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 SEPTEMBER 30, 1999
OR
[ ] 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 0-25406
TECHNICAL CHEMICALS AND PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0308922
- ------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3341 S.W. 15th Street, Pompano Beach, Florida 33069
(Address of principal executive offices) -----
(Zip code)
Registrant's telephone number, including area code: (954) 979-0400
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or 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
--- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding As Of November 8, 1999
----- ----------------------------------
Common Stock $ .001 par value 11,978,494
Transitional Small Business Disclosure Format (check one):
YES NO x
----- -------
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------------------------------
ASSETS (Unaudited) *(Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,312 $ 5,207
Investments 2,369 5,048
Accounts receivable, net 1,102 1,605
Inventory 2,626 2,550
Due from related parties 766 836
Other 517 210
---------------------------------------------
Total current assets 10,692 15,456
---------------------------------------------
Property and equipment, net 2,054 2,503
Patents and trademarks, net 11,503 12,190
Goodwill, net 1,850 1,979
Deferred tax asset, net 4,140 4,140
Other assets 87 101
---------------------------------------------
Total assets $ 30,326 $ 36,369
=============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 468 $ 390
Accrued expenses 1,053 323
---------------------------------------------
Total current liabilities 1,521 713
---------------------------------------------
Other liabilities -- 169
Deferred revenue 812 --
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares--25,000,000;
Series A 6% Convertible Preferred stock,
$.001 par value:
Issued and outstanding shares--12,900
and 14,700 at 9/30/99 and 12/31/98 12,358 13,131
Common stock, $.001 par value:
Authorized shares--100,000,000;
Issued and outstanding shares--
11,438,465 and 10,006,316 at
9/30/99 and 12/31/98 11 10
Additional paid-in capital 41,479 40,697
Accumulated deficit (25,855) (18,351)
---------------------------------------------
Total stockholders' equity 27,993 35,487
---------------------------------------------
Total liabilities and stockholders' equity $ 30,326 $36,369
=============================================
</TABLE>
*The Balance Sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See accompanying notes to the condensed consolidated financial statements.
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Net product sales $ 1,267 $ 1,457 $ 3,942 $ 4,243
Cost of product sales 750 829 2,297 2,139
------------------------------------ ------------------------------------
Gross profit 517 628 1,645 2,104
R&D contract revenue -- 113 471 270
Operating expenses:
Selling, general and administrative 2,021 1,814 5,585 5,557
Litigation expenses 764 198 1,601 568
Research and development 214 615 1,423 2,057
Depreciation and amortization 430 463 1,384 1,372
------------------------------------ ------------------------------------
3,429 3,090 9,993 9,554
------------------------------------ ------------------------------------
Loss from operations (2,912) (2,349) (7,877) (7,180)
Other income (expense):
Interest income 117 217 345 461
Interest expense (4) (5) (11) (13)
------------------------------------ ------------------------------------
Net loss (2,799) (2,137) (7,543) (6,732)
------------------------------------ ------------------------------------
Accrued preferred redemption
accretion and dividends (330) (417) (1,125) (613)
------------------------------------ ------------------------------------
Loss attributable to common stockholders $ (3,129) $ (2,554) $ (8,668) $ (7,345)
==================================== ====================================
Net loss per common share -
Basic and Diluted $ (.28) $ (.26) $ (.81) $ (.73)
==================================== ====================================
Weighted average number of
common shares outstanding 11,099,557 9,975,923 10,714,341 10,001,855
==================================== ====================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------
1999 1998
-------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,543) $ (6,732)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,384 1,372
Changes in operating assets and liabilities:
Accounts receivable 503 298
Inventory (76) (652)
Accounts payable and accrued expenses 808 (1,250)
Deferred revenue 812 --
Other current assets (179) (1,127)
-------------------------------------------
Net cash used in operating activities (4,291) (8,091)
INVESTING ACTIVITIES
Purchase of property and equipment (88) (311)
Investment in patents and trademarks (75) (194)
Purchase of investments (5,010) (1,108)
Proceeds from sale of investments 7,569 3,990
-------------------------------------------
Net cash provided by investing activities 2,396 2,377
FINANCING ACTIVITIES
Net proceeds from issuance of Preferred Stock -- 14,427
Purchase of common stock -- (339)
-------------------------------------------
Net cash provided by financing activities -- 14,088
Net (decrease) increase in cash and cash equivalents (1,895) 8,374
Cash and cash equivalents at beginning of period 5,207 3,316
-------------------------------------------
Cash and cash equivalents at end of period $ 3,312 $ 11,690
===========================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements (the
"Financial Statements") of Technical Chemicals and Products, Inc. and
Subsidiaries (the "Company" or "TCPI") are unaudited, and in the opinion of
management, include all normal and recurring adjustments which are necessary for
a fair presentation. The Financial Statements should be read in conjunction with
more complete disclosures contained in the Company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. The results of operations for interim periods
are not necessarily indicative of the results of operations for the entire year.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes". Deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
INVENTORIES
Inventories, consisting of raw materials and finished goods, are valued
at the lower of cost (computed on the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The cost of maintenance and repairs is charged to operations as incurred.
Significant renewals and betterments are capitalized and depreciated over their
estimated useful lives.
INTANGIBLE ASSETS
Purchased patents and trademarks are amortized using the straight-line
method over a composite life of 15 years based on the shorter of their legal
life or estimated useful life of the individual patents and trademarks, which
range from 11 to 17 years. Goodwill is amortized using the straight-line method
over 15 years. The Company periodically reviews its intangible assets to assess
recoverability and a charge will be recognized in the consolidated statement of
operations if a permanent impairment is determined to have occurred.
Recoverability of intangibles is determined based on undiscounted future
operating cash flows from the related business unit or activity. The amount of
impairment, if any, would be measured based on discounted future operating cash
flows using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of intangible assets will be affected if
estimated future operating cash flows are not achieved. The Company does not
believe that any impairment has occurred and, as a result, no reduction of the
estimated useful lives is warranted.
5
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TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2. STOCKHOLDERS' EQUITY
In May 1998, the Company completed a private placement of 15,000 shares
of Series A Convertible Preferred Stock (the "Preferred Stock") to a single
institutional investor (the "Investor"). To date, through November 5, 1999, the
Investor has converted 2,550 shares of Preferred Stock and received 2,044,419
shares of the Company's common stock. See the Company's Report on Form 10-K for
the year ended December 31, 1998 and the Company's Report on Form 8-K filed on
May 21, 1998 for additional information related to the Preferred Stock
transaction.
3. RELATED PARTY TRANSACTION
During August 1998, the Company's outside directors unanimously
approved the Company's guarantee for a period of up to 90 days of $750,000 of
the collateral obligations of the Company's Chairman and President's
("Chairman") family limited partnership ("Partnership") to a brokerage house.
Under the terms of the Company's agreement with the Partnership, the brokerage
house called on the Company's guarantee, the Partnership then executed and
delivered to the Company a promissory note personally guaranteed by Mr.
Aronowitz in an amount equal to the amount of the guarantee. The note is a six
month note payable on demand and bears interest at the rate of interest charged
by the brokerage house (7 3/4% at September 30, 1999). In February 1999, accrued
interest was paid and the note was extended an additional three months. On June
18, 1999, the due date of the outstanding principal amount due of the note was
extended until May 28, 2000. To date, the Chairman has repaid $100,000 of the
principal amount of the note along with all accrued interest, resulting in a
balance of the principal amount advanced under the note of approximately
$647,000 at September 30, 1999, which is included in due from related parties in
the balance sheet.
4. LEGAL PROCEEDINGS
Management believes, after consultation with counsel, that the
allegations against the Company included in the lawsuits described herein are
without merit and the Company is vigorously defending each of the allegations.
The Company also is subject to claims and suits arising in the ordinary course
of business. At this time, it is not possible to estimate the ultimate loss or
gain, if any, related to these lawsuits, or if any such loss will have a
material adverse effect on the Company's results of operations or financial
position. Through the first nine months of 1999, the Company has incurred
substantially increased litigation expenses compared to earlier periods.
HIV SALIVA COLLECTOR TECHNOLOGY. A lawsuit was brought against the
Company in 1995 in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida (Joseph D'Angelo, Americare Transtech, Inc., Americare
Biologicals, Inc. and International Medical Associates, Inc. v. Technical
Chemicals & Products, Inc., Jack Aronowitz, Henry Schur, Analyte Diagnostics,
Inc., John Faro and Nicholas Levandoski) related to saliva collector technology
for an HIV diagnostic test.
On December 30, 1998, a jury returned a verdict in this lawsuit finding
that TCPI did not misappropriate the plaintiffs' trade secrets but found that
Mr. Aronowitz had intentionally misappropriated such trade secrets and assessed
damages of $500,000 against him, individually. Additionally, the jury found that
both the Company and Mr. Aronowitz intentionally interfered with the plaintiffs'
business relationships.
6
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4. LEGAL PROCEEDINGS (Continued)
The jury assessed approximately $328,000 in damages against TCPI in
connection with this second claim but awarded no damages against Mr. Aronowitz,
individually, in connection with that claim. Separately, the jury assessed more
than $4.1 million in damages against the other unrelated corporate and
individual defendants.
On January 29, 1999, TCPI and Mr. Aronowitz filed their appeal. This
matter is presently pending before the Fourth District Court of Appeal in West
Palm Beach, Florida. In the event that Mr. Aronowitz is ultimately required to
pay damages to the plaintiffs, the Company is required to indemnify Mr.
