UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-27646
GUM TECH INTERNATIONAL, INC.
(Name of small business issuer in its charter)
UTAH 87-0482806
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
246 East Watkins Street 85004
Phoenix, Az (Zip Code)
(Address of principal executive offices)
(602) 252-1617
(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
No Par Value Common Stock
(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]
Check if there is no disclosure contained herein of delinquent filers in
response to Item 405 of Regulation S-B, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Registrant's revenues for its year ended December 31, 1998 were
$5,272,547.
As of April 27, 1999, 7,273,087 shares of the Registrant's no par value
Common Stock were outstanding. As of April 27, 1999, the market value of the
Registrant's no par value Common Stock, excluding shares held by affiliates, was
$69,711,860 based upon a closing price of $10.00 per share of Common Stock on
the Nasdaq National Market.
Documents Incorporated By Reference
None
<PAGE>
PART III
ITEM 9. INFORMATION CONCERNING DIRECTORS, NOMINEES, AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to Directors,
nominees to the Board of Directors, and executive officers of the Company.
Name Age Position With Company and Tenure
---- --- --------------------------------
Bruce A. Jorgenson, M.D. 55 Chairman of the Board of Directors since
1998, Director since 1997
Gary S. Kehoe 40 President since 1998 and Chief Operating
Officer and Director since 1995
William D. Boone 51 Director since 1998
William J. Hemelt 45 Secretary, Treasurer, Chief Financial
Officer since June, 1998 (Principal
Financial Officer)
W. Brown Russell, III 43 Director of Investor Relations and Legal
and Director since 1998
William A. Yuan 38 Director since 1998
Bruce A. Jorgenson, M.D. is a pediatrician in Layton, Utah for Wee Care
Pediatrics, one of the largest pediatric care centers in the state of Utah. In
1986, Dr. Jorgenson founded Wee Care Pediatrics and was the sole proprietor
until April 1998, when he sold the practice to Kelson Physician Partners. Dr.
Jorgenson earned his Doctor of Medicine from Temple University.
Gary S. Kehoe joined the Company in 1995 as a Director and Chief Operating
Officer. He was responsible for construction and start-up of the Company's
manufacturing facility and research and development of gum products. In February
1998 the Board of Directors elected Mr. Kehoe President of the Company. Prior to
joining the Company in 1995, Mr. Kehoe was employed by Planters/LifeSavers, a
division of Nabisco Food Group in various capacities, including Senior Food
Technologist, where he was responsible for functional and nutriceutical products
in the confectionery division. He developed or co-developed several new
technologies, processes, and products involving CareFree, Bubble Yum, Fruit
Stripe, and Beech Nut chewing gums and is listed as inventor or co-inventor on
22 U.S. Patents filed by Nabisco and Gum Tech.
William D. Boone was elected to the Board of Directors in February 1998,
and served as a manufacturing consultant to the Company in early 1998. Mr. Boone
has 30 years experience in small business management and sales growth, including
co-founding and co-managing Trade Printers, Inc., a Phoenix-based wholesale
printing manufacturer which he subsequently sold.
2
<PAGE>
William J. Hemelt joined the Company in June 1998 as its Chief Financial
Officer, Treasurer, and Secretary. From 1980 to 1997, Mr. Hemelt held a variety
of financial positions with Arizona Public Service Company, Arizona's largest
utility, including 6 years as Treasurer and 4 years as Controller. Mr. Hemelt
earned a Master of Business Administration and a Bachelor of Science in
Electrical Engineering from Lehigh University.
W. Brown Russell, III was elected to the Board of Directors in February
1998. Subsequently, he joined the Company as Special Advisor to the President
before assuming his current position as Director of Investor Relations and
Legal. Before joining Gum Tech, Mr. Russell operated Brown Russell Investment
Services, Inc., a private money management firm. From 1987 to 1994, Mr. Russell
was the President of Capital Investment Properties, a real estate and property
management firm based in Athens, Georgia. During this time, Mr. Russell was also
a partner in the law firm of Russell & Russell. Mr. Russell earned a Juris
Doctorate and Bachelor of Arts from the University of Georgia.
William A. Yuan has been a Director of the Company since 1998. Mr. Yuan is
President and Chief Executive Officer of Reliance Management, LLC. From 1985
until 1996, Mr. Yuan was employed by Merrill Lynch and Salomon Smith Barney in
various positions. Mr. Yuan earned a Bachelor of Science in Economics from
Cornell University.
All Directors' terms are on an annual basis. In February 1998 Messrs.
Gerald N. Kern, Robert J. Kwait, Jack Kessler, and Paul Peckman resigned as
directors. In March 1998, William G. Meris resigned as a director. In May 1998,
Mr. Richard Ratcliff resigned as a director. Jeffrey L. Bouchy resigned as
Principal Financial Officer in June 1998.
3
<PAGE>
Meetings of the Board of Directors
During the fiscal year ended December 31, 1998, the Company's Board of
Directors held 11 meetings, either in person or by consent resolution. All
directors attended or participated in at least 75% of those meetings and the
total number of meetings held by all committees of the board on which they
served.
