<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------- ---------
Commission file number 0-20871
SELFCARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3161276
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices)
(617) 647-3900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock as of
November 13, 1996 was 5,874,367.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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SELFCARE, INC.
FORM 10-QSB
For the Quarterly Period Ended September 30, 1996
This Form 10-QSB 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. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Factors that might cause such
a difference are discussed in the section entitled "Certain Factors Affecting
Future Operating Results" on page 12 of this Form 10-QSB.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Statement of Operations for the three months ended
September 30, 1996 and 1995 and the nine months ended
September 30, 1996 and 1995
b) Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995
c) Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995
d) Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
i
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
<TABLE>
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net product sales 3,044,900 1,701,580 7,856,775 4,582,200
Grants and other revenue 755,589 74,907 1,241,242 224,720
------------ ----------- ------------ -----------
Net revenues 3,800,489 1,776,487 9,098,017 4,806,920
Cost of sales 2,872,666 1,472,158 6,477,303 3,798,534
------------ ----------- ------------ -----------
Gross profit 927,823 304,329 2,620,714 1,008,386
Operating Expenses:
Research and development 1,630,716 365,813 4,161,445 868,220
Selling, general and administrative 2,445,886 1,383,452 6,241,131 3,625,513
Noncash compensation charge 819,214 - 4,184,697 -
------------ ----------- ------------ -----------
Total operating expenses 4,895,816 1,749,265 14,587,273 4,493,733
Operating loss (3,967,993) (1,444,936) (11,966,559) (3,485,347)
------------ ----------- ------------ -----------
Interest expense, including noncash
interest expense relating to issuance
of warrants (Note 4) (8,660,132) (2,990,030) (14,348,681) (3,132,616)
Interest Income 146,049 24,824 269,515 36,625
------------ ----------- ------------ -----------
Loss before dividends and accretion on
preferred stock of a subsidiary (12,482,076) (4,410,142) (26,045,725) (6,581,338)
Dividends and accretion on manditorily
redeemable preferred stock of
a subsidiary (35,087) (31,600) (81,188) (31,600)
------------ ----------- ------------ -----------
Net loss $(12,517,163) $(4,441,742) $(26,126,913) $(6,612,938)
============ =========== ============ ===========
Net loss per common and
common equivalent share $ (2.13) $ (0.73) $ (4.25) $ (1.10)
============ =========== ============ ===========
Weighted average number of common
and common equivalent shares
outstanding 5,868,598 6,089,932 6,146,821 6,025,700
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
1
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<TABLE>
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
September 30, December 31,
1996 1995
------------- -----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 14,512,714 $ 7,394,750
Restricted cash 40,000 -
Accounts receivable, net of allowance for doubtful accounts
of $234,700 and $94,000 in 1996 and 1995, respectively 2,315,713 1,414,232
Inventory (Note 3) 1,367,640 1,193,114
Prepaid expenses and other current assets 352,271 305,043
------------ ------------
Total current assets 18,588,338 10,307,139
PROPERTY AND EQUIPMENT (NET) 4,524,160 2,219,607
INVESTMENT IN ORGENICS 1,000,000 1,000,000
OTHER ASSETS 313,106 165,602
------------ ------------
Total assets $ 24,425,604 $ 13,692,348
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,638,787 $ 1,764,095
Accrued expenses and other current liabilities 2,965,035 1,665,368
Current portion of convertible advance - 2,333,333
Current portion of deferred revenue 1,128,420 226,667
Current portion of Notes payable 1,925,000 -
Current portion of Notes payable to related parties 825,000 -
------------ ------------
Total current liabilities 9,482,242 5,989,463
DEFERRED REVENUE, LESS CURRENT PORTION 1,437,110 3,123,035
NOTES PAYABLE 250,000 2,325,000
NOTES PAYABLE TO RELATED PARTIES - 675,000
CONVERTIBLE ADVANCE, NET OF CURRENT PORTION 13,693,548 4,666,667
CONVERTIBLE PAYABLE - 500,000
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 11,796 -
COMMITMENTS AND CONTINGENCIES (NOTES 6, 7, and 8)
MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 1,724,768 1,643,580
STOCKHOLDERS' DEFICIT:
Preferred stock
Authorized - 5,000,000 shares
Issued and outstanding - none - -
Common stock, $.001 par value -
Authorized - 40,000,000 shares
Issued and outstanding - 5,688,345 and 4,057,924 shares in
1996 and 1995 respectively 5,688 4,058
Additional paid-in capital 38,508,574 9,553,220
Deferred compensation (10,740) (198,965)
Less-Treasury stock, at cost, 15,600 shares in 1996 and 1995 (15,200) (15,200)
Accumulated deficit (40,802,947) (14,676,034)
Cumulative translation adjustment 140,765 102,524
------------ ------------
Total stockholders' deficit (2,173,860) (5,230,397)
------------ ------------
Total liabilities and stockholders' deficit $ 24,425,604 $ 13,692,348
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
2
<PAGE> 5
<TABLE>
SELFCARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(26,126,913) $ (6,612,938)
Adjustments to reconcile net loss to net cash used in operating activities:
Dividends and accretion of mandatory redeemable preferred stock of a
subsidiary 81,188 31,600
Noncash interest expense related to issuance of warrants 14,095,584 2,900,591
Compensation expense related to issuance of common stock options 944,697 -
Compensation expense related to common stock options issued to the
Company's Chief Executive Officer 3,240,000 -
Amortization of deferred revenue (1,081,604) (224,254)
Depreciation and amortization 647,018 430,083
Changes in assets and liabilities:
Accounts receivable (905,904) (535,410)
Inventory (175,926) (24,228)
Prepaid and other current assets (51,243) 117,459
Accounts payable 875,709 33,059
Accrued expenses and other current liabilities 1,306,253 462,445
------------ ------------
Net cash used in operating activities (7,151,141) (3,421,593)
------------ ------------
Cash Flows From Investing Activities:
Purchases of property and equipment (2,802,269) (731,292)
Proceeds from the sales of property and equipment - 36,019
------------ ------------
Net cash used in investing activities (2,802,269) (695,273)
------------ ------------
Cash Flows From Financing Activities:
(Increase) decrease in restricted cash (243,825) 39,226
Proceeds from the receipt of capital grant 286,525 -
Net proceeds from issuance of common stock 10,364,928 106,013
Net repayment of line of credit - (1,717,685)
Proceeds from issuance of notes payable 6,693,548 3,000,000
Proceeds from sale of common stock warrants in connection with
notes payable - 30,000
Purchase of treasury stock - (15,200)
Purchase of common stock options - (14,800)
Principal repayments on capital lease obligations (11,070) -
Proceeds from sales of preferred stock - 1,588,000
------------ ------------
Net cash provided by financing activities 17,090,106 3,015,554
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (18,732) 29,409
------------ ------------
Net increase in cash and cash equivalents 7,117,964 (1,071,903)
Cash and Cash Equivalents, beginning of year 7,394,750 1,762,108
------------ ------------
Cash and Cash Equivalents, end of period $ 14,512,714 $ 690,205
============ ============
Supplemental disclosures of cash flow information:
Interest paid 234,611 93,195
Income taxes paid 16,689 -
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE> 6
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation of Financial Information
The accompanying consolidated financial statements of Selfcare, Inc. and
its subsidiaries (the "Company" or "Selfcare") are condensed and unaudited. In
the opinion of management, the unaudited, condensed, consolidated financial
statements contain all adjustments considered normal and recurring, with the
exception of the non-cash compensation and interest charges (see Note 4),
necessary for their fair presentation. These interim financial statements have
been prepared in accordance with the instructions for Form 10-QSB and therefore
do not include all information and footnotes necessary for a complete
presentation of operations, financial position, and cash flows of the Company,
in conformity with generally accepted accounting principles. The Company filed
audited consolidated financial statements which included information and
footnotes necessary for such presentation for the year ended December 31, 1995
on Form SB-2. These unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and related
notes for the period ended December 31, 1995 included on Form SB-2 filed with
the Securities and Exchange Commission on July 23, 1996, as amended.
2) Cash and Cash Equivalents
The Company considers all highly liquid cash investments with maturities of
three months or less at the date of acquisition to be cash equivalents. At
September 30, 1996, the Company's cash equivalents consisted of United States
treasury notes, repurchase agreements, and money market funds. The Company
follows the provisions of Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
<TABLE>
3) Inventory
Inventory is comprised of the following:
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials $ 826,805 $ 776,770
Work in-process 168,593 237,954
Finished goods 372,242 178,390
------- -------
$1,367,640 $1,193,114
========== ==========
</TABLE>
4) Non recurring, non-cash expenses
On August 15, 1995, the Company entered into a stock option agreement (the
"Agreement") with the Chief Executive Officer ("CEO") of the Company. Under the
Agreement, the CEO received an option to acquire 520,000 shares of the Company's
common stock, par value $.001 per share (the "Common Stock"). The stock option
vested and became exercisable upon the completion of the Company's initial
public offering on August 9, 1996. The exercise price of the option is $2.27 per
share of Common Stock. For the nine months ended September 30, 1996, the
non-cash compensation expense related to this stock option was $3,240,000.
Non-cash compensation expense of $679,952 relates to stock options granted
to employees that were contingent on certain goals which have now been met.
Non-cash compensation expense of $76,520 relates to stock options given to
consultants. The stock options were adjusted to their fair market value based on
SFAS No. 123, Accounting for Stock-based Compensation.
In 1995, the Company issued notes payable ("Cambridge Diagnostics Notes")
and common stock warrants ("Cambridge Diagnostics Warrants") to individual
investors for gross proceeds of $3,030,000. Of this amount, $3,000,000
represented the original principal amount of the Cambridge Diagnostics Notes,
which bear interest at 10% and are due on March 31, 1998. The remaining $30,000
relates to the Cambridge Diagnostics Warrants. The number of shares of Common
Stock issuable pursuant to the Cambridge Diagnostics Warrants is equal to 69%
of the net sales of Cambridge Diagnostics Ltd. for the fiscal year preceding
the repayment of the Cambridge Diagnostics Notes divided by $2.53. The
Cambridge Diagnostics Warrants are fully exercisable, for no additional
consideration, beginning on the date that the notes payable are repaid and
expire within 30
4
<PAGE> 7
days after that date. Based on the formula described above, the warrants will be
exercisable for 1,142,635 shares of the Company's Common Stock. In order for the
Company to obtain approval for listing of the Common Stock on the American Stock
Exchange in connection with the Company's initial public offering, the Company
has entered into agreements with holders of $2.75 million in principal amount of
the Cambridge Diagnostic Notes. Pursuant to such agreements, the principal
amount of such notes would be automatically converted into shares of Common
Stock if the Company's stockholders' equity as of November 30, 1996 were
determined to be less than $4.0 million. The Company believes its stockholders'
equity as of such date will substantially exceed $4.0 million; as a result, the
Company will be obligated to repay such notes on or about December 31, 1996. In
the three months ended September 30, 1996, the Company recognized approximately
$8.6 million of non-cash interest expense relating to the Cambridge Diagnostics
Warrants. The charge relates to the increase in the fair market value of the
underlying Common Stock at September 30, 1996 as compared to the estimated fair
market value at June 30, 1996. For the nine months ended September 30, 1996, the
net non-cash interest expense relating to the Cambridge Diagnostic Warrants was
$14.1 million. When the Cambridge Diagnostic Notes are paid off, the Company
will recognize or reverse non-cash interest expense related to any difference
between the fair market value of the Common Stock on the date that the notes are
paid off and the fair market value of the Common Stock as of September 30, 1996
($16.00).
5) Initial Public Offering of Common Stock
On August 6, 1996, the Company's Common Stock began trading on the American
Stock Exchange after the Company's initial public offering of 1,300,000 shares
at a price of $8.50 per share. The proceeds from the offering were $10,276,500
after deducting the underwriters' commission. In September 1996, the
underwriters exercised their option to purchase an additional 195,000 shares of
Common Stock at the same price (together with the offering of 1,300,000 shares,
the "Initial Public Offering"). The proceeds from the underwriters' purchase of
the 195,000 shares, after deducting commissions, were $1,541,475. The Company
incurred approximately $1.5 million of expenses relating to the Initial Public
Offering. Therefore, the total net proceeds from the Initial Public Offering
were approximately $10.4 million.
