<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 June 30, 1997
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 04-3164127
(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
July 28, 1997 was 8,422,111.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
SELFCARE, INC.
FORM 10-QSB
For the Quarterly Period Ended June 30, 1997
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 14 of this Form 10-QSB.
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Statement of Operations for the three months
ended June 30, 1997 and 1996 and the six months ended June
30, 1997 and 1996. 1
b) Consolidated Balance Sheets as of June 30, 1997 and December
31, 1996 2
c) Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 3
d) Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net product sales $ 12,338,237 $ 2,410,982 $ 21,095,418 $ 4,811,874
Grants and other revenue 338,147 417,145 675,573 485,654
------------ ------------ ------------ ------------
Net revenues 12,676,384 2,828,127 21,770,991 5,297,528
Cost of sales 6,024,885 1,769,140 11,061,863 3,604,637
------------ ------------ ------------ ------------
Gross profit 6,651,499 1,058,987 10,709,128 1,692,891
Operating Expenses:
Research and development 4,303,646 1,275,903 7,378,839 2,530,729
Charge for in-process research and
development (Note 4) 1,278,200 -- 1,278,200 --
Selling, general and administrative 5,939,926 1,920,523 10,701,384 3,795,245
Noncash compensation charge (Note 4) 37,629 (2,297,258) 75,258 3,365,483
------------ ------------ ------------ ------------
Total operating expenses 11,559,401 899,168 19,433,681 9,691,457
------------ ------------ ------------ ------------
Operating income (loss) (4,907,902) 159,819 (8,724,553) (7,998,566)
------------ ------------ ------------ ------------
Interest expense, including noncash
interest (expense) and reversal thereof
relating to issuance of warrants (1,124,209) 2,465,182 (1,729,641) (5,688,549)
(Note 4)
Interest income 262,039 104,697 405,014 123,466
Unrealized gain (loss) on foreign currency
translation 2,366 -- (716,601) --
Other expense (7,983) -- (35,384) --
------------ ------------ ------------ ------------
Income (loss) before dividends and
accretion on preferred stock of a
subsidiary (5,775,689) 2,729,698 (10,801,165) (13,563,649)
Minority interest in subsidiaries' income (29,120) -- 130,420 --
Dividends and accretion on mandatorily
redeemable preferred stock of
a subsidiary (28,810) (23,124) (56,989) (46,101)
------------ ------------ ------------ ------------
Net income (loss) $ (5,833,619) $ 2,706,574 $(10,727,734) $(13,609,750
============ ============ ============ ============
Net income (loss) per common and
common equivalent share $ (0.71) $ 0.44 $ (1.45) $ (2.22)
============ ============ ============ ============
Weighted average number of common
and common equivalent shares outstanding 8,233,655 6,170,258 7,416,996 6,142,727
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
1
<PAGE> 4
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,150,287 $ 16,458,654
Accounts receivable, net of allowance for doubtful
accounts of $743,000 in 1997 and $316,000 in 1996 6,880,773 5,478,814
Inventories (Note 3) 4,857,920 2,266,234
Prepaid expenses and other current assets 1,977,856 1,034,260
------------ ------------
Total current assets 29,866,836 25,237,962
PROPERTY AND EQUIPMENT, NET 10,240,202 7,858,885
INVESTMENTS IN AFFILIATED COMPANIES 3,732,609 3,732,609
TRADEMARKS, NET 21,404,323 --
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 23,089,257 3,741,171
OTHER ASSETS 2,658,877 518,825
------------ ------------
Total assets $ 90,992,104 $ 41,089,452
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank debt $ 6,989,796 $ 1,337,000
Notes payable 8,975,000 --
Accounts payable 7,659,756 4,991,543
Accrued expenses and other current liabilities 7,933,437 5,826,952
Current portion of long-term debt 4,640,988 1,599,851
Current portion of deferred revenue 2,041,869 1,619,152
------------ ------------
Total current liabilities 38,240,846 15,374,498
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion 3,567,697 4,786,347
Long-term debt, net of current portion 28,487,499 5,895,701
------------ ------------
Total long-term liabilities 32,055,196 10,682,048
COMMITMENTS AND CONTINGENCIES (NOTES 6, 7, 8, 9, and 11)
MINORITY INTEREST IN SUBSIDIARIES 751,413 1,199,684
------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 1,810,917 1,753,928
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock
Authorized - 5,000,000 shares
Issued and outstanding - 400 in 1997 and 5,200 -- 5
in 1996
Common stock, $.001 par value -
Authorized - 40,000,000 shares
Issued and outstanding - 8,414,995 and 5,975,263
shares in 1997 and 1996 respectively 8,415 5,975
Additional paid-in capital 72,007,682 55,233,847
Deferred compensation (13,727) --
Less-Treasury stock, at cost, 15,600 shares in 1997 (15,200) (15,200)
and 1996
Accumulated deficit (54,139,408) (43,318,898)
Cumulative translation adjustment 285,970 173,565
------------ ------------
Total stockholders' equity 18,133,732 12,079,294
------------ ------------
Total liabilities and stockholders' equity $ 90,992,104 $ 41,089,452
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
2
<PAGE> 5
SELFCARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(10,727,734) $(13,609,750)
Adjustments to reconcile net loss to net cash used in operating activities:
Dividends and accretion on preferred stock of a subsidiary 56,989 45,825
Noncash interest expense related to issuance of warrants -- 5,525,821
Compensation expense related to issuance of common stock options 13,726 125,483
Compensation expense related to common stock options issued to the
Company's chief executive officer -- 3,240,000
Noncash in process research and development expense 1,278,200 --
Amortization of deferred revenue (699,639) (335,556)
Depreciation and amortization 2,213,396 402,329
Minority interest in subsidiaries' income (155,521) --
Changes in assets and liabilities:
Accounts receivable (1,748,335) (318,568)
Inventory (2,549,990) (390,142)
Prepaid and other current assets (739,445) (744,508)
Accounts payable 3,063,754 587,040
Accrued expenses and other current liabilities 2,398,665 287,351
------------ ------------
Net cash used in operating activities (7,595,934) (5,184,675)
------------ ------------
Cash Flows From Investing Activities:
Purchases of property and equipment (3,575,275) (1,022,886)
Cash paid for purchase of nutritional supplement brands (37,067,579) --
Cash paid for license from ChemTrak (333,000) --
Cash paid for investment in Orgenics Ltd. (6,939,613)
(Increase) decrease in other assets (57,072) (325,007)
------------ ------------
Net cash used in investing activities (47,972,539) (1,347,893)
------------ ------------
Cash Flows From Financing Activities:
Net proceeds from issuance of common stock 16,656,041 --
Net proceeds from issuance of notes payable 13,440,543 6,693,548
Repayments of notes payable (238,113) --
Net proceeds from borrowing under short-term bank debt 5,437,074 --
Net proceeds from borrowing under long-term bank debt 25,421,350 --
Repayments of long-term debt (220,426) --
Repayment of short-term debt (5,000,000) --
Cash loaned to Enviromed plc (572,105) --
Proceeds from receipt of capital grant -- 286,525
Net repayment of line of credit -- (31,638)
Capital lease -- 11,712
------------ ------------
Net cash provided by financing activities 54,924,364 6,960,147
------------ ------------
Foreign Exchange Effect on Cash and Cash Equivalents 335,742 (33,187)
Net Increase (Decrease) in Cash and Cash Equivalents (308,367) 394,392
Cash and Cash Equivalents, beginning of year 16,458,654 7,394,750
------------ ------------
Cash and Cash Equivalents, end of period $ 16,150,287 $ 7,789,142
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid for -
Interest $ 1,390,905 $ 158,975
Income taxes $ 5,000 $ 10,111
</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 necessary for
their fair presentation. Interim results are not necessarily indicative of
results to be expected for the year. 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, 1996
on Form 10-KSB/A. 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, 1996 included on Form 10-KSB/A
filed with the Securities and Exchange Commission.
Net loss per common and common equivalent share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the period. Common Stock equivalents (certain stock options,
warrants and convertible preferred stock) for all periods have not been
included, as their inclusion would be antidilutive. The Financial Accounting
Standards Board has released Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings per Share", which the Company will adopt for the year ended
December 31, 1997. The Company does not expect the adoption of SFAS No. 128 to
have a material affect on the Company's reported earnings per share.
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 June
30, 1997, the Company's cash equivalents consisted of repurchase agreements and
money market funds. The Company follows the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"; all of the
Company's cash equivalents are classified as held to maturity and carried at
amortized cost.
3) Inventory
Inventory is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
Raw materials $2,733,510 $1,363,168
Work in-process 191,457 272,466
Finished goods 1,932,953 630,600
---------- ----------
$4,857,920 $2,266,234
========== ==========
</TABLE>
4) Non recurring, non-cash expenses
The company recognized expense of $1,278,200 for in-process
research and development related to the acquisition of Orgencis, Ltd. ("Orgenics
acqusition") (see Note 7). The allocation of a portion of the purchase price to
in-process research and development represents the applicable pro-rata portion
of its appraised value of $7,700,000. There were no charges related to the
acquisition in the three or six months periods ended June 30, 1996. Upon
completion of the acquisition, the Company anticipates it will allocate an
additional $2,024,800 to in-process research and development.
4
<PAGE> 7
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. The 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. Non-cash
compensation expense for the three and six month periods ended June 30, 1996
were related to this option. In the quarter ended June 30, 1996, the Company
reversed charges in the amount of $2,360,000 related to the aforementioned stock
option due to a reduction in the fair market value of the related equity as
compared to the estimated fair market value at March 31, 1996. For the six
months ended June 30, 1996, the net non-cash compensation expense related to
this stock option was $3,240,000. There were no charges related to the Agreement
in the three or six months periods ended June 30, 1997.
In 1995, the Company issued notes payable (the "Cambridge Diagnostics
Notes") and common stock warrants (the "Cambridge Diagnostics Warrants") to
individual investors for gross proceeds of $3,030,000. Of this amount,
$3,000,000 relates to the Cambridge Diagnostics Notes, which bear interest at
10% and are due on March 31, 1998. The remaining $30,000 represents amounts paid
to the Company in exchange for warrants to purchase shares of Common Stock. The
number of Cambridge Diagnostics Warrants is calculated as 69% of the net sales
of Cambridge Diagnostics for the fiscal year preceding the repayment of the
Cambridge Diagnostics Notes divided by $32.87. The Company would have issued
1,142,635 shares of the Company's Common Stock based on net sales of Cambridge
Diagnostics for 1995, if the notes were repaid prior to December 31, 1996.
In December 1996, the Company entered into agreements with substantially all the
principal noteholders of the Cambridge Diagnostics Notes, pursuant to which such
holders agreed to defer repayment of the principal amount of their notes until
January 15, 1998 and to cancel the Cambridge Diagnostics Warrants and in turn
the Company effectively fixed the ultimate number of shares of the Company's
Common Stock to be issued at 1,142,635, of which 314,222 will be exercisable by
certain directors and officers of the Company; 990,050 of the shares of Common
Stock will be issued for no additional consideration upon the earlier of January
15, 2000 or the date on which a change in control of the Company occurs. As
consideration for the foregoing, the Company agreed to issue five-year warrants
to purchase an aggregate of 54,090 shares of Common Stock that are fully
exercisable at an exercise price of $12.875 (fair market value as of grant
dated) to such holders, of which 14,999 will be exercisable by certain directors
and officers of the Company. In the three months ended June 30, 1996, the
Company reversed $2.6 million of non-cash interest expense relating to the
Cambridge Diagnostics Warrants. The reversal relates to the reduction in the
fair market value of the related equity as compared to the estimated fair market
value at March 31, 1996. For the six months ended June 30, 1996, the net
non-cash interest expense relating to the aforementioned warrants was $5.5
million. There were no charges for the three and six months ended June 30, 1997
since the number of shares to be issued was fixed.
5) Public Offerings of Common Stock
In connection with the Company's initial public offering, on August 6, 1996,
the Common Stock began trading on the AMEX. The Company sold 1,495,000 shares
and received net proceeds of approximately $10.4 million.
In March, 1997, the Company sold 1,800,000 shares of Common Stock in a
public offering (the "March 1997 Offering"). The total net proceeds from the
March 1997 Offering were approximately $16.2 million.
6) Nutritional Supplement Lines Acquisition
On February 19, 1997, a newly-formed subsidiary of the Company (the "Acquisition
Subsidiary") acquired the U.S. rights to several nutritional supplement product
lines (the "Nutritional Supplement Lines" and the "Nutritional Supplement Lines
Acquisition") from American Home Products ("AHP"). As consideration for the
Nutritional Supplement Lines, the Acquisition Subsidiary paid to AHP $30.0
million in cash and the Company issued to AHP a $6.0 million promissory note
(the "AHP Note"). The total cost of approximately $37.1 million, including
acquisition expenses, was allocated to trademarks ($21.6 million) and goodwill
($15.5 million), each of which will be amortized over their useful lives of 25
years. The Company funded the cash portion of the purchase price with a credit
facility (the "Acquisition Facility") consisting of a $25.0 million term loan
(the "AHP Term Loan") and a $5.0 million bridge loan (the "AHP Bridge Loan")
made to the Acquisition Subsidiary by Fleet National Bank ("Fleet"). The AHP
Bridge Loan was repaid June 4, 1997. The AHP Note is due on February 19, 1998,
the first anniversary of the Nutritional Supplement Lines Acquisition, and bears
interest payable quarterly at the rate of 7.0% per annum.