Audit Committee
In 1998 the Company's Board of Directors elected Dr. Bruce A. Jorgenson,
William Boone, William A. Yuan, and W. Brown Russell to the Audit Committee. The
functions of the Audit Committee are to receive reports with respect to loss
contingencies, the public disclosure or financial statement notation of which
may be legally required; annually review and examine those matters that relate
to a financial and performance audit of the Company's employee plans; recommend
to the Company's Board of Directors the selection, retention, and termination of
the Company's independent accountants; review the professional services,
proposed fees and independence of such accountants; and provide for the periodic
review and examination of management performance in selected aspects of
corporate responsibility. The Audit Committee held one meeting during fiscal
1998.
Compensation Committee
In 1998 the Company's Board of Directors elected Dr. Bruce A. Jorgenson and
William Boone to the Compensation Committee. The functions of the Compensation
Committee are to review annually the performance of the President and of the
other principal officers whose compensation is subject to the review and
recommendation by the Compensation Committee to the Company's Board of
Directors. Additionally, the Compensation Committee is to review compensation of
outside directors for service on the Company's Board of Directors and for
service on committees of the Company's Board of Directors, and to review the
level and extent of applicable benefits provided by the Company with respect to
automobiles, travel, insurance, health and medical coverage, stock options and
other stock plans and benefits. The Compensation Committee held one meeting
during fiscal 1998.
Director Compensation
The Company's nonemployee directors receive reimbursement for out-of-pocket
expenses incurred in attending Board of Directors' meetings and have been
granted stock options under the Company's 1995 Stock Option Plan.
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<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, ("the Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Such officers, directors and shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms were
required for such persons, the Company believes that during the fiscal year
ended December 31, 1998, all filing requirements applicable to its officers,
directors, and greater than ten percent beneficial owners were complied with
except as set forth below.
In connection with the 1998 repricing of his options, Gary Kehoe filed his
1998 Form 5 in April 1999.
ITEM 10. EXECUTIVE COMPENSATION
The following table discloses certain compensation paid to the Company's
Chief Executive Officers for the years ended December 31, 1996, 1997, and 1998.
Mr. Gerald N. Kern, the Company's former Chief Executive Officer, resigned in
February 1998 and was replaced by Mr. Gary S. Kehoe. No other executive officer
of the Company at December 31, 1998 earned more than $100,000 in annual
compensation during the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------- ------------------------------------------------
Awards Payouts
Securities
Other Under-
Annual Restrict- lying All Other
Name and Compen- ed Stock Options/ LTIP Compen-
Principal Position Year Salary Bonus sation Award(s) SARs Payouts sation(1)
- ------------------ ---- ------ ----- ------ -------- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary S. Kehoe 1998 $ 95,000 $30,000(2) 0 0 188,000(3) 0 $ 2,847
President, Chief 1997 $ 84,333 $20,000(4) 0 0 88,000(5) 0 $ 880
Operating Officer 1996 $ 75,417 $20,000 0 0 100,000(5) 0 0
Gerald N. Kern(5) 1998 $ 25,000(6) 0 $1,200(7) 0 100,000(8) 0 $200,500(9)
Former Chief 1997 $160,483 $36,080 $8,800(7) 0 156,500(10) 0 $ 1,750
Executive Officer 1996 $ 56,250 0 0 0 300,000(10)(11) 0 0
</TABLE>
- ----------
(1) Includes Company matching contributions under the Company's SRA/IRA defined
contribution program.
(2) Includes $10,000 that was accrued in 1998 but paid in 1999.
(3) Represents options originally granted in prior years that were repriced in
1998. (See footnote 5 below). In accordance with SEC rules, these options
are reported as options granted during the fiscal year 1998 as a result of
the repricing of these options in April 1998. See "Repricing of Options"
for additional information regarding this repricing.
(4) Includes $10,000 that was accrued in 1997 but paid in 1998.
(5) Each option was repriced to $5.625 per share in April 1998, equal to the
fair market value on the date of repricing.
(6) Mr. Kern resigned in February 1998.
(7) Automobile allowance paid to Mr. Kern.
(8) Represents options granted pursuant to Mr. Kern's termination agreement
(See "Related Transactions").
(9) Includes $200,000 severance payment pursuant to Mr. Kern's termination
agreement (See "Related Transactions").
(10) These options were subsequently canceled pursuant to Mr. Kern's termination
agreement.
(11) Excludes option to purchase 50,000 shares acquired from Mr. Ratcliff,
former Board Chairman and Chief Executive Officer.
5
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants during the year
ended December 31, 1998 to the named executive officers:
Number of Percent of Total
Securities Options/
Underlying SARs Granted Exercise Or
Options/SARs To Employees In Base Price Expiration
Name Granted (#) Fiscal Year (1) ($/Sh) Date
- -------------- ------------ --------------- ---------- ----------
Gary S. Kehoe 100,000(1) 11.0% $5.625 12/30/99
88,000(1) 9.7% $5.625 9/23/00
Gerald N. Kern 100,000(2) 11.0% $5.81 2/10/99
(1) Represents options originally granted in prior years that were repriced in
1998. In accordance with SEC rules, these options are reported as options
granted during the fiscal year 1998 as a result of the repricing of these
options in April 1998. See "Repricing of Options" for additional
information regarding this repricing.