6) Supply Agreement with Menarini
In August 1996, the Company, through its wholly owned subsidiary, Selfcare
International GmbH located in Munich, Germany, entered into a supply agreement
with A. Menarini Industrie Parmaceutiche Riunite S.r.L. of Firenze, Italy
("Menarini"). The agreement provides that the Company will be the exclusive
supplier to Menarini of blood glucose test strips for the blood glucose meters
distributed or to be distributed by Menarini in selected markets or market
segments in Europe and certain countries in other parts of the world. The blood
glucose test strips will be manufactured by the Company's Scottish subsidiary,
Inverness Medical Ltd. The Company and Menarini expect shipments under this
supply agreement to commence in the second half of 1997. Under the supply
agreement, Menarini is subject to certain minimum purchases of products from the
Company.
7) Manufacturing Agreement with Nova Biomedical
In September 1996, the Company entered into a manufacturing agreement with
Nova Biomedical Corp., a Massachusetts corporation ("Nova"), to manufacture and
supply the Company with early pregnancy and ovulation test kits. The initial
term of the agreement expires on December 31, 1998 and may be automatically
renewed for additional and successive terms of one year thereafter unless
either party gives written notice of its intention not to renew the agreement.
Under the manufacturing agreement, the Company has agreed to purchase a minimum
quantity of specified products from Nova.
8) Subsequent Events
a) Agreement to purchase shares of Enviromed
In October, 1996, the Company agreed to purchase EN PLC Limited
Partnership's holding of 7,961,386 common shares of Enviromed, plc ("Enviromed")
for a promissory note with a principal amount of approximately $3.8 million (the
"EN PLC Note"). The EN PLC Note bears interest at a fluctuating rate equal to
the Bank of Boston's prime rate plus 1 1/2%. At the end of each of the first
four quarters of the two-year term, the Company will pay approximately $317,000
of the note to EN PLC plus interest and, in each of the last four quarters of
the two-year term, the Company will pay approximately $634,000 plus interest.
The EN PLC Note is secured only by the Enviromed common shares purchased by the
Company. In the event that the Company decides to sell or transfer its Enviromed
common shares, the Company will have to pay off the balance of the EN PLC Note
plus any interest due at that time. The EN PLC Note is subordinated to any
current or future indebtedness of the Company.
5
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b) Distribution Agreement with LifeScan
The Company is currently engaged in an alliance with LifeScan, Inc.
("LifeScan"), a subsidiary of Johnson and Johnson. On October 22, 1996 the
Company announced that it has entered into a distribution agreement with
LifeScan pursuant to which LifeScan will distribute an advanced version of the
Company's proprietary electrochemical blood glucose monitoring system (the "New
System"). On September 17, 1996, the Company had announced that it received
notification of clearance from the U.S. Food and Drug Administration ("FDA") for
a prior version of the New System. The advanced version must receive FDA
clearance before sales of the product can commence in the United States. As
contemplated by November 10, 1995 agreements between Selfcare and LifeScan,
LifeScan paid Selfcare a $7.0 million success fee, and Johnson and Johnson
Development Corporation ("JJDC"), an affiliate of LifeScan, converted its
existing loans of approximately $13.7 million into 201,622 shares of Selfcare's
Common Stock upon the consummation of the distribution agreement with the
Company. In addition, JJDC will also receive, for no additional consideration,
shares of Selfcare's Common Stock equal to 5% of all Common Stock issued by the
Company pursuant to options and warrants that were outstanding as of November
10, 1995. The Company estimates that JJDC will ultimately receive approximately
an additional 278,800 shares of Common Stock.
c) Investment in Orgenics
The Company plans to expand its research, manufacturing, and marketing
capabilities for infectious disease diagnostic products by acquiring Orgenics,
Ltd ("Orgenics"), an Israeli company. On November 7, 1996 the Company announced
that it has acquired a 57.1% direct and indirect equity interest in Orgenics.
Through the combination of purchases of outstanding securities and the
conversion of a $1.0 million debenture into newly issued shares of Orgenics, the
Company has acquired direct ownership of 26.8% (on a fully-diluted basis) of the
shares of Orgenics, and 59.7% of the shares of Orgenics International Holdings
B.V. ("OIH"), a Dutch company whose only material asset consists of 50.7% (on a
fully-diluted basis) of the shares of Orgenics. The interests in Orgenics and
OIH were acquired for a total of $7.0 million in cash, plus the conversion of
the $1.0 million debenture. The Company expects to acquire substantially all of
the balance of the outstanding shares of these two companies on or prior to
August 7, 1997, pursuant to existing option agreements with Orgenics and OIH
shareholders or otherwise.
In October 1996, the Company sold 5,500 shares of Series A Convertible
Preferred stock, $.001 par value per share (the "Series A Preferred Stock") at
$1,000 per share to various non-U.S. investors. The net proceeds of such sales
of approximately $5.1 million were used to purchase a portion of the Orgenics
and OIH shares. The holders of Series A Preferred Stock generally are entitled
to receive cumulative dividends at the rate of six percent per year and their
shares of Series A Preferred Stock will become convertible into shares of the
Company's Common Stock in five equal installments over a 120-day period
beginning in December 1996. Shares of Series A Preferred Stock are convertible
at a discount of 14.5% from the average closing bid price per share of the
Company's Common Stock for the five trading days prior to their conversion,
except that the maximum conversion price is $20 per share and the minimum is
$8.75 per share. Any shares of Series A Preferred Stock not previously converted
will automatically convert into shares of the Company's Common Stock in October
1998 at the closing bid price at the time.
6
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Selfcare, Inc. (the "Company" or "Selfcare") is engaged in the development,
manufacture, and marketing of self-test diagnostic products for the diabetes,
women's health and infectious disease markets. The Company's existing and
planned products are targeted at the two largest existing markets for self-care
diagnostics, diabetes management and women's health, as well as the emerging
market for self tests for infectious diseases and agents, including human
immunodeficiency viruses ("HIV"). An important part of the Company's business
strategy is to enter into strategic alliances, joint ventures and licensing
arrangements with third parties, primarily medical products companies, for the
development, manufacture, and distribution of certain products. The Company is
also pursuing a strategy of selective acquisitions of companies, assets and
technologies which it believes will enhance its ability to deliver innovative
diagnostic products to the marketplace at a low cost. The Company has completed
two such transactions, the acquisition of Cambridge Diagnostics Ltd. ("Cambridge
Diagnostics") and the Company's investment in Inverness Medical Ltd.
("Inverness").
In addition, the Company is currently engaged in an alliance (the "LifeScan
Alliance") with LifeScan, Inc., ("LifeScan") a subsidiary of Johnson and
Johnson. On October 22, 1996, the Company announced that it has entered into a
distribution agreement with LifeScan pursuant to which LifeScan will distribute
an advanced version of the Company's proprietary electrochemical blood glucose
monitoring system (the "New System"). On September 17, 1996, the Company had
announced that it received notification of clearance from the U.S. Food and Drug
Administration (the "FDA") for a prior version of the New System. The advanced
version must receive FDA clearance before sales of the product can commence in
the United States. As contemplated by November 10, 1995 agreements between
Selfcare and LifeScan, LifeScan paid Selfcare a $7.0 million success fee, and
Johnson and Johnson Development Corporation ("JJDC"), an affiliate of LifeScan,
converted its existing loans of approximately $13.7 million into 201,622 shares
of common stock, par value $.001 per share (the "Common Stock") of Selfcare upon
the consummation of the distribution agreement with the Company. In addition,
JJDC will also receive, for no additional consideration, shares of Selfcare's
Common Stock equal to 5% of all Common Stock issued by the Company pursuant to
options and warrants that were outstanding as of November 10, 1995. The Company
estimates that JJDC will ultimately receive approximately an additional 278,800
shares of Common Stock.
The Company plans to expand its research, manufacturing, and marketing
capabilities for infectious disease diagnostic products by acquiring Orgenics,
Ltd ("Orgenics"), an Israeli company. On November 7, 1996 the Company announced
that it has acquired a 57.1% direct and indirect equity interest in Orgenics.
Through a combination of purchases of outstanding shares and the conversion of
a $1.0 million debenture into newly issued shares of Orgenics, the Company has
acquired direct ownership of 26.8% (on a fully-diluted basis) of the shares of
Orgenics and 59.7% of the shares of Orgenics International Holdings B.V.
("OIH"), a Dutch company whose only material asset consists of 50.7% (on a
fully-diluted basis) of the shares of Orgenics. The interests in Orgenics and
OIH were acquired for a total of $7.0 million in cash, plus the conversion of
the $1.0 million debenture. The Company expects to acquire substantially all of
the balance of the outstanding shares of these two companies on or prior to
August 7, 1997, pursuant to existing option agreements with Orgenics and OIH
shareholders or otherwise.
<TABLE>
RESULTS OF OPERATIONS
As an aid to understanding Selfcare Inc.'s operating results, the following
table shows the results of operations as a percentage of revenues.
<CAPTION>
Percentage of net revenues for the
----------------------------------
three months ended September 30, nine months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Gross profit 24 17 29 21
Research and development expenses 43 20 46 18
Selling, general, and administrative expenses 64 78 68 76
Compensation charge 22 - 46 -
Total operating expenses 129 98 160 94
Interest and other expense 224 169 156 65
Net loss 329 250 287 138
</TABLE>
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Net Revenues. Net revenues increased $2.0 million, or 114%, to $3.8 million
in the quarter ended September 30, 1996 from $1.8 million in the same quarter
last year. Net revenues for the nine months ended September 30, 1996 increased
$4.3 million or 89% to $9.1 million from $4.8 million in the corresponding
period in 1995.
Net product sales increased $1.3 million, or 79% to $3.0 million in the
quarter ended September 30, 1996 from $1.7 million in the same quarter last
year. Net product sales for the nine months ended September 30, 1996 increased
$3.3 million or 71% to $7.9 million from $4.6 million in the corresponding
period in 1995. The increase was primarily due to increased demand in the United
States for the Company's pregnancy and ovulation prediction products. Revenues
for the Company's U.S. operations in the quarter ended September 30, 1996
increased $1.1 million or 175% to $1.7 million in the quarter ended September
30, 1996 from $621,000 in the quarter ended September 30, 1995. For the nine
months ended September 30, 1996 revenues from U.S. operations were $4.4 million,
an increase of $2.8 million or 182% from net revenues of $1.6 million in the
nine months ended September 30, 1995.
International revenues (sales by the Company's foreign subsidiaries)
increased by $937,000 or 81% in the quarter ended September 30, 1996 to $2.1
million from $1.2 million in the three months ended September 30, 1995.
International revenues for the nine months ended September 30, 1996 were $4.7
million, an increase of approximately $1.4 million or 45% from net revenues of
$3.3 million for the nine months ended September 30, 1995. Approximately $1.0
million of the international revenues for the nine months ended September 30,
1996 was attributable to the amortization of deferred revenue relating to
certain development and capital grants relating to the Company's facility in
Inverness, Scotland (the "Inverness Facility"). There was no revenue recognized
in connection with these grants for the nine months ended September 30, 1995.
Gross profit. Gross profit increased $624,000 or 205% in the quarter ended
September 30, 1996 to $928,000 from $304,000 in the same quarter in 1995.
Gross profit as a percentage of net revenues increased to 24% of net revenues in
the three months ended September 30, 1996 from 17% of net revenues in the same
quarter last year. Gross profit for the nine months ended September 30, 1996
increased $1.6 million or 160% to $2.6 million from $1.0 million in the nine
months ended September 30, 1995. Gross profit as a percentage of net revenues
increased to 29% for the nine months ended September 30, 1996 from 21% in the
same period a year ago.
The increase in gross profits was primarily due to revenue attributable to
the amortization of deferred revenue of certain development and capital grants
relating to the Inverness Facility. Gross profit on product sales increased
slightly to 18% for nine months ended September 30, 1996 from 17% for the nine
months ended September 30, 1995.
Research and Development Expense. Research and development expense
increased by $1.3 million or 346% to $1.6 million for the three months ended
September 30, 1996 from $366,000 in the three months ended September 30, 1995.
