As filed with the Securities and Exchange Commission on June 9, 2000
REGISTRATION FORM NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TECHNICAL CHEMICALS AND PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0308922
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3341 S.W. 15TH STREET
POMPANO BEACH, FLORIDA 33069
(954) 979-0400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JAY E. ECKHAUS, ESQ.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
3341 S.W. 15TH STREET
POMPANO BEACH, FLORIDA 33069
(954) 979-0400
(Address, including zip code, and telephone
number, including area code, of agent for service)
COPY TO:
TEDDY D. KLINGHOFFER, ESQUIRE
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE SOUTHEAST THIRD AVENUE
MIAMI, FLORIDA 33131-1700
(305) 374-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: |X|
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1)of this form, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the effective registration statement for
the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Amount to be Proposed maximum offering Proposed maximum Amount of registration fee
securities to be registered registered price per unit (1) aggregate offering price(1)
========================== ===================== =========================== ========================== ===========================
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share 50,568,673 $0.875 $44,247,589 $11,681
========================== ===================== =========================== ========================== ===========================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low
prices for the Common Stock as reported on The Nasdaq National Market
on June 7, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 9, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prospectus
50,568,673 SHARES
[TCPI's Logo]
TECHNICAL CHEMICALS AND PRODUCTS, INC.
COMMON STOCK
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These shares of our common stock are being offered for sale by the
selling shareholders. The selling shareholders may sell the common stock at
prices and on terms determined by the market, in negotiated transactions or
through underwriters.
INVESTING IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.
"RISK FACTORS" BEGIN ON PAGE 9.
Our common stock is listed and traded on the Nasdaq National Market
System under the symbol "TCPI." The last reported sales price of the common
stock on June 8, 2000 was $0.8438 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ______, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Where You Can Find More Information...........................................1
Information Incorporated by Reference.........................................2
Special Note Regarding Forward-Looking Statements.............................4
Prospectus Summary............................................................5
Risk Factors..................................................................9
Use of Proceeds..............................................................23
The Investment Agreement.....................................................23
Selling Shareholders.........................................................29
Plan Of Distribution.........................................................31
Description of Capital Stock.................................................32
Transfer Agent And Registrar.................................................35
Legal Matters................................................................35
Experts ....................................................................35
As used in this prospectus, unless otherwise indicated, any reference
to our business, our products or our financial condition includes all of our
subsidiaries, including our wholly-owned subsidiaries, Health-Mark Diagnostics,
L.L.C. and TCPI Holdings, Ltd., and our joint venture, Technical Electronics
Corporation.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information
with the Securities and Exchange Commission. You may read our SEC filings over
the Internet at the Commission's website at http://www.sec.gov. You may also
read and copy documents at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms.
We have filed with the Commission a registration statement on Form S-2
under the Securities Act with respect to the shares of common stock offered by
this prospectus. This prospectus, which is a part of the registration statement,
does not contain all of the information set forth in the registration statement.
For further information about us and our common stock, you should refer to the
registration statement.
Our common stock is listed on the Nasdaq National Market and reports
and proxy statements and other information concerning us also can be inspected
at the offices of The Nasdaq-Amex Stock Market, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006-1500.
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INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to provide information about our business and
other important information to you by "incorporating by reference" the
information we file with the Commission, which means that we can disclose the
information to you by referring in this prospectus to the documents we file with
the Commission.
We incorporate by reference into this prospectus the following
documents filed by us with the Commission. You should consider each document
incorporated by reference an important part of this prospectus:
<TABLE>
<CAPTION>
SEC FILING (FILE NO. 000-30110) PERIOD COVERED OR DATE OF FILING
------------------------------- --------------------------------
<S> <C>
Annual Report on Form 10-K.............................................. Year ended December 31, 1999
Annual Report on Form 10-K/A............................................ May 1, 2000
Annual Report on Form 10-K/A............................................ June 5, 2000
Annual Report on Form 10-K/A............................................ June 9, 2000
Quarterly Report on Form 10-Q........................................... Quarter ended March 31, 2000
Current Report on Form 8-K.............................................. February 18, 2000
Current Report on Form 8-K.............................................. June 8, 2000
Description of our common stock contained in our
Registration Statement on Form 8-A and any amendment or
report filed for the purpose of updating such description .............. January 20, 1995
</TABLE>
We are delivering along with this prospectus a copy of our most recent
Annual Report on Form 10-K and Quarterly Report on Form 10-Q. You may request a
copy of the other filings that we are incorporating by reference in this
prospectus, but are not delivering with this prospectus, at no cost, by writing
or telephoning us at the following address, telephone or facsimile number:
Technical Chemicals and Products, Inc.
3341 S.W. 15th Street
Pompano Beach, FL 33069
Phone: (954) 979-0400
Fax: (954) 979-6125
Attention: Jay E. Eckhaus, Esq.
Exhibits to a document will not be provided unless they are
specifically incorporated by reference in that document.
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You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements of our intentions, beliefs, expectations or predictions for
the future, denoted by the words "believes," "expects," "may," "will," "should,"
"seeks," "pro forma," "anticipates," "intends" and similar expressions are
forward-looking statements that reflect our current views about future events
and are subject to risks, uncertainties and assumptions. Such risks,
uncertainties and assumptions include those identified in the "Risk Factors"
section of this prospectus and the following:
o our ability to obtain sufficient liquidity and capital to fund
our operations and to complete acquisitions;
o delays in product development;
o our ability to satisfactorily perform clinical trials
demonstrating efficacy of our products under development;
o the probability and timing of obtaining FDA clearance or
approval of our products under development;
o our ability to successfully develop and market new products on
a profitable basis or at all;
o the ability to complete the design, construction and
manufacturing scale-up of our products on a timely basis
within budget parameters;
o future advances in technology and medicine by others that may
render our products obsolete;
o competition from other pharmaceutical, medical and diagnostic
companies;
o risks and expense of government regulation and effects of
changes in regulation (including risks associated with
obtaining requisite domestic and foreign governmental
approvals for our products, manufacturing equipment or related
facilities);
o uncertainties connected with product liability exposure and
insurance;
o risks associated with obtaining and maintaining patents and
other protections on intellectual property and patents
obtained by others that may adversely affect us; and
o the results of litigation pending against us and the costs of
defending ourselves and prosecuting claims against others in
such litigation.
Prospective investors are cautioned that these forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including, without limitation, the risk factors and other matters set forth in
this prospectus generally. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements included in this
document. We undertake no
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obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
PROSPECTUS SUMMARY
OUR BUSINESS
We develop, manufacture and distribute point-of-care medical diagnostic
products for use at home, in physician offices, and other healthcare locations
that are distributed through domestic and international channels. In addition,
we also own a patent-protected proprietary portfolio of transdermal and dermal
drug delivery technologies and skin permeation enhancers. We also manufacture
high purity specialty biochemicals.
We manufacture and market in the U.S. and internationally medical
diagnostic testing products that utilize membrane-based technology. Diagnostic
products sold in the United States have received 510(k) marketing clearance from
the United States Food and Drug Administration. The balance of our diagnostic
products are from time-to-time in various stages of development, clinical and
regulatory review in the U.S. and overseas, or intended for export outside the
U.S. Many of our currently marketed diagnostic products incorporate our patented
and proprietary membrane-based technology platform. We presently hold 26 U.S.
and foreign patents, and have 61 domestic and foreign patent applications
pending.
OUR PRODUCT PORTFOLIO
We currently market various medical diagnostic products. These products
utilize rapid testing procedures to detect and/or quantify substances in urine
or blood. Our diagnostic portfolio presently includes testing and screening
products for:
o family planning (pregnancy and ovulation timing);
o cholesterol monitoring and detection of diabetes, urinary
tract infection and kidney and bladder disease, skin cancer
and deteriorating vision;
o infectious diseases; and
o drugs of abuse.
Our transdermal/dermal portfolio includes development-stage technologies in the
areas of smoking addiction reduction, hormone replacement therapy, and
cardiovascular disease, as well as commercialization of skin permeation
enhancers.
We also have certain key products in various stages of development and
clinical trials that include:
o our noninvasive TD Glucose(TM)Monitoring System (the "TD
Glucose Monitoring System") for diabetics;
o our new Total and HDL Cholesterol screening and monitoring
products for over-the-
counter use and professional use; and
o our HealthCheck(R)and private-label brands of over-the-counter
diagnostic screening tests for at-home use by consumers.
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Our diagnostic products are marketed worldwide through multiple
distribution channels that include:
o original equipment manufacture ("OEM") marketing relationships
with multinational pharmaceutical and diagnostic companies for
product use on a professional and/or over- the-counter basis;
o over-the-counter sales of our proprietary HealthCheck(R)and
private-label brands for consumer use on an over-the-counter
basis; and
o Internet sales via our web site, www.health-check.com.
In the OEM sector, a significant portion of our family planning
products for pregnancy and fertility are currently marketed by Roche Diagnostics
GmbH for international distribution under their trademarks. However, as
discussed below, on May 20, 2000 we entered into an asset purchase agreement
with Roche Diagnostics GmbH for the acquisition of certain trademarks and
business assets relating to the pregnancy and ovulation business of Roche
Diagnostics. If this acquisition is successfully completed, we will be
responsible for the marketing and distribution of these products. The OEM sector
also includes marketing of our screening tests for drugs of abuse and infectious
diseases by other OEM customers for distribution in the U.S. and/or
international markets based on regulatory clearance.
In addition, in January 1999, we opened an international sales and
marketing office in Milan, Italy to expand distribution of our diagnostic
products outside of North America. International expansion of our diagnostic
products is ongoing. Product marketing and/or registration with local health
officials is underway in a number of foreign countries.
Our HealthCheck(R) and private-label diagnostic products are currently
available in more than 17,000 pharmacies, supermarkets and mass merchandise
retail stores throughout the United States and Canada as well as community
pharmacies that are supplied directly by the leading drug wholesale
distributors. We private label our family planning products for 7 drug, discount
and supermarket chains.
In 1999, sales of our products to Roche Diagnostics GmbH accounted for
approximately 31% of sales; CVS Distribution, Inc. (CVS Drug Stores) accounted
for approximately 25% of sales; and LVMH Moet Hennessy Louis Vuitton, Inc.
accounted for approximately 13% of sales.
Our executive offices are located at 3341 S.W. 15th Street, Pompano
Beach, Florida 33069, and our telephone number is (954) 979-0400.
RECENT DEVELOPMENTS
THE SWARTZ TRANSACTION
On May 3, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. Under the investment agreement, also referred to as an
equity line, we have the option to sell, or "put," up to $25 million of our
common stock to Swartz, subject to a formula based on stock price and trading
volume, over a three year period beginning on the effective date of the
registration statement, of which this prospectus is a part. In addition, we
issued to Swartz a warrant to purchase 312,500 shares of our common stock at a
price of $1.9063 per share, subject to adjustment, and a warrant to purchase
312,500 shares of our common stock at a price of $0.9375, subject to adjustment.
We may issue additional warrants to Swartz pursuant to the terms of the
investment agreement. A more detailed description of this transaction is set
forth below under the caption "The Investment Agreement."
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THE ROCHE DIAGNOSTICS TRANSACTION
On May 20, 2000 our wholly-owned Cayman Islands subsidiary, TCPI
Holdings, Ltd, entered into a business and asset purchase agreement with Roche
Diagnostics GmbH of Mannheim, Germany. Pursuant to the asset purchase agreement,
TCPI Holdings will acquire certain trademarks, distribution rights and business
assets of the world-wide over-the-counter pregnancy and ovulation testing
business carried on by Roche Diagnostics. The trademarks include EVATEST(R),
EVAPLAN(R), EVENT-TEST(R), DIAGNOSIS(R) and related goodwill. We have guaranteed
TCPI Holdings' performance under the asset purchase agreement. We have agreed to
hold Roche Diagnostics and its affiliates harmless against any and all past and
future patent infringement actions directed against pregnancy and ovulation
testing products that we have supplied to Roche Diagnostics under our previous
OEM agreements. See the discussion under "Legal Proceedings" for a description
of currently pending patent infringement litigation relating to these products.
