BACKGROUND.

Universal is a leading manufacturer of private label and branded nutritional supplements. Since our incorporation in 1980, Universal has emphasized the development and production of high-quality, unique products in response to emerging trends in the health and nutrition industry. Universal produces a full line of nutritional supplements and offers one of the broadest product lines in the industry with more than 500 products. Universal's product line includes sports nutrition products, diet products, low-fat candy bars, vitamins, minerals, amino acids, herbal supplements, and specialty formulas. Universal's broad product line, strong history of new product introductions and innovations, and premium product quality have established Universal as a leading manufacturer in the nutritional supplement industry.

Over the last five years, Universal has diversified our product line through internal growth, product development and selected acquisitions, including the acquisition of Alfa Candy, Nutritional Marketing and Princeton Graphics. Universal has achieved increased net sales and income every year since our founding. In particular, during the four-year period from 1993 through 1996, Universal has achieved an annual growth rate of 38 percent.

Universal's products target consumers who utilize nutritional supplements in their daily diet and who demand premium quality ingredients in a broad variety of dosages and delivery methods. Universal's private label and branded products compete in a market where the dominant competitive factors include attributes such as quality, potency and the uniqueness of the formulation.

INDUSTRY.

Based on estimates in a 1994 market report conducted by Packaged Facts (the Packaged Facts Report), an independent research firm, the retail market for vitamins, minerals and other nutritional supplements has grown at a compound annual rate of greater than 12 percent from $3.3 billion in 1991 to over $4.6 billion in 1994. The herbal supplements market has grown at a compound annual growth rate of over 10 percent since 1991 to approximately $1.1 billion in 1995. Sports nutrition products have grown 9 percent annually since 1991 to over $1.2 billion in 1994. Universal believes that these market segments will continue to experience strong growth due to recent scientific research suggesting potential health benefits from regular consumption of vitamins and other nutritional supplement products, increasing national interest in preventive health measures and favorable demographic trends that indicate increased usage of vitamins and other nutritional supplements. Furthermore, Universal's rate of sales growth has exceeded the industry's growth rate for each year during this period. Packaged Facts forecasts approximately 7 percent annual industry growth through the end of the decade in vitamins, minerals and other supplements, which Universal believes will be fueled by (i) favorable demographic trends towards older Americans, who are more likely to consume nutritional supplements; (ii) product introductions in response to new scientific research findings; (iii) the nationwide trend toward preventive medicine in response to rising health care costs; and (iv) the heightened understanding and awareness of the connection between diet and health. Moreover, although the industry has grown dramatically in recent years, there is still a large untapped domestic market as only an estimated 50 percent of Americans currently consume vitamins, minerals and herbal supplements on a regular basis.

BUSINESS STRATEGY.

Universal's strategy is to continue to work with our private label customers to enhance their leadership positions in the sale of vitamins, minerals and other nutritional supplements, while continuing to improve our overall operating efficiency and performance. Specifically, Universal seeks to:

• Manufacture High Quality Products.

Universal's recognizes the importance of offering our customers the highest product quality and broad product choices. Universal's product categories include sports nutrition, herbal formulas, energy bars, vitamins, minerals and other special formulas. Custom formulas are developed to meet our customers' specific needs. Furthermore, since quality is a critical factor in consumer purchase decisions, Universal believes that our premium quality ingredients, modern manufacturing facilities and comprehensive quality control procedures have enabled Universal to establish a competitive advantage based on the quality of our products.

• Continue to Introduce New Products and Product Innovations.

A cornerstone of Universal's success has been our ability to rapidly utilize recent scientific and medical findings in our new product development efforts. Universal has consistently been among the first in our industry to introduce new products and product innovations which anticipate and meet customer demands for newly identified nutritional supplement benefits. As part of our ongoing research and development effort, Universal maintains an extensive database, actively researches and monitors a wide variety of publications containing scientific and medical research, and supports clinical research on nutritional products. Since 1992, Universal introduced over 230 products, with over 40 new products introduced in 1997 alone.

• Build Upon Established Customer Relationships.

Universal's established relationships with customers are based upon Universal's long-standing commitment to a high level of customer service and product quality . In order to ensure that our customers receive prompt and reliable service, Universal has designed a flexible and responsive manufacturing process and has achieved a nearly perfect fill rate for customer orders.

GOVERNMENT REGULATION.

The manufacturing, processing, formulating, packaging, labeling and advertising of Universal's products are subject to regulation by one or more federal agencies, including the United States Food and Drug Administration (the FDA), the FTC, the Consumer Product Safety Commission (the CPSC), the United States Department of Agriculture (the USDA) and the Environmental Protection Agency (the EPA). Universal's activities are also regulated by various agencies of the states, localities and foreign countries to which Universal's products are distributed and in which Universal's products are sold. The composition and labeling of dietary supplements, which comprise a significant majority of Universal's products, is most actively regulated by the FDA under the provisions of the Federal Food, Drug, and Cosmetic Act (FFDC Act). The FFDC Act has been revised in recent years by the Nutrition Labeling and Education Act of 1990 (NLEA) and by the Dietary Supplement Health and Education Act of 1994 (DSHEA).