Research and development expense for the nine months ended September 30, 1996
increased $3.3 million or 379% to $4.2 million from $868,000 in the
corresponding period in 1995. The increase was primarily due to expenses
incurred in connection with the development of the Company's New System and
generic electrochemical blood glucose test strips for the management of
diabetes. These development activities accounted for $1.2 million and $2.8
million of the increases in the three and nine month periods ended September 30,
1996, respectively. In addition, the Company continues to allocate research and
development resources to the areas of women's health products and infectious
diseases, principally those related to the detection of HIV. The Company expects
to continue to spend significant amounts on research and development throughout
1996 and 1997.
Selling, General, and Administrative Expense. Selling, general, and
administrative expense increased $1.0 million or 77% to $2.4 million for the
three months ended September 30, 1996 from $1.4 million for the three months
ended September 30, 1995. Selling, general, and administrative expense for the
nine months ended September 30, 1996 increased $2.6 million or 72% to $6.2
million from $3.6 million in the corresponding period in 1995. The increase was
primarily attributable to expansion of the Company's marketing efforts in the
United States and Europe, and the hiring of additional staff to support the
Company's operations. Selling, general, and administrative expense, as a
percentage of net revenues, decreased during 1996 as compared the same periods
in 1995. Selling, general, and administrative expense were 64% and 68% of net
revenues for the three and nine month periods ended September 30, 1996 compared
to 78% and 76% for the three and nine month periods ended September 30, 1995.
Non-Cash Compensation Expense. Substantially all of the non-cash
compensation expense for the three and nine months ended September 30, 1996
related to certain stock options granted to certain employees of the Company.
For the nine months ended September 30, 1996 the non-cash compensation expense
related to a stock option granted to the Company's Chief Executive Officer in
August 1995 was $3,240,000. Non-cash compensation expense of $680,000 for both
the three and nine month periods ended September 30, 1996 related to stock
options granted to certain employees that were contingent on certain goals which
have now been met. In accordance with SFAS No. 123, Accounting for Stock Based
Compensation, the Company recorded non-cash compensation expense of $77,000 for
stock options to outside consultants. The remaining $63,000 and $188,000 of
non-cash compensation expense for the three and nine months
8
<PAGE> 11
ended September 30, 1996, respectively, relates to the amortization of deferred
compensation pertaining to the grant of certain stock options to employees.
Interest and Other Income (Expense). In the three months ended September
30, 1996, the Company recognized $8.6 million of non-cash interest expense
relating to the Cambridge Diagnostics Warrants. The charge relates to the
increase in the fair market value of the underlying common stock at September
30, 1996 as compared to the estimated fair market value at June 30, 1996. For
the nine months ended September 30, 1996, the non-cash interest expense relating
to the aforementioned warrants was $14.1 million. Excluding the non-cash
interest expense relating to the warrants, interest expense was $90,000 and
$253,000 for the three and nine month periods ended September 30, 1996 as
compared to $89,000 and $232,000 for the three and nine month periods ended
September 30, 1995. Interest income increased by $121,000 and $233,000 for the
three and nine months ended September 30, 1996 as compared to the same periods
last year, primarily due to larger cash balances. The Company's subsidiary in
Inverness, Scotland accrued $35,000 and $81,000 for the three and nine months
ended September 30, 1996, representing a 6% dividend payable on its outstanding
cumulative redeemable preference shares, as compared to $32,000 for the three
and nine months ended September 30, 1995.
Foreign Currency Transaction. Fluctuations in foreign currency did not
significantly impact revenue performance measured in U.S. dollars for the three
and nine months September 30, 1996. Substantially all sales are paid in the
functional currency of the selling entity.
Net Loss. The net loss for the three months ended September 30, 1996 was
approximately $12.5 million or ($2.13) per common and common equivalent share
compared to $4.4 million or ($0.73) per common and common equivalent share in
the three months ended September 30, 1995. Excluding the net effect of the
previously described non-cash interest expense of $8.6 million and non-cash
compensation expense of $819,000 in the three months ended September 30, 1996
and non-cash interest expense of $2.9 million in the three months ended
September 30, 1995, the net loss for the three months ended September 30, 1996
was approximately $3.1 million or ($0.53) per common and common equivalent share
as compared to $1.5 million or ($0.25) per common and common equivalent share
for the three months ended September 30, 1995. The net loss for the nine months
ended September 30, 1996 was approximately $26.1 million or ($4.25) per common
and common equivalent share as compared to $6.6 million or ($1.10) per common
and common equivalent share in the nine months ended September 30, 1995.
Excluding the previously described non-cash interest expense of $14.1 million
and non-cash compensation expense of $4.2 million in the nine months ended
September 30, 1996 and non-cash interest expense of $2.9 million in the nine
months ended September 30, 1995, results in a net loss of $7.8 million or
($1.28) per common and common equivalent share in the nine months ended
September 30, 1996 as compared to $3.7 million or ($0.62) per common and common
equivalent share for the nine months ended September 30, 1995. These losses
reflect increased spending on research and development as well as expansion of
the Company's sales and marketing efforts and the hiring of additional staff to
support the Company's operations.
9
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the funds it has
received in connection with the Company's initial public offering of 1,495,000
shares of Common Stock (the "Initial Public Offering"), funds received in
connection with the LifeScan Alliance, the private placements of debt and
equity securities, a bank line of credit, capital lease obligations, cash from
product sales and grants from government development agencies.
On August 6, 1996, the Company's Common Stock began trading on the American
Stock Exchange after an initial public offering of 1,300,000 shares at a price
of $8.50 per share. The proceeds from the offering were $10,276,500 after
deducting the underwriters' commission. In September 1996, the underwriters
exercised their option to purchase an additional 195,000 shares of Common Stock
at the same price. The proceeds from their purchase of the 195,000 shares, after
deducting commissions, were $1,541,475. The Company incurred approximately $1.5
million of expenses relating to the Initial Public Offering, therefore, the
total net proceeds from the Initial Public Offering were approximately $10.4
million.
In November 1995, in connection with the closing of an investment agreement
between JJDC and the Company, Selfcare received an advance of $7.0 million from
JJDC. The Company received an additional $6.7 million advance in May 1996 in
connection with the Company's filing of a Section 510(k) Notification with
respect to a proprietary electrochemical blood glucose monitoring system it is
developing for LifeScan, and the acceptance for the filing by the FDA on May 21,
1996 of such notification. On October 22, 1996 the Company announced that it has
entered into a distribution agreement with LifeScan pursuant to which LifeScan
will distribute an advanced version of the Company's proprietary electrochemical
blood glucose monitoring system. The advanced version must receive FDA clearance
before sales of the product can commence in the United States. As contemplated
by November 10, 1995 agreements between Selfcare and LifeScan, LifeScan paid
Selfcare a $7.0 million success fee, and JJDC converted its advances of
approximately $13.7 million into 201,622 shares of Selfcare's Common Stock upon
the consummation of the distribution agreement with the Company. In addition,
JJDC will also receive, for no additional consideration, additional shares of
Selfcare's Common Stock equal to 5% of all Common Stock issued by the Company
pursuant to options and warrants that were outstanding as of November 10, 1995.
The Company estimates that JJDC will ultimately receive approximately an
additional 278,800 shares of Common Stock.
The Company financed a portion of the acquisition of Cambridge Diagnostics
in 1994 by utilizing a bank line of credit. In 1995, the Company paid the
outstanding balance on the line of credit in full with a portion of the proceeds
of the issuance of $3.0 million of promissory notes (the "Cambridge Diagnostic
Notes") and warrants (the "Cambridge Diagnostic Warrants") to purchase Common
Stock. In order for the Company to obtain approval for listing of the Common
Stock on the American Stock Exchange in connection with the Company's Initial
Public Offering, the Company has entered into agreements with holders of $2.75
million in principal amount of the Cambridge Diagnostic Notes. Pursuant to such
agreements, the principal amount of the notes would be automatically converted
into shares of Common Stock if the Company's stockholders' equity as of November
30, 1996 were determined to be less than $4.0 million. The Company believes its
stockholders' equity as of such date will substantially exceed $4.0 million; as
a result, the Company will be obligated to repay such notes on or about December
31, 1996.
The Company received $1.6 million in September 1995 from an investment by
Highlands and Islands Enterprise ("HIE"), a development agency funded by the
government of the United Kingdom, in redeemable preferred stock of Inverness to
finance a portion of the start-up costs relating to the Inverness Facility. In
addition, the Company received $2.5 million in capital and development grants
from the HIE.
In March 1996, the Company entered into an agreement with Princeton
BioMeditech Corporation ("Princeton"), pursuant to which the Company provided
$500,000 to finance Princeton's production of certain products and will purchase
certain minimum amounts of those products over the course of three years. The
aggregate minimum amount of such purchases over the course of the three-year
period will be $6.9 million
At September 30, 1996, the Company had cash and cash equivalents of $14.5
million, a $7.1 million increase from December 31, 1995. This was primarily due
to the net proceeds of approximately $10.4 million from the Company's Initial
Public Offering and the aforementioned $6.7 million advance from JJDC. Cash used
for operations in the nine months ended September 30, 1996 was $7.2 million due
largely to net losses of $26.2 million in the nine months ended September 30,
1996. However, the net loss for the nine months ended September 30, 1996
included $18.4 million of non-cash items. The largest non-cash expenses were
the interest charge of $14.1 million related to the Cambridge Diagnostics
Warrants and compensation expense of $4.2 million related to certain stock
options granted to the Company's Chief Executive Officer, certain employees and
outside consultants. Other uses of cash in operating activities included an
increased funding of accounts receivable of $906,000 reflecting the Company's
increase in sales. The Company also used
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<PAGE> 13
$176,000 of cash to increase inventories to support increased demand for the
Company's products. Prepaid and other current assets increased $51,000 due
primarily to an increase in value added taxes (VAT) receivable. Cash was
provided for operations in part by an increase in accounts payable, accrued
expenses, and other current liabilities of $2.2 million.
During the nine months ended September 30, 1996, the Company used $2.8
million to purchased property and equipment. Approximately $2.2 million of the
purchased property and equipment was for the Inverness Facility.
Financing activities provided approximately $17.1 million in the nine
months ended September 30, 1996. The most significant financing activities were
the Company's Initial Public Offering of 1,495,000 shares at $8.50 per share,
for which the net proceeds after deducting offering costs were $10.4 million,
and the $6.7 million advance from JJDC.
The Company intends to invest substantially in development, property and
equipment at the Inverness Facility so that it can manufacture glucose strips
for the diabetes market in connection with the LifeScan Alliance. The Company
believes that funds received to date in connection with the LifeScan Alliance
and the net proceeds from the Initial Public Offering of the Company's Common
Stock will be sufficient to provide adequate working capital and funds necessary
for anticipated capital expenditures for at least the next 12 months. The
Company currently plans to continue its research and development of new
technologies and pursue the acquisition of new products and technologies,
whether through licensing arrangements, business acquisitions, or otherwise. The
Company anticipates that it will be required to raise substantial additional
funds for such projects or strategies. There can be no assurance that any such
additional capital will be available on terms acceptable to the Company, or at
all.
The Company anticipates that it will complete the acquisition of Orgenics
("Orgenics Acquisition") on or prior to August 7, 1997 by acquiring direct or
indirect control of substantially all of the share capital of Orgenics. The
Company expects to acquire the remaining shares in Orgenics and OIH pursuant to
the option agreements entered into with the shareholders of Orgenics and OIH.
The purchase price for such shares pursuant to the option agreements is based on
a formula contained in the option agreements relating to the Orgenics
Acquisition which provides for potential increases in the total consideration
which may be payable in connection with the Orgenics Acquisition, depending upon
when the Orgenics Acquisition is consummated, and provides the Orgenics
shareholders the ability to elect to receive their consideration in cash and or
Common Stock. No assurance can be given as to when the Orgenics Acquisition will
be consummated, if at all, or that the consideration which is required to be
paid in connection with such acquisition will not have materially increased the
time of such consummation. In addition, the Company might be required to obtain
additional financing in order to pay the cash portion of the consideration
payable pursuant to the option agreements. The inability to fund such payment of
such cash portion would have a material adverse affect on the Company.
11
<PAGE> 14
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB 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. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Factors that might cause such
a difference include those discussed below, as well as those factors set forth
under "Risk Factors" beginning on page 8 of the Company's registration statement
on Form SB-2 filed with the Securities and Exchange Commission on July 23, 1996,
as amended.
The Company's future results of operations depend to a substantial degree
on the LifeScan Alliance and on LifeScan's ability to market and sell the
Company's proprietary electrochemical blood glucose monitoring system. There can
be no assurance that the LifeScan Alliance will be profitable for the Company.