Aronowitz to the extent permitted by law. The Company has obtained an appeal
bond staying enforcement of the judgment against the Company and Mr. Aronowitz
until such time as the Appellate Court issues its ruling.
Management believes, after consultation with counsel, that the Company
is likely to prevail on its appeal to set aside the damages awarded and a new
trial will be granted by the Appellate Court. The liability, if any, that may
result from a new trial cannot be reasonably estimated at this time and
therefore no accrual for loss has been recorded in the financial statements as
of September 30, 1999.
NONINVASIVE GLUCOSE MONITORING TECHNOLOGY. In November 1997, a lawsuit
was brought against the Company and Mr. Aronowitz in the United States District
Court for the Southern District of Florida (Americare Diagnostics, Inc. and
Joseph D'Angelo vs. Technical Chemicals and Products, Inc.) related to
noninvasive glucose monitoring technology in which the plaintiffs alleged, among
other things, patent infringement, misappropriation of trade secrets, breach of
contract, breach of fiduciary duty, breach of confidential relations, breach of
trust, unfair competition and conversion against the Company and its Chairman.
The Company has pending against Americare Diagnostics and Dr. D'Angelo
counterclaims for libel and slander related to TCPI's noninvasive glucose
monitoring technology.
On September 23, 1998, the Company's motion to dismiss six of the nine
counts of the patent infringement lawsuit was granted. The order dismissed all
of the counts alleging misappropriation of trade secrets, breach of fiduciary
duty, breach of confidential relations, breach of trust, unfair competition and
conversion. Prior to the court rendering its decision and order to dismiss, on
September 8, 1998, the plaintiffs filed an amended Complaint that contained some
of the same counts based on substantially the same facts as in the original
Complaint. TCPI's motion to dismiss the amended Complaint is pending before the
court. At present, the discovery phase of this lawsuit is ongoing.
SHAREHOLDER CLASS ACTION. During November 1998 through January 1999,
several lawsuits were filed in the United States District Court for the Southern
District of Florida against the Company and its Chairman on behalf of various
shareholders of TCPI alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act and Rule 10b-5 promulgated thereunder. In general,
plaintiffs allege that defendants made untrue and misleading statements in the
Company's public disclosure documents and in certain press releases, articles
and reports. The disclosures relate primarily to the development, clinical
testing and viability of the Company's TD Glucose Monitoring System. The
plaintiffs are seeking an unspecified amount of damages, interest, costs and
attorneys' fees. The Company believes the claims lack merit and plans to contest
the allegations vigorously. On April 19, 1999, an Amended Consolidated Class
Action Complaint was served upon the Company. In response, on June 18, 1999, the
Company filed a motion to dismiss the Amended
7
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4. LEGAL PROCEEDINGS (Continued)
Consolidated Class Action Complaint. Plaintiff's response to this motion, as
well as defendant's reply, have been served. Discovery has been stayed pending
resolution of the motion to dismiss. At this time, it is not possible to
estimate the ultimate loss, if any, related to these claims and therefore no
accrual for loss has been recorded as of September 30, 1999.
The Company maintains Directors and Officer's Liability Insurance;
however, there can be no assurance that such insurance coverage will be adequate
to fund the costs of an award, if any, or attorneys' fees. In addition, as an
officer and director of the Company, Mr. Aronowitz is indemnified by the Company
to the fullest extent permitted under the Florida Business Corporation Act.
ARBITRATION. On August 27, 1999, the U.S. District Court for the
Northen District of California confirmed an arbitration award against the
Company in favor of Hooper & Associates, Inc. for $197,807. Gary Hooper was the
president and chief operating officer of Pharma Patch, PLC. The Company acquired
certain assets of Pharma Patch, PLC in November 1995. The arbitration award
found that Mr. Hooper was entitled to that amount pursuant to an employment
agreement between Mr. Hooper and Pharma Patch, PLC. At this time, no accrual for
loss has been recorded as of September 30, 1999.
5. OTHER INFORMATION
Effective September 10, 1999, the Company's vice president and chief
financial officer, Stuart R. Streger, resigned to become the chief operating
officer at a privately held company in Miami, Florida not involved in the
medical diagnostics industry. Mr. Streger continues to serve as an advisor and
consultant to the Company during the transition period. Edmond Fee, the
Company's controller and a Certified Public Accountant, is acting as interim
chief financial officer.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Information in this Form 10-Q, including any information incorporated
by reference herein, includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, and is subject to the safe-harbor created by
such sections. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements.
Statements regarding development and FDA clearance of future products,
future prospects, business plans and strategies, future revenues and revenue
sources, the resolution of pending litigation, future liquidity and capital
resources, health care market directions, future acceptance of the Company's
products, possible recommendations of health care professionals or governmental
agencies regarding use of diagnostic products, possible growth in markets for
at-home diagnostic testing, the possibility of additional equity investments,
mergers, acquisitions or other strategic transactions, as well as other
statements contained in this report that address activities, events or
developments that the Company expects, believes or anticipates will or may occur
in the future, and similar statements are forward-looking statements. These
statements are based upon assumptions and analyses made by the Company in light
of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, risks and
uncertainties. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results might differ materially
from those suggested or projected in the forward-looking statements. Factors
that may cause actual future events to differ from those predicted or assumed
include, but are not limited to: the satisfactory completion of clinical trials
demonstrating efficacy of the TD Glucose(TM) Monitoring System; FDA clearance of
the TD Glucose Monitoring System; delays in product development; risks
associated with the Company's ability to successfully develop and market new
products on a profitable basis or at all; availability of labor and sufficient
parts and materials to complete the design, construction and manufacturing
scale-up of required equipment; ability to complete the design, construction and
manufacturing scale-up on a timely basis within budget parameters; receipt of
any required regulatory approvals for manufacturing equipment or related
facilities; future advances in technologies and medicine; the uncertainties of
health care reform; risks related to the early stage of the Company's existence
and its products' development; the Company's ability to execute its business
plans; engineering development; lead time for delivery of equipment; the
Company's dependence on outside parties such as its key customers, suppliers,
licensing and alliance partners; competition from major pharmaceutical, medical
and diagnostic companies; risks and expense of government regulation and effects
of changes in regulation (including risks associated with obtaining requisite
governmental approvals for the Company's products); the limited experience of
the Company in manufacturing and marketing products; uncertainties connected
with product liability exposure and insurance; risks associated with domestic
and international growth and expansion; risks associated with international
operations (including risk associated with international economies, currencies
and business conditions); risks associated with obtaining patents and other
protections of intellectual property; risks associated with uncertainty of
litigation and appeals; the Company's limited cash reserves and sources of
liquidity; uncertainties in availability of expansion capital in the future and
other risks associated with capital markets, as well as those listed in the
Company's other press releases and in its other filings with the Securities and
Exchange Commission. The Company may determine to discontinue or delay the
development of any or all of its products under development at any time.
9
<PAGE>
For a complete description of the Company's products and business, see
Part I, Item 1 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
The Company's operations during the third quarter and first nine months
of 1999 continued to reflect the ongoing research and development, manufacturing
scale-up, and marketing with the goal of expanding existing product sales and
introducing new diagnostic testing and screening products for infectious
diseases, drugs of abuse and certain types of cancer that are planned for future
distribution worldwide.
Product Sales. The Company's net product sales for the third quarter
ended September 30, 1999 declined to $1.3 million as compared to $1.5 million in
the same period a year earlier. Net product sales for the first nine months of
1999 were $3.9 million as compared to $4.2 million for the same period a year
earlier. The Company achieved higher third quarter sales of its HealthCheck(R)
and private label diagnostic products which were offset by lower sales of its
international OEM (original equipment manufacture) family planning and other
diagnostic products. However, for the nine-month period, international sales of
OEM family planning products were higher than the comparable period. The
Company's HealthCheck and private label sales were flat while the other
diagnostic products experienced a decline.
Gross Profit. TCPI's gross profit on product sales for the third
quarter of 1999 was $517,000 as compared to $628,000 in the third quarter of
1998 and was $1.6 million for the first nine months of 1999 versus $2.1 million
in the same period a year earlier. Gross profit as a percent of net sales for
the third quarter declined slightly to approximately 41% as compared to 43% in
the third quarter a year earlier. For the nine month period, the gross profit as
a percent of net sales declined to 42% from 50% in the prior year period due to
a shift in the mix of products sold.
Selling, General and Administrative. Selling general and administrative
("SG&A") expenses for the third quarter of 1999, exclusive of litigation
expenses, increased slightly to $2.0 million from $1.8 million in the same
quarter a year earlier, while SG&A expenses for the first nine months of 1999
remained constant at $5.6 million as compared to the same period of 1998.
The Company incurred unusually high costs for litigation through the
first nine months of 1999. These litigation expenses amounted to $1.6 million
with nearly half, or $764,000 in litigation expenses, incurred during the third
quarter of 1999. This compares to litigation expenses of $568,000 and $198,000
for the comparable periods of 1998, respectively.
