<PAGE> 1
- --------------------------------------------------------------------------------
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --------- Exchange Act of 1934. For the quarterly period ended June 30, 1999.
- --------- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period from
________ to _____________.
Commission File number 0-27082
FUISZ TECHNOLOGIES LTD.
(Exact name of registrant as specified in charter)
Delaware 52-1579474
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
14555 Avion at Lakeside
Chantilly, Virginia 20151
(Address of Principal Executive Offices),
Registrant's telephone number including area code: (703) 995-2400
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No .
--- ---
As of July 31, 1999, the Registrant has outstanding 22,030,723 shares of Common
Stock, par value $.01.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 3,956 $ 9,238
Marketable securities............................................... 12,163 19,678
Accounts receivable, net............................................ 14,200 13,889
Inventory........................................................... 5,906 5,072
Other current assets................................................ 2,057 1,621
---------------- ----------------
Total current assets........................................... 38,282 49,498
Restricted cash.......................................................... 11,394 10,971
Property, plant and equipment, net....................................... 25,187 26,554
Intangibles, net......................................................... 46,291 55,550
Other assets............................................................. 4,097 3,163
---------------- ----------------
Total assets...................................................... $ 125,251 $ 145,736
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit...................................................... $ 514 $ 633
Current portion of notes payable..................................... 2,027 2,266
Accounts payable..................................................... 8,143 8,159
Accrued and other liabilities........................................ 8,242 5,192
Deferred revenue..................................................... 1,025 2,664
--------------- ----------------
Total current liabilities......................................... 19,951 18,914
Notes payable............................................................ 88,247 90,639
Other liabilities........................................................ 1,375 1,735
--------------- ----------------
Total liabilities................................................. 109,573 111,288
--------------- ----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares;
none issued or outstanding.......................................... -- --
Common stock, par value $.01 per share; authorized 50,000,000 shares;
issued 22,563,923 and 22,541,638 shares, respectively; and outstanding
21,925,723 and 21,903,438 shares, respectively...................... 225 225
Additional paid-in capital............................................. 111,272 111,163
Accumulated deficit.................................................... (87,221) (72,658)
Accumulated other comprehensive income (loss).......................... (3,033) 1,283
Treasury stock, at cost; 638,200 shares in 1999 and 1998............... (5,565) (5,565)
--------------- ----------------
Total stockholders' equity.......................................... 15,678 34,448
--------------- ----------------
Total liabilities and stockholders' equity................ $ 125,251 $ 145,736
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Operating revenues:
Product sales.......................... $ 11,035 $ 12,130 $ 21,007 $ 23,977
Research and development............... 350 1,151 1,051 2,833
Licensing fees and other............... 3,870 3,023 13,817 3,497
------------ -------------- ------------ --------------
Total operating revenues.......... 15,255 16,304 35,875 30,307
------------ -------------- ------------ --------------
Operating expenses:
Cost of sales.......................... 6,843 7,518 12,751 14,850
Research and development............... 6,151 6,252 12,385 11,659
Selling, general and administrative.... 8,583 7,557 15,456 14,646
Non-recurring expenses................. 5,711 -- 5,711 --
------------ -------------- ------------ --------------
Total operating expenses.......... 27,288 21,327 46,303 41,155
------------ -------------- ------------ --------------
Operating loss.............................. (12,033) (5,023) (10,428) (10,848)
------------ -------------- ------------ --------------
Other income (expense):
Interest income........................ 456 788 781 1,862
Interest expense....................... (1,677) (1,660) (3,387) (3,413)
Foreign currency gain (loss), net...... 79 -- (1,683) --
------------ -------------- ------------ --------------
Total other income (expense)...... (1,142) (872) (4,289) (1,551)
------------ -------------- ------------ --------------
Loss before income taxes.................... (13,175) (5,895) (14,717) (12,399)
Income tax benefit (provision).............. (2) -- 154 --
------------ -------------- ------------ --------------
Net loss.................................... $ (13,177) $ (5,895) $ (14,563) $ (12,399)
============ ============== ============ ==============
Net loss per share (basic and diluted)...... $ (0.60) $ (0.26) $ (0.66) $ (0.56)
============ ============== ============ ==============
Weighted average shares outstanding
(basic and diluted)..................... 21,926 22,298 21,925 22,259
============ ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss................................................. $ (14,563) $ (12,399)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization....................... 4,745 4,252
Impairment loss..................................... 1,566 --
Amortization of deferred financing costs............ 217 212
Amortization of discount on notes payable........... 139 593
Increase (decrease) in cash resulting from changes
in working capital items:
Accounts receivable and other current assets..... (3,511) (2,004)
Accounts payable and other liabilities........... 1,943 (1,748)
------------ ------------
Net cash used by operating activities............... (9,464) (11,094)
------------ ------------
Investing activities:
Decrease in marketable securities........................ 5,719 34,273
Capital expenditures .................................... (1,848) (1,936)
Acquisitions of businesses, net of acquired cash......... -- (19,403)
(Additions)/reduction to intangibles..................... (21) (91)
(Increase)/decrease in other assets...................... (1,261) 1,433
------------ ------------
Net cash provided by investing activities........... 2,589 14,276
------------ ------------
Financing activities:
Proceeds from exercise of stock options.................. 109 866
Redemption of preference shares of subsidiary............ -- (209)
Net borrowings under line of credit agreements........... (45) 88
Net payments of debt obligations......................... 72 (604)
Increase (decrease) in long-term liabilities............. -- (221)
------------ ------------
Net cash provided by (used by) financing activities. 136 (80)
------------ ------------
Effect of exchange rate changes on cash....................... 1,457 (28)
------------ ------------
Net increase (decrease) in cash and cash equivalents.......... (5,282) 3,074
Cash and cash equivalents, beginning of period................ 9,238 5,548
------------ ------------
Cash and cash equivalents, end of period...................... 3,956 8,622
Marketable securities and restricted cash, end of period...... 23,557 48,661
------------ ------------
Cash, cash equivalents, marketable securities and
restricted cash, end of period............................ $ 27,513 $ 57,283
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net loss.................................... $(13,177) $ (5,895) $(14,563) $ (12,399)
Foreign currency translation adjustments.... (1,887) 900 (4,316) (551)
----------- ------------ ----------- ------------
Comprehensive loss.......................... $(15,064) $ (4,995) $(18,879) $ (12,950)
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9, 1988
(Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in the
development, manufacture and commercialization of a wide variety of
pharmaceutical and consumer healthcare products and technologies. The Company
uses its unique drug delivery technologies, including its CEFORM(TM) and
Shearform(TM) technologies, to conduct research and development activities on
behalf of pharmaceutical and consumer healthcare companies. Products flowing
from these research and development efforts include drug and consumer healthcare
formulations using the Company's innovative Flash Dose(R), EZ Chew(R), soft chew
and Spoon Dose(R) formats.