The Company is at an early stage in its development. With the exception of
certain professional diagnostic products for infectious diseases and its women's
health products produced by third-party manufacturers, all of the Company's
products are in various stages of research and development, and the Company has
generated no revenue from the commercialization of these products under
development. Many of the Company's products will require substantial additional
development, pre-clinical and clinical testing and investment prior to their
commercialization. There can be no assurance that the Company's research and
development efforts will be successful, that any of the Company's products under
development will prove to be safe or effective in clinical trials, that the
Company will be able to obtain regulatory approval to market any of its
products, that any of its products can be manufactured at acceptable cost and
with appropriate quality, or that any of its products, if and when approved, can
be successfully marketed.
The Company's research, development and clinical programs, as well as its
manufacturing and marketing operations, are subject to extensive regulation by
numerous governmental authorities in the United States and other countries. Most
of the Company's products require governmental approvals for commercialization
that have not yet been obtained and are not expected to be obtained for several
months or years. Pre-clinical and clinical trials and manufacturing and
marketing of many of the Company's products will be subject to the rigorous
testing and approval process of the FDA and corresponding foreign regulatory
authorities. The regulatory process, which includes pre-clinical and clinical
testing of many of the Company's products to establish their safety and
efficacy, can take many years and require the expenditure of substantial
financial and other resources. Data obtained from pre-clinical and clinical
activities are susceptible to varying interpretations that could delay, limit or
prevent regulatory approval. In addition, delays or rejection may be encountered
based upon changes in, or additions to, regulatory policies for device and test
approval during the period of product development and regulatory review. Delays
in obtaining such approvals could adversely affect the marketing of products
developed by the Company and the Company's ability to generate commercial
product revenues.
The medical products industry, including the diagnostic testing industry,
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes, and the Company's success will
depend, in part, on its ability to obtain patent protection for its products and
manufacturing processes, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties.
The Company holds certain patent rights, has certain patent applications
pending, and expects to seek additional patents in the future, but there can be
no assurance as to its success or timeliness in obtaining any such patents or as
to the breadth or degree of protection that any such patents will afford the
Company. The Company could incur substantial costs in defending itself against
patent infringement claims or in asserting such claims against others. If the
outcome of any such litigation is adverse to the Company, the Company's business
could be materially adversely affected. To determine the priority of inventions,
the Company may also have to participate in interference proceedings declared by
the U.S. Patent and Trademark Office, which could also result in substantial
costs to the Company.
In addition, the Company may be required to obtain licenses to patents or
other proprietary rights of third parties to market its products. No assurance
can be given that licenses required under any such patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
market introductions while it attempts to design around such patents or other
rights, or be unable to develop, manufacture or sell such products in certain
countries or at all.
The medical products industry, including the diagnostic testing industry,
is rapidly evolving and developments are expected to continue at a rapid pace.
Competition in this industry is intense and expected to increase as new products
and technologies become available and new competitors enter the market. The
Company's competitors in the United States and
12
<PAGE> 15
abroad are numerous and include, among others, diagnostic testing and medical
products companies, universities and other research institutions. The Company's
success depends upon developing and maintaining a competitive position in the
development of products and technologies in its area of focus. The Company's
competitors may also succeed in developing technologies and products that are
more effective than any that have been or are being developed by the Company or
that render the Company's technologies or products obsolete or noncompetitive.
The Company's competitors may also succeed in obtaining patent protection or
other intellectual property rights that would prevent the Company from
developing its potential products, or in obtaining regulatory approval for the
commercialization of their products more rapidly or effectively than the
Company. Finally, many of the Company's existing or potential competitors have
or may have substantially greater research and development capabilities,
clinical, manufacturing, regulatory and marketing experience and financial and
managerial resources than the Company.
The Company is also aware of several of its competitors who are attempting
to develop a non-invasive blood glucose monitoring technology. The development
and successful introduction of any such products could have a material adverse
effect on the Company's business, financial condition and results of operations.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be exposed to litigation arising out of
its products and operations. The Company is not engaged in any legal proceedings
which are expected individually or in the aggregate to have a material adverse
effect on the Company's financial condition or results of operations.
Pasteur Sanofi Diagnostics licensed the Pasteur HIV Technology to Cambridge
Biotech and its affiliates, including Cambridge Affiliate, relating to patents
and proprietary rights underlying the Company's HIV-related products. The
licenses of the Pasteur HIV Technologies to Cambridge Biotech are non-exclusive
and cover diagnostic test kits in finished form embodying the Pasteur HIV
Technologies. The territorial scope of the licenses is worldwide, with the
exception of exclusive rights which Pasteur Sanofi Diagnostics asserted to have
granted in the Pasteur HIV Technologies to Genetic Systems Corporation ("Genetic
Systems") in the United States, Canada, Mexico, Australia, New Zealand and India
(the "Excluded Countries"). However, the licenses provide that, to the extent
that Pasteur Sanofi Diagnostics recovers the right to practice the patents
underlying the Pasteur HIV Technologies in the Excluded Countries, Cambridge
Biotech is entitled to non-exclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholder of Pasteur Sanofi
Diagnostics, and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems subsequently filed an appeal in district court. The date for the appeal
hearing is unknown. If the bankruptcy court decision were reversed on appeal,
the territories to which Cambridge Affiliate could sell HIV-related products
would be limited and this could have a material adverse effect on the Company.
Pasteur Sanofi Diagnostics has notified Orgenics that as a result of
Orgenics' use of certain peptides, Orgenics may be liable for infringement of
certain patents held by Institut Pasteur, and under which Pasteur Sanofi
Diagnostics holds an exclusive license. Orgenics has informed the Company that
it is not aware of any other threatened litigation that would have a material
adverse effect on Orgenics or its business.
The Company has been involved in a dispute with Enviromed plc,
("Enviromed"), with respect to a joint venture agreement entered into between
the Company and Enviromed in March 1994 and other agreements (collectively, the
"Disputed Enviromed Agreements") entered into between the Company and Enviromed
and its wholly-owned subsidiary, Cranfield Biotechnology Ltd. ("Cranfield") and
the issuance of shares of Selfcare's Common Stock to Enviromed in connection
therewith. In connection with this dispute, the Company has informed Enviromed
that, due to the failure of Enviromed and Cranfield to perform their obligations
under those agreements, it disputes Enviromed's ownership of the Common Stock
held of record by Enviromed. On July 5, 1996, Enviromed filed suit against the
Company and the representatives of the underwriters of the Company's Initial
Public Offering (the "IPO Representatives") in United States District Court for
the Southern District of New York alleging breach of a registration rights
agreement relating to the Common Stock held of record by Enviromed. Enviromed
claimed that its rights under a registration rights agreement were breached in
connection with the Company's Initial Public Offering and has requested damages,
injunctive relief and a declaratory judgment that Enviromed is the lawful owner
of the shares. The Company has filed counterclaims against Enviromed arising out
of the failure of Enviromed and Cranfield to perform their obligations under the
Disputed Enviromed Agreements. The Company intends to contest Enviromed's claims
vigorously. On October 18, 1996, the case was ordered transferred to the United
States District Court for the District of Massachusetts. The Company is not able
to estimate the amount of damages, if any, which might result from Enviromed's
claims against the Company but, believes that in no event would any such damages
be an amount which would have a material adverse effect on the Company. The
Company has agreed to indemnify the IPO Representatives for any losses they
might incur, including reasonable attorney's fees and expenses, as a result of
the Enviromed lawsuit.
Trinity Biotech plc ("Trinity") and Eastcourt Limited ("Eastcourt") have
filed Schedule 13Ds with the Securities and Exchange Commission stating that
Enviromed has sold the Common Stock held by it of record to Flambelle Limited
("Flambelle"), a wholly-owned subsidiary of Trinity, and Eastcourt, an entity
owned 50% each by Enviromed and Flambelle, on August 28, 1996. On November 1,
1996, Enviromed announced that it had disposed of its holding of shares of
Eastcourt to Flambelle for consideration of $1.25 million, leaving Flambelle
and Eastcourt as holders of the Selfcare Common Stock originally issued to
Enviromed.
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<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
<TABLE>
The following exhibit is filed as a part of this report:
<CAPTION>
Exhibit Number Title
- -------------- -----
<S> <C> <C>
*+ 10.50 Supply Agreement dated August 27, 1996, by and between Selfcare, Inc.,
Selfcare International GmbH and A. Menarini Industrie Parmaceutiche
Riunite S.r.L.
*+ 10.51 Manufacturing Agreement for Pregnancy and Ovulation Stick/Cassette
Test Kits, dated September 7, 1996, by and between Nova BioMedical
Corp. and Selfcare, Inc.
+ 27 Financial Data Schedule
<FN>
* Filed herewith
+ Confidential treatment has been requested as to a portion of this documents
</TABLE>
b. Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELFCARE, INC.
Date: November 13, 1996 /s/ Anthony H. Hall
-------------------
Anthony H. Hall,
Chief Financial Officer
16
<PAGE> 1
Exhibit 10.50
Material omitted and filed
separately with the Securities
and Exchange Commission.
SUPPLY AGREEMENT
This agreement is made and entered into at the date of signature between
Selfcare Inc., 200 Prospect Street, Waltham, MA 02154, USA and Selfcare
International GmbH, Keltenring 8, 82041 Oberhaching, Germany (hereinafter
collectively called as the "COMPANY") and A. Menarini Industrie Farmaceutiche
Riunite S.r.L., via Sette Santi 3, 50131 Firenze, Italy ("MENARINI").
WHEREAS
- - The COMPANY is entitled to manufacture and sell the products described
in Appendix A (the "PRODUCTS");
- - The COMPANY is willing to sell Menarini, on an exclusive basis, the
PRODUCTS described in Appendix A in accordance with the following terms
and conditions.
1. SUPPLY
The COMPANY hereby undertakes to sell exclusively to MENARINI all
quantities of the PRODUCTS which MENARINI shall require to market
and sell, under MENARINI's colours, labels and trademarks, directly
or through its distributors the PRODUCTS in the Territories described
in Appendix A (the "TERRITORY").
2. PRICES, EXCHANGE RATE VARIATION AND PAYMENT
2.1 The PRODUCTS shall be supplied to MENARINI at purchase prices
(in US $) described in Appendix B. They will be fixed for each calendar
year. Any eventual price modification will be discussed within September
1st of the preceding year. If the parties will not be able to reach an
agreement about the new prices the following official index will be used
as a reference: USA inflation rate.
2.2 In case of an exchange rate variation (between US $ and Italian
lira) bigger than +/-10% of the exchange rate at the date of the
signature of the agreement, the loss and gain will be shared in equal
part.
2.3 Payment for all PRODUCTS purchased by MENARINI shall be made in
US $.
2.4 Payment to the COMPANY shall be made sixty (60) days after the
shipment from the COMPANY. All prices are quoted FOB.
2.5 Without prejudice to its other rights in respect thereof, the
COMPANY shall be entitled to withhold supplies of PRODUCTS while payment
of any sums due from MENARINI remains outstanding.
2.6 The PRODUCTS will remain the property of the COMPANY as long as
MENARINI has not fully paid for such PRODUCTS. At the request of the
COMPANY, MENARINI shall return any and all unpaid PRODUCTS immediately
to the COMPANY to the COMPANY's address or to any other address
designated by the COMPANY. Notwithstanding the foregoing, MENARINI shall
be responsible for any loss or damage relating to any such PRODUCTS
while such PRODUCTS are in the possession of MENARINI, or while such
PRODUCTS are being returned to the COMPANY until they are accepted by
the COMPANY.
1
<PAGE> 2
3. EXCLUSIVITY
The COMPANY shall not supply the PRODUCTS described in Appendix A to any
third party in the TERRITORY.
4. PRODUCT MODIFICATION
Any modification of the PRODUCTS that is affecting the performances or the
physical appearance will be agreed with MENARINI.
5. PRODUCT REGISTRATION
MENARINI will do its best efforts to obtain prompt registration for the
PRODUCTS with the appropriate governmental agencies in the TERRITORY, and to
obtain any other approvals required in connection with the marketing and
sale of the PRODUCTS hereunder.