Research and Development. The Company continued to advance its various
diagnostic testing products. For the third quarter and first nine months of
1999, R&D expenses decreased significantly due to the July 1999 closing of
TCPI's transdermal R&D facility in Menlo Park, California, as well as the timing
of certain R&D expenditures. For the third quarter of 1999, R&D expenses
decreased to $214,000 from $615,000 in the same quarter a year ago and for the
first nine months of 1999 R&D expenses decreased to $1.4 million from $2.1
million incurred in the prior year period. The Company continued to incur
expenses related to the ongoing development and clinical activity related to its
noninvasive TD Glucose(TM) Monitoring System and its new Total and HDL
cholesterol monitoring products.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (Continued)
Net Loss. The net loss for the third quarter of 1999 increased to $2.8
million from the $2.1 million net loss incurred in the third quarter of 1998.
The net loss for the first nine months of 1999 increased to $7.5 million from
$6.7 million in the same period a year earlier. The net loss attributable to
common stockholders for the third quarter of 1999 increased to $3.1 million from
$2.6 million for the same quarter a year earlier. The net loss attributable to
common stockholders for the first nine months of 1999 was $8.7 million as
compared to $7.3 million in the prior year period. The increase in the net loss
and loss attributable to common stockholders was in large part due to
substantially increased litigation expenses of $764,000 for the third quarter of
1999 and $1.6 million for the first nine months of 1999.
FINANCIAL CONDITION
The Company had cash and investments of $5.7 million at September 30,
1999, as compared to $10.3 million at December 31, 1998. Working capital at the
end of the third quarter of 1999 was $9.2 million, as compared to $14.7 million
at December 31, 1998. The Company had current assets of $10.7 million and
stockholders' equity of $28.0 million at September 30, 1999. This compares to
current assets of $15.5 million and stockholders' equity of $35.5 million at
December 31, 1998.
The Company expects to continue to draw upon its working capital to
purchase production equipment, complete clinical trials and regulatory
submissions relating to the TD Glucose Monitoring System and Total and HDL
cholesterol monitoring products, engage in research and development related to
transdermal drug delivery technology, develop new diagnostic products, conduct
clinical trials, continue its investment in marketing and facility expansion,
and continue its day-to-day business. In addition, on July 28, 1998, TCPI's
Board of Directors authorized a stock repurchase program to buy-back up to 10
percent of the Company's outstanding common stock. Purchases of common stock by
the Company may be made from time to time in the open market and/or through
privately negotiated transactions at prevailing market prices depending on
market conditions. To date, the Company has repurchased 87,961 shares. The funds
used for such repurchase to date have come from the Company's working capital.
Funds for future repurchases, if any, are anticipated to also come from the
Company's working capital.
LIQUIDITY AND CAPITAL RESOURCES
Throughout 1998 and into 1999, the Company has continued to sustain
operating losses that have resulted in the use of its cash reserves. For the
nine months ended September 30, 1999, the Company utilized $4.3 million in cash
for operating activities, of which $2.4 million was generated through the sale
of investments and $1.9 million through the use of cash and cash equivalents.
The Company believes it will continue to have negative cash flow from operating
activities in the near future. The Company intends to fund this shortfall from
its current assets; however, it may also elect to raise additional capital or
sell certain assets during the next or subsequent quarters.
The Company anticipates that it will continue to incur net losses, and
use its cash reserves, until its products under development are introduced into
the market. The Company cannot anticipate when these new
11
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products will be ready for marketing. However, the Company intends to reduce
expenses and seek additional distribution channels to sell its existing products
to minimize its net losses while it awaits anticipated completion of the
clinical trials and receipt of governmental approvals for its products under
development.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company's long-term ability to meet its liquidity requirements and to
continue operations will depend on (i) its ability to implement this strategy,
(ii) the successful completion of clinical trials and receipt of governmental
approvals to begin manufacturing and selling its new products and (iii) the
ability of the Company to sell its new products at a profit. If the Company is
unable to reduce its operating losses, either in the short term or long term,
and it is unable to obtain additional funding, the Company would have to
consider selling some or all of its technologies, reduce or terminate completely
its research and development activities, or reduce or discontinue some or all of
its operations. There is no assurance that the Company will generate sufficient
cash to fund operations and the necessary cash requirements thereof. The Company
may continue to seek additional financing; however, there can be no assurance
that the Company will be able to fund all of its cash requirements and operating
losses or that any additional financing will be available to the Company on
acceptable terms or at all. The future level of R&D expenditures will depend on,
among other things, the outcome of clinical testing of products under
development (including the TD Glucose Monitoring System and Total and HDL
cholesterol monitoring products), delays or changes in government required
testing and approval procedures, cash flow, technological and competitive
developments, and strategic marketing decisions.
The Company's future working capital and capital expenditure
requirements may vary materially from those now planned depending on numerous
factors, including additional manufacturing scale-up costs for the Company's
current and future products, possible future acquisitions, the focus and
direction of the Company's research and development programs, competitive and
technological advances, possible future strategic alliances and relationships
with marketing partners, the FDA regulatory process, the regulatory process in
foreign countries, and the Company's marketing and distribution strategy. If the
Company's growth exceeds its plans, additional working capital may be needed.
YEAR 2000
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software has historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000s" from dates in the "1900s". These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
The Company, its divisions and operating subsidiaries, have implemented
a Year 2000 readiness program with the objective of having all significant
business systems function properly with respect to the Year 2000 issue before
January 1, 2000. Since 1997, the Company has added to its existing computer
capabilities as well as installed new computer systems and programs to
accommodate anticipated future growth of TCPI's business and internal
operations. Due to the general uncertainty with respect to the Year
12
<PAGE>
2000 issue, however, there can be no assurance that all Year 2000 issues will be
foreseen and corrected on a timely basis, or that no material disruption of the
Company's business will occur.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
YEAR 2000 (Continued)
In addition, the Company is in the process of conducting a survey of
its key vendors and customers as to their readiness for the Year 2000 issue.
Until such responses are made, if at all, it is not possible to determine what
material impact, if any, the Year 2000 computer issue may have on the Company's
business, operations or financial condition. In the event that any of the
Company's key vendors and customers do not successfully achieve Year 2000
compliance for their own operations in a timely manner, the Company's business
or operations could be adversely affected. The magnitude of any adverse effect
cannot be quantified at this time because of variables such as the type and
importance of key vendors and customers, the unknown level and duration of
noncompliance by these key vendors and customers (and their key vendors and
customers), the possible effect on the Company's operations and TCPI's ability
to respond to any non-compliance.
The Company believes that its biggest potential risks related to the
Year 2000 issue are associated with potential key vendors and customers as well
as a general failure of external local, national or international systems
(including power, communications, postal or transportation systems) necessary
for the ordinary conduct of business. The Company will continue to assess the
risks presented by the Year 2000 problem, however, TCPI does not believe that
there are contingency plans it can implement to mitigate the risk of a general
failure of external local, national or international systems. The Company is in
the process of developing a contingency plan that would allow for the supply of
materials and services from alternate key vendors as well as inventory of
necessary materials sufficient in the event a disruption occurs as a result of
the Year 2000 issue. These contingency plans are subject to uncertainties. The
Company cannot guarantee that any estimate of the level, impact or duration of
Year 2000 noncompliance by key vendors and customers will be accurate, or that
the Company's own contingency plans will be sufficient to mitigate these risks.
Costs related to the Company's actions to become Year 2000 compliant
are funded through cash from operating activities. The total estimated costs
related to Year 2000 compliance efforts described herein will be approximately
$60,000 and through September 30, 1999, the Company has expended approximately
$48,000 in connection with the Year 2000 issue. The Company believes the costs
related to updating or replacing existing computer systems in order to become
Year 2000 compliant will not be material. However, in view of the uncertainties
relating to the Year 2000 compliant status of the Company's key vendors and
customers, the Company cannot guarantee that the cost of dealing with the Year
2000 issue will be consistent with the foregoing estimates or that the Year 2000
issue will not materially adversely affect TCPI's future operations.
13
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management believes, after consultation with counsel, that the
allegations against the Company included in the lawsuits described herein are
without merit and the Company is defending each of the allegations vigorously.
The Company also is subject to claims and suits arising in the ordinary course
of business. At this time, it is not possible to estimate the ultimate loss or
gain, if any, related to these lawsuits, or if any such loss will have a
material adverse effect on the Company's results of operations or financial
position. Through the first nine months of 1999, the Company has incurred
substantially increased litigation expenses. These litigation expenses amounted
to $1.6 million with approximately half, or $764,000 in litigation expenses,
incurred during the third quarter of 1999.
HIV SALIVA COLLECTOR TECHNOLOGY
A lawsuit was brought against the Company in 1995 in the Circuit Court
of the 17th Judicial Circuit in and for Broward County, Florida (Joseph
D'Angelo, Americare Transtech, Inc., Americare Biologicals, Inc. and
International Medical Associates, Inc. v. Technical Chemicals & Products, Inc.,
Jack Aronowitz, Henry Schur, Analyte Diagnostics, Inc., John Faro and Nicholas
Levandoski) related to saliva collector technology for an HIV diagnostic test.
On December 30, 1998, a jury returned a verdict in this lawsuit finding
that TCPI did not misappropriate the plaintiffs' trade secrets, but found that
Mr. Aronowitz had intentionally misappropriated such trade secrets and assessed
damages of $500,000 against him, individually. Additionally, the jury found that
both the Company and Mr. Aronowitz intentionally interfered with the plaintiffs'
business relationships. The jury assessed approximately $328,000 in damages
against TCPI in connection with this second claim but awarded no damages against
Mr. Aronowitz, individually, in connection with that claim. Separately, the jury
assessed more than $4.1 million in damages against the other unrelated corporate
and individual defendants.