The accompanying consolidated financial statements include the accounts of
Fuisz Technologies Ltd. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The information at
June 30, 1999 and for the six months ended June 30, 1999 and 1998, is unaudited
but includes all adjustments (consisting only of normal recurring adjustments)
which the management of the Company believes necessary for a fair presentation
of the results for the periods presented. Interim results are not necessarily
indicative of results for a full year. The consolidated financial statements
should be read in conjunction with the audited financial statements for the
year ended December 31, 1998, included in the Company's 1998 Annual Report on
Form 10-K.
Certain prior period amounts have been reclassified to conform to the
current year presentation.
2. INVENTORY
Inventory consists of the following at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------
JUNE 30, DECEMBER 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Raw materials................................................... $ 3,480 $ 2,088
Work in process................................................. 876 694
Finished goods.................................................. 1,550 2,290
------------------- -------------------
$ 5,906 $ 5,072
=================== ===================
</TABLE>
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, marketable securities, accounts
receivable, accounts payable, accrued liabilities, term loans and installment
notes, approximates fair value due to the relatively short maturity of these
instruments. As of June 30, 1999, the fair value of the $75.0 million aggregate
principal amount of 7% Convertible Subordinated Debentures due October 15, 2004,
was approximately $35.6 million.
4. NONRECURRING EXPENSES
The Company recorded nonrecurring charges of $5.7 million during the second
quarter. The nonrecurring expenses include approximately a $1.6 million charge
for impairment of goodwill associated with the Company's Pangea unit as
discussed in Note 5 as well as a $3.6 million charge relating
5
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to expenses associated with an employee head-count reduction program (including
severance) and other expenses concerning executive resignations, among others.
5. SEGMENT INFORMATION
The Company is engaged in the development, manufacture and
commercialization of a wide variety of pharmaceutical and consumer healthcare
products. To achieve these objectives, the Company has three reportable
segments: Pharmaceutical Operations, Pharmaceutical Research and Development and
Consumer Healthcare.
PHARMACEUTICAL OPERATIONS. This segment includes the selling and distribution of
a wide variety of pharmaceutical products through five of the Company's
subsidiaries: Laboratoires Murat ("Murat"), Pangea, Ltd. ("Pangea"), Clonmel
Healthcare Limited ("Clonmel"), Istoria Farmaceutici ("Istoria") and Dr.
Rentschler GmbH & Co. Medizin KG ("Fuisz Pharma KG"). These companies operate as
pharmaceutical marketing and distribution companies and sell various
pharmaceutical products for which they own product marketing rights through
their distribution channels. This segment also includes the Company's
manufacturing operations, which through June 30, 1999, have principally taken
place at the manufacturing facilities of Clonmel. The products sold by this
segment are either manufactured by Clonmel or by third parties contracted by the
Company.
As a result of Pangea's inability to achieve improvements specified in business
plans developed by management over prior business cycles, including efforts to
help improve product sales and attract new distributors to its marketing
program, Pangea has incurred recurring losses since its acquisition in 1997.
Pangea continued operating at a loss for the first half of 1999. Accordingly,
the Company recorded a $1.6 million impairment charge in the second quarter
which represents a complete write-down of the unamortized balance of goodwill
acquired in connection with the acquisition of Pangea.
PHARMACEUTICAL RESEARCH AND DEVELOPMENT. This segment includes research and
development efforts focused on developing pharmaceutical products for the
Company's collaborative partners as well as Company-funded products for future
collaboration. The Company's collaborative arrangements typically provide for a
customer-funded development project and contemplate a licensing arrangement
under which, if a product is commercialized by the collaborative partner, the
Company would receive license fees, royalty payments from product sales and
manufacturing revenue.
CONSUMER HEALTHCARE. This segment includes product research and development
efforts primarily focused on developing consumer healthcare products for the
Company's collaborative partners as well as the manufacture and sale of such
products through conventional distribution channels. The Company's collaborative
arrangements are structured similarly to those of the Pharmaceutical Research
and Development segment.
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Segment information for the three months and six months ended June 30, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------
PHARMACEUTICAL
PHARMACEUTICAL RESEARCH AND
OPERATIONS DEVELOPMENT CONSUMER HEALTHCARE TOTAL
--------------------- --------------------- --------------------- ----------------------
Three Six Three Six Three Six Three Six
Months Months Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30
--------- -------- -------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
1999 9,273 18,337 4,252 14,729 1,730 2,809 15,255 35,875
1998 12,130 23,977 3,951 6,031 223 299 16,304 30,307
- ---------------------------------------------------------------------------------------------------------------------
Operating loss:
1999 (2,480) (3,210) (8,437) (5,355) (1,116) (1,863) (12,033) (10,428)
1998 285 556 (3,386) (8,346) (1,922) (3,058) (5,023) (10,848)
- ---------------------------------------------------------------------------------------------------------------------
Identifiable
assets(1):
1999 -- 71,162 -- 54,089 -- -- -- 125,251
1998(2) -- 84,040 -- 61,696 -- -- -- 145,736
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)As balance sheet items, identifiable assets are presented as six-month ended
June 30 figures. Asset information for the Consumer Healthcare segment is
aggregated with the Pharmaceutical Research and Development segment since the
Company does not produce such information internally by segment.
(2)Information is as of December 31, 1998.
6. SUBSEQUENT EVENT - PROPOSED MERGER WITH BIOVAIL INTERNATIONAL
The Company entered into a Merger Agreement (the "Merger Agreement") with
Biovail Corporation International ("Biovail") dated as of July 25, 1999.
