2
<PAGE>
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Illinois without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated:
[SEAL] VITA FOOD PRODUCTS, INC.
By:
----------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
By:
----------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
COUNTERSIGNED:
AMERICAN STOCK TRANSFER &
TRUST COMPANY,
- --------------------------------
as Warrant Agent
By:-----------------------------
Authorized Officer
3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
- --------------- Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
(please print or type name and address)
and be delivered to
------------------------------------------
------------------------------------------
------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registrant Holder
at the address stated below.
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by National
Securities Corporation [ ]
2. The exercise of this Warrant was solicited by
__________________________. [ ]
3. The exercise of this Warrant was not solicited. [ ]
Dated: ---------------- ----------------------------------
----------------------------------
----------------------------------
Address
---------------------------------
Social Security or Taxpayer
Identification Number
---------------------------------
Signature Guaranteed
---------------------------------
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ---------------------, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
- --------------------------- of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints -------------------
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:____________________
----------------------------------
Signature Guaranteed
----------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND
MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15.
November __, 1996
National Securities Corporation
As Representative of the
Several Underwriters
c/o National Securities Corporation
Suite 1560
875 North Michigan Avenue
Chicago, Illinois 60611
Ladies and Gentlemen:
We have acted as counsel for Vita Food Products, Inc. (the "Company")
and have represented the Company in connection with the sale to you and the
other Underwriters named in Schedule A (the "Underwriters") to that certain
Underwriting Agreement dated December __, 1996 between the Company and you, as
representative of such Underwriters, and the registration on Form SB-2 under the
Securities Act of 1993, as amended, File No. 333-5738 (the "Registration
Statement") of an aggregate of 1,000,000 shares (the "Firm Shares") of the
Company's common stock, $.01 par value (the "Common Stock") and 1,000,000
Redeemable Common Stock Purchase Warrants (the "Firm Warrants"), and up to an
additional 150,000 shares of Common Stock (the "Option Shares") and up to
150,000 Redeemable Common Stock Purchase Warrants (the "Option Warrants")
pursuant to an overallotment option, and 100,000 Representative Warrants ( the
"Representative Warrants") and 100,000 Warrants Underlying Representative
Warrants. The Firm Shares and the Option Shares are referred to herein
collectively as the "Shares," the Firm Warrants and the Option Warrants are
referred to herein collectively as the "Warrants." All capitalized terms used
herein and not otherwise defined herein have the meanings ascribed thereto in
the Registration Statement.
As counsel for the Company, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including: (a) the Articles of
Incorporation, as amended; (b) the By-laws of the Company, as amended; (c)
various corporate records and proceedings relating to the organization of the
<PAGE>
National Securities Corporation
November __, 1996
Page Two
Company and the issuance of the Shares and Warrants; and (d) a specimen
certificate representing the Shares and the Warrants.
Based upon the foregoing, we are of the opinion that the Shares, the
Warrants and the Representative Warrants will, when delivered and sold in
accordance with the Underwriting Agreement and the terms and conditions set
forth in the Registration Statement, be duly authorized and validly issued and
be fully-paid and non-assessable. We are furnishing this opinion solely for the
benefit of the Company. This opinion may not be relied upon by any other person
or for any other purpose, or used, circulated, quoted or otherwise referred to
for any other purpose.
We consent to the use of this opinion as an Exhibit to the Registration
Statement, and we consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
We express no opinion as to any law other than the law of the State of
Nevada and, to the extent applicable, of the United States.
This opinion is (a) limited to matters stated herein and no opinion may
be inferred beyond the matters expressly stated, (b) given as of the date hereof
and with the express understanding that we have no obligation to advise you or
any of your successors or assigns of changes in law or fact subsequent to the
date hereof, even though such changes may affect the opinions expressed herein,
and (c) rendered to you solely in connection with the subject transaction and
may not be relied upon by you or any other person for any other purposes.
