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, 1997        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, 1997 were $11,126,860.

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
29, 1997 was $4,470,000.

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 29, 1997
            Common Stock $.002 par value 4,335,000 Shares
            Class A Redeemable Common Stock Purchase Warrants 1,265,000 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

                                                                         Page

Part I

  Item 1.   Description of Business                                       2

  Item 2.   Description of Properties                                     5

  Item 3.   Legal Proceedings                                             5

  Item 4.   Submission of Matters to a Vote of Security Holders           6

Part II

  Item 5.   Market for Registrant's Common Equity and Related Stockholder
            Matters                                                       7

  Item 6.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                     8

  Item 7.   Financial Statements                                         13

  Item 8.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure                          13

Part III

  Item 9.   Directors, Executive Officers, Promoters and
            Control Persons; Compliance with Section 16(a) of the
            Exchange Act                                                 13

  Item 10.  Executive Compensation                                       13

  Item 11.  Security Ownership of Certain Beneficial
            Owners and Management                                        13

  Item 12.  Certain Relationships and Related Transactions               13

  Item 13.  Exhibits and Reports on Form 8-K                             13

Signatures


<PAGE>




                                     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 judgment 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"], manufacturers 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.

Distribution Agreement

On February 17, 1997, the Company signed a  distribution  agreement  with  Roche
Vitamins,  Inc.  a  subsidiary  of Roche  Holdings  of  Switzerland.  Under  the
agreement,  the  Company,  will  service and supply  Roche  products to a select
segment of Roche's food, nutrition and cosmetic customers.

New Products

In  January  1997,   the  Company   signed  an  exclusive   agreement  with  the
International  Nutrition  Research  Center,  Inc. to market and  distribute  the
Master Amino Acid Pattern ["MAP"].  MAP is a new patented unique food supplement
in the sports  nutrition  field.  MAP represents the first  proprietary  product
developed for sale by the Company.

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  48% and 40%,  respectively,  for the fiscal  years ended June 30,
1997 and 1996.  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  certain  of  these  individuals,
particularly E. Gerald Kay, Chairman of the Board, President 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 five executive
officers,  which expire on June 30, 1999.  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.


                                        2

<PAGE>





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 cap sales 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, 1997, the Company had 77 full time employees, of whom 43 belonged
to a  local  unit  of the  Teamsters  Union  and  are  covered  by a  collective
bargaining agreement which expires August 30, 1999.

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  United  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  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  ["CGMPs"]  specific  to the
manufacture of dietary supplements,  to be modeled after food CGMPS. The Company
currently  manufactures its dietary supplement  products pursuant to food CGMPS.
The Company  believes  that it is currently in  compliance  with all  applicable
government regulations.


                                        3

<PAGE>





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  recordkeeping  and expanded  documentation of the
properties  of  certain   products  and  scientific   substantiation   regarding
ingredients, product claims, safety or 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 that 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 direct
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 results
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.


                                        4

<PAGE>



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  president
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 of  manufacturing  facilities  in Hillside,  New
Jersey from Gerob Realty  Partnership,  of which E. Gerald Kay, President of the
Company,  is a general  partner.  The lease which  expires on December  31, 1997
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 suits 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  link
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.

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  judgments.  SDA has agreed to  indemnify  Manhattan  Drug against any
judgments 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 the
outcome of 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.


                                        5

<PAGE>






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, 1997.



                                        6

<PAGE>



                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

On October 30, 1996,  the Company's  units  [Consisting  of two shares of Common
Stock and two Class A Redeemable Warrants],  Common Stock and Class A Redeemable
Warrants  commenced  trading on the National  Association of Securities  Dealers
Automated  Quotation  SmallCap  Market System  "NASDAQ" under the symbols CXILU,
CXIL and CXILW, respectively.  In November 1996 the Company unbundled its public
unit. In November 1996, the Company authorized NASDAQ to delist the Unit [CXILU]
and cease trading it. Prior to the Company's  initial public offering in October
1996 the Common Stock was traded sporadically in the over-the-counter  market on
the NASD's Electronic  Bulletin Board during the period commencing  December 18,
1995  through  May 5, 1996,  at which  time it was  voluntarily  withdrawn  from
trading.

The following table sets forth the high and low prices for each of the Unit, the
Common  Stock and the Class A  Redeemable  Warrant for the periods  indicated as
reported by NASDAQ.

UNITS [CLIXU]

Time Period:                                        HIGH         LOW

  October 30, 1996 through November 27, 1996 [Trading
   ceased on November 29, 1996]                       27           8

COMMON STOCK [CXIL]

Time Period:

  October 30, 1996 through December 31, 1996          10       5 1/4

  January 1, 1997 through March 31, 1997          10 1/4       6 1/4

  April 1, 1997 through June 30, 1997              8 3/4       2 1/2

CLASS A REDEEMABLE WARRANTS [CXILW]

Time Period:

  October 30, 1996 through December 31, 1996           5       2 1/4

  January 1, 1997 through March 31, 1997           5 1/2       2 1/2

  April 1, 1997 through June 30, 1997              4 3/4         3/8

As of June 30,  1997  there  were  approximately  163  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.


                                        7

<PAGE>




Item 6.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------


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, 1997 Compared to the Year ended June 30, 1996 

The  Company's  net [loss] for the year ended June 30,  1997 was  $(654,304)  as
compared  to net  income of  $42,198  for the year  ended  June 30,  1996.  This
decrease in net income of  approximately  $700,000 is primarily  the result of a
$1,200,000  decrease  in  operating  income  resulting  from a decrease in gross
profit of approximately  $650,000 and an increase in selling and  administrative
expenses of approximately  $550,000 for the year ended June 30, 1997 as compared
to the year ended June 30, 1996. The decrease in gross profit is due to a higher
percentage of sales to lower margin customers and an increase in raw material
costs.

Cost of sales  increased to  $9,475,624  in 1997 as compared to  $8,343,179  for
1996. Cost of sales increased as a percentage of sales to 85% as compared to 78%
for 1996. The increase in cost of sales is due to an increase in material costs.
The Company has begun to develop new raw material  suppliers whereby the Company
can achieve a lower cost of materials.

Selling  and  administrative  expenses  for the year  ended  June 30,  1997 were
$2,546,972  versus  $1,990,997  for the same period a year ago.  The increase of
$555,975 was primarily  attributable to an increase in officers' compensation of
approximately $225,000, an increase in office salaries of approximately $25,000,
a decrease in professional fees of approximately  $38,000,  a decrease in travel
and  entertainment of approximately  $21,000,  an increase in consulting fees of
approximately  $207,000, a decrease in office rent of approximately  $22,000, an
increase in  advertising  and catalog  costs of  approximately  $117,000  and an
increase in payroll tax expense of approximately $9,000.

Other income [expense] was $(4,588) for the year ended June 30, 1997 as compared
to  $(127,823)  for the same  period a year ago.  This  increase  of $123,235 is
attributable  to a decrease in sales of fixed assets of $39,000,  an increase of
$38,778 from a 50% owned partnership,  a decrease in interest expense of $85,600
and an increase in interest and investment income of $37,857.

The Company  began in July 1997 a renovation of its blending department.
Management expects the renovation to be completed by October 15, 1997 and 
expects to achieve greater manufacturing efficiencies as a result.

Sales  for the  years  ended  June  30,  1997  and  1996  were  $11,126,860  and
$10,637,797,  respectively, an increase of approximately $490,000 or 5%. For the
year ended June 30, 1997,  the Company had sales to one customer,  who accounted
for 48% of net  sales  in 1997 and 40% of net  sales  in 1996.  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, 1997 totaled $983,749 as
compared to $756,711 for the year ended June 30,  1996,  an increase of $227,038
or 30%.

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 additional terms of one year each.
Sales for the  period from February 20, 1997 through June 30, 1997 under the
agreement totaled $308,259.

In 1997, the Company signed an exclusive agreement with International  Nutrition
Research  Center,  Inc.  ["INRC"] to market and distribute the Master Amino Acid
Pattern  ["MAP"].  MAP is a new patented  unique food  supplement  in the sports
nutrition field  and is  specifically recommended for professional and weekend
athletes who need to  maximize  protein synthesis. MAP is being marketed 
exclusively by " The Vitamin Factory, Inc. " a subsidiary of the Company through
mail order. MAP represents the first  proprietary  product developed for sale by
the Company.

On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material used in the manufacturing of tablets sold containing
the recalled raw  material.  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.In September the Company instituted suit to recover
all damages.


                                        8

<PAGE>



Results of Operations [Continued]

Year ended June 30,  1997  Compared to the Year ended June 30, 1996 
[Continued]


Year ended June 30,  1996  ["Fiscal  1996"]  Compared to the Year ended June 30,
1995 ["Fiscal 1995"]

Net sales for fiscal 1996 were  $10,637,797,  a decrease of  $6,204,664,  or 37%
from $16,842,461 for fiscal 1995. The decrease is directly related to a decrease
in sales to a major  customer as well as a decrease in the total number of units
sold. Sales to such customer  accounted for  approximately 40% and approximately
76% of the Company's  total sales in fiscal 1996 and fiscal 1995,  respectively.
Retail and mail order  sales were  $756,711  for fiscal  1996,  an  increase  of
$176,135 or 30% over fiscal 1995.

Cost of sales  decreased to $8,343,179  for fiscal 1996 compared to  $13,634,757
for fiscal 1995.  Cost of sales  decreased  as a percentage  of sales to 78% for
fiscal 1996 from 81% for fiscal 1995.  The  decrease as a percentage  of product
sales was due to an increase in bottling and  packaging  services  which carry a
lower cost percentage  than bulk  manufacturing.  Additionally,  retail and mail
order sales carry a lower cost percentage.

Selling and  administrative  expenses decreased 22% to $1,990,997 in fiscal 1996
as compared to $2,543,354 for fiscal 1995. The decrease of $552,357 is primarily
attributable to the following factors: (i) a decrease in advertising expenses of
$56,424,  or 26%, to $159,447 for fiscal 1996 from $215,871 for fiscal 1995, due
to a decrease in magazine  advertising;  (ii) a decrease in professional fees of
$84,395,  or 27%, to $225,916  for fiscal 1996 from  $310,311  for fiscal  1995;
(iii) a decrease in  officers'  salaries of  $329,162,  or 61%, to $207,838  for
fiscal 1996 from  $537,000  for fiscal  1995,  as a result of a reduction in the
salary of a  corporate  officer;  and (iv) a decrease in  non-union  pension and
profit-sharing  plan  expense of  $59,675,  or 125%,  to a credit of $11,924 for
fiscal 1996 from a charge of $47,751 for fiscal 1995.

Other  income/[expense]  was  $(127,823) for fiscal 1996 as compared to $686 for
fiscal 1996. This decrease of $128,509 is attributable to the following  factors
(i) an  increase  in interest  expense of  $116,645  due to an $80,000  non-cash
charge  for debt  issuance  costs  related to the Bridge  Units,  a decrease  in
imputed interest of $15,265 and an increase in line of credit borrowings; (ii) a
loss of $36,998 in fiscal 1996 from a 50%-owned  partnership;  (iii) an increase
in sales of fixed  assets to $64,000  for fiscal  1996 from  $11,452  for fiscal
1995; and (iv) a decrease in interest and investment income of $27,414.




                                        9

<PAGE>





Liquidity and Capital Resources

At June 30, 1997,  the Company's working capital was  $4,032,402  and increase
of $ 1,687,544 over working capital at June 30, 1996. Cash and cash equivalents
were $ 1,010,256 at June 30, 1997 an increase of $ 245,191 from June 30, 1996.
The Company utilized $1,776,278 and $450,098 for  operations for the
years ended June 30, 1997 and 1996, respectively. The primary reasons for
the increase in cash utilized for  operations are (a) an increase in 
inventories of approximately  $650,000 resulting from the new product,  MAP, and
an increased  volume in the mail order business and (b) the increase in accounts
receivable of approximately $400,000 resulting from an increase of approximately
$1 million in sales for the quarter ended June 30, 1997 versus the quarter ended
June  30,  1996.  The  Company  utilized  $660,004  and  $300,874  in  investing
activities for the years ended June 30, 1997 and 1996, respectively. The Company
generated $2,681,473 from financing activities for the year ended June 30, 1997,
primarily  the net result of net  proceeds of  approximately  $3,400,000  from a
public  offering  of common  stock  offset by the  payment  of notes  payable of
approximately $1,200,000 The Company utilized $354,710 from financing activities
for the year ended June 30, 1996.

On  February  3, 1997,  the Company  received a secured  promissory  note in the
amount of $250,000 with  interest at 14% per annum.  The note is due and payable
on November 3, 1997. Advance interest of $26,250 was payable out of the proceeds
of the loan and is taken into income over the period of the loan.

On October 29,  1996,  the  Company  successfully  completed  a public  offering
whereby the Company sold 632,500 units at $7.00 per unit,  each unit  consisting
of two shares of Common Stock and two Class A Redeemable  Common Stock  Purchase
Warrants. The net proceeds to the Company after deducting underwriting discounts
and  commission of $575,575 and other  expenses of the offering of $442,310 were
$3,357,170.

The Company has a $500,000  revolving line of credit agreement with a bank which
bears  interest  at .75%  above the bank's  prime  lending  rate and  expires on
November 30, 1997. At June 30, 1997,  there was no balance due under the line of
credit  agreement.  The Company has  additionally  secured a five year equipment
term loan with interest at 1.50% over the bank's prime lending rate. At June 30,
1997, the balance due under the equipment loan was $206,653.

The Company's total annual  principal  commitments at June 30, 1997 for the next
five years of $1,709,704  consists of  obligations  under  operating  leases for
facilities and a lease agreements for the rental of warehouse equipment,  office
equipment and automobiles.

Effective July 1, 1996, the Company entered into employment agreements with each
of its five  executive  officers  providing  for aggregate  compensation  in the
amount of $580,000 for the fiscal year ending June 30, 1997. In 1998,  the total
annual employment  agreements will total $680,000.  Such compensation amounts to
an approximate increase of $200,000 as compared to fiscal 1996.

On October 29, 1996 the date of the public offering, the company repaid 
bridge lenders the principal amount due of $ 300,000 plus accrued interest.


                                       10

<PAGE>






Liquidity and Capital Resources [Continued]

Management expects to renew the $ 500,000 line of credit which expires on 
November 30, 1997. In the event that the Company requires additional working 
capital the Company would have to either increase its line of credit or engage
in sales of it's equity securities. There can be no assurance that any line of
credit increases or sales of equity securities can be accomplished on conditions
favorable to the company.

New Authoritative Pronouncements

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing of
 Financial Assets and Extinguishment of Liabilities."  SFAS No. 125 is effective
 for transfers and servicing of financial assets and extinguishment of
 liabilities occurring after December 31, 1996.  Earlier application is not
 allowed. The provisions of SFAS No. 125 must be applied prospectively
 retroactive application is prohibited.Adoption on January 1, 1997 is not
 expected to have a material impact on the Company.  The FASB
deferred some provisions of SFAS No. 125, which are not expected to be 
relevant to the Company.

The FASB issued Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,
"Earnings Per Share," and SFAS No. 129, "Disclosure of Information about Capital
Structure"  in February  1997.  SFAS No. 128  simplifies  the earnings per share
["EPS"] calculations required by Accounting Principles Board ["APB"] Opinion No.
15, and related  interpretations,  by replacing the  presentation of primary EPS
with a  presentation  of basic EPS. SFAS No. 128 requires dual  presentation  of
basic and diluted EPS by entities  with complex  capital  structures.  Basic EPS
includes no dilution  and is computed  by dividing  income  available  to common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted EPS reflects the potential  dilution of  securities  that could
share in the  earnings  of an entity,  similar to the fully  diluted  EPS of APB
Opinion No. 15. SFAS No. 128 is effective  for financial  statements  issued for
periods  ending after  December 15, 1997,  including  interim  periods;  earlier
application  is  not  permitted.   When  adopted,  SFAS  No.  128  will  require
restatement of all prior-period EPS data presented; however, the Company has not
sufficiently  analyzed  SFAS No. 128 to determine  what effect SFAS No. 128 will
have on its historically reported EPS amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.



                                       11

<PAGE>





New Authoritative Pronouncements [Continued]

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."  SFAS No. 
130 is effective for fiscal years beginning after December 15, 1997.
 Earlier application is permitted.  Reclassification of
financial statements for earlier periods provided for comparative purposes
 is required.  SFAS No. 130 is not expected to have a material impact on the
Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
 and Related Information."  SFAS No. 131 changes how operating segments
 are reported in annual financial statements and requires the reporting of 
selected information about operating segments in interim financial reports
issued to shareholders.  SFAS No. 131 is effective for periods beginning after
 December 15, 1997, and
comparative information for earlier years is to be restated.  SFAS No. 131
 need not be applied to interim financial statements in the initial year of
 its application.  SFAS No. 131 is not expected to have a material
impact on the Company.

Impact of Inflation

The Company  does not believe  that  inflation  has  significantly  affected its
results of operations.





                                       12

<PAGE>



Item 7. Financial Statements

For a list of financial  statements  filed as part of this report,  see index to
financial statements at F-1.

Item 8. Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure

None

                                    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, 1997.

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, 1997.

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, 1997.

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, 1997.

Item 13.  Exhibits and Reports on Form 8-K

Exhibits

The following is a list of exhibits filed as part of this Annual  Report.  Where
so indicated by footnote, the exhibits have either been previously filed and are
hereby incorporated by reference:

Exhibit #

1.1      Form of Amended Underwriting Agreement (1)
1.2      Form of Amended Underwriter's Options (1)
1.3      Form of Amended Consulting Agreement between Registrant and the
          Underwriter (1)
2.1      Agreement and Plan of Merger between Chem International, Inc
         . and Frog Industries Ltd.,
         dated September 9, 1994 (1)
2.2      Certificate of Merger of Chem International, Inc., a Delaware
         Corporation, into Frog
         Industries Ltd., a New York Corporation, filed December 27, 1994 (1)
3.1      Restated Certificate of Incorporation (1)
3.2      By-Laws (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 (1)
4.3      Specimen Class A Warrant Certificate of Registrant (1)
5.1      Opinion of Singer Zamansky LLP (1)


                                       13

<PAGE>






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 (1)
10.8     Amended Employment Agreement, effective September 20, 1996, between the
         Registrant and  E. Gerald Kay (1)
10.9     Lease Agreement, dated August 3, 1994, between the Registrant and 
         Hillside 22 Realty
         Associates, L.L.C. (1)
10.10    Exclusive License Agreement between the Registrant and International 
          Nutrition Research
         Center, Inc. and amendments, dated April 29, 1997 and November 27, 1996
         (2)
10.11    Lease Agreement  between the Registrant and Vitamin Realty  Associates,
         dated January 10, 1997 (2)
16.1     Letter on Changes in Certifying Accountants (1)

(1) Previously filed.
(2) Filed herewith.

Reports on Form 8-K

None filed during the quarter for which this report is submitted.



                                       14

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


INDEX
------------------------------------------------------------------------------




Item 7: Financial Statements

  Independent Auditor's Report....................................  F-1....

  Consolidated Balance Sheet as of June 30, 1997..................  F-2....  F-3

  Consolidated Statements of Operations for the years
  ended June 30, 1997 and 1996....................................  F-4....

  Consolidated Statement of Stockholders' Equity for the years
  ended June 30, 1997 and 1996....................................  F-5....

  Consolidated Statements of Cash Flows for years ended
  June 30, 1997 and 1996 .........................................  F-6.... F-7

  Notes to Consolidated Financial Statements......................  F-8...  F-20





                          .   .   .   .   .   .   .   .


<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, 1997, 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  audit  in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to  obtain  reasonable  assurance  about  whether  the  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 audit
provides 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, 1997,
and the  consolidated  results of their  operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.






                                       MOORE STEPHENS, P. C.
                                   Certified Public Accountants.

Cranford, New Jersey
September 10, 1997

                                       F-1

<PAGE>






                          Independent Auditors' Report


To the Stockholders of
     Chem International, Inc.


        We have  audited the  accompanying  consolidated  statements  of income,
stockholders' equity and cash flows of Chem International, Inc. and Subsidiaries
for  the  year  ended  June  30,  1996.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

        We conducted our audit in accordance  with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated  financial statements referred to above
present  fairly,  in  all  material  respects,   the  consolidated   results  of
operations,  changes in stockholders' equity and consolidated cash flows of Chem
International,  Inc.  and  Subsidiaries  for the year  ended June 30,  1996,  in
conformity with generally accepted accounting principles.



                                     CORNICK, GARBER & SANDLER, LLP
                                       CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
September 4, 1996





                                       F-2

<PAGE>
<TABLE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997.
------------------------------------------------------------------------------



<S>                                                                   <C>

Assets:
Current Assets:
  Cash and Cash Equivalents                                             $ 1,010,256
  Accounts Receivable - Net                                               2,464,708
  Note Receivable                                                           238,373
  Inventories                                                             2,086,366
  Prepaid Expenses and Other Current Assets                                 291,389
  Refundable Federal Income Taxes                                           240,000
                                                                        -----------

  Total Current Assets                                                    6,331,092

Property and Equipment - Net                                              1,072,049
                                                                        -----------

Other Assets:
  Goodwill                                                                  293,872
  Prepaid Pension Costs                                                     340,291
  Security Deposits and Other Assets                                        103,344
                                                                        -----------

  Total Other Assets                                                        737,507

  Total Assets                                                          $ 8,140,648
                                                                        ===========




The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-3
</TABLE>

<PAGE>


<TABLE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997.
------------------------------------------------------------------------------



<S>                                                                    <C>  

Liabilities and Stockholders' Equity:
Current Liabilities:
  Notes Payable                                                         $    48,203
  Accounts Payable                                                        1,761,962
  Federal and State Income Taxes Payable                                     41,416
  Accrued Expenses and Other Current Liabilities                            175,109
  Accrued Expenses - Related Party                                          272,000
                                                                        -----------

  Total Current Liabilities                                               2,298,690

Non-Current Liabilities:
  Notes Payable                                                             234,171
  Notes Payable - Related Party                                             276,444
                                                                        -----------

  Total Non-Current Liabilities                                             510,615

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, 4,335,000 Shares Issued and Outstanding                   8,670

  Additional Paid-in Capital                                              4,196,072

  Retained Earnings                                                       1,126,601

  Total Stockholders' Equity                                              5,331,343

  Total Liabilities and Stockholders' Equity                            $ 8,140,648
                                                                        ===========



The Accompanying Notes are an Integral Part of These Consolidated Financial
 Statements.

                                        F-4
</TABLE>

<PAGE>


<TABLE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------


                                                                  Years ended
                                                                   June 30,
                                                             1 9 9 7       1 9 9 6
                                                             -------       -------
<S>                                                        <C>          <C> 

Sales                                                      $11,126,860  $10,637,797

Cost of Sales                                               9,475,624     8,343,179
                                                           ----------   -----------

  Gross Profit                                              1,651,236     2,294,618

Selling and Administrative Expenses                         2,546,972     1,990,997
                                                           ----------   -----------

  Operating [Loss] Income                                    (895,736)      303,621
                                                           ----------   -----------

Other Income [Expense]:
  Gain on Sale of Fixed Assets                                 25,000        64,000
  Interest Expense                                            (85,696)     (171,296)
  Interest Expense - Related Party                            (14,099)      (14,099)
  Interest and Investment Income                               68,427        30,570
  Income [Loss] on Investment in Partnership                    1,780       (36,998)
                                                           ----------   -----------

  Other Income [Expense] - Net                                 (4,588)     (127,823)
                                                           ----------   -----------

  [Loss] Income Before Income Taxes                          (900,324)      175,798

Federal and State Income Tax [Benefit] Expense               (246,020)      133,600
                                                           ----------   -----------

  Net [Loss] Income                                        $ (654,304)  $    42,198
                                                           ==========   ===========

  Net [Loss] Income Per Share                              $     (.16)  $       .01
                                                           ==========   ===========

  Average Common Shares Outstanding                         4,007,877     3,081,000
                                                           ==========   ===========



The Accompanying Notes are an Integral Part of These Consolidated Financial
 Statements.

                                        F-5
</TABLE>

<PAGE>


<TABLE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY FOR THE YEARS ENDED JUNE 30,
1997 AND 1996.
------------------------------------------------------------------------------



                                                                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, 1995             1,000,000 $  2,000  $    473 $ 593,859 $1,658,707 $2,255,039

  Contribution of Stock of
   Bioscience Technologies, Inc.          --       --        --     2,977       --      2,977

  Conversion of Class B Preferred
   Stock                           2,000,000    4,000      (160)   12,160       --     16,000

  Redemption of Class A Preferred
   Stock                                 --        --      (313) (156,160)      --   (156,473)

  Sale of Common Stock in Private
   Placement                         70,000       140        --   155,141       --    155,281

  Issuance of Bridge Units          300,000       600        -- 1,199,400      --   1,200,000

  Reversal of Liabilities Assumed on
   Reverse Acquisition                   --        --        --    61,656       --     61,656

  Imputed Interest on Note Payable -
   Related Party                         --        --        --    14,099       --     14,099

  Net Income                             --        --        --        --   42,198     42,198
                                   --------  --------  -------- --------- --------   --------

Balance - June 30, 1996           3,370,000    6,740        -- 1,883,132 1,700,905  3,590,777

  Reversal of Issuance of
   Bridge Units                    (300,000)     (600)      - (1,199,400)   80,000 (1,120,000)

  Imputed Interest on Note
   Payable - Related Party              --        --        --    14,099       --     14,099

  Issuance of Stock Options             --        --        --   143,601       --    143,601

  Net Proceeds from Public
   Offering                        1,265,000    2,530       -- 3,354,640       --    3,357,170

  Net [Loss]                             --        --        --        -- (654,304)  (654,304)
                                  --------  --------  -------- --------- --------     --------

Balance - June 30, 1997            4,335,000 $  8,670  $   -- $4,196,072 $1,126,601 $5,331,343
                                   ========= ========  ======== ========== ========== ==========



</TABLE>

The Accompanying Notes are an Integral Part of These Consolidated Financial 
Statements.

