UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1999 Commission File Number 000-28876
CHEM INTERNATIONAL, INC.
(Exact name of small business registrant in its charter)
Delaware 13-3035216
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Route 22, Hillside, New Jersey 07205
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (973) 926-0816
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.002 par value per share
Class A Redeemable Common Stock Purchase Warrants
(Title of each class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.
Yes [X] No [_]
Registrant's revenues for the fiscal year ended June 30, 1999 were $12,274,448.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the trading price of the Registrant's Common Stock on August
31, 1999 was $2,654,063.
The number of shares outstanding of each of the Registrant's classes of common
equity, as of the latest practicable date:
Class Outstanding at August 31, 1999
Common Stock $.002 par value 5,178,300 Shares
Class A Redeemable Common Stock 1,265,000 Warrants
Purchase Warrants
Class C Redeemable Common Stock
Purchase Warrants 150,000 Warrants
DOCUMENTS INCORPORATED BY REFERENCE
The information required by part III will be incorporated by reference to
certain portions of a definitive Proxy Statement which is expected to be filed
by the Registrant within 120 days after the close of its fiscal year.
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-KSB ANNUAL REPORT
INDEX
<TABLE>
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Part I Page
<S> <C> <C>
Item 1. Description of Business 1
Item 2. Description of Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 5
Item 6. Management's Discussion and Analysis of Financial Condition
And Results of Operations 6
Item 7. Financial Statements 8
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act 9
Item 10. Executive Compensation 9
Item 11. Security Ownership of Certain Beneficial
Owners and Management 9
Item 12. Certain Relationships and Related Transactions 9
Item 13. Exhibits and Reports on Form 8-K 9
Signatures
</TABLE>
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PART I
Disclosure Regarding Forward-Looking Statements
All statements other than statements of historical fact, in this Form 10-KSB,
including without limitation, the statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Business" are, or may be deemed to be, forward looking statements. These
statements represent the Company's current judgement and are subject to risks
and uncertainties that could cause actual results to differ materially. Such
risks and uncertainties include, without limitation: (i) loss of a major
customer, (ii) competition, and/or (iii) government regulation.
Item 1. Description of Business
Chem International Inc. [the "Company"] a Delaware corporation, is the survivor
of a merger of Chem International, Inc. a Delaware Corporation, with and into
Frog Industries, Ltd. a New York corporation, which was effected on December 27,
1994 with Frog Industries, Ltd. renamed Chem International Inc. after the
merger. The Company was reincorporated in Delaware on February 2, 1996. The
Company is engaged primarily in manufacturing, marketing and sales of vitamins,
nutritional supplements and herbal products, including vitamins sold as single
entity supplements, in multi-vitamin combinations and in varying potency levels
and in different packaging sizes. The Company's subsidiary, Manhattan Drug
Company, Inc. ["Manhattan Drug"], manufactures the vitamins and nutritional
supplements for sale to distributors, multilevel marketers and specialized
health-care providers. The Company also manufactures such products for sale
under its own private brand, "Vitamin Factory", at its retail store in Hillside,
New Jersey or through mail order.
Development and Supply Agreement
On April 9, 1998, the Company signed a development and supply agreement with
Herbalife International of America, Inc. ["Herbalife"] whereby the Company will
develop, manufacture and supply certain nutritional products to Herbalife
through December 31, 2000.
Manufacturing Agreement
On February 14, 1998, the Company signed a manufacturing agreement with Pilon
International, PLC., a company that supplies Zepter International, a world-wide
sales distributor of consumer products. The Company will manufacture and develop
dietary supplements through the year 2001.
Risk of Reduction of Significant Revenues from Major Customer
The Company derives a significant portion of its sales from one customer, Rexall
Sundown, Inc. ["Rexall"], for which it manufactures vitamins and nutritional
supplements. Sales to Rexall expressed as a percentage of the Company's total
sales, were approximately 55% and 44%, respectively, for the fiscal years ended
June 30, 1999 and 1998. The loss of this customer would have a material affect
on the Company's operations.
Dependence on Key Personnel
The Company is highly dependent on the experience of its management in the
continuing development of its manufacturing and retail operations. The loss of
the services of these certain individuals, particularly E. Gerald Kay, Chairman
of the Board, and director of the Company, would have a material adverse effect
on the Company's business. The Company has entered into employment agreements
with each of its four executive officers, which expire on June 30, 2002. Such
agreements may be terminated by the employees at any time upon 30 days prior
written notice without penalty, subject to a one year non-compete clause. The
Company has obtained key-man life insurance in the amount of $1,000,000 on the
life of Mr. Kay, with the Company as the named beneficiary.
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In February 1999, Mr. Ronald Smalley, Vice President of Technology resigned his
position with the Company, and was replaced with Mr. Abdulhameed Mirza. Mr.
Mirza is the Vice President of Technical Affairs and has spent the last 25 years
in the vitamin and nutritional industry.
In May 1999, Mr. E. Gerald Kay, Chairman of the Board and Chief Executive
Officer, resigned as President of the Company and was replaced by Mr. Seymour
Flug. Mr. Flug will serve as President and Chief Executive Officer. Mr. Flug is
the former chairman of Diners Club International and managing director of
mergers and acquisitions for Citygroup/Citibank.
Raw Materials
The principal raw materials used in the manufacturing process are natural and
synthetic vitamins, minerals, herbs, and related nutritional supplements,
gelatin capsules and coating materials and the necessary components for
packaging the finished products. The raw materials are available from numerous
sources within the United States. The gelatin capsules and coating materials and
packaging materials are similarly widely available. Raw materials are generally
purchased by the Company without long term commitments, on a purchase order
basis. The Company's principal suppliers are Roche Vitamins, Inc., Triarco Inc.,
M.W. International, Inc. and BASF Corporation.
Employees
As of June 30, 1999, the Company had 88 full time employees, of whom 53 belonged
to a local unit of the Teamsters Union and are covered by a collective
bargaining agreement, which expires August 30, 1999. The contract has been
renewed through August 31, 2002.
Seasonality
The Company's results of operations are not significantly affected by seasonal
factors.
Trademarks
The Company owns the registration in the United States Patent and Trademark
offices for "Oxitiva." Oxitiva is the Company's brand of chewable antioxidant
formula.
Government Regulations
The manufacturing, processing, formulation, packaging, labeling and advertising
of the Company's products are subject to regulation by a number of federal
agencies, including the Food and Drug Administration [the "FDA"], the Federal
Trade Commission [the "FTC"], the United States Postal Service, the Consumer
Product Safety Commission and the Untied States Department of Agriculture. The
FDA is primarily responsible for the regulation of the manufacturing, labeling
and sale of the Company's products. The Company's activities are also regulated
by various state and local agencies in which the Company's products are sold.
The operation of the Company's vitamin manufacturing facility is subject to
regulation by the FDA as a food manufacturing facility. In addition, the United
States Postal Service and the FTC regulate advertising claims with respect to
the Company's products sold by solicitation through the mail.
The Dietary Supplement Health and Education Act of 1994 [the "Dietary Supplement
Act"] was enacted on October 25,1994. The Dietary Supplement Act amends the
Federal Food, Drug and Cosmetic Act by defining dietary supplements, which
include vitamins, minerals, nutritional supplements and herbs, and by providing
a regulatory framework to ensure safe, quality dietary supplements and the
dissemination of accurate information about such products. Dietary supplements
are regulated as foods under the Dietary Supplement Act and the FDA is generally
prohibited from regulating the active ingredients in dietary supplements as food
additives, or as drugs unless product claims trigger drug status.
The Dietary Supplement Act provides for specific nutritional labeling
requirements for dietary supplements effective
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January 1, 1997. The Dietary Supplement Act permits substantiated, truthful and
non-misleading statements of nutritional support to be made in labeling, such as
statements describing general well being from consumption of a dietary
ingredient or the role of a nutrient or dietary ingredient in affecting or
maintaining structure or function of the body. In addition, the Dietary
Supplement Act also authorizes the FDA to promulgate Current Good Manufacturing
Practices ["cGMP"] specific to the manufacture of dietary supplements, to be
modeled after food cGMP. The Company currently manufactures its dietary
supplement products pursuant to food cGMP. The Company believes that it is
currently in compliance with all applicable government regulations. The FDA will
be proposing and promulgating regulations to implement the Dietary Supplement
Act. The Company cannot determine what effect such regulations, when
promulgated, will have on its business in the future or what cost it will add to
manufacturing the product. Such regulations could, among other things, require
expanded or different labeling, the recall, reformulation or discontinuance of
certain products, additional record keeping and expanded documentation of the
properties of certain products and scientific substantiation regarding
ingredients, product claims and safety of efficacy.
Competition
The business of manufacturing, distributing and marketing vitamins and
nutritional supplements is highly competitive. Many of the Company's competitors
are substantially larger and have greater financial resources with which to
manufacture and market their products. In particular, competition is fierce in
the retail segment. Many direct marketers not only focus on selling their own
branded products, but offer national brands at discounts as well. Many
competitors have established brand names recognizable to consumers. In addition,
major pharmaceutical companies offer nationally advertised multivitamin
products. The Company also competes with certain of its customers. These
customers also have their own manufacturing capabilities.
Many of the Company's competitors in the retailing segment have the financial
resources to advertise freely to promote sales and to produce sophisticated
catalogs. In many cases, such competitors are able to offer price incentives for
retail purchasers and offer participation in frequent buyers programs. Some
retail competitors also manufacture their own products whereby they have the
ability and financial incentive to sell their own product.
Product Liability Insurance
The Company intends to compete by stressing the quality of its manufacturing
product, providing prompt service, competitive pricing of products in its
marketing segment and by focusing on niche products in the international retail
markets.
The Company, like other manufacturers, wholesalers and distributors of vitamin
and nutritional supplement products, faces an inherent risk of exposure to
product liability claims if, among other things, the use of its products result
in injury. Accordingly, the Company currently maintains product liability
insurance policies, which provides a total of $10 million of coverage per
occurrence and $10 million of coverage in the aggregate. Although the Company's
product liability insurance policies do not currently provide coverage for
claims with respect to products containing L-tryptophan manufactured after
September 1992, the Company discontinued manufacturing such products in 1989.
Based upon indemnification arrangements with its supplier of L-tryptophan, the
Company's product liability insurance and the product liability insurance of its
suppliers, the Company believes that its product liability insurance is adequate
to cover any product liability claims. There can be no assurance that the
Company's current level of product liability insurance will continue to be
available or, if available, will be adequate to cover potential liabilities.
Item 2. Description of Properties
On January 10, 1997, the Company entered into a lease agreement for
approximately 84,000 square feet of factory, warehouse and office facilities in
Hillside, New Jersey. The facilities are leased from Vitamin Realty Associates,
L.L.C., a limited liability company, which is owned by the Company's Chairman of
the Board, and principal stockholder and certain family members and 10% owned by
the Company's chief financial officer. The lease has a term of five years and
expires on January 10, 2002. The lease provides for a base annual rental of
$346,000 plus increases in real estate taxes and building expenses. At its
option, the Company has the right to renew the lease for an additional five year
period. The space is utilized for the retail mail order business, warehousing
and packaging operations and also houses the Company's corporate offices.
The Company also leases 40,000 square feet of manufacturing facilities in
Hillside, New Jersey from Gerob Realty
3
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Partnership, of which E. Gerald Kay, Chairman of the Board of the Company, is a
general partner. The lease which expires on December 31,1999 provides for a
minimum annual rental of $60,000 plus payment of all real estate taxes. The
space is utilized for Manhattan Drug's tablet manufacturing operations.