Pursuant to the Merger Agreement, Biovail has commenced a cash tender offer for
that number of shares that would result in Biovail owning 49% of the outstanding
common stock, par value $.01 of the Company ("Common Stock"). The Merger
Agreement contemplates that the Company will subsequently become a wholly-owned
subsidiary of Biovail. In connection with the Merger, all remaining outstanding
shares of Common Stock will be exchanged for Common Stock of Biovail. The Merger
is subject to completion of the tender offer, approval by the Company's
stockholders and satisfaction or waiver of certain other conditions.
Consummation of the tender offer or the Merger may significantly affect the
future operations, capital requirements and liquidity of the Company in manners
that differ from those originally contemplated by management. The transaction
will be accounted for by the purchase method of accounting for business
combinations. The transaction is subject to regulatory approvals in the United
States, and Europe.
7. CONTINGENCIES
On July 2, 1999, the Company received a demand for arbitration filed by
Kenneth W. McVey and Casteldermot Limited, relating to a dispute over severance
benefits with Mr. McVey, the Company's former Chief Executive Officer. The
demand arises from the Company's action to withhold from payments under the
McVey Agreement amounts that would have been payable to the IRS if, after Mr.
McVey became CEO of the Company, Mr. McVey's compensation constituted U.S.
source income subject to tax withholding. The amounts that have been withheld
from payment under the McVey Agreement have been deposited and are included in
restricted cash and other liabilities on the balance sheet.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q containing the words "expects," "expected" and
"will," among others, are forward-looking statements that involve risks and
uncertainties that are subject to events outside of the Company's control.
Actual results and developments in the future may vary materially from these
statements. Factors that may cause these developments and the Company's results
of operations and financial position to differ materially include, but are not
limited to, dependence on collaborative partners, capital requirements, risk of
manufacturing scale-up, product commercialization including delays of
introductions of new products or enhancements, size and timing of individual
orders, rapid technological changes, acquisitions of marketing and sales
distribution organizations, market acceptance of new products, regulatory
approvals, and future competition. The Company's dependence on license and
milestone payments from its collaborative partners and the timing relating
thereto, plus any delays in concluding new license agreements with partners or
achieving certain milestones of any ongoing collaborations, may cause the
Company to continue to report additional losses in the near term. These and
other factors are more fully discussed in the Company's 1998 Form 10-K in the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OVERVIEW
Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9, 1988
(Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in the
development, manufacture and commercialization of a wide variety of
pharmaceutical and consumer healthcare products and technologies. The Company
uses its unique drug delivery technologies, including its CEFORM(TM) and
Shearform(TM) technologies, to conduct research and development activities on
behalf of pharmaceutical and consumer healthcare companies. Products being
developed from these research and development efforts include drug and consumer
healthcare formulations using the Company's innovative Flash Dose(R), EZ
Chew(R), soft chew and Spoon Dose(R) formats.
During 1998 and 1997, the Company acquired five companies, each of which has
been accounted for as a purchase and, accordingly, their operating results have
been included in the Company's consolidated financial statements since the
respective dates of acquisition. The five business acquisitions consisted of
Laboratoires Murat ("Murat"), Pangea, Ltd. ("Pangea"), Clonmel Healthcare
Limited ("Clonmel"), Istoria Farmaceutici ("Istoria") and Dr. Rentschler GmbH &
Co. Medizin KG ("Fuisz Pharma KG"), which are collectively referred to herein as
the "Acquired Companies." Four of the Acquired Companies provide a substantial
portion of their products and services in Europe. Consequently, the Company
derives a significant portion of its consolidated revenues from its European
operations.
As noted above, as a result of Pangea's inability to achieve improvements
specified in business plans developed by management over prior business cycles
including efforts to help improve product sales and attract new distributors to
its marketing program, Pangea has incurred recurring losses since its
acquisition in 1997. Pangea continued operating at a loss for
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<PAGE> 10
the first half of 1999. Accordingly, the Company recorded a $1.6 million
impairment charge in the second quarter which represents a complete write-down
of the unamortized balance of goodwill which accrued in connection with the
acquisition of Pangea. As a result of the wind-down of Pangea's operations, the
Company may incur additional expenses in the third and fourth quarters.
PROPOSED MERGER WITH BIOVAIL INTERNATIONAL
The Company entered into a Merger Agreement (the "Merger Agreement") with
Biovail Corporation International ("Biovail") dated as of July 25, 1999.
Pursuant to the Merger Agreement, Biovail has commenced a cash tender offer for
that number of shares that result in Biovail owning 49% of the outstanding
common stock, par value $.01 of the Company ("Common Stock"). The Merger
Agreement contemplates that the Company will subsequently become a wholly-owned
subsidiary of Biovail. In connection with the Merger, all remaining outstanding
shares of Common Stock will be exchanged for Common Stock of Biovail. The Merger
is subject to completion of the tender offer, approval by the Company's
stockholders and satisfaction or waiver of certain other conditions.
Consummation of the tender offer or the merger may significantly affect the
future operations, capital requirements and liquidity of the Company in manners
that differ from those originally contemplated by management.
RESULTS OF OPERATIONS
Operating revenues were $15,255,000 for the quarter ended June 30, 1999,
and $35,875,000 for the six months ended June 30, 1999, compared to $16,304,000
for the quarter ended June 30, 1998 and $30,307,000 for the six months ended
June 30, 1998. The overall operating revenue increase for the six month period
was substantially due to an increase in revenues generated in the Company's
Pharmaceutical Research and Development division, primarily licensing revenues.
In addition, the Company's operating revenues increased for the six month period
due to approximately $2.7 million of product sales by the Company's Consumer
Healthcare division. The operating revenue increases for the three and six month
periods ending June 30, 1999, were offset by a $3.0 million and $5.8 million,
respectively, decrease in pharmaceutical product sales in the Company's
Pharmaceutical Operations division, primarily related to continued weakness in
Clonmel's antibiotic sales initially experienced in the first quarter as well as
lower sales from a maturing portfolio of licensed products at Fuisz Pharma KG.
The decrease in Clonmel's sales was due to continued soft demand in the U.S.
antibiotic market and declining orders from key customers. The Company
recognized in the quarters ended March 31, 1999 and June 30, 1999 certain fees
from Elan under the license agreement, described below, and expects to earn
additional fees from Elan under the license agreement over the next two years.