                                        F-6

<PAGE>


<TABLE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                                  Years ended
                                                                   June 30,
                                                             1 9 9 7       1 9 9 6
                                                             -------       -------
<S>                                                       <C>           <C> 

Operating Activities:
  Net [Loss] Income                                        $ (654,304)  $    42,198
                                                           ----------   -----------
  Adjustments to Reconcile Net [Loss] Income to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                              310,395       338,838
   Lease Termination Items                                   (108,753)           --
   Noncurrent Rent Charge                                          --        35,595
   Deferred Income Taxes                                       27,000       (82,955)
   Imputed Interest on Note Payable - Related Party            14,099        14,099
   [Gain] Loss on Investment in Partnership                    (1,780)       36,998
   Interest Income on Note Receivable                         (14,623)           --
   Bad Debt Expense                                            23,779        13,262
   [Gain] on Sale of Property and Equipment                   (25,000)      (64,000)
   Consulting Expense - Stock Options                         143,601            --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                     (291,987)     (838,599)
     Inventories                                             (653,134)     (505,271)
     Prepaid Expenses and Other Current Assets               (241,332)      (39,557)
     Prepaid Pension Costs                                    (45,957)      (45,110)
     Security Deposits and Other Assets                       (12,991)           --

   Increase [Decrease] in:
     Accounts Payable                                        (115,228)      536,580
     Federal and State Income Taxes Payable                  (127,549)      (24,032)
     Accrued Expenses and Other Liabilities                    (2,514)      131,856
                                                           ----------   -----------

   Total Adjustments                                       (1,121,974)     (492,296)
                                                           ----------   -----------

  Net Cash - Operating Activities - Forward                (1,776,278)     (450,098)
                                                           ----------   -----------

Investing Activities:
  Investment in Partnership                                    (5,000)           --
  Issuance of Note Receivable                                (223,750)           --
  Repayment of Loan from Related Company                       16,849            --
  Repayment of Note Payable - Stock Retirement               (156,473)           --
  Purchase of Property and Equipment                         (316,499)     (328,920)
  Proceeds from Sale of Property and Equipment                 25,000        64,000
  Loans to Stockholders                                           (92)      (54,977)
  Repayment of Loans by Stockholders                               --        51,019
  Repayment of Note Receivable                                  3,183            --
  Repayment of Loan by Affiliated Company                          --        12,837
  Loan to Related Company                                      (3,222)      (16,127)
  Investment in Split Dollar Life Insurance                        --       (28,706)
                                                           ----------   -----------

  Net Cash - Investing Activities - Forward                $ (660,004)  $  (300,874)


The Accompanying Notes are an Integral Part of These Consolidated Financial 
Statements.

                                        F-7
</TABLE>

<PAGE>


<TABLE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                                  Years ended
                                                                   June 30,
                                                             1 9 9 7       1 9 9 6
                                                             -------       -------
<S>                                                        <C>         <C>  

  Net Cash - Operating Activities - Forwarded              $(1,776,278) $  (450,098)
                                                           -----------  -----------

  Net Cash - Investing Activities - Forwarded                (660,004)     (300,874)
                                                           ----------   -----------

Financing Activities:
  Proceeds from Public Offering                             3,426,344        --
  Proceeds from Bridge Note Financing                          --           290,994
  Proceeds from Notes Payable                                 412,744       394,156
  Repayment of Notes Payable                               (1,157,615)   (1,141,967)
  Net Proceeds from Sale of Common Stock in Private 
  Placement                                                        --       155,281
  Deferred Offering Costs                                          --       (69,174)
  Proceeds from Conversion of Class B Preferred Stock              --        16,000
                                                           ----------   -----------

  Net Cash - Financing Activities                           2,681,473      (354,710)
                                                           ----------   -----------

  Net Increase [Decrease] in Cash and Cash Equivalents        245,191    (1,105,682)

Cash and Cash Equivalents - Beginning of Years                765,065     1,870,747
                                                           ----------   -----------

  Cash and Cash Equivalents - End of Years                 $1,010,256   $   765,065
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the years for:
   Interest                                                $   59,000   $    83,000
   Income Taxes                                            $  168,000   $   242,000
</TABLE>

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
  The Company  incurred  offering  costs of $69,174 as of June 30,  1996.  These
costs were offset  against the net  proceeds of the  public  offering as
reflected in the consolidated statements of stockholders' equity for the year
ended June 30, 1997.







The Accompanying Notes are an Integral Part of These Consolidated
 Financial Statements.

                                        F-8

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
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.

[2] 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.

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:

Machinery and Equipment                              7 Years
Transportation Equipment                             5 Years
Leasehold Improvements                             See Below

Effective July 1, 1995, the Company  revised its estimate of the useful lives of
its leasehold  improvements  from 31 years to 15 years from date of acquisition.
This change in estimate increased  depreciation expense by approximately $26,000
and  decreased net income by  approximately  $16,000 for the year ended June 30,
1996.

Machinery  and  equipment  are  depreciated  using  accelerated   methods  while
leasehold  improvements  are amortized on a  straight-line  basis.  Depreciation
expense was  $298,408  and  $326,851 for the years ended June 30, 1997 and 1996,
respectively.

Consulting  Agreement - On October 29, 1996, the Company entered into a two year
consulting  agreement for $88,550 with the  underwriter of the Company's  public
offering,  which is being taken into expense over the term of the agreement. The
balance  recorded at June 30, 1997 is  approximately  $59,000 and is included in
prepaid expenses and other assets.

Goodwill - Goodwill,  representing the excess of cost over the fair value of the
net assets acquired of the Company's  principal operating business subsidiary at
its date of its  acquisition  in 1981, is being  amortized  over 40 years on the
straight-line  method.  The Company  carries its goodwill at its amortized cost,
subject to periodic review for impairment.

Amortization  expense  was $11,987 for each of the years ended June 30, 1997 and
1996.

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.

Earnings  [Loss] Per Share - Earnings [loss] per common share are computed based
upon the weighted average number of common and common stock equivalents  shares
outstanding  during the periods presented after giving retroactive effect to the
1-for-4 reverse stock split in July 1996.  Common stock equivalents are included
when dilutive.

                                       F-9

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------




[2] Summary of Significant Accounting Policies [Continued]

Revenue Recognition - The Company generally  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 [undiscounted and without interest charges]. If impairment is
deemed to exist,  the  assets  will be written  down to fair value or  projected
discounted 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,  1997,  management
expects these assets to be fully recoverable.

Stock  Options  Issued to  Employees - The Company  adopted fair the 
value method of SFAS No. 123,  "Accounting  for Stock-Based  Compensation,
"  on July 1, 1996 for financial  note  disclosure  purposes and will 
continue to apply the  intrinsic value method of Accounting  Principles Board
["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees,
" for financial reporting purposes.

Advertising - Costs  incurred for producing and  communicating  advertising  are
expensed when  incurred.  Advertising  expense was $235,636 and $159,447 for the
years ended June 30, 1997 and 1996, respectively.

[3] Investment in and Advances to Partnership

The Company was a 50% partner in Swedish Herbal Institute - Chem Associates [the
"Partnership"].  In addition to its $1,000 capital  investment,  the Company had
advanced  approximately $70,000 in exchange for a series of promissory notes. As
of June 30, 1996, the Partnership was insolvent and the Company  recorded a loss
on its investment and a charge for  approximately 50% of its note receivable for
the year ended June 30, 1996.  The balance was assumed by the other 50% partner.
At June 30,  1997,  the balance of this note is $32,317 and is included in other
assets.

[4] Investment in Manhattan Health Products, L.L.C.

The Company is a 50% partner in Manhattan Health Products,  L.L.C. In June 1997,
the Company's capital investment was recorded at $5,000 and is included in
other assets.

[5] Inventories

Inventories consist of the following at June 30, 1997:

Raw Materials                                     $  892,022
Work-in-Process                                      450,970
Finished Goods                                       743,374
                                                  ----------

  Total                                           $2,086,366



                                      F-10

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[6] Property and Equipment

Property, plant and equipment comprise the following at June 30, 1997:

Leasehold Improvements                            $  826,209
Machinery and Equipment                            1,861,913
Transportation Equipment                              36,652
                                                  ----------

Total                                              2,724,774
Less:  Accumulated Depreciation and Amortization   1,652,725

  Total                                           $1,072,049

[7] Note Receivable

On  February  3, 1997,  the Company  received a secured  promissory  note in the
amount of $250,000 with  interest at 14% per annum.  The note is due and payable
on  November 3, 1997.  Prepaid  interest  of $26,250  was  received  and will be
amortized over the period of the loan.

[8] Notes Payable

Notes payable are summarized as follows at June 30, 1997:

                                                         Related Party
                                           Notes Payable Note Payable   Total
Notes Payable:
  Bio Merieux Vitek, Inc. (a)               $   75,721   $        --  $   75,721
  Gerob Realty Partnership [See Note 14](b)         --       276,444     276,444
  Summit Bank:
   Revolving Line-of-Credit (c)                     --            --          --
   Equipment Term Loan (d)                     206,653            --     206,653
                                            ----------   -----------  ----------

  Totals                                       282,374       276,444     558,818
  Less:  Current Portion                        48,203            --      48,203
                                            ----------   -----------  ----------

   Noncurrent Portion                       $  234,171   $   276,444  $  510,615
   ------------------                       ==========   ===========  ==========


(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)Noninterest bearing note due September 10, 1997.  For financial reporting
   purposes, interest has been imputed at 8.5% a year with the net of tax effect
   being credited to additional paid-in capital.   [See  Notes 17 and 19A].

(c)Under the terms of a revolving  line of credit which  expires on November 30,
   1997,  the Company  may borrow up to $500,000 at 3/4% above the bank's  prime
   rate.  The loan is  collateralized  by  accounts  receivable,  inventory  and
   machinery  and  equipment.  The  loan has been  guaranteed  by the  Company's
   president  and  principal  stockholder.  At  June  30,  1997,  there  were no
   borrowings under the line of credit.



                                      F-11

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------



[8] Notes Payable [Continued]

(d)Under the terms of an equipment term loan, due November 30, 2001, the Company
   may borrow up to $350,000  at 1-1/2%  above the bank's  prime rate.  The term
   loan provides for monthly  payments of $4,698 for principal and interest.  At
   June 30, 1997,  the interest rate was 9.75%.  The loan is  collateralized  by
   machinery  and  equipment.  The  loan has been  guaranteed  by the  Company's
   president and principal stockholder.

The loan  agreement  with  Summit  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.  At
June 30, 1997, the Company was in compliance with all bank covenants.

The following are maturities of long-term debt for each of the next five years:

                                                         Related Party
                                           Notes Payable Note Payable   Total
June 30,
  1998                                      $   48,203   $        --  $   48,203
  1999                                          50,501            --      50,501
  2000                                          52,028            --      52,028
  2001                                          53,710            --      53,710
  2002                                          52,166            --      52,166
  Thereafter                                    25,766       276,444     302,210
                                            ----------   -----------  ----------

  Totals                                    $  282,374   $   276,444  $  558,818
  ------                                    ==========   ===========  ==========

[9] Income Taxes

Provision for income taxes consists of the following:

                                                       Years Ended
                                                        June 30,
                                                   1 9 9 7     1 9 9 6
                                                   -------     -------
Currently Payable:
  Federal                                       $  (277,276)$   162,000
  State                                               4,256      54,555
                                                ----------- -----------

                                                   (273,020)    216,555

Deferred:
  Federal                                            22,950     (70,112)
  State                                               4,050     (12,843)
                                                ----------- -----------

                                                     27,000     (82,955)

  Totals                                        $  (246,020)$   133,600
  ------                                        =========== ===========




                                      F-12

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------



[9] Income Taxes [Continued]

Reconciliation  of the  statutory  federal  income  tax  rate  to the  Company's
effective income tax rate is as follows:

                                                       Years Ended
                                                        June 30,
                                                   1 9 9 7     1 9 9 6
                                                   -------     -------

U.S. Statutory Rate                                   (34)%       34%
State Taxes on Income - Net of Federal Benefit         (6)         6
Nondeductible Items:
  Travel and Entertainment                              4         11
  Amortization of Deferred Bridge Loan Finance Costs   --         18
  Amortization of Goodwill                              2          3
  Other - Net                                           1          4
  Consulting Fees                                       6         --
                                                   ------      -----

  Effective Income Tax Rate                           (27)%       76%
  -------------------------                        ======      =====

Deferred  income taxes arise from temporary differences  resulting from income
and expense reported for financial accounting and tax purposes in different
periods.

The significant  components of deferred tax assets and  [liabilities]  relate to
the following at June 30, 1997:

Inventory Cost                                    $   24,000
Other                                                  6,000
Nondeductible Expense                                109,000
Pension Benefit Obligation                          (136,000)
Depreciation Expense                                  14,000
                                                  ----------

  Subtotal                                            17,000

Valuation Allowance                                        0

  Total Net Deferred Tax Assets                   $   17,000
  -----------------------------                   ==========

The Company  believes that net deferred tax assets,  which are included in other
current assets,  are more likely than not to be realized  because all deductible
temporary differences will be utilized as charges against reversals of future
taxable temporary differences.

The Company and its subsidiaries file a consolidated federal income tax return.

[10] Pension Plans

The Company sponsors a noncontributory defined benefit pension plan covering all
nonunion  employees meeting age and service  requirements.  Contributions to the
plan,  which are made  solely  by the  Company,  are  determined  by an  outside
actuarial   firm.  The  Company  made  no   contributions   for  1997  or  1996,
respectively.

The  defined  benefit  pension  plan calls for  benefits  to be paid to eligible
employees at retirement  based  primarily upon years of service with the Company
and the average monthly compensation. Contributions to the plan reflect benefits
attributed  to employees'  services to date, as well as services  expected to be
earned in the future. Plan assets consist primarily of marketable securities.


                                      F-13

<PAGE>




CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------


[10] Pension Plans [Continued]

Pension expense includes the following components:

                                                       Years Ended
                                                        June 30,
                                                   1 9 9 7     1 9 9 6
                                                   -------     -------

Service Cost of the Current Period              $    27,920 $    25,992
Interest Cost on the Projected Benefit Obligation    36,541      33,706
Actual Gain on Assets Held in the Plan              (81,318)    (75,708)
Net Amortization of Transition Liability and Net Gain(29,100)   (29,100)

  Pension Expense [Credit]                      $   (45,957)$   (45,110)
  ------------------------                      =========== ===========

The following  sets forth the funded status of the plan and the amounts shown in
the accompanying balance sheet:

                                                             1 9 9 7    1 9 9 6
                                                             -------    -------

Actuarial Present Value of Benefit Obligations:
  Vested Benefits                                        $ (567,601)$ (491,317)
  Nonvested Benefits                                              --    (17,172)
                                                           ---------- ----------

  Accumulated Benefit Obligation                            (567,601)  (508,489)
  Effect of Anticipated Future Compensation Levels and
   Other Events                                              (31,187)   (40,398)

  Projected Benefit Obligation                              (598,788)  (548,887)
  Fair Value of Assets Held in the Plan                    1,138,348  1,016,480
                                                           ---------- ----------

  Excess of Plan Assets Over Projected Benefit Obligation    539,560    467,593
  Unrecognized Transition Obligation                          80,500     92,001
  Unrecognized Net Gain from Past Experience Different than
  Assumed                                                    (279,769) (265,260)

  Prepaid Pension Cost Included in the Balance Sheet       $  340,291 $  294,334
  --------------------------------------------------       ========== ==========

The  weighted  average  discount  rate used to  measure  the  projected  benefit
obligation  is 7% for  1997 and 7% for  1996,  the rate of  increase  in  future
compensation  levels is 2% for 1997 and 2% for 1996 and the  expected  long-term
rate of return on assets  is 7% for 1997 and 7% in 1996.  The  Company  uses the
straight-line method of amortization of unrecognized gains and losses.

Additionally,  the  Company  participates  in a union  sponsored  multi-employer
defined contribution plan covering all union employees.  Information relating to
accumulated benefits obligations and plan assets is not available.  Under ERISA,
an employer, upon withdrawal from a multi-employer plan, is required to fund its
proportionate  share of the  plan's  unfunded  vested  benefits  at the point of
withdrawal.  The Company has no  intention  of  withdrawing  from the plan.  The
Company  is  required  to fund  the  plan on the  first  of each  month  for the
preceding month's  obligation.  Total contributions were $48,960 and $46,320 for
the years ended June 30, 1997 and 1996, respectively.

[11] 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, 1997 and
1996 was $32,596 and $33,186, respectively.

                                      F-14

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------


[12] 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, 1997, the
Company's uninsured cash balances totaled approximately $907,000.
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, 1997 is $15,750.

[13] Major Customer

For the  years  ended  June 30,  1997  and  1996,  approximately  48% and 40% 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, 1997 and 1996, an aggregate of approximately 19% and 25%, 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, 1997 and
1996. Accounts  receivable from these customers comprised  approximately 51% and
58% of total accounts receivable at June 30, 1997 and 1996, respectively.

[14] 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, 1997,  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, 1997 and 1996 on this lease was
approximately $143,000 and $172,000,  respectively.  Unpaid rent of $272,000 due
to Gerob at June 30, 1997 has been separately  disclosed as accrued  expenses on
the consolidated balance sheet.

The Company's original lease agreement with a non-related party for warehouse
 and office facilities was  terminated on January 10, 1997 
 when the landlord sold the premises.  At the time of sale the rentals 
 under the lease were recorded for financial  accounting purposes on 
a straight-line  basis. At December 31, 1996, accrued future rentals
of $105,613,  which give effect to both future  scheduled  increases and certain
concessions at the lease inception had been recorded as a non-current liability.
Because of the termination of the lease the balance of accrued future rentals of
$105,613  has been  allocated to rent expense in the six month period ended June
30, 1997.  The Company  subleased a portion of its premises on a  month-to-month
basis through January 10, 1997 for approximately $25,000 a month.

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
president 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.

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.


                                      F-15

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------



[14] Commitments and Contingencies [Continued]

[A] Leases [Continued]

Other Lease  Commitments  [Continued]  - The Company  leases  automobiles  under
non-cancelable operating lease agreements which expire through 2000.

The minimum rental commitment for long-term non-cancelable leases is as follows:

                                                         Related Party
                                               Lease         Lease
                                            Commitment    Commitment     Total
Year Ending
   June 30,
   1998                                     $   37,077   $   346,000  $  383,077
   1999                                         32,384       346,000     378,384
   2000                                         31,703       346,000     377,703
   2001                                         24,212       346,000     370,212
   2002                                         17,719       182,609     200,328
   Thereafter                                       --            --          --
                                            ----------   -----------  ----------

   Total                                    $  143,095   $ 1,566,609  $1,709,704
   -----                                    ==========   ===========  ==========

Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately  $285,000 and $526,000 for the years ended June 30, 1997 and 1996,
respectively.  Rent  expense is stated net of sublease  income of  approximately
$160,000 and $200,000 for the years ended June 30, 1997 and 1996, respectively.

[B] Employment  Agreements - Effective  July 1, 1996,  the Company  entered into
three year  employment  agreements  with its president  and four other  officers
which provide for aggregate annual salaries of $580,000 for the year ending June
30, 1997 and $680,000 for the year ending June 30, 1998.  These  agreements  are
subject to annual increases equal to at least the increase in the consumer price
index for the Northeastern  United States. An agreement with one of the officers
also provided for a $100,000  signing bonus,  which was expensed during the year
ended June 30, 1997.

[C]  Litigation - Numerous  unrelated  manufacturers,  distributors,  suppliers,
importers and retailers of manufactured  L-tryptophan  are or were defendants in
lawsuits  seeking  compensation and punitive damages for alleged personal injury
from ingestion of products  containing  manufactured  L-tryptophan.  A number of
these suits 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,  the Company halted sales and  distribution and also ordered a recall of
L-tryptophan  products.  Subsequently,  the FDA indicated that there is a strong
link between the  ingestion of the  allegedly  contaminated  L-tryptophan  and a
blood disorder.  There has been no indication that the blood disorder was caused
by any  formulation  or  manufacturing  fault of the Company or any of the other
firms that manufactured tablets and/or capsules containing L-tryptophan.

The  Company  and  certain   companies  in  the  vitamin   industry,   including
distributors,  wholesalers and retailers,  have entered into an  Indemnification
Agreement with Showa Denko America, Inc. ["SDA"], which appears to have been the
supplier  of all of the  alleged  contaminated  L-tryptophan  products.  SDA has
assumed  the  defense of all  claims  against  the  Company  arising  out of the
ingestion  of  L-tryptophan  products  and has  agreed to pay the legal fees and
expenses in that  defense.  SDA's parent  company 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.


                                      F-16

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------



[14] Commitments and Contingencies [Continued]

[C]  Litigation  [Continued] - 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. 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 the outcome of these actions will have a material  adverse effect on
the Company, and, accordingly,  no provision has been made for any loss that may
be incurred by the Company as a result of these actions.

[15] Related Party Transactions

During the year ended June 30,  1997,  the  Company  entered  into a  consulting
agreement with the brother of the Company's  president on a month to month basis
for  $1,000 per month for the year ended  June 30,  1997.  The total  consulting
expense recorded per this verbal agreement by the Company was $11,000.

[16] 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. Short-term  debt
 and long-term debt including  long-term debt to a related party
is based on current  rates at which the Company  could borrow funds with similar
remaining maturities and approximates fair value.

[17] Equity Transactions

[A]  Capital  Stock  -  Effective  December  27,  1994,  the  Company  and  Frog
Industries,  Ltd. ["Frog"], an inactive  corporation,  executed a plan of Merger
whereby  the  Company  was merged  into Frog [the  "Merger"].  Each share of the
Company's then  outstanding  voting common stock was exchanged for 30,357 shares
of  Frog's  voting  common  stock.  Each  issued  share  of the  Company's  then
outstanding  preferred stock was converted into one share of non-voting  Class A
preferred  stock and .51127 shares of non-voting  Class B convertible  preferred
stock of Frog,  resulting  in 156,473  shares of  outstanding  Class A preferred
stock and 80,000 shares of outstanding Class B preferred stock, with a par value
of $313 and $160, respectively. Simultaneously with the Merger, Frog changed its
name to Chem International, Inc.

For accounting  purposes,  the transaction has been treated as an acquisition of
Frog by the Company.  As of the date of the Merger,  Frog was  inactive,  had no
assets and had recorded liabilities of $61,656 for possible income and other tax
liabilities and for certain unstated judgments.  Since the Company attributed no
value to its shares  issued or recorded any "goodwill," in the acquisition,
it  recorded  the $61,656 excess  of  liabilities  assumed  over  assets 
 acquired  as a direct  charge to additional   paid-in   capital.  
 As  a  result  of  the  Company's   subsequent reincorporation  in
 Delaware in February  1996, it eliminated all delinquent tax filings.  Also,
  management  now  believes  that  the  likelihood  of any  prior
outstanding   claims  or  judgments  being  asserted  against  Frog  is  remote.
Accordingly, the previously recorded liabilities have been reversed and credited
to additional paid-in capital at June 30, 1996.



                                      F-17

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------



[17] Equity Transactions [Continued]

[A]  Capital  Stock - The  Class A  preferred  stock  was  entitled  to  receive
dividends,  as and when declared,  up to a total of $1,853,527  [the  "Aggregate
Class A Preferred  Stock Dividend  Preference"]  and in no event, so long as any
shares of Class A preferred stock were outstanding,  could any dividends be paid
on any shares of common  stock or Class B preferred  stock be  purchased  by the
Company unless all dividends were paid on the Class A preferred stock.

In February  1996,  the 80,000 shares of Class B preferred  stock were converted
into 2,000,000 shares of common stock. The preferred  stockholders also paid the
Company $16,000, equal to the then par value of the common shares issued.

In June 1996,  the aggregate  Class A Preferred  Stock  Dividend  Preference was
waived,  when the 156,473  outstanding  shares of Class A  preferred  stock were
redeemed for $1 a share and retired.

In  February  1996,  the  Company [a New York  corporation]  was merged into its
wholly-owned  subsidiary,  Chem  International,  Inc. [a Delaware  corporation],
pursuant to Section 253 of the Delaware  Corporation Law for the sole purpose of
changing  its  domicile.  As  a  result  thereof  and  after  giving  effect  to
restatements  to the Company's  certificate of  incorporation  subsequent to the
conversions  and  retirement of the previously  outstanding  Class A and Class B
preferred stock, the authorized capitalization of the Company is as follows:

Preferred Stock:  Authorized 1,000,000 shares $.002 par value
Common Stock:  Authorized 25,000,000 shares $.002 par value

The  Board  of  Directors  of  the  Company  has  the  right  to  determine  the
designations,  rights,  preferences and privileges of the holders of one or more
series of preferred stock which might be issued.

In May 1996, the Company sold, in a private  placement,  70,000 shares of common
stock for  $175,000.  In June 1996,  the Company also issued the  equivalent  of
300,000  Bridge  Units  [each  consisting  of one share of common  stock and one
warrant  to  purchase  a share of common  stock at $5.50 a share for four  years
following the offering] in connection with the sale of $300,000 of 7% promissory
notes to four  investors.  The Bridge  Units were valued at $4 each,  a total of
$1,200,000,  which was being charged to  operations  over the term of the Bridge
Notes. On October 16, 1996, the Bridge Lenders waived their rights to the bridge
units and agreed to the cancellation of the underlying securities.  Accordingly,
the Company has eliminated the amount  previously  recorded for the bridge units
and the related bridge loan finance costs of $80,000.

In July 1996,  the Company  affected a 1 for 4 reverse  common stock split.  The
foregoing  amounts for common stock and the attached  financial  statements give
retroactive effect to the reverse stock split.

On October  29,  1996,  the  Company  received  net  proceeds  of  approximately
$3,400,000  from  the  sale of  632,500  units  at  $7.00  per  unit in a public
offering.  Each unit  consisted  of two  shares of Common  Stock and two Class A
Redeemable Common Stock Purchase Warrants.