On January 29, 1999, TCPI and Mr. Aronowitz filed their appeals. This
matter is presently pending before the Fourth District Court of Appeal in West
Palm Beach, Florida. In the event that Mr. Aronowitz is ultimately required to
pay damages to the plaintiffs, the Company is required to indemnify Mr.
Aronowitz to the extent permitted by law. The Company has obtained an appeal
bond staying enforcement of the judgment against the Company and Mr. Aronowitz
until such time as the Appellate Court issues its ruling.
Management believes, after consultation with counsel, that the Company
is likely to prevail on its appeal to set aside the damages awarded and a new
trial will be granted by the Appellate Court. The liability, if any, that may
result from a new trial cannot be reasonably estimated at this time and
therefore no accrual for loss has been recorded in the financial statements as
of September 30, 1999.
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PART II OTHER INFORMATION (Continued)
ITEM 1. LEGAL PROCEEDINGS (Continued)
NONINVASIVE GLUCOSE MONITORING TECHNOLOGY
In November 1997, a lawsuit was brought against the Company and Mr.
Aronowitz in the United States District Court for the Southern District of
Florida (Americare Diagnostics, Inc. and Joseph D'Angelo vs. Technical Chemicals
and Products, Inc.) related to noninvasive glucose monitoring technology in
which the plaintiffs alleged, among other things, patent infringement,
misappropriation of trade secrets, breach of contract, breach of fiduciary duty,
breach of confidential relations, breach of trust, unfair competition and
conversion against the Company and its Chairman. The Company has pending against
Americare Diagnostics and Mr. D'Angelo counterclaims for libel and slander
related to TCPI's noninvasive glucose monitoring technology.
On September 23, 1998, the Company's motion to dismiss six of the nine
counts of the patent infringement lawsuit was granted. The order dismissed all
of the counts alleging misappropriation of trade secrets, breach of fiduciary
duty, breach of confidential relations, breach of trust, unfair competition and
conversion. Prior to the court rendering its decision and order to dismiss, on
September 8, 1998, the plaintiffs filed an amended Complaint that contained some
of the same counts based on substantially the same facts as in the original
Complaint. TCPI's motion to dismiss the amended Complaint is pending before the
court. At present, the discovery phase of this lawsuit is ongoing.
SHAREHOLDER CLASS ACTION
During November 1998 through January 1999, several lawsuits were filed
in the United States District Court for the Southern District of Florida against
the Company and its Chairman on behalf of various shareholders of TCPI alleging
violations of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule
10b-5 promulgated thereunder. In general, plaintiffs allege that defendants made
untrue and misleading statements in the Company's public disclosure documents
and in certain press releases, articles and reports. The disclosures relate
primarily to the development, clinical testing and viability of the Company's TD
Glucose Monitoring System. The plaintiffs are seeking an unspecified amount of
damages, interest, costs and attorneys' fees. The Company believes the claims
lack merit and plans to contest the allegations vigorously. On April 19, 1999,
an Amended Consolidated Class Action Complaint was served upon the Company. In
response, on June 18, 1999, the Company filed a motion to dismiss the Amended
Consolidated Class Action Complaint. Plaintiff's response to this motion, as
well as defendant's reply, have been served. Discovery has been stayed pending
resolution of the motion to dismiss. At this time, it is not possible to
estimate the ultimate loss, if any, related to these claims and therefore no
accrual for loss has been recorded as of September 30, 1999.
The Company maintains Directors and Officer's Liability Insurance;
however, there can be no assurance that such insurance coverage will be adequate
to fund the costs of an award, if any, or attorneys' fees. In addition, as an
officer and director of the Company, Mr. Aronowitz is indemnified by the Company
to the fullest extent permitted under the Florida Business Corporation Act.
15
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PART II OTHER INFORMATION (Continued)
ITEM 1. LEGAL PROCEEDINGS (Continued)
ARBITRATION
On August 27, 1999, the U.S. District Court for the Northen District of
California confirmed an arbitration award against the Company in favor of Hooper
& Associates, Inc. for $197,807. Gary Hooper was the president and chief
operating officer of Pharma Patch, PLC. The Company acquired certain assets of
Pharma Patch, PLC in November 1995. The arbitration award found that Mr. Hooper
was entitled to that amount pursuant to an employment agreement between Mr.
Hooper and Pharma Patch, PLC.
ITEM 2. OTHER INFORMATION
MANAGEMENT CHANGE
Effective September 10, 1999, the Company's vice president and chief
financial officer, Stuart R. Streger, resigned to become the chief operating
officer at a privately held company in Miami, Florida not involved in the
medical diagnostics industry. Mr. Streger continues to serve as an advisor and
consultant to the Company during the transition period. Edmond Fee, the
Company's controller and a Certified Public Accountant, is acting as interim
chief financial officer.
CLOSURE OF FACILITY
Following the expiration of a facility lease in Menlo Park, California,
effective July 1999, the Company closed its transdermal research and development
facility and relocated the activities of its Pharmetrix Division to the
Company's corporate headquarters in Pompano Beach, Florida. TCPI is presently in
discussions with several pharmaceutical companies relating to the strategic
development of the Pharmetrix patent and product portfolios. The Company will
also complete ongoing contract development projects. During 1998, the Company
spent in excess of $2.1 million to operate this R&D center.
ITEM 3. SUBSEQUENT EVENTS
On October 8, 1999, the Company issued a clarification statement that
certain information contained in the Company's 1995 Initial Public Offering
Prospectus relating to the educational background of the Company's President,
Chairman and Chief Technical Officer, Jack L. Aronowitz, was incorrect. It has
recently come to the attention of the Board of Directors that Mr. Aronowitz has
no college or post graduate degrees. However, the Company does not believe that
this inaccuracy will have a material adverse effect on the operations of the
Company.
On October 11, 1999, the Company announced that TCPI and Daiichi
Pharmaceutical Co. Ltd. mutually agreed to end discussions related to the
exclusive license of the Company's noninvasive TD Glucose Monitoring System in
Japan and Taiwan. In addition, the Company stated that it has resumed
exploratory discussions with other Japanese firms with respect to marketing and
distribution rights.
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PART II OTHER INFORMATION (Continued)
ITEM 3. SUBSEQUENT EVENTS (Continued)
On October 12, 1999, the Company announced that on October 1, 1999 it
submitted a 510(k) application to the United States Food and Drug Administration
(FDA) seeking over-the-counter marketing clearance for the Company's new
HealthCheck(R) Total Cholesterol Home Screening Test. Such application is
presently pending before the FDA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.17
Employment Agreement between Elliott Block, Ph.D. and the Company
effective as of May 10, 1999 and executed on September 10, 1999.
(b) Reports On Form 8-K
On September 10, 1999, the Company filed a Report on Form 8-K related
to the resignation of the Company's vice president and chief financial
officer, and subsequent appointment of the Company's controller as
interim chief financial officer.
17
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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.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
Date: November 9, 1999 By: /s/ Edmond Fee
-------------------------------------
Edmond Fee
Controller and Interim Chief Financial Officer
(Duly authorized principal accounting officer)
18
EMPLOYMENT AGREEMENT
--------------------
THIS Agreement is made and entered into this 10th day of September,
1999 effective May 10, 1999 ("Agreement"), between TECHNICAL CHEMICALS AND
PRODUCTS, INC., a Florida corporation ("TCPI"), with its principal place of
business at 3341 SW 15 Street, Pompano Beach, FL 33069 and ELLIOTT BLOCK, having
an address of (ADDRESS INTENTIONALLY OMITTED) ("Employee").
R E C I T A L S:
WHEREAS, Employee has accepted employment by TCPI as TCPI's Chief
Executive Officer and
WHEREAS, Employee and TCPI are desirous of entering into an agreement
to memorialize the employment relationship.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
as follows:
ARTICLE I
---------
TERM
1.1 Initial Term. The initial term (the "Initial Term") of this
Agreement shall commence as of the 10th day of May, 1999 and shall end on the
9th day of May, 2002 ("Initial Term Termination Date") unless terminated earlier
as provided herein.
1.2 Extension of Initial Term.The Initial Term shall automatically
renew for three (3) years on each anniversary of the commencement date, which
commencement date shall be deemed to be May 10, 1999, unless either party shall
give the other party written notice of its intent not to renew one hundred and
eighty (180) days' prior to such anniversary date. Notice of Non-Renewal
directed from TCPI to Employee shall be approved by the Board of Directors of
TCPI.
ARTICLE II
----------
SCOPE OF RESPONSIBILITIES
OFFER AND ACCEPTANCE OF EMPLOYMENT
2.1 Offer of Employment. Upon the terms and subject to the conditions
of this Agreement, and upon the acceptance by Employee as signified by
Employee's execution of this Agreement, TCPI, as of the May 10, 1999, hereby
employs Employee for the term of this Agreement as its Chief Executive Officer.
Employee shall have general and active charge of the business and affairs of
TCPI and, in such capacity, shall have the responsibility for the day-to-day
operations of the Corporation, subject to the authority and control of the Board
of Directors of TCPI. Employee's duties shall include the management of TCPI's
business interests ("Businesses") and such other duties as are consistent with
his position (the "Duties"). During the term of this Agreement and except for
illness, disability, reasonable vacation periods and reasonable leaves of
absence, Employee shall devote substantially his entire business time,
attention, skill and efforts as is necessary for the faithful performance of the
Duties. Notwithstanding the above, the Employee shall be permitted to be a Board
of Director member of other companies provided that (i) there is no conflict of
interest or legal impediment to such Board membership and (ii) that such service
as a Board member does not materially detract from Employee's Duties as Chief
Executive Officer. Such Duties shall be provided at Pompano Beach, Florida and
at such other place(s) as the needs, business or opportunities of TCPI may
require from time to time.