In March 1999, the Company settled its pending litigation with Elan
Corporation, plc ("Elan") terminating a suit brought against Elan by the Company
in February, 1999. In connection with the settlement, the Company entered into
license and manufacturing agreements with Elan, whereby Elan will manufacture
certain products for the Company at its Athlone facility in Ireland. The Company
expects to earn certain fees from Elan under the license agreement, portions of
which were recognized in the quarters ended March 31, 1999 and June 30, 1999.
Cost of sales was $6,843,000 for the quarter ended June 30, 1999, and
$12,751,000 for the six months ended June 30, 1999, compared to $7,518,000 for
the quarter ended June 30, 1998, and
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<PAGE> 11
$14,850,000 for the six months ended June 30, 1998. Cost of sales decreased
primarily due to the decrease in product sales in the Company's Pharmaceutical
Operations division offset by the product sales increase in the Consumer
Healthcare division as discussed above.
Research and development expenses were $6,151,000 for the quarter ended
June 30, 1999, and $12,385,000 for the six months ended June 30, 1999, compared
to $6,252,000 for the quarter ended June 30, 1998 and $11,659,000 for the six
months ended June 30, 1998. The increase for the six months ending June 30,
1999, was primarily due to additional facility and equipment costs, including
depreciation, in both the Pharmaceutical Operations and Pharmaceutical Research
and Development divisions. The Company expects a modest decline in research and
development expenses beginning in the third quarter primarily resulting from
savings associated with an employee head-count reduction that mainly affected
employees at its Virginia facilities.
Selling, general and administrative expenses were $8,583,000 for the
quarter ended June 30, 1999 and $15,456,000 for the six months ended June 30,
1999, compared to $7,557,000 for the quarter ended June 30, 1998 and $14,646,000
for the six months ended June 30, 1998. The increase in selling, general and
administrative expenses primarily relates to the Company reevaluating and
writing down approximately $1.2 million of certain research and development
accounts receivable balances relating to research and development programs of
certain current customers. The Company determined to take this charge after
evaluating the relevant customer relationships and available information
relating to those receivables and determining that such amounts were considered
uncollectible. In addition, the Company expects a decline in selling, general
and administrative expenses beginning in the third quarter primarily resulting
from savings associated with an employee head-count reduction that mainly
affected employees at its Virginia facilities.
The Company recorded nonrecurring charges of $5.7 million during the second
quarter. The nonrecurring expenses include approximately a $1.6 million charge
for impairment of goodwill associated with the Company's Pangea unit as
discussed above as well as a $3.6 million charge relating to expenses associated
with an employee head-count reduction program (including severance) and other
expenses concerning executive resignations, among others.
Other expense was $1,142,000 for the quarter ended June 30, 1999, and
$4,289,000 for the six months ended June 30, 1999 compared to $872,000 for the
quarter ended June 30, 1998 and $1,551,000 for the six months ended June 30,
1998. The increase in other expense was primarily due to a decrease in interest
income resulting from a decrease in the average balance of funds available for
investment as well as a net foreign currency loss of approximately $1,762,000
during the first quarter of 1999.
The Company reported a foreign currency transaction gain of approximately
$79,000 in the second quarter of 1999 and a loss of about $1,683,000 for the six
months ending June 30, 1999. The foreign currency gains or losses for comparable
periods in 1998 are immaterial. Effective April 1, 1999, the Company made a
determination that a settlement of certain loans made to its subsidiaries that
are denominated in foreign currencies is uncertain. In accordance with the
Company's policy of accounting for the effects of foreign currency
fluctuations, the Company recorded a translation loss of $1,887,000, which was
included as a component of comprehensive loss.
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<PAGE> 12
As a result of the foregoing, the net loss was $13,177,000 for the quarter
ended June 30, 1999, compared to a net loss of $5,895,000 for the quarter ended
June 30, 1998. The Company expects that, for the year ended December 31, 1999,
it will not be profitable.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company's portfolio of cash and marketable
securities totaled $27.5 million (including $11.4 million which is comprised of
approximately 7 million Irish Pounds (or US $9.7 million) which is pledged as
collateral for the term loan issued to finance the installment notes for the
purchase of Clonmel and $1.7 million which has been set aside in a separate
account to fund severance benefits for a former CEO of the Company), compared
to $39.9 million as of December 31, 1998. Major uses of cash during the six
months ended June 30, 1999 included approximately $1.8 million in capital
expenditures and $12.4 million on Company-funded research and development
expenses for internal and partner projects.
The Company currently anticipates capital expenditures during 1999 ranging
from $3.0 million to $5.0 million, some of which may be financed with the
Equipment LOC discussed below. The Company has approximately $1.8 million in
capital expenditures as of June 30, 1999. Such expenditures will primarily be
used to further expand and improve the Company's laboratory and production
facilities in both Virginia and Ireland. This amount reflects a decrease over
previous capital expenditure projections because of the Company's uncertainty of
certain facility expansions and capital expenditures in light of the proposed
merger with Biovail International.
The Company has an $18.0 million equipment leasing line of credit (the
"Equipment LOC") with an outside group of lenders. The Equipment LOC is
available through June 30, 2000, provides equipment financing under three or
four year operating leases, and has been utilized to finance a portion of the
capital expenditures planned for 1999. Through June 30, 1999, the Company has
financed a total of approximately $11.5 million of equipment under the Equipment
LOC. The proposed merger with Biovail may impact the Company's ability to
finance additional equipment purchases under the Equipment LOC.
The Company's long-term debt totals $88.3 million as of June 30, 1999 and
includes $75.0 million related to the Company's 7% Convertible Subordinated
Debentures (the "Debentures") due October 15, 2004. The Debentures were
privately placed on October 22, 1997 and the Company received net proceeds of
approximately $72.8 million related to the sale thereof. The Debentures are
subordinated to the Company's present and future Senior Indebtedness (as
defined) and interest is payable semi-annually. In addition, long-term debt
includes $12.1 million related to term loans, $2.7 million related to
installment notes, and $550,000 related to capital leases. Maturities of
long-term debt during the next twelve months will be approximately $2.1 million.