[B] Additional  Paid-in Capital - On August 31, 1995, two shareholders,  who are
members of the principal  shareholder's  family,  contributed 100% of the issued
and outstanding shares of stock of Bioscience Technologies, Inc. to the Company.
The net book value of Bioscience  Technologies,  Inc. was credited to additional
paid-in capital. Its operations for the year ended June 30, 1995 and for the two
months  ended  August  31,  1995 were  immaterial  in  relation  to those of the
Company.

At June 30, 1996,  previously  recorded  liabilities of $61,646 were credited to
additional  paid-in  capital  concerning the reverse  acquisition of Frog by the
Company [See Note 17A].

                                      F-18

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------


[17] Equity Transactions [Continued]

[B] Additional Paid-in Capital [Continued] - For financial  accounting purposes,
interest of 8.5% a year is being imputed on a related party non-interest bearing
note [See Note 8(b)].

[C] 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 1,000,000 shares of common stock, at the discretion of
the Board of Directors.  Stock option  grants are limited to a total of 500,000
shares for  "incentive  stock  options"  and 500,000  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 become exercisable on October 16, 1997.

Information  pertaining  to  options  as of June 30,  1997 and for the year then
ended is as follows:

                                                                     Remaining
                                                                    Contractual
                                                    Weighted Average   Life
                                             Common  Exercise Price of Options
                                             Shares     Per Share   Outstanding

Options Outstanding - July 1, 1995                 --  $       --        
Options Granted                                                             --
Options Exercised                                  --          --           --
Options Canceled                                   --          --           --
                                             --------  ---------- ------------

Options Outstanding - June 30, 1996                --          --      -- 

Options Granted at Stock Price                573,597        3.50    4.3 Years
Options Granted Above Stock Price              25,974        3.85    8.7 Years
Options Exercised                                  --          --           --
Options Canceled                                   --          --           --
                                             --------  ---------- ------------

  Options Outstanding - June 30, 1997         599,571  $     3.52    4.5 Years
  -----------------------------------        ========  ========== ============

  Options Exercisable - June 30, 1997              --  $       --           --
  -----------------------------------        ========  ========== ============

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock  Issued to  Employees,"  and related  interpretations,  for stock  options
issued to employees in  accounting  for its stock option plan.  Because no 
stock options were issued below the stock price at date of grant, no
compensation  expense  has  been  recognized  for  the  Company's   stock-based
compensation  plan.

Had  compensation  cost for the Company's stock options issued to employees been
determined  based upon the fair value at the grant date for stock options issued
under these plans pursuant to the methodology  prescribed under the Statement of
Financial  Accounting  Standards  ["SFAS"] No. 123,  "Accounting for Stock-Based
Compensation,"  the  Company's  net  loss and loss per  share  would  have  been
increased, on a pro forma basis, by approximately $935,000 or approximately $.24
per share for the year ended June 30,  1997.The weighted  average fair
 value of the stock options granted to employees used in  determining  the
 pro forma amounts is estimated at $1.99 during  the year  
ended June 30, 1997, respectively, using the Black-Scholes option-pricing model
 with the following weighted average assumptions used for
 grants in fiscal year 1997: dividend yields of 0%; expected volatility of 64%;
  risk-free interest rate of 6.0%; and an expected life of 4.6 years.


                                      F-19

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
------------------------------------------------------------------------------



[17] Equity Transactions [Continued]

[C] Stock Option Plan  [Continued] - Net income [loss] and net income [loss] per
share as  reported,  and on a pro forma basis as if  compensation  cost had been
determined on the basis of fair value pursuant to SFAS No. 123 is as follows:

                                                 Years Ended
                                                   June 30,
                                                   1 9 9 7     
                                                   -------    

Net Income [Loss] - As Reported                 $  (654,304) 
                                                =========== 
Pro Forma                                       $(1,589,680)
                                                =========== 

Income [Loss] Per Share - As Reported           $      (.16)    
                                                =========== 
Pro Forma                                       $      (.40)     
                                                =========== 

During the year ended June 30, 1997,  the Company issued 75,000 stock options to
consultants  at an exercise  price equal to the market price [$3.50] on the date
of grant.  The fair Value of issuing these stock options to  consultants  during
the year ended June 30, 1997, is approximately  $144,000 which is for consulting
services  related  to the  public  offering,  and is being  charged  to  paid-in
capital. The fair value of the stock options granted to consultants for the year
ended June 30, 1997 is estimated at $2.08 using the Black-Scholes option pricing
model and using a risk-free  interest  rate of 6.1%,  an expected  volatility of
64%,  and an expected  life of 5 years.  No  dividends  are  expected to be paid
during the expected life of the options.

[18] New Authoritative Pronouncements

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing of
 Financial Assets and Extinguishment of Liabilities."  SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishment of 
liabilities occurring after December 31, 1996.  Earlier application is not
allowed.The provisions of SFAS No. 125 must be applied prospectively;
 retroactive application is prohibited. Adoption on January 1, 1997 is not
 expected to have a material impact on the Company.  The FASB deferred some 
provisions of SFAS No. 125, which are not expected to be relevant to the Company
The FASB issued Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,
"Earnings Per Share," and SFAS No. 129, "Disclosure of Information about Capital
Structure"  in February  1997.  SFAS No. 128  simplifies  the earnings per share
["EPS"] calculations required by Accounting Principles Board ["APB"] Opinion No.
15, and related  interpretations,  by replacing the  presentation of primary EPS
with a  presentation  of basic EPS. SFAS No. 128 requires dual  presentation  of
basic and diluted EPS by entities  with complex  capital  structures.  Basic EPS
includes no dilution  and is computed  by dividing  income  available  to common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted EPS reflects the potential  dilution of  securities  that could
share in the  earnings  of an entity,  similar to the fully  diluted  EPS of APB
Opinion No. 15. SFAS No. 128 is effective  for financial  statements  issued for
periods  ending after  December 15, 1997,  including  interim  periods;  earlier
application  is  not  permitted.   When  adopted,  SFAS  No.  128  will  require
restatement of all prior-period EPS data presented; however, the Company has not
sufficiently  analyzed  SFAS No. 128 to determine  what effect SFAS No. 128 will
have on its historically reported EPS amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.


                                      F-20

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
------------------------------------------------------------------------------



[18] New Authoritative Pronouncements [Continued]

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." 
 SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
 Earlier application is permitted.  Reclassification of financial statements
for earlier periods provided for comparative purposes is required.  SFAS No. 130
is not expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise 
and Related Information."  SFAS No. 131 changes how operating segments are 
reported in annual financial statements and requires the reporting of 
selected information about operating segments in interim financial reports
issued to shareholders.  SFAS No. 131 is effective for periods beginning 
after December 15, 1997, and comparative information for earlier years is to be
 restated.  SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application.  SFAS No. 131
 is not expected to have a material impact on the Company.

[19] Subsequent Events (Audited)

[A] Related Party Note - On August 15, 1997,  the Company and Gerob extended the
terms of the Company's note payable [See Note 8(b)].

[B] Recall of Product - On July 7, 1997,  the Company was informed by one of its
suppliers of a recall of the supplier's  raw material used in the  manufacturing
of tablets sold  containing  the recalled raw  material.  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.

(20) Subsequent Event (Unaudited)
     
In September of 1997 in connection with the product recall [Note 19(b)]  
the Company instituted suit to recover all damages.


                      .  .  .  .  .  .  .  .  .  .  .  .  .

                                      F-21

<PAGE>









                                    AGREEMENT


AGREEMENT, made as of this 29th day of April, 1997, by and between INTERNATIONAL
NUTRITION  RESEARCH  CENTER,  INC.  (INRC),  a  corporation  of Florida,  having
principal  offices at 401 West Linton  Boulevard,  Delray  Beach,  FL 33444 (the
"Licensee")  and CHEM  INTERNATIONAL,  INC. a  corporation  of Delaware with its
principal  offices  at  225  Long  Avenue,   Hillside,  New  Jersey  07205  (the
"Sub-Licensee").

                                   WITNESSETH:


WHEREAS, the Licensee has the right to grant a sub-license to make,
have made, use and sell a patented amino acid nutritional formula;
pursuant to an Agreement with Interamerican Nutritional Research
Laboratories Corp. (Interamerican), P.O. Box 146, Road Town, Tortola,
British Virgin Islands (hereafter "Licensor") and

WHEREAS, the Sub-Licensee desires to engage in the sale of the
patented amino acid nutritional formulas;

   NOW THEREFORE, in consideration of the foregoing and of the mutual agreements
set forth herein and other good and valuable consideration, the parties agree as
follows:

1.0 Defined Terms. As used in this Agreement, the following
definitions shall apply:

      1.1.  Product. The term "Product" shall mean the patented amino
            acid nutritional formulas covered by U.S. Patent  No.
            5,132,113 and any improvements thereof.

      1.2.  Territory. The term "Exclusive Territory" shall mean the
            United States.

      1.3.  Minimum Royalty Payments.  The term "Minimum Royalty Payments" shall
            mean the  aggregate  quantity of  Royalties  that the  Sub-Licensees
            shall be  obligated  to pay during  each  twelve  (12) month  period
            beginning on the date hereof and on each anniversary date thereafter
            during  the term of this  Agreement.  The  aggregate  quantities  of
            royalties which

                                        1

<PAGE>





 Sub-Licensee  is required  to pay during each twelve (12) month  period are set
forth on Schedule 1.1 hereto.

2.0 Authorization.

      2.1.  Subject to and upon the terms and conditions of this
            Agreement, the Licensee hereby grants to the Sub-Licensee
            the exclusive right to make, have made, use and sell the
            Product in the Territory for sports nutrition, but not for
            weight loss or to sell to hospitals, physicians or
            medically related facilities and not for the nutrification
            of foodstuffs. No right is granted under this Agreement to
            sell the Product for other fields of use.

      2.2   The Sub-Licensee may use its own trademarks in the
            Territory and may register the trademarks in any
            jurisdiction in the Territory. If Sub-Licensee becomes
            insolvent or declares bankruptcy, Sub-Licensee will assign
            any trademarks used in connection with the Product to the
            Licensee. If Sub-Licensee desires to sell its trademarks on
            the Product, it will not sell these trademarks to anyone
            without first offering to sell them to the Licensee for the
            same price that it offers to sell the trademarks to a third
            party.

3.0 Sub-Licensee's Obligations.

     3.1.   The Sub-Licensee shall sell the Product in the Territory so as:

            (a) to meet the Minimum Royalty Requirements, as set forth
            in Schedule 1.1 hereto;

            (b) to assure the best employment of the Product in the
            Territory;

            (c) to supply fully with reasonable promptness the demand
            for the Product in the Territory; and

            (d) to develop  vigorously and increase the volume of utilization of
            the Product in the Territory.

            (e) to adopt  the  labeling  requirement  for the  Product  that the
            Licensee  will  require  except for the  trademark to be used on the
            Product.  Approval of the labeling will not be unreasonably withheld
            by the Licensee. If a further license on the Product is granted, the
            Licensee will impose a similar requirement on future sub-licensees.

                                        2

<PAGE>





      3.2.  Purchase  of  the  Product.  The  Sub-Licensee  shall  purchase  its
            requirements  of the Product from any reputable  source of supply or
            will manufacture the Product using Good Manufacturing Practices.

      3.3   Maintenance  of  Facilities.  The  Sub-Licensee  shall  provide  and
            maintain suitable facilities in the Territory for the proper storage
            and handling of the Product.

      3.4   Sub-Licensee Personnel.  The Sub-Licensee shall maintain an adequate
            and suitably  qualified staff to the best utilization of the Product
            in the Territory and perform in a timely and satisfactory manner the
            Sub-Licensee's obligations under this Agreement.

      3.5 Consumer Claims. The Sub-Licensee shall process and seek to settle, in
a manner acceptable to the Licensee,  all consumer  complaints  arising from the
use of the Product in the Territory. The Sub-Licensee shall maintain records and
accounts  relating  to any and all  claims  for the  Product  and  shall  permit
examination of such records by the Licensee's representative.

4.0 Licensee's Obligations.

4.1 By mutual consent of the Licensee and the Sub-Licensee, the Sub-Licensee may
undertake  to  provide  any  available   brochures,   any  available  scientific
information and any available results of studies.

4.2 By mutual  consent of the  Licensee and the  Sub-Licensee,  the Licensee may
provide and pay for the expenses of the  scientific  promotion of the Product in
seminars and lectures by its own specialists or others.

4.3 By mutual  consent of the  Licensee and the  Sub-Licensee,  the Licensee may
participate in the cost of any  advertising or promotional  activities to assist
in the sale of the Product in the Territory.

4.4  The  Licensee  will  exert  its  best  efforts  to  provide  all  requested
information to the Sub-Licensee on a timely basis.

4.5 The  Licensee  will exert its best  efforts to inform  Sub-  Licensee of any
inquiries or orders for Product that originate in the Territory.

4.6 The Licensee will exert its best efforts to make a knowledgeable  scientific
person available as a consultant for 96 hours per year for the first three years
of  this  contract  at  times  and  places  to  be  mutually  agreed  upon.  The
Sub-Licensee   will  not  be  obligated  to  reimburse   the  Licensee  for  the
knowledgeable scientific person's travel expenses.

                                  3

<PAGE>





5.0  Compliance with the Laws.

The  Sub-Licensee  shall comply in all material  respects with any and all laws,
ordinances,  rules, regulations and ordinary standards of care now in effect, or
which  hereafter  may be in  effect,  which  pertains  to the  conduct  of their
business  and  the  utilization  of the  Product  in the  Territory,  and  shall
indemnify  and  hold  the  Licensor  harmless  against  any  failure  to  comply
therewith.

6.0 Royalty.

6.1. The  Sub-Licensee  shall pay to the Licensee a royalty based on all Product
manufactured  or  purchased  by  Sub-  Licensee.  The  Sub-Licensee  under  this
sub-license  from the Licensee,  will pay an additional  royalty directly to the
Licensor as directed by the Licensee.  The Licensor and the Licensee  shall have
no   responsibility   for   invoicing,   collection   or  credit  risks  of  the
Sub-Licensee's customers.

The  royalty  is  payable  to  Licensor  and  Licensee  when  the   Sub-Licensee
manufactures  the Product or accepts  delivery  of  manufactured  Product  which
Sub-Licensee has manufactured  under this Agreement.  The royalty payable to the
Licensor is the sum of $ 140,000.00  per metric ton. The royalty  payable to the
Licensee is $90,000.00 per metric ton.

6.2. Payment of the royalties shall be made by the Sub- Licensee directly to the
Licensor and directly to the Licensee in U.S.Dollars,  unless by mutual consent,
payment in another currency is acceptable to the parties.

7.0  Indemnification and Insurance.

7.1 The  Sub-Licensee  shall  indemnify,  defend and hold the  Licensor  and the
Licensee,  harmless against and from (a) any and all claims based upon,  arising
out of, or in any way related to the transportation, storage, warehousing or use
of  the  Product  by the  Sub-Licensee,  the  conduct  of  the  business  of the
Sub-Licensee,  any negligent or wrongful act,  misfeasance or nonfeasance by the
Sub-Licensee any claim of a third party that the Sub-Licensee misrepresented its
authority or made any contractual commitment not expressly authorized under this
Agreement, or any breach by the Sub-Licensee of any representation,  warranty or
covenant  contained  herein or the  failure of the Sub-  Licensee to perform its
obligation under this Agreement,  and (b) any and all fees,  costs, and expenses
including,  without  limitation  attorneys' fees incurred by or on behalf of the
Licensor,  or the Licensee in the defense  against any and all such claims.  The
Licensor shall provide the Licensee and/or its Sub-Licensee  with prompt written
notice upon receipt of any such claim and the Licensor or the Licensee shall not
settle  any  such  claim  without  the  prior   knowledge  and  consent  of  the
Sub-Licensee. The Sub-Licensee

                                  4

<PAGE>






will maintain a product  liability policy which provides at least  $5,000,000.00
for each occurrence and an aggregate coverage of at least $5,000,000.00 and will
name the Licensor and Licensee as additional insureds under the policy.

7.2 The Licensee shall indemnify defend and hold Sub- Licensee  harmless against
and  from  (a) any and all  claims  made  against  Sub-Licensee  based  upon any
negligent  or wrongful  act of Licensee  and from any and all  reasonable  fees,
costs and expenses including reasonable attorneys' fees incurred by or on behalf
of the Sub-Licensee, in the defense against any of such claims. The Sub-Licensee
shall provide the Licensee with prompt  written  notice upon receipt of any such
claim and the  Licensee  shall  not  settle  any such  claim  without  the prior
knowledge and consent of the Sub-Licensee.

8.0  Representations and Warranties.

8.1 The  Sub-Licensee  represents  and warrants  that it is a  corporation  duly
organized and authorized to carry on the professional  activity  contemplated by
this Agreement under the laws of Delaware. The Sub-Licensee has obtained or will
obtain all  licenses,  permits  and  authorizations  required  under the laws or
regulations  applicable  in the  Territory  to undertake  the use and  promotion
activities contemplated herein prior to selling the Product in each jurisdiction
in the Territory.

8.2 The Sub-Licensee further represents and warrants that it has or will provide
the expertise,  professional  associates,  knowledge and financial  resources to
manufacture  or purchase and sell the Product in the  Territory and otherwise to
fulfill its obligations hereunder in an effective and competent manner.

8.3 The Licensee represents and warrants that it is a Corporation duly organized
and  authorized  to enter  into this  Agreement;  that this  Agreement  does not
violate the terms of any other Agreement under which the Licensee is bound,  and
that  the  Licensee  is  authorized  to  catty  on  the  professional   activity
contemplated  by this  Agreement  under the laws of Florida.  The Licensee  also
represents  and warrants  that it has no knowledge of any basis under which U.S.
Patent No. 5,132,113 would be held to be invalid or unenforceable.

                                  5

<PAGE>



9.0 Term and Termination.

9.1. This  Agreement  shall  commence on the effective date of this Agreement as
provided  hereinabove  and will extend for a term which is coextensive  with the
remaining term of U.S.
Patent No. 5,132,113.


9.2. The Licensee may terminate this Agreement on notice to the Sub-Licensee:

    9.2.1. If the Sub-Licensee makes an assignment for the benefit of creditors,
has a receiver  appointed or enters into  liquidation  (whether  voluntarily  or
involuntarily),  is unable to pay its debts in the ordinary  course of business,
or otherwise  becomes  insolvent,  or  terminates  its existence or ceases to do
business; or

9.3. Except as otherwise  provided  herein,  in the event that the  Sub-Licensee
fails  materially to perform any of its obligations  under this  Agreement,  the
Licensee may notify the  Sub-Licensee in writing,  specifying the nature of such
failure and the section of this  Agreement  imposing the  obligation,  whereupon
Sub-Licensee  shall have sixty (60) days within which to remedy the failure.  If
the Sub-  Licensee  does not  remedy  such  failure  within  such sixty (60) day
period,  the Licensee may terminate this  Agreement by subsequent  notice to the
Sub-Licensee. Notwithstanding any provision in the Agreement to the contrary, no
monetary or other damages are to be paid to the Licensee if Sub- Licensee  fails
to make it minimum royalty payments.

9.4. The Licensee may  terminate  this  Agreement  immediately  on notice to the
Sub-Licensee  if the  Sub-Licensee  makes an  assignment  for the benefit of the
creditors,  or has a receiver  appointed  or enters  into  liquidation  (whether
voluntarily or involuntarily), is unable to pay its debts in the ordinary course
of business; or terminates its existence or ceases to do business; or

9.5 In the event  that the  Licensee  fails  materially  to  perform  any of its
obligations  under this Agreement,  the  Sub-Licensee may notify the Licensee in
writing, specifying the nature of such failure and the section of this Agreement
imposing  the  obligation,  whereupon  the  Licensee  shall have sixty (60) days
within which to remedy the failure.  If the Licensee does not remedy the failure
within such sixty (60) day period, the Sub-Licensee may terminate this Agreement
by subsequent notice to the Licensee.

                                  6

<PAGE>





10.0. Assignment.

The  Licensee  may assign all or part of its rights and  delegate all or part of
its duties  described in this Agreement to an entity capable of fulfilling  such
duties by giving written notice to the  Sub-Licensee.  The  Sub-Licensee may not
assign or  transfer  this  Agreement  or its  rights or  obligations  hereunder,
without the prior written consent of the Licensee.

11.0. Relationship of Parties.

Nothing herein contained shall create or be deemed to create any relationship of
agency,   partnership  or  joint  venture   between  the  Licensee   and/or  its
Sub-Licensees.  The Sub-Licensee shall have no authority to create or assume any
liability  or  indebtedness  of any  kind  in the  name of or on  behalf  of the
Licensee  or to act for the  Licensee in any manner  other than as  specifically
provided for herein without the prior written approval of the Licensee.

12.0. Remedies.

Neither  failure nor delay on the part of the  Licensee  to exercise  any right,
remedy,  power or  privilege  provided for herein or by statute or by law, or in
equity  shall  operate  as a waiver  thereof,  nor shall any  single or  partial
exercise of any such right,  remedy,  power or  privilege  preclude any other or
further  exercise  thereof  or the  exercise  of any  right,  remedy,  power  or
privilege.

13.0. Notices.

Any notices,  requests,  demands and other communications  hereunder shall be in
writing  and shall be deemed to have been duly given if  delivered  by hand,  or
mailed by first class,  overnight  mail,  postage and registry fees prepaid,  or
sent via reputable courier or by telecopy addressed:


If to the Licensee, to:


INTERNATIONAL NUTRITION RESEARCH CENTER, INC.
401 West Linton Boulevard
Delray Beach, FL  33444



If to the Sub-Licensee, to:

                                  7

<PAGE>






CHEM INTERNATIONAL, INC.
          225 Long Avenue
          Hillside, NJ 07205


14.0 Impossibility of Performance.

Neither the  Sub-Licensee  nor the  Licensee  shall be held liable for delays in
performing or any failure to perform any of the terms of this  Agreement  caused
by the effects of fire, strike, war, insurrection, government restriction, force
majeure or other causes reasonably beyond its control and without its fault, but
the party  failing  to  perform  shall use all  reasonable  endeavors  to resume
performance  of this  Agreement  as  quickly  as  feasible.  If either  party is
affected by an event described herein,  such party shall immediately give notice
to the other and upon receipt of such notice this  Agreement  shall be suspended
and the parties agree to negotiate in good faith to resolve the  difficulty.  If
the period of such  suspension  exceeds sixty (60) days, the party whose ability
to perform  has not been so  affected  may,  by giving  notice,  terminate  this
Agreement. This provision shall not relieve the Licensee and/or its Sub-Licensee
of the obligation to pay the Licensee if any Product is delivered hereunder.

15.0. Prior Understanding.

This Agreement  expresses fully the  understanding  between the Licensee and the
Sub-Licensee with regard to the subject matter hereof and supersedes and cancels
all prior agreements and  understandings  relating to the subject matter hereof.
The  terms  of this  Agreement  may not be  changed  or  modified  except  by an
instrument in writing signed by the Licensee and Sub-Licensee.

16.0. Severability.

If any condition,  term or covenant of this Agreement  shall at any time be held
to be void, invalid or unenforceable,  such condition, covenant or term shall be
construed as severable  and shall not in any way affect or render void,  invalid
or unenforceable  any other condition,  covenant or term of this Agreement which
shall remain in full force and effect.

                                  8

<PAGE>





17.0. Choice of Law.

This  Agreement  shall be construed,  and the  obligations of the parties hereto
shall be determined, in accordance with the laws of the State of New York.

18.0. Counterparts.

This Agreement may be executed in counterparts, each of which shall be deemed to
be an original and all of which  together shall be deemed to be one and the same
instrument.

19.0. Headings.

            The headings of this  Agreement are for purposes of references  only
            and shall not limit or otherwise affect the meaning of any provision
            hereof.

20.0. Disputes.

In the event that any dispute arises under this  agreement,  written notice must
be given to the other  party and the other  party  shall have 60 days to correct
any error or omission arising under this agreement.

21.0 Initial Inventory.

The  Sub-Licensee  will  manufacture  or have  manufactured  for  inventory  the
following  quantities  of Product to be  available  according  to the  following
schedule:

Before June 30, 1997      one metric ton(+/-10%)
Before September 30, 1997 two metric ton(+/-10%)
Before December 30, 1997  two metric ton(+/-10%)


Within 10 days of the signing of this Agreement, Sub-Licensee will guarantee the
payment of the royalties  for the Initial  Inventory to Licensee and Licensor by
providing  clean,  unconditional  Letters of Credit  drawn to the benefit of the
Licensor  in the  amount  of  $140,000.00  and the  Licensee  in the  amount  of
$90,000.00 to guarantee payment.

                          9

<PAGE>




22.0 Accounting.

a) Within  twenty-four (24) hours of manufacturing or accepting  delivery of the
Product, Sub-Licensee shall telecopy to Licensee a report of which discloses the
weight of the Product manufactured or delivered.

b)  During  each  third  month   following  the  execution  of  this  Agreement,
Sub-Licensee  shall deliver to Licensee a full and true  accounting of all sales
hereunder made by Sub-Licensee during the three (3) month period ending with the
last day of the immediately preceding month.

c)  Sub-Licensee  hereby agrees to keep full,  thorough and accurate  records of
accounts  containing all  particulars  which may be necessary for the purpose of
showing the amount  payable to the other as royalty and will  furnish  copies to
the Licensee  promptly upon written  request.  Such records shall be kept at the
principal place of business, and the necessary portions thereof shall be open at
all reasonable  times within a period of two (2) years after  submission of each
royalty report,  for inspection by an independent  certified  public  accountant
retained by one party and acceptable to the other (who may be the accountant who
regularly audits the Licensee's or its subsidiaries  books) for the sole purpose
of verifying  statements  submitted  hereunder.  The  confidential  character of
records  shall be observed  by such  accountant  who shall  report only upon the
accuracy of reports and payments required to be made under this Agreement.

