As filed with the Securities and Exchange Commission on July 26, 2000
Registration Form No. 333-39002
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TCPI, INC.
(Exact name of registrant as specified in its charter)
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FLORIDA 65-0308922
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(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.
TCPI, 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, Esq.
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: |_|
------------------
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>
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
UP TO 50,568,673 SHARES
[TCPI's Logo]
TCPI, Inc.
Common Stock
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The selling shareholders listed below may use this prospectus in
connection with the following resales of our common stock:
o Swartz Private Equity, LLC may offer up to 50,000,000 shares that we
may issue to it when we exercise our right to "put" shares to Swartz
under our equity line agreement with Swartz or upon the exercise of
warrants;
o Sunshine State Messenger Services, Inc. may offer up to 168,673 shares
that it acquired in a private placement; and
o Roan-Meyers Associates, L.P., may offer up to 400,000 shares that it
acquires upon the exercise of warrants.
The selling shareholders may sell the common stock at prices and on
terms determined by the market, in negotiated transactions or through
underwriters. Swartz is an "underwriter" within the meaning of the Securities
Act in connection with its sales of our common stock.
We will not receive any proceeds from the sale of shares by the selling
shareholders. However, we will receive proceeds from the sale of shares to
Swartz and upon the exercise of warrants held by Swartz and Roan-Meyers.
INVESTING IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. "RISK FACTORS"
BEGIN ON PAGE 5.
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 July 24, 2000 was $0.6562 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.
SUBJECT TO COMPLETION, DATED JULY 26, 2000
The date of this prospectus is _______, 2000
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
Prospectus Summary................................................................................................2
Risk Factors......................................................................................................5
Special Note Regarding Forward-Looking Statements................................................................16
Use of Proceeds..................................................................................................22
The Investment Agreement.........................................................................................23
Selling Shareholders.............................................................................................29
Plan Of Distribution.............................................................................................32
Description of Capital Stock.....................................................................................33
Transfer Agent And Registrar.....................................................................................36
Legal Matters....................................................................................................36
Experts..........................................................................................................36
Where You Can Find More Information..............................................................................37
Information Incorporated by Reference............................................................................38
</TABLE>
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.
You should only rely on the information contained in this prospectus or any
supplement. We have not authorized anyone to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer of these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front cover of this prospectus or any supplement.
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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 we serve 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
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.
We market diagnostic products worldwide through multiple distribution
channels that include:
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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 for the acquisition of certain trademarks and business
assets relating to the pregnancy and ovulation business of Roche Diagnostics. If
we successfully complete this acquisition, 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 under the terms of the investment
agreement. We describe this transaction in more detail 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. Under 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 included 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 the Securities and Exchange Commission declares this registration
statement effective, but no later than September 17, 2000. The balance of
$3,500,000 is payable in installments before the closing of each local asset
purchase agreement in Germany, Uruguay, Switzerland, Spain, Italy and Argentina.
Of this $3,500,000 balance, $750,000 could be due as early as August 1, 2000 in
connection with the closings in Germany, Spain and Switzerland, and $500,000 as
early as September 1, 2000 in connection with the closing in Italy. The
remaining balance would be due in connection with the closings in Uruguay and
Argentina, which must occur by December 31, 2001. The majority of the assets we
will be acquiring are located in Argentina. 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, 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 from the Swartz transaction on a timely basis, or at
all. Therefore, absent a change in current market conditions that would allow
use to draw down more funds from the Swartz equity line, we do not currently
anticipate using these funds to acquire the assets from Roche diagnostics. 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.
RISK FACTORS
You should carefully consider the following risk factors, as well as
the other information contained in this prospectus, before purchasing shares of
our common stock.
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. We dedicate a majority
of our research, development and engineering activities 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.
WE INCUR SIGNIFICANT NEW PRODUCT DEVELOPMENT EXPENSES THAT FURTHER
CONTRIBUTE TO OUR OPERATING LOSSES.
In order to support anticipated growth and new product development, we
expect to incur significant 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 under
development, which physicians, laboratories, as well as
patients can use at home;
o costs associated with expansion of our manufacturing
facilities; and
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o costs associated with completing 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.