The purchase price for the assets set forth in the asset purchase
agreement and the local asset purchase agreements is $7 million plus the value
added tax, if applicable. TCPI Holdings made a down payment of $500,000 upon
signing of the asset purchase agreement. A second down payment of $3 million is
due when this registration statement is declared effective, but no later than
September 17, 2000. The balance of $3,500,000 is payable in installments, which
could begin as early as August 1, 2000, before the closing of each local asset
purchase agreement in Germany, Uruguay, Switzerland, Spain, Italy and Argentina.
The majority of the assets we will be acquiring are located in Argentina, the
closing of which must occur by December 31, 2001. The local closings are
conditioned on compliance with country-specific regulatory authorization and
product registration by local health and regulatory authorities.
As described in greater detail under the heading "Risk Factors", we do
not currently have sufficient funds to make the second and third payments due
under the asset purchase agreement. We are seeking to secure funds for these
payments through financing activities in the capital markets, such as the Swartz
transaction described above, funds generated in the ordinary course of business,
and funds generated by the acquired operations after the local closings.
However, we cannot assure you that we will obtain the necessary funds. As
described above and in the "Risk Factors" section, since the funds available
under our private equity line with Swartz are subject to the future market price
and volume of trading of our common stock, we may be unable to obtain sufficient
funds pursuant to the Swartz transaction on a timely basis, or at all. The
failure to complete the acquisition will have a material adverse effect on our
financial condition.
If we do not make the required payments, we will forfeit the $500,000
we have already paid. Further, our obligation to indemnify Roche Diagnostics in
connection with patent infringement claims, including the litigation with
Unilever, may survive the termination of the asset purchase agreement. In
addition, Roche Diagnostics may sell the assets to one of our competitors, who
may decide not to sell our products, which would result in a material decrease
in revenues, thereby adversely affecting our operating results.
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OFFERING
By means of this prospectus the selling shareholders are offering for
sale up to 50,568,673 shares of our common stock. We are required under our
contract with Swartz to register 25 million shares plus an indeterminate number
of shares above 25 million. We have elected to register 50 million shares. The
selling shareholders may sell the common stock at prices and on terms determined
by the market, in negotiated transactions and through underwriters.
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RISK FACTORS
Prospective investors should carefully consider the specific factors
set forth below, as well as the other information contained in this prospectus,
before deciding to invest in the common stock offered hereby.
WE HAVE HAD OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE OPERATING LOSSES.
We have experienced sustained significant operating losses that have
resulted in substantial consumption of our cash reserves. The majority of our
research, development and engineering activities are dedicated to the
development of new products. As a result, we are not generating sufficient
revenue from the sales of our existing products to cover the expenses associated
with the development of new products. In 1999 and 1998, we had a net loss of
$15.3 million and $9.8 million, respectively. For the quarter ended March 31,
2000, our net loss was $2.5 million. We expect to continue to incur losses and
have negative cash flow for the immediate future. Based on our current rate of
losses and cash flow, we will not be able to continue our operations unless we
secure additional financing, reduce our operating losses, reduce expenses,
increase sales of our products, or sell assets. We cannot assure you that the
sales of certain of our products under development will ever commence or that we
will generate significant revenues or achieve profitability.
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OUR AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
CONTAIN "GOING CONCERN" LANGUAGE.
The auditor's report for our financial statements for the year ended
December 31, 1999 states that because of recurring operating losses and our
continued experience of negative cash flows from operations, there is
substantial doubt about our ability to continue as a going concern. A
"going-concern" opinion indicates that the financial statements have been
prepared assuming we will continue as a going-concern and do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
WE WILL NEED ADDITIONAL CAPITAL TO CONTINUE OUR OPERATIONS.
If we are unable to obtain additional funding on satisfactory terms and
reduce our operating losses, we will have to consider selling some or all or our
technologies, reduce or terminate completely our research and development
activities, or reduce or discontinue some or all of our operations and/or apply
for protection from our creditors under the federal bankruptcy laws. In
addition, as described below, we have pending judgments against us in various
legal proceedings, some of which are currently secured by bonds collateralized
by existing working capital. If we were required to satisfy all or a significant
portion of these judgments on a basis faster than presently anticipated, our
severe liquidity condition would be further exacerbated.
Our long-term ability to meet our liquidity requirements and to
continue operations will depend on the following:
o our ability to raise additional capital, including our ability
to draw down money pursuant to the Swartz equity line;
o our ability to close and successfully operate the pregnancy
and ovulation business we are acquiring from Roche
Diagnostics;
o the successful completion of clinical trials and receipt of
governmental approvals to
begin manufacturing and selling our new products; and
o our ability to sell our new products at a profit.
Our future working capital and capital expenditure requirements may vary
materially from those now planned depending on numerous factors, including:
o 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 clearance or approval
procedures and our ability to receive FDA clearance or
approval for the marketing of our products under development;
o competitive and technological advances that may require us to
modify the design of our products under development;
o our ability to successfully resolve pending litigation; and
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o manufacturing costs for our current and future products.
WE MAY BE UNABLE TO OBTAIN SUFFICIENT FUNDS FROM THE EQUITY LINE AGREEMENT WITH
SWARTZ TO MEET OUR LIQUIDITY NEEDS.
To continue operations, we must obtain sufficient funds from the equity
line agreement with Swartz. However, the amount of money we can obtain under the
equity line agreement with Swartz is limited by the future market price and
volume of trading of our common stock. If the price of our common stock
declines, or trading in our common stock is low, we will be unable to obtain
sufficient funds to meet our liquidity needs, including making payments pursuant
to the acquisition of assets from Roche Diagnostics. Further, we may be unable
to satisfy the conditions contained in the equity line agreement, which would
result in our inability to draw down money on a timely basis, or at all. If we
do not make the required payments aggregating $4,250,000 by September 17, 2000
to Roche Diagnostics, we will forfeit the $500,000 we have already paid to Roche
Diagnostics. Further, our obligation to indemnify Roche Diagnostics in
connection with patent infringement claims, including the litigation with
Unilever, may survive the termination of the asset purchase agreement. We do not
at this time have any other sources of financing, or commitments for financing,
in place to satisfy our liquidity needs.
WE ARE THE SUBJECT OF PENDING LITIGATION AND HAVE JUDGMENTS AGAINST US WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
As discussed under the heading "Legal Proceedings," we are the subject
of pending litigation. The cost of prosecuting and defending these actions or
the cost of a settlement or award of damages, if any, could have a material
adverse effect on our business, prospects, results of operations or financial
condition. Further, we have pending judgments against us in various legal
proceedings, some of which are currently secured by bonds collateralized by
existing working capital. If we were required to satisfy all or a significant
portion of these judgments on a basis faster than presently anticipated, our
severe liquidity condition would be further exacerbated. We maintain directors'
and officers' liability insurance; however, we cannot assure you that such
insurance coverage will be adequate to fund the costs of an award, if any, or
attorneys' fees. Demands have been made upon us which far exceed the amount of
such coverage.
WE INCUR SIGNIFICANT EXPENSES TO SUPPORT OUR NEW PRODUCT DEVELOPMENT.
In order to support anticipated growth and new product development, we
expect to incur significantly increased operating expenses and capital
expenditures in the future. We expect to continue to incur significant expenses
in the near future, primarily as a result of the following:
o increased research and development associated with the TD
Glucose Monitoring System and the commercialization and
conducting of clinical trials of all products requiring
domestic or foreign regulatory approval;
o expansion of direct distribution of medical diagnostic
products related to the national roll-out of our
HealthCheck(R) brand, our international business and our
private label business;
o introduction of our cholesterol monitoring system, which can
be used by physicians, laboratories and patients at home;
o costs associated with expansion of our manufacturing
facilities; and
o costs associated with closing our acquisition of assets from
Roche Diagnostics.
Research and development expenditures for 1999 and 1998 were $1.7
million and $2.8 million, respectively, primarily as a result of ongoing
development of our TD Glucose Monitoring System, the cost of conducting clinical
trials for our new Total and HDL cholesterol monitoring products and new
diagnostic products. 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, technological and competitive developments and strategic
marketing decisions.
MANY OF OUR PRODUCTS ARE IN THE DEVELOPMENT STAGE AND CANNOT YET BE SOLD.
Many of our products are in various stages of development and have not
yet been commercialized. Before we can commercially market our products in the
United States, we must first conduct clinical trials using a version of the
product designed for commercial sale, prepare a submission to the FDA and obtain
permission for their distribution from the FDA. Generally, we must also seek
approval from comparable agencies in foreign countries where we desire to
distribute our products. We are in various stages of completing the development
of, and completing the FDA and foreign clearance processes for products
including infectious disease detection, drugs of abuse screening and other
medical diagnostic testing products. A principal product under development, the
TD Glucose Monitoring System, has not yet received FDA clearance. We cannot
assure you that we will be able to obtain the necessary FDA clearance for this
product or that we will not experience significant delay and/or expenses in
obtaining clearance for the TD Glucose Monitoring System or our other products,
or that our various products under development will be developed to a point at
which they are ready to be submitted for FDA clearance. Lack of clearance of any
of these may adversely affect our ability to market and sell our products. Even
in the event we receive the necessary regulatory clearance, we cannot assure you
that we can avoid unforeseen problems in product manufacturing and commercial
scale-up or marketing or
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product distribution, which could significantly delay the commercialization of
such products, or prevent our market introduction entirely. We cannot assure you
that the products selected for development by us or which have received
regulatory clearance and are introduced into the market will in fact achieve any
degree of commercial success.
THE LOSS OF A MAJOR CUSTOMER COULD MATERIALLY ADVERSELY AFFECT REVENUES.
A large percentage of our revenue comes from the sale of products to a
small number of customers. In 1999, sales of our products to Roche Diagnostics
accounted for approximately 31% of sales, sales of our products to CVS
Distribution, Inc. (CVS Drug Stores) accounted for approximately 25% of sales,
and sales of our products to LVMH Moet Hennessy Louis Vuitton, Inc. accounted
for approximately 13% of sales. As described above, on May 20, 2000, we signed
an asset purchase agreement for the acquisition of certain trademarks and
business assets relating to the pregnancy and ovulation testing business of
Roche Diagnostics. If we are able to complete this acquisition successfully, we
will be responsible for the marketing and distribution of these products. As a
result, if we are unable to market and distribute these products successfully,
it will adversely affect our operating results. Further, the loss of one of our
remaining major customers would also adversely affect our operating results.
IF WE ARE UNABLE TO COMPLETE THE ACQUISITION OF ASSETS FROM ROCHE DIAGNOSTICS,
ROCHE MAY SELL THESE ASSETS TO A COMPETITOR, WHICH WOULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
The acquisition of assets from Roche Diagnostics is contingent on us
obtaining sufficient funds to make the remaining payments due under the
contract. We may be unable to obtain these funds. If we do not acquire these
assets, Roche may sell these assets to one of our competitors who may not sell
our products, which would result in a material decrease in revenues, thereby
adversely affecting our operating results.
WE HAVE LIMITED EXPERIENCE IN DIRECTLY SELLING AND MARKETING OUR PRODUCTS
DOMESTICALLY AND IN FOREIGN MARKETS AND MAY NOT BE ABLE TO EXPAND AND SUPERVISE
A DIRECT SALES AND MARKETING FORCE THAT CAN MEET OUR CUSTOMERS' NEEDS.
Once the acquisition of assets from Roche Diagnostics is complete, we
intend to sell a portion of our international family planning products for
pregnancy and fertility through our own sales force. Previously, a majority of
our family planning products were marketed by Roche Diagnostics on an OEM basis
for international distribution under their trademarks. We have limited
experience in direct marketing, sales and distribution. Our future profitability
will depend, in part, on our ability to expand and supervise a direct sales and
marketing force to sell these products to our customers. We may not be able to
attract and retain qualified salespeople or be able to build an efficient and
effective sales and marketing force. However, we intend to hire the intact Roche
sales and marketing organization in Argentina. Failure to attract or retain
qualified salespeople or to build an efficient and effective sales and marketing
force could negatively impact sales of our products, thus reducing our revenues
and profitability.