23.0 Third Party Infringement.

a) If in any  proceeding  in a court of  competent  jurisdiction,  in which  the
validity of the licensed  claims are in issue,  a judgment upon an unappealed or
unappealable  decision is entered  holding such to be invalid,  the right of the
Licensee and the Licensor to royalties  hereunder  for the  utilization  of such
claim by the Licensee  shall  terminate,  without,  however,  affecting any such
right with respect to any and all claims not so held invalid.

b) If at any time the Sub-Licensee shall obtain reliable  information that there
is  occurring  substantial  infringement  by any  unlicensed  third party of the
patented invention,  through the manufacture,  use or sale of the subject matter
licensed  hereunder,  the Sub- Licensee to the extent that it is utilizing  such
claims  hereunder,   may  notify  the  Licensor  and/or  the  Licensee  of  such
infringement  and furnish  proof thereof and request that  appropriate  steps be
initiated to bring about a discontinuance of such infringement.

                                10

<PAGE>





If the Licensor and/or the Licensee fail to bring suit to take appropriate steps
to obtain a  discontinuance  any such patent  infringement  within 90 days after
being given notice by  Sub-Licensee,  the obligation of the Sub- Licensee to pay
royalties will be suspended unless Licensor and/or Licensee bring an action in a
court of  competent  jurisdiction  against  any  such  infringer  to  abate  the
infringement and prosecutes such action to abate the  infringement.  In the case
of one or more  infringements,  the  pendency  of a single  action  against  one
infringer  which has not  resulted  in a final and  unappealable  decision  will
require the Sub-Licensee to continue to pay royalties.


IN WITNESS  WHEREOF,  the parties hereto have duly executed this Agreement as of
the date first above written.


The Licensee:

INTERNATIONAL NUTRITION RESEARCH CENTER INC.,

                             By

                          Title

The Sub-Licensee:

CHEM INTERNATIONAL, INC.

                             By

                          Title


                                      11

<PAGE>








                                 Schedule 1.1

                                      TO

                                   AGREEMENT

                             DATED:

                     Minimum Royalties commencing in 1997
                    and ending on December 31 of each year
                            thereafter as follows:


Year ending on December 31                U.S. Dollars

                           INRC Royalty   INTERAMERICAN Royalty

1997                      450,000.00           700,000.00

1998                        720,000.00         1,120,000.00

1999                      1,350,000.00         2,100,000.00

2000                      1,440,000.00         2,240,000.00

2001                    1,620,000.00         2,520,000.00

2002                     1,800,000.00         2,800,000.00

2003                    1,980,000.00         3,080,000.00

2004                    2,160,000.00         3,360,000.00

2005                     2,340,000.00         3,640,000.00

2006                    2,610,000.00         4,060,000.00

2007                    2,880,000.00         4,480,000.00

2008                    3,150,000.00         4,900,000.00

2009                    3,510,000.00         5,460,000.00

2010                    3,870,000.00         6,020,000.00

                                         12

<PAGE>







                                      AGREEMENT


AGREEMENT,  made effective as of the 27th day of November , 1996, by and between
INTERNATIONAL  NUTRITION RESEARCH CENTER, INC., a corporation of Florida, having
principal offices at at 401 West Linton  Boulevard,  Delray Beach, FL 33444 (the
"Company")  and CHEM  INTERNATIONAL  INC., a  corporation  of Delaware  with its
principal offices at 225 Long Avenue,  Hillside, New Jersey 07205 "Distributor")
to supercede and replace the Agreement of the 26th day of November, 1996 between
the same parties.

                                     WITNESSETH:


WHEREAS, the Company is engaged in providing a patented amino acid
nutritional formula; and

WHEREAS, the Distributor is engaged or will be engaged in the sale of
amino acid nutritional formulas;

   NOW THEREFORE, in consideration of the foregoing and of the mutual agreements
set forth herein and other good and valuable consideration, the parties agree as
follows:

1.0 Defined Terms. As used in this Agreement, the following definitions
shall apply:

   1.1.  Product. The term "Product" shall mean the patented amino acid
         nutritional formulas covered by U.S. Patent No. 5,132,113 and
         any improvements thereof.

   1.2.  Territory. The term "Exclusive Territory" shall mean the United
         States; the term "Non-Exclusive Territory" shall mean the rest
         of the world outside of the United States except Italy, Spain
         and Switzerland. If, in the future, the Company issues a license
         to a third party on an exclusive basis for any country in the
         "Non-Exclusive Territory" and gives notice to the Distributor
         under this Agreement, the "Non-Exclusive Territory" under this
         Agreement will be redefined to exclude any such country. At
         least 30 days prior to the granting of a license to a third
         party in a country in the Non Exclusive Territory,  the Company
         will give notice to the Distributor of its I ntent to grant a

                                         1

<PAGE>



         license to a third  party and the  Distributor  will have the option to
         obtain the  Exclusive  license in that country under the same terms and
         conditions that were offered to the third party by giving notice to the
         Distributor  within 30 days  after  receipt  of the notice of intent to
         license.

   1.3.  Minimum Purchase Requirements. The term "Minimum Purchase
         Requirements" shall mean the aggregate quantity of Product
         that the Buyer shall be obligated to buy during each twelve
         (12) month period beginning on the date hereof and on each
         anniversary date thereafter during the term of this Agreement.
         The aggregate quantities of products which Distributor is
         required to buy during each twelve (12) month period are set
         forth on Schedule 1.3 hereto. Any purchases which are in
         excess of the Minimum Purchase Requirements will be credited
         against future Minimum Purchase Requirements in order to
         reduce the total amount of the future Minimum Purchase
         Requirements.

2.0 Authorization.

     2.1.   Subject to and upon the terms and conditions of this
            Agreement, the Company hereby grants to the Distributor the
            exclusive right to use and sell the Product in the Exclusive
            Territory and in the Non Exclusive Territory in the field of
            sports nutrition. No right to sell is granted for Products for
            weight loss or to sell Products to hospitals, physicans or
            medically related facilities. No right to make or manufacture
            the Product is granted under this Agreement and no right to
            sell the Product for other fields of use is granted by this
            Agreement. The Distributor hereby accepts this grant of
            authority upon the terms and conditions hereof.

2.2 The Distributor may use its own trademarks in the Territory and may register
the  trademarks  in  any  jurisdiction  in  the  Territory.  If  Distributor  is
liquidated in a bankruptcy  proceeding,  Distributor  will assign any trademarks
used in connection  with the Product to the Company.  If Distributor  desires to
sell its trademarks on the Product,  it will not sell these trademarks to anyone
without  first  offering  to sell them to the Company for the same price that it
offers to sell the trademarks to a third party.

3.0 Distributors's Obligations.

     3.1. The Distributor shall use the Product in the Territory so as:

      (a) to meet the Minimum  Purchase  Requirements,  as set forth in Schedule
      1.3 hereto or as set by the Company hereunder;

      (b) to assure the best employment of the Product in the Territory;

      (c) to supply fully with reasonable promptness the demand for the
      Product in the Territory; and

      (d) to develop  vigorously  and increase the volume of  utilization of the
      Product in the Territory.

                                         2

<PAGE>





(e) to adopt text for labeling the Product only after  obtaining the approval of
the Company.  Approval of the labeling will not be unreasonably  withheld by the
Company. If a further license on the Product is granted, the Company will impose
a similar requirement on future licensees.

3.2         Purchase  of  the  Product.   The  Distributor  shall  purchase  its
            requirements  of the Product solely from the Company or from parties
            specified in writing by the Company.

3.3  Maintenance  of  Facilities.  The  Distributor  shall  provide and maintain
suitable  facilities in the Territory for the proper storage and handling of the
Product.

3.4      Distributor  Personnel.  The Distributor shall maintain an adequate and
         suitably  qualified staff to the best utilization of the Product in the
         Territory  and  perform  in  a  timely  and  satisfactory   manner  the
         Distributor's obligations under this Agreement.

3.5      Consumer Claims. The Distributor shall process and seek to settle, in a
         manner acceptable to the Company,  all consumer complaints arising from
         the use of the Product.

The  Distributor  shall  maintain  records and accounts  relating to any and all
claims for the  Product  and shall  permit  examination  of such  records by the
Company's representative.


4.0 Company's Obligations.


4.1 By mutal  consent  of the  Distributor  and the  Company,  the  Company  may
undertake to provide the Distributor with any available brochures, any available
scientific information and any available results of studies.

4.2 By mutual  consent of the  Distributor  and the  Company,  the  Company  may
provide and pay for the expenses of the  scientific  promotion of the Product in
seminars and lectures by its own specialists or others.

4.3 By mutual  consent of the  Distributor  and the  Company,  the  Company  may
participate in the cost of any  advertising or promotional  activities to assist
in the sale of the Product in the Territory.

4.4 The Company will exert its best efforts to provide all requested information
to the Distributor on a timely basis.

4.5 The  Company  will  exert  its best  efforts  to inform  Distributor  of any
inquiries or orders for Product that originate in the Territory.

                                   3

<PAGE>





4.6 The  Company  will  provide  product to  Distributor  which meet the labeled
specifications and will supply all orders on a timely basis.

4.7 The Company will exert its best efforts to make a  knowledgeable  scientific
person available as a consultant for 96 hours per year for the first three years
of this contract at times and places to be mutually agreed upon. The Distributor
will not be obligated to reimburse the Company for the  knowlegeable  scientific
person's travel expenses.

5.0  Compliance with the Laws.

The  Distributor  shall comply in all material  respects  with any and all laws,
ordinances,  rules, regulations and ordinary standards of care now in effect, or
which hereafter may be in effect,  which pertains to the conduct of its business
and the  utilization  of the Product in the Territory,  and shall  indemnify and
hold the Company harmless against any failure to comply therewith.

6.0 Price and Delivery.


6.1.The Company shall sell to the Distributor and the Distributor shall purchase
from the Company, or from a supplier  authorized by the Company,  the Product at
the Price in effect as of the date hereof as set forth in  Schedule  1.1 hereto.
The Company may adjust the price to reflect  increases in the price that it pays
its  supplier.  All prices are  exclusive of any and all present or future value
added taxes,  property  taxes,  use or excise taxes,  custom duties,  imposts or
assessments  upon or measured by the  receipts  from the sale or by the value of
the Product  after  delivery  to the  Distributor,  and any such taxes,  duties,
impost or assessment  shall be the  obligation of the  Distributor.  The Company
shall have no  responsibility  for invoicing,  collection or credit risks of the
Distributor's customers. The price charged to the Distributor will not be higher
than  the  price  which  it  charges  any  other  distributor  in the  Exclusive
Territory.

6.2. Payment for the Product shall be made by the Distributor
to the Company in U.S. Dollars.

6.3.The  Distributor  shall  submit all orders for the Product to the Company at
least  twelve (12) weeks in advance of delivery or such other period as shall be
provided  herein by the  Company  from time to time.  All orders are  subject to
acceptance by the Company in its sole  discretion,  and all accepted  orders are
subject to the availability of Product. If an order is not accepted, the minimum
purchase  requirements  of  Schedule  1.3  will be  tolled  until  the  order is
accepted.

                                   4

<PAGE>





6.4.The  Distributor  shall inspect all Product  immediately  upon receipt.  The
Distributor  shall notify the Company in writing of the existence of any defects
or damage to the  Product  within  thirty (30)  business  days of arrival at the
Distributor's warehouse. Failure to provide notice within such twenty day period
shall be deemed a waiver of any claim for damages hereunder.

6.5.Without  prejudice to any other rights or remedies available to the Company,
the Company  shall be entitled to  withhold  further  deliveries  of the Product
while any amounts due from the Distributor are unpaid.

7.0  Indemnification and Insurance.

7.1. The  Distributor  shall  indemnify,  defend and hold the Company,  harmless
against and from (a) any and all claims  based  upon,  arising out of, or in any
way related to the transportation, storage, warehousing or use of the Product by
the Distributor,  the conduct of the business of the Distributor,  any negligent
or wrongful act,  misfeasance or nonfeasance by the Distributor,  any claim of a
third  party  that the  Distributor  misrepresented  its  authority  or made any
contractual  commitment not expressly  authorized  under this Agreement,  or any
breach by the Distributor of any representation,  warranty or covenant contained
herein or the failure of the  Distributor to perform its  obligation  under this
Agreement,  and (b) any and all reasonable fees, costs, and expenses  including,
without  limitation  reasonable  attorneys' fees incurred by or on behalf of the
Company,  in the defense  against  any and all such  claims.  The Company  shall
provide the  Distributor  with prompt  written  notice upon  receipt of any such
claim  and the  Company  shall  not  settle  any such  claim  without  the prior
knowledge  and  consent of the  Distributor.  The  Distributor  will  maintain a
product  liability  policy which provides at least $5,000,000 for each occurance
and an aggregate coverage of at least $5,000,000 and will name the Company as an
additional insured under the policy.


7.2. The Company shall indemnify, defend and hold Distributor,  harmless against
and  from  (a) any and all  claims  made  against  Distributor  based  upon  any
negligent or wrongful act of the Company  including any and all reasonable fees,
costs and expenses including reasonable attorneys' fees incurred by or on behalf
of the Distributor,  in the defense against any of such claims.  The Distributor
shall  provide the Company with prompt  written  notice upon receipt of any such
claim and the  Distributor  shall not settle any such  claim  without  the prior
knowledge and consent of the Company.

                                   5

<PAGE>






8.0  Representations and Warranties.

8.1.The Company represents that all the Product, when
delivered to Distributor, will not be adulterated,
contaminated or misbranded within the meaning of the U.S. FDA
regulations regarding food products.

8.2.The  Distributor  represents  and  warrants  that it is a  Corporation  duly
organized and authorized to carry on the professional  activity  contemplated by
this Agreement  under the laws of New Jersey.  The  Distributor  has obtained or
will obtain all licenses,  permits and authorizations required under the laws or
regulations  applicable  in the  Territory  to undertake  the use and  promotion
activities  contemplated herein prior to selling Product in each jurisdiction in
the Territory.

8.3 The Distributor  further represents and warrants that it has or will provide
the expertise,  professional  associates,  knowledge and financial  resources to
purchase  and sell the Product in the  Territory  and  otherwise  to fulfill its
obligations hereunder in an effective and competent manner.

8.4.The Company  represents and warrants that it is a Corporation duly organized
and  authorized  to enter  into this  Agreement;  that this  Agreement  does not
violate the terms of any other Agreement  under which the Company is bound,  and
that  the  Company  is  authorized  to  carry  on  the   professional   activity
contemplated  by this  Agreement  under the laws of Florida.  The  Company  also
represewnts  and warrants that it has no knowledge of any basis under which U.S.
Patent No. 5,132,113 would be held to be invalid or  unenforceable.  The Company
will exert its best  efforts to  maintain  the  Agreement  of October  17,  1995
between the Company and the International  Nutritional Research Laboratories,  a
British Virgin Islands Corporation.

9.0 Term and Termination.

9.1. This  Agreement  shall  commence on the effective date of this Agreement as
provided  hereinabove  and will extend for a term which is coextensive  with the
remaining term of U.S.
Patent No.5,132,113.

                                   6

<PAGE>





9.2. The Company may terminate this Agreement on notice to the Distributor if:

     9.2.1.  The  Distributor  makes an assignment for the benefit of creditors,
has a receiver  appointed or enters into  liquidation  (whether  voluntarily  or
involuntarily),  is unable to pay its debts in the ordinary  course of business,
or otherwise  becomes  insolvent,  or  terminates  its existence or ceases to do
business;

9.3.  Except as otherwise  provided  herein,  in the event that the  Distributor
fails  materially to perform any of its obligations  under this  Agreement,  the
Company may notify the  Distributor  in writing,  specifying  the nature of such
failure and the section of this  Agreement  imposing the  obligation,  whereupon
Distributor  shall have sixty (60) days within which to remedy the  failure.  If
the Distributor  does not remedy such failure within such sixty (60) day period,
the Company may terminate this Agreement by subsequent notice to the Distributor
except that  Distributor  shall have the right at any time to extend the time to
reach the minimum  purchase  requirement of Schedule 1.2 to a two year period by
combining the  purchases for the year in which the required  sales were not made
with the  purchases of the  following  year and  comparing  the combined  actual
purchases for the two year period with the required minimum  purchases stated in
1.2 for that period to determine  if the minimum  purchases  have been made.  If
Distributor  fails to make the  minimum  purchases,  Distributor  shall have the
option to become a  non-exclusive  distributor  of the Company by giving written
notice  within one month of the end of the two year period in which  Distributor
fails to make the required  minimum  purchases.  If  Distributor  exercises  the
option to  become a  non-exclusive  Distributor,  thereafter,  Distributor  will
retain  the  exclusive  right  to  sell to all  accounts  that  Distributor  has
developed in the  Exclusive  Territory and the Non Exclusive for the sale of the
Product.  Notwithstanding  any provision in the  Agreement to the  contrary,  no
monetary  or other  damages  are to be paid to Company if  Distributor  fails to
purchase its required minimum purchases.

9.4. The Distributor  may terminate this Agreement  immediately on notice to the
Company if the Company makes an assignment for the benefit of the creditors,  or
has a receiver  appointed or enters into  liquidation  (whether  voluntarily  or
involuntarily),  is unable to pay its debts in the ordinary  course of business;
or terminates its existence or ceases to do business; or



                                   7

<PAGE>




9.5.  In the event that the  Company  fails  materially  to  perform  any of its
obligations  under this  Agreement,  the  Distributor  may notify the Company in
writing, specifying the nature of such failure and the section of this Agreement
imposing the obligation, whereupon the Company shall have sixty (60) days within
which to remedy the failure.  If the Company does not remedy the failure  within
such sixty (60) day period,  the  Distributor  may terminate  this  Agreement by
subsequent notice to the Company.

10.0.     Assignment.

The Company may assign all or part of its rights and delegate all or part of its
duties  described in this  Agreement  to an entity  capable of  fulfilling  such
duties by giving written notice to the  Distributor.  The Distributor may assign
or transfer  this  Agreement or its rights or  obligations  hereunder,  with the
prior written consent of the Company.

11.0. Relationship of Parties.

Nothing herein contained shall create or be deemed to create any relationship of
agency,  partnership or joint venture  between the  Distributor and the Company.
The  Distributor  shall have no authority  to create or assume any  liability or
indebtedness  of any kind in the name of or on behalf of the  Company  or to act
for the Company in any manner  other than as  specifically  provided  for herein
without the prior written approval of the Company.

12.0. Remedies.

Neither  failure  nor delay on the part of the  Company  or the  Distributor  to
exercise any right, remedy, power or privilege provided for herein or by statute
or by law, or in equity shall operate as a waiver thereof,  nor shall any single
or partial exercise of any such right,  remedy,  power or privilege preclude any
other or further exercise thereof or the exercise of any right, remedy, power or
privilege.

13.0. Notices.

Any notices,  requests,  demands and other communications  hereunder shall be in
writing  and shall be deemed to have been duly given if  delivered  by hand,  or
mailed by first class,  overnight  mail,  postage and registry fees prepaid,  or
sent via reputable courier or by telecopy addressed:


                                   8

<PAGE>





If to the Company, to:


INTERNATIONAL NUTRITION RESEARCH CENTER, INC.
401 West Linton Boulevard
Delray Beach, FL  33444


If to the Distributor, to:

CHEM INTERNATIONAL, INC.
225 Long Avenue
Hillside, New Jersey 07205 and

Kevin M. Kilcullen
Shanley & Fisher
          131 Madison Avenue
          Morristown, NJ 07960


14.0 Impossibility of Performance.

Neither  the  Distributor  nor the  Company  shall be held  liable for delays in
performing or any failure to perform any of the terms of this  Agreement  caused
by the effects of fire, strike, war, insurrection, government restriction, force
majeure or other causes reasonably beyond its control and without its fault, but
the party  failing  to  perform  shall use all  reasonable  endeavors  to resume
performance  of this  Agreement  as  quickly  as  feasible.  If either  party is
affected by an event described herein,  such party shall immediately give notice
to the other and upon receipt of such notice this  Agreement  shall be suspended
and the parties agree to negotiate in good faith to resolve the  difficulty.  If
the period of such  suspension  exceeds one hundred twenty (120) days, the party
whose  ability  to  perform  has not been so  affected  may,  by giving  notice,
terminate this  Agreement.  This provision  shall not relieve the Distributor of
the obligation to pay the Company for all Product delivered hereunder.


15.0. Prior Understanding.

This Agreement expresses fully the understanding between the Distributor and the
Company  with  regard to the  subject  matter  hereof and  supersedes  all prior
agreements and  understandings  relating to the subject matter hereof. The terms
of this  Agreement  may not be changed or modified  except by an  instrument  in
writing signed by the Company and Distributor.

                                   9

<PAGE>





16.0. Severability.

If any condition,  term or covenant of this Agreement  shall at any time be held
to be void, invalid or unenforceable,  such condition, covenant or term shall be
construed as severable  and shall not in any way affect or render void,  invalid
or unenforceable  any other condition,  covenant or term of this Agreement which
shall remain in full force and effect.

17.0. Choice of Law.

This  Agreement  shall be construed,  and the  obligations of the parties hereto
shall be determined, in accordance with the laws of the State of New Jersey.

18.0. Counterparts.

This Agreement may be executed in  counterparts,  each of Awhich shall be deemed
to be an original  and all of which  together  shall be deemed to be one and the
same instrument.

19.0. Headings.

            The headings of this  Agreement are for purposes of references  only
            and shall not limit or otherwise affect the meaning of any provision
            hereof.

20.0. Disputes.

In the event that any dispute arises under this  agreement,  written notice must
be given to the other  party and the other  party  shall have 60 days to correct
any error or omission  arising under this  agreement.  After 60 days the parties
agree to confer in good faith to attempt to resolve  the dispute and to reach an
amicable settlement within the next 60 day period. Thereafter,  either party may
pursue any available legal remedy.


21.0 Initial Shipment

The initial shipment shall be 750.0kg. of Product in the form
of 495 kg of powder and 255kg of tablets.  The total price
will be $250,250.00.





                                   10

<PAGE>





IN WITNESS  WHEREOF,  the parties hereto have duly executed this Agreement as of
the date first above written.


The Company:

INTERNATIONAL NUTRITION RESEARCH CENTER, INC.

                          By

                          Title


The Distributor:

CHEM INTERNATIONAL, INC.


                         By



                         Title














                                         11

<PAGE>













                                    Schedule 1.1


                                         TO

                                      AGREEMENT


                             DATED:  November 26, 1996




Product                               Price

Amino Acid Powder or Granulate        $350.00/kilo
having the formula covered by
any patent corresponding to
U.S. Patent 5,132,113




                                         12

<PAGE>




                                    Schedule 1.2

                                         TO

                                      AGREEMENT

                            DATED:   November 26, 1996

Initial Purchase              $250,250.00


Period Ending:

June 30, 1997                 $350,000.00

September 30, 1997            $700,000.00

December 31, 1998             $700,000.00

March 31, 1998                $1,400,000.00

June 30, 1998                 $1,400,000.00


       Minimum Purchase Requirements  commencing July 1, 1998 to the anniversery
date of each year thereafter as follows:

                                U.S. Dollars



1999                        $ 5,280,000.00

2000                        $ 5,808,000.00

2001                        $ 6,388,000.00

2002                        $ 7,027,000.00

2003                        $ 7,730,000.00

2004                        $ 8,503,000.00

2005                        $ 9,383,000.00

2006                             $10,320,000.00

2007                             $11,353,000.00

2008                        $12,488,000.00

2009                             $13,737,000.00

2010                             $15,110,000.00

2011                             $16,621,000.00

                                         13

<PAGE>












                                   LEASE AGREEMENT

                                       BETWEEN

                         VITAMIN REALTY ASSOCIATES, L.L.C.,

                                  LESSOR,


                                        -AND-


                               MANHATTAN DRUG COMPANY,


                                  LESSEE.




                       --------------------------------------

                              DATED:  January   , 1997

                        -------------------------------------






Prepared by:

Stephen A. Urban, Esq.
Shanley & Fisher, P.C.
131 Madison Avenue
Morristown, New Jersey 07962


<PAGE>

<TABLE>




                                 TABLE OF CONTENTS


                                                                                Page

<S>                                                                        <C>    

PRELIMINARY STATEMENT..............................................................1

ARTICLE 1   DEFINITIONS............................................................1

ARTICLE 2   DEMISE; TERM...........................................................7

ARTICLE 3   BASIC RENT; ADDITIONAL RENT; NET LEASE.................................7

ARTICLE 4   OPERATING EXPENSES.....................................................9

ARTICLE 5   [INTENTIONALLY OMITTED]...............................................11

ARTICLE 6   MAINTENANCE, ALTERATIONS AND ADDITIONS;
            REMOVAL OF TRADE FIXTURES.............................................11

ARTICLE 7  USE OF DEMISED PREMISES................................................13

ARTICLE 8  LESSOR'S SERVICES......................................................14

ARTICLE 9  INDEMNIFICATION; LIABILITY OF LESSOR...................................15

ARTICLE 10  COMPLIANCE WITH REQUIREMENTS..........................................16

ARTICLE 11  DISCHARGE OF LIENS....................................................20

ARTICLE 12  PERMITTED CONTESTS....................................................20

ARTICLE 13  INSURANCE.............................................................21

ARTICLE 14  ESTOPPEL CERTIFICATES.................................................23

ARTICLE 15  ASSIGNMENT AND SUBLETTING.............................................24

ARTICLE 16  CASUALTY..............................................................30

ARTICLE 17  CONDEMNATION..........................................................31

ARTICLE 18  EVENTS OF DEFAULT.....................................................32

ARTICLE 19  CONDITIONAL LIMITATIONS; REMEDIES.....................................34

ARTICLE 20  RIGHT OF ENTRY; RESERVATION OF EASEMENTS..............................37

                                         i
</TABLE>

<PAGE>

<TABLE>


                                 TABLE OF CONTENTS

                                    (CONTINUED)

                                                                                Page

<S>                                                                             <C>  

ARTICLE 21  ACCORD AND SATISFACTION...............................................38

ARTICLE 22  SUBORDINATION.........................................................39

ARTICLE 23  LESSEE'S REMOVAL......................................................40

ARTICLE 24  BROKERS...............................................................41

ARTICLE 25  NOTICES...............................................................42

ARTICLE 26  NATURE OF LESSOR'S OBLIGATIONS........................................42

ARTICLE 27  SECURITY DEPOSIT......................................................42

ARTICLE 28  RULES AND REGULATIONS.................................................43

ARTICLE 29  MISCELLANEOUS.........................................................44



</TABLE>


SCHEDULE A        FLOOR PLAN
SCHEDULE B        BASIC RENT

                                         ii

<PAGE>



                                   LEASE AGREEMENT


            LEASE AGREEMENT (this "Lease"), made as of January __, 1997, between
VITAMIN REALTY ASSOCIATES, L.L.C. (the "LESSOR"), a New Jersey limited liability
company,  having an address at 225 Long Avenue,  Hillside, New Jersey 07205, and
MANHATTAN  DRUG  COMPANY (the  "LESSEE"),  a New Jersey  corporation,  having an
address at 225 Long Avenue, Hillside, New Jersey 07205.