Item 3. Legal Proceedings
Numerous unrelated manufacturers, distributors, suppliers, importers and
retailers of manufactured L-tryptophan are or were defendants in an estimated
2,000 lawsuits brought in federal and state courts seeking compensation and
punitive damages for alleged personal injury from ingestion of products
containing manufactured L-tryptophan. A number of these lawsuits have been
settled or discontinued. Additional suits may be filed. Prior to a request from
the FDA in November 1989 for a national, industry-wide recall, Manhattan Drug
halted sales and distribution and also ordered a recall of L-tryptophan
products. Subsequently, the FDA indicated that there is a strong epidemiological
between the ingestion of the allegedly contaminated L-tryptophan and a blood
disorder known as eosinophilia myalgia syndrome ["EMS"]. Investigators at the
United States Centers for Disease Control suspect that a contaminant was
introduced during the manufacture of the product in Japan. While intensive
independent investigations are continuing, there has been no indication that EMS
was caused by any formulation or manufacturing fault of Manhattan Drug or any of
the other firms that manufactured tablets and/or capsules containing
L-tryptophan.
On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material, which was used in manufacturing of tablets sold by
the Company. On July 17, 1997, the Company issued a voluntary recall to three
customers affected by this and, accordingly, reduced its sales and accounts
receivable at June 30, 1997 by $127,000. On February 10, 1999, the suit was
settled.
Manhattan Drug and certain companies in the vitamin industry, including
distributors, wholesalers and retailers, have entered into an agreement [the
"Indemnification Agreement"] with Showa Denko America, Inc. ["SDA"]. Under which
SDA, a U.S. subsidiary of a Japanese corporation, Showa Denko K.K. ["SDK"],
which appears to have been the supplier of all of the alleged contaminated
L-tryptophan products, has assumed the defense of all claims against Manhattan
Drug arising out of the ingestion of L-tryptophan products and has agreed to pay
the legal fees and expenses in that defense, and SDK has agreed to guarantee
SDA's obligation therein. SDA has posted a revolving irrevocable letter of
credit, in the amount of $20,000,000, to be used for the benefit of the Company
and other indemnified parties if SDA is unable or unwilling to satisfy any
claims or judgements. SDA has agreed to indemnify Manhattan Drug against any
judgements and to fund settlements arising out of those actions and claims if it
is determined that a cause of the injuries sustained by the plaintiffs was a
constituent in the bulk material sold by SDA to Manhattan Drug or its suppliers,
except to the extent that Manhattan Drug is found to have any part of the
responsibility for those injuries and except for certain claims relating to
punitive damages. There is no assurance that SDA will have the financial ability
to perform under the Indemnification Agreement.
Manhattan Drug has product liability insurance, which the Company believes
provides coverage for all of its L-tryptophan products subject to these claims,
including legal defense costs. Due to the multitude of defendants, the
probability that some or all of the total liability will be assessed against
other defendants and the fact that discovery in these actions is not complete,
it is impossible to predict the outcome of these actions or to assess the
ultimate financial exposure of the Company. Based upon the aforementioned
indemnification arrangements, the Company's product liability insurance and the
product liability insurance of its suppliers, the Company does not believe these
actions will have a material adverse effect on Manhattan Drug, and, accordingly,
no provision has been made in the Company's Consolidated Financial Statements
for any loss that may be incurred by the Company as a result of these actions.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter ended June 30, 1999.
4
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Set forth below are the high and low closing prices of the Common Stock and the
Class A Redeemable Warrant as reported on the Nasdaq National Market for the
periods indicated:
HIGH LOW
COMMON STOCK [CXIL]
FISCAL YEAR ENDED JUNE 30, 1998
First Quarter 3 7/8 1 7/8
Second Quarter 3 5/16 13/32
Third Quarter 2 1/4 1/2
Fourth Quarter 3 3/8 1 5/8
FISCAL YEAR ENDED JUNE 30, 1999
First Quarter 3 3/8 1 3/8
Second Quarter 1 7/8 3/4
Third Quarter 1 1/4 5/8
Fourth Quarter 2 5/8 11/16
CLASS A REDEEMABLE WARRANTS [CXILW]
FISCAL YEAR ENDED JUNE 30, 1998
First Quarter 1 3/8
Second Quarter 1 1/16
Third Quarter 7/16 1/16
Fourth Quarter 3/4 5/16
FISCAL YEAR ENDED JUNE 30, 1999
First Quarter 3/4 3/8
Second Quarter 7/16 3/16
Third Quarter 1/4 1/16
Fourth Quarter 11/16 1/16
As of June 30, 1999 there were approximately 115 holders of record of the
Company's Common Stock.
The Company has not declared or paid a dividend with respect to its Common Stock
nor does the Company anticipate paying dividends in the foreseeable future.
5
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Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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The following discussion should be read in conjunction with the historical
financial statements of the Company and notes thereto.
Results of Operations
Year Ended June 30, 1999 Compared to the Year ended June 30, 1998
The Company's net [loss] for the year ended June 30, 1999 was $(2,628,433) as
compared to the net loss of $(97,438) for the year ended June 30, 1998. This
increase in net loss of approximately $2,500,000 is primarily the result of a
$2,600,000 increase in operating loss and an increase in the federal tax benefit
of approximately $130,000. The $2,600,000 decrease in operating loss is due to a
gross profit decrease of approximately $2,500,000 and an increase in selling and
administrative expense of approximately $100,000. The decrease in gross profit
is due to an increase in manufacturing expenses as the Company hired additional
direct labor and increased its production capacity for the year ended June 30,
1999 in anticipation of increased orders. Product launches expected during the
year in eastern Europe have been delayed because of uncertainties in the
European markets. The Company cannot anticipate when these product launches will
eventually occur.
Sales for the years ended June 30, 1999 and 1998 were $12,274,448 and
$16,011,049, respectively, a decrease of $3,736,601 or 23%. For the year ended
June 30, 1999, the Company had sales to one customer, who accounted for 55% of
net sales in 1999 and 44% of net sales in 1998. The loss of this customer would
have an adverse affect on the Company's operations.
Retail and mail order sales for the year ended June 30, 1999 totaled $713,962 as
compared to $1,090,854 for the year ended June 30, 1998, a decrease of $376,892
or 35% due primarily to the closing of the retail store on November 13, 1998 for
approximately 9 weeks for renovations. The store reopened on January 7, 1999.
The Company anticipates retail and mail order sales returning to their fiscal
1998 levels in the coming year.
On February 17, 1997, the Company signed a distribution agreement with Roche
Vitamins, Inc. to service and supply Roche products to a select segment of
Roche's food, nutrition and cosmetic accounts. The agreement had an initial term
of two years and shall be renewable for an additional term of one year. Sales
for the year ended June 30, 1999 totaled $1,607,092 as compared to $1,250,480
for the year ended June 30, 1998, an increase of $356,612 or 29%.
Cost of sales decreased to $11,655,173 in 1999 as compared to $12,841,937 for
1998. Cost of sales increased as a percentage of sales to 95% as compared to 80%
for 1998. The increase in cost of sales is due to an increase in manufacturing
costs and fixed overhead costs.
Selling and administrative expenses for the year ended June 30, 1999 were
$3,275,723 versus $3,197,047 for the same period a year ago. The increase of
$78,676 was primarily attributable to a decrease of advertising of approximately
$110,000, a decrease in travel and entertainment of approximately $93,000, a
decrease in pension and profit sharing plan expenses of approximately $330,000,
the writeoff of the balance of goodwill of approximately 276,000 and an increase
in the allowance for doubtful accounts of $315,000.
Other income (expense) was $(136,159) for the year ended June 30, 1999 as
compared to $(105,789) for the same period a year ago. This increase in net
expense of $30,370 is attributable to an increase in interest expense of $50,578
due to an increase in borrowings, a decrease in interest and investment income
of $19,350, a decrease in partnership loss of $5,000, a decrease in a loss
resulting from the writeoff of a note receivable of 33,058 and an increase in
gains on the sale of equipment.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Results of Operations
Year ended June 30, 1998 Compared to the Year Ended June 30, 1997
The Company's net [loss] for the year ended June 30, 1998 was $(97,438) as
compared to the net loss of $(654,304) for the year ended June 30, 1997. This
decrease in net loss of approximately $557,000 is primarily the result of a
$865,000 decrease in operating loss and a decrease in the federal tax benefit of
approximately $200,000. The $865,000 decrease in operating loss is due to a
gross profit increase of approximately $1,500,000 and an increase in selling and
administrative expense of approximately $650,000.
Sales for the years ended June 30, 1998 and 1997 were $16,011,049 and
$11,126,860, respectively, an increase of approximately $5,000,000 or 44%. For
the year ended June 30, 1998, the Company had sales to one customer, who
accounted for 44% of net sales in 1998 and 48% of net sales in 1997. The loss of
this customer would have an adverse affect on the Company's operations.
Retail and mail order sales for the year ended June 30, 1998 totaled $1,090,854
as compared to $983,749 for the year ended June 30, 1997, an increase of
$107,105 or 11%.
On February 17, 1997, the Company signed a distribution agreement with Roche
Vitamins, Inc. to service and supply Roche products to a select segment of
Roche's food, nutrition and cosmetic accounts. The agreement has an initial term
of two years and shall be renewable for an additional term of one year each.
Sales for the year ended June 30, 1998 totaled $1,250,480.
Cost of sales increased to $12,841,937 in 1998 as compared to $9,475,624 for
1997. Cost of sales decreased as a percentage of sales to 80% as compared to 85%
for 1997. The decrease in cost of sales is due to greater operating efficiencies
because of the extensive renovation of the blending department and an increase
in sales to customers of bottled products.
Selling and administrative expenses for the year ended June 30, 1998 were
$3,197,047 versus $2,546,972 for the same period a year ago. The increase of
$650,075 was primarily attributable to an increase of advertising of
approximately $170,000, an increase in travel and entertainment of approximately
$85,000, a decrease in professional fees of approximately $55,000, a decrease in
consulting fees of approximately $124,000, an increase in pension and
profit-sharing plan expenses of approximately $400,000, and an increase in
office salaries of approximately $49,000.
Other income [expense] was $(105,789) for the year ended June 30, 1998 as
compared to $(4,588) for the same period a year ago. This increase in net
expense of $101,201 is attributable to a decrease in interest expense of
$12,128, a decrease in interest and investment income of $48,491, a decrease in
sales of fixed assets of $25,000, a loss resulting from the write off of a note
receivable of $33,058, and a decrease in partnership income of $6,780.
Liquidity and Capital Resources
At June 30, 1999 the Company's working capital was $2,497,461 a decrease of
$2,264,050 over working capital at June 30, 1998. Cash and cash equivalents were
$299,030 at June 30, 1999 a decrease of $657,373 from June 30, 1998. The Company
utilized $483,206 and $414,153 for operations for the years ended June 30, 1999
and 1998, respectively. The primary reasons for the increase in cash utilized
for operations are (a) an increase in refundable Federal income taxes of
approximately $50,000 and (b) a decrease in accounts receivable of approximately
$1,000,000. The Company believes that the anticipated sales for the first two
quarters of next year will meet the cash needs for operations in the next six
months. The Company has drawn down its entire line of credit and consequently
will be looking for additional sources of financing to meet liquidity needs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Liquidity and Capital Resources [Continued]
The Company utilized $297,744 and $740,216 in investing activities for the years
ended June 30, 1999 and 1998, respectively. The Company generated net cash of
$123,577 from debt financing activities for the year ended June 30, 1999 and
$1,100,516 for the year ended June 30, 1998.
The Company's total annual commitments at June 30, 1999 for the next five years
of $971,159 consists of obligations under operating leases for facilities and
lease agreements for the rental of warehouse equipment, office equipment and
automobiles.
The Company has spent approximately $55,000 through June 30, 1999 to modify it's
computer information systems enabling proper processing of transactions relating
to the year 2000 ("Y2K") and beyond. The Company installed a new network system
in October of 1998 at a cost of approximately $20,000 whose hardware and
software is Y2K compliant. The Company has also spent $35,439 to provide the
necessary upgrades and modifications to the Company's existing manufacturing
program to insure Y2K compliance. The new software program is installed and is
currently being tested. The Company intends to be fully Y2K compliant by
September 30, 1999. The Company's suppliers and vendors have been contacted, and
most have responded with their intent to be Y2K compliant by the year 2000. At
this time, the Company believes based on their responses, that there will be no
disruption of their business. The Company does not expect the amounts required
to be expended over the next twelve months to have a material effect on its
financial position or results of operations.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities and measure them at fair value. Under certain circumstances, the
gains or losses from derivatives may be offset against those from the items the
derivatives hedge against. The Company will adopt SFAS No. 133 in the fiscal
year ending June 30, 2001. SFAS No. 133 is not expected to have a material
impact on the financial statements.