PRODUCT DEVELOPMENT.

Because of our extensive manufacturing and analytical expertise, Universal is recognized as one of the leaders in new product development. Universal closely monitors consumer trends and scientific research, and has consistently introduced innovative products and programs in response thereto. Universal's product development staff regularly studies over 50 different health and nutrition periodicals, including the New England Journal of Medicine and the Journal of the American Medical Association, in order to generate ideas for new product formulations. Management believes that Universal's introduction of new products has increased market share for both Universal and our private label customers, and Universal intends to continue developing new products and programs in the future. Universal's research and development expenses continue to grow and also includes the support of scientific research at independent research centers located at major universities and medical centers.

MANUFACTURING AND PRODUCT QUALITY.

Virtually all of Universal's products are manufactured at our combined 100,000+ square foot manufacturing facilities located in New Brunswick, New Jersey. Universal's two modern manufacturing facilities provide us with the capability to meet customers' sales demands with a prompt response time and to maintain the highest level of quality control. Universal is continuously upgrading our facilities and enhancing our manufacturing capabilities through new equipment purchases and technological improvements. We believe that our manufacturing facilities are among the most advanced in the nutritional supplement industry. Universal expects to enter into a contract for the purchase of an approximately 40,000 square foot facility near our New Brunswick buildings, which would be used to expand Universal's manufacturing and warehousing capabilities in a manner which we believe will be sufficient to meet sales demand for our products for the foreseeable future. The transaction, which will be subject to a number of customary conditions, is expected to close by the end of 1997.

Universal offers distribution from three locations in the USA. Customer shipments can be sent from our New Jersey, Florida or California warehouses. Weekly shipments are sent to Florida and California, offering lower freight charges and quicker delivery to our customers.

Universal's modern manufacturing operations feature pharmaceutical quality blending, filling and packaging capabilities, which enable Universal to offer quality and consistency in formulation and delivery. Universal operates flexible manufacturing lines which enables us to efficiently and effectively shift output among various products as dictated by customer demand. Universal is capable of producing over 15 million capsules and tablets, over 50,000 pounds of blended powder and up to 1,000 gallons of liquid preparations per day. Universal has six high-speed capsule and tablet packaging lines, one high-speed liquid filling lines, and two powder filling lines. Universal is capable of operating on a 24-hour work day that includes two production shifts and a third shift dedicated solely to cleaning, maintenance and equipment set-up. Universal sources our raw material needs from over 200 different suppliers, including some of the largest pharmaceutical and chemical companies in the world. Universal's raw materials and packaging supplies are readily available from multiple suppliers, and Universal is not dependent on any single supplier for our needs. No single supplier accounted for more than 10 percent of Universal's total purchases in 1996.

Universal's quality standards are a critical factor in consumer purchase decisions, and Universal believes we have established a competitive advantage based on the quality of our products. All of Universal's capsule and tablet products are visually inspected before being packaged in virtually light-proof bottles for better product freshness and stability. Moreover, each of the products undergoes comprehensive quality control testing procedures from the receipt of raw materials to the release of the packaged product. Universal utilizes computerized monitoring of our manufacturing processes to ensure proper product weights and measures. In addition, we maintain in-house laboratories with state-of-the-art testing and analysis equipment where Universal performs most of our testing, including stability tests, active component characterization utilizing thin-layer and high-pressure liquid chromatography, and UV visible and infrared spectrometry. Universal contracts with independent laboratories to perform the balance of our testing requirements. A team of full-time quality assurance professionals regularly conducts a wide variety of visual and scientific tests on all manufactured products.

Universal has a strong commitment to maintaining the quality of the environment. All of Universal's plastic containers are recyclable and, wherever possible, Universal uses recyclable raw materials. In addition, Universal has removed most solvents from our production processes (using natural, environmentally-safe alternatives). Universal believes we are in material compliance with all applicable environmental regulations.

CONCLUSION.

Universal is an exciting and dynamic company characterized by growth, progress and a commitment to quality and customer satisfaction. Since 1980 Universal has grown into one of the largest manufacturers of sports nutrition formulas, vitamins, amino acids, herbal products and dietary supplements. Universal has an uncompromising dedication to quality and excellence. We are continually committed to providing our customers with superior nutritional products at competitive pricing. Our primary goal is to be unequaled in the design and formulation of effective and safe nutritional supplements and unmatched in the service and support of our customers. Because at Universal, being the best is what we are about