Very truly yours,
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
By: ______________________________
Michael J. Gamsky
MJG/df
GORENSTEIN AGREEMENT
This Gorenstein Agreement (the "Agreement") is made this 20th day of
September, 1996 by and among Vita Food Products, Inc., a Nevada Corporation (the
"Company"), Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein, David
Gorenstein and J.B.F. Enterprises.
RECITALS:
A. The Company is endeavoring to raise capital for its business through
an initial public offering of the common stock of the Company (the "IPO").
B. National Securities Corporation ("National") is acting as the
managing underwriter for the IPO.
C. In connection with the IPO, National has requested and the
Company desires that the Settlement Agreement (as defined in paragraph 4 below)
entered into among the parties hereto, and certain other parties, be terminated
and that the Gorensteins (as defined in paragraph 3) waive any and all
dissenters' rights or appraisal rights in connection with the Reincorporation
Merger (as defined in paragraph 4). In return for the Gorensteins' agreement to
terminate the Settlement Agreement and waive any and all dissenters' rights or
appraisal rights, the Company, Stephen D. Rubin and Clark L. Feldman will agree
to take the actions described in paragraphs 1, 2 and 3 below.
D. On September 20, 1996, the Company reincorporated in the State of
Nevada through a merger of Vita Food Products, Inc., an Illinois corporation
("Vita-Illinois"), and V-F Acquisition, Inc., an Illinois corporation that was
the largest shareholder of Vita-Illinois ("V-F Acquisition"), into the Company,
a Nevada corporation formed for purposes of effecting the reincorporation (the
"Reincorporation Merger").
In consideration of the preceding, the parties agree as follows:
1. As of the closing date of the IPO, Stephen D. Rubin ("Rubin"), Clark
L. Feldman ("Feldman"), Jeffrey C. Rubenstein ("Rubenstein") and James Rubin
will vote all of the shares of common stock of the Company which they
beneficially own which beneficial ownership currently is
1,245,202, shares, 622,303 shares, 88,661 shares and 282,870 shares,
respectively, and each of Rubin, Feldman, Rubenstein and James Rubin will cause
all members of his "Family" (defined below) who own any such shares of common
stock of the Company hereafter acquired from Rubin, Feldman, Rubenstein or James
Rubin, to vote all such shares for the election of Sam Gorenstein (or, if he is
unable to serve due to death or extended disability, David Gorenstein) as a
director of the Company for a period ending on the third anniversary of the
closing date of the IPO (the "Three Year Period"). The Company agrees that for
the Three Year Period, it will cause Sam Gorenstein (or, if he is unable to
serve due to death or extended disability, David Gorenstein) to be nominated
to the Company's Board of Directors, subject to the Board of Directors'
fiduciary duty. The Company also agrees that for the Three Year Period, it
will cause Sam Gorenstein (or, if he is unable to serve due to death or
permanent disability, David Gorenstein) to be appointed to the Compensation
Committee and the Audit Committee, subject to the Board of Directors' fiduciary
duty. As used in this
1
<PAGE>
Agreement, the term "Family" shall mean with respect to any natural person,
such person's spouse, brother, sister, parent or child or any descendant or
spouse (or spouse of any descendant) of any of the foregoing, or a trustee of a
trust primarily for the benefit of, or a custodian under the Uniform Transfers
to Minors Act or corresponding statute of any state for one or more of, the
foregoing or such person.
2. The Company will promptly pay and/or reimburse the Gorensteins for
the legal fees and costs incurred by Sam Gorenstein, David Gorenstein and J.B.F.
Enterprises in connection with the preparation and review of this Agreement and
their review of the registration statement and related documents prepared in
connection with the IPO in the amount reflected in the billing records of
Altheimer & Gray (which the Gorensteins agree to deliver to the Company) in an
aggregate amount not to exceed $20,000.00.
3. Effective upon the closing date of the IPO, Tthe Company will grant
"piggyback" registration rights to Mr. Sam Gorenstein, David Gorenstein and
J.B.F. Enterprises (collectively, the "Gorensteins") as provided in the
Registration Agreement attached hereto as Exhibit "A".