Impact of Inflation
The Company does not believe that inflation has significantly affected its
results of operations.
Item 7. Financial Statements
For a list of financial statements filed as part of this report, see index to
financial statement at F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
8
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended June 30, 1999.
Item 10. Executive Compensation
Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended June 30, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended June 30, 1999.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended June 30, 1999.
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) A list of the financial statements filed as part of this report is set
forth in the index to financial statements at Page F-1 and is incorporated
herein by reference.
(2) Exhibits
Number Description
3.1 Restated Certificate of Incorporation of Registrant (1)
3.2 By-Laws of Registrant (1)
4.1 Form of Amended Warrant Agreement among the Registrant
and Continental Stock Transfer & Trust Company, as
Warrant Agent (1)
4.2 Specimen Common Stock Certificate of Registrant (2)
4.3 Specimen Class A Warrant Certificate of Registrant (2)
10.1 Employment Agreement, effective January 1, 1996, between
the Registrant and Ronald G. Smalley (1)
10.2 Employment Agreement, effective July 1, 1996, between
the Registrant and E. Gerald Kay (1)
10.3 Employment Agreement, effective July 1, 1996, between
the Registrant and Eric Friedman (1)
10.4 Employment Agreement, effective July 1, 1996, between
the Registrant and Riva L. Kay (1)
10.5 Employment Agreement, effective July 1, 1996, between
the Registrant and Christina M. Kay (1)
10.6 Lease Agreement, dated January 1, 1996, between the
Registrant and Gerob Realty Partnership (1)
10.7 Stock Option Plan (2)
10.8 Amended Employment Agreement, effective September 20,
1996, between the Registrant and E. Gerald Kay (3)
9
<PAGE>
10.9 Lease Agreement, dated August 3,1994, between the
Registrant and Hillsdie 22 Realty Associates, L.L.C. (2)
10.10 Exclusive License Agreement between the Registrant and
International Nutrition Research Center, Inc. and
amendments, dated April 29, 1997 and November 27, 1996
(4)
10.11 Lease Agreement between the Registrant and Vitamin
Realty Associates, dated January 10, 1997 (4)
10.12 Manufacturing Agreement between Chem International, Inc.
and Herbalife International of America, Inc. dated April
9, 1998 (5)
10.13 Manufacturing Agreement between Chem International, Inc.
and Pilon International, PLC. dated February 14, 1998
(5)
10.14 Stock Sale Agreement between the Company and Gerob
Realty Partnership (5)
10.15 Promissory note between the Company and E. Gerald Kay
dated March 12, 1998 (5)
10.16 Class C Warrant to purchase common stock dated March 12,
1998 (5)
10.17 Consulting Agreement with Buttonwood Advisory Group
dated March 20, 1998 (5)
10.18(a) Employment Agreement, effective July 1, 1999, between
the Registrant and Eric Friedman (7)
10.18(b) Employment Agreement, effective July 1, 1999, between
the Registrant and Riva Sheppard (7)
10.18(c) Employment Agreement, effective July 1, 1999, between
the Registrant and Christina Kay (7)
10.18(d) Employment Agreement, effective February 16, 1999,
between the Registrant and Abdulhameed Mirza (7)
16.1 Letter on changes in certifying accountants (6)
21 Subsidiaries of the Registrant
27 Financial Data Schedule
------------
(1) Incorporated herein by reference to the corresponding
exhibit number to the Registrants Registration Statement
of Form SB-2, Registration No. 333-5240-NY.
(2) Incorporated herein by reference to the corresponding
exhibit number to the Registrants Registration Statement
Amendment No. 1 on Form SB-2, Registration No.
333-5240-NY.
(3) Incorporated herein by reference to the corresponding
exhibit number to the Registrants Registration Statement
Amendment No. 2 on Form SB-2, Registration No.
333-5240-NY.
(4) Incorporated herein by reference to the corresponding
exhibit number to the Registrants Annual Report on Form
10-KSB for the fiscal year ended June 30, 1997, filed on
September 29, 1997, Commission File No. 000-28876.
(5) Incorporated herein by reference to the corresponding
exhibit number to the Registrants Annual Report on Form
10-KSB for the fiscal year ended June 30, 1998, filed on
September 23, 1998, Commission File No. 000-28876.
(6) Previously filed.
(7) Filed herewith.
(b) Form 8-K filed May 10, 1999 reported change in accounting firm on May 5,
1999.
10
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Item 7: Consolidated Financial Statements
<S> <C> <C>
Independent Auditors' Reports ........................................F-2 ........F-3
Consolidated Balance Sheet as of June 30, 1999 .......................F-4 ........F-5
Consolidated Statements of Operations for the years
ended June 30, 1999 and 1998 .........................................F-6
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1999 and 1998 .........................................F-7
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998 ...............................................F-8 ........F-9
Notes to Consolidated Financial Statements ..........................F-10 .......F-19
</TABLE>
----------
F1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Chem International, Inc.
We have audited the accompanying consolidated balance sheet of Chem
International, Inc. and its subsidiaries as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Chem International, Inc. and its subsidiaries as of June 30, 1999, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/
Edison, New Jersey
August 31, 1999
F2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Chem International, Inc.
We have audited the accompanying consolidated balance sheet of Chem
International, Inc. and its subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two fiscal years in the period then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Chem International, Inc. and its subsidiaries as of June 30, 1998, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period then ended in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
August 14, 1998
F3
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 299,030
Accounts Receivable-Net 2,003,220
Inventories 3,478,627
Prepaid Expenses and Other Current Assets 94,788
Deferred Income Taxes 244,000
Refundable Federal Income Taxes 41,645
----------
Total Current Assets 6,161,310
----------
Property and Equipment-Net 1,538,268
----------
Other Assets:
Security Deposits and Other Assets 103,056
----------
Total Assets $7,802,634
==========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F4
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 2,654,811
Notes Payable 550,087
Accrued Expenses and Other Current Liabilities 346,690
Accrued Expenses-Related Party 75,000
Capital Lease Obligation 37,261
-----------
Total Current Liabilities 3,663,849
-----------
Non-Current Liabilities:
Notes Payable 138,829
Notes Payable-Related Party 711,174
Capital Lease Obligation 30,290
-----------
Total Non-Current Liabilities 880,293
-----------
Commitments and Contingencies [14] --
Stockholders' Equity:
Preferred Stock-Authorized 1,000,000 Shares,
$.002 Par Value, No Shares Issued --
Common Stock-Authorized 25,000,000 Shares,
$.002 Par Value, 5,178,300 Shares Issued and Outstanding 10,357
Additional Paid-in Capital 4,847,405
(Deficit)/Retained Earnings (1,599,270)
-----------
Total Stockholders' Equity 3,258,492
-----------
Total Liabilities and Stockholders' Equity $ 7,802,634
===========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F5
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended
-----------
June 30,
-----------
1999 1998
---- ----
<S> <C> <C>
Sales $ 12,274,448 $ 16,011,049
Cost of Sales 11,655,173 12,841,937
------------ ------------
Gross Profit 619,275 3,169,112
Selling and Administrative Expenses 3,275,723 3,197,047
------------ ------------
Operating [Loss] (2,656,448) (27,935)
------------ ------------
Other Income [Expense]:
Gain on Sale of Equipment 1,500 --
Interest Expense (63,018) (80,616)
Interest Expense-Related Party (75,227) (7,051)
Interest and Investment Income 586 19,936
[Loss] on Investment in Partnership -- (5,000)
[Loss] on Note Receivable -- (33,058)
------------ ------------
Other [Expense]-Net (136,159) (105,789)
------------ ------------
[Loss] Before Income Taxes (2,792,607) (133,724)
Federal and State Income Tax [Benefit] (164,174) (36,286)
------------ ------------
Net [Loss] $ (2,628,433) $ (97,438)
============ ============
Net [Loss] Per Common Share
Basic and Diluted $ (.51) $ (.02)
============ ============
Weighted Average Common Share Outstanding 5,178,300 4,725,460
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F6
<PAGE>
CHEM INTERNATIONAL, AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30,
1999 AND
<TABLE>
<CAPTION>
Additional Total
---------- -----
Common Stock Preferred Paid-in Retained Stockholders'
------------ --------- ------- -------- -------------
Shares Par Value Stock Capital Earnings Equity
------ --------- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance-July 1, 1997 4,335,000 $ 8,670 $ -- $ 4,196,072 $ 1,126,601 $ 5,331,343
Imputed Interest on Note Payable-
Related Party -- -- -- 7,051 -- 7,051
Common Stock Issued in Payment
of Debt 843,300 1,687 -- 571,757 -- 573,444
Issuance of Stock Options -- -- -- 4,343 -- 4,343
Fair Value of Stock Purchase
Warrant [6B] -- -- -- 68,182 -- 68,182
Net [Loss] -- -- -- -- (97,438) (97,438)
------- ----------- ----------- -----------
Balance-June 30, 1998 5,178,300 10,357 -- 4,847,405 1,029,163 5,886,925
Net [Loss]
(2,628,433) (2,628,433)
----------- --------- ------- ----------- ----------- -----------
Balance-June 30, 1999 5,178,300 $ 10,357 $ -- $ 4,847,405 $(1,599,270) $ 3,258,492
=========== ========= ======= =========== =========== ===========
</TABLE>
F7
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended
-----------
June 30,
--------
1999 1998
----------- -----------
<S> <C> <C>
Operating Activities:
Net [Loss] $(2,628,433) $ (97,438)
----------- -----------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization 403,198 413,060
Write-off of Goodwill 275,891 --
Amortization of Discount on Note Payable 22,727 6,629
Deferred Income Taxes (144,000) (83,000)
Imputed Interest on Note Payable-Related Party -- 7,051
Loss on Investment in Partnership -- 5,000
Interest Income on Note Receivable -- (12,368)
Write-off of Note Receivable -- 33,058
Bad Debt Expense 336,450 13,240
Consulting Expense -- 4,343
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 1,121,267 (1,031,469)
Inventories 43,183 (1,435,444)
Prepaid Expenses and Other Current Assets 82,569 97,032
Prepaid Pension Costs -- 340,291
Security Deposits and Other Assets (3,433) 11,868
Refundable Federal Income Taxes (41,645) 240,000
Increase [Decrease] in:
Accounts Payable (182,231) 1,075,080
Federal and State Income Taxes Payable (40,000) (1,416)
Accrued Expenses and Other Liabilities 271,251 330
----------- -----------
Total Adjustments 2,145,227 (316,715)
----------- -----------
Net Cash-Operating Activities-Forward (483,206) (414,153)
----------- -----------
Investing Activities:
Investment in Officers Life Insurance -- (20,375)
Purchase of Property and Equipment (290,111) (974,385)
Loans to Stockholders (7,633) --
Repayment of Loans by Stockholders -- 2,044
Repayment of Note Receivable -- 250,000
[Loan to] Repayment of Loan to Related Party -- 2,500
----------- -----------
Net Cash-Investing Activities-Forward $ (297,744) $ (740,216)
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F8
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended
-----------
June 30,
--------
1998 1999
----------- -----------
<S> <C> <C>
Net Cash-Operating Activities-Forwarded $ (483,206) $ (414,153)
----------- -----------
Net Cash-Investing Activities-Forwarded (297,744) (740,216)
----------- -----------
Financing Activities:
Proceeds from Notes Payable 670,000 581,886
Proceeds from Notes Payable-Related Party -- 750,000
Repayment of Notes Payable (546,423) (231,370)
----------- -----------
Net Cash-Financing Activities 123,577 1,100,516
----------- -----------
Net [Decrease] Increase in Cash and Cash Equivalents (657,373) (53,853)
Cash and Cash Equivalents-Beginning of Years 956,403 1,010,256
----------- -----------
Cash and Cash Equivalents-End of Years $ 299,030 $ 956,403
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 89,000 $ 55,000
Income Taxes 62,000 75,000
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F9
<PAGE>
CHEM INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Business
Chem International, Inc. [the "Company"] is engaged primarily in the
manufacturing, marketing and sales of vitamins, nutritional supplements and
herbal products. Its customers are located primarily throughout the United
States and Europe.