Further, once the acquisition of assets from Roche Diagnostics is
complete, we will be acquiring the local distribution channels in Germany,
Switzerland, Italy, Spain, Uruguay and the local sales organization in
Argentina. We have no experience in marketing our products internationally on a
local basis. Further, we may be unable to integrate the foreign sales
organizations with our domestic operations. Conducting business in foreign
countries will expose us to the risks of dealing with foreign governmental
regulations, tariffs, import and export restrictions, transportation, currency
translations and taxes and local health and safety regulations. Consummation of
such foreign marketing activities could lead to unanticipated
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and fluctuating expenses and revenues and sales and marketing dislocations that
are beyond our ability to control, and which could negatively impact sales of
our products, thus reducing our revenues and profitability.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND SUBJECT TO RAPID
TECHNOLOGICAL CHANGE.
A large number of companies are involved, or are becoming involved, in
the development and commercialization of products incorporating diagnostic and
drug delivery systems. Competitors include major pharmaceutical, medical
diagnostic and chemical companies, many of which have considerably greater
financial, technical, clinical and marketing strength than us. Such companies
may improve existing products more efficiently than us or may design and develop
new diagnostic and transdermal drug delivery products which are more accepted in
the marketplace than our products, our products under development or our
technologies. Further, the markets in which we compete and intend to compete are
undergoing, and are expected to continue to undergo, rapid and significant
technological change, and we expect competition to intensify as technological
advances in such fields are made.
Several of our competitors have developed or may develop products that
are similar in design and capability to our existing products or products under
development. We further anticipate that additional products for similar
applications will be developed and marketed by our competitors. Our transdermal
technology is competitive with drugs marketed not only in similar drug delivery
systems, but also in traditional dosage forms such as oral administration, bolus
injection and continuous infusion. New drugs, new therapeutic approaches or
future developments in alternative drug delivery technologies, such as
time-release capsules, liposomes and implants, may provide therapeutic or cost
advantages over the drug delivery systems in our technology portfolio.
Our primary competitors in the glucose monitoring industry are expected
to be companies that currently market "finger stick" method products, where
patients obtain their blood by sticking their finger with a lancet. These
companies have established products and distribution channels. In addition, a
number of companies are engaged in the development of products using technology
which is different than that used by us, but that are also intended to permit
less painful or painless glucose monitoring. These technologies include infrared
spectroscopy, and a variety of methods (including, in one case, transdermal
technology) to extract interstitial fluid and measure the glucose concentration
therein. In addition, a number of companies have developed or are seeking to
develop new drugs to treat diabetes that could reduce demand for glucose
monitoring systems. Further, many of our competitors and potential competitors
have substantially greater resources, research and development staffs,
capabilities and facilities than we do for developing, manufacturing and
marketing glucose monitoring devices. Competition within the glucose monitoring
industry could adversely affect our business and also result in price reductions
for glucose monitoring devices such that we may not be able to sell the TD
Glucose Monitoring System at a price level adequate for us to realize a return
on our investment. We cannot assure you that we will have the resources,
technical expertise or marketing, distribution or support capabilities to
compete successfully in the future or that we will successfully develop
technologies and products that are more effective or affordable than those being
developed by our competitors or that developments by our competitors will not be
more accepted in the marketplace than our products, including the TD Glucose
Monitoring System, or will not render our products or technologies obsolete or
noncompetitive. In addition, our competitors may achieve patent protection,
regulatory approval or commercialization earlier than us and gain competitive
advantages relative to us.
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WE HAVE LIMITED MANUFACTURING EXPERIENCE.
We are subject to the problems facing product manufacturers generally,
including, without limitation, delays in receiving raw materials, rising prices
for materials and the need to obtain and maintain equipment and avoid down time
resulting from equipment failures. To be successful, our products must be
manufactured in commercial quantities in compliance with regulatory requirements
and at acceptable costs. Production of these products, especially in commercial
quantities, will create technical and financial challenges for us and we cannot
assure you that manufacturing or quality control problems will not arise.
Our TD Glucose Monitoring System under development has not yet been
manufactured for commercial sale. To successfully commercialize the TD Glucose
Monitoring System, the device will have to be manufactured in compliance with
regulatory requirements, in a timely manner and in sufficient quantities while
maintaining product quality and acceptable manufacturing costs. We anticipate
that we will be responsible for most aspects of manufacturing the TD Glucose
Monitoring System. Manufacturers often encounter difficulties in scaling up
production of new products, including problems involving production yields,
quality control and assurance and shortages of personnel. We cannot assure you
that we will be able to achieve and maintain product quality and reliability if
and when producing the TD Glucose Monitoring System in the quantities required
for commercialization, or that the TD Glucose Monitoring System can be assembled
and manufactured at an acceptable cost, or at all.
We intend to manufacture both TD Glucose Meters and TD Glucose Patches,
the components of the TD Glucose Monitoring System, and sell these finished
goods to future marketing partners for worldwide distribution. In July 1998, we
established Technical Electronics Corporation, a company of which we own 80%, to
manufacture electronic devices for our noninvasive glucose monitoring system and
other future electronic products. In January 1999, we announced the commencement
of the engineering phase of the manufacturing scale-up process to commercially
produce TD Glucose patches. Our plans include the design and construction of
high-speed state-of-the-art machinery to conduct the complex manufacturing and
automatic packaging of TD Glucose patches. The engineering phase is a key
element to the manufacturing scale-up process. It is anticipated that the
engineering and manufacturing scale-up process will require a minimum of 24
months to complete - and include equipment installation and full-scale operation
under FDA diagnostic Good Manufacturing Practices, and inventory build-up prior
to market introduction. However, we cannot assure you that the engineering or
manufacturing scale-up process for the TD Glucose Patches and/or TD Glucose
Meters will be timely or successful or produce finished product in sufficient
quality or quantity, or on a cost-effective basis, or at all.
IF WE ARE UNABLE TO SECURE ADEQUATE PATENT PROTECTION FOR OUR TECHNOLOGIES, THEN
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
We hold 26 United States and foreign patents, and have 61 domestic and
foreign patent applications pending. With respect to such patents, we cannot
assure you:
o as to the degree or adequacy of protection any patents or
patent applications may or will afford;
o that our competitors will not independently develop or patent
technologies that are substantially equivalent or superior to
our technology;
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o that existing patent applications will mature into issued
patents, or that the claims allowed under any patents will be
sufficiently broad to protect our technology; or
o that any patents issued to us will provide us with competitive
advantages or will not be challenged by others, or if
challenged, will be held valid, or that the patents of others
will not have an adverse effect on our ability to conduct our
business.
In addition, we rely on a combination of proprietary rights in various
unpatented technologies, know-how, trade secrets, trademarks and employee and
third-party nondisclosure agreements to protect our proprietary rights. The
steps taken to protect our rights may not be adequate to prevent
misappropriation of our technology or to preclude competitors from developing
products with features similar to our products.
WE ARE A PARTY TO LAWSUITS REGARDING PATENT INFRINGEMENT.
Our success will depend, in part, on our ability to protect, obtain or
license patents, protect trade secrets and operate without infringing the
proprietary rights of others. We are a party to lawsuits regarding patent
infringement. See the discussion below under the heading "Legal Proceedings." We
cannot assure you that additional infringement claims will not be asserted
against us in the future. If we are found to be infringing any third party
patents, proprietary rights or trade secrets, we cannot assure you that we will
be able to obtain licenses with respect to such patents, proprietary rights or
trade secrets on acceptable terms, if at all. If we do not obtain such licenses,
we could encounter delays in product introductions or could find that the
development, manufacture or sales of products requiring such licenses could be
foreclosed. We could also experience a loss of revenues, an increase in costs
and incur substantial expense for defending our company in lawsuits brought
against us with respect to our patents, proprietary rights or trade secrets or
engaging in lawsuits to enforce patents issued to us or to protect trade secrets
or know-how owned by us.
IF ANY OF OUR PRODUCTS ARE CLEARED AND ENTER THE MARKET, THEY MAY NOT BE
ACCEPTED BY PHYSICIANS AND PATIENTS IF ADEQUATE INSURANCE COVERAGE AND
REIMBURSEMENT LEVELS ARE NOT AVAILABLE.
Our ability to successfully commercialize our products may depend in
part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health coverage insurers and other organizations.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products and we cannot assure you that adequate third party
reimbursement will be available for us to maintain price levels or volume
sufficient for the realization of an appropriate return on our investment in our
products. In certain foreign countries, the period of time needed to obtain such
reimbursement can be lengthy. Government and other third party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new and established therapeutic and
diagnostic products approved for marketing, and by refusing, in some cases, to
provide any coverage for indications for which the FDA and other national health
regulatory authorities have not granted marketing approval. If adequate coverage
and reimbursement levels are not provided by government and third party payors
for uses of our TD Glucose Monitoring System or our other products, the market
acceptance of these products would be adversely affected.
Numerous health care reform proposals have been advanced in recent
years that are aimed at changing the health care system in the United States.
Although these proposals may lead to an increased emphasis on preventative
measures and to an expanded market for our products, third party health care
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payors may not share this view. We are unable to predict the outcome or the
effect of the health care reform debate on our business and prospects.
WE DEPEND ON OUR KEY PERSONNEL.
Because of the specialized, technical nature of our business, we are
highly dependent upon our ability to retain our current personnel including, but
not limited to, Jack L. Aronowitz. Mr. Aronowitz is our founder and is presently
our President, Chief Technical Officer and Chairman of the Board. We are the
sole beneficiary under a $4 million "key man" life insurance policy on the life
of Mr. Aronowitz. In addition, our ability to effectively pursue our business
strategy will depend upon, among other factors, the successful recruitment and
retention of additional highly skilled and experienced managerial, marketing,
engineering and technical personnel. In some cases, the market for these skilled
employees is highly competitive, which makes it difficult to attract and retain
key employees. We cannot assure you that we will be able to retain or recruit
such personnel, and the inability to do so could materially and adversely affect
our business, financial condition and results of operations.
WE DEPEND ON OUTSIDE SUPPLIERS AND MANUFACTURERS.
We purchase the materials used to manufacture our products from single
suppliers to obtain the most favorable price and delivery terms. Although we
have identified an alternate supply source with respect to each of such
materials, a change in the supplier of these materials without the appropriate
lead time could result in a material delay in the delivery of products to our
customers. We cannot assure you that we would not be able to receive as
favorable price and delivery terms from alternative suppliers. Reliance on
suppliers generally involves several risks, including the possibility of
defective materials, supply shortages, increase in material costs and reduced
control over delivery schedules, any or all of which could adversely affect our
financial results.
To the extent we use third party manufacturers, we cannot assure you
that we will be able to retain these manufacturers or obtain acceptable
replacement manufacturers, if necessary. A change in manufacturers without
appropriate lead time could result in a material delay in the delivery of our
products and may subject us to less favorable price terms. Furthermore, although
we have identified an alternate supply source with respect to the materials used
to manufacture our products, a change in the supplier of these materials without
appropriate lead time could result in a material delay in the delivery of
products to our customers. Either of the foregoing could result in a material
adverse effect on our business, prospects, results of operation or financial
condition.
OUR BUSINESS SUBJECTS US TO PRODUCT LIABILITY CLAIMS.
Our business exposes us to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of medical diagnostic
and drug delivery products. To date, we have not experienced any material
product liability claims, but any such claim arising in the future could have a
material adverse effect on our business, financial condition or results of
operations. We have product liability insurance. Potential product liability
claims may exceed the amount of our insurance coverage or may be excluded from
coverage under the terms of the policy. We cannot assure you that we will be
able to renew our existing insurance at a cost and level of coverage comparable
to that presently in effect, if at all. In the event that we are held liable for
a claim against which we are not indemnified, or for damages exceeding the
limits of our insurance coverage, or if any claim or product recall results in
significant adverse publicity against us, such claim or publicity could have a
material adverse effect on our business, prospects, results of operations or
financial condition.