<PAGE>
2.2 Acceptance By Employee. Employee hereby accepts such employment
and, consistent with fiduciary standards that exist between an employer and an
employee, Employee shall perform the Duties in an efficient, trustworthy and
businesslike manner.
2.3 Officer Title and Directorship. Employee has accepted employment
with TCPI as TCPI's Chief Executive Officer. As soon as practicable, and in
accordance with the Bylaws of TCPI, Employee shall be nominated for election and
elected to the Board of Directors as a Class II Director. TCPI represents to
Employee that it will take all corporate actions necessary to nominate and elect
Employee a Director.
2.4 Other Activities. Employee shall use Employee's best efforts for
the benefit of TCPI by whatsoever activities Employee deems appropriate to
maintain and improve TCPI's standing in the community generally and among other
members of the industries in which TCPI is from time to time engaged, including
such entertaining for business purposes as Employee considers appropriate
consistent with TCPI's policies.
2.5 Facilities, Staff and Support. To enable Employee to perform his
duties, during the term of employment, TCPI shall provide Employee with an
office of a size and with furnishings and other appointments, and personal
secretarial, staff and other assistance and support commensurate with his
position.
ARTICLE III
-----------
COMPENSATION
3.1 Base Salary and Bonus and Stock Options. For all services rendered
by Employee in any capacity during his employment under this Agreement
(including any renewals hereof), TCPI shall pay Employee as compensation the sum
of the amounts set forth below:
3.1.1 Base Salary. During the term of this Agreement, Employee
shall be paid the sum of One Hundred and Sixty-Five Thousand
($165,000) Dollars on an annualized basis, payable in
installments at such periodic intervals as TCPI pays its other
Employees but not less than on a monthly basis. On January 1,
2000 and continuing on each January 1st thereafter during the
term of this Agreement and any extensions thereof, and for
each subsequent year during the term of this Agreement,
Employee shall be entitled to an annual salary review of
Employee's base salary and such base salary shall be increased
("Salary Increase"), but not decreased, at the discretion of
the Board of Directors of TCPI. Notwithstanding the foregoing
and any discretionary increase in base salary, Employee
beginning January 1, 2000 shall be paid a minimum salary
increase equal to the greater of five (5%) per annum or the
national Consumer Price Index as issued, from time to time, by
the United States Bureau of Labor Statistics.
2
<PAGE>
3.1.2. Bonus. Employee shall be entitled to the following
annual bonuses ("Bonus Award"):
3.1.2 (i) Bonus paid annually shall be a minimum of Ten
Thousand ($10,000) Dollars and not to exceed more than
fifty (50%) per cent of the Employee's salary in effect
for the period applicable to such Bonus Award based on
Employee achieving defined goals; and
3.1.2 (ii) A one-time Bonus Award in the amount of
Twenty-five Thousand ($25,000) Dollars ("One-time Bonus
Award") when TCPI achieves a fiscal year Net Income as
defined in Paragraph 3.1.2(iii). For each fiscal year
(including the fiscal year in which the One-time Bonus is
applicable), a Bonus Award equal to three (3%) percent of
TCPI's after tax Net Income up to a maximum Bonus Award of
fifty (50%) per cent of the Employee's salary ("Maximum
Amount") in effect for the period applicable to such Bonus
Award. For purposes of calculating the Bonus Award
pursuant to this paragraph 3.1.2(ii), the One-time Bonus
Award shall be a part of the Maximum Amount payable to
Employee.
3.1.2 (iii) For purposes of this Agreement the term "Net
Income" shall mean:
Pursuant to the year end audited consolidated
financial statements the Consolidated Statements
of Operations: Net Income attributed to common
stockholders, excluding loss carryforwards which
loss carryovers will be replaced with a
thirty-six (36%) tax rate on pre-tax income.
Adverse legal judgments for acts prior to May
10, 1999 shall not be recognized in the
calculation of net income.
3.2 Stock Options. TCPI does hereby grant to Employee the Incentive
Stock Options and the Non-Qualified Stock Options specified in Exhibit A annexed
hereto and made a part hereof pursuant to and under the terms of TCPI's Amended
and Restated 1992 Stock Option Plan. Any Incentive Stock Options that are to
terminate according to their terms shall automatically be converted to
Non-Qualified Stock Options and then be exercisable under the terms appropriate
thereto. Employee may exercise the Incentive Stick Options up to the maximum
time permitted by law.
3
<PAGE>
3.3 Share Appreciation Rights Plan. TCPI will grant Employee share
appreciation rights, and Employee will be entitled to participate in TCPI's
share appreciation rights plan, on the same basis as other senior executives of
TCPI. Employee shall be entitled to the highest and most favorable treatment
afforded any Employee of TCPI, other than Jack L. Aronowitz, under such plan.
3.4 Employee Loan. Upon the execution of this Agreement by Employee,
TCPI shall make a loan to Employee ("Employee Loan"), pursuant to a Negotiable
Promissory Note in form and substance acceptable to the parties hereto, under
the following terms and conditions:
3.4.1. Principal: $50,000.
3.4.2 Interest: London Interbank Rate adjusted quarterly.
3.4.3 Term: Due and payable, subject to paragraph 3.4.4, on September
1, 2001.
3.4.4 Credit Against Payment of Principal and Interest. As long as (i)
Employee remains an employee of TCPI or (ii) Employee's employment is
not terminated for Cause, Employee shall receive a credit against
payment of such loan equal to fifty (50%) per cent of the amount due
and owing under the Employee Loan on each anniversary date of this
Agreement. Thus, on the second Anniversary Date, if Employee remains an
Employee of TCPI through that Date, the loan and interest shall be
treated as paid in full. Should, prior to such date termination of
Employee's employment occur by termination by TCPI without cause or by
termination by Employee For Good Reason, then and in such event, the
loan and interest shall be deemed paid in full.
4
<PAGE>
ARTICLE IV
----------
BUSINESS EXPENSES AND BENEFITS
4.1 Business Expenses. Employee is authorized to incur and TCPI will
pay directly or reimburse Employee reasonable expenses to execute and/or promote
the businesses of TCPI, including, but not limited to, expenses related to
maintenance of professional licenses and attendance and participation at
professional meetings, subscriptions to scientific, medical and business
journals, and other expenses in accordance with TCPI's policies and procedures
as same are in effect from time to time, for entertainment, travel, and similar
items, in the same manner or basis, as other senior executives of TCPI. TCPI
will reimburse Employee for all reasonable travel or other expenses incurred
while on business.
4.2. Employee Benefit Plans. Employee shall be entitled to participate
in any and all plans, arrangements or distributions by TCPI pertaining to or in
connection with any pension, bonus, profit sharing, stock options and/or similar
benefits and/or health benefits for its regular employees and/or for its senior
level executives, as determined by the Board of Directors or its committees,
pursuant to the governing instruments which establish and/or determine
eligibility and other rights of the participants and beneficiaries under such
plans or other benefit programs. Such benefit plans and perquisites provided to
Employee shall not be reduced from those in existence on May 10, 1999.
4.3 Health Insurance and Other Plans. TCPI will provide for Employee
medical insurance and Employee will be entitled to participate in all other
benefit plans and receive perquisites on the same basis as other senior
executives of TCPI. Such health insurance and other benefit plans and
perquisites provided to Employee shall not be reduced from those in existence on
May 10, 1999.
4.4 Vacation and Sick Days. Employee shall be entitled to such
reasonable paid vacation time and paid and unpaid sick days and personal days in
accordance with TCPI's policies and procedures applicable to senior level
executives or as may be agreed to by the parties hereto from time to time;
provided, however, that Employee shall be entitled to at least three (3) weeks
paid vacation during each year of the term of this Agreement, or such greater
amount generally provided to senior executives of TCPI. In addition, Employee
shall receive an additional two (2) days of vacation for each year of employment
up to a maximum of five (5) weeks of paid vacation.
4.4.1 Should TCPI adopt a policy of accruing vacations from
year to year or paying senior executives the amount equaling
such unused vacation time, then the Employee shall have the
right to either (i) apply such accrued and unused vacation
time toward additional paid vacation time during subsequent
years of this Agreement or (ii) receive a lump-sum payment
equal to Employee's base salary for said accrued and unused
vacation time.
5
<PAGE>
ARTICLE V
---------
DEATH OR DISABILITY DURING EMPLOYMENT
5.1 If Employee dies or becomes permanently and totally disabled during
the term of the Agreement, TCPI shall pay to Employee or Employee's estate or
heirs, as the case may be, a sum equal to (i) the base salary which would
otherwise be payable to Employee for a period of one (1) year and (ii) an amount
equal to the most recent bonus awarded Employee ("Benefit Amount"). To the
extent that Employee incurs and has an obligation or liability for income taxes
as a result of receiving the Benefit Amount, then and in such event, TCPI shall
pay the Employee or Employee's estate or heirs an amount that, on an after-tax
basis (including federal income and excise taxes, and state and local income
taxes) increases the total payment under Paragraph 5.1 so much so that, in net
after-tax amount received, the Benefit Amount is, in effect, not reduced by the
federal income and excise taxes, and state and local income taxes imposed upon
Employee by reason of amounts payable under this Article. Upon such payment
being made by TCPI, TCPI shall have no further financial obligations to Employee
or his estate, except as otherwise provided in Articles III and IV hereof. For
purposes of this Agreement, "disability" is defined to mean that, as a result of
Employee's incapacity due to physical or mental illness:
5.1.1 Employee shall have been absent from his duties as an
officer of TCPI on a substantially full-time basis for four
(4) consecutive months; and
5.1.2 Within thirty (30) days after TCPI notifies Employee in
writing that it intends to replace him, Employee shall not
have returned to the performance of the duties as an officer
of TCPI on a full-time basis.