[2] Liquidity
During July 1999, Chem International and Subsidiaries [the "Company"] refinanced
its current debt with a financial institution (see Note 17) to provide working
capital.
Although the Company anticipates operating losses during the 2000 fiscal year,
the Company believes that the available cash on hand and the operating plan for
1999 will provide sufficient working capital to meet its needs for the current
year.
Current operating plans include an enhanced marketing focus on an identified new
customer group with higher anticipated margins.
[3] Summary of Significant Accounting Policies
Principles of Consolidation- The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly-owned. Intercompany transactions and balances have been eliminated in
consolidation.
Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety
of methods and assumptions, which are based on estimates of market conditions
and risks existing at the time. For certain instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable, and
accrued expenses, it was estimated that the carrying amount approximated fair
value because of the short maturities of these instruments. All debt is based on
current rates at which the Company could borrow funds with similar remaining
maturities and approximates fair value.
Cash and Cash Equivalents- Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Inventories- The inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Depreciation- The Company follows the general policy of depreciating the cost of
property and equipment over the following estimated useful lives:
Leasehold Improvements 15 Years
Machinery and Equipment 7 Years
Machinery and Equipment Under Capital Leases 7 Years
Transportation Equipment 5 Years
F10
<PAGE>
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[3] Summary of Significant Accounting Policies [Continued]
Machinery and equipment are depreciated using accelerated methods while
leasehold improvements are amortized on a straight-line basis. Depreciation
expense was $397,205 and $401,072 for the years ended June 30,1999 and 1998,
respectively. Amortization of equipment under capital leases is included with
depreciation expense.
Goodwill- At December 31, 1998, goodwill with a carrying value of $275,891,
which arose in connection with the acquisition of the Company's principal
operating business subsidiary, was written down to zero due to impairment. The
write-off of goodwill is included in the June 30, 1999 income statement as part
of selling and administrative expenses.
Amortization expense was $5,993 and $11,987 for the years ended June 30, 1999
and 1998.
Estimates- The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition- The Company recognizes revenue upon shipment of the
product.
Impairment- Certain long-term assets of the Company including goodwill are
reviewed at least annually as to whether their carrying value has become
impaired, pursuant to guidance established in Statement of Financial Accounting
Standards ["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". Management considers assets to be
impaired if the carrying value exceeds the future projected cash flows from
related operations. Management also re-evaluates the periods of amortization to
determine whether subsequent events and circumstances warrant revised estimates
of useful lives. As of June 30, 1999, management expects these assets to be
fully recoverable.
Advertising- Costs incurred for producing and communicating advertising are
expensed when incurred. Advertising expense was $335,232 and $447,516 for the
years ended June 30, 1999 and 1998, respectively.
[4] Inventories
Raw materials $ 1,859,870
Work-in-Process 847,134
Finished Goods 771,623
------------
Total $ 3,478,627
============
[5] Property and Equipment
Leasehold Improvements $ 1,157,960
Machinery and Equipment 2,455,065
Machinery and Equipment Under Capital Leases 109,545
Transportation Equipment 32,152
-----------
3,754,722
Total
Less: Accumulated Depreciation and Amortization 2,216,454
-----------
Total $ 1,538,268
===========
F11
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[6] Notes Payable
<TABLE>
<CAPTION>
Related Party
-------------
Notes Payable Note Payable Total
------------- ------------ -----
<S> <C> <C> <C>
Notes Payable:
Bio Merieux Vitek, Inc. (a) $ 50,083 $ -- $ 50,083
Chairman of the Board and
Chief Executive Officer (b) -- 711,174 711,174
First Union Bank:
Revolving Line-of -Credit (c) 500,000 -- 500,000
Equipment Term Loan (d) 138,833 -- 138,833
---------- ---------- ----------
Totals 688,916 711,174 1,400,090
Less: Current Portion 550,087 -- 550,087
---------- ---------- ----------
Noncurrent Portion $ 138,829 $ 711,174 $ 850,003
========== ========== ==========
</TABLE>
(a) Five year 10% equipment note dated April 1, 1997 providing for monthly
payments of $1,698 for principal and interest. The note is collateralized by
laboratory equipment.
(b) Three year non-collateralized 7% promissory note for $750,000 with related
party providing for quarterly payments of $4,725 representing interest only. The
note matures on March 12, 2001. As additional consideration for the loan and in
the light of the below market interest rate and uncollateralized nature of the
loan, the Corporation issued a Class C Warrant to purchase 150,000 shares of
common stock at the aggregate purchase price of $1.75 per share. The note is
recorded net of $68,182, which represents the fair value of the Class C Warrant.
The amortization at June 30, 1999 and 1998 was $22,727 and $6,629 respectively,
and is classified as interest expense in the Company's financial statements. The
warrant is exercisable for a four year period commencing one year after the
issuance of the note and expires on March 12, 2003.
(c) Under the terms of a revolving line of credit which expired on July 27,1999,
the Company may borrow up to $500,000 at 1% above the bank's prime lending rate.
The loan was collateralized by assets of Manhattan Drug Company, Inc. The loan
has been guaranteed by the Company's principal stockholder. At June 30, 1999,
the interest rate was 8.75 %.
(d) Under the terms of a five year equipment term loan, dated July 27, 1998, the
Company may borrow up to $395,000 at 1.5% above the bank's prime interest rate.
The term loan provides for monthly payments of $2,834 for principal and monthly
payments of interest. The loan is collateralized by the assets of Manhattan Drug
Company, Inc. The loan has been guaranteed by the Company's principal
stockholder. At June 30, 1999, the interest rate was 9.25%.
The loan agreement with First Union Bank contains certain financial covenants
relating to the maintenance of specified liquidity, debt to equity and debt
coverage ratios and requires that the Company's president and principal
stockholder maintain a minimum stock ownership percentage of the Company. The
Company was not in compliance with its debt coverage ratio on a consolidated
basis at June 30, 1999.
F12
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[6] Notes Payable [Continued]
The following are maturities of long-term debt for each of the next five years:
Related Party
Notes Payable Note Payable Total
------------- ------------ -----
June 30,
2000 $ 550,087 $ -- $ 550,087
2001 51,773 -- 51,773
2002 50,223 711,174 761,397
2003 34,000 -- 34,000
2004 2,833 2,833
---------- ---------- ----------
Totals $ 688,916 $ 711,174 $1,400,090
- ------ ========== ========== ==========
[7] Capital Lease
Certain operating equipment is under a long-term lease, which expires in March
2001. This equipment as of June 30, 1999 had a cost of $109,545 and accumulated
depreciation of $42,722 with a net book value of $66,823.
The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at June 30, 1999 are as follows:
Total Minimum Lease Payments $ 104,900
Amount Representing Interest 37,349
------------
Present Value of Net Minimum Lease Payments 67,551
Current Portion (37,261)
------------
Long-Term Capital Lease Obligation $ 30,290
============
F13
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[8] Income Taxes
Deferred tax attributes resulting from differences between financial accounting
amounts and tax bases of assets and liabilities at June 30, 1999 follow:
Current assets and liabilities
Allowance for doubtful accounts $ 75,000
Inventory overhead capitalization 25,000
Reserve for slow moving inventory 70,000
Net operating loss carryforward 288,000
Other accruals 79,000
---------
537,000
Valuation allowance (293,000)
---------
Net current deferred tax asset (liability) $ 244,000
=========
Non-current assets and liabilities
Depreciation $ 24,000
Other accruals 6,000
---------
30,000
Valuation Allowance (30,000)
---------
Net noncurrent deferred tax asset (liability) $ --
=========
The provision for income taxes consists of the following:
June 30,
1999 1998
---- ----
Deferred tax (benefit) $(467,000) $(83,000)
Current tax expense (20,174) 46,714
Net change in valuation allowance 323,000 --
--------- --------
$(164,174) $(36,286)
A partial valuation reserve has been established for those loss carryforwards
and deductible temporary differences which are not presently considered more
likely than not to be fully realized.
The statutory income tax rate differs from the effective tax rate used in the
financial statements as a result of the permanent differences, change in
statutory tax rate and current year net operating losses, the benefit of which
is not being recognized in the current year.
As of June 30, 1999, the Company has the following net operating loss
carryforwards for tax purposes:
Expiration Date:
For the Year Ending
June 30, Federal State
-------- ------- -----
2003 $ -- $ 13,000
2004 -- 375,000
2005 -- 231,000
2007 -- 1,514,000
2019 1,237,000
F14
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[9] Profit-Sharing Plan
The Company maintains a profit-sharing plan, which qualifies under Section
401(k) of the Internal Revenue Code, covering all nonunion employees meeting age
and service requirements. Contributions are determined by matching a percentage
of employee contributions. The total expense for the years ended June 30, 1999
and 1998 was $56,930 and $43,257, respectively.
[10] Significant Risks and Uncertainties
[A] Concentrations of Credit Risk-Cash- The Company maintains balances at
several financial institutions. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. At June 30, 1999, the
Company's uninsured cash balances totaled approximately $263,856. The Company
does not require collateral in relation to cash credit risk.
[B] Concentrations of Credit Risk-Receivables- The Company routinely assesses
the financial strength of its customers and, based upon factors surrounding the
credit risk of its customers, establishes an allowance for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit
risk exposure beyond such allowances is limited. The Company does not require
collateral in relation to its trade accounts receivable credit risk. The amount
of the allowance for uncollectible accounts at June 30, 1999 is $350,750.
[11] Major Customer
For the years ended June 30, 1999 and 1998, approximately 55% or $6,700,000 and
44% or $7,000,000 of revenues were derived from one customer. The loss of this
customer would have an adverse affect on the Company's operations. In addition,
for the years ended June 30, 1999 and 1998, an aggregate of approximately 11%
and 19%, respectively, of revenues were derived from two other customers; no
other customers accounted for more than 10% of consolidated sales for the years
ended June 30, 1999 and 1998. Accounts receivable from these customers comprised
approximately 61% and 48% of total accounts receivable at June 30, 1999 and
1998, respectively.
[12] Commitments and Contingencies
[A] Leases
Related Party Leases- Certain manufacturing and office facilities are leased
from Gerob Realty Partnership ["Gerob"] whose partners are stockholders of the
Company. The lease, which expires on December 31,1999 provides for a minimum
annual rental of $60,000, plus payment of all real estate taxes. Rent and real
estate tax expense for the years ended June 30, 1999 and 1998 on this lease was
approximately $68,000 and $116,000, respectively. Unpaid rent of $75,000 due to
Gerob at June 30, 1999 has been separately disclosed as accrued expenses on the
consolidated balance sheet.
Other warehouse and office facilities are leased from Vitamin Realty Associates,
L.L.C., a limited liability company, which is 90% owned by the Company's
chairman and principal stockholder and certain family members and 10% owned by
the Company's Chief Financial Officer. The lease was effective on January 10,
1997 and provides for minimum annual rental of $346,000 through January 10, 2002
plus increases in real estate taxes and building operating expenses. At its
option, the Company has the right to renew the lease for an additional five year
period. Rent expense for the years ended June 30, 1999 and 1998 on this lease
was approximately $460,000 and $450,000.
Other Lease Commitments- The Company leases warehouse equipment for a five year
period providing for an annual rental of $15,847 and office equipment for a five
year period providing for an annual rental of $8,365.