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. Satisfying all or a significant portion of these
judgments on a basis faster than we presently anticipate would further
exacerbate our severe liquidity condition.
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 under 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.
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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
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 future market price and volume of
trading of our common stock limits the rate at which we can obtain money under
the equity line agreement with Swartz. 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 the price of our
common stock declines, or trading volume in our common stock is low, we will be
unable to obtain sufficient funds to meet our liquidity needs. Furthermore,
based on market conditions, the Swartz equity line would not allow for
sufficient funds to make the payments for the acquisition of assets from Roche
Diagnostics. Therefore, we do not currently anticipate using funds from the
Swartz equity line for that purpose. If we do not make the required payments of
$3 million by the date the Securities and Exchange Commission declares this
registration statement effective, but no later than September 17, 2000,
$750,000, which could be due as early as August 1, 2000, and $500,000, which
could be due as early as September 1, 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.
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. The FDA has not yet granted clearance for a
principal product under development, the TD Glucose Monitoring System. We cannot
assure you that we will be able to obtain the necessary FDA clearance for this
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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 we will develop our various products under development to a point at
which we can submit them for FDA clearance. Lack of clearance of any of these
products 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 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 we introduce 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. As discussed above, we do
intend to use the proceeds from the Swartz transaction to finance the
acquisition of assets from Roche Diagnostics. We are currently seeking
additional financing, however we do not currently have any source of financing,
or commitments for financing, in place to finance the acquisition. 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. Previously, Roche
Diagnostics marketed a majority of our family planning products on an OEM basis
for international distribution under its trademarks.
WE HAVE LIMITED EXPERIENCE IN DIRECTLY SELLING AND MARKETING OUR PRODUCTS IN
FOREIGN MARKETS AND MAY NOT BE ABLE TO EXPAND AND SUPERVISE A DIRECT SALES AND
MARKETING FORCE THAT CAN MEET OUR CUSTOMERS' NEEDS.
If we successfully complete the acquisition of assets from Roche
Diagnostics , we intend to sell a portion of our international family planning
products for pregnancy and fertility through our own sales force. Previously,
Roche Diagnostics marketed a majority of our family planning products on an OEM
basis for international distribution under its trademarks. We have limited
experience in direct marketing, sales and distribution outside the United
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States. 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 Diagnostics 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, if we complete the acquisition of assets from Roche
Diagnostics, 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
foreign marketing activities could lead to unanticipated 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 develop and commercialize 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. These companies may improve existing products more efficiently than us or
may design and develop new diagnostic and transdermal drug delivery products
which the marketplace accepts more than our products, our products under
development or our technologies. Further, the markets in which we compete and
intend to compete are undergoing, and we expect to continue to undergo, rapid
and significant technological change. We expect competition to intensify as
technological advances in these 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 our competitors will develop and market
additional products for similar applications. 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.
We expect that our primary competitors in the glucose monitoring
industry will 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 develop 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 in that fluid. 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.
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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. Further,
we cannot assure you 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.
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, we must manufacture our
products 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.
We have not yet manufactured our TD Glucose Monitoring System that is
under development for commercial sale. To successfully commercialize the TD
Glucose Monitoring System, we must manufacture the device 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 we produce the TD Glucose Monitoring System in the quantities required
for commercialization, or that we can assemble and manufacture the TD Glucose
Monitoring System 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. We anticipate that the
engineering and manufacturing scale-up process will require a minimum of 24
months to complete - and includes equipment installation and full-scale
operation under FDA diagnostic Good Manufacturing
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Practices, and inventory build-up before 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;
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 third parties will not assert additional infringement
claims 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 these patents, proprietary
rights or trade secrets on acceptable terms, if at all. If we do not obtain
these 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.
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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. Satisfying all or a significant portion of these
judgments on a basis faster than we presently anticipate would further
exacerbate our severe liquidity condition. We maintain directors' and officers'
liability insurance; however, we cannot assure you that this 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 this coverage.