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OUR PRINCIPAL SHAREHOLDER CAN EXERT SUBSTANTIAL CONTROL OVER ANY SHAREHOLDER
VOTE.
Jack L. Aronowitz, our President and Chairman of the Board beneficially
owns approximately 13.7% of the outstanding common stock and is in a position to
exert substantial influence over our direction and policies and the outcome of
matters submitted to a vote of our shareholders, including election of our
directors.
WE HAVE OPTIONS, WARRANTS, PREFERRED STOCK AND RESTRICTED SECURITIES OUTSTANDING
WHICH MAY CAUSE DILUTION OF OUR SHAREHOLDERS AND ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK.
As of June 6, 2000 we had outstanding 1,175,000 warrants with an
exercise price of $0.9375- $11.89 and 1,267,134 options with exercise prices
ranging from $0.438-$15. We have reserved additional shares for issuance
pursuant to options. If the holders exercise these stock options and warrants,
it will dilute the percentage ownership interest of our current shareholders. In
addition, the terms upon which we would be able to obtain additional money
through the sale of our stock may be negatively affected by the existence of
these warrants and options because new investors may be concerned about the
impact upon the future market price of our common stock if these warrants and
options were exercised and the underlying stock sold.
In addition, as of June 6, 2000 we had outstanding 2,000 shares of our
Series A Convertible Preferred Stock. Each share of the Series A Convertible
Preferred Stock is convertible into such number of shares of common stock as is
determined by dividing the stated value ($1,000) of a share of Series A
Convertible Preferred Stock (as such value is increased by a premium based on
the number of days the Series A Convertible Preferred stock is held) by the then
current Conversion Price (which is determined by reference to the then current
market price). If converted on June 6, 2000, the Series A Convertible Preferred
Stock would have been convertible into approximately 2,520,000 shares of common
stock, but this number of shares could prove to be significantly greater in the
event of a decrease in the trading price of the common stock. If the holders
convert their shares of preferred stock into common stock, it will dilute the
percentage ownership interest of our current shareholders.
All of our outstanding shares of common stock are freely tradeable
without restriction under the Securities Act unless held by our affiliates. In
addition, certain holders of common stock and securities convertible into or
exercisable for shares of common stock have certain registration rights under a
registration rights agreement among us and such holders.
IF NASDAQ DELISTS OUR STOCK, WE MAY BE REQUIRED TO REDEEM OUR SERIES A
CONVERTIBLE PREFERRED STOCK, WHICH COULD HAVE A MATERIALLY ADVERSE EFFECT ON OUR
FINANCIAL CONDITION.
If our stock is delisted from the Nasdaq National Market, and such
delisting continues for ten days, the holders of the Series A Convertible
Preferred Stock have the right to require that we redeem all outstanding shares
of Series A Convertible Preferred Stock at a price equal to the greater of (i)
120% of the stated value of the shares plus any accrued dividends or (ii) the
value of the common stock into which such shares of Series A Convertible
Preferred Stock were convertible. As of June 6, 2000 this amount would be
$2,646,247. To maintain our listing on the Nasdaq National Market, we must,
unless we receive a waiver, meet a variety of requirements, including (i) net
tangible assets of $4.0 million, (ii) a minimum bid price of $1.00 per share and
(iii) shares having a market capitalization of at least $5.0 million must be
publicly traded. As of June 6, 2000, we were in compliance with the Nasdaq
National Market listing requirements. However, our stock price has traded below
$1.00 for 21 days since May 1, 2000. If we are unable to meet the requirements
for continued listing and are unable to receive a waiver,
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then Nasdaq could delist our common stock and we could be required to redeem the
outstanding shares of Series A Convertible Preferred Stock. Any such repurchase
could have a material adverse effect on our business, prospects, results of
operations or financial condition. In addition, any such delisting of the common
stock could have a material adverse effect on our ability to secure additional
financing on favorable terms or at all.
THE EXERCISE OF OUR PUT RIGHTS MAY SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER
SECURITY HOLDERS.
The shares issuable to Swartz upon exercise of our put rights will be
issued at a price equal to the lesser of (i) the market price for each share of
our common stock minus $.10 or (ii) 92% of the market price for each share of
our common stock. Accordingly, the exercise of our put rights may result in
substantial dilution to the interests of the other holders of our common stock.
Depending on the price per share of our common stock during the three year
period of the investment agreement, we may need to register additional shares
for resale or seek an amendment to our articles of incorporation, to access the
full amount of financing available, which could have a further dilutive effect
on the value of our common stock. If we are unable to register the additional
shares of common stock, we may experience delays in, or be unable to, access
some of the $25 million available pursuant to our put rights.
THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE PRICE OF OUR
COMMON STOCK AND ENCOURAGE SHORT SALES.
If and when we sell shares of our common stock to Swartz pursuant to
our put rights, if and to the extent that Swartz sells the common stock, our
common stock price may decrease due to the additional shares in the market. If
the price of our common stock decreases, and if we decide to exercise our right
to put shares to Swartz, we will be required to issue more shares of our common
stock for any given dollar amount invested by Swartz, subject to a designated
minimum put price specified by us. This may encourage short sales, which could
place further downward pressure on the price of our common stock.
OUR STOCK PRICE IS VOLATILE.
Future announcements concerning results of preclinical studies and
clinical trials by us or our competitors, other evidence of the safety or
efficacy of our products or our competitors, announcements of technological
innovations or new products by us or our competitors, changes in governmental
regulations, developments in our patent or proprietary rights or those of our
competitors, including competitors' litigation, fluctuations in our operating
results and changes in general market conditions for medical diagnostic or
pharmaceutical companies could cause the market price of the common stock to
fluctuate substantially. These fluctuations, as well as general economic,
political and market conditions, may adversely affect the market price of the
common stock. Historically, the market price of the common stock has been
volatile.
OUR ARTICLES AND BYLAWS HAVE ANTI-TAKEOVER PROVISIONS WHICH COULD MAKE IT
DIFFICULT FOR A POTENTIAL BUYER TO ACQUIRE US.
Our Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws include certain anti-takeover provisions that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of our outstanding voting
stock. These provisions include a staggered Board of Directors, certain
supermajority voting requirements with respect to removal of directors and
amendments of the Articles of Incorporation and Bylaws,
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requirements concerning the filling of board vacancies, adoption of Florida's
Control Share Acquisition Act, elimination of shareholder action by written
consent, creation of a class of "blank check" preferred stock and an increase in
the percentage of shareholder votes required to call a special meeting of
shareholders.
LEGAL PROCEEDINGS
We are subject to claims and suits arising in the ordinary course of
business. At this time, except as otherwise indicated, it is not possible to
estimate the final outcome of these legal matters or the ultimate loss or gain
except as otherwise stated, if any, related to these lawsuits, or if any such
loss will have a material adverse effect on our results of operations or
financial position, except as otherwise stated. For the year ended December 31,
1999, and the quarter ended March 31, 2000, we incurred substantially increased
litigation expenses compared to earlier periods.
HIV SALIVA COLLECTOR TECHNOLOGY. A lawsuit was brought against us 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) - Case No. CACE 95-011256 - related to
saliva collector technology for an HIV diagnostic test.
On December 30, 1998, a jury returned a verdict in this lawsuit finding
that we 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 we and Mr. Aronowitz intentionally interfered with the plaintiffs' business
relationships and assessed approximately $328,000 in damages against us 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 other unrelated corporate and individual
defendants.
On January 29, 1999, we and Mr. Aronowitz filed an appeal to the
Florida Fourth District Court of Appeal in West Palm Beach, Florida - Case No. 4
DCA 99-00423. On March 29, 2000, the court issued its opinion reversing the
judgment against Mr. Aronowitz for misappropriation of trade secrets. However,
the appellate court affirmed the judgment against us for tortious interference
with a business relationship. The court's decision is not final until the
disposition of any timely filed motion for rehearing. Americare Biologicals,
Inc. filed a motion for rehearing as to the reversal of the judgment against Mr.
Aronowitz, which the appellate court denied. We filed a motion for rehearing and
rehearing en banc on the affirmance of the judgment against us of approximately
$328,000 for tortious interference with a business relationship, which the
appellate court denied on May 31, 2000. The appellate court has not yet issued
its mandate on the appeal to the trial court. We also plan to vigorously pursue
any other available proceedings to have the judgment relating to the tortious
interference matter reversed or set aside.
We have previously obtained appeal bonds staying enforcement of the
judgment against us and Mr. Aronowitz. As a result of the reversal of the
judgment against Mr. Aronowitz, that bond is no longer required and the
collateral securing the bond has been released to us. Further, we believe that a
bond may be required to stay enforcement of the tortious interference judgment
if we seek to set it aside at the trial court level. There can be no assurance
that we
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will be successful in reversing or setting aside the judgment as to us, or that
we will be able to obtain any necessary bond or otherwise to stay enforcement of
the judgment against us.
The liability, if any, that may result from this matter and efforts to
set the judgment aside cannot be reasonably estimated at this time and therefore
no accrual for loss has been recorded in the financial statements as of March
31, 2000.
NONINVASIVE GLUCOSE MONITORING TECHNOLOGY. In November 1997, a lawsuit
was brought against us and Mr. Aronowitz in the United States District Court for
the Southern District of Florida, styled Americare Diagnostics, Inc., Joseph P.
D'Angelo, et al. v. Technical Chemicals and Products, Inc., et al. - Case No.
97-3654-CIV-JORDAN - relating to noninvasive glucose monitoring technology in
which the plaintiffs allege, 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. We and Mr. Aronowitz have answered the complaint and have filed
counterclaims against the plaintiffs for declaratory judgment that the
patent-in-suit is invalid; patent misuse; patent prosecution fraud; trade libel;
slander of title; commercial disparagement; unfair competition under the Lanham
Act; tortious interference with a contract or advantageous business
relationship; and for injunctive relief. In December 1999, the discovery phase
of this lawsuit ended and the court is presently proceeding with various pending
motions. A trial date has not been set.
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 - Case No. 98-7334-CIV- DIMITROULEAS - against us and Mr.
Aronowitz on behalf of various shareholders 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 we and Mr. Aronowitz made untrue
and misleading statements in our public disclosure documents and in certain
press releases, articles and reports. The disclosures relate primarily to the
development, clinical testing and viability of our TD Glucose Monitoring System.
The plaintiffs are seeking certification as a class on an unspecified amount of
damages, interest, costs and attorneys' fees. We believe the allegations lack
merit and plan to contest the allegations vigorously. On April 19, 1999, an
Amended Consolidated Class Action Complaint was served upon us. In response, on
June 18, 1999, we filed a motion to dismiss the Amended Consolidated Class
Action Complaint. Plaintiff's response to this motion, as well as our reply,
have been served, but the court has not yet ruled. 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 March 31, 2000.
We maintain Directors and Officer's Liability Insurance. However, we
cannot assure you that this insurance coverage will be adequate to fund the
costs of a settlement, an award, if any, or attorneys' fees. Our Articles of
Incorporation provide for indemnification, to the fullest extent permitted by
law, of any person made party to an action by reason of the fact that such
person is an officer or director of us.
LANHAM ACT. On July 1, 1999, we and Mr. Aronowitz, seeking damages and
injunctive relief, filed suit against Joseph P. D'Angelo, Americare Health Scan,
Inc., Americare Biologicals, Inc., Medex, Inc., Teratech Corp. d/b/a HIV
Cybermall, Confidential Home Testing, The Creative Connection, Inc., Debra
Lapierre and Stanley A. Lapides, in the United States District Court for the
Southern District of Florida - Case No. 99-1862-CIV-JORDAN. The suit alleges
violations of the Lanham Act, libel/defamation per-se, misappropriation of trade
secrets and confidential information, cancellation of the Federal trademark
"ANA-SAL," violations of the Florida Deceptive and Unfair Trade Practices Act,
and common law unfair competition. Certain defendants filed a motion to dismiss,
and on December 15,
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1999, the court dismissed the count relating to unfair and deceptive trade
practices under Florida law and struck certain allegations, but found that the
remaining counts stated causes of action. On January 4, 2000, we and Mr.