Pursuant to the indenture dated October 22, 1997 governing the debentures, in
the event of a "Repurchase Event" (as defined therein), each holder of
debentures may, at such holder's option, require Fuisz to purchase all or part
of such holder's debentures. Fuisz believes that the consummation of the merger
as presently contemplated under the Merger Agreement would constitute a
"Repurchase Event" as defined in the Indenture. The Company also has available
international banking lines of credit totaling approximately $3.0 million for
short-term financing, of which approximately $500,000 had been drawn down as of
June 30,1999.
11
<PAGE> 13
The Company expects to continue to incur substantial expenses related to
further research and development of its technologies and products, personnel
costs, acquisition and support of patent rights, additional capital equipment
and facility expansion. The Company expects that, at least for the near term,
its cash flow will be derived principally from product sales and development and
license fees from collaborative partners. The Company believes that the
currently available funds and internally generated cash flow will be adequate
to meet the Company's presently expected cash needs through the fiscal
year-end. However, the Company may have to supplement its cash needs by using
such measures as accounts receivable financing, bank financing or other short
term financing alternatives. The ability of the Company to satisfy its expected
cash requirements for its 2000 fiscal year are uncertain and the Company could
be required to explore such steps as the sale of all or part of the Acquired
Companies in order to enable it to meet such cash needs.
The Company's capital needs, however, will depend on many factors, including
revenues from product sales, continued progress in the research and development
of the Company's technologies, the ability of the Company to establish and
maintain additional collaborative agreements and the terms thereof, payments
received from collaborative partners under research and development agreements,
the cost involved in filing and enforcing patent claims, and the status of
competitive products and other factors. If the Company's currently available
funds and internally generated cash flow are not sufficient to satisfy its
financing needs, the Company would be required to seek additional funding
through other arrangements with collaborative partners, through the sale of
certain Company assets, through bank borrowings and through public or private
sales of its securities, including equity securities. Certain of these financing
options may be currently restricted or prohibited under the merger agreement
with Biovail. There can be no assurance that additional funds, if required, will
be available to the Company on favorable terms, if at all. In addition, there
can be no assurance that the proposed merger with Biovail will be consummated.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company will be required to adopt this new accounting standard beginning
with the quarter ended March 31, 2001. The Company believes that the effect of
adoption of SFAS No. 133 will not be significant.
IMPACT OF YEAR 2000
The Company has reviewed the software systems and related applications used
in each of its operating business segments and geographic regions to assess its
requirements regarding the "Year 2000 Issue," which generally refers to the
inability of system hardware and software to correctly identify two-digit
references to specific calendar years, beginning with 2000. The Year 2000 Issue
can affect a company directly (i.e., in its internal database operations or
processing) or indirectly (e.g., if its suppliers' and customers' systems are
not "Year 2000 compliant"). As a result of its review, the Company has
established an internal project team that has developed a plan of action to i)
assess the potential impact of the Year 2000 Issue, including an evaluation of
third parties with which the Company has a material relationship, ii) renovate,
upgrade or replace hardware and/or software systems, where necessary, with
systems certified to be Year 2000 compliant, iii) test and validate the new
and/or updated systems and iv) establish contingency plans for the failure of
critical systems.
12
<PAGE> 14
Several of the Company's systems have been confirmed as Year 2000 compliant.
However, the Company is still in the process of completing the effort to
identify and correct any non-compliant software or systems that would cause a
significant detrimental effect on the Company. The Company has identified its
Year 2000 risk in three categories: internal administrative software; internal
operational software and embedded chip technology; and external noncompliance by
customers and suppliers.
INTERNAL ADMINISTRATIVE SOFTWARE. Substantially all of the Company's
internal administrative software is "off-the-shelf" commercially available
software. The Company has gathered data to assess the impact of the Year 2000
Issue on its administrative systems such as the accounting, legal and human
resources systems. Based on this schedule, the Company expects to be in full
compliance with its internal administrative systems before the Year 2000.
However, if due to unforeseen circumstances, the implementation is not completed
on a timely basis, the Year 2000 Issue could have a material impact on the
operations of the Company. Contingency plans are being developed where the
Company feels there exists a material risk that a compliant system cannot be
implemented before the Year 2000.
INTERNAL OPERATIONAL SOFTWARE AND EMBEDDED CHIP TECHNOLOGY. The Company is
currently gathering data to assess the impact of the Year 2000 Issue on its
operational systems, such as the manufacturing and laboratory systems, with Year
2000 compliance scheduled prior to year-end. The Company believes it can achieve
compliance in this timeframe because most of the key systems involved were
acquired over the past two years and are commercially available packages that
can be replaced by alternatives in a short timeframe. At this time, the Company
does not expect the additional costs associated with achieving Year 2000
compliance to be material. While the Company does not believe there is any
material non-compliance in the manufacturing and laboratory systems, the Company
is still in the process of completing its assessment.
EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. The Company has
identified several third parties with which it has a material relationship and
has contacted them to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remedy their own Year
2000 issues. It is expected that full identification and an evaluation of such
third parties' vulnerability to Year 2000 issues will be completed prior to
year-end. To the extent that responses to Year 2000 readiness are
unsatisfactory, the Company intends to evaluate whether to change suppliers,
service providers or contractors to those who have demonstrated Year 2000
readiness. The Company cannot be assured that it will be successful in finding
such alternative suppliers, service providers and contractors. The Company has
information concerning the Year 2000 compliance status of its customers and has
received indications that most of its customers are working on Year 2000
compliance. In the event that any of the Company's significant suppliers,
service providers or contractors do not successfully and timely achieve Year
2000 compliance, and the Company is unable to replace them with new or alternate
suppliers, service providers or contractors, the Company's business or operation
could be adversely affected.
All costs associated with the Year 2000 project to date have been expensed
as incurred. The Company will incur costs that include internal resources,
external consulting, software and certain equipment upgrades. Most of these
costs are expected to relate to testing and validation of the new and/or updated
systems. However, since the majority of the Company's critical systems already
have been vendor certified to be Year 2000 compliant, including the
administrative, manufacturing and laboratory systems, these costs are not
expected to be significant. The Company is still in the process of evaluating
the external systems for compliance and will make modifications as necessary.