IF ANY OF OUR PRODUCTS OBTAIN FDA CLEARANCE AND ENTER THE MARKET, PHYSICIANS AND
PATIENTS MAY NOT ACCEPT THEM 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 government health administration authorities,
private health coverage insurers and other organizations reimburse the cost of
our products and related treatments. 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 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. The
failure of government and third party payors to provide adequate coverage and
reimbursement levels for uses of our TD Glucose Monitoring System or our other
products would adversely affect the market acceptance of these products.
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
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, our ability to successfully
recruit and retain additional highly
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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 these
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 above 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. However, potential product
liability claims may exceed the amount of our insurance coverage or the terms of
the policy may exclude these claims from coverage. 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.
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.
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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 under
options. If the holders exercise these stock options and warrants, it will
dilute the percentage ownership interest of our current shareholders. In
addition, the existence of these warrants and options may negatively affect the
terms upon which we would be able to obtain additional money through the sale of
our stock because new investors may be concerned about the impact upon the
future market price of our common stock if the holders of these warrants and
options exercise them and sell the underlying stock.
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 the number of shares of common stock
determined by dividing the stated value ($1,000) of a share of Series A
Convertible Preferred Stock (as this 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. This number of shares could prove to be significantly greater if our
stock price decreases. 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 these holders.
WE MAY BE UNABLE TO MAINTAIN OUR LISTING ON NASDAQ, WHICH COULD CAUSE OUR STOCK
PRICE TO FALL AND DECREASE THE LIQUIDITY OF OUR COMMON STOCK.
On June 28, 2000, Nasdaq advised us that it may delist our common stock
from trading on or about September 28, 2000 if the minimum bid price of our
common stock does not equal or exceed $1.00 for a minimum of ten consecutive
trading days. We cannot assure you that, even if the price of our common stock
increases above $1.00 for a minimum of ten days, the Nasdaq National Market will
not delist our common stock. If our common stock does not satisfy listing
requirements before September 28, 2000, we may attempt to seek review of the
Nasdaq National Market's decision to delist our common stock, or may apply for
quotation of the common stock on the Nasdaq SmallCap Market or any other
organized market on which the shares may be eligible for trading. We cannot
assure you that our common stock will satisfy the requirements for listing on
either the Nasdaq National Market or SmallCap Market, or that either market will
approve listing after reviewing any application we submit.
Delisting of our common stock may have an adverse impact on the market
price and liquidity of our common stock. In addition, if Nasdaq delists our
common stock and the trading price of our common stock was less that $5.00 per
share, our common stock will come within the definition of a
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"penny stock." As a result, it is possible that our common stock may become
subject to the penny stock rules and regulations which require additional
disclosure by broker-dealers in connection with any trades involving a penny
stock. The additional burdens imposed on broker-dealers may restrict the ability
of broker-dealers to sell our common stock and may affect your ability to resell
our common stock.
IF NASDAQ DELISTS OUR STOCK AND WE ARE UNABLE TO LIST ON AN ALTERNATIVE MARKET,
WE MAY BE UNABLE TO PUT SHARES TO SWARTZ WHICH WOULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR LIQUIDITY AND FINANCIAL POSITION.
The equity line agreement with Swartz provides that our right to put
shares to Swartz and the obligation of Swartz to purchase put shares is
conditioned on our common stock being listed for and trading on the Nasdaq
National Market, the Nasdaq SmallCap Market, the O.T.C. Bulletin Board, the
American Stock Exchange, or the New York Stock Exchange. We cannot assure you
that we will be able to list our common stock on any alternative market provided
for in the equity line agreement. In that event, we may be unable to put shares
to Swartz to raise capital (and may be required to make non-usage payments to
Swartz), which is likely to have a material adverse impact on our liquidity and
financial position, including our ability to continue research and development
and commercialization efforts.
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 the Nasdaq National Market delists our stock and the 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
o 120% of the stated value of the shares plus any accrued
dividends; or
o the value of the common stock into which the shares of Series
A Convertible Preferred Stock were convertible.
As of June 6, 2000 this amount would be $2,646,247. If we are unable to meet the
requirements for continued listing and are unable to receive a waiver, then
Nasdaq could delist our common stock and the holders of the Series A Convertible
Preferred Stock could require that we 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.
THE EXERCISE OF OUR PUT RIGHTS MAY SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER
SECURITY HOLDERS.