6. MINIMUM QUANTITY
6.1. MENARINI shall purchase from the COMPANY for sale in the TERRITORY a
minimum quantity of the PRODUCTS as listed on Appendix C. The PRODUCTS will
be considered purchased when ordered by MENARINI. MENARINI will provide the
COMPANY with a twelve (12) months purchase forecast. This forecast will be
updated on a quarterly basis.
In case of failure to purchase the minimum commitments, the COMPANY will
notify MENARINI giving sixty (60) days to remedy. If MENARINI is failing to
remedy within sixty (60) days from such notification, the COMPANY may
terminate the agreement within seven (7) days from the aforesaid 60th day,
with a thirty (30) days written notice.
In case of significant changes in one or more of the PRODUCTS (quality or
price) the parties will adjust in good faith the minimum purchase
requirements for said Product(s).
6.2. Upon request of the COMPANY, MENARINI shall do its best efforts to
destroy, return to the COMPANY or make such other disposition as the COMPANY
shall direct of any portion of the PRODUCTS determined by the COMPANY to be
outdated or otherwise to require such disposition. In the event of such
return or destruction, the COMPANY shall either replace the PRODUCTS or
reimburse MENARINI in an amount equal to the price paid by MENARINI for the
PRODUCTS. The COMPANY shall have no liability for material that is outdated
as a result of MENARINI's inventory management practices.
7. DELIVERY TERMS AND SHELF LIFE
The PRODUCTS will be delivered to MENARINI within 60 days from the date of
the order. Each other will be confirmed within two working days. The
PRODUCTS will be delivered to MENARINI with at least 18 months shelf life.
2
<PAGE> 3
8. INDUSTRIAL PROPERTY RIGHTS AND CONFIDENTIALITY
8.1 All technical and commercial information, data regarding
processes and know-how furnished by the COMPANY to MENARINI shall remain
the property of the COMPANY, and MENARINI shall not acquire any
proprietary rights or other interests, herein. For the avoidance of
doubt as to what may or may not be constitute information in respect of
which MENARINI is bound by the above obligations, the COMPANY will
notify MENARINI in writing, within no more than two weeks from the date
of disclosure MENARINI, any element of information to be regarded as
confidential.
8.2 The foregoing shall not apply to any information:
a) which is freely available to the public at the time it is
disclosed or made available by the COMPANY or which subsequently
becomes freely available to the public otherwise than by default
of MENARINI;
b) any information which MENARINI can show by dated written
records was known to MENARINI prior to it being disclosed or
made available by the COMPANY;
c) any information which MENARINI can show from its dated
written records was developed independently, without recourse or
reference to confidential information disclosed to MENARINI by
the COMPANY.
8.3 Upon termination of this Agreement (for whatever reason),
MENARINI shall without delay return to the COMPANY all documents and
other materials which include any of the Information (including all
copies thereof).
8.4 MENARINI shall ensure that all staff involved in the
distribution of the PRODUCTS (and the staff of any Distributors or
agents) are aware of and observe the obligation of confidence contained
in this Agreement.
8.5. The obligation of confidence in this Agreement shall survive the
termination of the Agreement for three (3) years from the date of
termination of Agreement.
9. WARRANTY
(a) The PRODUCTS shall be free from defects due to faulty materials or
workmanship and comply with the Technical Specifications attached in
Appendix E until the end of their shelf life.
(b) This warranty shall not apply, and the COMPANY shall be under no
obligation to repair or replace PRODUCTS or under any liability to
MENARINI of any nature, in relation to PRODUCTS which are not properly
used in accordance with their instruction or which have been altered or
modified by any person other than the COMPANY.
(c) Any PRODUCT, which MENARINI believes (having first examined and
tested it) not to comply with the Technical Specifications attached in
Appendix E during the relevant warranty period, shall be repaired by the
COMPANY free of charge to MENARINI but the COMPANY shall not pay any
labour or travel costs to MENARINI, and always provided
3
<PAGE> 4
that MENARINI shall have notified the COMPANY in writing of the alleged
defect within thirty (30) days of it being brought to MENARINI's
attention.
If any PRODUCTS returned to the COMPANY pursuant to point 9 (c) is found
to perform in accordance with its specifications, it shall be returned
to MENARINI and the transport costs in relation thereto shall be borne
by MENARINI.
(d) Subject as aforesaid the COMPANY shall be under no liability of any
kind in respect of the PRODUCTS manufactured in conformity with
Technical Specification and applicable law.
10. COMPLIANCE WITH LAWS
(a) The COMPANY assumes the responsibility to assure that the PRODUCTS
are safe, effective, properly labelled and packaged, and that they
comply with all regulation applicable in the TERRITORY and with European
Regulations promulgated from time to time. MENARINI assumes the
responsibility to assure that the PRODUCTS, upon delivery, are received,
stored, handled, and shipped in compliance with the COMPANY's
directives.
(b) MENARINI shall inspect the PRODUCTS in the TERRITORY at MENARINI's
cost to determine whether the PRODUCTS meet the Technical Specifications
attached in Appendix E and the requirements of this Agreement.
MENARINI shall be deemed to have accepted any PRODUCTS not rejected by
notification to the COMPANY, setting forth in reasonable detail the
PRODUCTS rejected and the reasons therefor, and received by COMPANY
within thirty (30) days of MENARINI's receipt of such PRODUCTS, and
PRODUCTS which are not so rejected shall be deemed to comply with all
Technical Specifications required by this Agreement.
Up to the above mentioned dispute shall not be clarified, the payment of
the disputed PRODUCTS shall be suspended.
If any PRODUCTS returned to the COMPANY pursuant to point 10 (b) is
found to perform in accordance with its Technical Specifications, it
shall be returned to MENARINI and the transport costs in relation
thereto shall be borne by MENARINI.
(c) The COMPANY assumes the responsibility to perform appropriate tests
of stability for the PRODUCTS. If an expiration date or special handling
and storage conditions are required, The COMPANY will inform DISTRIBUTOR
of these requirements.
(d) The COMPANY assumes the responsibility to assure that its label and
labelling are in compliance with the regulation applicable in the
TERRITORY and with the European Regulations promulgated from time to
time.
(e) The COMPANY assumes the responsibility to conform to a Quality
System certified by a certification body and/or described in a Quality
Manual. The Quality Manual must be written in compliance with
International Quality Standards (e.g. ISO 9000).
The COMPANY is expected to have procedures and specifications which
adequately describe their Quality Program.
The COMPANY agrees to allow MENARINI periodic visits of the COMPANY's
facilities. Confidential disclosures of manufacturing operations can be
used to protect the proprietary nature of the manufacturer's operations.
(f) The COMPANY must ensure that PRODUCTS complies with all the
Technical Specifications mutually agreed with MENARINI and described in
Appendix E.
4
<PAGE> 5
The COMPANY agrees to deliver the PRODUCT with related Quality Control
certificate and/or Declaration of Compliance.
(g) The COMPANY is required to notify MENARINI in writing and receive
approval to proceed prior to making any change that may affect
conformance to defined requirements. The notification must be provided
to MENARINI within reasonable time so MENARINI may evaluate the
proposed change for its approval.
(h) The COMPANY will maintain records of shipments. MENARINI will
maintain a traceability system for all transfusion related to PRODUCTS
from the COMPANY. This system ensures that PRODUCTS are traceable and
accountable after these PRODUCTS have left the premises of MENARINI.
Each batch of the PRODUCTS shall be traceable in terms of article code
and batch/lot number.
Serialised PRODUCTS shall be traceable by serial number.
(i) The COMPANY will provide MENARINI with the Material Safety Data
Sheet for any hazardous material used in manufactured the PRODUCTS,
within the meaning of the hazardous material of European Regulations.
(l) MENARINI will communicate to the COMPANY the PRODUCT complaints.
The COMPANY will cooperate in the resolution of PRODUCT complains and in
providing MENARINI with necessary information. Nothing in this paragraph
will relieve The COMPANY from its responsibilities, liabilities, and
warranties contained in this agreement, and in other possible agreements
between the COMPANY and MENARINI.
(m) If the COMPANY or MENARINI discovers any potential problem in one
or more of the PRODUCTS, it will be communicated to the other party. If
it is decided that such PRODUCT(s) should be recalled, withdrawn or
quarantined, and if the problem is caused by a manufacture error, then
the cost of PRODUCTS (plus freight), preparing customer lists, letters
and mailing shall be born by the COMPANY.
(n) The COMPANY will accept for full credit returned goods from MENARINI
when they are found not in conformance with Applicable Regulations.
11. LITIGATION
(a) If MENARINI becomes aware of or suspects that there is any
infringement of the COMPANY's patents or other industrial property
rights (including misuse of confidential information), MENARINI shall
promptly inform the COMPANY of the same.
(b) MENARINI shall not compromise or attempt, to take any proceedings
or other steps in respect of the matters referred to in paragraph (a)
above without the prior written consent of the COMPANY.
(c) If the COMPANY decides to take any proceedings in relation to the
matters referred to in paragraph (a) above, MENARINI shall assist the
COMPANY at its request to deal therewith, including without limitation
taking or joining with the COMPANY in the prosecution of any proceedings
that the COMPANY may deem necessary to protect its rights.
5
<PAGE> 6
CONFIDENTIAL TREATMENT
All costs and expenses associated with the conduct of or participation
by MENARINI in such proceedings shall be changed to the COMPANY.
12. INSURANCE
The COMPANY and MENARINI warrant that they both carry product liability
insurance for the PRODUCTS being sold under the Agreement.
13. DURATION AND TERMINATION
This agreement shall become effective from the date of signature by both
parties and shall continue in force until 31 December 2001. The
automatic renewal terms will be of five years each. Two (2) years prior
to the end of each five (5) year period, the parties will meet to agree
in good faith reasonable minimum quantity of PRODUCTS to be purchased by
MENARINI for the following five (5) year period taking into
consideration the then current market conditions. Should the parties
fail to reach an agreement for the such new minimum quantity prior to
six (6) months before the expiration of the then current term, each
party reserves the right to terminate this Agreement within fifteen (15)
days starting from the beginning of such six (6) months, with a thirty
(30) days prior written notice.
13.2 Except for as otherwise agreed, this Agreement may be terminated
at any time by written notice from either party of the other.
(a) in the event of a breach by the other party of any of the
terms and conditions of the Agreement, which breach shall not be
remedied within sixty (60) days from receipt of a written notice
to that effect; or
(b) in the event that either party shall be unable to pay its
debts in the ordinary course of business or enter into
liquidation or have a receiver or administrator appointed
whether compulsory or voluntary, or otherwise becomes subject
to insolvency laws:
13.3 In case of expiration of termination for any reason of this
Agreement, MENARINI may continue at its own discretion to purchase -
and the COMPANY is obliged to sell-, on a non exclusive basis, the
PRODUCTS, provided that the ordered minimum quantities per shipment
will be bigger than [material omitted and filed separately with the
Securities and Exchange Commission] strips and that MENARINI does not
purchase the PRODUCTS also from a third supplier. The parties shall
sign a new supply agreement in conformity with what established in
this art. 13.3.
14. MINIMUM SHIPPING QUANTITIES
The minimum shipping quantity for each product is given in APPENDIX D.
15. NATURE OF RELATIONSHIP
MENARINI in an independent party and shall in no respect be or be
deemed to be an employee of the COMPANY or an agent of or subject to the
authority of the COMPANY. Except as specifically authorised in writing,
MENARINI shall not be in any way authorised or empowered to bind the
COMPANY.
6
<PAGE> 7
16. APPLICABLE LAW
The Agreement shall in all respects be governed by and construed in
accordance with the laws of United Kingdom.
17. ADDRESSES
Unless otherwise specified in the Agreement, all notices required
hereunder shall be delivered by hand or sent by cable or by telefax or
by registered mail, postage paid. Unless otherwise specified by written
instructions, all notices shall be addressed as follows:
If to the COMPANY If to MENARINI
Selfcare International A. Menarini
Keltenring 8 Industrie Farmaceutiche Riunite SrL
82041 Oberhaching via Sette Santi, 3
Germany 50131 Firenze
Italy
18. ARBITRATION
Any dispute arising in connection with the Agreement shall be submitted
to arbitration in accordance with the rules of the International Chamber
of Commerce (the 'ICC'), in London, UK, and shall be determined by a
single arbitrator selected by agreement of the parties, or if the
parties fail to so agree, a single arbitrator selected by ICC in London,
UK. The arbitrator shall have had no dealings with either party or any
of its Affiliates for the five years prior to the arbitration. The
arbitration shall be held at the ICC in London, UK, and conducted in
English. The decision of the arbitrator shall be final and binding and
the arbitrator's award may be enforced in any court of competent
jurisdiction.