5
<PAGE> 8
The AHP Term Loan has a five-year term, with quarterly amortization of
principal at annual rates ranging from $3.0 million to $5.0 million, and a $6.25
million balloon payment at maturity. In addition to this amortization schedule,
the Acquisition Subsidiary is required to make mandatory prepayments of the AHP
Term Loan at the end of each fiscal year, in an amount equal to 50% of the
excess of (i) its earnings before interest, taxes, depreciation and amortization
("EBITDA") for such fiscal year over (ii) principal payments on the AHP Term
Loan, cash interest and tax expense, capital expenditures and any change in
working capital. These prepayments would be applied in the inverse order of the
established amortization schedule. The AHP Term Loan, at the Company's election,
bears interest at an annual floating rate equal to either LIBOR plus two
percent, or Fleet's Prime Rate. The Company may prepay the AHP Note at any time.
In connection with the Acquisition Facility, the Acquisition Subsidiary
obtained from Fleet a $5.0 million revolving credit line (the "Credit Line").
The Credit Line, at the Company's election, bears interest at an annual floating
rate equal to LIBOR plus 1.75 percent or Fleet's Prime Rate and matures in three
years. The Company has a limited number of LIBOR rate options for the AHP Term
Loan, the AHP Bridge Loan, and the Credit Line. Each LIBOR rate option must be
exercised for a period between one month and 12 months and must cover a minimum
of $1.0 million of the loan. The Acquisition Facility and the Credit Line are
secured by a first priority lien on all the Acquisition Subsidiary's assets and
are guaranteed by the Company, which guaranty is secured by a first priority
lien on substantially all the Company's U.S. assets.
The Acquisition Facility and the Credit Line impose certain financial
covenants on the Acquisition Subsidiary, including (i) requirements to maintain
certain minimum EBITDA levels of $2.3 million per quarter beginning with the
quarter ending June 30, 1998 and $2.475 million per quarter beginning with the
quarter ended June 30, 1999 and not to exceed certain ratios of total
indebtedness to EBITDA, beginning with the quarter ended December 31, 1997, at
which time the ratio of total indebtedness to EBITDA cannot exceed 3.75 to 1,
(ii) limits on capital expenditures of $250,000 per year, (iii) a requirement to
maintain a ratio of EBITDA to fixed charges of not less than 1.25 for any
quarter beginning with the quarter ending March 31, 1998, and (iv) a requirement
of a positive net income for every quarter. The Acquisition Subsidiary has also
agreed to restrictions on (x) acquisitions, mergers or joint ventures without
Fleet's consent, (y) material asset sales and other payments, and (z) dividends
and distributions. Further, the Company, as guarantor of the Acquisition
Subsidiary's debt under the Acquisition Facility and the Credit Line, is subject
to a limited number of covenants, none of which are financial maintenance
covenants, including a requirement to provide Fleet with periodic financial
statements and other information and a prohibition on the Company having other
liens on its U.S. assets. The Company also will be limited in its ability to
receive dividends and distributions from the Acquisition Subsidiary. In
addition, an event of default shall be deemed to have occurred under the
Acquisition Facility and the Credit Line if any three of Ron Zwanziger, Kenneth
D. Legg, Richard A. Pinkowitz, Anthony H. Hall and Gary E. Long cease to be
employed by the Company or the Acquisition Subsidiary in positions comparable to
their current positions. Messrs. Zwanziger, Legg, Pinkowitz, and Hall are
officers of the Company. Mr. Long joined the Company in February 1997 and has
the responsibility for the operation of the Nutritional Supplement Lines
business. In addition, the Acquisition Subsidiary was required, at the time of
the closing of the Acquisition Facility, to have a proforma capital base of at
least $9.5 million. The Company and the Acquisition Subsidiary have paid fees
and expenses totaling approximately $1.4 million in connection with the
Acquisition Facility and the Credit Facility. As of the date hereof, the
Acquisition Subsidiary has not drawn down on the Credit Line.
7) Acquisition of Orgenics
On December 23, 1995, the Company and Orgenics Ltd. ("Orgenics") entered
into an Investment and Loan Agreement whereby the Company purchased a
$1,000,000, 18-month, unsecured, interest-bearing debenture that is convertible
into redeemable preferred shares of Orgenics (the "Debenture"). Concurrent with
the issuance of the Debenture, the Company provided guaranties (in the form of
letters of credit) of $200,000 on the debt of Orgenics' French subsidiary to two
French banks, which is included as restricted cash in other assets in the
accompanying consolidated balance sheet. In October 1996, the Company exercised
its right to convert the Debenture (see below).
Two investment limited partnerships, Medica Investment (Israel) L.P. and
Medica Investment (U.S.) L.P. (collectively "Medica"), contributed a total of
$500,000 in cash toward the purchase of the Debenture. A director of the Company
is a partner of MVP Ventures, which serves as the general partner of both Medica
Investment (Israel) L.P. and Medica Investment (U.S.) L.P. On April 25, 1996,
the Company exercised its right to acquire Medica's interest in the Debenture
for 135,421 shares of Common Stock; the Company issued such shares on May 7,
1996.
6
<PAGE> 9
Accordingly, the Company was entitled to all of the Orgenics shares upon
conversion of the Debenture.
The Company also entered into option purchase agreements (the "Option
Agreements") with all of the individual stockholders of Orgenics and Orgenics
International Holdings B.V. ("Orgenics International"), a Dutch holding company
whose only material asset is its investment in Orgenics. Each Option Agreement
provided a put option on the part of the stockholders to sell to the Company and
a call option on the part of the Company to purchase from the stockholders (the
"Optionees").
In October 1996, the Company acquired a 57.1% direct and indirect equity
interest in Orgenics as a result of the conversion of the Debenture and payment
of approximately $7.0 million in cash for the purchases of outstanding shares of
Orgenics and Orgenics International. In addition, the Company granted options to
purchase 85,800 shares of its Common Stock having an aggregate exercise price of
$1,056,000 on the date of grant, and incurred direct acquisition costs of
approximately $100,000. On March 6, 1997, the Company exercised its call options
and as a result will acquire a 100% equity interest in Orgenics. The Company is
required to pay for each share of Orgenics acquired pursuant to the Option
Agreements consideration equal to 1.75 times Orgenics' gross revenues per share
(on a fully diluted basis as of the exercise date, giving effect to the
conversion of the Debenture) during the most recent four fiscal quarters
immediately preceding the date of exercise. The shareholders of Orgenics and
Orgenics International were entitled to elect consideration in (i) cash, (ii)
shares of Selfcare, Inc. Common Stock, or (iii) 50% of each. The Company has
issued promissory notes for 25% of the consideration due to the shareholders of
Orgenics and Orgenics International that chose to receive all cash
consideration. The promissory notes are due November 6, 1997 and bear interest
at the rate per annum equal to the prime rate plus three percent. The shares of
Orgenics are held in escrow until the promissory notes have been paid. The
shares of Orgencis International transfer to the Company at the time the cash
for 75% of the consideration is paid and the promissory note is issued. During
the three months ended June 30, 1997, the Company paid cash of $4.9 million,
issued 39,800 shares of Selfcare, Inc., and issued promissory notes totaling
$1.6 million. As a result, at June 30, 1997, the Company owned a 73.7% direct
and indirect equity interest in Orgenics. In addition to the promissory notes
already issued, the Company is obligated to pay additional consideration
totaling approximately $1.5 million in cash, plus interest and will issue
another 51,853 shares of Common Stock for substantially all of the remaining
shares in Orgenics and Orgenics International pursuant to the exercise of the
Option Agreements.
The aggregate purchase price of the Company's 73.7% direct and indirect
interest in Orgenics of approximately $16,017,000 was allocated based on the
relative fair values of the assets acquired as follows:
<TABLE>
<S> <C>
Current assets ...................................... 4,391,000
Property, equipment and other assets ................ 2,127,000
Liabilities assumed ................................. (4,626,000)
In-process research and development ................. 5,675,000
Goodwill ............................................ 8,450,000
------------
$ 16,017,000
============
</TABLE>
The allocation of a portion of the purchase price to in-process research and
development represents the applicable pro-rata portion of its appraised value of
$7,700,000. Upon completion of the Orgenics acquisition, the Company anticipates
that of the remaining purchase price of $2.1 million, it will allocate an
additional $2,024,800 to in-process research and development and the remainder
to goodwill.
The portion of the purchase price allocated to goodwill and other
intangible assets relates primarily to acquired technology, trade names and
goodwill and will be amortized on a straight-line basis over their estimated
useful lives of five years. The portion of the purchase price allocated to
in-process research and development projects that had not reached technological
feasibility and did not have a future alternative use was charged to expense as
of the acquisition date on a pro rata basis. The remaining portion of the
in-process research and development will be charged to expense upon completion
of the Orgenics Acquisition. The amount allocated to in-process research and
development projects represents the estimated fair value related to these
projects determined by an independent appraisal. Proven valuation procedures and
techniques were used in determining the fair market value of each intangible
asset. To bring these projects to technological feasibility, high-risk
development and testing issues will need to be resolved which will require
substantial additional effort and testing.
The Company has granted certain registration rights with respect to the
shares of Common Stock issued pursuant to the Option Agreements.
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8) Investment in Enviromed
In October, 1996, the Company purchased 200,000 common shares of Enviromed,
plc ("Enviromed") and agreed to purchase EN PLC Limited Partnership's ("EN PLC)
holding of 7,961,386 common shares of Enviromed for a promissory note with a
principal amount of approximately $3.8 million (the "EN PLC Note"). In November,
1996 the Company purchased an additional 100,000 common shares of Enviromed.
Effective as of January 1, 1997, the Company and EN PLC entered into an
amendment to the agreement ("EN PLC Agreement") with EN PLC pursuant to which
the Company agreed to issue two promissory notes, in principal amounts of
approximately $2.8 million and $1.0 million respectively, evidencing the
purchase price under the EN PLC Agreement. Each note bears interest at a
fluctuating annual rate equal to the Bank of Boston's prime rate plus 1.5
percent, payable quarterly over the two-year term of the notes. The principal
amount of the $1.0 million promissory note is payable in eight quarterly
installments, commencing in January 1997; the first four installments are
$85,897 each and the second four installments are $171,794 each. Approximately
$1.4 million of the principal amount of the $2.8 million promissory note is
payable in January 1998, followed by three equal quarterly installments of the
remaining principal. In consideration of the amendment, the Company agreed to
issue to EN PLC a warrant to purchase 15,401 shares of Common Stock at an
exercise price of $12.875 per share. The warrant is exercisable at any time
prior to January 1, 2002. In accordance with SFAS No. 123, the Company recorded
deferred financing costs of approximately $107,000 in connection with the grant
of this warrant. 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. The
Company's total equity interest in Enviromed is 28.9%. Mr. Zwanziger, the
Company's Chairman and Chief Executive Officer shares control of EN PLC's
general partner with another individual who is not affiliated with the Company.
Mr. Zwanziger, Ms. Goldberg, and Mr. Umphrey, directors of the Company, are
among the Company's limited partners.
Following the Company's acquisition of its ownership interest in Enviromed,
the Company has accounted for its investment under the equity method. In the
year ended December 31, 1996, the Company has recorded a loss of $200,000,
representing the Company's pro rata share of Enviromed's estimated net loss
during the Company's period of ownership. The Company did not record its
immaterial portion of Enviromed's income for the three months and six months
ended June 30, 1997. The Company loaned (pound)350,000 (approximately $572,000)
to Enviromed during the six months ended June 30, 1997.
9) Agreement with ChemTrak
In January 1997, Selfcare entered into an agreement with ChemTrak
Incorporated ("ChemTrak") pursuant to which ChemTrak appointed Selfcare as its
exclusive distributor in Europe, Scandinavia, and certain other countries
formerly comprising the U.S.S.R., including Russia (the "European Territory") of
ChemTrak's home collection and mail-in HIV testing system for which FDA approval
is currently pending. As part of this agreement, Selfcare agreed to pursue
regulatory approval of the system in each country comprising the European
Territory. In addition, Selfcare agreed to establish and operate one or more
central testing facilities and offer counseling services to report results and
offer counseling to users of the system. ChemTrak retains the right to convert
the Company's exclusive distribution rights into non-exclusive rights upon the
occurrence of certain events, including the Company's failure to make certain
regulatory filings and the Company's failure to maintain market share goals. The
Company paid Chemtrak $333,000 as a license fee in January 1997. The Company is
obligated to pay quarterly royalty payments when sales commence and milestone
payments of $333,000 each upon (i) obtaining regulatory approval in the first of
the U.K., Germany, or France and (ii) achieving the first $1.0 million in net
sales of the mail-in HIV testing system in the European Territory.
10) Series A Preferred Stock
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 $5.2 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 became 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
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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, and the discount is reduced or eliminated if and to
the extent that the conversion price would be less than $12.00. 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. As of June 30, 1997, 5,100 shares of Series A Preferred Stock
had been converted to 530,911 shares of Common Stock.
11) Subordinated Royalty Revenue Notes
At closings held in June and July 1997, the Company sold Subordinated
Revenue Royalty Notes (the "Notes") having an aggregate issue price of
$7,500,000, including Notes having an aggregate issue price of $6,375,000 issued
during the three months ended June 30, 1997. Each Note entitles the registered
holder thereof (each, a "Noteholder") to payments relating to net revenues of
the Company and certain related entities during each fiscal quarter the Note is
outstanding, which payments are pro rated with respect to the number of days the
Note is outstanding during such fiscal quarter (each, a "Royalty Payment"). The
Company is obligated to make Royalty Payments until the total amount of Royalty
Payments equals four times the total issue price of the Notes (the "Total
Repayment Amount"). In addition, the Company may elect to prepay the Notes, as
described below.