We will issue shares to Swartz upon exercise of our put rights at a
price equal to the lesser of:
o the market price for each share of our common stock minus
$.10; or
o 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. Registering additional shares could have a further dilutive
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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 under 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 exercise our put rights and sell shares of our common
stock to Swartz, 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 must issue more shares of our common stock for any
given dollar amount invested by Swartz, subject to a designated minimum put
price that we specify. 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 stock price has fluctuated from $13.750 during the fiscal quarter ended
March 31, 1998 to $0.281 during the fiscal quarter ended December 31, 1999. Our
stock price was $0.6562 as of July 24, 2000.
OUR ARTICLES AND BYLAWS HAVE ANTI-TAKEOVER PROVISIONS WHICH COULD MAKE IT
DIFFICULT FOR A POTENTIAL BUYER TO ACQUIRE US.
Our articles of incorporation and 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
o a staggered board of directors;
o certain supermajority voting requirements with respect to
removal of directors and amendments of the articles of
incorporation and bylaws;
o requirements concerning the filling of board vacancies;
o adoption of Florida's Control Share Acquisition Act;
o elimination of shareholder action by written consent;
o creation of a class of "blank check" preferred stock; and
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o an increase in the percentage of shareholder votes required to
call a special meeting of shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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.
Specifically, this prospectus and the documents incorporated into this
prospectus contain forward-looking statements regarding:
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
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o the results of litigation pending against us and the costs of
defending ourselves and prosecuting claims against others in
such litigation.
We wish to caution readers 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 contained 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 obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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 these 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 subsequently denied motions by the
parties for rehearing, and on or about June 16, 2000, issued its mandate on the
appeal to the trial court.
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 collateral
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securing the bond has been released to us. We have pending in the trial court a
motion to vacate the tortious interference judgment and have made a motion to
stay execution on the judgment, which is pending. We believe that the bond
presently in place with respect to TCPI may be required to remain in place to
stay enforcement of the tortious interference judgment during the pendency of
our motion to vacate the tortious interference judgment. We cannot assure you
that we will be successful in vacating the judgment as to us.
We cannot reasonably estimate the liability, if any, at this time that
may result from this matter and efforts to set the judgment aside and therefore
we have not recorded an accrual for loss 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. 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. On July 3, 2000, the court dismissed all claims against Mr. Aronowitz
and us, but granted plaintiffs leave to amend their complaint on or before July
24, 2000. On July 21, 2000, plaintiffs filed a motion for reconsideration of the
court's ruling, which we responded to on July 24, 2000. The court has not yet
ruled on that motion. Also, on July 24, 2000, plaintiffs filed a second amended
complaint, to which we have not yet responded. We intend to file a motion to
dismiss the second amended complaint. We believe the allegations lack merit and
plan to contest the allegations vigorously. At this time, we cannot reasonably
estimate the ultimate loss, if any, related to these claims and therefore we
have not recorded an accrual for loss 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. Demands have been
made upon us which far exceed the amount of this coverage. 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.
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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, 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. The court entered a default
against Medex, Inc. The defendants, The Creative Connection, Inc., and Debra
Lapierre, have made a motion for a summary judgment, which remains pending. This
case is currently in the discovery phase which is scheduled to close on August
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 we commenced the action 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. The parties submitted proposed findings of fact and
conclusions of law, 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
20
<PAGE>
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.
Hooper Litigation. 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 under 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.)
We have filed a suit against Mr. Hooper in the United States District
Court for the Southern District of Florida - Case No. 99-7452 CIV-MOORE, which
claims that Mr. Hooper perpetrated a fraud on us by making fraudulent
representations to us in connection with our acquisition of certain assets of
the co-defendants Pharma Patch, PLC and PP Holdings, LTD. Mr. Hooper has filed a
motion to dismiss for lack of personal jurisdiction, which is now pending before
the court.
As a result, enforcement of the arbitration award has been stayed by a
Florida court. On July 5, 2000, the state court continued the stay of
enforcement of the award during the pendency of our claims against Mr. Hooper &
Associates in the federal action. At this time, we do not believe it is possible
to estimate the ultimate loss, if any, related to the resolution of these
matters and therefore we have not recorded any accrual for loss 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
21
<PAGE>
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, and 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 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.