The Company leases automobiles under non-cancelable operating lease agreements,
which expire through 2001.
F15
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- --------------------------------------------------------------------------------
[12] Commitments and Contingencies [Continued]
The minimum rental commitment for long-term non-cancelable leases is as follows:
Related
Year Ending Lease Party Lease
June 30, Commitment Commitment Total
-------- ---------- ---------- -----
2000 $ 48,923 $346,000 $394,923
2001 28,072 346,000 374,072
2002 19,553 182,611 202,164
2003 -- -- --
2004 -- -- --
Thereafter -- -- --
-------- -------- --------
Total $ 96,548 $874,611 $971,159
----- ======== ======== ========
Total rent expense, including real estate taxes and maintenance charges, was
approximately $527,000 and $568,000 for the years ended June 30, 1999 and 1998,
respectively. Rent expense is stated net of sublease income of approximately
$18,000 and $16,000 for the years ended June 30, 1999 and 1998, respectively.
[B] Employment Agreements- Effective July 1, 1999, the Company entered into
three year employment agreements with its four executive officers which provide
for aggregate annual salaries of $485,000 for the year ending June 30, 2000, and
$495,000 for the years ending June 30, 2001 and 2002, respectively. These
agreements are subject to annual increases equal to at least the increase in the
consumer price index for the Northeastern area.
[C] Investment in and Royalties Receivable from Martin Health Care Products,
Inc.- On February 10, 1998, the Company signed an exclusive manufacturer
agreement with Martin Health Care Products, Inc. (MHC) to provide to MHC certain
products for a ten year period. In connection with the agreement, the Company
also agreed to forgive from MHC outstanding invoices totaling $22,000. In return
for the forgiveness, MHC agreed to pay to the Company a royalty on sales of
certain products and to issue to the Company 15,000 shares of common stock at
$1,000. The Company has recorded the royalties as a non-current asset in the
amount of $21,000.
[D] Litigation- The Company is unable to predict its ultimate financial exposure
with respect to its prior sale of certain products which may have contained
allegedly contaminated Tryptophan which is the subject of numerous lawsuits
against unrelated manufacturers, distributors, suppliers, importers and
retailers of that product. However, management does not presently believe the
outcome of these actions will have a material adverse effect on the Company.
On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material which was used in manufacturing of tablets sold by
Manhattan Drug Company. On July 17, 1997, the Company issued a voluntary recall
to three customers affected by this and, accordingly, reduced its sales and
accounts receivable at June 30, 1997 by $127,000. The Company believes they have
recourse against the supplier for the full value of the tablets sold containing
the recalled raw material. The Company does not believe there will be any
significant additional costs relating to this recall. On September 30, 1997, the
Company instituted suit to recover all damages. On February 10, 1999 the Company
settled the suit and filed a Stipulation of Dismissal.
[E] Consulting Agreements- The Company entered into a consulting agreement with
a financial advisory group ["Consultants"] commencing on March 20, 1998 until
February 28, 1999. The Company is obligated to pay $2,500 for services rendered
at the end of each month that services are provided during the terms of this
agreement. In addition, the Company has issued to the Consultants three options
for 45,000 shares of common stock. Each option is exercisable for 15,000 shares
at exercise prices of $1.125, $2.50 and $4.00, respectively. These options are
exercisable until March 20, 2003.
F16
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------
[F] Development and Supply Agreement- On April 9, 1998, the Company signed a
development and supply agreement with Herbalife International of America, Inc.
["Herbalife"] whereby the Company will develop, manufacture and supply certain
nutritional products to Herbalife through December 31, 2000.
[G] Manufacturing Agreement- On February 14, 1998, the Company signed a
manufacturing agreement with Pilon International, PLC., a company that supplies
Zepter International, a world-wide direct sales distributor of consumer
products. The Company will manufacture and develop dietary supplements through
the year 2001.
[13] Related Party Transactions
During the year ended June 30, 1997, the Company entered into a consulting
agreement with the brother of the Company's Chairman of the Board on a month to
month basis for $1,100 per month for 1999, and $1,000 per month for 1998. The
total consulting expense recorded per this verbal agreement for the years ended
June 30, 1999 and 1998, by the Company was $13,200 and $12,000, respectively.
[14] Equity Transactions
[A] Stock Option Plan - The Company has adopted a stock option plan for the
granting of options to employees, officers, directors and consultants of the
Company to purchase up to 2,000,000 shares of common stock, at the discretion of
the Board of Directors. Stock option grants are limited to a total of 1,000,000
shares for "incentive stock options" and 1,000,000 shares for "non-statutory
options" and may not be priced less than the fair market value of the Company's
common stock at the date of grant. Options granted are generally for ten year
periods, except that options granted to a 10% stockholder [as defined] are
limited to five year terms. On October 16, 1996, options to purchase 573,597
shares at the offering price [$3.50] and 25,974 shares at 110% of the offering
price were granted. Such options became exercisable on October 16, 1997. The
weighted average grant date fair value of the above options was $3.50.
During the year ended June 30, 1999 the Company issued to its employees 219,998
stock options at an exercise price equal to the market price ($1.50) on the date
of grant and 60,606 stock options at an exercise price equal to 110% of the
market price ($1.65). Additionally, the Company issued to members of its medical
advisory board 40,000 stock options equal to the market price ($1.50). The cost
of issuing these stock options to the medical advisory board is approximately
$50,000. The weighted average fair value of the stock options granted to the
medical advisory board is estimated at $1.25 using the Black-Scholes option
pricing model and using a risk-free interest rate of 6%, expected volatility of
167%, and an expected life of 10 Years. No dividends are expected to be paid
during the life of the options.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employees stock options under
the fair-value method. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for June 30:
1999 1998
---- ----
Risk-free interest rate 6.0% 6.0%
Expected volatility 167.0% 124.1%
Dividend yield -- --
Expected life 7.0 years 6.5 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair-value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F17
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------
[14] Equity Transactions [Continued]
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's life. The Company's pro forma
information follows:
1999 1998
---- ----
Pro forma net loss $ (2,993,088) $ (97,438)
============ =========
Pro forma loss per share
Basic $ (.58) $ (0.02)
============ =========
Diluted $ (.58) $ (0.02)
============ =========
There was no compensation expense recorded from stock options for the years
ended June 30, 1999 and 1998.
A summary of the Company's stock option activity, and related information for
the years ended June 30, follows:
<TABLE>
<CAPTION>
Remaining
---------
Contractual
-----------
Weighted Average Life
---------------- ----
Exercise Price of Options
-------------- ----------
Options Per Share Outstanding
------- --------- -----------
<S> <C> <C> <C>
Options Outstanding-June 30, 1996 -- -- --
Granted:
Exercise Price Equals Market Price 573,597 $ 3.50 7.3 Years
Exercise Price is Greater Than Market Price 25,974 3.85 2.3 Years
Options Exercised -- -- --
Options Canceled -- -- --
-------- --------- ---------
Options Outstanding-June 30, 1997 599,571 3.52 6.4 Years
Granted:
Exercise Price is Greater Than Market Price 45,000 2.54 3.8 Years
Options Exercised -- -- --
Options Canceled -- -- --
-------- --------- ---------
Options Outstanding-June 30, 1998 644,571 3.45 6.5 Years
Granted:
Exercise Price Equals Market Price 259,998 1.50 9.3 Years
Exercise Price is Greater Than Market Price 60,606 1.65 4.3 Years
Options Exercised -- -- --
Options Canceled (25,000) 3.50 --
-------- --------- ---------
Options Outstanding and Exercisable-
June 30, 1999 940,175 2.82 7.0 Years
======== ========= =========
</TABLE>
[B] Consultant Agreement/Stock Options- In connection with a consulting
agreement dated March 20, 1998, the Company has issued three options for 45,000
shares of common stock [See Note 12E]. Each option is exercisable for 15,000
shares at exercise price of $1.125, $2.50 and $4.00, respectively. These options
are exercisable until five years following the date of this agreement.
F18
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- --------------------------------------------------------------------------------
[14] Equity Transactions [Continued]
[C] Related Party Debt Conversion- On January 12, 1998, the Company signed a
Stock Sale Agreement with Gerob. Under the terms of the agreement, the Company
sold 843,300 shares of common stock to Gerob. The issuance of the stock was in
consideration of $297,000 of past due rent and the satisfaction of a promissory
note of 276,444.
[D] Related Party Promissory Note- On March 12, 1998, the Company negotiated a
three year promissory note for $750,000 with its Chairman and then President.
The note bears interest at 7% and is due on March 12, 2001. The note provides
for interest only to be paid quarterly. As additional consideration for the loan
and in the light of the below market interest rate and uncollateralized nature
of the loan, the Corporation issued a Class C Warrant to purchase 150,000 shares
of common stock at the aggregate purchase price of $1.75 per share. The note is
recorded net of $68,182, which represents the fair value of the Class C
Warrants. Amortization of $22,727 and $6,629 was recorded for the warrants at
June 30, 1999 and 1998, respectively. The warrant is exercisable for a four year
period commencing one year after the issuance of the note and expires on March
12, 2003. [See Note 6B].
[15] New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, AAccounting for Derivative
Instruments and Hedging Activities@. Statement No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities and measure them at fair value. Under certain circumstances, the
gains or losses from derivatives may be offset against those from the items the
derivatives hedge against. The Company will adopt SFAS No. 133 in the fiscal
year ending June 30, 2001. SFAS No. 133 is not expected to have a material
impact on the financial statements.
[16] Year 2000 Issue
The Company has spent approximately $55,000 through June 30, 1999 to modify its
computer information systems enabling proper processing of transactions relating
to the year 2000 ("Y2K") and beyond. The Company installed a new network system
in October of 1998 at a cost of approximately $20,000 whose hardware and
software is Y2K compliant. The Company has also spent 35,439 to provide the
necessary upgrades and modifications to the Company's existing manufacturing
program to insure Y2K compliance. The new software program is installed and is
currently being tested. The Company intends to be fully Y2K compliant by
September 30, 1999. The Company's suppliers and vendors have been contacted, and
most have responded with their intent to be Y2K compliant by the year 2000. At
this time, the Company believes based on their responses, that there will be no
disruption of their business. The Company does not expect the amounts required
to be expended over the next twelve months to have a material effect on its
financial position or results of operations.
[17] Subsequent Events
On July 27, 1999, the Company renewed its financing agreement with First Union
Bank providing for a $500,000 revolving line of credit with interest at 1% above
the bank's prime lending rate and expiring on July 31, 2000, and a $138,833 four
equipment loan with interest at 1.50% above the bank's prime lending rate
expiring June 30, 2003. The financing is personally guaranteed by the Chairman
of the Board of the Company, and is collateralized by a security interest in all
the assets of Manhattan Drug Company, Inc. As additional collateral, the
Chairman of the Board of the Company has granted the bank a security interest in
his securities account maintained by First Union Brokerage Services.
F19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
Date: September 23, 1999 By: /s/ Seymour Flug
-----------------------------------------
Seymour Flug,
President and Chief Executive Officer
Date: September 23, 1999 By: /s/ Eric Friedman
---------------------------------------
Eric Friedman,
Chief Financial Officer
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated July 1, 1999, between Chem International, Inc., a
Delaware corporation, with offices at 201 Route 22, Hillside, New Jersey 07205,
("Corporation"), and Eric Friedman ("Employee").
WHEREAS, the Corporation is in the business of manufacturing, marketing and
selling vitamins and nutritional supplements; and
WHEREAS, Corporation desires to employ Employee, and Employee desires to be
so employed, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Employment. The Corporation agrees to employ the Employee, and the Employee
agrees to be so employed by the Corporation, in the capacity of Chief
Financial Officer. The term of this agreement shall commence on July 1,
1999 and shall continue until June 30, 2002 (the "Expiration Date") or the
earlier termination of this Agreement in accordance with Section 4 below
(the "Employment Term").