                                PRELIMINARY STATEMENT

            LESSOR  is the  owner  in fee  simple  of a  certain  tract  of land
situated in the Township of  Hillside,  County of Union and State of New Jersey,
which is  designated  on the  official  tax map for the  Township of Hillside as
Block  1110,  Lot 1 (the  "Land").  On the  Land,  there is an  office/warehouse
building  (the  "Building")  and other  related  improvements;  the Land and the
Building,  including all other im provements now or hereafter constructed on the
Land and all  fixtures  and  appurtenances  to the Land  and the  Building,  are
collectively  referred to as the  "Property".  The Property is commonly known as
225 Long Avenue, Hillside, New Jersey.

            The roadways,  the drainage areas, the landscape areas and the other
common  portions of the Property  will be  maintained  for the benefit,  use and
enjoyment of all tenants leasing space within the Property.

            LESSEE desires to lease from LESSOR  approximately  58,521  rentable
square feet of warehouse space on the first floor of the Building, approximately
14,563 rentable square feet of office space on the second floor of the Building,
and approximately 10,800 rentable square feet of space on the third floor of the
Building  (collectively the "Demised  Premises") in accordance with, and subject
to, the pro visions of this  Lease.  The  location  of the  Demised  Premises is
cross- hatched on the floor plan annexed hereto as Schedule A.

            NOW, THEREFORE, LESSOR and LESSEE agree as follows:

                                      ARTICLE 1

                                     DEFINITIONS

            1.1. As used in this Lease,  the following  terms have the following
respective meanings:

            (a)      Additional Rent:  defined in Section 3.2.

            (b)      Base Operating Expenses:  LESSOR'S Operating Expenses
for calendar year 1996.

            (c)      Basic Rent:  defined in Section 3.1 and specified in
Schedule B annexed hereto.

            (d)      Basic Rent Payment Dates:  the first day of each
consecutive calendar month during the Term.

            (e)      Building:  defined in the Preliminary Statement.


<PAGE>




            (f)      Building Holidays:  Saturday, Sunday, New Year's Day,
President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.

            (g)      Business Hours:  8:00 AM to 6:00 PM, Monday through
Friday, except for Building Holidays.

            (h)      Commencement Date:  defined in Section 2.2.

            (i)      Demised Premises:  defined in the Preliminary
Statement.

            (j)  Environmental  Laws:  all  statutes,   regulations,  codes  and
ordinances of any  governmental  entity,  authority,  agency  and/or  department
relating to (i) air emissions,  (ii) water  discharges,  (iii) noise  emissions,
(iv) air,  water or ground  pollution or (v) any other  environmental  or health
matter, including,  without limitation,  ISRA, the New Jersey Spill Compensation
and Control Act,  N.J.S.A.  58:10-23.11 et seq. and the regulations  promulgated
thereunder,  and the  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act,  42 U.S.C.  ss.  9601 et seq.  and the  regulations  promulgated
thereunder.

            (k)      Events of Default:  defined in Article 18.

            (l) Excusable  Delay:  any delay caused by governmental  action,  or
lack thereof;  shortages or unavailability  of materials and/or supplies;  labor
disputes  (including,  but not limited to,  strikes,  slow downs,  job  actions,
picketing  and/or  secondary  boycotts);  fire  or  other  casualty;  delays  in
transportation;  acts of God; directives or requests by any governmental entity,
authority,   agency  or  department;  any  court  or  administrative  orders  or
regulations;  adjustments  of  insurance;  acts of declared or  undeclared  war,
public  disorder,  riot or civil  commotion;  or by  anything  else  beyond  the
reasonable control of LESSOR,  including delays caused directly or indirectly by
an act or a failure to act by LESSEE or LESSEE'S Visitors.

            (m)  Insurance  Requirements:  all  terms  of any  insurance  policy
maintained  by LESSOR with respect to the Property and all  requirements  of the
National  Board of Fire  Underwriters  (or any  other  body  exercising  similar
function) applicable to or affecting all or any part of the Property.

            (n)      ISRA:  The New Jersey Industrial Site Recovery Act,
N.J.S.A. 13:1K-6 et seq. and the regulations promulgated thereunder.

            (o)      Land:  defined in the Preliminary Statement.

            (p)  Legal  Requirements:  all  statutes,   regulations,  codes  and
ordinances of any  governmental  entity,  authority,  agency and/or  department,
which now or at any time hereafter may be applicable to the Property or any part
thereof, including, but not limited to, all Environmental Laws.

            (q)      LESSEE:  the party defined as such in the first
paragraph of this Lease.

                                         2

<PAGE>



            (r)      LESSEE'S Notice:  defined in Section 15.2.

            (s)      LESSEE'S Proportionate Share:  for all purposes of this
Lease shall be deemed to be 49%.

            (t)  LESSEE'S  Visitors:   LESSEE'S  agents,  servants,   employees,
subtenants,  contractors,  invitees,  licensees and all other persons invited by
LESSEE into the Demised Premises as guests or doing lawful business with LESSEE.

            (u) LESSOR: the party defined as such in the first paragraph of this
Lease,  including at any time after the date hereof,  the then owner of LESSOR'S
interest in the Property.

            (v)      LESSOR'S Estimated Operating Expenses:  defined in
Section 4.2.

            (w)      LESSOR'S Expense Statement:  defined in Section 4.2.

            (x) LESSOR'S  Operating  Expenses:  those costs or expenses  paid or
incurred by LESSOR in  connection  with the  ownership,  operation,  management,
maintenance,  repair and replacement of the Property, including, but not limited
to, the cost of common area  electricity;  sewer meter  charges;  water;  window
cleaning; exterminating;  insurance of all kinds carried in good faith by LESSOR
and applicable to the Property (including,  without limitation, rent insurance);
snow and ice removal; maintenance and cleaning of the parking lots and driveways
(including  resurfacing and restripping);  regulation of traffic;  landscape and
grounds  maintenance;  service,  maintenance,  repair  and  replacement  of  all
mechanical,  electrical, plumbing and other systems and/or equipment (other than
any system or equipment  installed by LESSEE in the Demised  Premises);  general
maintenance and repairs of any kind for which LESSOR is not reimbursed; painting
and/or sealing of the exterior of the Build ing and the common areas; management
fees; maintenance and service agreements; compliance with any Legal or Insurance
Requirements;  Taxes;  contesting the Taxes and/or the assessed valuation of the
Property (including  reasonable  attorneys' fees,  accounting fees and appraisal
fees);  any expenses  allocable to the Property and/or to LESSOR which relate to
the common areas of the  Property;  the cost of obtaining  and  maintaining  any
access and/or  utility  licenses and easements  across any  contiguous  property
which serve the Property;  security  services  and/or alarm and fire  protection
systems and equipment; wages, salaries, fringe benefits and other labor costs of
all  persons  engaged  by LESSOR  for the  operation,  maintenance,  repair  and
replacement of the Property;  payroll taxes and workers'  compensation  for such
persons;  legal and  accounting  expenses  (except  legal  expenses  incurred in
preparing leases or en forcing the terms of leases); licenses, permits and other
governmental  charges;  depreciation  on and rentals of machinery  and equipment
used in the operation and maintenance of the Property;  and any other expense or
cost, which, in accordance with generally accepted accounting principles and the
standard management practices for buildings comparable to the Building, would be
considered  as an expense of  operating,  managing,  maintaining,  repairing  or
replacing  the  Property,  plus a sum  equal  to  fifteen  percent  (15%) of the
aggregate  of  the  foregoing  for  general  overhead.  Excluded  from  LESSOR'S
Operating  Expenses are costs reim bursed by insurance;  the cost of any work or
service performed by LESSOR

                                         3

<PAGE>



for any tenant of the Building  pursuant to the terms of said tenant's  lease to
the extent such work or service is in excess of the work or service which LESSOR
is obligated to perform  under this Lease;  costs in connection  with  preparing
space for a new tenant;  advertising expenses; real estate brokers' commissions;
franchise,  transfer,  inheritance or capital stock taxes or other taxes imposed
upon or measured by the income or profits of LESSOR;  and  administrative  wages
and salaries or any other  general and  administrative  overhead of LESSOR.  All
accounting for LESSOR'S Operating Expenses shall be on the accrual basis. In the
event that,  at any time during the Term,  the  Building is not fully leased and
occupied by tenants,  LESSOR'S  Operating  Expenses shall be projected as if the
Building were fully occupied at all times.

            (y)      Lien:  any mortgage, pledge, lien, charge, encumbrance
or security interest of any kind, including any inchoate mechanic's or
materialmen's lien.

            (z)      Net Award:  any insurance proceeds or condemnation
award payable in connection with any damage, destruction or Taking, less
any expenses incurred by LESSOR in recovering such amount.

            (aa) Net Rental Proceeds:  in the case of a sublease,  the amount by
which the  aggregate  of all rents,  additional  charges or other  consideration
payable under a sublease to LESSEE by the subtenant (including sums paid for the
sale  or  rental  of  LESSEE'S  fixtures,  leasehold  improvements,   equipment,
furniture or other personal property) exceeds the sum of (i) the Basic Rent plus
all amounts payable by LESSEE pursuant to the provisions  hereof during the term
of the sublease in respect of the subleased space, (ii) brokerage commissions at
prevailing  rates due and owing to a real estate brokerage firm, (iii) other cus
tomary  and  reasonable   costs  incurred  by  LESSEE  in  connection  with  the
subleasing,  and  (iv) the then net  unamortized  or  undepreciated  cost of the
fixtures,  leasehold  improvements,   equipment,  furniture  or  other  personal
property  included  in the  subletting;  and in the case of an  assignment,  the
amount by which all sums and other considerations paid to LESSEE by the assignee
of this Lease for or by reason of such assign ment  (including sums paid for the
sale of LESSEE'S fixtures, leasehold improvements, equipment, furniture or other
personal  property)  exceeds the sum of (i) brokerage  commissions at prevailing
rates due and owing to a real estate  brokerage  firm,  (ii) other customary and
reasonable costs incurred by LESSEE in connection with the assignment, and (iii)
the  then net  unamortized  or  undepreciated  cost of the  fixtures,  leasehold
improvements,  equipment,  furniture  or  other  personal  property  sold to the
assignee.

            (ab)     Prime Rate:  the prime commercial lending rate publicly
announced from time to time by the Wall Street Journal.

            (ac)     Property:  defined in the Preliminary Statement.

            (ad)     Recapture Notice:  defined in Section 15.5.

            (ae)     Recapture Space:  defined in Section 15.5.

            (af)     Restoration:  the restoration, replacement or
rebuilding of the Building or any portion thereof as nearly as

                                         4

<PAGE>



practicable to its value, condition and character immediately prior to
any damage, destruction or Taking.

            (ag)     Rules and Regulations:  defined in Article 28.

            (ah)  Taking:  a taking of all or any part of the  Property,  or any
interest therein or right accruing thereto,  as the result of, or in lieu of, or
in anticipation  of, the exercise of the right of condemnation or eminent domain
pursuant  to any  law,  general  or  special,  or by  reason  of  the  temporary
requisition of the use or occupancy of the Property or any part thereof,  by any
governmental authority, civil or military.

            (ai) Taxes:  all real estate taxes and  assessments  or  substitutes
therefor or supplements  thereto,  upon,  applicable,  attributable  or assessed
against the Property or any part thereof,  or any  improvement  thereon owned by
LESSOR and used in connection with the operation of the Building.  If and to the
extent  that due to a  change  in the  method  of  taxation  or  assessment  any
franchise,  capital stock, capi tal, rent, income, profit or other tax or charge
shall be  substituted by the  applicable  taxing  authority for the Taxes now or
hereafter  imposed upon the Property,  such franchise,  capital stock,  capital,
rent, income, profit or other tax or charge shall be deemed included in the term
"Taxes",  provided,  however,  that the  amount of such tax,  assessment,  levy,
imposition,  charge or fee deemed to be  included in the term  "Taxes"  shall be
determined  as if the Property  were the only asset of LESSOR and as if the rent
received  therefrom were the only income of LESSOR. In the event the Building is
not fully leased and occupied by tenants, the Taxes shall be projected as if the
Building was fully occupied at all times.

            (aj)     Term:  defined in Section 2.2.

            (ak)     Termination Date:  the day preceding the tenth (10th)
anniversary of the Commencement Date, or such earlier date upon which
the Term may expire or be terminated pursuant to any of the conditions
of this Lease or pursuant to law.

            (al)     Underlying Encumbrances: defined in Section 22.1.

            (am)     Work:  defined in Section 6.5.



                                         5

<PAGE>



                                      ARTICLE 2

                                    DEMISE; TERM

            2.1. LESSOR,  for and in consideration of the covenants  hereinafter
contained  and made on the part of the LESSEE,  does hereby  demise and lease to
LESSEE, and LESSEE does hereby hire from LESSOR, the Demised Premises,  together
with the exclusive  right to use two reserved  automobile  parking spaces at the
front of the  Building,  and two rows of parking  spaces in the general  parking
area on the  Land,  each in a  location  to be  designated  by  LESSOR,  and the
non-exclusive  right to use such other  portions of the Property as are intended
for common use, subject, however, to the terms and conditions of this Lease.

            2.2.  The term (the  "Term") of this  Lease  shall  commence  on the
earlier of (a) the  execution and delivery  hereof by LESSOR and LESSEE,  or (b)
the date that LESSOR acquires title to the Property (the  "Commencement  Date"),
and shall end on the Termination Date.

            2.3.  LESSEE  agrees  that the  Demised  Premises  are being  leased
hereunder in their "AS IS" condition, and by entering into occupancy of any part
of the Demised Premises, LESSEE shall be conclusively deemed to have agreed that
the  Demised  Premises  were in  satisfactory  condition  as of the date of such
occupancy.  LESSEE shall make all  alterations  and  improvements to the Demised
Premises  that are required by LESSEE in  connection  with its  occupancy of the
Demised Premises, in accordance with Section 6.4 hereof.

            2.4.  When the  Commencement  Date  occurs,  LESSOR and LESSEE shall
enter into an agreement  memorializing the Commencement and Termination Dates of
this Lease.

                                      ARTICLE 3

                       BASIC RENT; ADDITIONAL RENT; NET LEASE

            3.1.  LESSEE shall pay rent ("Basic Rent") to LESSOR during the Term
in the  amounts and at the times  provided in Schedule B in lawful  money of the
United  States  of  America;  provided,  however,  LESSEE  shall  pay the  first
installment  of Basic Rent upon the  execution  of this Lease.  In the event the
Commencement  Date shall be other than a Basic Rent Payment Date, the Basic Rent
and  Additional  Rent  payable  hereunder  shall be prorated for the initial and
terminal fractional months of the Term.

            3.2.  In  addition  to the Basic  Rent,  LESSEE  shall pay to LESSOR
during the Term all other  amounts,  liabilities  and  obligations  which LESSEE
herein  agrees  to pay to LESSOR as and when the same  become  due  (hereinafter
collectively referred to as "Additional Rent"); and LESSEE agrees that each such
amount,  liability and  obligation,  together with any interest,  penalty and/or
cost  thereon,  shall be deemed  Additional  Rent  regardless  of  whether it is
specifically referred to as Additional Rent in this Lease. LESSOR shall have all
the  rights,  powers  and  remedies  provided  for in this Lease or at law or in
equity or otherwise for failure to pay Additional  Rent as are available for non
payment of Basic Rent.

                                         6

<PAGE>



            3.3. If any installment of Basic Rent or Additional Rent is not paid
when due,  LESSEE  shall pay to LESSOR on demand,  as  Additional  Rent,  a late
charge  equal to four  percent  (4%) of the  amount  unpaid.  In  addition,  any
installment or installments of Basic Rent or Additional Rent accruing  hereunder
which are not paid  within  ten (10) days  after the date when due,  shall  bear
interest  at the Prime Rate plus four  percent  (4%) per annum from the due date
thereof until the date of payment,  which  interest  shall be deemed  Additional
Rent hereunder and shall be payable upon demand by LESSOR.

            3.4. LESSEE will contract for and pay all charges for communications
and other  services or  utilities  at any time  rendered or used on or about the
Demised Premises and not provided by LESSOR pursuant to Article 8 to the company
providing  the same before any interest or penalty may be added thereto and will
furnish to LESSOR, upon request, satisfactory proof evidencing such payment.

            3.5. Except as herein  provided,  LESSEE hereby covenants and agrees
to pay to LESSOR during the Term, at LESSOR'S address for notices hereunder,  or
such other place as LESSOR may from time to time designate,  without any offset,
set-off, counterclaim,  deduction, defense, abatement,  suspension, deferment or
diminution  of any kind (i) the  Basic  Rent,  without  notice or  demand,  (ii)
Additional Rent and (iii) all other sums payable by LESSEE hereunder.  Except as
otherwise expressly provided herein,  this Lease shall not terminate,  nor shall
LESSEE  have any right to  terminate  or avoid this Lease or be  entitled to the
abatement of any Basic Rent,  Additional Rent or other sums payable hereunder or
any  reduction  thereof,  nor shall the  obligations  and lia bilities of LESSEE
hereunder  be in any way  affected  for any reason.  The  obligations  of LESSEE
hereunder shall be separate and independent covenants and agreements.

                                      ARTICLE 4

                                 OPERATING EXPENSES

            4.1.  LESSEE  shall pay to  LESSOR,  as  Additional  Rent,  LESSEE'S
Proportionate  Share of the amount by which LESSOR'S  Operating Expenses for any
calendar  year during the Term  exceeds the Base  Operating  Expenses.  LESSEE'S
Proportionate  Share of such excess for less than a year shall be  prorated  and
apportioned.

            4.2. On or about the Commencement Date, and thereafter within ninety
(90) days  following the first day of each  succeeding  calendar year within the
Term, LESSOR shall determine or estimate the amount by which LESSOR'S  Operating
Expenses  for  such  calendar  year  will  exceed  the Base  Operating  Expenses
("LESSOR'S  Estimated Operating  Expenses") and shall submit such information to
LESSEE in a written statement ("LESSOR'S Expense Statement").

            4.3.  Commencing on the first Basic Rent Payment Date  following the
submission of any LESSOR'S  Expense  Statement and continuing  thereafter  until
LESSOR renders the next LESSOR'S Expense  Statement,  LESSEE shall pay to LESSOR
on  account  of its  obligation  under  Section  4.1 of this  Lease,  a sum (the
"Monthly Expense Payment") equal to one-twelfth (1/12) of LESSEE'S Proportionate
Share of LESSOR'S

                                         7

<PAGE>



Estimated  Operating  Expenses for such calendar  year.  LESSEE'S  first Monthly
Expense Payment after receipt of LESSOR'S Expense Statement shall be accompanied
by the payment of an amount  equal to the product of the number of full  months,
if any,  within the calendar  year which shall have elapsed  prior to such first
Monthly Expense Payment, times the Monthly Expense Payment; minus any Additional
Rent already paid by LESSEE on account of its  obligation  under  Section 4.1 of
this Lease for such calendar year.

            4.4. Each LESSOR'S  Expense  Statement  shall reconcile the payments
made by  LESSEE  pursuant  to the  preceding  LESSOR'S  Expense  Statement  with
LESSEE'S  Proportionate  Share of  LESSOR'S  Operating  Expenses  for the period
covered thereby. Any balance due to LESSOR shall be paid by LESSEE within thirty
(30) days after LESSEE'S receipt of LESSOR'S Expense Statement;  any surplus due
to  LESSEE  shall  be  applied  by  LESSOR  against  the next  accruing  monthly
installment(s)  of  Additional  Rent due  under  this  Article.  If the Term has
expired or has been  terminated,  LESSEE shall pay the balance due to LESSOR or,
alternatively, LESSOR shall refund the surplus to LESSEE, whichever the case may
be,  within  thirty  (30)  days  after  LESSEE'S  receipt  of  LESSOR'S  Expense
Statement; provided, however, if the Term shall have been terminated as a result
of a default by LESSEE,  then LESSOR shall have the right to retain such surplus
to the extent LESSEE owes LESSOR any Basic Rent or Additional Rent.

            4.5.  LESSEE or its  representative  shall have the right to examine
LESSOR'S  books and  records  with  respect to the  reconciliation  of  LESSOR'S
Operating  Expenses for the prior  calendar  year set forth in LESSOR'S  Expense
Statement  during  normal  business  hours  at any  time  within  five  (5) days
following the delivery by LESSOR to LESSEE of such LESSOR'S  Expense  Statement.
Unless LESSEE shall give LESSOR a notice  objecting to said  reconciliation  and
specifying the respects in which said  reconciliation is claimed to be incorrect
within ten (10) days  after the date of said  examination,  said  reconciliation
shall be considered as final and accepted by LESSEE. Notwithstanding anything to
the contrary contained in this Article, LESSEE shall not be permitted to examine
LESSOR'S books and records or to dispute said  reconciliation  unless LESSEE has
paid to LESSOR the  amount due as shown  thereon;  said  payment is a  condition
precedent to said examination and/or dispute.

            4.6. (a) If LESSOR shall receive any refund of Taxes in respect of a
calendar  year and if LESSEE shall have paid  Additional  Rent  pursuant to this
Article 4 for said  calendar  year,  LESSOR  shall  credit  to  LESSEE  LESSEE'S
Proportionate  Share of such  refund  (based  upon  the  portion  of said  Taxes
actually  paid by LESSEE and not on any portion of said Taxes that are  included
in Base Operating Expenses) against the next accruing monthly  installment(s) of
Additional  Rent due under this  Article,  or if the Term  shall  have  expired,
LESSEE'S  Proportionate  Share of such refund shall be refunded to LESSEE within
thirty (30) days after receipt thereof by LESSOR; provided, however, if the Term
shall have  expired as a result of a default by LESSEE,  then LESSOR  shall have
the right to retain  LESSEE'S  Proportionate  Share of the  refund to the extent
LESSEE owes LESSOR any moneys hereunder.


                                         8

<PAGE>



                     (b)   While proceedings for the reduction in assessed
valuation for any year are pending,  the computation of the Taxes shall be based
upon the original assessments for such year.

                     (c)   Notwithstanding anything to the contrary contained
in this Lease, LESSEE shall not have the right to contest or appeal the validity
of any Taxes or the amount of the assessed valuation of the Property without the
prior written consent of LESSOR.

            4.7. In no event shall any adjustment in LESSEE'S  obligation to pay
Additional  Rent  under this  Article 4 result in a  decrease  in the Basic Rent
payable  hereunder.  LESSEE'S  obligation to pay  Additional  Rent, and LESSOR'S
obligation  to credit  and/or  refund  to LESSEE  any  amount,  pursuant  to the
provisions of this Article 4, shall survive the Termination Date.

            4.8.  LESSEE  shall also pay to LESSOR,  as  Additional  Rent,  upon
demand,  the amount of any  increase in  LESSOR'S  Operating  Expenses  which is
attributable  to  LESSEE'S  use or manner  of use of the  Demised  Premises,  to
activities  conducted on or about the Demised Premises by LESSEE or on behalf of
LESSEE or to any additions,  improvements or alterations to the Demised Premises
made by or on behalf of LESSEE.

            4.9. The provisions of Section 29.3 shall apply to LESSOR'S  Expense
Statement.

                                      ARTICLE 5

                              [Intentionally Omitted]

                                      ARTICLE 6

                            MAINTENANCE, ALTERATIONS AND
                        ADDITIONS; REMOVAL OF TRADE FIXTURES

            6.1. LESSEE agrees to keep the Demised Premises (including,  but not
limited to, all systems  located within the Demised  Premises and servicing only
the Demised  Premises) in good order and condition (except for ordinary wear and
tear)  and will  make all  non-structural  repairs,  alterations,  renewals  and
replacements, ordinary and extraordinary, foreseen or unforeseen, and shall take
such other action as may be necessary  or  appropriate  to keep and maintain the
Demised  Premises in good order and condition.  Except as expressly  provided in
this Lease,  LESSOR  shall not be  obligated  in any way to  maintain,  alter or
repair the Demised Premises. Notice is hereby given that, except with respect to
repairs or restoration  undertaken by LESSOR, LESSOR will not be lia ble for any
labor,  services or materials  furnished  or to be  furnished  to LESSEE,  or to
anyone holding the Demised Premises or any part thereof through or under LESSEE,
and that no  mechanics'  or other  liens for any such labor or  materials  shall
attach to or affect the interest of LESSOR in and to the Demised Premises.

            6.2. If LESSOR is required to make any repairs and  replacements  to
the Property as a result of or arising out of the intentional acts or negligence
of LESSEE or LESSEE'S Visitors, then

                                         9

<PAGE>



LESSEE shall reimburse LESSOR, upon demand, for the reasonable cost thereof.

            6.3. All maintenance and repair,  and each addition,  improvement or
alteration (a) must not, individually or in the ag gregate, adversely affect the
usefulness  of the  Demised  Premises  for use as  office  space,  (b)  shall be
completed expeditiously in a good and workmanlike manner, and in compliance with
all applicable Legal and Insurance Requirements, (c) shall be completed free and
clear of all Liens and (d) shall be performed by contractors  approved by LESSOR
to the  extent  such  work  involves  any  work to any  electrical,  mechanical,
plumbing  or  other  system  of the  Building,  any work to the  outside  of the
Building,  any work to the roof of the  Building  or any work to any  structural
element of the Building.

            6.4.  LESSEE shall not make any addition,  improvement or alteration
of the Demised Premises (any such work being hereinafter referred to as "Work"),
unless LESSEE submits to LESSOR detailed plans and  specifications  therefor and
LESSOR  approves such plans and  specifications  in writing (which such approval
shall be at LESSOR'S sole discretion).