22
<PAGE>
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.
23
<PAGE>
THE INVESTMENT AGREEMENT
OVERVIEW
On May 3, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. The investment agreement entitles us to issue and sell up
to $25 million of our common stock to Swartz, subject to a formula based on
average stock price and average trading volume, from time to time over a three
year period following the effective date of this registration statement. We
refer to each election by us to sell stock to Swartz as a "put."
In addition, on April 19, 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 initial exercise price equal to $1.9063,
which was the lowest closing bid price for the five trading days before March
17, 2000. On April 19, 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 initial exercise price equal to $0.9375,
which was the lowest closing bid price for the five trading days immediately
before the closing date of May 3, 2000. We estimated the fair value of these
warrants to be approximately $1,041,000 using the Black-Scholes option valuation
model. We will adjust the exercise price of these warrants annually on March 17
to equal the lesser of:
o the exercise price then in effect; or
o the lowest closing bid price of our common stock for the five
trading days before March 17 of that year.
We may issue additional warrants under the terms of the investment agreement, as
described below.
PUT RIGHTS
We may begin exercising puts on the date of this prospectus and
continue for a three-year period. To exercise a put, we must have an effective
registration statement on file with the Securities and Exchange Commission
covering the resale to the public by Swartz of any shares that it acquires under
the investment agreement. Also, we must give Swartz at least 10, but not more
than 20, business days advance notice 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, we may also specify a maximum dollar amount (not to
exceed $2 million) of common stock that we will sell under the put. We may also
specify a minimum purchase price per share at which we will sell shares to
Swartz. The minimum purchase price cannot exceed 80% of the closing bid price of
our common stock on the date we give Swartz notice of the put.
The number of common shares we sell to Swartz may not exceed 15% of the
aggregate daily reported trading volume of our common shares during the 20
business days before or after the date we exercise a put. Further, we cannot
issue additional shares to Swartz that, when added to the shares Swartz
previously acquired under the investment agreement during the 31 days before the
date we exercise the put, will result in Swartz holding over 9.99% of our
outstanding shares upon completion of the put.
24
<PAGE>
Swartz will pay us a percentage of the market price for each share of
common stock under the put. The market price of the shares of common stock
during the 20 business days immediately following the date we exercise a put is
used to determine the purchase price Swartz will pay and the number of shares we
will issue in return. This 20 day period is the pricing period. For each share
of common stock, Swartz will pay us the lesser of:
o the market price for each share, minus $.10; or
o 92% of the market price for each share.
The investment agreement defines market price as the lowest closing bid
price for our common stock during the 20 business day pricing period. However,
Swartz must pay at least the designated minimum per share price, if any, that we
specify in our notice. If the price of our common stock is below the greater of
the designated minimum per share price plus $.10, or 92% of the designated
minimum per share price during any of the 20 days during the pricing period,
that day is excluded from the 15% volume limitation described above. Therefore,
the amount of cash that we can receive for that put may be reduced if our stock
price declines.
We must wait a minimum of five business days after the end of the 20
business day pricing period for a prior put before exercising a subsequent put.
We may, however, give advance notice of our subsequent put during the pricing
period for the prior put. We can only exercise one put during each pricing
period.
WARRANTS
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. The warrants will have
annual reset provisions similar to the reset provisions for the warrants Swartz
currently holds. 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
later.
SAMPLE EXERCISE OF A PUT
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 $0.656 and our 20 day aggregate daily reported trading volume of
2,897,815 as of July 19, 2000, we would be entitled to draw down approximately
$241,678 in connection with our first draw down. Based on these facts, we would
issue 434,672 shares of our common stock and a warrant to purchase 43,467 shares
of our common stock to Swartz.