2. Duties. Employee shall devote his full business time and best efforts to
the Corporation in fulfilling his duties consistent with the office of Vice
President. Employee's duties shall consist of those duties delegated to
Employee from time to time by the Corporation's President or Board of
Directors. Employee shall at all times discharge his duties in consultation
with, and subject to the authority of, the Corporation's President.
3. Compensation.
(a) Salary. For each contract year (July 1-June 30) or part thereof during
the Employment Term, Employee shall be paid an annual salary in weekly
installments equal to $ 215,000 (the "Financial Compensation"). On or
before the first day of each contract year during the Employment Term
commencing with the July 1, 2000 contract year the Corporation and
Employee shall negotiate an increase in Employee's salary for such
succeeding contract year. Upon failure of the parties to agree on such
increase, Employee's salary shall be increased by a percentage equal
to the percentage increase in the consumer price index for all urban
consumers, Northeastern area, for the preceding calendar year.
(b) Stock Compensation. Employee shall be entitled to participate in the
Corporation's qualified and non qualified stock option plans ("Plans")
during each full year during the term of this Agreement (the "Stock
Compensation") on a basis commensurate with his salary and considering
the amount of stock awarded to other management employees.
<PAGE>
(c) Benefits. During each contract year of the term of this Agreement,
Employee shall receive such other benefits as are available to other
management employees of the Corporation. Employee shall also receive
an automobile allowance in an amount to be determined by the President
of the Corporation.
4. Termination During Employment Term.
(a) This Agreement may be terminated prior to the Expiration Date, at the
option of the Corporation, immediately upon written notice to Employee
for Cause (as hereafter defined). In the event of such termination,
Employee shall only be entitled to his unpaid Financial Compensation
through the date of termination but shall not be entitled to any
unpaid Stock Compensation unless required by law. "Cause" as used
herein, shall be defined as any one of the following:
(i) The absence (for any reason other than scheduled and pre-approved
leaves or vacations or sickness or disability) of Employee from
his employment for a continuous period of more than 30 days.
(ii) The theft or fraud by Employee involving the Corporation or the
conviction of Employee of an indictable criminal offense
punishable by a fine of $1,000 or more and/or a jail term of six
(6) months or more.
(iii) The willful disregard by Employee of express directions from the
President or the Board of Directors provided that prior to
termination, Employee shall be given written notice of the
problem and a reasonable period in which to cure the same.
(b) This Agreement may be terminated, at the option of the Corporation,
without Cause, upon not less than thirty (30) days written notice. In
such event, Employee shall be entitled to the full Financial
Compensation to Employee for the remainder of the Employment Term and
shall only be entitled to any unpaid Stock Compensation in accordance
with the terms of the Plans.
(c) This Agreement may be terminated at any time by Employee upon thirty
(30) days prior written notice. In such event Employee shall only be
entitled to the Financial Compensation unpaid through the date of
termination and shall not be entitled to any unpaid Stock
Compensation.
5. Restrictive Covenants.
(a) Proprietary Property. Employee acknowledges that in the course of his
employment with the Corporation, the Corporation will provide Employee
with, or access to, memoranda, files, records, trade secrets and other
proprietary information and property of the Corporation, including
information regarding the Corporation and operations, market
structures, processes, data, programs, inventions, techniques,
marketing plans, strategies, forecasts, new products, systems,
financial information, budgets, projections, licenses, prices, costs,
and customer supplier lists (collectively the "Proprietary Property")
as is necessary or desirable to assist Employee in the performance of
his employment duties hereunder. Employee acknowledges that the
Proprietary Property, and all information and intellectual property
and other data
<PAGE>
developed by Employee in connection with his employment duties,
including any inventions, patents, trademarks, copyrights, ideas,
creations, and properties (also hereafter included in the term
"Proprietary Property"), is the sole and exclusive property of the
Corporation, to the extent not available to the public at large.
Employee shall have no right, title or interest of any kind or nature
in the Proprietary Property or any proceeds thereof. Employee
covenants and agrees that he shall not, directly or indirectly, during
the term of this Agreement or thereafter, communicate or divulge to,
or use for the benefit of himself or any other person or entity
without the prior written consent of its owner, any Proprietary
Property or any information in any way relating to the Proprietary
Property. The Proprietary Property shall remain the sole and exclusive
property of the Corporation, as the case may be, and upon termination
of this Agreement, Employee shall immediately thereupon return all
Proprietary Property in his possession or control to the Corporation.
(b) Employment and Post-Employment Restriction. Employee hereby covenants
and agrees that during the term of his employment hereunder, and for a
period of one (1) year after the date of any termination of his
employment with the Corporation in the event he is terminated for
Cause or voluntarily leaves prior to the end of the Employment Term,
he shall not, directly or indirectly, be engaged in any other
commercial activities or pursuits whatsoever which may in any way be
in competition with or in any conflict with the business affairs of
the Corporation in any market or geographic area in which the
Corporation is then doing business. Employee further covenants and
agrees that for one (1) year after the date of termination of his
employment hereunder (for any reason) he shall not, directly or
indirectly, pursue any party that was a customer of the Corporation on
the date of that termination for the purpose of soliciting and/or
providing to any of those customers any products, goods, or services
of the nature and type sold by the Corporation. For purposes of the
preceding sentence, a "customer" of the Corporation includes (a) any
person which the Corporation has actually contacted for the purpose of
obtaining an order for its products, goods or services and which the
Corporation, at the time of Employee's termination, is still pursuing
by regular contacts with such person, and (b) any person specifically
identified by the Corporation in any of its marketing or strategic
plans as a target for solicitation of orders for the Corporation's
products, goods or services, and with respect to which person the
Corporation, has, as of the time of Employee's termination, expended
substantial time, effort and financial resources.
(c) Remedies. Employee hereby acknowledges that his services under this
Agreement are unique and extraordinary and that irreparable injury may
result to the Corporation in the event of a breach of the terms and
conditions of this Agreement to be performed or observed by him, which
may be difficult to ascertain, and that the award of damages may not
be adequate relief to the Corporation. Employee, therefore, agrees
that in the event of his breach of any of the terms or conditions of
this Agreement to be performed or observed by him, the Corporation
shall have the right, in addition to all other remedies available in
the event of a breach of this Agreement, to injunctive or other
equitable relief against Employee.
(d) Severability. If at the time of the enforcement of subparagraphs (a),
(b) or (c) above a court shall hold that the period or scope of the
provisions thereof are unreasonable under the circumstances then
existing, the parties hereby agree that the maximum period or scope
<PAGE>
reasonable under the circumstances shall be substituted for the period
or scope stated in those subparagraphs.
6. Representations and Warranties. Employee hereby represents and warrants
that (a) he has not signed any employment agreement or restrictive covenant
of any kind with any previous employer; (b) he is not bound by the terms of
any employment agreement (written or oral) with any previous employer; and
(c) there is no restriction on the performance of his duties pursuant to
this Agreement.
7. Notices. All notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the parties
at the addresses set forth at the beginning of this Agreement or to such
other addresses as either may designate in writing to the other party.
8. Governing law. This Agreement shall be construed and enforced in accordance
with the laws of the State of New Jersey.
9. Entire contract. This Agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to the subject
matter set forth herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard hereto.
This Agreement may be amended only in a writing signed by both parties.
10. Non-waiver. A delay or failure by either party to exercise a right under
this Agreement, or a partial or single exercise of that right, shall not
constitute a waiver of that or any other right.
11. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions .
12. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
13. Modification. No modification, amendment or waiver of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto and signed by all parties.
14. Assignability and Binding Effect. Employee shall not assign any of his
rights or delegate the performance of any of his obligations hereunder
without the prior written consent of the Board of Directors. However, the
Corporation may assign any of its rights and delegate the performance of
any of its obligations hereunder to any of its successors, assigns or
successors-in-interest. Subject to the provisions of the preceding
sentences, all the terms of this Agreement shall be binding upon and shall
inure to the benefit of the parties and their legal representatives, heirs,
successors and assigns.
15. Survival of Covenants. The covenants and other provisions of this Agreement
shall survive the termination of Employee's employment pursuant to this
Agreement.
<PAGE>
IN WITNESS WHEREOF the Corporation and the Employee have signed this Agreement.
CHEM INTERNATIONAL INC.
By:
-------------------------
Seymour Flug, President
Employee
-------------------------
Eric Friedman
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated July 1, 1999, between Chem International, Inc., a
Delaware corporation, with offices at 201 Route 22, Hillside, New Jersey 07205,
("Corporation"), and Riva Sheppard ("Employee").
WHEREAS, the Corporation is in the business of manufacturing, marketing and
selling vitamins and nutritional supplements; and
WHEREAS, Corporation desires to employ Employee, and Employee desires
to be so employed, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Employment. The Corporation agrees to employ the Employee, and the Employee
agrees to be so employed by the Corporation, in the capacity of Vice
President. The term of this agreement shall commence on July 1, 1999 and
shall continue until June 30, 2002 (the "Expiration Date") or the earlier
termination of this Agreement in accordance with Section 4 below (the
"Employment Term").
2. Duties. Employee shall devote her full business time and best efforts to
the Corporation in fulfilling his duties consistent with the office of Vice
President. Employee's duties shall consist of those duties delegated to
Employee from time to time by the Corporation's President or Board of
Directors. Employee shall at all times discharge his duties in consultation
with, and subject to the authority of, the Corporation's President.
3. Compensation.
(a) Salary. For each contract year (July 1-June 30) or part thereof during
the Employment Term, Employee shall be paid an annual salary in weekly
installments equal to $100,000 (the "Financial Compensation"). On or
before the first day of each contract year during the Employment Term
commencing with the July 1, 2000 contract year the Corporation and
Employee shall negotiate an increase in Employee's salary for such
succeeding contract year. Upon failure of the parties to agree on such
increase, Employee's salary shall be increased by a percentage equal
to the percentage increase in the consumer price index for all urban
consumers, Northeastern area, for the preceding calendar year.
(b) Stock Compensation. Employee shall be entitled to participate in the
Corporation's qualified and non qualified stock option plans ("Plans")
during each full year during the term of this Agreement (the "Stock
Compensation") on a basis commensurate with his salary and considering
the amount of stock awarded to other management employees.
<PAGE>
(c) Benefits. During each contract year of the term of this Agreement,
Employee shall receive such other benefits as are available to other
management employees of the Corporation. Employee shall also receive
an automobile allowance in an amount to be determined by the President
of the Corporation.
4. Termination During Employment Term.
(a) This Agreement may be terminated prior to the Expiration Date, at the
option of the Corporation, immediately upon written notice to Employee
for Cause (as hereafter defined). In the event of such termination,
Employee shall only be entitled to his unpaid Financial Compensation
through the date of termination but shall not be entitled to any
unpaid Stock Compensation unless required by law. "Cause" as used
herein, shall be defined as any one of the following:
(i) The absence (for any reason other than scheduled and pre-approved
leaves or vacations or sickness or disability) of Employee from
his employment for a continuous period of more than 30 days.
(ii) The theft or fraud by Employee involving the Corporation or the
conviction of Employee of an indictable criminal offense
punishable by a fine of $1,000 or more and/or a jail term of six
(6) months or more.
(iii) The willful disregard by Employee of express directions from the
President or the Board of Directors provided that prior to
termination, Employee shall be given written notice of the
problem and a reasonable period in which to cure the same.
(b) This Agreement may be terminated, at the option of the Corporation,
without Cause, upon not less than thirty (30) days written notice. In
such event, Employee shall be entitled to the full Financial
Compensation to Employee for the remainder of the Employment Term and
shall only be entitled to any unpaid Stock Compensation in accordance
with the terms of the Plans.
(c) This Agreement may be terminated at any time by Employee upon thirty
(30) days prior written notice. In such event Employee shall only be
entitled to the Financial Compensation unpaid through the date of
termination and shall not be entitled to any unpaid Stock
Compensation.