The Company believes that the remaining cost to gain company-wide compliance
will not be material.
13
<PAGE> 15
To date, the Company has not completed a formal contingency plan for
non-compliance, but continues to develop such plans based on internally
generated information and information obtained from the third parties with which
it has a material relationship and the completion of the evaluation of its own
systems.
The foregoing discussion regarding the Year 2000 project's timing,
effectiveness, implementation, and cost, contains forward-looking statements,
which are based on management's best estimates, derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those contemplated estimates. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties and
remediation success of the Company's customers and suppliers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that there has not been a material change in its
exposure to market risk related to changes in interest rates and foreign
currency exchange rates in its cash, debt and foreign currency transactions as
disclosed in Item 7A of the Company's 1998 Form 10-K.
14
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 2, 1999, the Company received a demand for arbitration
filed by Kenneth W. McVey and Casteldermot Limited, relating to a
dispute over severance benefits with Mr. McVey, the Company's former
Chief Executive Officer. The demand arises from the Company's action
to withhold from payments under the McVey Agreement amounts that would
have been payable to the IRS if, after Mr. McVey became CEO of the
Company, Mr. McVey's compensation constituted U.S. source income
subject to tax withholding. The amounts that have been withheld from
payment under the McVey Agreement have been deposited and are included
in restricted cash and other liabilities on the balance sheet.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 27,
1999 for the purpose of electing two Class I directors to serve a
three-year term expiring in 2002 and to ratify the appointment of
PricewaterhouseCoopers as the Company's independent accountants for
the year ending December 31, 1999. The number of votes cast for or
against each director nominee is as follows:
<TABLE>
<CAPTION>
Director Nominee Term Expiration Votes For Votes Withheld
---------------- --------------- --------- --------------
<S> <C> <C> <C>
Richard C. Fuisz, M.D. 2002 17,209,687 187,805
Antone J. Lazos 2002 17,259,705 137,787
</TABLE>
The proposal to ratify the appointment of PricewaterhouseCoopers as
the Company's independent accountants for the year ending December 31,
1999 received 17,331,664 votes for and 27,743 against. There were 38,085
abstentions.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Amended and restated Agreement and Plan of Merger,
dated as of July 25, 1999, among ABC1 Acquisition
Sub. Corporation, Biovail Corporation International
and Fuisz Technologies Ltd. (Incorporated by
reference to Exhibit (c)(1) to schedule 14D-1 filed
by Biovail Corporation International on July 30,
1999.
10.1 Consulting Agreement dated January 28, 1999, between
Patrick D. Scrivens and the Company (incorporated by
reference to Exhibit 7 to Schedule 14D-9 filed by
the Company on July 30, 1999).
15
<PAGE> 17
10.2 Letter Agreement, dated June 25, 1999, between
Patrick D. Scrivens and the Company(incorporated by
reference to Exhibit 7 to Schedule 14D-9 filed by
the Company on July 30, 1999).
10.3 Severance Agreement, dated May 24, 1999, between
Kenneth W. McVey and the Company
27.0 Financial Data Schedule
(b) Reports on Form 8-K
1. Current Report on Form 8-K, dated July 28, 1999, regarding
the signing of a definitive Merger Agreement between Fuisz
Technologies Ltd. and Biovail International Corporation.
2. Current Report on Form 8-K, dated May 28, 1999, regarding
several Company developments.
3. Current Report on Form 8-K, dated April 15, 1999, regarding
license and manufacturing agreements between the Company
and Elan plc.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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.
FUISZ TECHNOLOGIES LTD.
Date: August 16, 1999 By: /S/ Stephen H. Willard
------------------ --------------------------
Stephen H. Willard
Executive Vice President and
General Counsel
Date: August 16, 1999 By: /S/ John P. Redd
------------------ --------------------------
John P. Redd
Corporate Controller and
Principal Accounting Officer
17
<PAGE> 1
EXHIBIT 10.3
GENERAL RELEASE AND SEVERANCE AGREEMENT
This General Release and Severance Agreement (the "Agreement") is
entered into between Fuisz Technologies Ltd., a Delaware Corporation ("Fuisz")
on the one hand, and Kenneth W. McVey ("McVey") and Castledermot Limited
("Castledermot"),a company incorporated in Bermuda, on the other.
WHEREAS, on December 16, 1996 Fuisz and McVey entered into an
Employment Agreement (the "Employment Agreement"), governing the terms of
McVey's employment as President and Chief Executive Officer of Fuisz
International Ltd. ("FIL"), a wholly owned subsidiary of Fuisz;
WHEREAS, on April 18, 1997, Fuisz and McVey entered into a First
Amendment to the Employment Agreement (the "Amended Employment Agreement"),
governing McVey's employment as President and Chief Executive Officer of Fuisz;
WHEREAS, on the same date Fuisz and McVey entered into an Assignment
Agreement, pursuant to which the Amended Employment Agreement was assigned to
Castledermot;
WHEREAS, on May 22, 1998, Fuisz and McVey entered into a letter
agreement amending the Amended Employment Agreement;
WHEREAS, on April 19, 1999, the Compensation Committee of Fuisz
extended the term of McVey's Employment Agreement until December 16, 2001;
WHEREAS, Fuisz and McVey represent that these aforementioned agreements
(the "Employment Agreements") constitute all employment agreements between the
parties, other than agreements related to stock options, the Confidential
Disclosure Agreement entered into on December 16, 1996 and Fuisz's
indemnification obligations to McVey;
THEREFORE, in exchange for good and adequate consideration, the
adequacy of which is hereby specifically acknowledged, the Parties agree as
follows:
1. Termination of McVey's Employment. McVey agrees to tender
his resignation as Director of Fuisz, and Fuisz agrees to accept that
resignation, effective 4:00 p.m. (E.S.T.) on May 24, 1999. McVey further agrees
that his employment as President and Chief Executive Officer of Fuisz is
terminated as of May 24, 1999. Moreover, McVey agrees that his employment and
service with Fuisz and all of its subsidiaries, including but not limited to
FIL, will be terminated on the Effective Date of this Agreement. Fuisz, McVey
and Castledermot hereby terminate the Assignment Agreement as of the Effective
Date of this Agreement.