In the period beginning January 1, 2000 through July 19, 2000, the
20-day aggregate trading volume ranged from 53,439,000 to 2,897,815 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 we would have issued per put had this
agreement been in effect during that time:
25
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<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES(1):
20 DAY VOLUME: 2,500,000 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000
PRICE/SHARE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.50 DOLLARS PER PUT $150,000 $300,000 $600,000 $900,000 $1,200,000 $1,500,000
SHARES PER PUT 375,000 750,000 1,500,000 2,250,000 3,000,000 3,750,000
------------------------------------------------------------------------------------------------------------------------------------
$0.75 DOLLARS PER PUT $243,750 $487,500 $975,000 $1,462,500 $1,950,000 $2,000,000
SHARES PER PUT 375,000 750,000 1,500,000 2,250,000 3,000,000 3,076,923
------------------------------------------------------------------------------------------------------------------------------------
$1.00 DOLLARS PER PUT $337,500 $675,000 $1,350,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 750,000 1,500,000 2,222,222 2,222,222 2,222,222
------------------------------------------------------------------------------------------------------------------------------------
$1.50 DOLLARS PER PUT $517,500 $1,035,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 750,000 1,449,275 1,449,275 1,449,275 1,449,275
------------------------------------------------------------------------------------------------------------------------------------
$2.00 DOLLARS PER PUT $690,000 $1,380,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 750,000 1,086,957 1,086,957 1,086,957 1,086,957
------------------------------------------------------------------------------------------------------------------------------------
$2.50 DOLLARS PER PUT $862,500 $1,725,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 750,000 869,565 869,565 869,565 869,565
------------------------------------------------------------------------------------------------------------------------------------
3.00 DOLLARS PER PUT $1,350,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 724,638 724,638 724,638 724,638 724,638
------------------------------------------------------------------------------------------------------------------------------------
$3.50 DOLLARS PER PUT $1,207,500 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 621,118 621,118 621,118 621,118 621,118
------------------------------------------------------------------------------------------------------------------------------------
$4.00 DOLLARS PER PUT $1,380,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
SHARES PER PUT 375,000 543,478 543,478 543,478 543,478 543,478
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At no time may Swartz own a number of shares that, when added to the
number of shares acquired by Swartz under the investment agreement
during the 31 days before the put date, will result in Swartz holding
more than 9.99% of our outstanding 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. Our stock price as of July 24, 2000 was
$0.6562.
We are registering 50,000,000 shares of common stock for issuance to
Swartz under 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.
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<PAGE>
LIMITATIONS AND CONDITIONS TO OUR PUT RIGHTS
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:
o we have satisfied all obligations under the agreements entered
into between us and Swartz in connection with the investment
agreement;
o our common stock is listed and traded on Nasdaq, the O.T.C.
Bulletin Board, or an exchange;
o our representations and warranties in the investment agreement
are accurate as of the date of each put;
o we have reserved for issuance a sufficient number of shares of
our common stock to satisfy our obligations to issue shares
under any put and upon exercise of warrants;
o the registration statement 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;
o 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
o other than continuing losses described in an attachment to the
investment agreement, at the time of a put, there can be 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:
o we announced or implemented a stock split or combination of
our common stock;
o we paid a dividend on our common stock;
o we made a distribution of all or any portion of our assets or
evidences of indebtedness to the holders of our common stock;
or
27
<PAGE>
o 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.
We may not require Swartz to purchase any subsequent put shares if:
o we, or any of our directors or executive officers, have
engaged in a transaction or conduct related to us that
resulted in:
o a Securities and Exchange Commission enforcement action,
administrative proceeding or civil lawsuit; or
o a civil judgment or criminal conviction or for any other
offense that, if prosecuted criminally, would constitute
a felony under applicable law;
o the aggregate number of days which this 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;
o we file for bankruptcy or any other proceeding for the relief
of debtors;
o we breach covenants contained in the investment agreement; or
o 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
we 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
The investment agreement prohibits Swartz and its affiliates 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 we specify in the put notice.
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<PAGE>
CANCELLATION OF PUTS
We must cancel a particular put if:
o we discover an undisclosed material fact relevant to Swartz's
investment decision;
o the registration statement registering resales of the common
shares becomes ineffective; or
o our shares of common stock are delisted from Nasdaq, the
O.T.C. Bulletin Board, or an exchange.