4. As of the closing date of the IPO and conditional on such closing,
the Gorensteins agree that the Settlement Agreement and General Release (the
"Settlement Agreement") entered into by David Gorenstein, Sam Gorenstein,
Sid Gorenstein and J.B.F. Enterprises with the Company, Stephen Rubin, Clark
Feldman, Jeffrey Rubenstein, Neal Jansen ("Jansen"), Michael Horn ("Horn") and
V-F Acquisition on February 26, 1990 will be terminated and no longer of any
force or effect. As of the date hereof and not conditional on the closing of
the IPO, the Gorensteins hereby withdraw the notification of exercise of
dissenters' rights under Sections 11.65 or 11.70 of the Illinois Business
Corporation Act of 1983, as amended ("IBCA"), dated October 1, 1996, and the
Company accepts such withdrawal. As of the date hereof and not conditional on
the closing of the IPO, the Gorensteins agree not to take any further actions
under Sections 11.65 or 11.70 of the IBCA to perfect or exercise their right
to dissent and also waive any and all dissenters' rights or appraisal rights
they may have as a result of the Reincorporation Merger.
5. This Agreement will terminate and will no longer be of any force or
effect (except for the agreement to (i) pay and/or reimburse the legal fees and
costs set forth in Paragraph 2, (ii) withdraw the notification of exercise of
dissenters' rights set forth in Paragraph 4, (iii) not to take any further
actions to perfect or exercise dissenters' rights the Gorensteins may have as a
result of the Reincorporation Merger set forth in Paragraph 4, and (iv) waive
any and all dissenters' rights or appraisal rights the Gorensteins may have as a
result of the Reincorporation Merger set forth in Paragraph 4) if the Company
does not complete the IPO by March 31, 1997.
6. As of the closing date of the IPO, the Gorensteins, the Company,
Rubin, Feldman, Rubenstein, Jansen, Horn and V-F Acquisition hereby release and
discharge each of the others and each of their respective predecessors and
successors and all of their respective past and present employees, officers,
directors, stockholders, agents, attorneys, subsidiaries, affiliates and parent
corporations from any and all claims or causes of action known or unknown, which
any of such parties have or may have had from the beginning of time through the
date of this Agreement against any of the other parties arising out of the
Settlement Agreement or the Voting Agreement dated February 26, 1990
required by the Settlement Agreement.
2
<PAGE>
7. This Agreement constitutes the complete understanding among the
parties hereto. No alteration or modification of any of this Agreement's
provisions shall be valid unless made in a written instrument which all the
parties sign.
8. The laws of the State of Illinois shall govern all aspects of this
Agreement, irrespective of the fact that one or more of the parties now is or
may become a resident of a different state.
9. If a court of competent jurisdiction holds that any one or more of
this Agreement's provisions are invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any of
this Agreement's other provisions, and this Agreement shall be construed as if
it had never contained such invalid, illegal or unenforceable provisions.
10. This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes constitute part of one
original.
11. The Company's Board of Directors has approved this Agreement by
having each of the Company's Directors sign this Agreement as a Director of the
Company.
12. This Agreement (except Paragraph 1) shall be binding upon the
parties as well as their respective heirs, personal representatives, successors
and assigns. This Agreement shall inure to the benefit of the parties as well as
their respective heirs, personal representatives, successors and assigns.
13. In connection with the IPO, the Gorensteins agree to execute an
agreement which will provide that for a period of thirteen months after the date
of the effective date of the registration statement prepared in connection with
the IPO, they will not offer, sell grant any option for the sale or otherwise
dispose of any securities of the Company (other than intra-family transfers or
transfer to trusts for estate planning purposes or dispositions upon their
death), without the prior written consent of National, which consent may be
given without prior public notice.