            6.5. (a) All additions,  improvements and alterations to the Demised
Premises shall,  upon  installation,  become the property of LESSOR and shall be
deemed part of, and shall be  surrendered  with,  the Demised  Premises,  unless
LESSOR,  by  notice  given to  LESSEE at least  thirty  (30)  days  prior to the
Termination Date, elects to relinquish  LESSOR'S right thereto. If LESSOR elects
to relinquish  LESSOR'S right to any such  addition,  improvement or alteration,
LESSEE shall remove said addition,  improvement  or  alteration,  shall promptly
repair any  damage to the  Demised  Premises  caused by said  removal  and shall
restore the Demised Premises to the condition existing prior to the installation
of said addition,  improvement or alteration;  all such work shall be done prior
to the Termination Date.

                     (b)   LESSEE may install or place or reinstall or re
place and remove from the Demised  Premises any trade  equipment,  machinery and
personal property  belonging to LESSEE,  provided,  that (i) LESSEE shall repair
all  damage  caused  by such  removal  and (ii)  LESSEE  shall not  install  any
equipment,  machinery  or other items upon the roof of the  Building or make any
openings on or about such roof.  Such trade  equipment,  machinery  and personal
property shall not become the property of LESSOR.

                                      ARTICLE 7

                               USE OF DEMISED PREMISES

            7.1. LESSEE shall not, except with the prior consent of LESSOR,  use
or suffer or permit the use of the Demised  Premises or any part thereof for any
purposes  other  than  general  and  administrative   offices  and  warehousing;
provided, however, anything in this Lease to the contrary notwithstanding,  that
(a) the  portions of the Demised  Premises  which are  identified  as toilets or
utility  areas shall be used by LESSEE only for the  purposes for which they are
designed and (b) LESSEE complies with the requirements of Section 7.2 hereof.

                                         10

<PAGE>



            7.2.  LESSEE  shall not use,  or suffer  or permit  the use of,  the
Demised  Premises  or any part  thereof in any manner or for any  purpose or do,
bring or keep  anything,  or suffer or permit  anything  to be done,  brought or
kept, therein  (including,  but not limited to, the installation or operation of
any  electrical,  electronic  or other  equipment)  (a) which would  violate any
covenant,  agreement, term, pro vision or condition of this Lease or is unlawful
or in  contravention  of the  certificate  of occupancy  for the Building or the
Demised Premises or is in contravention of any Legal or Insurance Requirement to
which the  Building  or the  Demised  Premises  is  subject,  or (b) which would
overload or could cause an overload of the  electrical or mechanical  systems of
the  Building or the Demised  Premises or which would  exceed the floor load per
square  foot which the floor was  designed to carry and which is allowed by law,
or (c) which in the  reasonable  judgment of the LESSOR may in any way impair or
interfere with the proper and economic heating, air conditioning of the Building
or (d) suffer or permit the Building or any component  thereof to be used in any
manner or  anything to be done  therein or  anything to be brought  into or kept
thereon which, in the reasonable judgment of LESSOR,  would in any way impair or
tend to  impair  or  exceed  the  design  criteria,  the  structural  integrity,
character or appearance of the Building, or result in the use of the Building or
any component  thereof in a manner or for a purpose not intended;  nor shall the
LESSEE  use,  or suffer or permit the use of, the  Demised  Premises or any part
thereof in any manner, or do, or suffer or permit the doing of, anything therein
or in  connection  with the  LESSEE'S  business or adver  tising  which,  in the
reasonable judgment of the LESSOR, may be prejudicial to the business of LESSOR.

            7.3. LESSEE shall obtain, at its sole cost and expense, all permits,
licenses  or  authorizations  of any  nature  required  in  connection  with the
operation of LESSEE'S business at the Demised Premises.

                                      ARTICLE 8

                                  LESSOR'S SERVICES

            8.1.  LESSOR shall  furnish to LESSEE only the services set forth in
this Lease.

            8.2.  Throughout the Term,  LESSOR shall supply the following items,
which shall be included in LESSOR'S Operating  Expenses (a) janitorial  services
for the Demised  Premises at times  reasonably  determined by LESSOR (other than
during Building Holidays);  and (b) snow and ice removal from the parking areas,
driveways  and  sidewalks  each day  (other  than  Building  Holidays)  within a
reasonable time after accumula tion thereof.

            8.3.  (a)  LESSOR  shall  provide  to  the  Demised  Premises  HVAC,
electricity, hot and cold water and sewer services. The Demised Premises are not
metered separately from the rest of the Building, and LESSEE shall pay to LESSOR
as Additional Rent,  LESSEE'S  Proportionate Share of the cost of such services,
which  payment  shall be due within ten (10) days after  receipt of a  statement
therefor from LESSOR. Notwithstanding anything to the contrary contained in this
Lease, LESSEE hereby expressly agrees and acknowledges that (i) LESSOR shall not
be liable in any way to LESSEE (A) for any loss, damage, failure, defect or

                                         11

<PAGE>



change in the  quantity or  character  of any utility  furnished  to the Demised
Premises,  (B) or if such quantity or character of any utility  furnished to the
Demised Premises is no longer  available or suitable for LESSEE'S  requirements,
or (C) for any cessation, diminution or inter ruption of the supply thereof.

                     (b)   LESSEE shall be responsible for replacing all
light bulbs,  fluorescent lamps,  non-Building standard lamps and bulbs, and all
ballasts used by LESSEE in the Demised Premises.

                     (c)   LESSEE shall make no alteration to the existing
electrical  equipment or connect any fixtures,  appliances or equipment  thereto
(other than electric typewriters,  personal computers, calculators, desk lights,
photocopy machines and other small, ordinary office equipment) without the prior
written  consent of LESSOR in each  instance.  Should LESSOR grant such consent,
all additional risers or other equipment  required therefor shall be provided by
LESSOR  and the cost  thereof  shall be paid by LESSEE as  Additional  Rent upon
LESSOR'S demand.

            8.4. LESSOR shall not be liable to LESSEE for any costs, expenses or
damages  incurred  by LESSEE as a result of any  failure to furnish  any service
hereunder,  or any interruption of any utility service to the Demised  Premises,
and such failure or  interruption  (i) shall not be construed as a  constructive
eviction  or eviction of LESSEE,  (ii) shall not excuse  LESSEE from  failing to
perform any of its  obligations  hereunder and (iii) shall not entitle LESSEE to
any abatement or offset  against Basic Rent or  Additional  Rent.  LESSEE agrees
that any service to be provided by LESSOR may be stopped  and/or  interrupted in
connection with any inspection, repair, replacement or emergency.

            8.5.  The  parties  hereto  shall  comply  with  all  mandatory  and
voluntary energy conservation controls and requirements imposed or instituted by
the  Federal,  State  or local  governments  and  applicable  to  office  and/or
warehouse buildings, as applicable to the Demised Premises,  including,  without
limitation,  controls  on the  permitted  range  of  temperature  settings,  and
requirements  necessitating  curtailment of the volume of energy  consumption or
the hours of operation of the  Building.  Any terms or  conditions of this Lease
that conflict or interfere with such controls or requirements shall be suspended
for the duration of such controls or requirements. Compliance with such controls
or requirements shall not be considered an eviction, actual or constructive,  of
LESSEE from the Demised  Premises and shall not entitle LESSEE to terminate this
Lease or to an abatement of any Basic Rent or Additional Rent.

                                      ARTICLE 9

                        INDEMNIFICATION; LIABILITY OF LESSOR

            9.1.  LESSEE  hereby  indemnifies,  and shall pay,  protect and hold
LESSOR  harmless  from and against all  liabilities,  losses,  claims,  demands,
costs,  expenses  (including  attorneys' fees and expenses) and judgments of any
nature,  (except to the extent LESSOR is compensated by insurance  maintained by
LESSEE hereunder and except for such of the

                                         12

<PAGE>



foregoing as arise from the  recklessness or willful  misconduct of LESSOR,  its
agents,  servants  or  employees),  arising,  or  alleged  to arise,  from or in
connection  with,  (a) any  injury  to, or the death of,  any  person or loss or
damage to property on or about the Demised  Premises,  (b) any violation of this
Lease or of any Legal or Insurance Requirement,  or (c) performance of any labor
or services or the  furnishing of any materials or other  property in respect of
the  Demised  Premises  or any part  thereof.  LESSEE will resist and defend any
action,  suit or proceeding  brought  against LESSOR by reason of any such occur
rence by independent counsel selected by LESSEE, which is reasonably  acceptable
to LESSOR.  The  obligations  of LESSEE under this Section 9.1 shall survive any
termination of this Lease.

            9.2. LESSEE agrees to make no claim against LESSOR for any injury or
damage to LESSEE or to any other  person or for any damage to, or loss (by theft
or  otherwise)  of, or loss of use of,  any  property  of LESSEE or of any other
person,  unless caused by the recklessness or willful  misconduct of LESSOR, its
agents, servants and employees, it being understood that LESSEE assumes all risk
in connection therewith.

                                     ARTICLE 10

                            COMPLIANCE WITH REQUIREMENTS

            10.1. At its sole cost and expense,  LESSEE will (a) comply with all
Legal and Insurance Requirements  applicable to the Demised Premises and the use
thereof  and (b)  maintain  and  comply  with all  permits,  licenses  and other
authorizations required by any governmental authority for its use of the Demised
Premises  and for the proper opera tion,  maintenance  and repair of the Demised
Premises or any part thereof. LESSOR will join in the application for any permit
or  authorization  with  respect  to  Legal  Requirements  if  such  joinder  is
necessary.

            10.2.  LESSEE shall not do, or permit to be done,  anything in or to
the Demised Premises,  or bring or keep anything therein which will, in any way,
increase  the cost of fire or public  liability  insurance on the  Property,  or
invalidate or conflict  with the fire  insurance or public  liability  insurance
policies  covering the Property or any personal property kept therein by LESSOR,
or obstruct or interfere  with the rights of LESSOR or of other  tenants,  or in
any other way injure LESSOR or other tenants, or subject LESSOR to any liability
for injury to persons or damage to property, or interfere with good order of the
Building,  or  conflict  with the  Legal  Requirements.  Any in  crease  in fire
insurance  premiums on the Property or the contents within the Building,  or any
increase in the premiums of any other insurance  carried by LESSOR in connection
with the Building or the Demised Premises, caused by the use or occupancy of the
Demised  Premises by LESSEE and any expense or cost incurred in  consequence  of
the negligence,  carelessness  or willful action of LESSEE,  shall be Additional
Rent and paid by LESSEE to LESSOR  within ten (10) days of demand  therefor made
by LESSOR to LESSEE.

            10.3.  LESSEE shall  deliver  promptly to LESSOR a true and complete
photocopy  of any  correspondence,  notice,  report,  sampling,  test,  finding,
declaration, submission, order, complaint, citation or

                                         13

<PAGE>



any other instrument,  document,  agreement and/or information  submitted to, or
received from, any governmental entity,  department or agency in connection with
any  Environmental  Law relating to or  affecting  LESSEE,  LESSEE'S  employees,
LESSEE'S use and occupancy of the Demised Premises and/or the Demised Premises.

            10.4. LESSEE shall not cause or permit any "hazardous  substance" or
"hazardous   waste"  (as  such  terms  are  defined  under  ISRA  or  any  other
Environmental  Law) to be  brought,  kept or  stored  on or  about  the  Demised
Premises,  and LESSEE  shall not engage in, or permit any other person or entity
to engage  in, any  activity,  operation  or  business  on or about the  Demised
Premises which involves the generation,  manufacture,  refining, transportation,
treatment,   storage,  handling  or  disposal  of  hazardous  substances  and/or
hazardous wastes.

            10.5.  (a) If a spill or  discharge  of a hazardous  substance  or a
hazardous waste occurs on the Property,  LESSEE shall give LESSOR immediate oral
and written notice of such spill and/ or discharge,  setting forth in reasonable
detail all relevant  facts. In the event such spill or discharge arose out of or
in connection with LESSEE'S use and occupancy of the Demised Premises, or in the
event such spill or discharge  was caused by the act,  negligence or omission of
LESSEE or  LESSEE'S  Visitors,  then  LESSEE  shall  pay all costs and  expenses
relating to compliance with the applicable Environmental Law (including, without
limitation, the costs and expenses of the site investigations and of the removal
and remediation of such hazardous substance or hazardous waste).

                     (b)   Without relieving LESSEE of its obligations under
this Lease and without  waiving any default by LESSEE  under this Lease,  LESSOR
shall  have the right,  but not the  obligation,  to take such  action as LESSOR
deems necessary or advisable to cleanup,  remove, resolve or minimize the impact
of or otherwise  deal with any spill or discharge of any hazardous  substance or
hazardous  waste.  In the  event  such  spill or  discharge  arose  out of or in
connection  with LESSEE'S use and occupancy of the Demised  Premises,  or in the
event such spill or discharge  was caused by the act,  negligence or omission of
LESSEE or  LESSEE'S  Visitors,  then  LESSEE  shall pay to LESSOR on demand,  as
Additional  Rent, all costs and expenses  incurred by LESSOR in connection  with
any action taken by LESSOR.

            10.6.  (a) If LESSEE'S  operations  at the Demised  Premises  now or
hereafter  constitute an "Industrial  Establishment"  (as defined under ISRA) or
are subject to the provisions of any other Environmental Law, then LESSEE agrees
to comply,  at its sole cost and expense,  with all requirements of ISRA or such
other  applicable  Environmental  Law to the  satisfaction  of  LESSOR  and  the
governmental entity,  department or agency having jurisdiction over such matters
(including,  but not limited to, performing site  investigations  and performing
any removal and reme diation  required in connection  therewith),  in connection
with (i) the occurrence of the  Termination  Date,  (ii) any termination of this
Lease  prior  to  the  Termination   Date,   (iii)  any  closure,   transfer  or
consolidation of LESSEE'S operations at the Demised Premises, (iv) any change in
the ownership or control of LESSEE, (iv) any permitted  assignment of this Lease
or  permitted  sublease of all or part of the Demised  Premises or (v) any other
action by LESSEE which triggers ISRA or such other Environmental Law.

                                         14

<PAGE>



                     (b)   In connection with subsection (a) above, if LESSEE
has failed  (i) with  respect to ISRA,  to obtain a no  further  action  letter,
complete  an  approved  remediation  agreement  or  otherwise  comply  with  the
requirements of ISRA, or (ii) with respect to any other applicable Environmental
Law, to fully comply with the applicable  provisions of such  Environmental Law,
prior to the Termination  Date,  LESSEE shall be deemed to be a holdover tenant,
shall  pay rent at the rate set forth in  Section  23.3 and  shall  continue  to
diligently  pursue  compliance  with ISRA and/or such  Environmental  Law.  Upon
LESSEE'S full compliance  with the provisions of ISRA and/or such  Environmental
Law,  LESSEE  shall  deliver  possession  of the  Demised  Premises to LESSOR in
accordance  with the  provisions  of this Lease and such  holdover rent shall be
adjusted as of said date.

            10.7.  (a) In connection  with (i) any sale or other  disposition of
all or part of  LESSOR'S  interest  in the  Property,  (ii)  any  change  in the
ownership or control of LESSOR, (iii) any condemnation,  (iv) any foreclosure or
(v) any other  action  by LESSOR  which  triggers  ISRA or any other  applicable
Environmental  Law, LESSOR shall comply, at its sole cost and expense,  with all
requirements of ISRA or such applicable Environmental Law; provided, however, if
any site  investigation is required as a result of LESSEE'S use and occupancy of
the  Demised  Premises  or a spill or  discharge  of a  hazardous  substance  or
hazardous waste caused by the act,  negligence or omission of LESSEE or LESSEE'S
Visitors,   then  LESSEE  shall  pay  all  costs   associated   with  said  site
investigation;  in  addition,  if any removal and  remediation  is required as a
result of a spill or  discharge  of a hazardous  substance  or  hazardous  waste
caused by the act,  negligence or omission of LESSEE or LESSEE'S Visitors,  then
LESSEE shall pay all costs associated with said removal and remediation.

                     (b)   If, in connection with such compliance, LESSOR
requires any affidavits, certifications or other information from LESSEE, LESSEE
agrees to  cooperate  with LESSOR and to execute  and deliver to LESSOR  without
charge all such documents  within five (5) business days after LESSEE'S  receipt
of said request.

            10.8. (a) LESSOR shall have the right,  but not the  obligation,  to
enter  onto the  Demised  Premises  from  time to time  during  the Term for the
purpose of conducting such tests and  investigations  as LESSOR deems reasonably
necessary to determine  whether  LESSEE is complying with the provisions of this
Article 10 and all applicable Environmental Laws. In the event LESSOR determines
that LESSEE is not in compliance with this Article 10 or any Environmental  Law,
LESSOR shall notify LESSEE of such fact,  setting forth in such notice the basis
for  LESSOR'S  determination.  Within ten (10)  business  days after  receipt of
LESSOR'S notice of noncompliance, LESSEE shall notify LESSOR whether it disputes
LESSOR'S  determination.  If  LESSEE so  notifies  LESSOR  within  said ten (10)
business day period,  then LESSOR and LESSEE, and their respective  consultants,
shall meet to  resolve  the  dispute;  if LESSEE  fails to notify  LESSOR of any
objection within said ten (10) business day period,  then LESSEE shall be deemed
to have accepted  LESSOR'S  determination  and LESSEE shall promptly  remedy the
noncompliance.

                     (b)   In the event LESSEE is not in compliance with the
provisions of this Article 10 or any applicable Environmental Law,

                                         15

<PAGE>



LESSEE shall pay to LESSOR,  as Additional Rent, upon demand, an amount equal to
all costs and  expenses  incurred  by  LESSOR in  connection  with the tests and
investigations conducted by or on behalf of LESSOR.

                     (c)   LESSOR shall use reasonable efforts to minimize
any  interference  with or  disruptions  to LESSEE'S  operations  at the Demised
Premises  caused by such  tests  and  investigations,  to do all such  tests and
investigations in a good and workmanlike  manner, to proceed with such tests and
investigations with reasonable dispatch and to repair promptly all damage to the
Demised   Premises  arising  out  of  or  in  connection  with  such  tests  and
investigations.

            10.9.  LESSEE  hereby  agrees to defend,  indemnify  and hold LESSOR
harmless  from and against any and all claims,  losses,  liability,  damages and
expenses (including,  without limitation,  site investigation costs, removal and
remediation  costs and attorneys' fees and  disbursements)  arising out of or in
connection with (i) LESSEE'S use and occupancy of the Demised Premises, (ii) any
spill or  discharge of a hazardous  substance  or  hazardous  waste by LESSEE or
LESSEE'S Visitors and/or (iii) LESSEE'S failure to comply with the provisions of
this Article 10.

            10.10.  If LESSOR  has given to LESSEE  the name and  address of any
holder of an  Underlying  Encumbrance,  LESSEE  agrees to send to said  holder a
photocopy of those items given to LESSOR  pursuant to the  provisions of Section
10.3.

            10.11.  LESSEE'S obligations under this Article 10 shall survive the
expiration or earlier termination of this Lease.

            10.12 LESSEE hereby  represents and warrants to LESSOR that LESSEE'S
operations  at the  Demised  Premises  have the  following  Standard  Industrial
Classification  numbers  as set  forth in the most  recent  Standard  Industrial
Classification  published  by the  Federal  Executive  Office of the  President,
Office of Management and Budget: 5169.

                                     ARTICLE 11

                                 DISCHARGE OF LIENS

            LESSEE will  discharge  within  fifteen  (15) days after  receipt of
notice  thereof any Lien on the Demised  Premises or the Basic Rent,  Additional
Rent or any other sums  payable  under this  Lease,  caused by or arising out of
LESSEE'S acts or LESSEE'S failure to perform any obliga tion hereunder.

                                     ARTICLE 12

                                 PERMITTED CONTESTS

            LESSEE may contest by appropriate proceedings,  the amount, validity
or application of any Legal Requirement which LESSEE is obligated to comply with
or any Lien which  LESSEE is  obligated  to  discharge,  provided  that (a) such
proceedings  shall suspend the collection of any amount due as a result thereof,
(b) no part of the Demised  Premises or of any Basic Rent or Additional  Rent or
other sum

                                         16

<PAGE>



payable  hereunder  would be subject to loss,  sale or  forfeiture  during  such
proceedings,  (c) LESSOR would not be subject to any civil or criminal liability
for  failure  to pay or  perform,  as the case may be,  (d)  LESSEE  shall  have
furnished  such  security as may be required in the  proceedings  or  reasonably
requested by LESSOR,  (e) such proceedings shall not affect the payment of Basic
Rent,  Additional  Rent or any other sum payable to LESSOR  hereunder or prevent
LESSEE from using the Demised Premises for its permitted use hereunder,  and (f)
LESSEE shall notify LESSOR of any such  proceedings  not less than ten (10) days
prior to the  commencement  thereof,  and shall  describe  such  proceedings  in
reasonable detail.  LESSEE will conduct all such contests in good faith and with
due diligence and will,  promptly after the  determination of such contest,  pay
and discharge all amounts which shall be determined to be payable therein.

                                     ARTICLE 13

                                      INSURANCE

            13.1.  LESSEE will maintain with insurers  authorized to do business
in the State of New  Jersey  and which are  rated  A-Plus in Best's  Key  Rating
Guide:

            (a) comprehensive general liability insurance (including, during any
period  when  LESSEE  is  making  alterations  or  improvements  to the  Demised
Premises,  coverage  for any  construction  on or about the  Demised  Premises),
against  claims for bodily injury,  personal  injury,  death or property  damage
occurring on, in or about the Demised Premises in a combined single limit of not
less than $3,000,000.00;

            (b)      workers' compensation insurance coverage for the full
statutory liability of LESSEE;

            (c) such other  insurance  with  respect to the Demised  Premises in
such  amounts  and  against  such  insurable  exposures  as may  reasonably  and
customarily be required by any mortgagee holding a first lien upon the Building.

            13.2. The policies of insurance  required to be maintained by LESSEE
pursuant to Section 13.1 shall name as the insured  parties (except for workers'
compensation  insurance)  LESSOR and LESSEE,  as their respective  interests may
appear,  and shall be  reasonably  satisfactory  to LESSOR.  In  addition,  said
policies of insurance  (except for worker's  compensation  insurance)  shall (i)
provide that thirty (30) days' prior written notice of suspension, cancellation,
termination,  modification,  non-renewal or lapse or material change of coverage
shall be given and that such  insurance  shall not be  invalidated by any act or
neglect  of LESSOR or LESSEE or any owner of the  Demised  Premises,  nor by any
change in the title or ownership of the Demised  Premises,  nor by occupation of
the Demised  Premises for purposes  more  hazardous  than are  permitted by such
policy,  and (ii) not contain a provision  relieving  the insurer  thereunder of
liability for any loss by reason of the existence of other policies of insurance
covering the Demised Premises against the peril involved, whether collectible or
not; and the policies of insurance  required to be maintained by LESSEE pursuant
to subsection 13.1(a) shall

                                         17

<PAGE>



also include a contractual liability endorsement evidencing coverage of LESSEE'S
obligation to indemnify LESSOR pursuant to Section 9.1 hereof.

            13.3.  On the  Commencement  Date,  LESSEE  shall  deliver to LESSOR
original or duplicate  policies or certificates  of the insurers  evidencing all
the  insurance  which is required to be  maintained  hereunder  by LESSEE,  and,
within  ten (10)  days  prior to the  expiration  of any such  insurance,  other
original or duplicate  policies or  certificates  evidencing the renewal of such
insurance.

            13.4. LESSEE shall not obtain or carry separate insurance concurrent
in form or  contributing in the event of loss with that required by Section 13.1
unless LESSOR and LESSEE are named as insureds therein.

            13.5.  (a) LESSOR  hereby  waives and  releases  LESSEE,  and LESSEE
hereby  waives and releases  LESSOR,  from any and all  liabilities,  claims and
losses for which the  released  party is or may be held  liable to the extent of
any insurance proceeds received by said injured party.

                     (b)   Each party hereto agrees to have included in each
of its  insurance  policies  (insuring  the Building in the case of LESSOR,  and
insuring LESSEE'S personal property, trade fixtures,  equipment and improvements
in the case of LESSEE,  against  loss,  damage or  destruction  by fire or other
casualty) a waiver of the insurer's right of subrogation against the other party
to this  Lease.  If  there  is any  extra  charge  for such  waiver,  the  party
requesting the waiver shall pay the extra charge therefor. If such waiver is not
enforceable or is unattainable,  then such insurance policy shall contain either
(i) an express  agreement that such policy shall not be invalidated if LESSOR or
LESSEE,  whichever  the case may be,  waives the right of  recovery  against the
other  party to this Lease or (ii) any other  form for the  release of LESSOR or
LESSEE,  whichever  the case may be. If such waiver,  agreement or release shall
not be, or shall cease to be, obtainable from LESSOR'S insurance company or from
LESSEE'S  insurance  company,  whichever  the case may be, then LESSOR or LESSEE
shall  notify  the other  party of such fact and shall use its best  efforts  to
obtain  such  waiver,  agreement  or  release  from  another  insurance  company
satisfying the requirements of this Lease.