Aronowitz filed a Second Amended Complaint which omitted the count dismissed by
the court and the allegations that the court struck. The Defendants Joseph P.
D'Angelo, Americare Health Scan, Inc., and Americare Biologicals, Inc. have
alleged counterclaims of malicious prosecution and abuse of process. We and Mr.
Aronowitz have filed a motion to dismiss these counterclaims, and these
defendants have since withdrawn those counterclaims. A default has been entered
against Medex, Inc., and the Defendants The Creative Connection, Inc., and Debra
Lapierre, have made a motion for a summary judgment. This case is currently in
the discovery phase which is scheduled to close on June 30, 2000. A trial date
is set for April of 2001.
HOME DIAGNOSTICS LITIGATION. In November 1993, we and Mr. Aronowitz
filed suit against Home Diagnostics, Inc. ("HDI"), for patent infringement,
among other claims, in the United States District Court for the Southern
District of Florida - Case No. 93-CIV-6999-DAVIS. The patents-in-suit are U.S.
Patent Nos. 4,744,192 (the "'192 Patent") and 4,877,580 (the "'580 Patent").
On September 3, 1996, the court entered judgment against us and Mr.
Aronowitz after a bench trial that was held in September 1995. On April 9, 1998,
the U.S. Court of Appeals for the Federal Circuit affirmed in part and reversed
in part the lower court's decision and remanded the case to the district court
for further proceedings, including for a determination whether Mr. Aronowitz
owned the patents-in-suit at the time the action was commenced and whether HDI
infringed the '192 Patent. The appellate court found infringement of the '580
Patent and remanded to the district court for a determination whether the '580
Patent was within the scope of certain licensing agreements between TechniMed
Corporation, a prior assignee of the patents-in-suit, and HDI.
On remand, the district court denied a request by us and Mr. Aronowitz
to reopen the trial record and directed the parties to submit, based on the
existing record, proposed findings of fact and conclusions of law on the issues
that were remanded. Proposed findings of fact and conclusions of law have been
submitted, and on March 20, 2000, the court heard argument by the parties'
counsel on certain issues on remand. On May 1, 2000, the court issued certain
findings of fact and conclusions of law, finding that (i) Mr. Aronowitz owned
the patents-in-suit at the time the suit was commenced, and (ii) HDI did not
infringe the '192 patent. We are awaiting a ruling on the remaining issues on
remand, in particular, those relating to the '580 patent.
DEFAMATION ACTION. On June 16, 1999, we and Mr. Aronowitz were sued by
Joseph P. D'Angelo and related companies in the Circuit Court of the 17th
Judicial Circuit in and for Broward County, Florida - Case No. 99-010726-CACE-18
- alleging libel per quod, libel per se, slander, and false light. We have filed
a motion for summary judgment, which the court granted in part, dismissing
Counts I and II for libel against us and Mr. Aronowitz. Discovery in this matter
is continuing, and no trial date has been set yet.
ARBITRATION. On August 27, 1999, the U.S. District Court for the
Northern District of California - Case No. C-97-00525CAL - confirmed an
arbitration award against us in favor of Hooper & Associates, Inc. for $197,807.
Gary Hooper was the president and chief operating officer of Pharma Patch, PLC.
We 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,
a bond has been posted in this matter to stay enforcement of the judgment which
Hooper & Associates is seeking to enforce in Florida (Technical Chemicals and
Products, Inc. v. Hooper & Associates, Broward County Circuit Court - Case No.
019847.) As a result,
21
<PAGE>
enforcement of the arbitration award has been stayed by a Florida court. On May
11, 2000, the court heard arguments on the continuation of the stay enforcement.
The court has ordered limited discovery and a continuation of the stay until at
least June 10, 2000. Separately, we are pursuing certain claims against Mr.
Hooper related to other matters. At this time, it is not possible to estimate
the ultimate loss, if any, related to the resolution of these matters and
therefore no accrual for loss has been recorded as of March 31, 2000.
Judgment In Hazardous Waste Lawsuit. On January 31, 2000, the United
States District Court for the Southern District of Florida - Case No.
98-6201-CIV - entered a judgment against us and Mr. Aronowitz, in connection
with a lawsuit brought by the United States of America on behalf of the
Environmental Protection Agency under the Comprehensive Environmental Response
Compensation and Liability Act of 1983, relating to the clean-up of a facility
that during 1985 through 1992 contained alleged hazardous substances. We
occupied this facility during part of 1992. The judgment holds the defendants,
jointly and severally, liable for $401,177, representing their share of site
clean-up costs, plus post-judgment interest as allowed by law. On April 24,
2000, the parties reached a tentative settlement in the amount of $650,000
payable over a 21-month period with approximately $110,000 payable on June 1,
2000 and quarterly payments made thereafter on the balance plus interest at the
rate of 5.3% per year. We expect the United States will enter into a formal
agreement memorializing this settlement; however, we cannot assure you that the
United States will enter into such an agreement. Our Articles of Incorporation
provide for indemnification, to the fullest extent permitted by law, of any
person made party to an action by reason of the fact that such person is an
officer or director of us.
We have not yet determined whether to pursue an appeal of the court's
ruling, but we filed a notice of appeal on or about March 31, 2000 to protect
our right to pursue such an appeal. If we were to appeal the court's ruling, we
may be required to post an appeal bond in order to stay execution of the
judgment. We cannot assure you that an appeal, if taken, would be successful, or
that the posting of an appeal bond or enforcement of the judgment would not have
a material adverse impact on our liquidity and capital resources. Management
believes that payment of this judgment and related expenses is probable and has
estimated that the ultimate loss related to the resolution of this matter will
be approximately $650,000 and, accordingly, has recorded an accrual for loss
equal to this amount as of March 31, 2000. At December 31, 1999, management
estimated the probable loss to be $500,000 and recorded a liability in that
amount.
UNILEVER PATENT LITIGATION
In 1994, we and six other parties initiated an opposition action in the
European Patent Office in Munich, Germany, against European Patent No. 291,194
(the "European Patent"), presently owned by Unilever N.V. In European Opposition
Case No. T0681/98, we and the other parties opposed the patent in its entirety
on the grounds that it lacked novelty and inventiveness.
In March 1998, the European Patent Office Opposition Board found in
favor of Unilever, whereupon we and five of the other parties filed an appeal.
Upon substantial appellate oral proceedings held on January 26-27, 2000 and
numerous auxiliary requests, the Opposition Board maintained the European
Patent, as amended. However, this ruling is subject to adaptation of the
specifications contained in the amended patent and approval by the Opposition
Board. Unilever is presently awaiting invitation from the Opposition Board to
submit its proposed adaptations to the specification of the European Patent,
after which we and the other parties intend to vigorously contest such action.
On January 26, 2000, we, Roche Diagnostics GmbH, a German company,
Roche Diagnostics S.p.A., an Italian company, and Hestia Pharma GmbH, a German
distributor wholly-owned by Roche Diagnostics, filed a declaratory judgment
action relating to Italy and Germany in the District Court of
22
<PAGE>
Torino, Italy. We asked the court to find that (1) the European Patent granted
to Unilever is invalid, and (2) the EVATEST(R) product manufactured, distributed
and sold by us and the other plaintiffs do not infringe the European Patent (the
"Italian Action"). An oral hearing is scheduled for July 19, 2000 to discuss
the court's jurisdiction to hear the action. We manufacture the EVATEST(R) test
devices.
On February 3, 2000, Unilever filed a patent infringement action in the
Administrative Court of Munich, Germany against Hestia Pharma GmbH and four of
its officers alleging infringement of the European Patent that is the subject of
the Italian Action. On April 27, 2000, Unilever amended its complaint to allege
infringement of European Patent Application No. 93108764.7. In this action,
Unilever has asked that Hestia Pharma GmbH refrain from commercializing, using,
importing or possessing analytical test devices which comprise features of
Unilever's patent claims.
On April 20, 2000, Unilever filed a patent infringement action in the
Administrative Court of Munich, Germany against us and Roche Diagnostics GmbH
(together with the February 3, 2000 action, the "German Actions") alleging
infringement of the patent involved in the Italian Action and European Patent
Application No. 93108764.7. In this action, Unilever has asked that we and Roche
Diagnostics GmbH refrain from offering, having offered, commercializing, having
commercialized, using, having used, importing, having imported or possessing
analytical test devices that fall under the claims of Unilever's patent and
patent application.
We have agreed to indemnify Roche Diagnostics and its affiliates and
their respective officers against all damages, back royalties, costs, attorneys'
fees and the like arising from or related to any and all patent infringement
actions. Management intends to vigorously prosecute our claims against the
Unilever patent in the Italian Action and vigorously defend the claims asserted
by Unilever in the German Actions. We have, as the manufacturer of these
products, previously provided the same indemnity to Roche Diagnostics. A
majority of our sales in Europe relate to products covered by the patents that
are the subject of the Italian Action and the German Actions. Consequently, a
loss in this litigation may have a material adverse effect on our results of
operations and financial condition.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling shareholders; rather, the selling shareholders will receive
those proceeds directly. However, we will receive cash infusions of capital if
and when Swartz purchases our common stock in accordance with the investment
agreement and upon the exercise of warrants held by Swartz and Roan-Meyers
Associates, L.P., as described below. We intend to use the proceeds from the
sale of common stock to Swartz and from the exercise of warrants for working
capital, strategic alliances (including potential joint ventures, acquisitions
and mergers), plant, equipment and machinery, including capital expenditures,
and general corporate purposes.
THE INVESTMENT AGREEMENT
On May 3, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. Under the investment agreement, we have the option to sell
or "put" up to $25 million of our common stock to Swartz, subject to a formula
based on average stock price and average trading volume, periodically over a
three year period beginning on the effective date of the registration statement,
of which this prospectus is a part.
23
<PAGE>
In addition, on March 17, 2000, we issued to Swartz a warrant to
purchase 312,500 shares of our common stock, exercisable for a period of five
years from March 17, 2000, with an exercise price initially equal to the lowest
closing bid price for the five trading days immediately preceding March 17,
2000, which was $1.9063. On March 17, 2000, we issued an additional warrant to
Swartz to purchase 312,500 shares of our common stock, exercisable for a period
of five years from March 17, 2000, with an exercise price initially equal to the
lowest closing bid price for the five trading days immediately preceding the
closing date of May 3, 2000, which was $0.9375. The exercise price of these
warrants will be adjusted annually to equal the lesser of:
(i) the exercise price then in effect; or
(ii) the lowest reset price determined on any annual anniversary
date after March 17, 2000.
The lowest reset price equals 100% of the lowest closing bid price of our common
stock for the five trading days before the anniversary of the date the warrants
were issued, which was March 17, 2000. We may issue additional warrants pursuant
to the terms of the investment agreement, as described below.
Pursuant to the requirements of the investment agreement, we are
required to file a registration statement with the Securities and Exchange
Commission covering the resale by Swartz to the public of any shares that it
acquires pursuant to the investment agreement. Beginning on the date the
registration statement of which this prospectus is a part is declared effective
by the Securities and Exchange Commission and continuing for three years
thereafter, we may from time to time at our sole discretion, and subject to
certain restrictions set forth in the investment agreement, sell shares of our
common stock to Swartz at a price determined under the investment agreement.
Each election by us to sell stock to Swartz is referred to as a "put."
To exercise a put, we must give at least 10, but not more than 20,
business days advance notice to Swartz of the date on which we intend to
exercise a particular put right. The notice must indicate the date we intend to
exercise the put and the maximum number of shares of common stock we intend to
sell to Swartz. At our option, the notice may also specify a maximum dollar
amount of common stock that we will sell under the put and/or a minimum purchase
price per share at which we are willing to sell the shares. The maximum dollar
amount specified by us cannot exceed $2,000,000. The minimum purchase price
specified by us, if we choose to specify one, may not exceed 80% of the closing
bid price of our common stock on the date on which we give Swartz notice of the
exercise of a put right.