VITA FOOD PRODUCTS, INC.,
a Nevada Corporation J.B.F. ENTERPRISES
By: /s/Stephen Rubin By: /s/Sam Gorenstein
---------------------------------- -------------------------------
Stephen Rubin, President Sam Gorenstein, general partner
/s/Stephen Rubin /s/Sam Gorenstein
- --------------------------------------- -------------------------------
Stephen D. Rubin, individually and as a Sam Gorenstein, individually and
Director of the Company as a Director of the Company
/s/Clark L. Feidman /s/David Gorenstein
- ---------------------------------------- -------------------------------
Clark L. Feldman, individually and as a David Gorenstein, indiviudally
Director of the Company
[Signatures continued on next page.]
3
<PAGE>
V-F ACQUISITIONS, INC., an Illinois
corporation
/s/Michael Horn
- -----------------------------------------
Michael Horn, individually and as a
Director of the Company By: /s/Stephen D. Rubin
----------------------------
Stephen D. Rubin, President
/s/Neal Jansen
- -----------------------------------------
Neal Jansen, individually and as a
Director of the Company
/s/Jeffrey C. Rubenstein
- -----------------------------------------
Jeffrey C. Rubenstein, individually and
as a Director of the Company
/s/James Rubin
- -----------------------------------------
James Rubin, individually
4
<PAGE>
EXHIBIT A
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this "Agreement"), dated September 20,
1996, is by and among VITA FOOD PRODUCTS, INC. a Nevada corporation (the
"Corporation"), and Sam Gorenstein, David Gorenstein and J.B.F. Enterprises, an
Illinois general partnership.
RECITAL
A. Pursuant to the Gorenstein Agreement dated September 20, 1996, the
Corporation, Sam Gorenstein, David Gorenstein and J.B.F. Enterprises deem it
desirable to enter into this Agreement.
AGREEMENTS
In consideration of the recital and the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. As used in this Agreement:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Corporation, $.01 par
value per share.
"Gorensteins" mean Sam Gorenstein, David Gorenstein and J.B.F.
Enterprises and all members of their or its "Family" (defined below) who own any
shares of Common Stock of the Corporation as reflected in the Registration
Statement as being owned by Sam Gorenstein, David Gorenstein or J.B.F.
Enterprises which are hereafter acquired from the Gorensteins. As used in this
Agreement the term "Family" shall mean (a) with respect to any natural person,
such person's spouse, brother, sister, parent or child or any descendant or
spouse (or spouse of any descendant) of any of the foregoing, or a trustee of a
trust primarily for the benefit of, or a custodian under the Uniform Transfers
to Minors Act or corresponding statute of any state for one or more of the
foregoing or such person, and (b) with respect to any entity all beneficial
holders of equity interests in such entity.
"IPO" means the Corporation's initial public offering of shares of
Common Stock and Redeemable Common Stock Purchase Warrants for which National
Securities Corporation is acting as managing underwriter.
"Person" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a Joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
<PAGE>
"Registrable Shares" means the shares of Common Stock beneficially
owned by the Gorensteins.
"Registration Expenses" has the meaning ascribed to it in Section 5 of
this Agreement.
"Registration Statement" means the registration statement on Form SB-2,
as amended and supplemented, declared effective by the Commission under the
Securities Act in connection with the IPO.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever (i) the Corporation intends to sell
its securities in a primary offering pursuant to a registration statement filed
with the Commission or whenever the securities of the Corporation then issued
and outstanding are to be registered under the Securities Act but not including
the sale of the Corporation's securities pursuant to a registration statement
that the Corporation is required to, or has undertaken to, file in connection
with the IPO including, but not limited to, the registration statements required
to be filed to register the shares of Common Stock subject to the Warrants, the
Representative's Warrants and the Warrants underlying the Representative's
Warrants as defined in the Registration Statement (the "IPO Registrations"), or
a registration statement on Form S-8 or Form S-4, or their successors and (ii)
the registration form to be used may be used for the registration of Registrable
Shares (a "Piggyback Registration"), the Corporation will give prompt written
notice to the Gorensteins (at the address set forth in Section 14 hereof) of its
intention to effect such a registration and will include in such registration
and, if such registration is an underwritten registration, in the underwriting
agreement , subject to the terms of paragraphs (b) and (c) of this Section 2,
all of the Registrable Shares with respect to which the Corporation has received
a written request for inclusion therein within thirty (30) days after the
Corporation's notice has been given, provided, however, if no shareholders other
than the Gorensteins are participating in such registration, the Gorensteins
must request that at least 23,924 Registerable Shares be included in the
Piggyback Registration. The Corporation shall have the right to postpone or
withdraw any Piggyback Registration without obligation or liability to the
Gorensteins except for the payment of their reasonable legal fees and
disbursements incurred in connection with such Piggyback Registration pursuant
to Section 5.