The quarterly Royalty Payment for each $25,000 of issue price will equal the
greater of (i) 0.005% of net revenues of the Company and certain related
entities during such fiscal quarter and (ii) $1,300. Until the Total Repayment
Amount has been paid, the Company will pay Royalty Payments as to each Note as
follows: (i) the first payment will be made on or before the forty-fifth day
after the closing of the fourth full fiscal quarter during which such Note is
outstanding and will cover Royalty Payments for such fiscal quarter and the
prior fiscal quarters during which such Note was outstanding; provided, however,
that the aggregate Royalty Payments to be made at such time shall not be less
than $6,000; and (ii) the Royalty Payment for each subsequent fiscal quarter
will be made on or before the forty-fifth day after the closing of such fiscal
quarter.
If the Company elects to prepay the amount due under the Notes or if an Event of
Default (as defined below) is not cured within thirty days after notice to the
Company, the Company will pay an amount equal to the greater of (i) 1.5 times
the issue price of the Notes minus all Royalty Payments made by the Company
prior to the date of payment (but excluding any amount paid as Late Payment
Interest, as defined below) or (ii) an amount equal to the issue price of the
Notes plus an annualized internal rate of return on the issue price equal to
thirty percent calculated from the issue date of the Notes to the date of
payment, minus all Royalty Payments made by the Company prior to the date of
payment (but excluding any amount paid as Late Payment Interest). Events of
Default for purposes of the Notes include (i) the Company's failure to make
payments under the Notes; (ii) the Company's failure to comply with the terms of
the Notes or the related note purchase agreement; (iii) any materially false
representation or warranty by the Company pursuant to or in connection with the
related note purchase agreement; (iv) the acquisition of beneficial ownership
within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934
("Exchange Act") of fifty percent or more of either the voting stock or total
equity capital of the Company by any person, together with "affiliates" and
"associates" of such person within the meaning of Rule 12b-2 of the Exchange
Act, or any "group" including such person under sections 13(d) and 14(d) of the
Exchange Act; (v) the initiation by the Company of any action to dissolve,
liquidate or otherwise terminate its existence; (vi) the merger or consolidation
of the Company into another entity in a transaction in which the stockholders of
the Company immediately prior to such merger or consolidation do not own fifty
percent or more of either the voting stock or total equity capital of the
surviving entity; (vii) the sale by the Company of substantially all of its
assets; and (viii) certain bankruptcy or insolvency events involving the
Company.
The Notes will bear interest only in the event of a late Royalty Payment, an
Event of Default or a prepayment. If a Royalty Payment is not made within
forty-five days of the end of the relevant fiscal quarter, the overdue amount
will accrue interest ("Late Payment Interest") at the rate of eighteen percent
per annum, compounded daily, accruing from the date such Royalty Payment was due
to the date the Royalty Payment, including accrued interest thereon, is made.
Any such accrued interest will be payable on demand.
U.S. Boston Capital Corporation ("U.S. Boston Capital") acted as placement
agent for the offering of the Notes. As compensation for its services as
placement agent, U.S. Boston Capital is entitled to a cash commission equal to
eight percent of the aggregate issue price of the Notes, will be reimbursed for
the fees and disbursements of its counsel and will receive a non-accountable
expense allowance of $5,000. Willard L. Umphrey, a Director of the
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Company, is Chairman, President, Treasurer and a Director of U.S. Boston
Capital.
Pear Tree Royalty Company, Inc. ("Pear Tree Royalty Company"), the initial
representative of the Noteholders, or its successor, is entitled to one percent
of any payments made to the Noteholders by the Company pursuant to the terms of
the Notes, such one percent to be deducted from the payments to the Noteholders.
Mr. Umphrey is also a Director and shareholder of Pear Tree Royalty Company.
On July 30, 1997, Pear Tree Royalty Company purchased a Note with an issue
price of $500,000. In addition, John F. Levy, a Director of the Company,
purchased a Note with an issue price of $100,000 on June 20, 1997.
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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.
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased $9.9 million, or 348%, to $12.7 million
for the three months ended June 30, 1997 from $2.8 million for the three months
ended June 30, 1996. Net revenues increased $16.5 million, or 311%, to $21.8
million for the six months ended June 30, 1997 from $5.3 million for the six
months ended June 30, 1996. Net product sales increased $9.9 million, or 412% to
$12.3 million in the quarter ended June 30, 1997 from $2.4 million for the three
months ended June 30, 1996. Net product sales increased $16.3 million, or 338%
to $21.1 million in the six month period ended June 30, 1997 from $4.8 million
in the same period last year. The Company acquired a 57.1% interest in Orgenics
Ltd. ("Orgenics"), a company that manufactures and sells professional diagnostic
test kits for infectious disease agents, in October 1996 and as of June 30, 1997
the Company owned 73.7% of the shares of Orgencis. The Company also purchased a
line of nutritional supplements ("Nutritional Supplement Lines") from American
Home Products ("AHP") in February 1997. The results for the three months ended
June 30, 1997 included revenues of $3.0 million and $5.0 million for these
businesses, respectively and revenues for the six months ended June 30, 1997
amounted to $5.7 million and $6.9 million, respectively. Increased demand for
the Company's pregnancy and ovulation prediction products was also a significant
contributor to revenue growth. Sales of pregnancy and ovulation prediction
products increased $1.6 million to $3.0 million for the three months ended June
30, 1997 from $1.4 million for the three months ended June 30, 1996 and
increased $2.9 million to $5.8 million for the six months ended June 30, 1997
from $2.9 million for the six months ended June 30, 1996.
Gross profit. Gross profit increased by $5.6 million or 528% to $6.7 million
for the quarter ended June 30, 1997 from $1.1 million for the quarter ended June
30, 1996. Gross profits increased $9.0 million or 533% to $10.7 million for the
six months ended June 30, 1997 from $1.7 million in the three months ended June
30, 1996. Gross profit as a percentage of net revenues increased to 52.5% and
49.2%, respectively, of net revenues in the three and six months ended June 30,
1997 from 37.4% and 32.0% of net revenues during the respective periods in 1996.
Gross profits from the recently acquired businesses added $5.5 million and $8.2
million of the overall increase in gross profit for the three and six month
periods ended June 30, 1997. As a percentage of the units' respective sales, the
gross profits from sales of Orgenics and the Nutritional Supplement Lines were
71.8% and 68.4% respectively for the quarter ended June 30, 1997, and 67.0% and
62.3% for the six months ended June 30, 1997.
Research and Development Expense. Research and development expense increased
by $3.0 million or 237% for the three months ended June 30, 1997 to $4.3 million
from $1.3 million for the three months ended June 30, 1996. Research and
development expense increased by $4.9 million or 192% to $7.4 million for the
six months ended June 30, 1997 from $2.5 million for the six months ended June
30, 1996. The increase was primarily due to expenses incurred in connection with
the development of the Company's electrochemical blood glucose monitoring system
and accelerated spending on research related to non-invasive blood glucose
technologies. These research and development activities accounted for $2.6
million and $4.1 million of the increases during the three and six-month
periods. The Company expects to continue to spend significant amounts on
research and development throughout the balance of 1997 and in 1998.
Charge for In Process Research and Development. A portion of the purchase
price of the Company's 73.7% interest in Orgenics was allocated to in process
research and development projects that did not achieve
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technological feasibility and did not have future alternative uses. See Note 7
of "Notes to Consolidated Financial Statements")
Selling, General, and Administrative Expense. Selling, general, and
administrative expense increased $4.0 million or 209% to $5.9 million for the
three months ended June 30, 1997 from $1.9 million for the three months ended
June 30, 1996. Selling, general, and administrative expense increased $6.9
million or 182% to $10.7 million for the six months ended June 30, 1997 from
$3.8 million for the six months ended June 30, 1996. The increase was primarily
attributable to the businesses described above which were acquired by the
Company. The aggregate selling, general and administrative costs incurred by
these businesses were $3.1 million and $5.1 million, respectively, for the three
and six-month periods ended June 30, 1997. Additionally, the Company expanded
marketing efforts on its pregnancy and ovulation prediction products in the
United States and Europe, and hired additional staff to support the Company's
operations. Selling, general, and administrative expense, as a percentage of net
revenues, decreased during the three and six months ended June 30, 1997 as
compared to the same periods in 1996. Selling, general, and administrative
expenses were 47% and 49%, respectively, of net revenues for the three and six
months ended June 30, 1997 compared to 68% and 72%, respectively, for the three
and six months ended June 30, 1996.
Noncash Compensation Expense. Substantially all of the non-cash compensation
expense for the three and six months ended June 30, 1996 related to certain
options granted to the Company's Chief Executive Officer. In the quarter ended
June 30, 1996, the Company reversed charges in the amount of $2,360,000 related
to the aforementioned stock options due to a reduction in the fair market value
of the related equity as compared to the estimated fair market value at March
31, 1996. For the six months ended June 30, 1996 the non-cash compensation
expense related to these stock options was $3,240,000. See Note 4 of "Notes to
Consolidated Financial Statements")
Interest and Other Income (Expense). For the three and six months ended June
30, 1997 the Company incurred $1.1 million and $1.7 million in interest expense,
respectively. In 1995, the Company issued notes payable (the "Cambridge
Diagnostics Notes") and common stock warrants (the "Cambridge Diagnostics
Warrants") to individual investors for gross proceeds of $3,030,000. Of this
amount, $3,000,000 relates to the Cambridge Diagnostics Notes, which bear
interest at 10%. In October, 1996, the Company purchased 200,000 common shares
of Enviromed, plc ("Enviromed") and agreed to purchase EN PLC Limited
Partnership's ("EN PLC) holding of 7,961,386 common shares of Enviromed for a
promissory note with a principal amount of approximately $3.8 million (the "EN
PLC Note"). For the three and six months ended June 30, 1997, the Company
incurred $73,000 and $148,000 of interest expense, respectively, on the
Cambridge Diagnostics Notes and $104,000 and $178,000 of interest expense,
respectively, on the note payable to EN PLC. The Company incurred $105,000 and
$152,000 of interest expense on the AHP Note for the three and six-month periods
ended June 30, 1997. In addition, during the three and six month periods ended
June 30, 1997, the Acquisition Subsidiary incurred $567,000 and $833,000 of
interest expense, respectively, related to loans from Fleet National Bank
("Fleet"). Orgenics incurred $167,000 and $335,000 of interest expense related
to short and long-term bank debts for the three and six month periods ended June
30, 1997. For the three and six months ended June 30, 1996, the Company incurred
$75,000 and $150,000 of interest expense, respectively, on the Cambridge
Diagnostics Notes. In the three and six months ended June 30, 1996, the Company
also reversed $2.6 million of non-cash interest expense relating to the
Cambridge Diagnostics Warrants granted in November, 1994. The reversal related
to the reduction in the fair market value of the related equity as compared to
the estimated fair market value at March 31, 1996. For the six months ended June
30, 1996, the non-cash interest expense relating to the aforementioned warrants
was $5.5 million. Interest income increased by $157,000 and $282,000 for the
three and six months ended June 30, 1997 as compared to the same periods last
year, primarily due to larger cash balances. The Company's subsidiary in
Inverness, Scotland accrued $29,000 and $57,000 for the three and six months
ended June 30, 1997, representing a 6% dividend payable on its outstanding
cumulative redeemable preference shares, as compared to $23,000 and $46,000 for
the three and six months ended June 30, 1996.
Minority Interest. The Company recorded an expense of $43,000 for the three
months ended June 30, 1997 and income of $70,000 for the six months ended June
30, 1997 representing the minority shareholders' portion of the Orgenics income.
In addition, for the three and six-month periods ended June 30, 1997, Orgenics
recorded $14,000 and $60,000, respectively, representing minority interest in
the net income of its Brazilian subsidiary.
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Foreign Currency Translation. Fluctuations in foreign currency did not
significantly impact revenue performance measured in U.S. dollars for the three
and six months ended June 30, 1997. Substantially all of the Company's foreign
sales are paid in the functional currency of the selling entity. The Company
recorded an unrealized gain of $2,000 for the three months ended June 30, 1997
and a loss of $717,000 for the six months ended June 30, 1997 related to foreign
currency translation of intercompany balances during the three and six month
periods ended June 30, 1997.
Net Loss. The net loss for the three months ended June 30, 1997 was
approximately $5.8 million or ($0.71) per common and common equivalent share
compared to a profit of $2.7 million or $0.44 per common and common equivalent
share for the three months ended June 30, 1996. The net loss for the six months
ended June 30, 1997 was approximately $10.7 million or ($1.45) per common and
common equivalent share compared to $13.6 million or ($2.22) for the six months
ended June 30, 1996. As specified above, the three and six-month periods for
both years included non-cash charges. Earnings before interest, taxes,
depreciation and amortization ("EBITDA"), and before non-recurring, non-cash
charges mentioned above was a loss of $2.2 million or ($0.26) per common and
common equivalent share for the three months ended June 30, 1997 compared to a
loss of $1.9 million or ($0.31) per common and common equivalent share for the
three months ended June 30, 1996. For the six months ended June 30, 1997,
EBITDA; before non-recurring, non-cash charges, was a loss of $5.2 million or
($0.70) per common and common equivalent share compared to a loss of $4.2
million or ($0.69) per common and common equivalent share for the six months
ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the funds it has
received in connection with its initial public offering, a follow-on public
offering, funds received in connection with the LifeScan Alliance (defined
below), private placements of debt and equity securities, bank loans and lines
of credit, capital lease obligations, cash from product sales and grants from
government development agencies.