The maximum number of common shares we will be obligated to sell to
Swartz pursuant to a put equals the lesser of:
(i) the number of shares we specify in the notice of the put;
(ii) the number of shares which, when multiplied by the price
Swartz is obligated to pay for the shares, as described below,
equals the lesser of:
(a) the maximum dollar amount we specify in the notice;
and
(b) $2,000,000;
(iii) 15% of the aggregate daily reported trading volume of our
common shares during the 20 business days after the put notice
date;
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<PAGE>
(iv) 15% of the aggregate daily reported trading volume of our
common shares during the 20 business days before the put date;
or
(v) a number of shares that, when added to the number of shares
acquired by Swartz pursuant to the investment agreement during
the 31 days before the put date, will result in the aggregate
number of shares held by Swartz upon completion of the put
exceeding 9.99% of the total number of outstanding shares of
our common stock.
The market price of the shares of common stock during the 20 business
days immediately following the put notice date is used to determine the purchase
price Swartz will pay and the number of shares we will issue in return. For each
share of common stock, Swartz will pay us the lesser of:
(i) the market price for each share, minus $.10; or
(ii) 92% of the market price for each share.
Notwithstanding the above amount, Swartz must pay at least the designated
minimum per share price, if any, that we specify in our notice. Market price is
defined as the lowest closing bid price for our common stock during the 20
business day pricing period immediately following the put date.
Within five business days after the end of each pricing period, we are
required to issue and deliver to Swartz a warrant to purchase a number of shares
of our common stock equal to 10% of the common shares issued to Swartz in the
applicable put. Each warrant will be exercisable at a price that will initially
equal 110% of the market price for the applicable put, and will have annual
reset provisions similar to the reset provisions for the warrants currently held
by Swartz. However, the reset provisions will be based on 110% of the market
price, rather than 100%. Each warrant will be immediately exercisable and have a
term beginning on the date of issuance and ending five years thereafter.
As soon as practicable after the effectiveness of the registration
statement, we plan to draw down the maximum initial amount permitted under the
investment agreement. Based on the 20 day lowest closing bid price of our common
shares of $.75 and our 20 day aggregate daily reported trading volume of
6,517,700 as of June 6, 2000, we would be entitled to draw down approximately
$635,476 in connection with our first draw down. Based on these facts, we would
issue 977,655 shares of our common stock and a warrant to purchase 97,746 shares
of our common stock to Swartz.
In the period beginning January 1, 2000 through May 31, 2000, the
20-day aggregate trading volume ranged from 53,439,000 to 5,500,000 shares.
Closing bid prices ranged from $4.06 to $0.50 per share. The table below
illustrates the dollar amounts that could have been available to us and the
corresponding number of shares that would have been issued per put had this
agreement been in effect during that time:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Number of
Shares(1):
20 Day Volume: 5,500,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000
Price/Share:
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.50 Dollars per put $330,000 $600,000 $900,000 $1,200,000 $1,500,000 $1,800,000
Shares per put 825,000 1,500,000 2,250,000 3,000,000 3,750,000 4,500,000
------------------------------------------------------------------------------------------------------------------------------
$0.75 Dollars per put $536,250 $975,000 $1,462,500 $1,950,000 $2,000,000 $2,000,000
Shares per put 825,000 1,500,000 2,250,000 3,000,000 3,076,923 3,076,923
------------------------------------------------------------------------------------------------------------------------------
$1.00 Dollars per put $742,500 $1,350,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 825,000 1,500,000 2,222,222 2,222,222 2,222,222 2,222,222
------------------------------------------------------------------------------------------------------------------------------
$1.50 Dollars per put $1,138,500 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 825,000 1,449,275 1,449,275 1,449,275 1,449,275 1,449,275
------------------------------------------------------------------------------------------------------------------------------
$2.00 Dollars per put $1,518,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 825,000 1,086,957 1,086,957 1,086,957 1,086,957 1,086,957
------------------------------------------------------------------------------------------------------------------------------
$2.50 Dollars per put $1,897,500 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 825,000 869,565 869,565 869,565 869,565 869,565
------------------------------------------------------------------------------------------------------------------------------
3.00 Dollars per put $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 724,638 724,638 724,638 724,638 724,638 724,638
------------------------------------------------------------------------------------------------------------------------------
$3.50 Dollars per put $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 621,118 621,118 621,118 621,118 621,118 621,118
------------------------------------------------------------------------------------------------------------------------------
$4.00 Dollars per put $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
Shares per put 543,478 543,478 543,478 543,478 543,478 543,478
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At no time may Swartz own a number of shares that, when added to the number
of shares acquired by Swartz pursuant to the investment agreement during the 31
days before the put date, will result in the aggregate number of shares held by
Swartz upon completion of the put exceeding 9.99% of the total number of
outstanding shares of our common stock.
We cannot assure you what the actual price of the shares will be at any time we
exercise our right to a put.
We are registering 50,000,000 shares of common stock for issuance to
Swartz pursuant to the investment agreement. We believe, based on the recent
market prices of our shares of common stock and volume in our common stock, that
50,000,000 shares will be sufficient to satisfy our obligations to issue stock
and warrants to Swartz in order to fully utilize the $25 million available under
the investment agreement. If 50,000,000 shares is not sufficient, we will
register additional shares for resale by Swartz.
LIMITATIONS AND CONDITIONS PRECEDENT TO OUR PUT RIGHTS
Puts can become effective immediately after the end of the pricing
period for the prior put. Only one put can be made during each pricing period.
Our ability to put shares of our common stock, and Swartz's obligation to
purchase the shares, is subject to the satisfaction of certain conditions. These
conditions include:
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<PAGE>
(i) we have satisfied all obligations under the agreements entered
into between us and Swartz in connection with the investment
agreement;
(ii) our common stock is listed and trading on Nasdaq, the O.T.C.
Bulletin Board, or an exchange;
(iii) our representations and warranties set forth in the investment
agreement must be accurate as of the date of each put;
(iv) we have reserved for issuance a sufficient number of shares of
our common stock to satisfy our obligations to issue shares
pursuant to any put and upon exercise of warrants;
(v) the registration statement, of which this prospectus is a
part, for the shares we will be issuing to Swartz must remain
effective as of the put date and no stop order with respect to
the registration statement is in effect;
(vi) if the number of shares to be put to Swartz, together with any
shares previously put to Swartz, would equal 20% of all shares
of our common stock that would be outstanding upon completion
of the put, we must obtain shareholder approval of such excess
issuance as required by Nasdaq rules; and
(vii) other than continuing losses described in an attachment to the
investment agreement, at the time of a put, there shall have
been no material adverse change in our business prospects or
financial condition.
Swartz is not required to acquire and pay for any additional shares of
our common stock once it has acquired $25 million worth of common stock.
Additionally, Swartz is not required to acquire and pay for any shares of common
stock with respect to any particular put for which, between the date we give
advance notice of an intended put and the date the particular put closes:
(i) we announced or implemented a stock split or combination of
our common stock;
(ii) we paid a dividend on our common stock;
(iii) we made a distribution of all or any portion of our assets or
evidences of indebtedness to the holders of our common stock;
or
(iv) we consummated a major transaction, such as a sale of all or
substantially all of our assets or a merger or tender or
exchange offer that results in a change in control.
Our right to require Swartz to purchase any subsequent put shares shall
terminate upon the occurrence of any of the following:
(i) we, or any of our directors or executive officers have engaged
in a transaction or conduct related to us that resulted in (a)
a Securities and Exchange Commission enforcement action,
administrative proceeding or civil lawsuit, or (b) a civil
judgment or criminal conviction or for any other offense that,
if prosecuted criminally, would constitute a felony under
applicable law;
26
<PAGE>
(ii) the aggregate number of days, beginning on the effective date
of the registration statement for the resale of shares issued
to Swartz, which the registration statement is not effective
or our common stock is not listed and traded on Nasdaq, the
O.T.C. Bulletin Board, or an exchange exceeds 120 days in the
aggregate;
(iii) we file for bankruptcy or any other proceeding for the relief
of debtors;
(iv) the earlier of (a) three years following the effectiveness of
the investment agreement (May 3, 2003), or (b) the date Swartz
acquires shares worth $25 million;
(v) we breach covenants contained in the investment agreement; or
(vi) the registration statement for the resale of shares of common
stock issued to Swartz is not effective by May 3, 2001.
COMMITMENT AND TERMINATION FEES
If we do not put at least $1,000,000 worth of common stock to Swartz
during each six month period following the effective date of the investment
agreement we must pay Swartz a semi-annual non-usage fee. This fee equals the
difference between $100,000 and 10% of the value of the shares of common stock
put to Swartz during the six month period.
If the investment agreement is terminated, we must pay Swartz the
greater of (i) the non-usage fee described above, or (ii) the difference between
$200,000 and 10% of the value of the shares of common stock put to Swartz during
all puts to date.
SHORT SALES
Swartz and its affiliates are prohibited from engaging in short sales
of our common stock unless Swartz has received a put notice and the amount of
shares involved in the short sale does not exceed the number of shares specified
in the put notice.
CANCELLATION OF PUTS
We must cancel a particular put between the date of the advance put
notice and the last day of the pricing period if we discover an undisclosed
material fact relevant to Swartz's investment decision, the registration
statement registering resales of the common shares becomes ineffective or our
shares of common stock are delisted from the then primary exchange. If a put is
canceled, it will continue to be effective, but the pricing period for the put
will terminate on the date notice of cancellation of the put is given to Swartz.
Because the pricing period will be shortened, the number of shares Swartz will
be required to purchase in the canceled put may be smaller than it would have
been had the put not been canceled.
TERMINATION OF INVESTMENT AGREEMENT
We may terminate our right to initiate further puts or terminate the
investment agreement at any time by providing Swartz with notice of our
intention to terminate. However, any termination will not
27
<PAGE>
affect any other rights or obligations we have concerning the investment
agreement or any related agreement.
RESTRICTIVE COVENANTS
During the term of the investment agreement and for a period of one
year after the investment agreement is terminated, we are prohibited from
engaging in certain transactions. These include the issuance of any of our
equity securities, or debt securities convertible into equity securities, for
cash in a private transaction without obtaining the prior written approval of
Swartz. We are also prohibited during this period from entering into any private
equity line agreements similar to the investment agreement without obtaining
Swartz's prior written approval.
RIGHT OF FIRST REFUSAL
With certain exceptions, Swartz has a right of first refusal to
participate in any private capital raising transaction of equity securities that
closes at any time during the period from the date of the investment agreement,
May 3, 2000, until one year after the investment agreement is terminated.
SWARTZ'S RIGHT OF INDEMNIFICATION
We have agreed to indemnify Swartz, including its shareholders,
officers, directors, employees, investors and agents, from all liability and
losses resulting from any misrepresentations or breaches we make in connection
with the investment agreement, the registration rights agreement, other related
agreements, or the registration statement. We have also agreed to indemnify
these persons for any claims based on violation of Section 5 of the Securities
Act caused by the integration of the private sale of our common stock to Swartz
and the public offering pursuant to the registration statement.
EFFECT ON OUTSTANDING COMMON STOCK
The issuance of common stock under the investment agreement will have
no effect on the rights or privileges of existing holders of common stock except
that the economic and voting interests of each shareholder will be diluted as a
result of such issuance. See "Risk Factors."
As noted above, the exact number of shares of our common stock issuable
under the investment agreement, and the resulting dilution to our existing
shareholders, cannot currently be determined, and will vary with the extent to
which we utilize the investment agreement, the market price of our common stock,
and exercise of the related warrants. The potential effects of any such dilution
on our existing shareholders include the significant dilution of the current
shareholders' economic and voting interests in us.
The terms of the investment agreement provide that we will not be
permitted to issue shares of common stock that would exceed 20% of the
outstanding stock on the date of a put unless and until shareholder approval of
the issuance of common stock is obtained. We have called a shareholders meeting
for June 16, 2000 at which shareholders will be asked to approve the issuance of
common stock in excess of 20% of the outstanding stock pursuant to the
investment agreement.