If we cancel a put, it will continue to be effective, but the pricing period
for the put will terminate on the date we notify Swartz that we are canceling
the put. 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 we not cancelled the put.
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 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 termination of the investment agreement, 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. The investment agreement also prohibits us during this period from
entering into any private equity line agreements similar to the investment
agreement without obtaining Swartz's prior written approval.
There are important exceptions to this limitation. We can issue our
shares without Swartz's prior approval in the following transactions:
o in connection with a merger, consolidation, acquisition or
sale of assets;
o in connection with a strategic partnership or joint venture,
the primary purpose of which is not simply to raise money;
o in connection with our disposition or acquisition of a
business, product or license;
o upon exercise of options by employees, consultants or
directors;
o in an underwritten offering of our common stock;
29
<PAGE>
o upon conversion or exercise of currently outstanding options,
warrants or other convertible securities; or
o under any option or restricted stock plan for the benefit of
employees, directors or consultants.
In addition, we may issue debt securities with no equity feature for working
capital purposes.
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 termination of the investment agreement.
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 not
affect the rights or privileges of existing holders of common stock except that
the issuance of shares will dilute the economic and voting interests of each
shareholder. See "Risk Factors."
As noted above, we cannot determine the exact number of shares of our
common stock issuable under the investment agreement and the resulting dilution
to our existing shareholders, which 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 dilution on our
existing shareholders include the significant dilution of the current
shareholders' economic and voting interests in us.
The investment agreement provides that we cannot issue shares of common
stock that would exceed 20% of the outstanding stock on the date of a put unless
and until we obtain shareholder approval of the issuance of common stock.
Shareholders approved the issuance of common stock in excess of 20% at the
annual meeting of shareholders on July 21, 2000.
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.
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SWARTZ
This prospectus covers 50,000,000 shares of common stock issuable to
Swartz under the investment agreement and shares issuable upon exercise of the
warrants we 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. Under 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 February 2000. We do not have any further obligation to issue
shares of common stock under the two letter agreements. Under 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. Roan-Meyers or its successors or assigns may sell
these shares. We issued these warrants 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 $1.19,
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 includes information regarding ownership of our common
stock by the selling shareholders on June 6, 2000 and the number of shares that
they may sell 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 contained 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
our predecessors or affiliates. Other than 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.
31
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<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>
Swartz Private Equity,
LLC(2) 50,000,000 62% 50,000,000 0 *
Sunshine State
Messenger Services, 183,673 * 168,673 15,000 *
Inc.(3)
Roan-Meyers Associates,
L.P.(4) 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 by this prospectus. We cannot assure you that the
selling shareholders will sell all or any of these shares.
(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 under the investment agreement and warrants
issuable in connection with the investment agreement. These 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.
Swartz may not beneficially own more than 9.9% of our outstanding
common stock at any time. Eric S. Swartz holds investment and voting
control of the shares held by Swartz.
(3) Richard Nuzzolese holds investment and voting control of the shares
held by Sunshine Messenger Service.
(4) Bruce Meyers holds investment and voting control of the shares held by
Roan-Meyers.
32
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders and their successors, which term includes
their transferees, pledgees or donees or their successors may sell the common
stock 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 selling shareholders may effect the
distribution of the common stock 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 under 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 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 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 under 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 by this
prospectus 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.
33
<PAGE>
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 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. Swartz has, before any sales, agreed not to effect any offers or
sales of the common stock in any manner other than as specified in this
prospectus and not to purchase or induce others to purchase common stock in
violation of Regulation M under the Exchange Act. All of the foregoing may
affect the marketability of the securities offered by this prospectus.
Any securities covered by this prospectus that qualify for sale under
Rule 144 under the Securities Act may be sold under that Rule rather than under
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 selling shareholders will sell the common stock in jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states, the selling shareholders may not sell the common stock unless the 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
Our articles of incorporation authorize 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 articles of
incorporation and bylaws.
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 our
board of directors. Dividends are payable only out of funds legally available
for the payment of dividends. Our 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 our assets, 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.