19. AMENDMENTS
This Agreement constitutes the entire Agreement between the parties and
may be modified only by written agreement specifically referring hereto
and signed by the parties.
20. VALIDITY
20.1. If any of the provision of this Agreement shall be void or
unenforceable by reason of any applicable law, it shall be deleted and
the remaining provisions hereof shall continue in full force and effect
and, if necessary, so amended as may be necessary to give effect to the
spirit of this Agreement so far as it is possible.
7
<PAGE> 8
20.2 Parties entered in this Agreement provided that the provisions of
this Agreement do not contravene the articles 85 and 86 of the Treaty of
Rome. In the event that one or more provisions of this Agreement
conflict with the forementioned articles the parties agree that they
shall endeavour to find an alternative solution approaching as near as
possible to the contractual situation as agreed upon.
20.3. If due to a change in any applicable law or due to a decision or
other act by any competent authority one or more of the provisions of
this Agreement cannot any longer be enforced or an amendment of one or
more of the provisions of this Agreement is required, the parties agree
that they shall endeavour to find an alternative solution approaching as
near as possible to the contractual situation existing prior to such a
change, decision or act.
21. RIGHTS AND OBLIGATIONS
The termination of this Agreement for any reason shall be without
prejudice to the rights and obligations of the parties accrued up to and
including the date of termination.
22. PATENTS
The COMPANY holds harmless MENARINI in case of an infringement by the
COMPANY of a third party's patent(s).
IN WITNESS THEREOF, this Agreement has been executed, in duplicate, on the date
stated above and below.
Signed in threefold in Firenze On July 31st, 1996
------- ---------------
/s/ Ron Zwanziger /s/ Otto Wahl /s/ Enzo Della Croce
- -------------------- -------------------- --------------------
August 27th, 1996
Ron Zwanziger Otto Wahl Enzo Della Croce
President Managing Director Europe President Diagnostic Business
Selfcare Inc. Selfcare International A. Menarini
200 Prospect Street Keltenring 8 Industrie Farmaceutiche
Waltham, MA 02154 82041 Oberaching Riuntite S.r.l.
USA Germany Via Sette Santi, 3
50131 Firenze, Italy
8
<PAGE> 9
CONFIDENTIAL TREATMENT
APPENDIX A
----------------------------
EXCLUSIVE PRODUCTS
----------------------------
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Selfcare International Menarini Selfcare Inc.
/s/ Otto Wahl /s/ Enzo Della Croce /s/ Ron Zwanziger
- --------------------- -------------------- --------------------
Date: July 31st, 1996 8/27/96
--------------- -------------------- --------------------
* Material omitted and filed separately with the Securities and Exchange
Commission.
9
<PAGE> 10
CONFIDENTIAL TREATMENT
APPENDIX B
*****
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Selfcare International Menarini Selfcare Inc.
/s/ Otto Wahl /s/ Enzo Della Croce /s/ Ron Zwanziger
- ---------------------- --------------------- -----------------
Date: July 31st, 1996 8/27/96
----------------- --------------------- -----------------
* Material omitted and filed separately with the Securities and Exchange
Commission.
10
<PAGE> 11
CONFIDENTIAL TREATMENT
APPENDIX C
MINIMUM ORDER QUANTITIES
DISTRIBUTOR: Menarini
TERRITORY: see Appendix A
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Selfcare International Menarini Selfcare Inc.
/s/ Otto Wahl /s/ Enzo Della Croce /s/ Ron Zwanziger
- ---------------------- -------------------- ------------------
Date: July 31st, 1996 8/27/96
---------------- -------------------- ------------------
* Material omitted and filed separately with the Securities and Exchange
Commission.
11
<PAGE> 12
CONFIDENTIAL TREATMENT
APPENDIX D
MINIMUM SHIPPING QUANTITIES
DISTRIBUTOR: Menarini
TERRITORY: see Appendix A
******************************************************************************
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Selfcare International Menarini Selfcare Inc.
/s/ Otto Wahl /s/ Enzo Della Croce /s/ Ron Zwanziger
- ---------------------- -------------------- ----------------------
Date: July 31st, 1996 8/27/96
---------------- -------------------- -----------------------
* Material omitted and filed separately with the Securities and Exchange
Commission.
12
<PAGE> 13
CONFIDENTIAL TREATMENT
APPENDIX E
TECHNICAL SPECIFICATIONS
DISTRIBUTOR: Menarini
TERRITORY: see Appendix A
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Appendix E: technical specifications pag. 1/3
* Material omitted and filed separately with the Securities and Exchange
Commission.
<PAGE> 14
CONFIDENTIAL TREATMENT
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Appendix E: technical specifications pag. 2/3
* Material omitted and filed separately with the Securities and Exchange
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<PAGE> 15
CONFIDENTIAL TREATMENT
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Selfcare International Menarini Selfcare Inc.
/s/ Otto Wahl /s/ Enzo Della Croce /s/ Ron Zwanziger
- ----------------------- -------------------- ------------------
Date: July 31st, 1996 8/27/96
----------------- -------------------- ------------------
Appendix E: technical specifications pag. 3/3
* Material omitted and filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 10.51
Material omitted and filed
separately with the Securities
and Exchange Commission.
Manufacturing Agreement
For
Pregnancy and Ovulation Stick/Cassette
Test Kits
By and Between
NOVA BIOMEDICAL CORPORATION
AND
SELFCARE INCORPORATED
September 7, 1996
<PAGE> 2
Selfcare/NOVA Biomedical Manufacturing Agreement
for Pregnancy and Ovulation Stick/Cassette Test Kits
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction 1
Term 1
Roles and Responsibilities 1
Product 1
Section 1/Product Design 1
Section 2/Covenants 2
Section 3/Distribution/Warehousing 4
Section 4/Production Engineering Costs 4
Section 5/Pricing/Volume 4
Section 6/Cost of Rework or Scrap 5
Section 7/Manufacturing Engineering 5
Section 8/Product Changes 5
Section 9/Warranty 6
Section 10/Notice 7
Section 11/Governing Law; Arbitration 8
Section 12/Liability/Insurance 8
Section 13/Termination 8
Section 14/Terms of Payment 9
Section 15/Indemnifications 9
Section 16/Product Recall 11
Section 17/Disclosure of Information 11
Section 18/Compliance with Law 11
Section 19/Miscellaneous 12
</TABLE>
<PAGE> 3
Selfcare/NOVA Biomedical Manufacturing Agreement
for Pregnancy and Ovulation Stick/Cassette Test Kits
INTRODUCTION:
THIS AGREEMENT made as of this 7th day of September 1996, by and between NOVA
BIOMEDICAL CORP., a Massachusetts corporation with headquarters located at
200 Prospect Street, Waltham, Massachusetts, U.S.A., (hereinafter called
"NOVA"), and SELFCARE, INC., a Delaware corporation with headquarters located at
200 Prospect Street, Waltham, Massachusetts, U.S.A., (hereinafter called
"Selfcare" and together with NOVA referred to as the "parties").
TERM:
Unless terminated earlier as provided in Section 13, the initial term of this
agreement shall commence on the effective date and continue through December
31, 1998. Subject to the termination provision of Section 13, the initial term
shall be automatically renewed, without further notice or action by either
party, for additional and successive terms of one year commencing January 1,
1999, unless either party gives written notice to the other of the intention
not to renew not less than 180 days prior to the end of the initial term or any
renewal term.
ROLES AND RESPONSIBILITIES:
PRODUCT:
The Products are early pregnancy and ovulation test kits and are defined in
Appendix A. The individual foil sealed kit (stick/cassette) is supplied to
Selfcare by a key sole source. Selfcare packages and labels the test kits with
a variety of private brand names and supplies kits to retail distribution
centers and points of sale. Other products may be added to this agreement by
adding schedules.
SECTION 1/PRODUCT DESIGN
Selfcare is responsible for the Product design and performance. It will provide
NOVA with design documentation and specifications. NOVA will work with Selfcare
designers to review and suggest changes that would add reliability and lower
cost. NOVA will transition the Product into manufacturing and will provide the
necessary manufacturing engineering and drafting services to convert these
documents to conform to applicable regulatory standards. Selfcare will be
responsible for obtaining all FDA and safety agency approvals, as needed, to
market the Product.
<PAGE> 4
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 2
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SECTION 2/COVENANTS
COVENANTS AND DUTIES OF SELFCARE
Selfcare will purchase all of its requirements for the Product from NOVA
provided NOVA meets Selfcare's delivery and quality standards.
Selfcare shall, at its own expense, supply all test materials required to meet
NOVA's quality control standards, when reasonably requested by NOVA.
Selfcare shall render prompt technical support to NOVA on a continuing basis
when reasonably requested by NOVA.
For purposes of this agreement, manufacturing is defined as the packaging by
NOVA of Selfcare specified raw material. NOVA assumes no responsibility for the
functionality of the material if procured to Selfcare/approved specification.
Selfcare also agrees to provide to NOVA on a timely basis the design
specifications of the Product, as well as all engineering change notices with
respect to the Product.
Between the first and fifteenth day of each calendar month (beginning with the
calendar month after the calendar month during which Selfcare directs NOVA to
begin manufacture of the Product), Selfcare shall submit to NOVA: (i) a 90-day
rolling firm forecast (a "Firm Forecast") specifying the number of purchases
(by part number) for the 90-day period beginning on such date; and (ii) a 12
month non-binding forecast as to Selfcare's anticipated purchases. Orders
within a Firm Forecast are not subject to changes in shipment dates.
COVENANTS AND DUTIES OF NOVA
NOVA shall manufacture and sell to Selfcare all Products which Selfcare shall
order from time to time by delivery of Firm Forecasts to NOVA.
NOVA will pay for all tools, dies, fixtures and automation required to produce
the Product. NOVA will provide all manufacturing engineering, drafting and
documentation required to manufacture the Product and conform to FDA and ISO
9000 regulations.
NOVA shall warehouse at NOVA's Waltham facility up to one (1) month's inventory
of Product ordered by Selfcare. During the first year of this Agreement, the
amount of such one month of inventory shall be the amount specified for the next
calendar month in the last Firm Forecast. Thereafter, such amount shall be based
on the Selfcare's average purchases of Products during the immediately preceding
12 month period. Selfcare agrees to take delivery of, or pay for in advance of
shipment, all Products in NOVA's inventory which have been forecasted by
Selfcare and which are in excess of such one month's inventory.
If one 12 months average inventory warehousing needs exceeds 2,000 sq. ft., the
warehousing terms will be subject to negotiation at NOVA's option.
<PAGE> 5
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 3
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NOVA understands and agrees that it is providing services hereunder as a
customer-transparent contractor of Selfcare under Selfcare's name. NOVA's name
shall not appear on the Products or any documentation, except that NOVA's name
may appear on serial number labels so long as such labels are not visible to
Selfcare's customers and in documents relating to obtaining regulatory approval
of the Product. Nothing in this Agreement shall be deemed to grant NOVA any
right to use Selfcare's name for any purpose other than as expressly provided
herein.
NOVA shall manufacture all products in a good and workmanlike manner and in
strict conformity with all applicable Product specifications and all applicable
laws and regulations. NOVA shall not make any change in or deviate in any way
from such specifications except pursuant to an Engineering Change Order
approved as provided in Section 8 of this Agreement.
NOVA shall manufacture all Products in its plant in Waltham, Massachusetts,
unless Selfcare authorizes NOVA in writing to manufacture Products in another
plant location.
NOVA shall not purchase any component for use in the manufacture of any Product
from any vendor other than those approved in advance by Selfcare. Selfcare
shall provide NOVA with an approved vendor list in the Product specification,
which list may be amended by Selfcare from time to time. Selfcare may not
withhold approval if quality is equal and part cost is equal or less.