At June 30, 1997, the Company had cash and cash equivalents of $16.2
million, a $300,000 decrease from December 31, 1996. Cash used for operations in
the six months ended June 30, 1997 was $7.6 million due largely to net losses of
$10.4 million. Other uses of cash in operating activities included an increased
funding of accounts receivable and inventory of $4.3 million during the six
months ended June 30, 1997, reflecting the Company's increase in sales. Cash was
provided for operations in part by an increase in accounts payable, accrued
expenses, and other current liabilities of $5.5 million during the six months
ended June 30, 1997. During the six months ended June 30, 1997, the Company used
$3.6 million to purchase property and equipment. Approximately $2.1 million
spent on property and equipment during the six months ended June 30, 1997 was
for the Company's facility in Inverness, Scotland. The Company loaned
(pound)350,000 (approximately $572,000) to Enviromed during the six months ended
June 30, 1997. The AHP Bridge Loan of $5.0 million was repaid on June 4, 1997.
The Company believes that its existing cash and funds available under the
loans from Fleet will be sufficient to provide adequate working capital and
funds necessary for anticipated capital expenditures through December 31, 1997.
The Company intends to continue to invest significant amounts 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
and the Company's supply agreement with A. Menarini Industrie Farmaceutical
Riunite S.r.L. 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.
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, including those
summarized below, that might cause such a difference are 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 January 16, 1997, as
amended.
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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.
As part of the Company's plans for maintaining and expanding sales of the
Nutritional Supplement Lines, the Company expects to incur substantial marketing
and promotional expenses and allowances in 1997 and thereafter. There can be no
assurance that these expenditures and allowances will allow the Company to
increase or maintain the existing revenue levels from the Nutritional Supplement
Lines. The Company's product focus to date has been on diagnostic tests of
various kinds and the Company has not previously marketed nutritional
supplements, nor has the Company conducted a national advertising campaign of
the scope or magnitude of that which it plans for the Nutritional Supplement
Lines.
The Company is currently experiencing a period of rapid growth and
expansion, including growth and expansion experienced since the consummation of
the Nutritional Supplement Lines Acquisition. This growth and expansion has
placed, and could continue to place, a significant strain on the Company's
management, customer service and support, operations, sales and administrative
personnel and other resources. In order to serve the needs of its existing and
future customers, the Company has increased and will continue to increase its
workforce, which requires the Company to attract, train, motivate and manage
qualified employees. The Company's ability to manage its planned growth depends
upon the Company's success in continuing to expand its operating, management,
information and financial systems, which may significantly increase its
operating expenses. If the Company fails to achieve its growth as planned or is
unsuccessful in managing its anticipated growth, there could be a material
adverse effect on the Company.
The Company is at an early stage in its development. With the exception of
certain professional diagnostic products for infectious diseases, the
Nutritional Supplement Lines 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, managerial 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
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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 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.
The Company will be subject to risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest. As of June 30, 1997, the
Company had $49.1 million of outstanding debt, including the AHP Term Loan which
was used to pay part of the cash portion of the consideration payable to AHP
under the terms of the Nutritional Supplement Lines Acquisition. This
outstanding indebtedness, together with restrictions in the Company's financing
instruments, may limit the Company's ability to obtain additional debt financing
in the future and to respond to changing business and economic conditions and
could adversely affect its ability to effect its business strategies. In
addition, because certain of the Company's debt, including the AHP Term Loan,
bears interest at floating rates, an increase in interest rates could adversely
affect the Company's ability to meet its debt service obligations.
The Company currently anticipates that its existing cash and funds available
under the loans from Fleet will be adequate to satisfy its capital requirements
through December 31, 1997. No assurance can be given that additional financing
will be available, or, if available, that it will be available on acceptable
terms. If additional funds are raised by issuing equity securities, further
dilution to then existing stockholders will result. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its research and development programs, or obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or products which the Company would
otherwise pursue on its own.
15
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently a party to or affected by litigation in several
matters which are described in the Company's 1996 Report on Form 10-KSB/A (see
Item 3, "Legal Proceedings"), and in a Registration Statement on Form SB-2,
filed by the Company with the Securities and Exchange Commission on January 16,
1997, as amended (see "Risk Factors-Risks Related to Certain Licensing
Arrangements" and "Business-Legal Proceedings").
There is ongoing litigation in connection with certain patent and
proprietary rights related to HIV Technology owned by Institut Pasteur (the
"Pasteur HIV Technologies"), which has been licensed by Pasteur Sanofi
Diagnostics to Cambridge Biotech Corporation ("Cambridge Biotech") and in which
the Company derives an economic interest through the sale of products
incorporating the Pasteur HIV Technologies by a company known as Cambridge
Affiliate, which is 51% owned by bioMerieux Vitek, Inc. (which has purchased the
interest of Cambridge Biotech) and 49% owned by the Company. In April 1997,
Pasteur Sanofi Diagnostics filed a petition for certiorari, asking the United
States Supreme Court to review the decision of a three judge panel of the
Circuit Court of Appeals for the First Circuit, that Cambridge Biotech was
entitled to assume its license agreements with Pasteur Sanofi Diagnostics. On
June 27, 1997, the United States Supreme Court denied Pasteur Sanofi
Diagnostics' petition for writ of certiorari and no petition for rehearing has
been filed.
On July 18, 1997, a hearing was held on the merits of the appeal to the
United States District Court for the District of Massachusetts by Institut
Pasteur and Genetic Systems Corporation, of the ruling by the United States
Bankruptcy Court for the District of Massachusetts (Western District) that
Cambridge Biotech may sell products incorporating the Pasteur HIV Technologies
in the United States. To date the District Court has not rendered a decision.
Trinity Biotech plc ("Trinity") and Eastcourt Limited ("Eastcourt") have
filed Schedule 13Ds with the Securities and Exchange Commission (the
"Commission") stating that Enviromed sold the Company's Common Stock held of
record by Enviromed 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. In December 1996, Eastcourt filed a Schedule
13D/A and Trinity and Flambelle filed a joint Schedule 13D with the Commission.
On February 12, 1997 Flambelle and Eastcourt commenced a lawsuit against the
Company in the United States District Court for the District of Massachusetts,
seeking a declaratory judgment that Flambelle and Eastcourt own the Common Stock
held of record by Enviromed and damages for alleged breach of a registration
rights agreement. The Company intends to contest Flambelle's and Eastcourt's
claims vigorously. The Company is not able to estimate the amount of damages, if
any, which might result from Flambelle's and Eastcourt's claims against the
Company, but believes that any such damages would not be in an amount which
would have a material adverse effect on the Company. The case is currently in
the discovery stage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The annual meeting of stockholders of the Company was held on Tuesday, June
10, 1997. Willard Lee Umphrey and Ron Zwanziger were re-elected as directors of
the Company at the meeting. The other directors whose term of office continued
after the meeting were: Jonathan J. Fleming, Carol Goldberg, John Levy, Edward
Roberts and Peter Townsend.
In addition to the election of directors, the stockholders also voted to
amend the Company's 1996 Amended and Restated Stock Option and Grant Plan (the
"Plan") to increase the amount of shares of the Company's $0.001 per share par
value Common Stock which may be granted pursuant to the Plan from 1,000,000 to
1,500,000 shares and ratified the selection of Arthur Andersen LLP as the
Company's independent auditors for the 1997 fiscal year ending December 31,
1997.
16
<PAGE> 19
The following table summarizes the votes for, against or withheld and the
number of abstentions and broker non-votes with regard to each matter voted
upon:
<TABLE>
<CAPTION>
Against or Broker
Matter For Withheld Abstentions Non-votes
- ------ --- -------- ----------- ---------
<S> <C> <C> <C> <C>
Election of:
Mr. Umphrey 5,674,601 0 15,870 0
Mr. Zwanziger 5,674,601 0 15,870 0
Amend Stock 3,389,899 426,798 44,187 1,829,587
Option Plan
Ratify Selection 5,677,556 8,400 4,515 0
of Auditors
</TABLE>
ITEM 5. OTHER INFORMATION
Subordinated Royalty Revenue Notes
At closings held in June and July 1997, the Company sold Subordinated
Revenue Royalty Notes (the "Notes") having an aggregate issue price of
$7,500,000, including Notes having an aggregate issue price of $6,375,000 issued
during the three months ended June 30, 1997. Each Note entitles the registered
holder thereof (each, a "Noteholder") to payments relating to net revenues of
the Company and certain related entities during each fiscal quarter the Note is
outstanding, which payments are pro rated with respect to the number of days the
Note is outstanding during such fiscal quarter (each, a "Royalty Payment"). The
Company is obligated to make Royalty Payments until the total amount of Royalty
Payments equals four times the total issue price of the Notes (the "Total
Repayment Amount"). In addition, the Company may elect to prepay the Notes, as
described below.
The quarterly Royalty Payment for each $25,000 of issue price will equal the
greater of (i) 0.005% of net revenues of the Company and certain related
entities during such fiscal quarter and (ii) $1,300. Until the Total Repayment
Amount has been paid, the Company will pay Royalty Payments as to each Note as
follows: (i) the first payment will be made on or before the forty-fifth day
after the closing of the fourth full fiscal quarter during which such Note is
outstanding and will cover Royalty Payments for such fiscal quarter and the
prior fiscal quarters during which such Note was outstanding; provided, however,
that the aggregate Royalty Payments to be made at such time shall not be less
than $6,000; and (ii) the Royalty Payment for each subsequent fiscal quarter
will be made on or before the forty-fifth day after the closing of such fiscal
quarter.
If the Company elects to prepay the amount due under the Notes or if an
Event of Default (as defined below) is not cured within thirty days after notice
to the Company, the Company will pay an amount equal to the greater of (i) 1.5
times the issue price of the Notes minus all Royalty Payments made by the
Company prior to the date of payment (but excluding any amount paid as Late
Payment Interest, as defined below) or (ii) an amount equal to the issue price
of the Notes plus an annualized internal rate of return on the issue price equal
to thirty percent calculated from the issue date of the Notes to the date of
payment, minus all Royalty Payments made by the Company prior to the date of
payment (but excluding any amount paid as Late Payment Interest). Events of
Default for purposes of the Notes include (i) the Company's failure to make
payments under the Notes; (ii) the Company's failure to comply with the terms of
the Notes or the related note purchase agreement; (iii) any materially false
representation or warranty by the Company pursuant to or in connection with the
related note purchase agreement; (iv) the acquisition of beneficial ownership
within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934
("Exchange Act") of fifty percent or more of either the voting stock or total
equity capital of the Company by any person, together with "affiliates" and
"associates" of such person within the meaning of Rule 12b-2 of the Exchange
Act, or any "group" including such person under sections 13(d) and 14(d) of the
Exchange Act; (v) the initiation by the Company of any action to dissolve,
liquidate or otherwise terminate its existence; (vi) the merger or consolidation
of the Company into another entity in a transaction in which the stockholders of
the Company immediately prior to such merger or consolidation do not own fifty
percent or more of either the voting stock or total equity capital of the
surviving entity; (vii) the sale by the Company of substantially all of its
assets; and (viii) certain bankruptcy or insolvency events involving the
Company.
17
<PAGE> 20
The Notes will bear interest only in the event of a late Royalty Payment, an
Event of Default or a prepayment. If a Royalty Payment is not made within
forty-five days of the end of the relevant fiscal quarter, the overdue amount
will accrue interest ("Late Payment Interest") at the rate of eighteen percent
per annum, compounded daily, accruing from the date such Royalty Payment was due
to the date the Royalty Payment, including accrued interest thereon, is made.
Any such accrued interest will be payable on demand.
U.S. Boston Capital Corporation ("U.S. Boston Capital") acted as placement
agent for the offering of the Notes. As compensation for its services as
placement agent, U.S. Boston Capital is entitled to a cash commission equal to
eight percent of the aggregate issue price of the Notes, will be reimbursed for
the fees and disbursements of its counsel and will receive a non-accountable
expense allowance of $5,000. Willard L. Umphrey, a Director of the Company, is
Chairman, President, Treasurer and a Director of U.S. Boston Capital.
Pear Tree Royalty Company, Inc. ("Pear Tree Royalty Company"), the initial
representative of the Noteholders, or its successor, is entitled to one percent
of any payments made to the Noteholders by the Company pursuant to the terms of
the Notes, such one percent to be deducted from the payments to the Noteholders.
Mr. Umphrey is also a Director and shareholder of Pear Tree Royalty Company.
On July 30, 1997, Pear Tree Royalty Company purchased a Note with an issue
price of $500,000. In addition, John F. Levy, a Director of the Company,
purchased a Note with an issue price of $100,000 on June 20, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit Number Title
10.1 Form of Subordinated Revenue Royalty Note
10.2 Form of Note Purchase Agreement dated as of
June 3, 1997
27 Financial Data Schedule
b. Reports on Form 8-K:
The Company filed no reports on Form 8-K during the three-month period
ended June 30, 1997.
18
<PAGE> 21
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: August 13, 1997 /s/ Anthony H. Hall
-------------------
Anthony H. Hall,
Chief Financial Officer
19
<PAGE> 1
Exhibit 10.1
SELFCARE, INC.
SUBORDINATED REVENUE ROYALTY NOTE
TOTAL REPAYMENT AMOUNT
$__________
No. __________
Issue Date: _____________
Issue Price: $_____________
Selfcare, Inc., a Delaware corporation (the "Company"), promises to pay
to __________ (the "Initial Holder") or registered assigns, the Total Repayment
Amount of $__________ on or before the Final Repayment Date, pursuant to the
terms of this Note.