5.2 Notwithstanding the foregoing, if Employee determines, in his sole
and absolute discretion and acting in good faith, that Employee is able to
continue to perform his duties on a part-time basis greater than a) Fifty
Percent [50%] for up to nine [9] months, or b) Seventy-Five Percent [75%], then
no termination shall be permitted pursuant to this Paragraph 5.1 and Employee
shall notify the Board of Directors in writing of the percentage reduction in
Employee's duties corresponding to Employee's performance of his duties;
provided, however, that all amounts otherwise payable to Employee hereunder
shall be proportionately reduced by such percentage following Employee's
delivery of such notice to the Board of Directors.
5.3 Death or Disability. This Agreement shall terminate upon the death
or the disability of Employee. Termination for death or disability shall not be
termination for Cause.
5.4 All health insurance and other benefit plans that Employee
participated in under Paragraph 4.3 shall continue for the benefit of his spouse
who were covered under such plans for a period of one [1] year after Employee's
death or disability at TCPI's expense, if such coverage is allowed by those
plans.
6
<PAGE>
ARTCLE VI
---------
TERMINATION OF EMPLOYMENT
6.1 Termination by TCPI for Cause. Termination by Employee Without Good
Reason. If Employee's employment is terminated by (i) TCPI for Cause (as
hereinafter defined) or (ii) by Employee without Good Reason (as hereinafter
defined), then Employee shall be entitled to:
6.1.1 Base salary pursuant to Paragraph 3.1.1 earned through
the last day of employment ("Termination Date"); and
6.1.2 Accrued vacation under Paragraph 4.4 hereof; and
6.1.3 All applicable reimbursements from TCPI due pursuant to
this Agreement.
6.2. Termination by TCPI Without Cause, Constructive Discharge or
Termination by Employee For Good Reason. Except as provided below with respect
to a Change of Control (as hereinafter defined), if there is a termination of
this Agreement by (i) TCPI without Cause (as hereinafter defined); (ii)
Constructive Discharge of Employee or (iii) Employee for Good Reason (as
hereinafter defined), Employee shall be entitled to:
6.2.1 Receive, in one lump sum payment on the Termination
Date, that amount that is the greater of the amount due for
either the unexpired term of Employee's employment under this
Agreement or the amount that is equal to two (2) times: (a)
Employee's annual base salary as in effect on the date of the
termination plus (b) an amount equal to any bonuses paid to,
or accrued by Employee during the twelve month period
preceding the date of termination.
6.2.2 Accrued vacation under Paragraph 4.4 hereof; and
6.2.3 All reimbursements due Employee through the Termination
Date under this Agreement; and
6.2.4 All benefits described in Article IV shall be extended
for the period of one year after the Termination Date or
expiration of the Initial Term (or Extended Term as the case
may be), whichever is later.
6.2.5 Employer shall arrange and pay for outplacement services
with a recognized outplacement company who specializes in
executives of Employee's position for a period of six months
following the Termination Date.
6.2.6. To the extent that Employee incurs and has an
obligation or liability for income taxes as a result of
receiving payments pursuant to this Paragraph 6.2, then and in
such event, TCPI shall pay the Employee an amount that, on an
after-tax basis (including federal income and excise taxes,
7
<PAGE>
and state and local income taxes) increases the total payment
under this Paragraph 6.2 so much so that, in net after tax
amount received, the payments and benefits received pursuant
to this Paragraph 6.2 are, in effect, not reduced by the
federal income and excise taxes, and state and local income
taxes imposed upon Employee by reason of amounts payable under
this Article.
6.2.7 In addition to the foregoing, Employee shall have the
right to exercise all options and warrants granted to Employee
by TCPI that would have vested within 12 months of the date of
termination. All Options previously granted Employee shall
become immediately vested and exercisable at the option of
Employee; provided that any such Options must be exercisable
within ninety (90) days of the Termination Date to be treated
as incentive stock options.
6.3. Non-Renewal of Agreement. If there is a termination of this
Agreement as a result of notification by TCPI of its intent not to renew this
Agreement as provided for in paragraph 1.2, Employee shall be entitled to
receive on the Termination Date:
6.3.1 Base salary and all benefits described in Article 4.3
through the end of the Initial Term or Extended Term as
provided for in Paragraph 1.2; and
6.3.2 All reimbursements due Employee through the Termination
Date under Article IV;
6.3.3 All benefits as required under COBRA or similar
legislation and applicable Unemployment Compensation Laws.
6.4 Termination of Employment For Cause by TCPI. Employee's employment
may be terminated by TCPI at any time upon notice to Employee for "Cause." For
this purpose, the term "Cause" means:
6.4.1. Employee's material breach of any provision of this
Agreement; provided, however, that in the event TCPI believes
that this Agreement has been breached, it shall provide
Employee with written notice of such breach and provide
Employee with a thirty (30) day period in which to cure or
remedy such breach and no such termination shall be effective
if such breach is cured within such period;
6.4.2 An adjudication by a court of competent jurisdiction
that Employee committed an injurious act of fraud or
dishonesty against TCPI, its subsidiaries or affiliates; and
6.4.3. The use by Employee of an illegal substance, including,
but not limited to, marijuana, cocaine, heroin, and all other
illegal substances, and/or the dependence by Employee upon the
use of alcohol, which, in any case, materially impairs
Employee's ability to perform his Duties hereunder, which
dependence is not cured or rehabilitated within three (3)
months of receipt of written notice from TCPI to Employee.
8
<PAGE>
6.4.4 Notwithstanding the foregoing, TCPI shall not terminate
this Agreement pursuant to this Paragraph 6.4 unless TCPI
provides Employee with no fewer than thirty (30) days prior
written notice ("Notice") of its decision to terminate this
Agreement for Cause. Such Notice shall detail the basis for
such termination. Following receipt of such Notice, Employee
shall have the right to request in writing within ten (10)
days the opportunity to address a duly convened meeting of the
Board of Directors and attempt to refute the bases of his
termination ("Appeal"). If Employee requests an Appeal,
Employee shall not be terminated pursuant to Paragraph 6.4
until such time as the Board of Directors has met to consider
Employee's Appeal. Following an Appeal, the Board of Directors
shall, in its sole discretion, determine whether to terminate
Employee for "Cause."
6.5 Termination of Employment by Employee: Employee may terminate his
employment with TCPI:
6.5.1 Without Good Reason at any time upon thirty (30) days
prior written notice to TCPI.
6.5.2 At any time upon written notice to TCPI with Good
Reason. "Good Reason" shall mean:
(a) A material breach of the provisions of this
Agreement by TCPI and Employee provides at least
thirty (30) days' prior written notice to the
Chairman and at least two members of TCPI's Board of
Directors of the existence of such breach and his
intention to terminate this Agreement (no such
termination shall be effective if such breach is
cured during such period); or
(b) The failure of TCPI to meet its financial
obligations to Employee after ten (10) days written
notice to the Chairman and at least two members of
TCPI's Board of Directors of such failure and
Employee's intention to terminate this Agreement; or
(c) Without Employee's express written consent, the
assignment to Employee of duties inconsistent with
Employee's positions with TCPI as set forth in this
Agreement (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Paragraph 2 or
9
<PAGE>
(d) Notwithstanding anything to the contrary in this
Agreement, the requirement that the Employee perform
his principal Duties to TCPI at a location greater
than twenty-five (25) miles from Pompano Beach,
Florida for a period exceeding thirty (30) days
during a twelve month period or
(e) The failure of TCPI's Board of Directors to Elect
Employee Chief Executive Officer, or the action of
such Directors to effect Employee's removal from such
position, absent prior termination of Employee by
TCPI for Cause, Employee's death, disability or
resignation from employment at TCPI or
(f) The failure of shareholder's of TCPI to Elect
Employee a Director, provided that such failure is a
result of the vote of affiliated persons to TCPI, or
the Employee's removal as a Director due to the
actions of such affiliated persons, absent prior
termination of Employee by TCPI for Cause, his death,
disability or resignation from employment at TCPI
6.6 Effect of Termination/References. Any termination of employment
under this Agreement, whether or not voluntary, will automatically constitute a
resignation of Employee as an officer of TCPI and all subsidiaries of TCPI. In
the event that TPCI is contacted by persons seeking information concerning the
status of Employee or the circumstances surrounding such termination of
Employment, TCPI shall only furnish to such persons the dates that Employee was
employed, Employee's title, Employee's last salary and that Employee resigned.