34
<PAGE>
PREFERRED STOCK
Our 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. The issuance of preferred
stock could have the 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 and winding up or dissolution,
the Series A Convertible Preferred Stock will generally rank:
o prior to the common stock; and
o prior to any future class or series of capital stock unless,
with the consent of the holders of the Series A Convertible
Preferred Stock, the terms of the newly created securities
provide that they rank senior to, or pari passu with, 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, without the written consent of the
holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock:
o declare or pay any dividends on, or make any distribution on,
any junior securities;
o redeem or repurchase any junior securities; or
o pay any money to, or make available for, a sinking fund for
the benefit of any junior securities.
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 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 and to receive copies of proxy materials and
35
<PAGE>
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:
o 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;
o create any new class or series of senior securities;
o create any new class or series of pari passu securities;
o increase the number of shares of Series A Convertible
Preferred Stock; or
o 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.
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 under 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.
36
<PAGE>
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
Certain provisions of our articles of incorporation, our bylaws and
Florida law summarized below may be deemed to have an anti-takeover effect and
may discourage, delay, defer or prevent a tender offer or takeover attempt that
a shareholder might consider in its best interest, including those attempts that
might result in a premium over the market price for shares held by our
shareholders.
ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION AND BYLAWS
Our 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 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
articles of incorporation also provide that any vacancy on the board of
directors may be filled only by the remaining directors then in office.
Our articles of incorporation also contain provisions which require:
o the affirmative vote of 60% of the voting stock to amend our
articles of incorporation or bylaws;
o 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;
o 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 ; and
o 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.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida law prohibits the voting of shares in a publicly held Florida
corporation that are acquired in a "control share acquisition" unless the board
of directors approves the control share acquisition or the holders of a majority
of the corporation's voting shares approve the granting of voting rights to the
acquiring party. A "control share acquisition" is generally defined as an
acquisition that immediately thereafter entitles the acquiring party, directly
or indirectly, to vote in the election of directors within any of the following
ranges of voting power:
o one-fifth or more but less than one-third;
o one-third or more but less than a majority; or
o majority or more.
37
<PAGE>
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
Akerman, Senterfitt & Eidson, P.A., Miami, Florida will pass upon the
validity of the shares of common stock offered by this prospectus for us.
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.
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 included 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.
38
<PAGE>
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 that we have filed 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
Current Report on Form 8-K.............................................. June 30, 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:
TCPI, Inc.
3341 S.W. 15th Street
Pompano Beach, FL 33069
Phone: (954) 979-0400
Fax: (954) 979-6125
Attention: Jay E. Eckhaus, Esq.
We will not provide exhibits to a document unless they are specifically
incorporated by reference in that document.
39
<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.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................................................ $11,681
Legal fees and expenses..................................................................... $______
Accounting fees and expenses................................................................ $______
Miscellaneous expenses...................................................................... $______
-------
Total.............................................................................. $______
</TABLE>
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> <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)
II-2
<PAGE>
10.9 Employment Agreement dated October 9, 1998 between the Company and Jay E.
Eckhaus. (1)
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).
* Previously filed
** 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>
----------------
II-3
<PAGE>
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;
(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 26th day
of July, 2000.
TCPI, INC.
By: /s/ Elliott Block, Ph.D.
--------------------------
Elliott Block, Ph.D.
Chief Executive Officer
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/ Elliot Block, Chief Executive Officer and Director July 26, 2000
------------------------------- (Principal Executive Officer)
Elliott Block, Ph.D.
* Chairman of the Board, President and July 26, 2000
------------------------------- Chief Technical Officer
Jack L. Aronowitz
* Director July 26, 2000
-------------------------------
Martin Gurkin, Ph.D.
/s/ Walter V. Usinowicz, Jr. Vice President of Finance and Chief July 26, 2000
------------------------------- Financial Officer (Principal Financial
Walter V. Usinowicz, Jr. Officer and Principal Accounting Officer)
* Director July 26, 2000
-------------------------------
Clayton Rautbord
* Director July 26, 2000
-------------------------------
Noel Buterbaugh
* Director July 26, 2000
-------------------------------
Stanley M. Reimer, Ph.D.
*By: /s/ Elliott Block, Ph.D.
-------------------------------
Elliott Block, Ph.D.
As Attorney-in Fact
</TABLE>
II-5