This Note is one of a series of subordinated revenue royalty notes
issued by the Company pursuant to a Note Purchase Agreement dated as of June 3,
1997 among the Company, the Initial Holder of this Note and certain others (the
"Note Purchase Agreement" or "Agreement") evidencing the advance to the Company
of money to be used as follows: first, to lend to Selfcare Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of the Company, funds to pay
the principal and interest of a $5,000,000 bridge note outstanding under a
credit facility with Fleet National Bank and certain other lenders and second,
for working capital and other general corporate purposes. The Notes are referred
to collectively herein as the "Outstanding Notes."
------------------------
THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN THE NOTE
PURCHASE AGREEMENT AMONG THE REGISTERED OWNER OF THIS NOTE AND CERTAIN OTHERS.
ANY TRANSFEREE OF A HOLDER OF THIS NOTE SHALL, AS A CONDITION OF SUCH TRANSFER,
BE REQUIRED TO BECOME A PARTY TO SUCH AGREEMENT. THE COMPANY WILL FURNISH A COPY
OF THE AGREEMENT TO THE HOLDER OF THIS NOTE UPON WRITTEN REQUEST WITHOUT CHARGE.
THE NOTE REPRESENTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER SAID ACT OR (ii)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE> 2
The Company further agrees as follows:
1. PAYMENTS.
(a) ROYALTY PAYMENT. Until this Note is fully satisfied, the Holder of
this Note shall be entitled to receive a payment relating to each Fiscal Quarter
in which this Note shall be outstanding (each, a "Royalty Payment"). The Royalty
Payment for a Fiscal Quarter shall be equal to 0.005% of Company Revenues for
such Fiscal Quarter for each $25,000 of Issue Price paid by the Initial Holder;
provided, however, that until this Note is fully satisfied, the Royalty Payment
shall not be less than (i) $1,300 divided by (ii) the number of days in the
Fiscal Quarter to which the Royalty Payment relates multiplied by (iii) the
number of days in such Fiscal Quarter during which this Note shall be
outstanding. Company Revenues for a Fiscal Quarter shall mean only those Company
Revenues attributable to the period of such Fiscal Quarter in which this Note
shall be outstanding.
(b) TIMING OF ROYALTY PAYMENT. Until this Note is fully satisfied, the
Company promises to pay to the order of the Holder:
(i) after the closing of the fourth full Fiscal Quarter during which
this Note shall be outstanding and on or before the forty-fifth (45th) day
after the closing of such Fiscal Quarter, the Royalty Payment relating to
such Fiscal Quarter and any Royalty Payments relating to prior Fiscal
Quarters; provided, however, that the aggregate Royalty Payments to be made
by the Company at such time shall not be less than $6,000; and
(ii) on or before the forty-fifth (45th) day after the closing of each
subsequent Fiscal Quarter, the Royalty Payment relating to such Fiscal
Quarter.
Each Royalty Payment shall be credited against the Total Repayment Amount.
Unless the provisions of Section 3 relating to prepayment or Section 5 relating
to default apply, upon payment of the Total Repayment Amount and any Late
Payment Interest due pursuant to Section 1(d), this Note shall be deemed fully
satisfied.
(c) PROJECTED ROYALTY PAYMENT SCHEDULE. As required by Section 1.1275-4(b)
of the regulations promulgated under the Internal Revenue Code of 1986, as
amended, attached hereto as EXHIBIT I is a projected Royalty Payment schedule
for this Note incorporating projected revenues of the Company. There is no
assurance, however, that the actual revenues of the Company will correspond to
these projected revenues, so that the Royalty Payments actually made under this
Note may differ from the projected payments on EXHIBIT I.
(d) LATE PAYMENT INTEREST. If any Royalty Payment is not made when due as
provided in Section 1(b), then in each such case the overdue amount shall bear
interest ("Late Payment Interest") at the rate of 18% per annum compounded daily
(to the extent that the payment of such interest shall be legally enforceable),
which Late Payment Interest shall accrue from the date such Royalty Payment was
due to the date payment of such amount,
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<PAGE> 3
including Late Payment Interest thereon, has been made. All such Late Payment
Interest shall be payable on demand.
(e) FINAL REPAYMENT DATE. On the forty-fifth (45th) day after the closing
of the seventy-seventh (77th) full Fiscal Quarter during which this Note shall
be outstanding (the "Final Repayment Date"), any unpaid portion of the Total
Repayment Amount shall become immediately due and payable to the extent to which
it has not already become due and payable.
2. METHOD OF PAYMENT.
The Company shall make all payments due pursuant to this Note by check or
wire transfer in money of the United States that at the time of payment is legal
tender for payment of public and private debts.
3. PREPAYMENT A THE OPTION OF THE COMPANY.
(a) PREPAYMENT PREMIUM. This Note may be prepaid by the Company at any
time so long as the Company pays the Holder of this Note an amount (the
"Prepayment Premium") equal to the larger of:
(i) 1.5 times the Issue Price of this Note minus all Royalty Payments
made by the Company prior to the Prepayment Date (but excluding any amount
paid as Late Payment Interest); or
(ii) an amount equal to the Issue Price plus an annualized internal
rate of return on the Issue Price equal to 30% calculated from the Issue
Date to the Prepayment Date minus all Royalty Payments made by the Company
prior to the Prepayment Date (but excluding any amount paid as Late Payment
Interest).
(b) NOTICE OF PREPAYMENT. Notice of prepayment shall be mailed at least 30
days but not more than 60 days before the applicable Prepayment Date to the
Holder of this Note at the Holder's registered address. This Note may be prepaid
only if all Outstanding Notes are prepaid on the same Prepayment Date or the
holders of the Outstanding Notes that are not being prepaid deliver a written
waiver and consent to such prepayment.
(c) EFFECT OF NOTICE OF PREPAYMENT. Once notice of prepayment is given,
this Note shall become due and payable on the Prepayment Date stated in such
notice and at the Prepayment Premium stated in such notice. Upon the later of
the Prepayment Date and the date this Note is surrendered to the Company, this
Note shall be paid at the Prepayment Premium stated in the notice.
(d) DEPOSIT OF PREPAYMENT PREMIUM. Prior to or on the Prepayment Date, the
Company shall segregate and hold in trust in an account with a Depository Bank
an amount of money sufficient to pay the Prepayment Premium of all of the
Outstanding Notes that are being prepaid.
-3-
<PAGE> 4
4. SUBORDINATION.
To the extent and in the manner hereinafter set forth in this Section 4,
this Note is subordinated to all existing and future Senior Indebtedness. To the
extent provided herein, Senior Indebtedness must be paid before this Note may be
paid.
(a) SUBORDINATE TO SENIOR INDEBTEDNESS. Notwithstanding anything herein to
the contrary, the Company covenants and agrees, and the Holder of this Note by
such Holder's acceptance hereof likewise covenants and agrees, that, to the
extent and in the manner hereinafter set forth in this Section 4, the
indebtedness represented by this Note and the payment of the Total Repayment
Amount, Prepayment Premium, Default Payment and Late Payment Interest, if any,
in respect of this Note are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of all Senior Indebtedness.
(b) PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Upon any distribution
of assets of the Company in the event of:
(i) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or
(ii) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or
(iii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company,
then in such event
(A) the holders of Senior Indebtedness shall be entitled to
receive payment in full of all amounts due or to become due on or in
respect of all Senior Indebtedness, or provision shall be made for
such payment, before the Holder of this Note is entitled to receive
any payment on account of the Total Repayment Amount, Prepayment
Premium Price, Default Payment or Late Payment Interest, if any, in
respect of this Note; and
(B) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, by set-off
or otherwise, to which the Holder would be entitled but for the
provisions of this Section 4, including any such payment or
distribution which may be payable or deliverable by reason of the
payment of any other Debt of the Company being subordinated to the
payment of this Note, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a
trustee in
-4-
<PAGE> 5
bankruptcy, a receiver or liquidating trustee or otherwise, directly
to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture
under which any instruments evidencing any of such Senior Indebtedness
may have issued, ratably according to the aggregate amounts remaining
unpaid on account of the principal of, and premium, if any, and
interest on, the Senior Indebtedness held or represented by each, to
the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior
Indebtedness.
In the event that, notwithstanding the foregoing provisions of this Section
4, the Holder of this Note shall receive any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Debt of the Company being
subordinated to the payment of this Note, before all Senior Indebtedness is paid
in full or payment thereof provided for, and if such fact shall then have been
made known to the Holder, then and in such event such payment or distribution
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other person making
payment or distribution of assets of the Company for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Section 4 only, the words "cash, property or
securities" shall not be deemed to include shares of the Company as reorganized
or readjusted, or securities of the Company or any other corporation provided
for by a plan of reorganization or readjustment the payment of which is
subordinated, at least to the extent provided in this Section 4 to the payment
of all Senior Indebtedness which may at the time be outstanding; provided,
however, that (i) Senior Indebtedness is assumed by the new corporation, if any,
resulting from any such reorganization or readjustment, and (ii) the rights of
the holders of the Senior Indebtedness are not, without the consent of such
holders, altered by such reorganization or readjustment.
The consolidation of the Company with, or the merger of the Company into,
another corporation or the liquidation or dissolution of the Company following
the conveyance or transfer of all or substantially all of its assets to another
person shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of the Company for the purposes of this Section 4 if the
corporation formed by such consolidation or into which the Company is merged or
the person which acquires by conveyance or transfer all or substantially all of
the assets of the Company, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer, expressly assume in writing all
of the obligations of the Company under this Note and immediately after giving
effect to such transaction no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have occurred
and be continuing.
-5-
<PAGE> 6
(c) ACCELERATION. In the event that this Note is declared or becomes due
and payable pursuant to Section 5, then and in such event the Company shall
promptly notify holders of Senior Indebtedness of such acceleration. The Company
shall not pay this Note until 180 days have passed after such acceleration
occurs and may thereafter pay the Notes if this Section 4 permits the payment at
that time.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Holder of this Note prohibited by the foregoing provisions of
this Section 4(c), and if such facts then shall have been known or thereafter
shall have been made known to the Holder pursuant to the terms hereof, then and
in such event such payment shall be paid over and delivered forthwith to the
Company by or on behalf of the person holding such payment for the benefit of
the holders of Senior Indebtedness.
The provisions of this Section 4(c) shall not apply to any payment with
respect to which Section 4(b) would be applicable.
(d) DEFAULT ON SENIOR INDEBTEDNESS. The Company shall not make any payment
of the Total Repayment Amount, Prepayment Premium, Default Payment or Late
Payment Interest, if any, in respect of this Note or otherwise acquire this Note
for cash or property if:
(i) a default on Senior Indebtedness occurs and is continuing that
permits holders of the Senior Indebtedness to accelerate its maturity; and
(ii) the default is the subject of a judicial proceeding or the
Company receives a notice of default relating thereto from any person who
may give such notice pursuant to the instrument evidencing or document
governing such Senior Indebtedness.
In such event, the Company may resume payments on this Note and may acquire
this Note if and when:
(A) the default is cured or waived and any such related
acceleration has been rescinded or annulled in accordance with the
terms of such Senior Indebtedness; or
(B) 180 or more days pass after the receipt by the Company of
the notice described in clause (ii) above and the default is not then
the subject of judicial proceedings; and
this Section 4 otherwise permits the payment or acquisition at that time.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Holder of this Note prohibited by the foregoing provisions of
this Section 4(d), and if such fact then shall have been known or thereafter
shall have been made known to the Holder, pursuant to the terms hereof, then and
in such event such payment shall be paid over and
-6-
<PAGE> 7
delivered forthwith to the Company by or on behalf of the person holding such
payment for the benefit of the holders of Senior Indebtedness.
The provisions of this Section 4(d) shall not apply to any payment with
respect to which Section 4(b) would be applicable.
(e) PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this Section 4
or elsewhere in this Note shall prevent the Company from making or the Holder
from retaining any payments of the Total Repayment Amount, Prepayment Premium,
Default Payment or Late Payment Interest, if any, as the case may be, in respect
of this Note at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshalling of assets and liabilities of the Company referred
to in Section 4(b) or under the conditions described in Sections 4(c) or 4(d).
(f) SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to
the payment in full of all Senior Indebtedness, the Holders of Outstanding Notes
shall be subrogated to the extent of the payments or distributions made to the
holders of such Senior Indebtedness pursuant to the provisions of this Section 4
to the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities applicable to the Senior
Indebtedness until the Total Repayment Amount, Prepayment Premium, Default
Payment, or Late Payment Interest, if any, as the case may be, in respect of the
Outstanding Notes shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holder of this Note would be entitled except
for the provisions of this Section 4, and no payments pursuant to the provisions
of this Section 4, to the Company or to the holders of Senior Indebtedness by
the Holder of this Note, shall be, as between the Company, its creditors other
than holders of Senior Indebtedness, the Holder and other holders of Outstanding
Notes, deemed to be a payment or distribution by the Company to or on account of
the Senior Indebtedness.
(g) PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this
Section 4 are and are intended solely for the purpose of defining the relative
rights of the Holder of this Note and the holders of other Outstanding Notes, on
one hand, and the holders of Senior Indebtedness, on the other hand. Nothing
contained herein is intended to or shall alter or impair, as between the Company
and the Holder of this Note, the obligation of the Company, which is
unconditional and absolute, to pay to the Holder of this Note the Total
Repayment Amount, Prepayment Premium, Default Payment and Late Payment Interest
with respect to this Note as and when the same shall become due and payable in
accordance with the terms hereof, or is intended to or shall affect the relative
rights of the Holder of this Note and creditors of the Company, other than the
holders of Senior Indebtedness, nor shall anything herein prevent the Holder of
this Note from exercising all remedies otherwise permitted by applicable law
upon an Event of Default under this Note, subject to the rights, if any, under
this Section of the holders of Senior Indebtedness in respect of assets of the
Company of any kind or character, whether cash, property or securities, received
upon the exercise of any such remedy.