NOVA represents and warrants to Selfcare that: (1) NOVA has the right to enter
into this Agreement; (2) all necessary actions, corporate and otherwise, have
been taken to authorize NOVA's execution and delivery of this Agreement and the
same is the valid and binding obligation of NOVA; (3) all licenses, consents
and approvals necessary for NOVA to carry out all of the transactions
contemplated in this Agreement have been obtained by NOVA; (4) NOVA has the
experience and technical and physical capacity to fulfill its obligations under
this Agreement; (5) NOVA has and shall pass to Selfcare good title to the
Products free and clear of all liens and encumbrances; and (6) no claim or
action is pending or threatened against NOVA or, to NOVA's knowledge, against
any supplier of NOVA that could adversely affect the ability of NOVA to produce
the Products or the right of Selfcare or any customer of Selfcare to use the
Products for their intended use.
<PAGE> 6
CONFIDENTIAL TREATMENT
Selfcare/NOVA Biomedical Manufacturing Agreement
Page 4
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Section 3/Distribution/Warehousing
The products shall be sold by NOVA to Selfcare at the prices indicated in
Section 5, Ex-works, Waltham, Massachusetts. The costs of freight, packaging,
handling and insurance shall be billed separately for each order, and shall be
paid by Selfcare. At Selfcare's request, NOVA shall ship the Products via
mutually agreed carriers to sites designated by Selfcare. To minimize freight,
packaging and handling costs, NOVA shall routinely consolidate orders and ship
via Federal Express.
Selfcare shall be responsible for payment of all export and import duties,
local sales taxes and similar charges with respect to the Products. Selfcare
shall pay for any special packaging or handling.
Others will be processed by Selfcare and forwarded to NOVA for filling. If
possible, an electronic order processing system will be established. Title and
ownership and risk of loss to the products shall pass to Selfcare upon removal
of the products from NOVA's facility in Waltham, Massachusetts.
Section 4/Production Engineering Costs
Selfcare will reimburse NOVA for the costs of all tools, dies and fixtures
needed to implement production. Selfcare will also reimburse NOVA for labor
costs related to developing production documentation at a rate of $50/hour.
Selfcare may either pay the labor costs when incurred or the costs may be
distributed over the first years sales as an incremental cost per unit based on
the projected first years sales.
Section 5/Pricing/Volume
NOVA will sell test kits to Selfcare at a price based on factory costs plus
direct material cost. Factory cost will be recalculated annually or following
any design changes implemented at the request of Selfcare.
The first years production volume is a minimum of 1.8 million units. It is
understood that during transition from Selfcare to NOVA materials will be
sourced from Selfcare suppliers. Selfcare will provide NOVA with all the
necessary information, leadtime and inventory to assure a smooth transition.
NOVA will purchase from Selfcare, at standard material cost, all current raw
and finished goods inventory necessary to complete the transfer to
manufacturing and distribution.
Therefore, the final per unit price of the test kits will be calculated for
each kit part number based on a complete current bill of material and will
include labor costs in addition to direct materials cost (see Appendix B).
Selfcare will pay NOVA [material omitted and filed separately with the
Securities and Exchange Commission] transaction fee for each customer direct
shipment. This includes the cost of pallets, overpack boxes, picking, handling
and manifesting. The cost of freight will be billed separately for each order
shipped.
<PAGE> 7
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 5
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Section 6/Cost of Rework or Scrap
NOVA will absorb all costs related to scrap or rework resulting from
manufacturing errors. Selfcare will be charged all costs related to rework and
scrapping of inventory as a result of design changes initiated by Selfcare or
to scrapping product which is within design specifications but found to be
unacceptable by Selfcare.
Section 7/Manufacturing Engineering
NOVA shall provide manufacturing, engineering and drafting services which are
required to ensure that the Product (i) conforms with NOVA's quality standards
and (ii) is further refined in order to become a manufacturable product;
provided, however, that Selfcare shall be responsible for obtaining all safety
agency approvals which may be required in order to market and sell the Product.
NOVA will assist wherever needed. NOVA shall develop all processes, jigs and
fixtures necessary to manufacture the Product, and shall manufacture the
Product in accordance with Good Manufacturing Practices ("GMP") and ISO 9000
guidelines. NOVA shall also provide Selfcare with documentation necessary to
establish the Product's compliance with GMP and United States Food and Drug
Administration regulations.
Section 8/Product Changes
NOVA will notify Selfcare of any proposed changes in composition or source of
raw materials, method of producing, processing or testing or site of
manufacturing. No such change shall be made without the prior written approval
of Selfcare.
Selfcare and NOVA anticipate that during the term of the Agreement,
modifications to the Product design will occur. NOVA will make no design
changes without authorization by Selfcare. Selfcare may from time to time
request NOVA to incorporate an engineering change into a Product by delivering
an "Engineering Change Order" to NOVA. Each Engineering Change Order shall be
in writing and shall include a description of the proposed change sufficient to
permit NOVA to evaluate the feasibility of such change. Within seven (7)
business days of receipt of an Engineering Change Order, NOVA will inform
Selfcare in writing of the earliest possible implementation date for the
proposed engineering change, of any increase or decrease in the price of the
Product as a result of such change, and of any effect on production scheduling
or QA test coverage. NOVA shall be required to accept and implement all
reasonable engineering changes to the Products.
In support of its ongoing efforts to improve efficiency and reduce the costs of
manufacturing Products, NOVA may from time to time suggest that an engineering
change be made to a Product by delivering an "Engineering Change Proposal" to
Selfcare. Each Engineering Change Proposal shall be in writing and shall
include a description of the proposed change, a description of any improvements
in the Product or cost reductions which will result from the change, and the
effect of the change, if any, in production scheduling or QA testing. Each
Engineering Change Proposal shall provide detail sufficient to permit Selfcare
to evaluate the desirability of such change. Selfcare agrees to consider each
Engineering Change Proposal it receives from NOVA, but reserves the right to
accept or reject each such Proposal in its sole discretion.
<PAGE> 8
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 6
********************************************************************************
In the event either Selfcare or NOVA identifies an engineering change that must
be implemented for reasons of safety (a "Safety Change"), the parties agree to
cooperate so as to effect such Safety Change as soon as possible after
discovery. Once such a Safety Change is discovered, the parties agree that no
affected Product shall be manufactured or shipped until such Safety Change has
been implemented, notwithstanding any delay in scheduled ship dates. The parties
further agree to cooperate in the implementation of such Safety Change on
Product shipped prior to discovery of the hazard. In this regard, NOVA agrees
to manufacture a field change kit or to implement factory retrofitting, as
appropriate. Selfcare and NOVA shall agree on a case by case basis on
appropriate charges for the implementation of a Safety Change prior to
implementation.
Selfcare and NOVA agree to review each change and determine if the change
directly impacts material or labor costs. If such a change is due to
modification of the design and impacts cost, the price of the units will be
adjusted.
SECTION 9/WARRANTY
NOVA represents and warrants that all Products supplied in connection with this
Agreement(i) shall be new and unused, of merchantable quality and fit for the
purpose intended by this Agreement; (ii) shall be free from defects in material
and workmanship; (iii) shall conform to the Product specifications and
documentation; and (iv) shall be manufactured and provided by NOVA in
accordance and conformity with any applicable FDA clearance and in compliance
with all applicable federal, state or municipal statutes, laws, rules and
regulations, including those relating to the environment, food or drugs and
occupational health and safety. Without limiting the foregoing, NOVA represents
and warrants that it shall comply with all present and future statutes, laws,
ordinances and regulations relating to the manufacture, assembly and supply of
the Products being provided hereunder, including, without limitation, those
enforced by the FDA (including compliance with good manufacturing practices).
In the event that any Product does not conform as aforesaid, Selfcare's remedy
shall be limited to the repair or replacement (at NOVA's option) of such
nonconforming Product within a reasonable period of time. Any repairs to
Products made by NOVA at the request of Selfcare to correct a design defect
shall be charged and billed to Selfcare at a labor rate of $50 per hour, plus
material and material overhead costs.
<PAGE> 9
Selfcare/NOVA Biomedical Manufacturing Agreement
Page 7
********************************************************************************
EXCEPT AS STATED ABOVE, NOVA DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR
IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE PRODUCTS.
EXCEPT AS SET FORTH IN THIS SECTION OF THE AGREEMENT, NOVA SHALL IN NO EVENT BE
LIABLE FOR ANY LOSS OF DATA, PROFITS OR USE OF THE PRODUCTS, OR FOR ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION
WITH THE USE OR PERFORMANCE OF THE PRODUCT.
All Products shall be subjected to quality control inspection and final release
by NOVA in accordance and conformance with NOVA's quality control standards and
system and the FDA's Good Manufacturing Practice (GMP). NOVA's quality control
standards shall be sufficient to ensure that all Products conform to the
Product specifications. NOVA shall provide a copy of such standards to Selfcare
and shall in all respects adhere to such standards. NOVA shall permit Selfcare
or its distributor to review periodically NOVA's production and quality control
procedures and records and to visit NOVA's facilities at reasonable times with
a representative of NOVA present in order to assure satisfaction of the
requirements of this Agreement.
Selfcare shall have the right, but not the obligation, to inspect any Product
before accepting delivery of, or having an obligation to purchase, that
Product. No inspection or other action by Selfcare shall in any way obligate
Selfcare to purchase any defective or non-conforming goods or to retain any
goods which upon subsequent inspection or use prove to be defective or
non-conforming.
Section 10/Notice
All notices and demands required or permitted to be given or made pursuant to
this Agreement shall be in writing and shall be effective when personally given
or made or when placed in an envelope and deposited in the United States mail
postage prepaid, addressed as follows:
If to Selfcare: If to Nova:
Ron Zwanziger, President Francis C. Manganaro, President
Selfcare, Inc. NOVA Biomedical Corporation
200 Prospect Street 200 Prospect Street
Waltham, MA 02254 Waltham, MA 02254
or to such other address as to which either party may notify the other.
<PAGE> 10
Selfcare/NOVA Biomedical Manufacturing Agreement
Page 8
********************************************************************************
Section 11/Governing Law; Arbitration
This Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the Commonwealth of Massachusetts without regard to its
principles of conflict of laws. If any dispute, difference or question shall
arise at any time after the date of Agreement between the parties in respect of
or in connection with this Agreement, then, the dispute, difference or
questions shall be finally settled by arbitration to be conducted in Boston,
Massachusetts, under the commercial arbitration rules of the American
Arbitration Association by an arbitrator appointed in accordance with such
rules. The arbitration award shall be based on and accompanied by a written
opinion. Judgment upon the reward rendered may be entered in any court having
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be.
Section 12/Liability Insurance
NOVA and Selfcare will obtain and keep in force during the term of this
agreement, comprehensive liability insurance covering each occurrence of bodily
injury (including death) and property damage in the amount not less than
$1,500,000 combined in a single limit with special endorsement providing
coverage for:
1. Product and completed operations liability.
2. Blanket contractual liability.
3. Blanket broad form liability.
Section 13/Termination
This Agreement may be terminated by Selfcare if NOVA consistently fails to meet
Selfcare's forecasted needs on a timely basis. Incremental needs beyond 20% of
those stated in the annual volume forecast (see Appendix C/Annual Forecast) must
be forecasted to NOVA with 120 days notice. Forecasts in excess of 50% of the
annualized forecast rate will require 160 days notice before NOVA will be
considered in default.
The term is fixed for the period ending December 31, 1998. Either party may
terminate this agreement for material breach only (see Term) with 90 days
written notice and an additional 90 day wind down period. If Selfcare desires
to terminate the agreement it will compensate NOVA for all inventory. If NOVA
desires to cancel this agreement it will transfer all related inventory, work
in progress and specifications to Selfcare, or a Company designated by
Selfcare, so that manufacturing can be continued by another party. Process
documents AP's, TP's etc. remain the property of NOVA.
This Agreement may be terminated by Selfcare if NOVA's manufacturing quality
does not meet mutually acceptable standards. These manufacturing quality
standards will be specified prior to beginning full production and will include
field failure rates, user complaints, function, fit and cosmetic standards.
NOVA will not be held liable for quality issues based on design.
Either party may terminate this Agreement upon one hundred eighty days prior
written notice to the other party if paragraph one, two or three in Section 13
is breached.
Either party may terminate this Agreement by written notice to the other party
following the occurrence of any of the following events:
<PAGE> 11
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 9
*******************************************************************************
(a) if the other party ceases doing business as a going concern, becomes
insolvent, or makes an assignment for the benefit of creditors; or
(b) if the other party files a petition for reorganization or bankruptcy
under the United States Bankruptcy Code or any other similar law of any
other jurisdiction, or if any petition for reorganization or bankruptcy
under such Code or under any similar law of any other jurisdiction is
filed against the other party and is not dismissed or vacated within
thirty (30) days thereafter; or
(c) if the party is in breach of any material terms or provisions of this
Agreement and has failed to cure such breach within fifteen (15) days
after receipt of written notice thereof from the party alleging the
breach.