2. Press Release. McVey has reviewed the press release
attached to this Agreement. McVey agrees not to issue any press release of his
own or to disavow the characterizations in the attached press release.
<PAGE> 2
3. Severance.
a. The "Severance Period" shall be the period extending from
the date of his termination of employment pursuant to paragraph 1 of this
Agreement to and including December 15, 2001.
b. Fuisz agrees to pay severance to McVey in the amount of One
Million, Six Hundred Eighty Four Thousand, Seven Hundred and Thirty Dollars
($1,684,730) (representing salary and minimum bonuses under the Employment
Agreements for the Severance Period) within five business days after the
Effective Date.
4. Benefits.
a. During the Severance Period, Fuisz shall continue to cover
McVey under all benefit programs as provided for in paragraph 9 of the
Employment Agreement, under the same conditions that have applied to McVey and
would apply to McVey if his employment with Fuisz had continued until December
16, 2001. All such coverage after the Effective Date of this Agreement shall be
deemed to be provided pursuant to COBRA except that Fuisz shall pay all
applicable premiums.
b. Fuisz agrees to pay one year of premiums as they become due
under the Pacific Mutual Policy from the date hereof until the first anniversary
of this agreement and to assign the policy to McVey.
5. Company Property/Account Balance. Fuisz agrees that it will
allow McVey to retain his company provided Sony computer and the Chrysler
Sebring which has previously been furnished for his use by Fuisz. Moreover,
Fuisz agrees to pay McVey's outstanding business expenses incurred through the
date of this Agreement upon being presented proper documentation of such
expenses. Fuisz further agrees to maintain McVey's telephone extension and voice
mail at its Chantilly, Virginia office until June 30, 1999.
6. Stock Options. Effective as of the Effective Date of this
Agreement, McVey shall maintain all options received pursuant to existing
agreements in accordance with their terms provided that, notwithstanding
anything to the contrary in such stock option agreements, all such options shall
become fully vested and exercisable as of the Effective Date of this Agreement.
Attachment A sets forth a schedule of all options held by McVey, their exercise
prices and their expiration dates.
7. Stock. Effective as of the Effective Date of this
Agreement, Fuisz irrevocably waives and agrees to the elimination of all
restrictions on the sale of all shares provided pursuant to paragraph 5 of the
Employment Agreement.
8. Taxes. To the extent that any payments provided under of
this Agreement are subject to any applicable federal, state, foreign, and local
income, excise or other taxes, McVey agrees to pay such taxes and not to seek
reimbursement or
2
<PAGE> 3
indemnification for such amounts from Fuisz. Fuisz shall withhold any amounts
required by law from such payment.
9. Beneficiaries. Any payment to which McVey is entitled under
this Agreement shall, in the event of his death, be made to his wife or such
other persons as McVey shall designate in writing to Fuisz from time to time. If
no such beneficiaries survive McVey, such payments shall be made to McVey's
estate.
11. Effective Date. For purposes of all provisions set forth
herein, the Effective Date of this Agreement shall be the first day as of which
the seven-day revocation period described in paragraph 15b of this Agreement has
expired.
12. Integration of Employment Agreement. As of the Effective
Date of this Agreement, McVey agrees that this Agreement shall supersede and
terminate all benefits and rights under the Employment Agreements, other than
any benefits and rights (i) under the stock options set forth on Attachment A,
(ii) expressly set forth and restated herein, or (iii) pertaining to
indemnification of McVey. Within five business days after the Effective Date
Fuisz shall deliver to McVey a copy of Fuisz's directors and officers
indemnification insurance policy as currently in force.
13. Integration of Confidential Disclosure Agreement. McVey
and Castledermot hereby reconfirm their obligations under the Confidential
Disclosure Agreement, dated December 16, 1996 and found at Attachment B, and as
to Castledermot, those obligations under Article II.C. of the Assignment
Agreement dated April 18, 1997.
14. Mutual Release of Claims and Covenant Not to Sue. Except
with regard to obligations created by, arising out of, or described in this
Agreement, the stock options set forth on Attachment A and agreements related to
indemnification, McVey, Castledermot and Fuisz agree for themselves and any
present or future successors, assigns, parents, subsidiaries, affiliates,
directors, officers, general or limited partners, employees, heirs,
beneficiaries, devisees, executors, administrators, attorneys, agents, and
representatives, to release, discharge, and covenant not to sue each other for
any claims, debts, demands, accounts, judgments, rights, causes of action,
claims for equitable relief, damages, costs, charges, complaints, obligations,
promises, agreements, controversies, suits, expenses, compensation,
responsibility and liability of every kind and character whatever (including
attorneys' fees and costs), whether in law or equity, known or unknown, asserted
or unasserted, suspected or unsuspected, which they may now have against each
other; provided, however, that notwithstanding anything to the contrary set
forth herein, this General Release shall not extend to claims by McVey and
Castledermot for benefits under any employee pension benefit plans or retiree
welfare benefit plans in which McVey and Castledermot may have been a
participant by virtue of employment with Fuisz or for benefit claims under
employee welfare benefit plans for occurrences (e.g., medical care. death. or
onset of disability) arising after the execution of this Agreement by McVey and
Castledermot . McVey and Castledermot understand that this
3
<PAGE> 4
includes, but is not limited, the release to any rights or claims McVey and
Castledermot may have under Title VII of the Civil Rights Act of 1964 ("Title
VII"), which prohibits discrimination in employment based on race, national
origin, religion or sex; the Americans with Disabilities Act ("ADA"); and claims
pursuant to any other federal, state, or local law regarding discrimination
based on age, race, sex, pregnancy, religion, national origin, marital status or
disability, or any other unlawful basis, claims for alleged violation of any
other local, state, or federal law, regulation, ordinance, public policy, or
common law duty having any bearing whatsoever upon the terms and conditions of,
and/or the cessation of McVey's employment with Fuisz. McVey and Castledermot
understand that this also includes a release by McVey and Castledermot of claims
for breach of express or implied contract, wrongful discharge, constructive
discharge, breach of an implied convenant of good faith and fair dealing,
negligent or intentional infliction of emotional distress, and any claim under
the Employee Retirement Income Security Act of 1974 ("ERISA") (except for claims
for benefits under pension benefit plans, retiree welfare benefit plans and
employee welfare benefit plans for occurrences arising after the execution of
this Agreement). Fuisz understands that this includes any and all claims against
McVey and/or Castledermot arising from or related to McVey's services to Fuisz
or FIL. This release is intended to cover all claims in existence as of the date
of this Agreement, including claims about which Fuisz, McVey and/or Castledermot
know and claims about which Fuisz, McVey and/or Castledermot do not know. Fuisz,
on the one hand, and McVey and Castledermot, on the other, further represent
that it or he has not filed any claims against one another, or any of the
individuals covered by this Agreement, with any governmental agency or any
court.