                                     ARTICLE 14

                                ESTOPPEL CERTIFICATES

            14.1. At any time and from time to time, upon not less than ten (10)
days' prior notice by LESSOR,  LESSEE shall execute,  acknowledge and deliver to
LESSOR a statement  (or, if LESSEE is a  corporation,  an authorized  officer of
LESSEE shall execute,  acknowledge and deliver to LESSOR a statement) certifying
the following:  (i) the Commencement  Date, (ii) the Termination Date, (iii) the
date(s) of any amendment(s) and/or modification(s) to this Lease, (iv) that this
Lease was properly executed and is in full force and effect without amendment or
modification,  or,  alternatively,  that this  Lease and all  amendments  and/or
modifications  thereto  have been  properly  executed  and are in full force and
effect,  (v) the current annual Basic Rent, the current monthly  installments of
Basic Rent and the date on which LESSEE'S obligation to

                                         18

<PAGE>



pay Basic Rent  commenced,  (vi) the current  monthly  installment of Additional
Rent for Taxes and LESSOR'S  Operating  Expenses,  (vii) the date to which Basic
Rent and  Additional  Rent have been paid,  (viii)  the  amount of the  security
deposit, if any, (ix) that all work to be done to the Demised Premises by LESSOR
has been  completed  in  accordance  with this Lease and have been  accepted  by
LESSEE, except as specifically provided in the estoppel certificate, (x) that no
installment of Basic Rent or Additional Rent has been paid more than thirty (30)
days in ad vance, (xi) that LESSEE is not in arrears in the payment of any Basic
Rent or Additional Rent, (xii) that, to the best of LESSEE'S knowledge,  neither
party to this Lease is in default in the keeping,  observance or  performance of
any covenant,  agreement,  provision or condition contained in this Lease and no
event has occurred  which,  with the giving of notice or the passage of time, or
both, would result in a default by either party, except as specifically provided
in the  estoppel  certificate,  (xiii)  that  LESSEE has no  existing  defenses,
offsets,  liens,  claims or credits against the Basic Rent or Additional Rent or
against  enforcement  of this  Lease by LESSOR,  (xiv) that  LESSEE has not been
granted  any  options or rights of first  refusal  to extend the Term,  to lease
additional  space,  to terminate  this Lease before the  Termination  Date or to
purchase the Property,  except as specifically provided in this Lease, (xv) that
LESSEE  has not  received  any  notice of  violation  of Legal  Requirements  or
Insurance  Requirements  relating  to the Demised  Premises or to the  Property,
(xvi) that  LESSEE has not  assigned  this Lease or sublet all or any portion of
the  Demised  Premises,  (xvii) that no  "hazardous  substances"  or  "hazardous
wastes" have been  generated,  manu  factured,  refined,  transported,  treated,
stored,  handled,  disposed  or spilled  on or about the  Demised  Premises  and
(xviii) such other  reasonable  matters as the person or entity  requesting  the
Certificate  may  request.  LESSEE  hereby  acknowledges  and  agrees  that such
statement may be relied upon by any  mortgagee,  or any  prospective  purchaser,
lessee,  sublessee,  mortgagee  or  assignee  of any  mortgage,  of the  Demised
Premises or any part thereof.

            14.2.  If  LESSEE  shall  fail or  otherwise  refuse to  execute  an
estoppel  certificate in accordance with Section 14.1, then and upon such event,
LESSEE shall be deemed to have  appointed  LESSOR and LESSOR shall  thereupon be
regarded  as the  irrevocable  attorney-in-fact  of LESSEE  duly  authorized  to
execute and deliver the required  certificate  for and on behalf of LESSEE,  but
the exercise of such power shall not be deemed a waiver of LESSEE'S default.


                                         19

<PAGE>



                                     ARTICLE 15

                              ASSIGNMENT AND SUBLETTING

            15.1.  Except as  otherwise  expressly  provided in this Article 15,
LESSEE shall not sell, assign, transfer, hypothecate,  mortgage, encumber, grant
concessions or licenses,  sublet,  or otherwise  dispose of any interest in this
Lease or the Demised  Premises,  by operation of law or  otherwise,  without the
prior written  consent of LESSOR.  Any consent granted by LESSOR in any instance
shall not be  construed  to  constitute  a  consent  with  respect  to any other
instance or  request.  If the Demised  Premises  or any part  thereof  should be
sublet,  used, or occupied by anyone other than LESSEE,  or if this Lease should
be  assigned  by LESSEE,  LESSOR  shall have the right to collect  rent from the
assignee, subtenant, user or occupant, but no such assignment,  subletting, use,
occupancy or collection shall be deemed a waiver of any of LESSOR'S rights under
the  provisions  of this  Section  15.1,  a waiver of any of LESSEE'S  covenants
contained in this Article 15, the acceptance of the assignee, subtenant, user or
occupant as tenant, or a release of LESSEE from further performance by LESSEE of
LESSEE'S obligations under the Lease.

            15.2.  If LESSEE shall  desire to sublet the Demised  Premises or to
assign this Lease,  it shall first submit to LESSOR a written notice  ("LESSEE'S
Notice") setting forth in reasonable detail:

            (a)      the name and address of the proposed sublessee or
assignee;

            (b)  the  terms  and  conditions  of  the  proposed   subletting  or
assignment  (including  the  proposed  commencement  date of the sublease or the
effective date of the assignment, which shall be at least thirty (30) days after
LESSEE'S Notice is given);

            (c)      the nature and character of the business of the
proposed sublessee or assignee;

            (d) banking, financial, and other credit information relating to the
proposed  sublessee or assignee,  in  reasonably  sufficient  detail,  to enable
LESSOR  to  determine  the  proposed   sublessee's   or   assignee's   financial
responsibility; and

            (e) in the case of a subletting,  complete plans and  specifications
for any and all work to be done in the Demised Premises to be sublet.

            15.3.  Within  thirty (30) days after  LESSOR'S  receipt of LESSEE'S
Notice, LESSOR agrees that it shall notify LESSEE whether LESSOR (i) consents to
the proposed sublet or assignment,  (ii) does not consent to the proposed sublet
or assignment,  or (iii) elects to exercise its recapture right, as described in
Section  15.5.  If LESSOR fails to so notify  LESSEE within said thirty (30) day
period,  LESSOR shall be deemed to have not consented to the proposed  sublet or
assignment.   Notwithstanding   the  submission  of  LESSEE'S   Notice  and  the
satisfaction of the requirements of Section 15.4, LESSOR, at its sole

                                         20

<PAGE>



discretion, may withhold its consent to the proposed sublet or
assignment.

            15.4.    In addition to the foregoing requirements,

            (a)  no  assignment  or  sublease  shall  be  permitted  if,  at the
effective date of such  assignment or sublease,  LESSEE is in default under this
Lease; and

            (b) no  assignment  or sublease  shall be  permitted  unless  LESSEE
agrees,  at the time of the  proposed  assignment  or  sublease  and in LESSEE'S
Notice,  to pay to LESSOR,  immediately  upon  receipt  thereof,  50% of all Net
Rental  Proceeds,  of whatever  nature,  payable by the prospective  assignee or
sublessee to LESSEE pursuant to such assignment or sublease.

            15.5.  (a) LESSOR  shall have the right,  to be  exercised by giving
written notice (the "Recapture  Notice") to LESSEE within thirty (30) days after
receipt of LESSEE'S Notice,  to recapture the space described in LESSEE'S Notice
(the "Recapture  Space").  The Recapture  Notice shall cancel and terminate this
Lease with  respect to the  Recapture  Space as of the date  stated in  LESSEE'S
Notice for the commencement of the proposed  assignment or sublease as fully and
completely as if that date had been herein definitively fixed as the Termination
Date, and LESSEE shall  surrender  possession of the Recapture  Space as of such
date. Thereafter, the Basic Rent and Additional Rent shall be equitably adjusted
based upon the square  footage of the Demised  Premises  then  remaining,  after
deducting the square footage attributable to the Recapture Space.

                     (b)   In the event LESSOR elects to exercise its recap
ture right and the Recaptured  Space is less than the entire  Demised  Premises,
then LESSOR,  at its sole expense,  shall have the right to make any alterations
to the Demised Premises required,  in LESSOR'S reasonable judgment, to make such
Recaptured Space a self-contained rental unit. LESSOR agrees to perform all such
work, if any, with as little inconvenience to LESSEE'S business as is reasonably
possible;  provided,  however, LESSOR shall not be required to perform such work
after LESSEE'S business hours or on weekends; and provided further, LESSOR shall
not be deemed guilty of an eviction, partial eviction, construc tive eviction or
disturbance of LESSEE'S use or possession of the Demised Premises, and shall not
be liable to LESSEE for same.

                     (c)   LESSOR's right of recapture set forth in this
Section 15.5 shall not be  applicable  to the  portions of the Demised  Premises
located on the first floor of the Building.

            15.6. In addition to the foregoing  requirements,  any sublease must
contain the following provisions:

            (a)      the sublease shall be subject and subordinate to all of
the terms and conditions of this Lease;

            (b) at LESSOR'S option,  in the event of cancellation or termination
of  this  Lease  for  any  reason  or  the  surrender  of  this  Lease,  whether
voluntarily, involuntarily, or by operation of law, prior to the

                                         21

<PAGE>



expiration of such sublease, including extensions and renewals of such sublease,
the subtenant shall make full and complete  attornment to LESSOR for the balance
of the term of the sublease.  The attornment  shall be evidenced by an agreement
in form and substance  satisfactory  to LESSOR which the subtenant shall execute
and  deliver at any time  within  five (5) days  after  request by LESSOR or its
successors and assigns;

            (c)      the term of the sublease shall not extend beyond a date
which is one day prior to the Termination Date;

            (d) no subtenant  shall be  permitted  to further  sublet all or any
portion of the subleased space or to assign its sublease  without LESSOR'S prior
written consent; and

            (e) the  subtenant  shall  waive  the  provisions  of any law now or
subsequently  in effect  which may give the  subtenant  any right of election to
terminate the sublease or to surrender  possession of the space subleased in the
event that any proceeding is brought by LESSOR to terminate this Lease.

            15.7. Each of the following  events shall be deemed to constitute an
assignment  of this Lease and each shall  require the prior  written  consent of
LESSOR:

            (a)      any assignment or transfer of this Lease by operation
of law; or

            (b)      any hypothecation, pledge, or collateral assignment of
this Lease; or

            (c)      any involuntary assignment or transfer of this Lease in
connection with bankruptcy, insolvency, receivership, or similar
proceeding; or

            (d) any assignment,  transfer, disposition, sale or acquisition of a
controlling interest in LESSEE to or by any person,  entity, or group of related
persons or affiliated  entities,  whether in a single transaction or in a series
of related or unrelated transactions; or

            (e) any  issuance  of an interest or  interests  in LESSEE  (whether
stock,  partnership interests,  or otherwise) to any person, entity, or group of
related persons or affiliated entities,  whether in a single transaction or in a
series of related  or  unrelated  transactions,  which  results in such  person,
entity, or group holding a controlling  interest in LESSEE.  For purposes of the
immediately  fore going,  a  "controlling  interest" of LESSEE shall mean 50% or
more of the aggregate issued and outstanding equitable interests (whether stock,
partnership interests, or otherwise) of LESSEE.

            15.8.  It  is a  further  condition  to  the  effectiveness  of  any
assignment  otherwise  complying with this Article 15 that the assignee execute,
acknowledge,   and  deliver  to  LESSOR  an  agreement  in  form  and  substance
satisfactory  to LESSOR whereby the assignee  assumes all of the  obligations of
LESSEE under this Lease and agrees that the provisions of

                                         22

<PAGE>



this Article 15 shall  continue to be binding upon it with respect to all future
assignments and deemed assignments of this Lease.

            15.9.  No  assignment  of this Lease nor any  sublease of all or any
portion of the  Demised  Premises  shall  release or  discharge  LESSEE from any
liability,  whether past, present, or future,  under this Lease and LESSEE shall
continue to remain primarily liable under this Lease.

            15.10.  LESSEE shall be  responsible  for  obtaining all permits and
approvals  required  by  any  governmental  or   quasi-governmental   agency  in
connection  with any  assignment of this Lease or any  subletting of the Demised
Premises,  and LESSEE shall deliver copies of these documents to LESSOR prior to
the commencement of any work, if work is to be done.  LESSEE is also responsible
for and is  required  to  reimburse  LESSOR  for all fees,  costs and  expenses,
including,  but not limited to,  reasonable  attorneys' fees and  disbursements,
which LESSOR  incurs in reviewing  any proposed  assignment  of this Lease,  any
proposed  sublease of the Demised  Premises,  and any  permits,  approvals,  and
applications for construction within the Demised Premises.

            15.11. If LESSOR consents to any proposed assignment or sublease and
LESSEE fails to consummate the assignment or sublease to which LESSOR  consented
within  ninety  (90) days  after the  giving of such  consent,  LESSEE  shall be
required  again to comply  with all of the  provisions  and  conditions  of this
Article 15 before  assigning this Lease or subletting the Demised  Premises.  If
LESSEE  consummates the assignment or sublease to which LESSOR  consented within
said  ninety (90) day period,  LESSEE  agrees that it shall  deliver to LESSOR a
fully  executed,  duplicate  original  counterpart of the assignment or sublease
agreement within ten (10) days of the date of execution of such item.

            15.12.  LESSEE  agrees that under no  circumstances  shall LESSOR be
liable in  damages  or subject to  liability  by reason of  LESSOR'S  failure or
refusal  to grant  its  consent  to any  proposed  assignment  of this  Lease or
subletting of the Demised Premises.

            15.13. If LESSOR withholds its consent of any proposed assignment or
sublease,  LESSEE shall  defend,  indemnify,  and hold LESSOR  harmless from and
reimburse LESSOR for all liability,  damages, costs, fees, expenses,  penalties,
and  charges  (including,  but not limited to,  reasonable  attorneys'  fees and
disbursements)  arising out of any claims that may be made against LESSOR by any
brokers or other  persons  claiming a  commission  or  similar  compensation  in
connection with the proposed assignment or sublease.

            15.14.  (a)  Notwithstanding  anything to the contrary  contained in
this  Lease,  in the event that this Lease is  assigned  to any person or entity
pursuant to the provisions of the  Bankruptcy  Code, any and all monies or other
consideration  payable or  otherwise to be  delivered  in  connection  with such
assignment  shall  be paid or  delivered  to  LESSOR,  shall be and  remain  the
exclusive  property of LESSOR and shall not constitute  property of LESSEE or of
the estate of LESSEE  within the  meaning of the  Bankruptcy  Code.  Any and all
monies or other consideration constituting LESSOR'S property under the preceding
sentence  not paid or delivered to LESSOR shall be held in trust for the benefit
of LESSOR and be promptly paid to or turned over to LESSOR.

                                         23

<PAGE>



                     (b)   If LESSEE proposes to assign this Lease pursuant
to the provisions of the Bankruptcy  Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to LESSEE,  then notice of such proposed  assignment  setting forth (i) the name
and address of such person or entity,  (ii) all of the terms and  conditions  of
such offer and (iii) the  adequate  assurance to be provided by LESSEE to assure
such  person's  or entity's  future  performance  under this  Lease,  including,
without  limitation,  the  assurance  referred  to in Section  365(b)(3)  of the
Bankruptcy  Code,  or any  such  successor  or  substitute  legislation  or rule
thereto, shall be given to LESSOR by LESSEE no later than twenty (20) days after
receipt  by  LESSEE,  but in any event no later  than ten (10) days prior to the
date that LESSEE shall make application to a court of competent jurisdiction for
authority  and approval to enter into such  assignment  and  assumption.  LESSOR
shall  thereupon  have the prior right and option,  to be exercised by notice to
LESSEE  given  at any  time  prior  to  the  effective  date  of  such  proposed
assignment,  to accept  an  assignment  of this  Lease  upon the same  terms and
conditions and for the same  consideration,  if any, as the bona fide offer made
by such person for the  assignment of this Lease.  Any person or entity to which
this Lease is assigned  pursuant to the provisions of the Bankruptcy  Code shall
be deemed  without  further act or deed to have  assumed all of the obliga tions
arising  under  this  Lease on or after  the date of such  assignment.  Any such
assignee  shall,  upon  demand,  execute  and  deliver  to LESSOR an  instrument
confirming such assumption.

                                     ARTICLE 16

                                      CASUALTY

            16.1.  If there  is any  damage  to or  destruction  of the  Demised
Premises,  LESSEE shall promptly give notice  thereof to LESSOR,  describing the
nature and extent thereof.

            16.2.  If the  Demised  Premises  are  damaged,  but are not thereby
rendered  partially  or wholly  untenantable,  and this Lease is not  terminated
pursuant to Section 16.4, 16.5 or 16.6 hereof, LESSOR shall, at its own expense,
cause  Restoration to be completed as soon as reason ably  practicable but in no
event later than ninety (90) days from the occurrence,  subject to any Excusable
Delays, and the Basic Rent and Additional Rent shall not abate.

            16.3.  If the  Demised  Premises  are damaged or  destroyed  and are
rendered  partially  or wholly  untenantable,  and this Lease is not  terminated
pursuant to Section 16.4, 16.5 or 16.6 hereof, LESSOR shall, at its own expense,
cause  Restoration to be completed as soon as reasonably  practicable  but in no
event later than one hundred eighty (180) days from the  occurrence,  subject to
any Excusable Delays,  and the Basic Rent and Additional Rent shall be equitably
abated.

            16.4. If, in the sole opinion of LESSOR,  the Building is damaged or
destroyed and the total cost of Restoration shall amount to twenty percent (20%)
or  more  of the  full  insurable  value  of the  Building,  LESSOR,  in lieu of
Restoration,  may elect to terminate  this Lease,  provided  that notice of such
termination  shall be sent to LESSEE within sixty (60) days after the occurrence
of such casualty. If LESSOR

                                         24

<PAGE>



exercises its right to terminate this Lease,  this Lease shall cease,  terminate
and expire, and all Basic Rent and Additional Rent shall be prorated,  as of the
date of such damage or destruction.

            16.5.  If the  Building  is damaged or  destroyed  and,  in the sole
opinion of LESSOR,  more than one hundred  eighty  (180) days are  necessary  to
complete  Restoration,  or if  during  the  final  year of the Term the  Demised
Premises are damaged or destroyed and rendered partially or wholly untenantable,
then in either case LESSOR may elect to terminate this Lease provided  notice of
such  termination  shall be sent to LESSEE  within  sixty  (60)  days  after the
occurrence of such  casualty.  If LESSOR  exercises its right to terminate  this
Lease,  this Lease shall  cease,  terminate  and expire,  and all Basic Rent and
Additional Rent shall be prorated, as of the date of such damage or destruction.

            16.6.  LESSOR  shall not be  required to expend for  Restoration  an
amount in excess of the Net Award  received by it. In the event the Net Award is
not adequate or the holder of an Underlying Encumbrance elects to retain the Net
Award,  LESSOR shall have the right to terminate this Lease  provided  notice of
such termination shall be sent to LESSEE within sixty (60) days after the amount
of such Net Award is  ascertained,  or after the date on which the holder of the
Underlying  Encumbrance  notifies  LESSOR  that it has elected to retain the Net
Award,  whichever  the case may be. If LESSOR  exercises  its right to terminate
this Lease, this Lease shall cease, terminate and expire, and all Basic Rent and
Additional Rent shall be prorated, as of the date of such damage or destruction.

                                     ARTICLE 17

                                    CONDEMNATION

            17.1.  LESSEE  hereby  irrevocably  assigns  to LESSOR  any award or
payment to which LESSEE  becomes  entitled by reason of any Taking of all or any
part of the  Demised  Premises,  whether  the same  shall be paid or  payable in
respect of LESSEE'S  leasehold  interest  hereunder  or other wise,  except that
LESSEE  shall be  entitled  to any award or payment  for the Taking of  LESSEE'S
trade  fixtures or  personal  property or for loss of  business,  relocation  or
moving  expenses  provided  the amount of the Net Award  payable to LESSOR  with
respect to the fee interest is not diminished.  All amounts payable  pursuant to
any agreement with any con demning  authority which have been made in settlement
of or under threat of any condemnation or other eminent domain  proceeding shall
be deemed to be an award made in such proceeding.  LESSEE agrees that this Lease
shall  control the rights of LESSOR and LESSEE in any Net Award and any contrary
provision of any present or future law is hereby waived.

            17.2. In the event of a Taking of the whole of the Demised Premises,
then the Term shall cease and terminate as of the date when  possession is taken
by the condemning authority and all Basic Rent and Additional Rent shall be paid
up to that date.

            17.3.  In the event of a Taking of thirty  (30%)  percent or more of
the Demised Premises,  then, if LESSEE shall determine in good faith and certify
to LESSOR that because of such Taking, continuance of

                                         25

<PAGE>



its business at the Demised  Premises would be  uneconomical,  LESSEE may at any
time  either  prior to or within a period of sixty (60) days after the date when
possession of such premises shall be required by the condemning authority, elect
to  terminate  this Lease.  In the event that LESSEE  shall fail to exercise any
such option to terminate this Lease,  or in the event of a Taking of the Demised
Premises under circumstances under which LESSEE will have no such option,  then,
and in either of such events, LESSOR shall, subject to the provisions of Section
17.4. cause Restoration to be completed as soon as reasonably  practicable,  but
in no case later than ninety (90) days after the date the  condemning  authority
takes  possession  of such  portion  of the  Demised  Premises,  subject  to any
Excusable  Delays,  and the Basic Rent and Additional  Rent  thereafter  payable
during the Term shall be equitably  prorated  based upon the square foot area of
the Demised Premises and/or of the Building actually taken.

            17.4. If (a) the Net Award is inadequate to complete  Restoration of
the Demised Premises,  or (b) in the case of a Taking of thirty (30%) percent or
more of the Demised  Premises,  LESSEE has not elected to  terminate  this Lease
pursuant to Section 17.3 hereof,  then LESSOR may elect either to complete  such
Restoration or terminate this Lease by giving notice to LESSEE within sixty (60)
days after (x) the amount of the Net Award is  ascertained or (y) the expiration
of the sixty (60) day period  within which LESSEE may  terminate  this Lease (as
described in Section 17.3 hereof), whichever the case may be. In such event, all
Basic  Rent  and  Additional  Rent  shall  be  apportioned  as of the  date  the
condemning authority actually takes possession of the Demised Premises.

                                     ARTICLE 18

                                  EVENTS OF DEFAULT

            18.1.  Any of the  following  occurrences,  conditions or acts shall
constitute an "Event of Default" under this Lease:

            (a) If LESSEE shall default in making  payment when due of any Basic
Rent,  Additional  Rent or other amount  payable by LESSEE  hereunder,  and such
default shall continue for five (5) days; or

            (b) if LESSEE  shall fail to take  actual  occupancy  of the Demised
Premises within thirty (30) days after the Commencement Date or shall thereafter
vacate the Demised Premises for a period in excess of thirty (30) days; or

            (c)      if the Demised Premises shall be abandoned by LESSEE
for a period of thirty (30) consecutive days; or

            (d) if LESSEE  shall file a petition in  bankruptcy  pursuant to the
Bankruptcy  Code or  under  any  similar  federal  or  state  law,  or  shall be
adjudicated  a  bankrupt  or  become  insolvent,  or  shall  commit  any  act of
bankruptcy  as defined in any such law, or shall take any action in  furtherance
of any of the foregoing; or

            (e)      if a petition or answer shall be filed proposing the
adjudication of LESSEE as a bankrupt pursuant to the Bankruptcy Code or

                                         26

<PAGE>



any similar  federal or state law,  and (i) LESSEE  shall  consent to the filing
thereof,  or (ii) such  petition  or answer  shall not be  discharged  or denied
within sixty (60) days after the filing thereof; or

            (f) if a receiver, trustee or liquidator (or other similar official)
of LESSEE or of all or  substantially  all of its  business  or assets or of the
estate or interest  of LESSEE in the Demised  Premises  shall be  appointed  and
shall not be  discharged  within sixty (60) days  thereafter  or if LESSEE shall
consent to or acquiesce in such appointment; or

            (g) if the  estate or  interest  of LESSEE in the  Demised  Premises
shall be levied upon or attached in any proceeding and such process shall not be
vacated or discharged within sixty (60) days after such levy or attachment; or

            (h) if LESSEE  shall use or suffer or permit the use of the  Demised
Premises or any part thereof for any purpose other than  expressly  specified in
Section 7.1; or

            (i)      if LESSEE fails to discharge any Lien within the time
period set forth in Article 11; or

            (j) if LESSEE fails to maintain the insurance  required  pursuant to
Article  13, or LESSEE  fails to deliver to LESSOR  the  insurance  certificates
required by Article 13 within the time periods set forth in Section 13.3; or

            (k) if LESSEE  fails to deliver to LESSOR the  estoppel  certificate
required by Article 14 within the time period set forth therein; or

            (l) if LESSEE  assigns  this Lease or sublets  all or any portion of
the Demised Premises without complying with all the provisions of Article 15; or

            (m) if LESSEE fails to deliver to LESSOR the subordination agreement
required by Section 22.1 within the time period set forth therein; or

            (n)  if  LESSEE   fails  to  comply  with  any  Legal  or  Insurance
Requirement,  and such  failure  continues  for a period of ten (10) days  after
LESSOR shall have given notice to LESSEE  specifying  such default and demanding
that the same be cured; or

            (o) if LESSEE shall default in the observance or per formance of any
provision of this Lease other than those  provisions  contemplated by clause (i)
through (n),  inclusive,  of this Section 18.1,  and such default shall continue
for thirty (30) days after LESSOR  shall have given notice to LESSEE  specifying
such default and demanding that the same be cured (unless such default cannot be
cured by the  payment of money and cannot  with due  diligence  be wholly  cured
within  such period of thirty  (30) days,  in which case LESSEE  shall have such
longer  period  as shall be  necessary  to cure the  default,  so long as LESSEE
proceeds  promptly  to cure  the  same  within  such  thirty  (30)  day  period,
prosecutes  the cure to completion  with due  diligence and advises  LESSOR from
time

                                         27

<PAGE>



to time,  upon LESSOR'S  request,  of the actions which LESSEE is taking and the
progress being made).

                                     ARTICLE 19

                          CONDITIONAL LIMITATIONS; REMEDIES

            19.1.  This Lease and the Term and estate hereby granted are subject
to the  limitation  that whenever an Event of Default shall have happened and be
continuing,  LESSOR shall have the right,  at its  election,  then or thereafter
while any such Event of Default shall continue and notwithstanding the fact that
LESSOR  may have some other  remedy  hereunder  or at law or in equity,  to give
LESSEE  written  notice of LESSOR'S  intention to terminate this Lease on a date
specified in such notice,  which date shall be not less than five (5) days after
the giving of such notice,  and upon the date so  specified,  this Lease and the
estate hereby  granted shall expire and terminate with the same force and effect
as if the date specified in such notice were the date hereinbefore fixed for the
expiration  of this Lease,  and all right of LESSEE  hereunder  shall expire and
terminate,  and  LESSEE  shall be  liable  as  hereinafter  in this  Article  19
provided.  If any such  notice  is given,  LESSOR  shall  have,  on such date so
specified,  the right of re-entry and possession of the Demised Premises and the
right to remove all persons and property therefrom and to store such property in
a warehouse  or  elsewhere  at the risk and  expense,  and for the  account,  of
LESSEE. Should LESSOR elect to re-enter as herein provided or should LESSOR take
possession  pursuant to legal proceedings or pursuant to any notice provided for
by law,  LESSOR may from time to time  re-let the  Demised  Premises or any part
thereof for such term or terms and at such rental or rentals and upon such terms
and conditions as LESSOR may deem advisable,  with the right to make alterations
in and repairs to the Demised Premises.