ARTICLE VII
CHANGE IN CONTROL
7.1 Change in Control. In the event that within twenty-four (24) months
following the occurrence of a "Change of Control" there occurs a "Change of
Control Event" (as defined below), then Employee shall be entitled to receive
from TCPI the following:
7.1.1 Employee's annual Base Salary as in effect at the date
of termination, multiplied by two;
7.1.2 Base Salary then in effect earned through the date of
termination;
7.1.3 Accrued vacation pursuant to this Agreement;
7.1.4 All applicable reimbursements from TCPI due Employee
under this Agreement;
10
<PAGE>
7.1.5 All Options previously granted Employee shall become
immediately vested and exercisable at the option of Employee;
provided that any such Options must be exercised within 90
days of the Termination Date to be treated as incentive stock
options."
7.1.6 An amount equal to the amount of any bonuses paid to, or
accrued by Employee during the twelve month period preceding
the date of termination, multiplied by two; and
7.1.7 All benefits described in Paragraph 4.3 hereof, shall be
extended for a period of two years after the Termination Date
at TCPI's expense.
7.1.8 An amount that, on an after-tax basis (including federal
income and excise taxes, and state and local income taxes)
increases the total payment under this Article VII so much so
that, in net after-tax amount received, the payment and
benefits received pursuant to Article VII are, in effect, not
reduced by federal income and excise taxes, and state and
local income taxes imposed upon Employee by reason of amounts
payable under this Article VII. For purposes of this clause
7.1.8, the Employee shall be deemed to pay federal, state and
local income taxes at the highest marginal rate of taxation.
7.1.9 Employer shall arrange and pay for outplacement services
with a recognized outplacement company who specializes in
executives of Employee's position for a period of six months
following the Termination Date.
7.2 Change in Control. For purposes of this Agreement, the term "Change
in Control" shall mean:
7.2.1 The acquisition by any individual, entity or group
(within the meaning of ss. 13(d)(3) or ss. 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") (any of the foregoing described in this Paragraph 7.2.1
hereafter a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (a) the then outstanding shares of
Capital Stock of TCPI (the "Outstanding Capital Stock") or (b)
the combined voting power of the then outstanding voting
securities of TCPI entitled to vote generally in the election
of directors (the "Voting Securities"), provided, however,
that any acquisition by (x) TCPI or any of its subsidiaries,
or any Employee benefit plan (or related trust) sponsored or
maintained by TCPI or any of its subsidiaries or (y) any
Person that is eligible, pursuant to Rule 13d-1(b) under the
Exchange Act, to file a statement on Schedule 13G with respect
to its beneficial ownership of Voting Securities, whether or
not such Person shall have filed a statement on Schedule 13G,
11
<PAGE>
unless such Person shall have filed a statement on Schedule
13D with respect to beneficial ownership of 20% or more of the
Voting Securities or (z) any corporation with respect to
which, following such acquisition, more than 20% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Capital
Stock and Voting Securities immediately prior to such
acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the
Outstanding Capital Stock and Voting Securities, as the case
may be, shall not constitute a Change of Control; or
7.2.2 Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to the date hereof
whose election or nomination for election by TCPI's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of the Directors of TCPI (as such terms are used in
Rule 14a-11 of Regulation 14A, or any successor section,
promulgated under the Exchange Act); or
7.2.3 Approval by the shareholders of TCPI of a
reorganization, merger or consolidation (a "Business
Combination"), in each case, with respect to which all or
substantially all holders of the Outstanding Capital Stock and
Voting Securities immediately prior to such Business
Combination do not, following such Business Combination,
beneficially own, directly or indirectly, more than 20% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from Business Combination; or
7.2.4 A complete liquidation or dissolution of TCPI or the
sale or other disposition of all or substantially all of the
assets of TCPI other than to a corporation with respect to
which, following such sale or disposition, more than 20% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors is then owned beneficially, directly or indirectly,
by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Capital Stock and Voting Securities immediately
prior to such sale or disposition in substantially the same
proportion as their ownership of the Outstanding Capital Stock
and Voting Securities, as the case may be, immediately prior
to such sale or disposition.
12
<PAGE>
7.2.5 In the event that the beneficial ownership attributable
to Jack L. Aronowitz's ownership of the Outstanding Capital
Stock or Voting Securities of TCPI ("Aronowitz Shares") is
reduced to less than 20%, then the 20% threshold number
contained in the foregoing paragraphs of this Article VII
shall be reduced in direct proportion to such reduction, but
in no event, less than 15%. By way of example, if the
Aronowitz Shares are reduced to 18% of the Outstanding Capital
Stock or Voting Securities, then the 20% provisos contained in
the other paragraphs of Article VII shall be reduced to 18%.
7.3 For purposes of Article VII, a "Change of Control Event" shall
mean: (i) Employee's employment with TCPI is terminated by TCPI for any reason
whatsoever or (ii) Employee terminates this Agreement with Good Reason or (iii)
the assignment to Employee of any duties inconsistent with the position of
Employee pursuant to Article II of this Agreement or a reduction or alteration
in the nature or status of Employee's responsibilities from those specified in
Article II or (iv) reduction in Employee's Base Salary in effect on the date a
Change in Control occurs or (v) Employee is required to perform his duties at a
location greater than twenty-five (25) miles from the current headquarters of
TCPI for a period exceeding thirty (30) days during a twelve month period.
7.4 The provisions of this paragraph 7.4 shall apply only within the
twenty-four month period immediately following a Change of Control. TCPI's
obligation to pay Employee the compensation and to make the arrangements
provided in this Article VII herein shall be absolute and unconditional and
shall not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense, duty to mitigate, or other right
that the TCPI may have against him or anyone else. The amount shall not be
reduced by reason of Employee's securing other employment or for any other
reason. All amounts payable by TCPI hereunder shall be paid without notice or
demand, and in no event later that seven business days after such payments
become due. Except as expressly provided herein, TCPI waives all rights that it
may now have or may hereafter have conferred upon it, by statute or otherwise,
to terminate, cancel or rescind this Agreement in whole or in part. Each and
every payment made hereunder by TCPI shall be final and TCPI will not seek to
recover all or any part of such payment from Employee or from whomsoever may be
entitled thereto, for any reason whatsoever. TCPI may withhold for income tax
purposes any amounts required to be withheld under applicable tax statutes and
regulations.
ARTICLE VIII
------------
NOTICES
8.1 Any notice, request, demand, offer, payment or communication
required or permitted to be given by any provision of this Agreement shall be
deemed to have been delivered and given for all purposes if written and if (i)
13
<PAGE>
delivered personally or by courier or delivery service, at the time of such
delivery; or (ii) directed by registered or certified United States mail,
postage and charges prepaid, addressed to the intended recipient, at the address
specified below, at such time that the intended recipient or its agent signs or
executes the receipt:
If to TCPI:
Technical Chemicals and Products, Inc.
Attention: President
3341 Southwest 15th Street
Pompano Beach, Florida 33069
If to Employee:
Elliott Block, Ph.D.
(ADDRESS INTENTIONALLY OMITTED)
8.2 Any party may change the address to which notices are to be mailed
by giving written notice as provided herein to the other party. Commencing
immediately after the receipt of such notice, such newly designated address
shall be such person's address for purposes of all notices or other
communications required or permitted to be given pursuant to this Agreement.
ARTICLE IX
----------
CONFIDENTIAL BUSINESS INFORMATION
DUTY TO RETURN INFORMATION AND CONFLICT OF INTEREST
9.1 Employee represents and agrees that all documents and other
information, including, but not limited to client lists, prospective client
lists, vendors and vendees, research protocols, market research results,
reports, questionnaires, video and audio tapes, memorandum, drawings, data,
notes, financial information and all other information including copies thereof
produced by photocopy machines, computer programs, facsimile or otherwise
(collectively, the "Information") furnished to Employee or to which Employee is
exposed or obtains pursuant to this Agreement is confidential and proprietary to
TCPI and the disclosure by Employee of such Information to any third party will
cause irreparable injury to TCPI. Accordingly, Employee expressly agrees that:
9.1.1 Any Information which Employee receives is exposed to or
obtains pursuant to this Agreement, either in writing,
verbally or through computer software or otherwise, is highly
confidential and that disclosure of such information will
cause TCPI irreparable damage.
9.1.2 All such Information shall be treated by Employee as
Strictly Confidential.
14
<PAGE>
9.1.3 During the term of this Agreement and for a period of
five (5) years from the termination or other expiration of
this Agreement, Employee shall maintain all such Information
in strictest confidence and will not, directly or indirectly,
disclose or cause to be disclosed, such Information to any
third party, person or entity and will not use such
Information except as specifically authorized by this
Agreement.
9.1.4 During the term of this Agreement and any extensions
thereof, Employee shall be in compliance with TCPI's Conflict
of Interest policy as it may exist from time-to-time.
9.1.5 Immediately upon the termination or expiration of this
Agreement, Employee shall deliver to TCPI all Information
(regardless of the format which such Information takes) and
Employee shall not retain any copies of such Information. Upon
request, the Employee shall sign a statement prepared by TCPI
acknowledging that Employee has surrendered all such
Information to TCPI.
9.1.6 Information shall not include any information that: (a)
was in Employee's possession before the commencement date of
his employment with TCPI; or (b) is or becomes available to
the public through no fault of Employee; or (c) is received in
good faith by Employee from a third party and is not subject
to an obligation of confidentiality owed by the third party to
TCPI; or (d) is independently developed by Employee after his
Termination of employment with TCPI without reference to
Information received hereunder, as evidenced by Employee's
written records."