15. Release of Age Discrimination Claims, Periods for Review
and Reconsideration.
a. McVey understands and agrees that paragraph 14 of this
Agreement includes a release of claims arising under the Age Discrimination in
Employment Act ("ADEA") and that this provision does not waive rights or claims
that may arise after the date the waiver is executed. McVey understands and
warrants that he has been given a period of twenty-one (21) days to review and
consider this Agreement. McVey is hereby advised to consult with an attorney
prior to executing the Agreement. McVey further warrants that he understands
that he may use as much of or all of this 21-day period as he wishes before
signing, and warrants that he has done so.
b. McVey further warrants that he understands that he has
seven (7) days after signing this Agreement to revoke the Agreement by notice in
writing to Richard C. Fuisz, M.D., Chairman of the Board. This Agreement shall
be binding, effective, and enforceable upon the expiration of this seven-day
revocation period with Dr. Richard Fuisz having received no such revocation, but
not before such time.
16. Arbitration. Fuisz, McVey, and Castledermot agree that any
dispute regarding any aspect of this Agreement or any act that allegedly has or
would violate any provision of this Agreement will be submitted to arbitration
in the county in
4
<PAGE> 5
Virginia where Fuisz's principle executive offices are located, in front of a
single arbitrator, in accordance with the rules of the American Arbitration
Association, as the exclusive remedy for such claim or dispute. Each party shall
submit three names of proposed arbitrators to the other side, including at least
two names from a list of approved AAA arbitrators. If the parties cannot
mutually agree on an arbitrator from such lists, each party shall strike two
names from the other party's list and the arbitrator shall then be chosen at
random by the AAA from the two remaining names. Fuisz and McVey agree that such
arbitration will be confidential and no details, descriptions, settlements or
other facts concerning such arbitration shall be disclosed or released to any
third party without the specific written consent of the other party, unless
required by law or court order or in connection with enforcement of any decision
in such arbitration. Any damages awarded in such arbitration shall be limited to
the contract measure of damages, and shall not include punitive damages. Each
party shall be responsible its own attorneys fees and costs associated with such
arbitration, except that the cost of the arbitration (such as the Arbitrator's
fee) shall be shared equally between Fuisz and McVey. Notwithstanding the
foregoing, McVey recognizes that a violation of the Confidential Disclosure
Agreement reconfirmed in paragraph 13 of this Agreement and found at Attachment
B could cause irreparable harm to Fuisz and Fuisz is entitled to seek injunctive
relief in court for any alleged violations of such provisions while arbitration
of the dispute is pending.
17. Provision Deemed Invalid. Should any of the provisions
herein be determined to be invalid by a court of competent jurisdiction, it is
agreed that this shall not affect the enforceability of the other provisions
herein and the parties shall negotiate the invalidated provision or provisions
in good faith to effectuate its or their purpose and to conform it or them to
law.
18. Waiver. The waiver by any party of a breach of any
provision herein shall not operate or be construed as a waiver of any subsequent
breach of any party.
19. Complete Agreement. This Agreement (including the
Attachments hereto), the stock options set forth on Attachment A, the agreements
related to indemnification, the Confidential Disclosure Agreement set forth at
Attachment B and those obligations under Article II.C. of the Assignment
Agreement dated April 18, 1997, set forth the all agreements between Fuisz,
McVey, and Castledermot and may not be modified, altered, changed, or terminated
except upon the express written consent of both a duly authorized representative
of Fuisz, McVey, and Castledermot. A copy of Article Seventh of Fuisz's Fourth
Amended and Restated Certificate of Incorporated, as amended, as currently in
effect is set forth at Attachment C to this Agreement. Should Fuisz request any
services from McVey subsequent to the Effective Date, Fuisz agrees to pay all
reasonable expenses and a mutually agreed upon daily or hourly rate to McVey for
such services.
5
<PAGE> 6
20. Understanding and Authority. The Parties understand and
agree that all terms of this Agreement are contractual and are not a mere
recital, and represent and warrant that they are competent to covenant and agree
as herein provided.
The parties have carefully read this Agreement in its entirety; fully
understand and agree to its terms and provision; and intend to agree that it is
final and binding on all parties.
IN WITNESS WHEREOF, and intending to be legally bound, the Parties have
executed the foregoing on the date shown below.
<TABLE>
<S> <C>
Dated: ___________________ By:
-----------------------------
Kenneth W. McVey
Dated: ___________________ By:
-----------------------------
Name:
----------------------
Title:
---------------------
Castledermot Limited
Dated: ___________________ By:
-----------------------------
Richard C. Fuisz, M.D.
Chairman
Fuisz Technologies Ltd.
</TABLE>
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,956,000
<SECURITIES> 12,163,000
<RECEIVABLES> 14,886,000
<ALLOWANCES> (686,000)
<INVENTORY> 5,906,000
<CURRENT-ASSETS> 38,282,000
<PP&E> 33,034,000
<DEPRECIATION> (7,847,000)
<TOTAL-ASSETS> 125,251,000
<CURRENT-LIABILITIES> 19,951,000
<BONDS> 88,247,000
0
0
<COMMON> 225,000
<OTHER-SE> 15,453,000
<TOTAL-LIABILITY-AND-EQUITY> 125,251,000
<SALES> 11,035,000
<TOTAL-REVENUES> 15,255,000
<CGS> 6,843,000
<TOTAL-COSTS> 27,288,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677,000
<INCOME-PRETAX> (13,175,000)
<INCOME-TAX> (2,000)
<INCOME-CONTINUING> (13,177,000)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (13,777,000)
<EPS-BASIC> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