(b) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Corporation, and the
managing underwriter(s) advise the Corporation that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without having a material adverse effect on
the offering, the Corporation will include in such registration (A) first, the
securities the Corporation proposes to sell, (B) second, the Registrable Shares
requested to be included therein which in the opinion of such underwriter(s)
(after taking into account the securities to be sold pursuant to clause (A)) can
be sold without having a material adverse effect on the offering and (C) third,
other securities requested to be included in such registration which in the
opinion of such underwriter(s) can be sold (after
<PAGE>
taking into account the securities to be sold pursuant to clauses (A),
and (B)) without having a material adverse effect on the offering.
(c) Priority on Secondary Registration. (i) If a Piggyback Registration
is not an underwritten primary registration on behalf of the Corporation and is
an underwritten secondary registration on behalf of holders of the Corporation's
securities who are not affiliates of the Corporation and who acquired the rights
to register their securities in connection with private placement by the
Corporation of its securities, and the managing underwriter(s) advise the
Corporation that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without having a material adverse effect on the offering, the
Corporation will include in such registration (A) first, the securities
requested to be included therein by the holders requesting such registration
which in the opinion of such underwriter(s) can be sold without having a
material adverse effect on the offering, (B) second, the Registrable Shares
requested to be included therein which in the opinion of such underwriter(s) can
be sold (after taking into account the securities to be sold pursuant to clause
(A)) without having a material adverse effect on the offering, and (C) third,
other securities requested to be included in such registration which in the
opinion of such underwriter(s) can be sold (after taking into account the
securities to be sold pursuant to clauses (A), and (B)) without having a
material adverse effect on the offering.
3. Holdback Agreements.
(a) Each of the Gorensteins agrees not to effect any public sale or
distribution of equity securities of the Corporation, including any public
sale pursuant to Rule 144 under the Securities Act, or any securities
convertible into or exchangeable or exercisable for such securities, during the
period (i) commencing seven (7) days prior to and ending thirteen (13) months
after the effective date of the IPO, or (ii) commencing seven (7) days prior to
and ending sixty (60) days after the effective date of any underwritten
Piggyback Registration in which such Holder sells Registrable Shares (except as
part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Corporation agrees not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the period commencing
seven days (7) prior to and ending sixty (60) days after the effective date of
any underwritten Piggyback Registration (except as part of such underwritten
registration or pursuant to IPO Registrations or registrations on Form S-8 or
Form S-4 or any successor form), unless the underwriter(s) managing such
offering otherwise agree
4. Registration Procedures. Whenever the Corporation proposes to
register shares of its Common Stock and Gorensteins exercise their rights to
Piggyback Registration set forth in Section 3, the Corporation will use its best
efforts to effect the registration of such Registrable Shares under the
Securities Act and pursuant thereto the Corporation will as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed three
(3) months;
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed three (3) months, and otherwise as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period;
(c) furnish the Gorensteins such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as the Gorensteins may reasonably request in order to facilitate
the disposition of the Registrable Shares;
(d) use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as the
Gorensteins reasonably request and do any and all other acts and things which
may be reasonably necessary to enable the Gorensteins to consummate the
disposition in such jurisdictions of the Registrable Shares (provided that the
Corporation will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(e) use its best efforts to cause all such Registrable Shares to be
listed on each securities exchange on which similar securities issued by the
Corporation are then listed;
(f) provide a transfer agent and registrar for all such Registrable
Shares not later than the closing date of the sale of such shares;
(g) notify the Gorensteins promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(h) notify the Gorensteins of any request by the Commission for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(i) prepare and promptly file with the Commission and promptly notify
the Gorensteins of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;
(j) advise the Gorensteins promptly after It shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding
<PAGE>