15
<PAGE>
ARTICLE X
---------
OWNERSHIP OF WORK PRODUCT
FREEDOM OF USE
10.1 Employee recognizes and agrees that all right, title and interest
to all information, inventions, methods, procedures, inventions, designs, ideas
and programs ("Discoveries") developed by Employee in connection with or
resulting in whole or in part from Employee's work pursuant to the Agreement
shall belong solely to TCPI and TCPI shall be free to use all such Discoveries
without any obligation to Employee.
10.2 If any patentable inventions or improvements, copyrights or
trademarks result in whole or in part from Employee's services under this
Agreement, all rights to apply for such patents and trademarks and any patents
and trademarks issued therefrom and copyrights ownership shall belong solely to
TCPI and Employee shall do whatever is reasonably necessary to aid TCPI in
securing such intellectual property rights at TCPI's expense.
ARTICLE XI
----------
RELOCATION
11.1 TCPI shall reimburse Employee for all reasonable housing
relocation and moving expenses from Employee's South Natick, MA residence to
South Florida, provided that TCPI coordinates such relocation. As part of such
relocation, TCPI will pay temporary housing and travel expenses until any
relocation occurs. This will include reasonable cost of travel between his
current residence and Florida incurred by Employee and his wife pending the
permanent relocation of his family to Florida, and temporary living expenses for
Employee and his wife in the Pompano Beach, Florida area. As relocation occurs,
TCPI shall pay or reimburse the reasonable costs of packing, moving, insuring,
and unpacking Employee's family and household goods to Florida.
11.2 To the extent that Employee incurs and has an obligation or
liability for income taxes as a result of such relocation by reason of the
reimbursement of such relocation costs, then and in such event, TCPI shall pay
to Employee an amount that, on an after-tax basis (including federal income and
excise taxes, and state and local income taxes) increases the total payment
under this Article XI so much so that, in net after tax amount received, the
payments and benefits received pursuant to this Article XI are, in effect, not
reduced by the federal income and excise taxes, and state and local income taxes
imposed upon Employee by reason of amounts payable under this Article.
16
<PAGE>
ARTICLE XII
-----------
MISCELLANEOUS
12.1 Florida Law. This Agreement shall be considered for all purposes a
Florida document and shall be construed pursuant to the laws of the State of
Florida, and all of its provisions shall be administered according to and its
validity shall be determined under the laws of the State of Florida without
regard to any conflict or choice of law issues.
12.2 Gender and Number. Whenever appropriate, references in this
Agreement in any gender shall be construed to include all other genders,
references in the singular shall be construed to include the plural, and
references in the plural shall be construed to include the singular, unless the
context clearly indicates to the contrary.
12.3 Certain Words. The words "hereof," "herein," "hereunder," and
other similar compounds of the word "here" shall mean and refer to the entire
Agreement and not to any particular article, provision or paragraph unless so
required by the context.
12.4 Captions. Paragraph titles or captions contained in this Agreement
are inserted only as a matter of convenience and/or reference, and they shall in
no way be construed as limiting, extending, defining or describing either the
scope or intent of this Agreement or of any provision hereof.
12.5 Counterparts. This Agreement may be executed in one or more
counterparts, including facsimile counterparts, and any such counterpart shall,
for all purposes, be deemed an original, but all such counterparts together
shall constitute but one and the same instrument.
12.6 Severability. The invalidity or unenforceability of any provision
hereunder (or any portion of such a provision) shall not affect the validity or
enforceability of the remaining provisions (or remaining portions of such
provisions) of this Agreement. In such case the parties shall attempt to replace
such provision with a similar, but enforceable, provision.
12.7 Entire Agreement. This Agreement (and all other documents executed
simultaneously herewith or pursuant hereto) constitutes the entire agreement
among the parties pertaining to the subject matter hereof, and supersedes and
revokes any and all prior or existing agreements, written or oral, relating to
the subject matter hereof, and this Agreement shall be solely determinative of
the subject matter hereof.
12.8 Waiver. Either TCPI or Employee may, at any time or times, waive
(in whole or in part) any rights or privileges to which he or it may be entitled
hereunder. However, no waiver by any party of any condition or of the breach of
any term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, shall be deemed to be or construed as a further
continuing waiver of any other condition or of any breach of any other terms,
covenants, representations or warranties contained in this Agreement, and no
waiver shall be effective unless it is in writing and signed by the waiving
party.
17
<PAGE>
12.9 Attorneys' Fees. In the event that either party shall be required
to retain the services of an attorney to enforce any of his or its rights
hereunder, the prevailing party in any arbitration or court action shall be
entitled to receive from the other party all costs and expenses including (but
not limited to) court costs and attorneys' fees (whether in an arbitration or in
a court of original jurisdiction or one or more courts of appellate
jurisdiction) incurred by Employee or TCPI in connection therewith. The parties
hereby expressly confer on the arbitrator the right to award costs and
attorneys' fees in the arbitration. For the purpose of this Paragraph 12.9, the
"prevailing party" shall be the party determined not to have owed money to the
other party or determined to have owed less than the other party.
12.10 Venue. Any arbitration or other litigation arising hereunder
shall be instituted only in Broward County, Florida or in the county where TCPI
has its principal place of business.
12.11 Assignment. The rights and obligations of the parties under this
Agreement shall inure to the benefit of and shall be binding upon their
successors, assigns, and/or other legal representatives. This Agreement shall
not be assignable by TCPI. The services of Employee are personal and his
obligations may not be delegated by Employee except as otherwise provided
herein.
12.12 Amendment. This Agreement may not be amended, modified,
superseded, cancelled, or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by a
written instrument executed by TCPI and Employee or, in the case of a waiver, by
the party to be charged with such waiver.
12.13 No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any person,
other than TCPI and Employee and their respective successors and permitted
assigns, any rights or remedies under or by reason of this Agreement.
12.14 Full Settlement. TCPI's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder, shall
not be affected by any set-offs, counterclaims, recoupment, defense or other
claim, right or action that TCPI may have against the Employee or others. In no
event shall the Employee be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Employee under any of
the provisions of this Agreement. In the event either party is in default in any
payment due to the other, the financial obligation of such party shall bear
interest at the Wall Street Journal prime rate per annum plus two percentage
points from the date payment was due and should have been made.
18
<PAGE>
ARTICLE XIII
------------
ARBITRATION
13.1 Arbitration. Any controversy or claim arising out of, or relating
to, this Agreement, or the breach hereof, shall be settled by arbitration in the
City of Fort Lauderdale, in accordance with the Commercial Rules of Arbitration
of the American Arbitration Association in the State of Florida, and any
judgment upon the award rendered may be entered in any court having jurisdiction
thereof.
13.2 Continuation of Salary. The Employee shall be entitled to receive
Employee's salary and other benefits in effect at the Termination Date upon the
commencement of Arbitration for the period of the earliest to occur of (i) the
termination of the Arbitration, (ii) Employee's employment by a third party or
(iii) one (1) year from the Termination Date, provided, however, that the
Employee would be obligated to repay TCPI such salary (without interest) in the
event that the Arbitrators determine that the termination of Employee's
employment was proper pursuant to the provisions of this Employment Agreement
and such Arbitrator(s) find such repayment justified and equitable.
IN WITNESS WHEREOF, TCPI and Employee have caused this Agreement to be executed
on the day and year first above written.
TECHNICAL CHEMICALS AND
PRODUCTS, INC.
- ---------------------------------- By
Witness
------------------------------
- ---------------------------------- JACK L. ARONOWITZ, Chairman
Witness
- ----------------------------------
Witness
- ---------------------------------- --------------------------------
Witness ELLIOTT BLOCK
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 'A'
INCENTIVE STOCK OPTIONS
ELLIOT BLOCK
DATE OF NUMBER OF OPTION
GRANT SHARES VESTING EXPIRATION PRICE
----- ------ ------- ---------- -----
<S> <C> <C> <C> <C>
5/10/99 80,000 5/10/1999 10th anniversary of grant date $1.25
5/10/99 80,000 5/10/2000 10th anniversary of grant date $1.25
5/10/99 80,000 5/10/2001 10th anniversary of grant date $1.25
</TABLE>
<TABLE>
<CAPTION>
NON-QUALIFED STOCK OPTIONS
DATE OF NUMBER OF OPTION
GRANT SHARES VESTING EXPIRATION PRICE
----- ------ ------- ---------- -----
<S> <C> <C> <C> <C>
5/10/99 3,334 5/10/1999 10th anniversary of grant date $1.25
5/10/99 3,333 5/10/2000 10th anniversary of grant date $1.25
5/10/99 3,333 5/10/2001 10th anniversary of grant date $1.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(The Company's Quarterly Report on Form 10-Q for the Period Ending
September 30, 1999)
</LEGEND>
<CIK> 0000924921
<NAME> EDMOND FEE
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,312
<SECURITIES> 2,369
<RECEIVABLES> 1,197
<ALLOWANCES> 95
<INVENTORY> 2,626
<CURRENT-ASSETS> 10,692
<PP&E> 4,404
<DEPRECIATION> 2,350
<TOTAL-ASSETS> 30,326
<CURRENT-LIABILITIES> 1,521
<BONDS> 0
0
12,358
<COMMON> 11
<OTHER-SE> 15,624
<TOTAL-LIABILITY-AND-EQUITY> 30,326
<SALES> 3,942
<TOTAL-REVENUES> 4,413
<CGS> 2,297
<TOTAL-COSTS> 2,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (7,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,668)
<EPS-BASIC> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