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<PAGE> 8
5. DEFAULTS.
(a) EVENTS OF DEFAULT. "Event of Default", wherever used herein, shall
have the meaning set forth in the Note Purchase Agreement.
(b) ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of
Default occurs and is continuing, then in every such case either (i) the holders
of Notes having not less than a majority in aggregate of the Total Repayment
Amount of the Outstanding Notes remaining unpaid at that time or (ii) the
authorized representative of the holders of the Outstanding Notes as designated
pursuant to the Note Purchase Agreement (the "Authorized Representative") may
issue a notice of default to the Company (each, a "Notice of Default") setting
forth the nature of the Event of Default. If an Event of Default is not cured
within 30 days of the Company's receipt of a Notice of Default, the Default
Payment on this Note and all of the other Outstanding Notes shall become and be
immediately due and payable without any declaration or other act on the part of
the Holder or any other holder of Outstanding Notes. For purposes of this Note,
the "Default Payment" shall be an amount equal to the Prepayment Premium
calculated pursuant to Section 3, substituting the date the Default Payment is
made (the "Date of Default Payment") for the Prepayment Date.
At any time after such acceleration with respect to this Note has been made
and before a judgment or decree for payment of the money due has been obtained,
either the holders of Notes having not less than a majority in aggregate of the
Total Repayment Amount of the Outstanding Notes remaining unpaid at that time or
the Authorized Representative, by written notice to the Company, may rescind and
annul such declaration and its consequences if the rescission would not conflict
with any judgment or decree and if all existing Events of Default have been
cured or waived except nonpayment of the Default Payment. No such rescission
shall affect any subsequent default or impair any right in connection therewith.
(c) UNCONDITIONAL RIGHT OF HOLDER TO RECEIVE PAYMENT. Notwithstanding any
other provision herein but subject to Section 4, the Holder of this Note shall
have the right, which is absolute and unconditional, to receive payment of the
Total Repayment Amount, Prepayment Premium, Default Payment or Late Payment
Interest, if any, in respect of this Note as provided in this Note and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of the Holder.
(d) RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided in the
last paragraph of Section 9 with respect to the replacement or payment of this
Note should it become mutilated, destroyed, lost or stolen, no right or remedy
herein conferred upon or reserved to the Holder is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
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<PAGE> 9
(e) DELAY OR OMISSION NOT WAIVER. No delay or omission of the Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Section or by law to
the Holder may be exercised from time to time, and as often as may be deemed
expedient by the Holder.
(f) WAIVER OF PAST DEFAULTS. Either the holders of Notes having not less
than a majority in aggregate of the Total Repayment Amount of the Outstanding
Notes remaining unpaid at that time or the Authorized Representative may on
behalf of the holders of all the Outstanding Notes waive any past default
hereunder and its consequences, except a default
(i) in the payment of the Total Repayment Amount, Prepayment Premium,
Default Payment, or Late Payment Interest, if any, on all Outstanding
Notes; or
(ii) in respect of a covenant or provision hereof which under Section
12(e) cannot be modified or amended without the consent of the Holder
hereof.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured; but no such waiver
shall extend to any subsequent or other default or impair any right in
connection therewith.
(g) COSTS OF ENFORCEMENT OR COLLECTION. The Company hereby agrees that it
shall pay the reasonable costs of enforcement or collection, including
reasonable attorneys' fees and disbursements, incurred by the Holder in an Event
of Default.
6. TIMING OF PAYMENT.
The Company shall promptly make all payments in respect of this Note as
provided herein.
7. WAIVER OF CERTAIN PROVISIONS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth herein, if before the time for such compliance
either the holders of Notes having not less than a majority in aggregate of the
Total Repayment Amount of the Outstanding Notes remaining unpaid at that time or
the Authorized Representative shall in writing either waive such compliance in
such instance or generally waive compliance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such term,
provision or condition shall remain in full force and effect. Notwithstanding
the immediately preceding sentence, in addition to the waiver required by such
sentence, the written waiver of the Holder hereof is required to waive
compliance by the Company with any term, provision or condition set forth in
Sections 1, 2, 3 and 4 hereof and in the case of Section 4, that percentage of
the holders of
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<PAGE> 10
any Senior Indebtedness required to waive compliance by the Company with any
term, provision or condition set forth in the documents governing such Senior
Indebtedness.
8. REGISTRATION OF TRANSFER, ASSIGNMENT OR EXCHANGE.
The Company shall maintain an office or agency where this Note may be
surrendered for registration of transfer or assignment or for exchange ("Note
Registrar"), and an office or agency where Notes may be presented for payment or
prepayment. The Note Registrar shall keep a register of the Outstanding Notes
and of their transfer, assignment and exchange ("Note Register").
The Company or the Note Registrar, as applicable, shall not be required to
(i) register the transfer or assignment of this Note for a period beginning at
the opening of business 15 days before the date of the mailing of a notice of
prepayment and ending at the close of business on the day of such mailing; or
(ii) register the transfer, assignment or exchange of this Note to the extent
called for prepayment. The Company shall not be required to make any exchange of
this Note if, as a result thereof and in the Company's judgment, the Company
would incur adverse consequences under any applicable income, franchise or
similar tax laws in effect at the time of such exchange.
The transfer or assignment of this Note is subject to restrictions set
forth in the Note Purchase Agreement, and no transfer or assignment of this Note
shall be made except in compliance therewith. The Company shall not be required
to register any transfer or assignment of this Note which has not been approved
or otherwise made in accordance with such Note Purchase Agreement.
9. MUTILATED, DESTROYED, LOST AND STOLEN NOTE.
If this Note shall become mutilated, it may be surrendered to the Company
and the Company shall execute and deliver in exchange therefor a new note of
like tenor and Total Repayment Amount and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company (i) evidence to its satisfaction
of the destruction, loss or theft of this Note and (ii) such security or
indemnity as may be required by the Company to save it and any agent of the
Company harmless, then, in the absence of notice to the Company that this Note
has been acquired by a bona fide purchaser, the Company shall execute and
deliver, in lieu of such destroyed, lost or stolen Note, a new note of like
tenor and Total Repayment Amount and bearing a number not contemporaneously
outstanding.
In case this Note shall be mutilated, destroyed, lost or stolen and shall
become or be about to become due and payable or be about to be prepaid by the
Company, the Company in its discretion may, instead of issuing a new note, pay
or prepay this Note.
Upon the issuance of any new note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be
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<PAGE> 11
imposed in relation thereto and any other expenses (including the fees and
expenses of any agent) connected therewith.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of this Note if this Note shall be mutilated, destroyed, lost or stolen.
10. PERSONS DEEMED OWNERS.
Prior to due presentment of this Note for registration of transfer or
assignment, the Company may treat the Person in whose name this Note is
registered as the owner of such Note for the purpose of receiving payment of the
Total Repayment Amount, Prepayment Premium, Default Payment, and Late Payment
Interest, if any, in respect of this Note and for all other purposes.
11. DEFINITIONS.
For the purposes of this Note, the terms defined in this Section have the
meanings assigned to them in this Section.
"Authorized Representative" has the meaning specified in Section 5(b).
"Company" means Selfcare, Inc, a Delaware corporation.
"Company Revenues" means, as to a Fiscal Quarter, the net revenue of the
Company for such Fiscal Quarter on a consolidated basis, determined in
accordance with GAAP, plus any Revenue of Related Entities for such Fiscal
Quarter not already included in the consolidated net revenue of the Company;
provided, however, that Company Revenues shall not include any amounts received
by the Company and not recognized as revenue prior to the Issue Date of this
Note.
"Date of Default Payment" has the meaning specified in Section 5(b).
"Debt" means (i) all obligations of the Company for borrowed money,
including, without limitation, the obligation evidenced by this Note; (ii) all
obligations of the Company evidenced by bonds, debentures, notes or other
similar instruments, other than any account payable or other obligation incurred
in the ordinary course of business in connection with the obtaining of materials
or services, (iii) all obligations of the kind set forth in (i) and (ii) above,
of others secured by a lien on any asset of the Company, whether or not such
obligation is assumed by the Company, (iv) all obligations of the Company
pursuant to capitalized leases, and (v) all obligations of the kind set forth in
(i), (ii) or (iv) above of others for the payment of which the Company is
responsible or liable as obligor or guarantor.
"Default Payment" has the meaning specified in Section 5(b).
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<PAGE> 12
"Depository Bank" means a commercial bank having a combined capital and
surplus of at least $100,000,000.
"Event of Default" has the meaning specified in Section 5(a).
"Final Repayment Date" has the meaning specified in Section 1(e).
"Fiscal Quarter" means a fiscal quarter of the Company.
"GAAP" means generally accepted accounting principles as from time to time
in effect, including the statements and interpretations of the United States
Financial Accounting Standards Board and any predecessor or successor entity.
"Holder" means the Person listed on the first page hereof as the Initial
Holder while this Note is registered in the Note Register in such Person's name
or any transferee of this Note properly registered in the Note Register in
accordance with Section 8 and the Note Purchase Agreement.
"Initial Holder" means the Person listed on the first page hereof as the
Initial Holder.
"Issue Date" means the date on which this Note was originally issued or
deemed issued as set forth on the face of this Note.
"Issue Price" means, in connection with the original issuance of this Note,
the amount of money initially advanced to the Company as evidenced by this Note
and set forth on the face of this Note, and means, in connection with the
original issuance of any other Outstanding Notes, the amount of money initially
advanced to the Company as evidenced by such other Outstanding Notes and as set
forth on the faces thereof.
"Late Payment Interest" has the meaning specified in Section 1(d).
"Note Purchase Agreement" means the Note Purchase Agreement dated as of
June 3, 1997 among the Company, the Initial Holder of this Note and certain
others (the "Note Purchase Agreement").
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 8.
"Notice of Default" has the meaning specified in Section 5(b).
"Outstanding Notes" means, as of the date of determination, any of the
subordinated revenue royalty notes issued by the Company pursuant to the Note
Purchase Agreement, except any such Notes for whose prepayment money in the
necessary amount has theretofore been set aside and segregated in trust by the
Company for holders of such Notes as set forth in
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<PAGE> 13
Section 3(d) hereof, provided that, if such Notes are to be prepaid, notice of
such prepayment has been duly given.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Date" means the date specified for prepayment of this Note in
accordance with the terms of this Note.
"Prepayment Premium" has the meaning set forth in Section 3(a).
"Related Entity" shall mean any Person directly or indirectly controlled by
the Company.
"Revenue of Related Entities" means, as to a Fiscal Quarter, the aggregate
net revenue of all Related Entities for such Fiscal Quarter determined in
accordance with GAAP; provided, however, that Revenue of Related Entities shall
not include any amounts received by any Related Entity and not recognized as
revenue prior to the Issue Date of this Note. If a Related Entity is not wholly
owned by the Company, only the Company's pro rata portion of such Related
Entity's net revenue shall be included in the Revenue of Related Entities.
"Royalty Payment" has the meaning set forth in Section 1(a).
"Senior Indebtedness" means the principal of (and premium, if any) and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, but only to the extent
allowed or permitted to the holder of such Debt against the bankruptcy or any
other insolvency estate of the Company in such proceeding) and other amounts due
on or in connection with any Debt incurred, assumed or guaranteed by the
Company, whether outstanding on the date hereof or thereafter incurred, assumed
or guaranteed and all renewals, extensions and refundings of any such Debt;
provided, however, that the following will not constitute Senior Indebtedness:
(a) any Debt as to which, in the instrument creating the same or evidencing the
same or pursuant to which the same is outstanding, it is expressly provided that
such Debt shall be subordinated to any other Debt of the Company, unless such
instrument expressly provides that such Debt shall be senior in right of payment
to the Outstanding Notes; (b) any Debt of the Company that, by its terms, states
that such Debt shall not be senior in right of payment to the Outstanding Notes;
(c) Debt of the Company in respect of the Outstanding Notes; (d) any Debt of the
Company to any affiliate or subsidiary of the Company; (e) any trade payables;
and (f) any Debt incurred in violation of this Note or the Note Purchase
Agreement.
"Total Repayment Amount" means, with respect to this Note, the Total
Repayment Amount as set forth on the face of this Note, and means, with respect
to other Outstanding Notes, the Total Repayment Amount as set forth on the faces
thereof.
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<PAGE> 14
12. MISCELLANEOUS.
(a) HOLDER TO BE BOUND; COMPANY'S SUCCESSORS AND ASSIGNS. By acceptance of
this Note, the Holder agrees to be bound by the terms hereof. All covenants and
agreements in this Note by the Company shall bind its legal representatives,
successors and assigns, whether so expressed or not.
(b) SEVERABILITY. If any provision of this Note shall be determined to be
invalid, illegal or otherwise unenforceable by any court of competent
jurisdiction, the validity, legality and enforceability of the other provisions
of this Note shall not be affected thereby. Any invalid, illegal or
unenforceable provision of this Note shall be severable, and after any such
severance, all other provisions hereof shall remain in full force and effect.
(c) BENEFITS OF THIS NOTE. Nothing in this Note, express or implied, shall
give to any Person, other than the Holder, the Company and their legal
representatives, successors and assigns hereunder, any benefit or any legal or
equitable right, remedy or claim under this Note.
(d) NOTICES. Any notice, consent, approval, demand or other communication
in connection with this Note shall be deemed to be given if given in accordance
with the provisions of the Note Purchase Agreement. Where this Note provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice.