28
<PAGE>
SELLING SHAREHOLDERS
Common stock registered for resale under this prospectus constitutes
approximately 170% of our issued and outstanding common shares as of June 6,
2000.
SWARTZ
This prospectus covers 50,000,000 shares of common stock issuable to
Swartz pursuant to the investment agreement and shares issuable upon exercise of
the warrants previously issued to Swartz. Swartz is engaged in the business of
investing in publicly-traded equity securities for its own account.
Swartz does not beneficially own any of our common stock or any other
of our securities as of the date of this prospectus other than 625,000 shares
underlying the warrants we issued to Swartz in connection with the closing of
the investment agreement. Other than its obligations to purchase common stock
under the investment agreement and the warrant, it has no other commitments or
arrangements to purchase or sell any of our securities.
SUNSHINE MESSENGER SERVICE
This prospectus covers shares of common stock we issued to Sunshine
Messenger Service in lieu of the payment of rent for a warehouse facility that
we rented from Sunshine Messenger Service from June 1996 to June 1999. Pursuant
to two letter agreements, we agreed to issue Sunshine Messenger Service 15,000
restricted shares of our common stock in June 1996 and, at the end of the lease,
to issue additional shares of common stock if the market price of our common
stock was less than $15.00 per share. In connection with this obligation, we
issued Sunshine Messenger Service an additional 168,673 restricted shares of our
common stock in June 1999. We do not have any further obligation to issue shares
of common stock under the two letter agreements. Pursuant to the letter
agreements, we also agreed to register with the Securities and Exchange
Commission for resale 168,673 restricted shares of common stock that we issued
to Sunshine Messenger Service.
ROAN-MEYERS ASSOCIATES, L.P.
This prospectus covers 400,000 shares of common stock issuable upon
exercise of warrants we issued to Roan-Meyers Associates, L.P. on May 7, 1999 at
a price of $.0001 per warrant. Such shares may be sold by Roan-Meyers or its
successors or assigns. These warrants were issued to Roan-Meyers as part of its
compensation for acting as our financial advisor. These warrants are exercisable
at the following prices: (i) 200,000 of the warrants are exercisable at $1.1888,
which was the closing price of our common stock on May 7, 1999, (ii) 100,000 of
the warrants are exercisable at $2.00 per share and (iii) 100,000 of the
warrants are exercisable at $3.00 per share. These warrants expire on May 7,
2004.
The table below sets forth information regarding ownership of our
common stock by the selling shareholders on June 6, 2000 and the number of
shares that may be sold by them under this prospectus. The actual number of
shares of our common stock issuable upon exercise of warrants to Swartz and our
put rights is subject to adjustment and could be materially less or more than
the amount set forth in the table below, depending on factors which we cannot
predict at this time, including, among other factors, the future price of our
common stock.
Other than as described above, none of the selling shareholders has had
within the past three years any material relationship with our company or any of
its predecessors or affiliates. Other than
29
<PAGE>
Roan-Meyers who is a registered broker-dealer, none of the selling shareholders
are or were affiliated with registered broker-dealers. The selling shareholders
have advised us that they possess sole voting and investment power with respect
to the shares being offered.
<TABLE>
<CAPTION>
Percent of
Shares Shares Percent of
Beneficially Beneficially Shares Shares
Owned Prior Owned Beneficially Beneficially
to the Prior to the Shares Owned After the Owned After
Selling shareholders Offering Offering Offered Offering (1) the Offering
-------------------- -------- -------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Swartz Private Equity,
LLC(2) 50,000,000 62% 50,000,000 0 *
Sunshine State
Messenger Services, Inc. 183,673 * 168,673 15,000 *
Roan-Meyers Associates,
L.P. 400,000 * 400,000 0 *
</TABLE>
--------------------
* Less than one percent.
(1) Assumes that the selling shareholders will sell all of the shares of
common stock offered hereby. We cannot assure you that the selling
shareholders will sell all or any of the shares offered hereunder.
(2) This number includes 625,000 shares of common stock issuable upon
exercise of outstanding warrants which are currently exercisable, which
represents 2.0% of our issued and outstanding common stock as of June
6, 2000. This number also includes (solely for purposes of this
prospectus) up to an aggregate of 49,375,000 shares of our common stock
that we may sell to Swartz pursuant to the investment agreement and
warrants issuable in connection with the investment agreement, which
shares would not be deemed beneficially owned within the meaning of
Sections 13(d) and 13(g) of the Exchange Act before their acquisition
by Swartz. It is expected that Swartz will not beneficially own more
than 9.9% of our outstanding common stock at any time.
30
<PAGE>
PLAN OF DISTRIBUTION
The common stock may be sold or distributed from time to time by the
selling shareholders or by pledgees, donees or transferees of, or successors in
interest to, the selling shareholders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire common stock as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
distribution of the common stock may be effected in one or more of the following
methods:
o ordinary brokers transactions, which may include long or short
sales;
o transactions involving cross or block trades or otherwise on
the Nasdaq National Market;
o purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to
this prospectus;
o "at the market" to or through market makers or into an
existing market for the common stock;
o in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales
effected through agents;
o through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise); or
o any combination of the above, or by any other legally
available means.
In addition, the selling shareholders or our successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of common stock in the course of hedging the positions they assume with
the selling shareholders. The selling shareholders or our successors in interest
may also enter into option or other transactions with broker-dealers that
require delivery by such broker-dealers of the common stock, which common
stock may be resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the common stock may receive compensation in the form of
discounts, concessions or commission from the selling shareholders and/or the
purchasers of common stock for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). Swartz is, and each
remaining selling shareholder and any broker-dealers acting in connection with
the sale of the common stock hereunder may be deemed to be, an underwriter
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of common stock
as principals may be underwriting compensation under the Securities Act. Neither
we nor the selling shareholders can presently estimate the amount of such
compensation. We do not know of any existing arrangements between the selling
shareholders and any other shareholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the common stock.
The selling shareholders and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Securities Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M, which may restrict certain activities of, and
limit the timing of purchases and sales of securities by, the selling
shareholders and other persons participating in a
31
<PAGE>
distribution of securities. Furthermore, under Regulation M, persons engaged in
a distribution of securities are prohibited from simultaneously engaging in
market making and certain other activities with respect to such securities for a
specified period of time prior to the commencement of such distributions subject
to specified exceptions or exemptions. All of the foregoing may affect the
marketability of the securities offered hereby.
Any securities covered by this prospectus that qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to this prospectus.
We cannot assure you that the selling shareholders will sell any or all
of the shares of common stock offered by the selling shareholders.
In order to comply with the securities laws of certain states, if
applicable, the common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
common stock may not be sold unless such shares of common stock have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
DESCRIPTION OF CAPITAL STOCK
The Amended and Restated Articles of Incorporation authorizes capital
stock consisting of 100,000,000 shares of common stock, par value of $.001 per
share and 25,000,000 shares of preferred stock. As of June 6, 2000, 30,423,196
shares of common stock and 2,000 shares of Series A Convertible Preferred Stock
were outstanding. An additional 2,442,132 shares of common stock may be issued
upon the exercise of outstanding options and/or warrants. The following summary
of the description of our capital stock is qualified in its entirety by
reference to our Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, copies of which have been incorporated by reference into the
Registration Statement of which this prospectus is a part.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share
held. Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
shares of common stock will have the right to elect all of our directors and
otherwise control the affairs of our company. Holders of common stock are
entitled to dividends on a pro rata basis upon declaration of dividends by the
Board of Directors. Dividends are payable only out of funds legally available
for the payment of dividends. The Board of Directors is not required to declare
dividends, and it currently expects to retain earnings to finance the
development of our business. Upon a liquidation of our company, holders of the
common stock will be entitled to a pro rata distribution of the assets of our
company, after payment of all amounts owed to our creditors, and subject to any
preferential amount payable to holders of our preferred stock. Holders of common
stock have no preemptive, subscription, conversion, redemption or sinking fund
rights.
PREFERRED STOCK
Our Amended and Restated Articles of Incorporation permit the Board of
Directors to issue shares of preferred stock in one or more series and to fix
the relative rights, preferences and limitations of each series. These rights,
preferences and limitations include dividend rates, provisions of redemption,
rights upon liquidation, conversion privileges and voting powers. If the Board
of Directors elects to exercise this authority, the rights and privileges of
holders of common stock could be made subject to the rights and privileges of
any series of preferred stock. The issuance of preferred stock could have the
32
<PAGE>
effect of making it more difficult for a third party to acquire, or discouraging
a third party from acquiring, a majority of our outstanding voting stock.
SERIES A CONVERTIBLE PREFERRED STOCK.
Of the 16,200 shares of Series A Convertible Preferred Stock authorized
by the Board of Directors, 2,000 shares are currently issued and outstanding.
The stated value per share of the Series A Convertible Preferred Stock is
$1,000. With respect to rights upon liquidation, winding up or dissolution and
redemption rights, the Series A Convertible Preferred Stock will rank: (i) prior
to the common stock; (ii) prior to any class or series of capital stock created
in the future (unless, with the consent of the holders of the Series A
Convertible Preferred Stock in accordance with the Amended and Restated Articles
of Amendment, such class or series of capital stock specifically, by its terms,
ranks senior to or pari passu with the Series A Convertible Preferred Stock);
(iii) pari passu with any class or series of capital stock created in the future
(with the consent of the holders of Series A Convertible Preferred Stock
obtained in accordance with the Amended and Restated Articles of Amendment)
specifically ranking, by its terms, on parity with the Series A Convertible
Preferred Stock; and (iv) junior to any class or series of capital stock created
in the future (with the consent of the holders of the Series A Convertible
Preferred Stock obtained in accordance with the Amended and Restated Articles of
Amendment) specifically ranking, by its terms, senior to the Series A
Convertible Preferred Stock.
DIVIDENDS.
Holders of the Series A Convertible Preferred Stock are not entitled to
receive dividends. So long as any shares of the Series A Convertible Preferred
Stock are outstanding, however, we may not (i) declare or pay any dividends on,
or make any distribution on, any junior securities; (ii) redeem or repurchase
any junior securities; or (iii) pay any money to, or make available for, a
sinking fund for the benefit of any junior securities, without the written
consent of the holders of a majority of the outstanding shares of Series A
Convertible Preferred Stock.
LIQUIDATION.
Each holder of Series A Convertible Preferred Stock is entitled to a
liquidation preference of $1,000 per share plus an amount equal to 6% per year
for the period beginning May 19, 1998 and ending on the date of final
distribution. A change in control of our company, as defined in the Amended and
Restated Articles of Incorporation, will be deemed to be a liquidation of our
company and the holders of the Series A Convertible Preferred Stock will be
entitled to 115% of their liquidation preference.
VOTING RIGHTS.
The holders of the Series A Convertible Preferred Stock are entitled to
notice of all shareholders meetings in accordance with our Amended and Restated
Bylaws and to receive copies of proxy materials and other information sent to
shareholders. Except as otherwise provided by Florida law and as described
below, the holders of the Series A Convertible Preferred Stock have no voting
power whatsoever. The Series A Convertible Preferred Stock terms include what
are customarily called "protective provisions." Under these provisions, a vote
of the holders of at least a majority of the outstanding Series A Convertible
Preferred Stock is required before we can: (i) alter or change the rights,
preferences or privileges of the Series A Convertible Preferred Stock or any
senior securities so as to adversely affect the Series A Convertible Preferred
Stock; (ii) create any new class or series of senior securities; (iii) create
any new class or series of pari passu securities; (iv) increase the number of
shares of Series A Convertible Preferred Stock or (v) intentionally take any
action which would result in taxation to the holders of the Series A Convertible
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended.
33
<PAGE>
CONVERSION.