5. Restrictive Covenants.
(a) Proprietary Property. Employee acknowledges that in the course of his
employment with the Corporation, the Corporation will provide Employee
with, or access to, memoranda, files, records, trade secrets and other
proprietary information and property of the Corporation, including
information regarding the Corporation and operations, market
structures, processes, data, programs, inventions, techniques,
marketing plans, strategies, forecasts, new products, systems,
financial information, budgets, projections, licenses, prices, costs,
and customer supplier lists (collectively the "Proprietary Property")
as is necessary or desirable to assist Employee in the performance of
his employment duties hereunder. Employee acknowledges that the
Proprietary Property, and all information and intellectual property
and other data
<PAGE>
developed by Employee in connection with his employment duties,
including any inventions, patents, trademarks, copyrights, ideas,
creations, and properties (also hereafter included in the term
"Proprietary Property"), is the sole and exclusive property of the
Corporation, to the extent not available to the public at large.
Employee shall have no right, title or interest of any kind or nature
in the Proprietary Property or any proceeds thereof. Employee
covenants and agrees that he shall not, directly or indirectly, during
the term of this Agreement or thereafter, communicate or divulge to,
or use for the benefit of himself or any other person or entity
without the prior written consent of its owner, any Proprietary
Property or any information in any way relating to the Proprietary
Property. The Proprietary Property shall remain the sole and exclusive
property of the Corporation, as the case may be, and upon termination
of this Agreement, Employee shall immediately thereupon return all
Proprietary Property in his possession or control to the Corporation.
(b) Employment and Post-Employment Restriction. Employee hereby covenants
and agrees that during the term of his employment hereunder, and for a
period of one (1) year after the date of any termination of his
employment with the Corporation in the event he is terminated for
Cause or voluntarily leaves prior to the end of the Employment Term,
he shall not, directly or indirectly, be engaged in any other
commercial activities or pursuits whatsoever which may in any way be
in competition with or in any conflict with the business affairs of
the Corporation in any market or geographic area in which the
Corporation is then doing business. Employee further covenants and
agrees that for one (1) year after the date of termination of his
employment hereunder (for any reason) he shall not, directly or
indirectly, pursue any party that was a customer of the Corporation on
the date of that termination for the purpose of soliciting and/or
providing to any of those customers any products, goods, or services
of the nature and type sold by the Corporation. For purposes of the
preceding sentence, a "customer" of the Corporation includes (a) any
person which the Corporation has actually contacted for the purpose of
obtaining an order for its products, goods or services and which the
Corporation, at the time of Employee's termination, is still pursuing
by regular contacts with such person, and (b) any person specifically
identified by the Corporation in any of its marketing or strategic
plans as a target for solicitation of orders for the Corporation's
products, goods or services, and with respect to which person the
Corporation, has, as of the time of Employee's termination, expended
substantial time, effort and financial resources.
(c) Remedies. Employee hereby acknowledges that his services under this
Agreement are unique and extraordinary and that irreparable injury may
result to the Corporation in the event of a breach of the terms and
conditions of this Agreement to be performed or observed by him, which
may be difficult to ascertain, and that the award of damages may not
be adequate relief to the Corporation. Employee, therefore, agrees
that in the event of his breach of any of the terms or conditions of
this Agreement to be performed or observed by him, the Corporation
shall have the right, in addition to all other remedies available in
the event of a breach of this Agreement, to injunctive or other
equitable relief against Employee.
(d) Severability. If at the time of the enforcement of subparagraphs (a),
(b) or (c) above a court shall hold that the period or scope of the
provisions thereof are unreasonable under the circumstances then
existing, the parties hereby agree that the maximum period or scope
<PAGE>
reasonable under the circumstances shall be substituted for the period
or scope stated in those subparagraphs.
6. Representations and Warranties. Employee hereby represents and warrants
that (a) he has not signed any employment agreement or restrictive covenant
of any kind with any previous employer; (b) he is not bound by the terms of
any employment agreement (written or oral) with any previous employer; and
(c) there is no restriction on the performance of his duties pursuant to
this Agreement.
7. Notices. All notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the parties
at the addresses set forth at the beginning of this Agreement or to such
other addresses as either may designate in writing to the other party.
8. Governing law. This Agreement shall be construed and enforced in accordance
with the laws of the State of New Jersey.
9. Entire contract. This Agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to the subject
matter set forth herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard hereto.
This Agreement may be amended only in a writing signed by both parties.
10. Non-waiver. A delay or failure by either party to exercise a right under
this Agreement, or a partial or single exercise of that right, shall not
constitute a waiver of that or any other right.
11. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions .
12. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
13. Modification. No modification, amendment or waiver of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto and signed by all parties.
14. Assignability and Binding Effect. Employee shall not assign any of his
rights or delegate the performance of any of his obligations hereunder
without the prior written consent of the Board of Directors. However, the
Corporation may assign any of its rights and delegate the performance of
any of its obligations hereunder to any of its successors, assigns or
successors-in-interest. Subject to the provisions of the preceding
sentences, all the terms of this Agreement shall be binding upon and shall
inure to the benefit of the parties and their legal representatives, heirs,
successors and assigns.
15. Survival of Covenants. The covenants and other provisions of this Agreement
shall survive the termination of Employee's employment pursuant to this
Agreement.
<PAGE>
IN WITNESS WHEREOF the Corporation and the Employee have signed this Agreement.
CHEM INTERNATIONAL INC.
By:
-------------------------
Seymour Flug, President
Employee
-------------------------
Riva Sheppard
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated July 1, 1999, between Chem International, Inc., a
Delaware corporation, with offices at 201 Route 22, Hillside, New Jersey 07205,
("Corporation"), and Christina Kay ("Employee").
WHEREAS, the Corporation is in the business of manufacturing, marketing and
selling vitamins and nutritional supplements; and
WHEREAS, Corporation desires to employ Employee, and Employee desires to be
so employed, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Employment. The Corporation agrees to employ the Employee, and the Employee
agrees to be so employed by the Corporation, in the capacity of Vice
President. The term of this agreement shall commence on July 1, 1999 and
shall continue until June 30, 2002 (the "Expiration Date") or the earlier
termination of this Agreement in accordance with Section 4 below (the
"Employment Term").
2. Duties. Employee shall devote her full business time and best efforts to
the Corporation in fulfilling his duties consistent with the office of Vice
President. Employee's duties shall consist of those duties delegated to
Employee from time to time by the Corporation's President or Board of
Directors. Employee shall at all times discharge his duties in consultation
with, and subject to the authority of, the Corporation's President.
3. Compensation.
(a) Salary. For each contract year (July 1-June 30) or part thereof during
the Employment Term, Employee shall be paid an annual salary in weekly
installments equal to $80,000 (the "Financial Compensation"). On or
before the first day of each contract year during the Employment Term
commencing with the July 1, 2000 contract year the Corporation and
Employee shall negotiate an increase in Employee's salary for such
succeeding contract year. Upon failure of the parties to agree on such
increase, Employee's salary shall be increased by a percentage equal
to the percentage increase in the consumer price index for all urban
consumers, Northeastern area, for the preceding calendar year.
(b) Stock Compensation. Employee shall be entitled to participate in the
Corporation's qualified and non qualified stock option plans ("Plans")
during each full year during the term of this Agreement (the "Stock
Compensation") on a basis commensurate with his salary and considering
the amount of stock awarded to other management employees.
<PAGE>
(c) Benefits. During each contract year of the term of this Agreement,
Employee shall receive such other benefits as are available to other
management employees of the Corporation. Employee shall also receive
an automobile allowance in an amount to be determined by the President
of the Corporation.
4. Termination During Employment Term.
(a) This Agreement may be terminated prior to the Expiration Date, at the
option of the Corporation, immediately upon written notice to Employee
for Cause (as hereafter defined). In the event of such termination,
Employee shall only be entitled to his unpaid Financial Compensation
through the date of termination but shall not be entitled to any
unpaid Stock Compensation unless required by law. "Cause" as used
herein, shall be defined as any one of the following:
(i) The absence (for any reason other than scheduled and pre-approved
leaves or vacations or sickness or disability) of Employee from
his employment for a continuous period of more than 30 days.
(ii) The theft or fraud by Employee involving the Corporation or the
conviction of Employee of an indictable criminal offense
punishable by a fine of $1,000 or more and/or a jail term of six
(6) months or more.
(iii) The willful disregard by Employee of express directions from the
President or the Board of Directors provided that prior to
termination, Employee shall be given written notice of the
problem and a reasonable period in which to cure the same.
(b) This Agreement may be terminated, at the option of the Corporation,
without Cause, upon not less than thirty (30) days written notice. In
such event, Employee shall be entitled to the full Financial
Compensation to Employee for the remainder of the Employment Term and
shall only be entitled to any unpaid Stock Compensation in accordance
with the terms of the Plans.
(c) This Agreement may be terminated at any time by Employee upon thirty
(30) days prior written notice. In such event Employee shall only be
entitled to the Financial Compensation unpaid through the date of
termination and shall not be entitled to any unpaid Stock
Compensation.
5. Restrictive Covenants.
(a) Proprietary Property. Employee acknowledges that in the course of his
employment with the Corporation, the Corporation will provide Employee
with, or access to, memoranda, files, records, trade secrets and other
proprietary information and property of the Corporation, including
information regarding the Corporation and operations, market
structures, processes, data, programs, inventions, techniques,
marketing plans, strategies, forecasts, new products, systems,
financial information, budgets, projections, licenses, prices, costs,
and customer supplier lists (collectively the "Proprietary Property")
as is necessary or desirable to assist Employee in the performance of
his employment duties hereunder. Employee acknowledges that the
Proprietary Property, and all information and intellectual property
and other data
<PAGE>
developed by Employee in connection with his employment duties,
including any inventions, patents, trademarks, copyrights, ideas,
creations, and properties (also hereafter included in the term
"Proprietary Property"), is the sole and exclusive property of the
Corporation, to the extent not available to the public at large.
Employee shall have no right, title or interest of any kind or nature
in the Proprietary Property or any proceeds thereof. Employee
covenants and agrees that he shall not, directly or indirectly, during
the term of this Agreement or thereafter, communicate or divulge to,
or use for the benefit of himself or any other person or entity
without the prior written consent of its owner, any Proprietary
Property or any information in any way relating to the Proprietary
Property. The Proprietary Property shall remain the sole and exclusive
property of the Corporation, as the case may be, and upon termination
of this Agreement, Employee shall immediately thereupon return all
Proprietary Property in his possession or control to the Corporation.
(b) Employment and Post-Employment Restriction. Employee hereby covenants
and agrees that during the term of his employment hereunder, and for a
period of one (1) year after the date of any termination of his
employment with the Corporation in the event he is terminated for
Cause or voluntarily leaves prior to the end of the Employment Term,
he shall not, directly or indirectly, be engaged in any other
commercial activities or pursuits whatsoever which may in any way be
in competition with or in any conflict with the business affairs of
the Corporation in any market or geographic area in which the
Corporation is then doing business. Employee further covenants and
agrees that for one (1) year after the date of termination of his
employment hereunder (for any reason) he shall not, directly or
indirectly, pursue any party that was a customer of the Corporation on
the date of that termination for the purpose of soliciting and/or
providing to any of those customers any products, goods, or services
of the nature and type sold by the Corporation. For purposes of the
preceding sentence, a "customer" of the Corporation includes (a) any
person which the Corporation has actually contacted for the purpose of
obtaining an order for its products, goods or services and which the
Corporation, at the time of Employee's termination, is still pursuing
by regular contacts with such person, and (b) any person specifically
identified by the Corporation in any of its marketing or strategic
plans as a target for solicitation of orders for the Corporation's
products, goods or services, and with respect to which person the
Corporation, has, as of the time of Employee's termination, expended
substantial time, effort and financial resources.