(e) AMENDMENTS. This Note may only be amended in writing with the written
consent of the Company and either the holders of Notes having not less than a
majority in aggregate of the Total Repayment Amount of the Outstanding Notes
remaining unpaid at that time or the Authorized Representative. Notwithstanding
the immediately preceding sentence, in addition to the consent required by such
sentence, the written consent of the Holder hereof is required to amend the
Total Repayment Amount, the Prepayment Premium, the Default Payment or the
provisions of Sections 1, 2, 3 and 4 hereof.
(f) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts without regard to
its principles of conflicts of laws.
SELFCARE, INC.
[SEAL]
By:
------------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.2
SELFCARE, INC.
NOTE PURCHASE AGREEMENT
DATED AS OF JUNE 3, 1997
<PAGE> 2
TABLE OF CONTENTS
SECTION 1
DESCRIPTION OF FINANCING
1.1 Authorization of Sale of Notes........................................1
1.2 Initial Closing.......................................................1
1.3 Additional Closings...................................................1
1.4 Total Repayment Amount................................................2
1.5 Subordination.........................................................2
1.6 Projected Payment Schedule............................................2
1.7 No Demand.............................................................2
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization and Good Standing of the Company.........................2
2.2 Authorization.........................................................3
2.3 Litigation............................................................3
2.4 Use of Proceeds.......................................................3
2.5 Brokers or Finders....................................................3
2.6 Exemptions from Securities Laws.......................................3
SECTION 3
REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF THE PURCHASERS
3.1 Binding Agreement.....................................................4
3.2 Investment Representations............................................4
3.3 Brokers or Finders....................................................5
3.4 Transfer or Assignment of Note........................................5
3.5 Legends...............................................................5
3.6 Non-Disclosure........................................................6
SECTION 4
FINANCIAL STATEMENTS
4.1 Quarterly Financial Statements........................................6
4.2 Annual Financial Statements...........................................7
i
<PAGE> 3
SECTION 5
AUTHORIZED REPRESENTATIVE
5.1 Powers and Authority..................................................7
5.2 Term..................................................................7
5.3 Exculpation...........................................................7
5.4 Fee...................................................................8
SECTION 6
DEFAULTS
6.1 Events of Default.....................................................8
6.2 Additional Debt during Default.......................................10
SECTION 7
MISCELLANEOUS
7.1 Survival.............................................................10
7.2 Successors and Assigns...............................................10
7.3 Notices..............................................................10
7.4 Amendment............................................................11
7.5 Integration..........................................................11
7.6 Interpretation.......................................................11
7.7 Governing Law; Jurisdiction..........................................12
7.8 Counterparts.........................................................12
7.9 Captions.............................................................12
ii
<PAGE> 4
SELFCARE, INC.
NOTE PURCHASE AGREEMENT
This Agreement, dated as of June 3, 1997, is among Selfcare, Inc., a
Delaware corporation (the "Company"), the purchasers named on EXHIBIT A attached
hereto (the "Initial Purchasers"), such additional purchasers as may be
identified on such addenda to EXHIBIT A as may be agreed upon by the Company and
such additional purchasers in accordance with the terms of this Agreement (the
"Additional Purchasers"; and together with the Initial Purchasers, the
"Purchasers") and Pear Tree Royalty Company, Inc., a Massachusetts corporation,
as authorized representative and agent for the Purchasers (the "Authorized
Representative").
The parties hereby agree as follows:
SECTION 1
DESCRIPTION OF FINANCING
1.1 Authorization of Sale of Notes. The Company has authorized the
issuance pursuant to this Agreement of up to $7,500,000 aggregate issue price of
its Subordinated Revenue Royalty Notes which shall be in the form of EXHIBIT B
hereto (individually a "Note" and collectively the "Notes"). The issue price for
each Note (the "Issue Price") shall be a multiple of $25,000.
1.2 Initial Closing. Subject to the terms and conditions of this
Agreement, at the initial closing pursuant to this Agreement (the "Initial
Closing"), the Company shall deliver an executed Note to each Initial Purchaser,
against payment by such Initial Purchaser of the Issue Price for such Note by
check payable to the order of the Company. The Issue Price to be paid by an
Initial Purchaser is set forth opposite the name of such Initial Purchaser on
EXHIBIT A. The Initial Closing shall take place simultaneously with the
execution of this Agreement at the offices of Foley, Hoag & Eliot LLP, One Post
Office Square, Boston, Massachusetts 02109.
1.3 Additional Closings.
(a) Subject to the terms and conditions of this Agreement, at one or
more closings subsequent to the Initial Closing (each, an "Additional Closing"),
the Company may issue and sell Notes to one or more Additional Purchasers who
enter into this Agreement by executing one or more counterparts hereof in the
form attached hereto as EXHIBIT C; provided, however, that the aggregate Issue
Prices of all Notes to be issued under this Agreement shall not exceed
$7,500,000.
(b) Each Additional Closing shall take place at such time, date and
place as are mutually agreeable to the Company and the Additional Purchasers
participating in the Additional Closing; provided, however, that no Additional
Closing shall take place after December 31, 1997.
<PAGE> 5
(c) At each Additional Closing, the Company shall deliver an executed
Note to each Additional Purchaser participating in the Additional Closing,
against payment by each Additional Purchaser of the Issue Price by check payable
to the order of the Company. The Issue Price to be paid by an Additional
Purchaser shall be set forth opposite the Additional Purchaser's name on an
addendum to EXHIBIT A in the form attached hereto as EXHIBIT D. Each addendum
shall be executed by the Company and each such Additional Purchaser, a copy of
each addendum shall be delivered to the Authorized Representative, and each
addendum shall be deemed a part of this Agreement ab initio.
1.4 Total Repayment Amount. The Total Repayment Amount to be set forth on
the face of any Note sold to an Initial Purchaser or Additional Purchaser (the
"Total Repayment Amount") shall be equal to four times the Issue Price of such
Note.
1.5 Subordination. Each of the Notes issued pursuant to this Agreement
shall be subordinated to all existing and future "Senior Indebtedness" of the
Company, as defined and provided for in the form of Note attached hereto as
EXHIBIT B. To the extent provided in the Notes, Senior Indebtedness must be paid
before any Note may be paid.
1.6 Projected Payment Schedule. As required by Section 1.1275-4(b) of the
regulations promulgated under the Internal Revenue Code of 1986, as amended,
attached to the form of Note as EXHIBIT I is a projected payment schedule
incorporating projected revenues of the Company. Pursuant to such regulation,
the Company believes that the schedule is not unreasonable; however, there is no
assurance that the actual revenues of the Company will correspond to these
projected revenues, so that the payments actually made under the Notes may
differ from the projected payments on such schedule.
1.7 No Demand. Each of the Purchasers hereby agrees that such Purchaser
will not demand payment from the Company under any Note without the prior
written agreement of Purchasers who hold Notes having not less than a majority
in aggregate of the Total Repayment Amount of all Notes remaining unpaid at that
time (the "Majority of Holders").
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the Purchasers as
follows:
2.1 Organization and Good Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power and authority to
carry on its business as now conducted or proposed to be conducted, to enter
into this Agreement, to issue the Notes as contemplated herein and to carry out
the provisions of this Agreement.
2
<PAGE> 6
2.2 Authorization. This Agreement and the Notes, when executed and
delivered, shall be valid and binding obligations of the Company, enforceable in
accordance with their respective terms except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting enforcement of creditors' rights. The
execution, delivery and performance of this Agreement and the Notes have been
duly authorized by all necessary corporate or other action of the Company.
Neither the execution and delivery of this Agreement or the Notes nor the
consummation of the transactions contemplated hereby or thereby will: (a)
violate any provisions of the charter or by-laws of the Company; (b) violate,
conflict with or result in the breach or termination of, or otherwise give any
other contracting party the right to terminate, or constitute a default under
the terms of, any agreement or instrument to which the Company is a party or by
or to which the Company or any of the Company's property or assets may be bound
or subject; (c) result in the creation of any lien, charge or encumbrance upon
the properties or assets of the Company pursuant to the terms of any such
agreement or instrument; (d) violate any judgment, order, injunction, decree or
award against, or binding upon, the Company or upon the securities, property or
business of the Company; or (e) constitute a violation of any law or regulation
of any applicable jurisdiction.
2.3 Litigation. There is no action, proceeding or investigation pending or
to the knowledge of the Company threatened (or any basis therefor) which
questions the validity of this Agreement, the issuance of the Notes or any other
actions taken or to be taken pursuant hereto or contemplated hereby.
2.4 Use of Proceeds. The Company shall use the net proceeds of the sale of
the Notes as follows: first, to lend to Selfcare Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of the Company, funds to pay the
principal and interest of a $5,000,000 bridge note outstanding under a credit
facility with Fleet National Bank and certain other lenders and second, for
working capital and other general corporate purposes.
2.5 Brokers or Finders. The Company has not employed any broker or finder
in connection with the transactions contemplated by this Agreement except U.S.
Boston Capital Corporation, to which the Company has agreed to pay the
following: (a) a commission of eight percent (8%) of the Issue Price received by
the Company for each Note issued pursuant to this Agreement, (b) reimbursement
of reasonable attorney fees and disbursements of counsel to U.S. Boston Capital
Corporation incurred in connection with this Agreement and the Notes and (c)
reimbursement pursuant to a non-accountable expense allowance of up to $5,000 in
other out-of-pocket costs.
2.6 Exemptions from Securities Laws. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Section 3 hereof
as of the date hereof and as of the date of any closing hereunder, the
provisions of Section 5 of the federal Securities Act of 1933, as amended (the
"Act") are inapplicable to the offering, issuance, sale and delivery of the
Notes, and no consent, approval, qualification or registration or filing under
any state securities or blue sky laws is required in connection therewith except
such as have been obtained or such as may be filed, and will be filed, after the
closing relating to such Notes.
3
<PAGE> 7
SECTION 3
REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF THE PURCHASERS
Each Purchaser (severally and not jointly) represents and warrants to the
Company as follows:
3.1 Binding Agreement. This Agreement constitutes a valid and legally
binding obligation of such Purchaser except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting enforcement of creditors' rights.
3.2 Investment Representations.
(a) Any Note to be received by a Purchaser pursuant to this Agreement
will be acquired for investment for such Purchaser's own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and such Purchaser has no present intention of selling, granting
participation in or otherwise distributing the same (provided, however, that the
disposition by each Purchaser of such Purchaser's property shall at all times be
within the Purchaser's control). No Purchaser has a contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person, or to any third person, with respect to any of
the securities of the Company acquired pursuant to this Agreement.
(b) Each Purchaser understands that Notes will not be registered
under the Act, on the grounds that the sales provided for in this Agreement and
the issuance of securities hereunder are exempt from registration under the Act
pursuant to Section 4(2) thereof, and that the Company's reliance on such
exemption is predicated in part on such Purchaser's representations set forth
herein.
(c) Each Purchaser represents that such Purchaser has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of the Purchaser's investment, and has the ability to bear
the economic risks of such investment. Each Purchaser further represents that
such Purchaser has had access, during the course of the transaction and prior to
any purchase hereunder, to all such information as such Purchaser deemed
necessary or appropriate (to the extent the Company possessed such information
or could acquire it without unreasonable effort or expense) and that such
Purchaser has had, during the course of the transaction and prior to any
purchase hereunder, the opportunity to ask questions of and receive answers from
the Company concerning the terms and conditions of the offering of the Notes and
to obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to such Purchaser
or to which such Purchaser had access.
4
<PAGE> 8
(d) Each Purchaser understands that the Notes may not be sold,
transferred or otherwise disposed of other than pursuant to a registration under
the Act or an exemption therefrom. In particular, each Purchaser is aware that
the Notes may not be sold pursuant to Rule 144 promulgated under the Act ("Rule
144") unless all of the conditions of Rule 144 applying to such Purchaser and
the Company at the time of such sale are met. Each Purchaser represents that, in
the absence of an effective registration statement covering the Notes, such
Purchaser will sell, transfer or otherwise dispose of any of such securities
only in a manner consistent with such Purchaser's representations set forth
herein.
3.3 Brokers or Finders. Such Purchaser has not employed any broker or
finder in connection with the transactions contemplated by this Agreement.
3.4 Transfer or Assignment of Note. Each Purchaser agrees that in no event
will such Purchaser make a transfer, assignment or other disposition of any of
the Notes (other than pursuant to an effective registration statement under the
Act) unless and until (i) such Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances relating to the proposed disposition, (ii) at the expense of
the Purchaser, transferee or assignee, such Purchaser shall have furnished to
the Company an opinion of counsel, which counsel and opinion are reasonably
satisfactory to the Company, to the effect that such disposition may be made
without registration under the Act or qualification under state securities laws,
(iii) the Company shall have received such written representations and
warranties from the transferee or assignee as it shall reasonably require to
assure continued compliance with the Act and such laws and (iv) the transferee
or assignee shall have agreed to be bound by the terms and conditions of this
Agreement. The opinion of counsel pursuant to clause (ii) shall not be required
in the case of any Purchaser's transfer or assignment of a Note by gift or
bequest or through inheritance to, or for the benefit of, any member or members
of such Purchaser's immediate family.
3.5 Legends. Each Purchaser acknowledges such Purchaser's understanding
that the Notes will bear a legend substantially in the following form until the
Company's counsel determines that the legend is no longer advisable or required:
THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER
AS SET FORTH IN THE NOTE PURCHASE AGREEMENT AMONG
THE REGISTERED OWNER OF THIS NOTE AND CERTAIN
OTHERS. ANY TRANSFEREE OF A HOLDER OF THIS NOTE
SHALL, AS A CONDITION OF SUCH TRANSFER, BE
REQUIRED TO BECOME A PARTY TO SUCH AGREEMENT. THE
COMPANY WILL FURNISH A COPY OF THE AGREEMENT TO
THE HOLDER OF THIS NOTE UPON WRITTEN REQUEST
WITHOUT CHARGE.