Each share of Series A Convertible Preferred Stock is convertible into
the number of shares of our common stock equal to the stated value ($1,000) of
the share of Series A Convertible Preferred Stock plus a premium of 6% per annum
of the stated value from May 19,1998, divided by the conversion price. The
conversion price is equal to the lesser of (A) 92% of the market price, as
described below, and (B) $11.89. The market price is defined as the average of
the closing bid prices of the common stock on the Nasdaq National Market, as
reported by Bloomberg Financial Markets, for any five consecutive trading days
during the thirty trading day period ending on the day before the date of
conversion. If, however, the average closing bid price on the day of conversion
is below 70% of the average of the closing bid prices of the common stock for
any five trading days during the thirty trading day period ending on the day
before the date of conversion, the conversion price is equal to the lesser of
(A) 115% of the market price and (B) $11.89.
If on the conversion date, the last sale price of the common stock on
the Nasdaq National Market, as reported by Bloomberg is below 70% of the average
of the closing bid prices for the five consecutive trading days ending one day
before May 19, 1998, then we may, at our option, (i) redeem in cash the Series A
Convertible Preferred Stock submitted for conversion for an amount equal to the
number of shares of common stock that we would have issued had we not opted for
the cash redemption, multiplied by the market price, or (ii) redeem the Series A
Convertible Preferred Stock by issuing a convertible note, in the principal
amount equal to 115% of the amount payable in a cash redemption, bearing
interest at the rate of 10% per annum, provided that we have sufficient shares
of common stock authorized and reserved to cover the full conversion thereof and
a registration statement under the Securities Act covering the shares of common
stock issuable pursuant to the redemption note is effective.
The Series A Convertible Preferred Stock is subject to mandatory
redemption under certain circumstances and, under certain circumstances, is also
redeemable at our option. Furthermore, any shares of Series A
Convertible Preferred Stock outstanding on May 18, 2003 shall automatically be
converted into common stock at the then effective conversion price.
TAKEOVER PROVISIONS INCLUDED IN OUR ARTICLES AND BYLAWS
Our Amended and Restated Articles of Incorporation provide for a
classified Board of Directors. The directors are divided into three classes, as
nearly equal in number as possible. The directors will be elected for three-year
terms, which are staggered so that the terms of approximately one-third of the
directors expire each year. Our Amended and Restated Articles of Incorporation
permit removal of directors only for cause by the shareholders at a meeting by
the affirmative vote of at least 60% of the outstanding shares entitled to vote
for the election of directors. Our Amended and Restated Articles of
Incorporation provide that any vacancy on the Board of Directors may be filled
only by the remaining directors then in office. The Amended and Restated
Articles of Incorporation also contain provisions which require: (i) the
affirmative vote of 60% of the voting stock to amend our Articles of
Incorporation or Bylaws; and (ii) the demand of not less than 50% of all votes
entitled to be cast on any issue to be considered at a proposed special meeting
to call a special meeting of shareholders. In addition, the Amended and Restated
Articles of Incorporation require that all shareholder action, including the
election of directors, be taken by means of a vote at a duly convened
shareholders meeting and not by use of written consents. The Amended and
Restated Bylaws establish an advance notice procedure for the nomination of
candidates for election as directors by shareholders as well as for shareholder
proposals to be considered at shareholders' meetings. The above-described
provisions may have certain anti-takeover effects. These provisions, in addition
to the provisions described below, may make it more difficult for persons,
without the approval of the Board of Directors, to make a tender offer or
acquire substantial amounts of the common stock or launch other takeover
attempts that a shareholder
34
<PAGE>
might consider in such shareholder's best interests, including attempts that
might result in the payment of a premium over the market price for the common
stock held by such shareholder.
PROVISIONS OF FLORIDA LAW
We are subject to certain anti-takeover provisions under Florida law
that apply to a public corporation organized under Florida law including the
Florida Control Share Acquisition Act (the "Control Share Act"). The Control
Share Act prohibits the voting of shares in a publicly-held Florida corporation
that are acquired in a "control share acquisition" unless the holders of a
majority of the corporation's voting shares (exclusive of shares held by
officers of the corporation, inside directors or the acquiring party) approve
the granting of voting rights as to the shares acquired in the control share
acquisition or unless the acquisition is approved by the corporation's board of
directors. A "control share acquisition" is defined as an acquisition that
immediately thereafter entitles the acquiring party to voting power within each
of the following ranges: (i) one-fifth or more but less than one-third of such
voting power; (ii) one-third or more but less than a majority of such voting
power; or (iii) a majority or more of such voting power.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is OTC Corporate
Transfer Service at 9 Field Avenue, Hicksville, New York 11801.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for TCPI by Akerman, Senterfitt & Eidson, P.A., Miami, Florida.
EXPERTS
Ernst & Young LLP, independent certified public accountants, have
audited our consolidated financial statements and schedule included in our
Annual Report on Form 10-K for the year ended December 31, 1999, as set forth in
their report (which contains an explanatory paragraph describing conditions that
raise substantial doubt about our ability to continue as a going concern as
described in Note 1 to the consolidated financial statements), which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant will incur no expenses in connection with any sale or
other distribution by the selling shareholders of the common stock being
registered other than the expenses of preparation and distribution of this
Registration Statement and the Prospectus included in this Registration
Statement. Such expenses are set forth in the following table. All of the
amounts shown are estimates except the Securities and Exchange Commission
registration fee.
SEC registration fee................................... $11,681
Legal fees and expenses................................ $______
Accounting fees and expenses........................... $______
Miscellaneous expenses................................. $______
------------------
Total......................................... $______
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 607.0850 of the FBCA to
indemnify our directors and officers to the extent permitted in such statute.
With respect to the indemnification of the Registrant's directors and officers,
the Registrant's Amended and Restated Articles of Incorporation provide that the
Registrant shall indemnify our directors and officers to the fullest extent
permitted by law in existence now or hereafter. In addition, the Registrant
carries insurance permitted by the laws of the State of Florida on behalf of our
directors and officers which may cover liabilities under the Securities Act of
1933, as amended. The Registrant has also entered into agreements with our
directors and officers that will require the Registrant, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors to the fullest extent not prohibited by law.
The provisions of the FBCA that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non- monetary relief
will remain available under Florida law. In addition, each director will
continue to be subject to liability for (a) violations of the criminal law,
unless the director had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful; (b) deriving an
improper personal benefit from a transaction; (c) voting for or assenting to an
unlawful distribution; and (d) willful misconduct or a conscious disregard for
the best interests of the Registrant in a proceeding by or in the right of the
Registrant to procure a judgment in our favor or in a proceeding by or in the
right of a shareholder. These provisions do not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following is a list of exhibits filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
-------------- -------------------
<S> <C>
2.1 Business and Asset Purchase Agreement dated May 20, 2000 between Roche
Diagnostics GmbH and TCPI Holdings, Ltd.(11)
2.2 Guarantee Agreement dated May 20, 2000 between Roche Diagnostics GmbH and the
Company. (11)
3.1 Amended and Restated Articles of Incorporation of the Company. (5)
3.2 Amended and Restated Bylaws of the Company. (5)
3.3 Articles of Amendment to the Articles of Incorporation of the Company. (4)
4.2 Form of Common Stock Certificate of the Company. (3)
4.3 Warrant to purchase Common Stock dated April 19, 2000 (1 of 2) between the
Company and Swartz Private Equity, LLC. (10)
4.4 Warrant to purchase Common Stock dated April 19, 2000 (2 of 2) between the
Company and Swartz Private Equity, LLC. (10)
4.5 Warrant between the Company and Swartz Private Equity, LLC. (10)
5.1* Opinion of Akerman, Senterfitt & Eidson, P.A., regarding the validity of the common
stock.
10.2 Amended and Restated 1992 Incentive Stock Option Plan. (5)
10.3 Cancellation and Exclusive License Agreement between Jack Aronowitz and the
Company dated January 31, 1996. (5)
10.4 Stock Option Agreement between the Company and Martin Gurkin, Stuart R. Streger,
Colin Morris, Kathryn Harrigan, Clayton Rautbord and Stephen Dresnick. (5)
10.6 Lease - Pompano Beach, Florida. (2)
10.6.1 Business Lease Extension - Pompano Beach, Florida. (9)
10.8 Warrant Agreement between the Company and Jack L. Aronowitz. (3)
10.8.1 Amended Employment Agreement dated October 9, 1998 between the Company and
Jack L. Aronowitz. (1)
10.9 Employment Agreement dated October 9, 1998 between the Company and Jay E.
Eckhaus. (1)
II-2
<PAGE>
10.10 Employment Agreement dated September 9, 1999 between the Company and Elliott
Block, Ph.D. (7)
10.11 Employment Agreement dated November 22, 1999 between the Company and Walter
V. Usinowicz, Jr. (8)
10.12 Employment Agreement dated May 27, 1999 between the Company and Robert M.
Morrow. (8)
10.13 Investment Agreement dated May 3, 2000 between the Company and Swartz Private
Equity, LLC. (10)
10.14 Registration of Rights Agreement dated May 3, 2000 between the Company and Swartz
Private Equity, LLC. (10)
23.1* Consent of Akerman, Senterfitt & Eidson, P.A. (Included in their opinion filed as
Exhibit 5.1 hereto).
23.2* Consent of Ernst & Young LLP.
24.1* Power of Attorney (included on signature page to this Registration Statement on Form
S-2).
*Filed with this Registration Statement.
(1) Incorporated by reference to the Company's Form 10-Q filed on November 12, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form SB-2 filed
on October 28, 1994 (No. 33-85756).
(3) Incorporated by reference to Amendment No. 4 to the Company's Registration
Statement on Form S-1 filed on April 23, 1996 (No. 333-1272).
(4) Incorporated by reference to the Company's Form 8-K filed on May 21, 1998.
(5) Incorporated by reference to the Company's Registration Statement on Form S-1 filed
on February 12, 1996 (No. 333-1272).
(6) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed on March 20, 1996 (No. 333-1272).
(7) Incorporated by reference to the Company's Form 10-Q filed on November 9, 1999.
(8) Incorporated by reference to the Company's Form 8-K filed on December 15, 1999.
(9) Incorporated by reference to the Company's Form 10-K filed on March 30, 2000.
(10) Incorporated by reference to the Company's Form 10-Q filed on May 16, 2000.
(11) Incorporated by reference to the Company's Form 8-K filed on June 8, 2000.
</TABLE>
----------------
ITEM 17. UNDERTAKINGS
A. Rule 415 Offering
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
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<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. Request for Acceleration of Effective Date
(1) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement on Form S-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pompano Beach, State of Florida, on the 9th day
of June, 2000.
TECHNICAL CHEMICALS AND
PRODUCTS, INC.
By: /s/ Elliott Block, Ph.D.
--------------------------
Elliott Block, Ph.D.
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Technical Chemicals and
Products, Inc., hereby constitute and appoint each of Elliott Block and Walter
V. Usinowicz, Jr. each with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and in
our behalf in our capacities stated below, which acts and things either of them
may deem necessary or advisable to enable Technical Chemicals and Products, Inc.
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Registration Statement, including specifically but not
limited to, power and authority to sign for any or all of us in our names, in
the capacities stated below, all pre-effective and post-effective amendments to
this Registration Statement and any related subsequent registration statement
pursuant to Rule 462(b) of the Securities Act of 1933, as amended; and we do
hereby ratify and confirm all that they shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities act of 1933, this
Registration Statement on Form S-2 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Elliott Block, Ph.D. Chief Executive Officer and Director June 9, 2000
------------------------------- (Principal Executive Officer)
/s/ Jack L. Aronowitz Chairman of the Board, President and June 9, 2000
------------------------------- Chief Technical Officer
/s/ Martin Gurkin, Ph.D Director June 9, 2000
-------------------------------
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<PAGE>
/s/ Walter V. Usinowicz, Jr. Vice President of Finance and Chief June 9, 2000
------------------------------- Financial Officer (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Clayton Rautbord Director June 9, 2000
-------------------------------
/s/ Noel Buterbaugh Director June 9, 2000
-------------------------------
/s/ Stanley M. Reimer, Ph.D. Director June 9, 2000
-------------------------------
</TABLE>
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