(c) Remedies. Employee hereby acknowledges that his services under this
Agreement are unique and extraordinary and that irreparable injury may
result to the Corporation in the event of a breach of the terms and
conditions of this Agreement to be performed or observed by him, which
may be difficult to ascertain, and that the award of damages may not
be adequate relief to the Corporation. Employee, therefore, agrees
that in the event of his breach of any of the terms or conditions of
this Agreement to be performed or observed by him, the Corporation
shall have the right, in addition to all other remedies available in
the event of a breach of this Agreement, to injunctive or other
equitable relief against Employee.
(d) Severability. If at the time of the enforcement of subparagraphs (a),
(b) or (c) above a court shall hold that the period or scope of the
provisions thereof are unreasonable under the circumstances then
existing, the parties hereby agree that the maximum period or scope
<PAGE>
reasonable under the circumstances shall be substituted for the period
or scope stated in those subparagraphs.
6. Representations and Warranties. Employee hereby represents and warrants
that (a) he has not signed any employment agreement or restrictive covenant
of any kind with any previous employer; (b) he is not bound by the terms of
any employment agreement (written or oral) with any previous employer; and
(c) there is no restriction on the performance of his duties pursuant to
this Agreement.
7. Notices. All notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the parties
at the addresses set forth at the beginning of this Agreement or to such
other addresses as either may designate in writing to the other party.
8. Governing law. This Agreement shall be construed and enforced in accordance
with the laws of the State of New Jersey.
9. Entire contract. This Agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to the subject
matter set forth herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard hereto.
This Agreement may be amended only in a writing signed by both parties.
10. Non-waiver. A delay or failure by either party to exercise a right under
this Agreement, or a partial or single exercise of that right, shall not
constitute a waiver of that or any other right.
11. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions .
12. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
13. Modification. No modification, amendment or waiver of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto and signed by all parties.
14. Assignability and Binding Effect. Employee shall not assign any of his
rights or delegate the performance of any of his obligations hereunder
without the prior written consent of the Board of Directors. However, the
Corporation may assign any of its rights and delegate the performance of
any of its obligations hereunder to any of its successors, assigns or
successors-in-interest. Subject to the provisions of the preceding
sentences, all the terms of this Agreement shall be binding upon and shall
inure to the benefit of the parties and their legal representatives, heirs,
successors and assigns.
15. Survival of Covenants. The covenants and other provisions of this Agreement
shall survive the termination of Employee's employment pursuant to this
Agreement.
<PAGE>
IN WITNESS WHEREOF the Corporation and the Employee have signed this Agreement.
CHEM INTERNATIONAL INC.
By:
-------------------------
Seymour Flug, President
Employee
-------------------------
Christina Kay
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 16, 1999, between Chem International, Inc.,
a Delaware corporation, with offices at 201 Route 22, Hillside, New Jersey
07205, ("Corporation"), and Abdulhameed Mirza ("Employee").
WHEREAS, the Corporation is in the business of manufacturing, marketing and
selling vitamins and nutritional supplements; and
WHEREAS, Corporation desires to employ Employee, and Employee desires to be
so employed, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Employment. The Corporation agrees to employ the Employee, and the Employee
agrees to be so employed by the Corporation, in the capacity of Vice
President. Employee's employment shall commence on or before March 1, 1999
and shall continue until February 28, 2001 (the "Expiration Date") or the
earlier termination of this Agreement in accordance with Section 4 below
(the "Employment Term").
2. Duties. Employee shall devote his full business time and best efforts to
the Corporation in fulfilling his duties consistent with the office of Vice
President. Employee's duties shall consist of those duties delegated to
Employee from time to time by the Corporation's President or Board of
Directors. Employee shall at all times discharge his duties in consultation
with, and subject to the authority of, the Corporation's President.
3. Compensation.
(a) Salary. For the first contract year (March 1, 1999-February 28, 2000)
or part thereof during the Employment Term, Employee shall be paid an
annual salary in weekly installments equal to $90,000 (the "Financial
Compensation"). For the second contract year (March 1, 2000-February
28, 2001) or part thereof during the Employment Term, Employee shall
be paid an annual salary in weekly installments equal to $100,000
("the Financial Compensation"). If after the expiration of the second
contract year, Corporation and employee negotiate a new compensation
agreement, the minimum annual salary for the new compensation
agreement will not be less that $100,000 per year.
(b) Stock Compensation. Employee shall be entitled to participate in the
Corporation's qualified and non qualified stock option plans ("Plans")
during each full year during the term of this Agreement (the "Stock
Compensation") on a basis commensurate with his salary and considering
the amount of stock awarded to other management employees.
(c) Benefits. During each contract year of the term of this Agreement,
Employee shall receive such other benefits as are available to other
management employees of the Corporation. Employee shall also receive
an automobile allowance in an amount to be determined by the President
of the Corporation.
<PAGE>
4. Termination During Employment Term.
(a) This Agreement may be terminated prior to the Expiration Date, at the
option of the Corporation, immediately upon written notice to Employee
for Cause (as hereafter defined). In the event of such termination,
Employee shall only be entitled to his unpaid Financial Compensation
through the date of termination but shall not be entitled to any
unpaid Stock Compensation unless required by law. "Cause" as used
herein, shall be defined as any one of the following:
(i) The absence (for any reason other than scheduled and pre-approved
leaves or vacations or sickness or disability) of Employee from
his employment for a continuous period of more than 30 days.
(ii) The theft or fraud by Employee involving the Corporation or the
conviction of Employee of an indictable criminal offense
punishable by a fine of $1,000 or more and/or a jail term of six
(6) months or more.
(iii) The willful disregard by Employee of express directions from the
President or the Board of Directors provided that prior to
termination, Employee shall be given written notice of the
problem and a reasonable period in which to cure the same.
(b) This Agreement may be terminated, at the option of the Corporation, without
Cause, upon not less than thirty (30) days written notice. In such event,
Employee shall be entitled to the full Financial Compensation to Employee
for the remainder of the Employment Term and shall only be entitled to any
unpaid Stock Compensation in accordance with the terms of the Plans.
(c) This Agreement may be terminated at any time by Employee upon thirty (30)
days prior written notice. In such event Employee shall only be entitled to
the Financial Compensation unpaid through the date of termination and shall
not be entitled to any unpaid Stock Compensation.
5. Restrictive Covenants.
(a) Proprietary Property. Employee acknowledges that in the course of his
employment with the Corporation, the Corporation will provide Employee
with, or access to, memoranda, files, records, trade secrets and other
proprietary information and property of the Corporation, including
information regarding the Corporation and operations, market
structures, processes, data, programs, inventions, techniques,
marketing plans, strategies, forecasts, new products, systems,
financial information, budgets, projections, licenses, prices, costs,
and customer supplier lists (collectively the "Proprietary Property")
as is necessary or desirable to assist Employee in the performance of
his employment duties hereunder. Employee acknowledges that the
Proprietary Property, and all information and intellectual property
and other data developed by Employee in connection with his employment
duties, including any inventions, patents, trademarks, copyrights,
ideas, creations, and properties (also hereafter included in the term
"Proprietary Property"), is the sole and exclusive property of the
Corporation, to the extent not available to the public at large.
Employee shall have no right, title or interest of any kind or nature
in the Proprietary Property or any proceeds thereof. Employee
covenants and agrees that he shall not, directly or indirectly, during
the term of this Agreement or thereafter, communicate or divulge to,
or use for the benefit of himself or any other person or entity
without the prior written consent of its owner, any Proprietary
Property or any information in any way relating to the Proprietary
Property. The Proprietary Property shall remain the sole and exclusive
property of the Corporation, as the case may be, and upon termination
of this Agreement, Employee shall immediately thereupon return all
Proprietary Property in his possession or control to the Corporation.
(b) Employment and Post-Employment Restriction. Employee hereby covenants
and agrees that during the term of his employment hereunder, and for a
period of one (1) year after the date of any termination of his
employment with the Corporation in the event he is terminated for
Cause or voluntarily leaves prior to the end of the Employment Term,
he shall not, directly or indirectly, be engaged in any other
commercial activities or pursuits whatsoever which may in any way be
in competition with or in any conflict with the business affairs of
the Corporation in any market or geographic area in which the
Corporation is then doing
<PAGE>
business. Employee further covenants and agrees that for one (1) year
after the date of termination of his employment hereunder (for any
reason) he shall not, directly or indirectly, pursue any party that
was a customer of the Corporation on the date of that termination for
the purpose of soliciting and/or providing to any of those customers
any products, goods, or services of the nature and type sold by the
Corporation. For purposes of the preceding sentence, a "customer" of
the Corporation includes (a) any person which the Corporation has
actually contacted for the purpose of obtaining an order for its
products, goods or services and which the Corporation, at the time of
Employee's termination, is still pursuing by regular contacts with
such person, and (b) any person specifically identified by the
Corporation in any of its marketing or strategic plans as a target for
solicitation of orders for the Corporation's products, goods or
services, and with respect to which person the Corporation, has, as of
the time of Employee's termination, expended substantial time, effort
and financial resources.
(c) Remedies. Employee hereby acknowledges that his services under this
Agreement are unique and extraordinary and that irreparable injury may
result to the Corporation in the event of a breach of the terms and
conditions of this Agreement to be performed or observed by him, which
may be difficult to ascertain, and that the award of damages may not
be adequate relief to the Corporation. Employee, therefore, agrees
that in the event of his breach of any of the terms or conditions of
this Agreement to be performed or observed by him, the Corporation
shall have the right, in addition to all other remedies available in
the event of a breach of this Agreement, to injunctive or other
equitable relief against Employee.
(d) Severability. If at the time of the enforcement of subparagraphs (a),
(b) or (c) above a court shall hold that the period or scope of the
provisions thereof are unreasonable under the circumstances then
existing, the parties hereby agree that the maximum period or scope
reasonable under the circumstances shall be substituted for the period
or scope stated in those subparagraphs.
6. Representations and Warranties. Employee hereby represents and warrants
that (a) he has not signed any employment agreement or restrictive covenant
of any kind with any previous employer; (b) he is not bound by the terms of
any employment agreement (written or oral) with any previous employer; and
(c) there is no restriction on the performance of his duties pursuant to
this Agreement.
7. Notices. All notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the parties
at the addresses set forth at the beginning of this Agreement or to such
other addresses as either may designate in writing to the other party.
8. Governing law. This Agreement shall be construed and enforced in accordance
with the laws of the State of New Jersey.
9. Entire contract. This Agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to the subject
matter set forth herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard hereto.
This Agreement may be amended only in a writing signed by both parties.
10. Non-waiver. A delay or failure by either party to exercise a right under
this Agreement, or a partial or single exercise of that right, shall not
constitute a waiver of that or any other right.
11. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions .
12. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
13. Modification. No modification, amendment or waiver of the provisions of
this Agreement shall be effective unless in writing specifically referring
hereto and signed by all parties.
<PAGE>
14. Assignability and Binding Effect. Employee shall not assign any of his
rights or delegate the performance of any of his obligations hereunder
without the prior written consent of the Board of Directors. However, the
Corporation may assign any of its rights and delegate the performance of
any of its obligations hereunder to any of its successors, assigns or
successors-in-interest. Subject to the provisions of the preceding
sentences, all the terms of this Agreement shall be binding upon and shall
inure to the benefit of the parties and their legal representatives, heirs,
successors and assigns.
15. Survival of Covenants. The covenants and other provisions of this Agreement
shall survive the termination of Employee's employment pursuant to this
Agreement.
IN WITNESS WHEREOF the Corporation and the Employee have signed this Agreement.
CHEM INTERNATIONAL INC.
By:
-------------------------
E. Gerald Kay, President
Employee
-------------------------
Abdulhameed Mirza
21 List of Subsidiaries of Registrant
Manhattan Drug Company, Inc. New York
Gero Industries, Inc. New Jersey
Media Consultants, Inc. Delaware
Vitamin Factory, Inc. New Jersey
Bexpol International, Inc. New Jersey
Connaught Press, Inc. New Jersey
Manhattan International, Inc. New Jersey
Bioscience Technologies, Inc. New Jersey