5
<PAGE> 9
THE NOTE REPRESENTED HEREBY HAS BEEN ACQUIRED FOR
INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS (i) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
SAID ACT OR (ii) THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
and that appropriate stop-transfer orders will be noted on the Company's note
register with respect to all Notes so legended.
3.6 Non-Disclosure. Other than for purposes of enforcement of this
Agreement, each Purchaser agrees to hold in confidence any confidential
information about the Company that such Purchaser has received or hereafter
receives pursuant to any provision of this Agreement under circumstances
indicating the confidentiality of such information until the Company shall have
publicly disclosed such information.
SECTION 4
FINANCIAL STATEMENTS
So long as any of the Notes are outstanding, the Company shall deliver the
following to the Authorized Representative:
4.1 Quarterly Financial Statements. Within 50 days after the end of each
of the first three fiscal quarters of the Company:
(a) The internally prepared consolidated balance sheets of the
Company and its subsidiaries as at the end of such fiscal quarter, the
consolidated statements of operation and the consolidated statements of
stockholders' equity and of cash flows of the Company and the Company's
subsidiaries for such fiscal quarter and for the portion of the fiscal year then
ended (all in reasonable detail) and together, in the case of consolidated
financial statements, with comparative figures for the same period in the
preceding fiscal year.
(b) A certificate of the Company signed by an officer of the Company
to the effect that such financial statements have been prepared in accordance
with generally accepted accounting principles as from time to time in effect,
including the statements and interpretations of the United States Financial
Accounting Standards Board and any predecessor or successor entity ("GAAP") and
present fairly, in all material respects, the financial position of the Company
at the dates thereof and the results of its operations for the periods covered
6
<PAGE> 10
thereby, subject only to normal year-end audit adjustments and the addition of
footnotes and schedules at year end.
4.2 Annual Financial Statements. Within 95 days after the end of each
fiscal year of the Company:
(a) Consolidated balance sheets of the Company and its subsidiaries
as at the end of such fiscal year, the consolidated statements of operations and
the consolidated statements of stockholders' equity and of cash flows of the
Company and its subsidiaries for such fiscal year (all in reasonable detail) and
together, in the case of consolidated financial statements, with comparative
figures for the immediately preceding fiscal year.
(b) Reports of the Company's independent certified public accountants
to the effect that they have audited the foregoing financial statements in
accordance with generally accepted auditing standards and that such financial
statements present fairly, in all material respects, the financial position of
the Company and its subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby in conformity with
GAAP.
SECTION 5
AUTHORIZED REPRESENTATIVE
5.1 Powers and Authority. The Purchasers hereby confirm the appointment of
the Authorized Representative as their agent for the purposes specified in this
Agreement. In furtherance of these purposes, the Authorized Representative shall
be empowered and is hereby authorized by the Purchasers to take such actions and
exercise such powers as are necessary or appropriate to carry out its
obligations hereunder, together with such powers as are reasonably incidental
thereto, and to exercise any and all of the rights, powers and remedies
available to the Purchasers under this Agreement, the Notes and under applicable
law that the Authorized Representative deems appropriate for the protection of
the Purchasers.
5.2 Term. The Authorized Representative shall serve in such capacity until
it resigns or until it is replaced. The Authorized Representative or any
successor may be replaced by written direction of the Majority of Holders.
5.3 Exculpation. As to any matters not expressly provided for by this
Agreement, the Authorized Representative shall not be required to exercise any
discretion or to take any action, but shall be required to act or refrain from
acting (and shall be fully protected in so acting or refraining from acting)
only upon the written instructions of the Majority of Holders, provided,
however, that the Authorized Representative shall not be required to take any
action that it reasonably believes will expose it to personal liability or to be
contrary to this Agreement or applicable law. The Authorized Representative
shall not be liable for any action taken or omitted to be taken by it under or
in connection with this Agreement, except for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing,
7
<PAGE> 11
the Authorized Representative: (i) may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (ii) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or the Notes on the part of the
Company; (iii) shall not be responsible to any Purchaser for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any Note or any other instrument or document furnished pursuant
hereto; and (iv) shall incur no liability under or in respect of this Agreement
by acting upon any notice, consent, certificate or other instrument or writing
believed by it to be genuine and believed by it to have been signed or sent by
the proper party or parties in accordance with Section 7.3 of this Agreement.
The Purchasers agree to indemnify the Authorized Representative, ratably
according to the proportion that the Total Repayment Amount remaining unpaid of
each Purchaser's Note or Notes bears to the aggregate Total Repayment Amount
remaining unpaid of all Notes, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
upon, incurred by, or asserted against the Authorized Representative in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Authorized Representative under this Agreement, provided that such indemnity
shall not be applicable in the event of the Authorized Representative's gross
negligence or willful misconduct.
5.4 Fee. As fee for the services provided by the Authorized Representative
in connection with this Agreement and the Notes, each Purchaser hereby agrees to
pay to the Authorized Representative one percent (1%) of any payments received
from the Company pursuant to any Notes held by such Purchaser (the
"Representative Fee"). At any time at which the Company is making a payment
pursuant to the Notes, each Purchaser hereby instructs the Company to deduct the
Representative Fee from the payment to be made to such Purchaser, and forward
the Representative Fee to the Authorized Representative at its address for
notice in this Agreement.
SECTION 6
DEFAULTS
6.1 Events of Default. The following events are "Events of Default" for
purposes of the Notes:
(a) The Company shall fail to make any payment as required by the
Notes.
(b) The Company shall fail to perform or observe any covenant,
agreement or provision to be performed or observed by it under this Agreement or
any of the Notes.
8
<PAGE> 12
(c) Any representation or warranty of or with respect to the Company
in, pursuant to or in connection with this Agreement shall be materially false
on the date as of which it was made.
(d) (i) Any person, together with "affiliates" and "associates" of
such person within the meaning of Rule 12b-2 of the federal Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any "group" including such
person under sections 13(d) and 14(d) of the Exchange Act, shall acquire after
the date hereof beneficial ownership within the meaning of Rule 13d-3 of the
Exchange Act of fifty percent (50%) or more of either the voting stock or total
equity capital of the Company; (ii) the Company shall initiate any action to
dissolve, liquidate or otherwise terminate its existence; (iii) the Company
shall merge or consolidate into another entity in a transaction in which the
stockholders of the Company immediately prior to such merger or consolidation do
not own fifty percent (50%) or more of either the voting stock or total equity
capital of the surviving entity; or (iv) the Company shall sell substantially
all of its assets.
(e) The Company shall:
(i) commence a voluntary case under Title 11 of the United
States Code (the "Bankruptcy Code") or authorize, by appropriate proceedings of
its Board of Directors or other governing body, the commencement of such a
voluntary case;
(ii) (A) have filed against it a petition commencing an
involuntary case under the Bankruptcy Code that shall not have been dismissed
within 90 days after the date on which such petition is filed, or (B) file an
answer or other pleading within such 90-day period admitting or failing to deny
the material allegations of such a petition or seeking, consenting to or
acquiescing in the relief therein provided, or (C) have entered against it an
order for relief in any involuntary case commenced under the Bankruptcy Code;
(iii) seek relief as a debtor under any applicable law, other
than the Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors generally, or consent to or acquiesce in such relief;
(iv) have entered against it an order by a court of competent
jurisdiction (A) finding it to be bankrupt or insolvent, (B) ordering or
approving its liquidation or reorganization as a debtor or any modification or
alteration of the rights of its creditors generally or (C) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial portion of
its property; or
(v) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the appointment of,
or suffer to exist a receiver or other custodian for, all or a substantial
portion of its property.
9
<PAGE> 13
6.2 Additional Debt during Default. The Company shall not incur any Senior
Indebtedness (as defined in the Notes) during any period in which (a) an Event
of Default occurs and is continuing, (b) the Company has received a Notice of
Default (as defined in the Notes) and (c) such Event of Default has not been
cured within 30 days of the Company's receipt of the Notice of Default.
SECTION 7
MISCELLANEOUS
7.1 Survival. All agreements, representations and warranties contained
herein shall survive the execution and delivery of this Agreement and of the
Notes. Each of the parties may rely on such covenants, representations and
warranties irrespective of any investigation made, or notice or knowledge held
by, it or any other person.
7.2 Successors and Assigns. All covenants and agreements in this Agreement
made by or on behalf of any of the parties hereto shall bind and inure to the
benefit of their respective permitted successors and assigns; provided, however,
that the obligations of the Authorized Representative hereunder may only be
assigned in connection with the appointment of a substitute Authorized
Representative pursuant to the provisions of this Agreement.
7.3 Notices. All notices or other communication required or permitted
hereunder and under the Notes shall be in writing and shall be deemed to have
been duly given and delivered when (a) delivered personally, (b) five days after
being sent by certified mail, return receipt requested, (c) one day after being
sent by United States express mail, (d) one day after deposit with a national
overnight courier service providing evidence of delivery or (e) upon oral
acknowledgment of receipt after being sent by facsimile transmission, in each
case delivery charges or postage prepaid, and addressed to the party to whom
such notice is to be given at the following address (or to the addressee at such
other address as the addressee shall have specified by notice actually received
by the addressor):
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, Massachusetts 02154
Facsimile Number: 617-647-3939
Attention: Vice President, U.S. Operations
10
<PAGE> 14
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile Number: 617-832-7000
Attention: John D. Patterson, Jr., Esquire.
If to the Authorized Representative:
Pear Tree Royalty Company, Inc.
55 Old Bedford Road
Lincoln North
Lincoln, Massachusetts 01773
Facsimile Number: 617-259-1166
Attention: Kathryn Matthews Collings, Esquire
with a copy to:
Robinson & Cole
One Boston Place
Boston, Massachusetts 02108
Facsimile Number: 617-557-5999
Attention: Samuel S. Mullin, Esquire.
If to any Holder:
At such Holder's address as set forth on the signature pages hereto or in
the note register provided for in the Notes, with a copy to the Authorized
Representative.
7.4 Amendment. This Agreement may not be amended or modified except by an
agreement in writing among the Company, the Majority of Holders and, with
respect only to the rights and obligations of the Authorized Representative
hereunder, the Authorized Representative.
7.5 Integration. This Agreement and the other documents referred to herein
or delivered pursuant hereto contain the entire agreement among the parties with
respect to the financing transactions contemplated hereby and supersede all
prior negotiations, commitments, agreements and understandings among them with
respect thereto. All Exhibits to this Agreement are hereby incorporated into and
made a part of this Agreement.
7.6 Interpretation. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be valid and effective under
applicable law, but if any
11
<PAGE> 15
provision of this Agreement or the effect thereof shall be invalid under or
prohibited by such law, such provision shall be invalid or denied effect only to
the extent of such invalidity or prohibition, without prohibiting or
invalidating the remainder of such provision or the remaining provisions of this
Agreement or the enforcement thereof.
7.7 Governing Law; Jurisdiction. This Agreement shall be deemed to be
executed in The Commonwealth of Massachusetts and shall be governed by and
construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts. The parties hereto consent to the sole and exclusive jurisdiction
of the courts of The Commonwealth of Massachusetts, or the Federal Courts
sitting in, The Commonwealth of Massachusetts in respect to any action or
proceeding arising out of or relating to this Agreement. Each party hereto
irrevocably waives, to the fullest extent it may effectively do so, the defense
of improper venue or any inconvenient forum to the maintenance of such action or
proceeding.
7.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement.
7.9 Captions. All section and descriptive headings are inserted for
convenience only, and shall not affect any construction or interpretation
hereof.
[Remainder of page intentionally left blank.]
12
<PAGE> 16
In witness whereof the parties hereto have executed this Agreement as of
the day and year first written above.
THE COMPANY
SELFCARE, INC.
By:
----------------------------------------
Its:
THE AUTHORIZED REPRESENTATIVE
PEAR TREE ROYALTY COMPANY, INC.
By:
----------------------------------------
Its:
<PAGE> 17
INITIAL PURCHASER SIGNATURE PAGE
TO SELFCARE, INC. NOTE PURCHASE AGREEMENT
By executing this page in the space provided, the undersigned purchaser
hereby agrees (i) that the undersigned is a "Purchaser" as defined in the Note
Purchase Agreement dated as of ____________, 1997 among Selfcare, Inc., certain
purchasers named on EXHIBIT A thereto and Pear Tree Royalty Company, Inc. as
authorized representative of the purchasers (the "Agreement"), (ii) that the
undersigned is a party to the Agreement for all purposes and (iii) that the
undersigned is bound by all terms and conditions of the Agreement.
EXECUTED this ____ day of ___________, 1997.
-----------------------------------------
(print name)
By:
-------------------------------------
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Facsimile:
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,150,287
<SECURITIES> 0
<RECEIVABLES> 7,623,773
<ALLOWANCES> 743,000
<INVENTORY> 4,857,920
<CURRENT-ASSETS> 29,866,836
<PP&E> 14,234,612
<DEPRECIATION> 3,994,410
<TOTAL-ASSETS> 90,992,104
<CURRENT-LIABILITIES> 38,240,846
<BONDS> 28,487,499
1,810,917
0
<COMMON> 8,415
<OTHER-SE> 18,125,317
<TOTAL-LIABILITY-AND-EQUITY> 90,992,104
<SALES> 21,095,418
<TOTAL-REVENUES> 21,770,991
<CGS> 11,061,863
<TOTAL-COSTS> 18,080,223
<OTHER-EXPENSES> 1,353,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,729,641
<INCOME-PRETAX> (10,727,734)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,727,734)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,727,734)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