Upon any termination of this Agreement, NOVA will sell and transfer to
Selfcare, free and clear of all liens and encumbrances, all of NOVA's inventory
and work-in-process of Products and all of NOVA's capital equipment relating to
the manufacture of the Product. The purchase price for such inventory,
work-in-process and capital equipment shall be NOVA's cost therefor, less, in
the case of the capital equipment, the fair market value.
SECTION 14/TERMS OF PAYMENT
NOVA shall prepare invoices as Product is shipped. Selfcare shall pay NOVA for
the full amount of each invoice within 30 days of a 7 day grace period from
date of such invoice.
Payment shall not constitute acceptance of non-conforming Products. Amounts
owed to Selfcare due to rejections of Products or discrepancies on paid
invoices will be, at Selfcare's option, fully credited against future invoices
payable by Selfcare or paid by NOVA within thirty (30) days from NOVA's receipt
of a debit memo or other written request for payment from Selfcare.
Payment shall be made in United States currency.
Should Selfcare fail to make any payments within the time period provided
above, interest on such overdue amounts shall accrue at a monthly rate of 1.5%,
or the maximum amount permitted by law if lower than 1.5% per month.
SECTION 15/INDEMNIFICATIONS
a) Selfcare hereby agrees to indemnify, defend and hold harmless NOVA, its
affiliates, directors, officers, employees and agents, from and against all
claims, liabilities, losses or expenses (including reasonable attorney's fees)
("Losses") arising out of or in connection with Selfcare's use,
commercialization, marketing, distribution or sale of any Product, including,
but not limited to, any actual or alleged injury, damage, death or other
consequence occurring to any person as a result, directly or indirectly, of the
possession or use of any Product, whether claimed by reason of breach of
warranty, negligence, product defect or otherwise, and regardless of the form
in which any such claim is made. Notwithstanding the foregoing, the foregoing
indemnity shall not apply to the extent that any such Losses are due to (1) the
failure of a Product manufactured by NOVA to meet the warranty provided in
Section 9 above or (2) the willful and wanton acts or gross negligence of NOVA
or its affiliates, directors, officers, employees and agents.
<PAGE> 12
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 10
********************************************************************************
b) NOVA hereby agrees to indemnify, defend and hold harmless Selfcare, each of
its customers and each of Selfcare's and its customers respective affiliates,
directors, officers, employees and agents, from and against all Losses arising
out of or in connection with any act of omission of NOVA or the failure of a
Product manufactured by NOVA to meet the warranty provided in Section 9,
including, but not limited to, any actual or alleged injury, damage, death or
other consequence occurring to any person as a result, directly or indirectly,
of the possession or use of any Product, whether claimed by reason or breach of
warranty, negligence, product defect or otherwise, and regardless of the form
in which any such claim is made. Notwithstanding the foregoing, the foregoing
indemnity shall not apply to the extent that any such Losses are due to the
willful and wanton acts or gross negligence of Selfcare or its affiliates,
directors, officers, employees and agents.
c) Selfcare hereby agrees to indemnify, defend and hold harmless NOVA, its
affiliates, directors, officers, employees and agents, from and against all
Losses arising out of, or in connection with, any claim by a third party that
the manufacture, use, or sale of a Product infringes any intellectual property
right claimed by such third party and relating (1) to the Selfcare Technology
(technology, know how etc. developed solely by Selfcare) or (2) to the use of
the Products as a product in pregnancy and ovulation testing. Indemnification
and defense shall proceed as provided under Section 15(f).
d) NOVA hereby agrees to indemnify, defend and hold harmless Selfcare, its
affiliates, directors, officers, employees and agents, from and against all
Losses arising out of or in connection with any claim by a third party that the
manufacture, use, or sale of a Product infringes any intellectual property
right claimed by such third party and relating to the NOVA Technology,
(technology, know how etc. developed solely by NOVA) or any technology other
than Selfcare Technology except to the extent Selfcare indemnifies NOVA under
Subsection (c) of this Section 15 for use of the Product as a product in
pregnancy and ovulation testing. Indemnification and defense shall proceed as
provided under Section 15(f).
e) In the event that either party becomes aware of the possible infringement or
other misuse by a third party of intellectual property rights of Selfcare or
NOVA incorporated into the Products, such party will promptly notify the other
party. If such infringement or misuse is related to the Products, the owner of
the right infringed or misused shall promptly act to terminate the infringement
or misuse. For purposes of clarification, Selfcare shall be the owner with
respect to Selfcare Technology and NOVA shall be the owner with respect to NOVA
Technology.
f) If either Selfcare or NOVA becomes aware of an infringement allegation which
might give rise to a right or obligation of indemnification and defense under
Section 15(c) or Section 15(d), or becomes aware of possible infringement or
misuse of intellectual property rights which might give rise to a right or
obligation under Section 15(e), such party shall promptly notify the other. The
party in the role of indemnitor shall control, bear the full expense of, and
retain all proceeds of, the defense against or settlement of such allegation,
unless NOVA and Selfcare subsequently agree otherwise. The indemnitee shall
cooperate in such action if reasonably requested by the indemnitor. In no event
shall the indemnitor settle or otherwise terminate any allegation, or allow any
infringement or misuse to be terminated, in a manner which might abrogate any
obligations, rights or licenses between Selfcare and NOVA granted or which
might be granted under this Agreement. The indemnitee may, in its own
discretion, be represented in the defense or settlement of any such allegation
by counsel of its own choosing at its sole expense.
<PAGE> 13
SELFCARE/NOVA BIOMEDICAL MANUFACTURING AGREEMENT
PAGE 11
********************************************************************************
SECTION 16/PRODUCT RECALL
In the event that Selfcare or NOVA recalls or takes any corrective action with
respect to any of the Products, sold or distributed by Selfcare because the
Products are believed to violate any provision of applicable law, NOVA shall
bear all costs and expenses of any recall or corrective action related to
matters covered by NOVA's warranty including, without limitation, expenses or
obligations to third parties, the cost of notifying customers and costs
associated with the shipment of recalled Product from customers to Selfcare or
NOVA. Similarly, Selfcare shall bear all costs and expenses of any recall
related to the incorporation of Selfcare Technology into the Products.
Both parties shall maintain complete and accurate records, for such periods as
may be required by applicable law, of all the Products sold by it. The parties
will cooperate fully with each other in effecting any recall of, or corrective
action with respect to, the Products, including communications with any
purchasers or users.
SECTION 17/DISCLOSURE OF INFORMATION
Since each party to this Agreement has had from the effective date of the
Development Program, a non-disclosure agreement, and will continue to have,
access to confidential information of the other relating, for example, to
manufacture of products, marketing strategies, sales information, product
plans, and the like, each party agrees to hold in confidence, all information
concerning and related to the Products disclosed to the other through the term
of this Agreement and for a period of four years after termination of this
Agreement, except as provided below. Each party further agrees, for the same
duration, to take all reasonable steps to ensure that such information does not
pass negligently, or otherwise, into the hands of those unauthorized by the
disclosure to receive it and that such information is not used for any purposes
other than those set out in this Agreement, even if said Agreement is
terminated by either party.
This obligation of confidentiality and nonuse shall not apply to information
which:
a) was known to the receiving party at the time of such disclosure;
b) was in the public domain at the time of disclosure or thereafter enters into
the public domain through no fault of the receiving party;
c) becomes known to the receiving party from a source not under obligation of
confidentiality to the other party or is independently developed by a
person(s) employed by or for the receiving party and having no knowledge of
the confidential information; or
d) is required to be disclosed by a party by law or government regulation.
Each party shall be liable for the disclosure or use of nonconfidential
information only to the extent provided by applicable patent or copyright laws.
SECTION 18/COMPLIANCE WITH LAW
NOVA represents that it is, and will remain, in compliance with all applicable
federal, state and local laws, regulations and orders. NOVA agrees to execute
on request by Selfcare and to remain in compliance with the terms of Selfcare's
contractor certification which requires compliance with certain laws,
regulations and executive orders.
<PAGE> 14
Selfcare/NOVA Biomedical Manufacturing Agreement
Page 12
************************************************************************
SECTION 19/MISCELLANEOUS:
STATUS OF PARTIES: The relationship of the parties under this Agreement shall
be and at all times remain one of independent contractors. Neither party is an
employee, agent or legal representative of the other party or shall have any
authority to assume or create obligations on the other party's behalf.
BINDING EFFECT; ASSIGNMENT: This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. Neither
this Agreement nor any rights granted hereby may be assigned by either party
without the other party's prior written consent; provided, however, that no
such consent shall be required in connection with any such assignment as part
of any sale of all or substantially all of the Party's business, whether by
sale of assets, merger or otherwise.
ENTIRE AGREEMENT: This Agreement and the attached confidential disclosure
agreement constitute the entire agreement between NOVA and Selfcare relating to
the subject matter hereof and shall not be amended, altered, or changed except
by a written agreement signed by the parties hereto.
WAIVERS: No delay or omission on the part of either party to this Agreement in
requiring performance by the other party hereunder, or in exercising any right
hereunder, shall operate as a waiver of any provision hereof or of any right or
rights hereunder, and the waiver or omission or delay in requiring performance
or exercising any right hereunder on one occasion shall not be construed as a
bar to or waiver of such performance or right, or of any right or remedy under
this Agreement, on any future occasion.
FORCE MAJEURE: NOVA shall not be liable, in any respect, for failure to ship or
for delay in shipment of Product pursuant to accepted orders where such failure
or delay shall have been due wholly or in part to the elements, acts of God,
acts of civil or military authority, fires, floods, epidemics, quarantine
restrictions, war, riots, accidents to machinery, delays in transportation or
delays in delivery by NOVA's suppliers or any other events beyond NOVA's
control.
IN WITNESS WHEREOF, authorized representatives of the parties have executed
this Agreement.
NOVA BIOMEDICAL CORPORATION SELFCARE INC.
By: /s/ By: /s/
------------------------ --------------------------
Title: VP Operations & CFO Title: Vice President
--------------------- -----------------------
Date: September 6, 1996 Date: 9/6/96
---------------------- ------------------------
<PAGE> 15
CONFIDENTIAL TREATMENT
APPENDIX A
Direct Material Costs (Provided by Selfcare)
********************************************************************************
<TABLE>
<S> <C>
[*] [*]
- ------------------------- -------------------------
[*] [*]
- ------------------------- -------------------------
[*] [*]
- ------------------------- -------------------------
</TABLE>
* Material omitted and filed separately with the Securities and Exchange
Commission.
<PAGE> 16
CONFIDENTIAL TREATMENT
APPENDIX B
********************************************************************************
NOVA BIOMEDICAL CORPORATION
SELFCARE PACKAGING PRICING 8/28/96
<TABLE>
<CAPTION>
[*] [*] [*]
<S> <C> <C>
[*] [*] [*]
</TABLE>
* Material omitted and filed separately with the Securities and Exchange
Commission.
<PAGE> 17
CONFIDENTIAL TREATMENT
APPENDIX C
Forecast -- 1996/1997
********************************************************************************
[*]
* Material omitted and filed separately with the Securities and Exchange
Commission.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,512,714
<SECURITIES> 0
<RECEIVABLES> 2,550,413
<ALLOWANCES> 234,700
<INVENTORY> 1,367,640
<CURRENT-ASSETS> 18,588,338
<PP&E> 5,749,031
<DEPRECIATION> 1,224,871
<TOTAL-ASSETS> 24,425,604
<CURRENT-LIABILITIES> 9,482,242
<BONDS> 13,955,344
<COMMON> 5,688
1,724,768
0
<OTHER-SE> (2,179,548)
<TOTAL-LIABILITY-AND-EQUITY> 24,425,604
<SALES> 7,856,775
<TOTAL-REVENUES> 9,098,017
<CGS> 6,477,303
<TOTAL-COSTS> 14,587,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,348,681
<INCOME-PRETAX> (26,126,913)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,126,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,126,913)
<EPS-PRIMARY> (4.25)
<EPS-DILUTED> (4.25)
</TABLE>