(2) Represents options granted pursuant to Mr. Kern's termination agreement
(See "Related Transactions").
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
The following table provides information on the value realized by the
exercise of options by the named executive officers during 1998 and the value of
the named executive officer's unexercised options at December 31, 1998.
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- -------------- -------- ------- ------------- -------------
Gary S. Kehoe 50,000 $175,000 144,000/44,000 $297,000/90,750
Gerald N. Kern 100,000 $142,501 0/0 0/0
REPRICING OF OPTIONS
In April 1998, the Company's Board of Directors approved a repricing of
all outstanding options held by employees, including officers, of the Company.
In connection with this repricing, the Board of Directors determined that the
imbalance between the original exercise price of the options held by the
employees and the lower market price of the Common Stock that prevailed in early
1998 was not an appropriate incentive to achieve the Company's long-term goals.
The repriced options have exercise prices of $5.625 per share, equal to the fair
market value on the date of repricing. Except for the new exercise price, the
terms of the options remain the same.
Bruce Jorgenson, Chairman
Gary S. Kehoe
William Yuan
William Boone
W. Brown Russell
6
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of April 30, 1999, with
respect to the number of shares of Common Stock of the Company beneficially
owned by individual directors, by all directors and officers of the Company as a
group, and by persons known by the Company to own more than 5% of the Company's
Common Stock. All shares are owned beneficially and of record. The address of
all persons (unless otherwise noted in the footnotes below) is in care of the
Company at 246 E. Watkins Street, Phoenix, Arizona 85004.
Percent of
Number of Common Stock
Name of Beneficial Owner and Address Shares Owned
- ------------------------------------ ------ -----
Gary S. Kehoe(1) 234,000 3.2
William D. Boone(2) 91,630 1.2
William A. Yuan(3) 10,071 0.1
W. Brown Russell, III(4) 63,500 0.9
Bruce A. Jorgenson(5) 190,700 2.6
William J. Hemelt (6) 31,000 0.4
All directors and 620,901 8.2
officers as a group (7)
(6 persons)
- ----------
(1) Includes options to purchase 144,000 shares at $5.625 per share.
(2) Includes options to purchase 10,000 shares at $6.88 per share and 50,000
shares at $5.625 per share.
(3) Includes options to purchase 10,000 shares at $5.81 per share.
(4) Includes options to purchase 10,000 shares at $6.88 per share and 50,000
shares at $5.625.
(5) Includes options to purchase 20,000 shares at $11.44 per share.
(6) Includes options to purchase 25,000 shares at $5.50 per share.
(7) Does not include shares beneficially owned by Gerald Kern, a former Chief
Executive Officer.
7
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since 1994, the Company has purchased an ingredient used in its ChromaTrim
gum product from Interhealth Nutritionals, Inc., ("Interhealth"), a company in
which Mr. Ratcliff was formerly a member of the Board of Directors. Mr. Ratcliff
was a member of the Company's Board until April 1998. The Company did not pay a
different price for the ingredient during the time Mr. Ratcliff was a member of
Interhealth's Board of Directors and the Company believes that the price it has
paid and currently pays for the ingredient is fair, reasonable and consistent
with prices charged by unaffiliated suppliers.
On February 10, 1998, the Company entered into a Settlement Agreement and
Release with Mr. Kern pursuant to his resignation as Chief Executive Officer.
The Agreement includes a severance package including payment of $200,000, the
forgiveness of $116,000 of debt and officer's advances owed to the Company, and
options to acquire 100,000 shares of the Company's Common Stock, which are
exercisable by Mr. Kern for up to one year at $5.81 per share. In addition, in
connection with the severance, all of Mr. Kern's existing options were
cancelled.
The Company believes that the terms of all agreements described above which
involve the Company's officers, directors, principal shareholders or affiliates
are fair, reasonable and consistent with terms that the Company could obtain
from unaffiliated third parties. All future agreements with officers, directors,
principal shareholders and affiliates will be approved by a majority of the
Company's disinterested directors.
8
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, in Phoenix, Arizona, on April 30, 1999.
GUM TECH INTERNATIONAL, INC.
By: /s/ William J. Hemelt
------------------------
William J. Hemelt
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated.
Signature Title Date
--------- ----- ----
/s/ Bruce Jorgenson Chairman of the Board April 30, 1999
- ---------------------- of Directors
Bruce Jorgenson
/s/ Gary S. Kehoe President and Chief April 30, 1999
- ---------------------- Operating Officer and
Gary S. Kehoe Director
/s/ William Yuan Director April 30, 1999
- ----------------------
William Yuan
/s/ William Boone Director April 30, 1999
- ----------------------
William Boone
/s/ W. Brown Russell Director April 30, 1999
- ----------------------
W. Brown Russell
/s/ William J. Hemelt Chief Financial Officer April 30, 1999
- ----------------------
William J. Hemelt
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