            19.2.  In the  event  of any  termination  of this  Lease as in this
Article 19 provided or as required or permitted by law,  LESSEE shall  forthwith
quit and  surrender  the  Demised  Premises to LESSOR,  and LESSOR may,  without
further notice, enter upon, re-enter,  possess and repossess the same by summary
proceedings,  ejectment or  otherwise,  and again have,  repossess and enjoy the
same as if this  Lease had not been made,  and in any such  event  LESSEE and no
person claiming  through or under LESSEE by virtue of any law or an order of any
court shall be entitled to  possession or to remain in possession of the Demised
Premises but shall forthwith quit and surrender the Demised Premises, and LESSOR
at its option  shall  forthwith,  notwithstanding  any other  provision  of this
Lease, be entitled to recover from LESSEE,  as and for liquidated  damages,  the
sum of:

            (a)      all Basic Rent, Additional Rent and other amounts
payable by LESSEE hereunder then due or accrued and unpaid, and

            (b) for loss of the bargain, an amount equal to the aggregate of all
unpaid  Basic Rent and  Additional  Rent which  would have been  payable if this
Lease  had not been  terminated  prior to the end of the  Term  then in  effect,
discounted  to its then present  value in  accordance  with  accepted  financial
practice using a rate equal to six percent (6%) per annum; and

                                         28

<PAGE>



            (c) all other damages and expenses  (including  attorneys'  fees and
expenses),  which  LESSOR  shall have  sustained  by reason of the breach of any
provision of this Lease.

            19.3. Nothing herein contained shall limit or prejudice the right of
LESSOR, in any bankruptcy or insolvency  proceeding,  to prove for and obtain as
liquidated  damages by reason of such termination an amount equal to the maximum
allowed by any bankruptcy or insolvency proceedings,  or to prove for and obtain
as  liquidated  damages by reason of such  termination,  an amount  equal to the
maximum  allowed by any  statute or rule of law  whether  such  amount  shall be
greater or less than the excess referred to above.

            19.4. In the event that LESSEE should abandon the Demised  Premises,
LESSOR may, at its option and for so long as LESSOR does not terminate  LESSEE'S
right to  possession  of the  Demised  Premises,  enforce  all of its rights and
remedies  under  this  Lease,  including  the right to recover  all Basic  Rent,
Additional  Rent and other payments as they become due hereunder.  Additionally,
LESSOR  shall be entitled to recover  from LESSEE all costs of  maintenance  and
preservation of the Demised Premises,  and all costs,  including  attorneys' and
receiver's  fees,  incurred in connection with the appointment of or performance
by a re ceiver to protect the Demised Premises and LESSOR'S  interest under this
Lease.

            19.5.  Nothing  herein shall be deemed to affect the right of LESSOR
to indemnification pursuant to Section 8.1 of this Lease.

            19.6.  At the request of LESSOR upon the  occurrence  of an Event of
Default,  LESSEE will quit and surrender  the Demised  Premises to LESSOR or its
agents, and LESSOR may without further notice enter upon, re-enter and repossess
the Demised Premises by summary proceedings,  ejectment or otherwise.  The words
"enter",  "re-enter", and "re-entry" are not restricted to their technical legal
meanings.

            19.7. If LESSEE shall be in default in the observance or performance
of any  provision  of  this  Lease,  and an  action  shall  be  brought  for the
enforcement  thereof in which it shall be determined that LESSEE was in default,
LESSEE shall pay to LESSOR all fees,  costs and other  expenses which may become
payable as a result  thereof or in connection  therewith,  including  attorneys'
fees and expenses.

            19.8.  If  LESSEE  shall  default  in  the  keeping,  observance  or
performance  of any covenant,  agreement,  term,  provision or condition  herein
contained,  LESSOR,  without thereby waiving such default,  may perform the same
for the  account  and at the  expense of LESSEE (a)  immediately  or at any time
thereafter  and without  notice in the case of emergency or in case such default
will  result in a violation  of any Legal or  Insurance  Requirement,  or in the
imposition of any Lien against all or any portion of the Property and (b) in any
other case if such default continues after thirty (30) days from the date of the
giving by LESSOR to LESSEE of notice of  LESSOR'S  intention  so to perform  the
same.  All costs and  expenses  incurred by LESSOR in  connection  with any such
performance  by it for the  account  of LESSEE and also all costs and ex penses,
including attorneys' fees and disbursements  incurred by LESSOR in any action or
proceeding (including any summary dispossess

                                         29

<PAGE>



proceeding)  brought by LESSOR to enforce any  obligation  of LESSEE  under this
Lease  and/or  right of LESSOR in or to the Demised  Premises,  shall be paid by
LESSEE to LESSOR upon demand.

            19.9.  Except as otherwise  provided in this Article 19, no right or
remedy herein  conferred  upon or reserved to LESSOR is intended to be exclusive
of any other right or remedy, and every right and remedy shall be cumulative and
in addition to any other legal or equitable right or remedy given hereunder,  or
now or hereafter  existing.  No waiver by LESSOR of any  provision of this Lease
shall be deemed to have been made unless  expressly  so made in writing.  LESSOR
shall be entitled,  to the extent permitted by law, to injunctive relief in case
of the violation, or attempted or threatened violation, of any provision of this
Lease, or to a decree  compelling  observance or performance of any provision of
this Lease, or to any other legal or equitable remedy.

                                     ARTICLE 20

                      RIGHT OF ENTRY; RESERVATION OF EASEMENTS

            20.1. LESSOR and LESSOR'S agents and representatives  shall have the
right to enter into or upon the Demised  Premises,  or any part thereof,  at all
reasonable hours for the following purposes: (1) examining the Demised Premises;
(2) making such repairs or  alterations  therein as may be necessary in LESSOR'S
sole  judgment  for the safety and  preservation  of the Building or the Demised
Premises;  (3)  erecting,  maintaining,  repairing or replacing  wires,  cables,
ducts,  pipes,  conduits,  vents or plumbing equipment running in, to or through
the  Demised  Premises;  (4) showing the  Demised  Premises to  prospective  new
tenants  during the last  twelve  (12)  months of the Term;  or (5)  showing the
Demised Premises during the Term to any mortgagees or prospective  purchasers of
the  Property.  LESSOR shall give LESSEE three (3) business  days prior  written
notice before commencing any non-emergency repair or alteration.

            20.2. LESSOR may enter upon the Demised Premises at any time in case
of emergency without prior notice to LESSEE.

            20.3. LESSOR, in exercising any of its rights under this Article 20,
shall  not be deemed  guilty  of an  eviction,  partial  eviction,  constructive
eviction or  disturbance  of LESSEE'S use or possession of the Demised  Premises
and shall not be liable to LESSEE for same.

            20.4.  All work  performed  by or on  behalf  of LESSOR in or on the
Demised  Premises  pursuant to this Article 20 shall be performed with as little
inconvenience to LESSEE'S business as is reasonably possible.

            20.5.  LESSEE  shall not change any locks or install any  additional
locks on doors entering into the Demised  Premises without the consent of LESSOR
and,  if any  change  is  made,  a copy of any such  lock key  shall be given to
LESSOR.  If in an  emergency  LESSOR  is  unable  to gain  entry to the  Demised
Premises by unlocking  entry doors thereto,  LESSOR may force or otherwise enter
the  Demised  Premises,  without  liability  to LESSEE for any damage  resulting
directly or indirectly  therefrom.  LESSEE shall be responsible  for all damages
created or

                                         30

<PAGE>



caused by its failure to give LESSOR a copy of any key to any lock  installed by
LESSEE controlling entry to the Demised Premises.

            20.6.  LESSOR  reserves  the  right  to make  changes,  alterations,
additions,  improvements,  repairs or  replacements  in or to the Property,  the
Building (including the Demised Premises) and the fixtures and equipment thereof
from  time to time as  LESSOR  may  reasonably  deem  neces  sary or  desirable;
provided,  however,  that there be no  unreasonable  obstruction of the means of
access to the Demised Premises or unreasonable interference with LESSEE'S use of
the Demised  Premises and the usable square foot area of the Demised Premises is
not unreasonably  affected  thereby.  Nothing contained in this Article shall be
deemed to relieve  LESSEE of any duty,  obligation  or  liability of LESSEE with
respect to making any repair,  replacement  or improvement or complying with any
law, order or requirement of any governmental authority.

                                     ARTICLE 21

                               ACCORD AND SATISFACTION

            The  receipt  by LESSOR of any  installment  of Basic Rent or of any
Additional  Rent  with  knowledge  of a default  by  LESSEE  under the terms and
conditions  of this  Lease  shall  not be deemed a waiver  of such  default.  No
payment by LESSEE or receipt by LESSOR of a lesser  amount  than the rent herein
stipulated  shall  be  deemed  to be  other  than on ac  count  of the  earliest
stipulated  rent,  nor shall any  endorsement  or  statement on any check or any
letter  accompanying  any check or  payment  as rent be  deemed  an  accord  and
satisfaction,  and LESSOR may accept such check or payment without  prejudice to
LESSOR'S right to recover the balance of such rent or pursue any other remedy in
this Lease provided.

                                     ARTICLE 22

                                    SUBORDINATION

            22.1.  This Lease and the term and  estate  hereby  granted  are and
shall be subject and  subordinate  to the lien of each mortgage which may now or
at any time  hereafter  affect all or any  portion of the  Property  or LESSOR'S
interest therein and to all ground leases which may now or at any time hereafter
affect all or any portion of the  Property  (any such  mortgage or ground  lease
being herein called an "Underlying  Encumbrance").  The foregoing provisions for
the  subordination  of this Lease and the term and estate  hereby  granted to an
Underlying  Encumbrance shall be self-operative  and no further instrument shall
be required to effect any such subordination; provided, however, at any time and
from time to time,  upon not less than ten (10)  days'  prior  notice by LESSOR,
LESSEE shall execute,  acknowledge  and deliver to LESSOR any and all reasonable
instruments  that may be necessary or proper to effect such  subordination or to
confirm or evidence the same.

            22.2. If all or any portion of LESSOR'S estate in the Property shall
be sold or conveyed to any person,  firm or corporation upon the exercise of any
remedy  provided for in any mortgage or by law or equity,  such person,  firm or
corporation and each person,  firm or corporation  thereafter  succeeding to its
interest  in the  Property  (a) shall not be liable for any act or  omission  of
LESSOR under this Lease

                                         31

<PAGE>



occurring  prior to such sale or  conveyance,  (b) shall not be  subject  to any
offset,  defense or counterclaim accruing prior to such sale or conveyance,  (c)
shall  not be bound by any  payment  prior to such sale or  conveyance  of Basic
Rent,  Additional  Rent or other  payments  for more than one  month in  advance
(except  prepayments in the nature of security for the  performance by LESSEE of
its obligations hereunder), and (d) shall be liable for the keeping,  observance
and  performance  of the other  covenants,  agreements,  terms,  provisions  and
conditions  to be kept,  ob served and performed by LESSOR under this Lease only
during the period such person, firm or corporation shall hold such interest.

            22.3.  In the event of an act or omission by LESSOR which would give
LESSEE  the  right  to  terminate  this  Lease or to  claim a  partial  or total
eviction,  LESSEE will not  exercise  any such right until it has given  written
notice of such act or omission,  or, in the case of the Demised  Premises or any
part thereof  becoming  untenantable  as the result of damage from fire or other
casualty,  written notice of the occurrence of such damage, to the holder of any
Underlying  Encumbrance  whose  name and  address  shall  previously  have  been
furnished to LESSEE in writing,  by delivering such notice of such act, omission
or damage ad dressed to such holder at said address or if such holder  hereafter
furnishes  another  address  to LESSEE in  writing  at the last  address of such
holder so furnished to LESSEE,  and, unless otherwise  provided herein,  until a
reasonable  period for remedying such act, omission or damage shall have elapsed
following such giving of such notice,  provided any such holder, with reasonable
diligence,  shall,  following  the giving of such  notice,  have  commenced  and
continued  to  remedy  such act,  omission  or damage or to cause the same to be
remedied.

            22.4. If, in connection with obtaining financing for the Property or
refinancing  any mortgage  encumbering  the  Property,  the  prospective  lender
requests reasonable modifications to this Lease as a condition precedent to such
financing  or  refinancing,  then  LESSEE  hereby  covenants  and  agrees not to
unreasonably  withhold,  delay or condition  its consent to such  modifications,
provided such  modifications  do not increase the Basic Rent or Additional Rent,
do not reduce the length of the Term, do not materially and adversely affect the
leasehold  interest  created by this Lease and do not  materially  and adversely
affect the manner in which LESSEE'S operations are conducted at the Demised Prem
ises.

                                     ARTICLE 23

                                  LESSEE'S REMOVAL

            23.1.  Upon the  expiration  or earlier  termination  of this Lease,
LESSEE shall  surrender the Demised  Premises to LESSOR in the condition same is
required to be  maintained  under  Article 7 of this Lease and broom clean.  Any
personal  property which shall remain in any part of the Demised  Premises after
the expiration or earlier termination of this Lease shall be deemed to have been
abandoned,  and  either  may be  retained  by LESSOR as its  property  or may be
disposed  of in such  manner as LESSOR  may see fit;  provided,  however,  that,
notwithstanding  the  foregoing,  LESSEE  will,  upon request of LESSOR made not
later than thirty (30) days after the expiration or earlier termination of this

                                         32

<PAGE>



Lease, promptly remove from the Demised Premises any such personal property.

            23.2.  If, at any time during the last three (3) months of the Term,
LESSEE shall not occupy any part of the Demised  Premises in connection with the
conduct of its business,  LESSOR may elect, at its option, to enter such part of
the  Demised  Premises  to alter  and/or  redecorate  such  part of the  Demised
Premises, and LESSEE hereby irrevocably grants to LESSOR a license to enter such
part  of the  Demised  Premises  in  connection  with  such  alterations  and/or
redecorations. LESSOR'S exercise of such right shall not relieve LESSEE from any
of its obligation under this Lease.

            23.3. If LESSEE holds over possession of the Demised Premises beyond
the  Termination  Date, such holding over shall not be deemed to extend the Term
or renew  this  Lease but such  holding  over  shall  continue  upon the  terms,
covenants and conditions of this Lease except that LESSEE agrees that the charge
for use and occupancy of the Demised Premises for each calendar month or portion
thereof  that LESSEE  holds over (even if such part shall be one day) shall be a
liquidated sum equal to one-twelfth (1/12th) of two (2) times the Basic Rent and
Additional Rent required to be paid by LESSEE during the calendar year preceding
the Termination  Date. The parties recognize and agree that the damage to LESSOR
resulting  from any  failure  by LESSEE to timely  surrender  possession  of the
Demised  Premises will be extremely  substantial,  will exceed the amount of the
monthly Basic Rent and Additional Rent payable  hereunder and will be impossible
to accurately  measure.  If the Demised  Premises are not  surrendered  upon the
expir ation of this Lease,  LESSEE  shall  indemnify,  defend and hold  harmless
LESSOR  against  any  and  all  losses  and  liabilities   resulting  therefrom,
including,  without limitation, any claims made by any succeeding tenant founded
upon such delay. Nothing contained in this Lease shall be construed as a consent
by LESSOR to the  occupancy  or  possession  by LESSEE of the  Demised  Premises
beyond the Termination  Date, and LESSOR,  upon said Termination  Date, shall be
entitled to the benefit of all legal remedies that now may be in force or may be
hereafter  enacted  relating  to  the  immediate  repossession  of  the  Demised
Premises.  The provisions of this Article shall survive the expiration or sooner
termination of this Lease.

                                     ARTICLE 24

                                       BROKERS

            LESSEE  represents  to LESSOR  that no real  estate  broker or sales
representative  participated  in this  transaction  or has any interest  herein.
LESSEE agrees to indemnify and hold harmless LESSOR and its directors, officers,
employees and  partners,  from and against any  threatened  or asserted  claims,
liabilities,  losses or  judgments  (including  reasonable  attorneys'  fees and
disbursements)  by any  broker  or  sales  representative  arising  out of or in
connection  with this Lease.  The  provisions  of this Article shall survive the
expiration or sooner termination of this Lease.


                                         33

<PAGE>



                                     ARTICLE 25

                                       NOTICES

            All  notices,  demands,  requests,   consents,   approvals,  offers,
statements and other instruments or  communications  required or permitted to be
given  hereunder  shall  be in  writing,  shall  be  either  hand  delivered  by
respectable  priority  overnight  delivery  service,  or mailed  by first  class
registered or certified mail, postage prepaid, addressed to the address for such
party set forth above,  or to such other address as either party shall designate
to the other in writing,  and shall be deemed to have been given when delivered,
or three (3) days after being mailed.  Notwithstanding the foregoing, any notice
changing the address of a party shall not be deemed given until  received by the
party to whom it was addressed.

                                     ARTICLE 26

                           NATURE OF LESSOR'S OBLIGATIONS

            Anything in the Lease to the contrary  notwithstanding,  no recourse
or relief shall be had under any rule of law,  statute or constitution or by any
enforcement  of any  assessments  or  penalties,  or otherwise or based on or in
respect  of this  Lease  (whether  by  breach  of any  obligation,  monetary  or
non-monetary),   against  LESSOR,  it  being  ex  pressly  understood  that  all
obligations  of LESSOR  under or relating  to this Lease are solely  obligations
payable  out of  the  Property  and  are  compensable  solely  therefrom.  It is
expressly  understood that all such liability is and is being  expressly  waived
and  released as a condition  of and as a condition  for the  execution  of this
Lease,  and  LESSEE ex pressly  waives  and  releases  all such  liability  as a
condition of, and as a consideration for, the execution of this Lease by LESSOR.

                                     ARTICLE 27

                                  SECURITY DEPOSIT

            27.1.  (a)  Concurrently  with the  execution of this Lease,  LESSEE
shall deposit with LESSOR the sum of  $28,833.33,  the same to be held by LESSOR
as security  for the full and  faithful  performance  by LESSEE of the terms and
conditions  by it to be observed  and  performed  hereunder.  If any Basic Rent,
Additional  Rent or other sum  payable by LESSEE to LESSOR  becomes  overdue and
remains  unpaid,  or should  LESSOR make any  payments  on behalf of LESSEE,  or
should  LESSEE  fail to perform any of the terms and  conditions  of this Lease,
then  LESSOR,  at its option,  and without  prejudice  to any other remedy which
LESSOR may have on account thereof, shall appropriate and apply said deposit, or
so much thereof as may be required to  compensate  or reimburse  LESSOR,  as the
case may be, toward the payment of Basic Rent, Additional Rent or other such sum
payable  hereunder,  or loss or damage  sustained by LESSOR due to the breach or
failure to perform on the part of LESSEE, and upon demand,  LESSEE shall restore
such security to the original sum deposited.

                     (b)   LESSEE hereby agrees that the security deposit
shall equal one (1) month's Basic Rent at all times during the Term,  and LESSEE
agrees to deposit with LESSOR such additional sum as may be

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required to satisfy such requirement  within thirty (30) days after any increase
in the Basic Rent.

            27.2.  Conditioned  upon the full compliance by LESSEE of all of the
terms of this Lease,  and the prompt payment of all sums due  hereunder,  as and
when they fall due,  said  deposit  shall be returned  in full to LESSEE  within
fifteen (15) days after the end of the Term.

            27.3. In the event of bankruptcy or other debtor-creditor proceeding
against LESSEE, such security deposit shall be deemed to be applied first to the
payment of rent and other  charges due LESSOR for all periods prior to filing of
such proceedings.

            27.4. In the event of any transfer of title to the Property,  or any
assignment of LESSOR'S interest under this Lease, LESSOR shall have the right to
transfer the security  deposit to said transferee or assignee,  and LESSOR shall
thereupon  be  released  by LESSEE  from all  liability  for the  return of such
security deposit. In such event, LESSEE agrees to look to the new lessor for the
return of the security deposit.  It is hereby agreed that the provisions of this
Section shall apply to every transfer or assignment made of the security deposit
to a new lessor.

                                     ARTICLE 28

                                RULES AND REGULATIONS

            LESSOR  shall  have the right to adopt at any time  during  the Term
such rules and regulations  with respect to the Property as it deems  reasonably
necessary for the safety, care and cleanliness of the Property, the preservation
of good order therein and the general convenience of all the tenants, and LESSEE
and LESSEE'S  Visitors shall comply with such rules and regulations after twenty
(20) days' written  notice thereof from LESSOR (such rules and  regulations,  as
the same may be amended pursuant to this Section,  are collectively  referred to
as the  "Rules  and  Regulations").  LESSOR  may make,  at its sole  discretion,
reasonable  amendments  thereto  from  time to time,  and  LESSEE  and  LESSEE'S
Visitors shall comply with such amended Rules and Regulations  after twenty (20)
days' written notice thereof from LESSOR.  All Rules and Regulations shall apply
to all tenants  occupying  space within the  Building,  and will not  materially
interfere with the use and enjoyment of the Demised  Premises by LESSEE.  In the
event  there is a conflict be tween the  provisions  of this Lease and the Rules
and Regulations, the provisions of this Lease shall govern.

                                     ARTICLE 29

                                    MISCELLANEOUS

            29.1. This Lease may not be amended, modified or terminated, nor may
any obligation hereunder be waived, orally, and no such amendment, modification,
termination  or waiver,  shall be effective  unless in writing and signed by the
party  against whom  enforcement  thereof is sought.  No waiver by LESSOR of any
obligation  of LESSEE  hereunder  shall be deemed to  constitute a waiver of the
future performance of such obligation by LESSEE. If any provision of this

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Lease  or any  application  thereof  shall  be  invalid  or  unenforceable,  the
remainder of this Lease and any other application of such provision shall not be
affected  thereby.  This Lease shall be binding upon and inure to the benefit of
and be  enforceable  by the  respective  successors  and  assigns of the parties
hereto,  except as provided in Article 15. Upon due performance of the covenants
and agreements to be performed by LESSEE under this Lease, LESSOR covenants that
LESSEE shall and may at all times peaceably and quietly have, hold and enjoy the
Demised  Pre mises  during  the  Term.  The table of  contents  and the  article
headings are for  convenience of reference only and shall not limit or otherwise
affect the meaning  hereof.  Schedules A and B annexed  hereto are incor porated
into  this  Lease.  This  Lease  will  be  simultaneously  executed  in  several
counterparts,  each of which when so executed and delivered, shall constitute an
original,  fully enforceable  counterpart for all pur poses. This Lease shall be
governed  by and  construed  in  accordance  with the  laws of the  State of New
Jersey.

            29.2.  No act or thing done by LESSOR or LESSOR'S  agents during the
Term shall be deemed an acceptance of a surrender of the Demised  Premises,  and
no  agreement  to accept  such  surrender  shall be valid  unless in writing and
signed by  LESSOR.  No  employee  of LESSOR or  LESSOR'S  agents  shall have any
authority to accept the keys to the Demised  Premises  prior to the  Termination
Date and the delivery of keys to any employee of LESSOR or LESSOR'S agents shall
not operate as an acceptance of a termination  of this Lease or an acceptance of
a surrender of the Demised Premises.

            29.3. LESSOR'S failure during the Term to prepare and deliver any of
the  statements,  notices or bills set forth in this Lease  shall not in any way
cause LESSOR to forfeit or  surrender  its rights to collect any amount that may
have become due and owing to it during the Term.

            29.4.  The submission of this Lease to LESSEE for  examination  does
not  constitute  an offer to lease the  Demised  Premises on the terms set forth
herein, and this Lease shall become effective as a lease agreement only upon the
execution and delivery of this Lease by LESSOR and LESSEE.

            29.5.  For the  convenience  of all tenants of the Building,  LESSOR
agrees to install and maintain a building directory in the entrance lobby of the
Building.  On or about the Commencement Date, LESSOR agrees to place the name of
LESSEE on said  directory;  the size,  color and type of letters  used by LESSOR
shall be consistent with the other letters of the building directory.

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            IN WITNESS  WHEREOF,  the parties have executed this Lease as of the
date first above written.


ATTEST:                                   LESSOR:
(SEAL)                                    VITAMIN REALTY ASSOCIATES,
                                          L.L.C.




________________________                  By:___________________________
                                             Name:
                                             Title:

ATTEST:                                   LESSEE:
(SEAL)                                    MANHATTAN DRUG COMPANY



________________________                  By:___________________________
               Secretary                     Name:
                                             Title:


                                         37

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                                   SCHEDULE B

                                   BASIC RENT

            The Basic Rent shall be payable in equal monthly installments,
in advance, on the Basic Rent Payment Dates.  The Basic Rent for the
Term shall be as follows:

            (a) for the period from the Commencement Date to, but not including,
the  fifth  anniversary  of the  Commencement  Date,  the  Basic  Rent  shall be
$346,000.00 per annum, payable in equal monthly in stallments of $28,833.33; and

            (b) for the period from the fifth  anniversary  of the  Commencement
Date to and  including  the  Termination  Date,  the Basic Rent shall adapted by
multiplying the Basic Rent set forth in subsection (a) above by a fraction,  the
numerator  of which is the CPI for all wage  earners  for the month  immediately
preceding the fifth anniversary of the Commencement Date, and the denominator of
which is the CPI for all wage earners for the month  immediately  preceding  the
Commencement Date, provided that such fraction shall never be less than one.










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                                   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 26, 1997           By:
                                      E. Gerald Kay,
                      President and Chief Executive Officer


Date: September 26, 1997           By:
                                      Eric Friedman,
                                       Chief Financial Officer