for such purpose and promptly use all reasonable efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
(k) at least forty-eight hours prior to the filing of any
registration statement or prospectus or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to the Gorensteins;
(l) provided that the Gorensteins request that at least 23,924
Registerable Shares be included in an underwritten Piggyback Registration, at
the request of the Gorensteins, furnish on the date or dates provided for in the
underwriting agreement, a signed counterpart, addressed to the Gorensteins, of
(i) an opinion of counsel, and (ii) a letter or letters from the independent
certified public accountants of the Corporation, in each case covering such
matters as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings;
and
(m) use its best efforts to make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any twelve (12) month
period (or ninety (90) days, if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registerable Shares are
sold to underwriters in an underwritten offering, or (ii) if not sold to
underwriters in such an offering, beginning with the first month of the
Corporation's first fiscal quarter commencing after the effective date of a
registration statement which includes Registerable Shares.
The Gorensteins shall furnish to the Corporation in writing such
information relating to the Gorensteins or the Registrable Shares as the
Corporation may reasonably request in connection with the preparation of a
registration statement including Registrable Shares. In addition, the
Gorensteins shall enter into and perform its obligations pursuant to any
underwriting agreement acceptable to the Gorensteins to be entered into with
respect to a registration that includes the Registrable Shares.
5. Registration Expenses. In connection with any Piggyback
Registration, the Corporation is obligated to pay Registration Expenses which
include all expenses of the Corporation incident to the Corporation's
performance of or compliance with this Agreement, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, the expenses and fees for listing the securities to be
registered on each securities exchange or other market on which any shares of
Common Stock are then listed, and fees and disbursements of counsel for the
Corporation and its independent certified public accountants, underwriters
(excluding discounts and commissions attributable to the Registrable
Shares included in such registration) and other Persons (including the
reasonable legal fees and disbursements of one counsel for the Gorensteins)
retained by the Corporation (all such expenses being herein called "Expenses"),
will be borne by the Corporation. In addition, the Corporation will pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review and the expense of any liability
insurance obtained by the Corporation.
<PAGE>
6. Indemnification.
(a) The Corporation agrees to indemnify, to the fullest extent permitted
by law, the Gorensteins, their officers and directors and each Person who
controls the Gorensteins (within the meaning of the Securities Act or the
Securities Exchange Act) against all losses, claims, damages, liabilities and
expenses (including, without limitation, reasonable attorneys' fees except as
limited by Section 6(c)) caused by any untrue or alleged untrue statement of a
material fact contained in any registration statement, any final prospectus
contained therein or any amendment thereof or supplement thereto or any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Corporation by the Gorensteins expressly for use therein or by the Gorensteins'
failure to deliver a copy of the registration statement or final prospectus or
any amendments or supplements thereto after the Corporation has furnished the
Gorensteins with a sufficient number of copies of the same.
(b) In connection with any registration statement in which the
Gorensteins are participating, the Gorensteins will furnish to the Corporation
in writing such information and affidavits as the Corporation reasonably
requests for use in connection with any such registration statement or
prospectus and, to the fullest extent permitted by law, each Gorenstein will
indemnify the Corporation, its directors and officers and each underwriter (if
any) and each Person who controls the Corporation or such underwriter (within
the meaning of the Securities Act or the Securities Exchange Act) against any
losses, claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees except as limited by Section 6(c))
resulting from any untrue or alleged untrue statement of a material fact
contained in the registration statement, final prospectus contained therein, or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any written information or affidavit so
furnished in writing by such Gorenstein expressly for use therein.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without the indemnifying party's consent (which consent
will not be unreasonably withheld). The indemnified party will not settle any
claim or liability without first providing the indemnifying party a reasonable
opportunity to assume the defense. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf
of the indemnified party
<PAGE>
or any officer, director or controlling Person of such indemnified party and
will survive the transfer of securities.
(e) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand, and the indemnified party on the other,
in connection with the statement or omission which resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant equitable
considerations. The relative fault of indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Corporation and the Gorensteins agree
that it would not be just and equitable if contributions pursuant to this
Section 6(e) were determined by pro rata allocation or by any other method of
allocation which did not take into account the equitable considerations referred
to herein. Notwithstanding the foregoing, in no event shall the Gorenstein's
liability under the indemnification agreement contained in Section 6(b) or the
amount contributed by the Gorensteins pursuant to this Section 6(e) exceed the
aggregate net offering proceeds received by the Gorensteins from the sale of the
Registerable Shares. No person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
7. Current Public Information. At all times after the Corporation has
filed a registration statement with the Commission pursuant to the requirements
of either the Securities Act or the Securities Exchange Act, the Corporation
will use its best efforts to file in a timely manner all reports and other
documents required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Commission to enable
such holders to sell Registrable Shares pursuant to Rule 144 adopted by the
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Commission.
Upon request, the Corporation shall deliver to any Holder of Registrable Shares
a written statement as to whether it has complied with such requirements.
8. Participation in Underwritten Registrations. The Gorensteins may not
participate in any registration hereunder which is underwritten unless the
Gorensteins (a) agree to sell the Registrable Shares on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (b) complete and execute all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Provided, however, that if shareholders other than the Gorensteins participate
in any registration which is underwritten and in which the Gorensteins
participate, the Gorensteins (a) shall be entitled to sell their Registerable
Securities on the same basis as the other selling shareholders as provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (b) shall be required to complete and
execute only the questionnaires, powers of attorney, indemnities, underwriting
<PAGE>
agreements and other documents required to be completed and executed by the
other selling shareholders under the terms of such underwriting arrangements.
9. Amendments and Waivers. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived at any time
only by the written agreement of the Corporation and the Gorensteins. Any
waiver, permit, consent or approval of any kind or character on the part of any
such Holders of any provision or condition of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in
writing.
10. Termination. This Agreement terminates on the earlier of (i) the
first date that the Gorensteins, in the aggregate, do not beneficially own more
than at least 23,924 Registerable Shares, or (ii) the date of the tenth
anniversary of the closing date of the IPO.
11. Final Agreement. This Agreement constitutes the final agreement of
the parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
12. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
13. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not be utilized in interpreting this Agreement.
14. Notices. Any notices required or permitted to be sent hereunder
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other addresses as shall be given by notice delivered hereunder, and
shall be deemed to have been given upon delivery, if delivered personally, three
business days after mailing, if mailed, or one business day after delivery to
the courier, if delivered by overnight courier service:
If to the Gorensteins to: J.B.F. Enterprises, 6770 North Lincoln
Avenue, Suite 200, Lincolnwood, Illinois, 60646. One notice sent to this address
constitutes notice to each of the parties defined herein as the "Gorensteins".
With a copy (which shall not constitute notice) to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Robert B. Berger
<PAGE>
If to the Corporation, to:
Vita Food Products, Inc.
2222 West Lake Street
Chicago, Illinois 60612
Attention: Stephen D. Rubin
With a copy (which shall not constitute notice) to:
Much Shelist Freed Denenberg
Ament Bell & Rubenstein, P.C.
200 North LaSalle Street
Suite 2100
Chicago, Illinois 60601
Attention: Jeffrey C. Rubenstein
15. Governing Law. All questions concerning the construction, validity
and interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois (excluding the choice of law provisions thereof).
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
17. Agreement Binding. This Agreement shall be binding upon the parties
as well as their respective heirs, personal representatives, successors and
assigns.
VITA FOOD PRODUCTS, INC.
By:-------------------------------
Stephen D. Rubin, President
J.B.F. ENTERPRISES
By:--------------------------------
Sam Gorenstein, Partner
------------------------------------
Sam Gorenstein
------------------------------------
David Gorenstein
November 8, 1996
Mr. Stephen Rubin
President
Vita Food Products, Inc.
2222 West Lake Street
Chicago, Illinois 60612
Re: Commitment for extension of maturity date of loan between
Vita Food Products, Inc. ("Company") and American National
Bank and Trust Company of Chicago, successor in interest
to NBD ("Bank")
Dear Mr. Rubin:
As you know, Vita Food Products, Inc., an Illinois corporation, and NBD
Bank entered into a loan arrangement evidenced by that certain Loan and Security
Agreement dated as of March 20, 1995 (the "Loan Agreement"), and by Ancillary
Documents. All capitalized terms used herein shall have the same meaning as
contained in the Loan Agreement. Since the date of the Loan Agreement, Vita Food
Products, Inc., an Illinois corporation, has merged into Vita Food Products,
Inc., a Nevada corporation. The Nevada corporation is the surviving entity and
the Bank has consented to this merger. In addition, American Naitonal Bank and
Trust Company of Chicago is the successor in interest to NBD Bank.
You recently requested that the Bank consider extending the maturity
date of the Loan Agreement, and based upon our discussions concerning the
Company's said request, the Bank is willing to extend the maturity date on the
following terms and conditions:
1. The Loan, and all of the Ancillary Documents, will remain in full
force and effect with the following exceptions:
A. The Maturity Date will be extended to April 30, 1998;
B. Section 10.3(L) will be amended to prohibit capital expenditures
in any fiscal year to exceed $500,000; and
C. Section 10.2(X) will be amended to require a minimum Tangible Net
Worth, as of December 31, 1996 of not less than ($750,000) plus
cumulative net cash proceeds received for the issuance of any
capital stock subsequent to the date hereof.
<PAGE>
D. The Company shall execute such documents ("Modification
Documents") as the Bank and its counsel deem necessary to
effectuate the purposes of this letter.
2. The Company will pay the Bank a fee of $35,000, payable upon the
execution of the modification documents.
3. The Company, at the time of execution of the Modification Documents,
will not be in breach of any covenants, representations or warranties contained
in the Loan Agreement or Ancillary Documents.
If the foregoing commitment is satisfactory, we ask that you execute
and return the enclosed copy of this letter no later than December 31, 1996. If
this letter is returned by said date and the transaction is not closed on or
before December 31, 1996, then this commitment shall be automatically terminated
without further action on the part of the Bank.
Sincerely,
American National Bank and Trust
Company of Chicago
/s/ Martin V. Rarick
Martin V. Rarick
Commercial Loan Officer
Agreed and accepted to this
_____ day of _______________, 1996
Vita Food Products, Inc.
By:_______________________________________
Its:______________________________________
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
VITA FOOD PRODUCTS, INC.
Chicago, Illinois
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 25, 1996, except for Note 9 as
to which the date is September 20, 1996 and Note 3(a) as to which the date is
November 8, 1996, relating to the financial statements of Vita Food Products,
Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" and
"Selected Financial Data" in the Prospectus.
BDO SEIDMAN, LLP
Chicago, Illinois
November 11, 1996
Consent to Serve as a Director of Vita Food Products, Inc.
I hereby consent to the use of my name as a director in this Registration
Statement on Form SB-2 of Vita Food Products, Inc., registration number
333-5738, as I have agreed to become a director of Vita Food Products, Inc.
effective on the closing of the offering contemplated by the Registration
Statement.
Signed this 1st day of November, 1996.
/s/ Steven A. Rothstein
- ---------------------------------
Steven A. Rothstein
