<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 00-20871
SELFCARE, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C>
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) (Zip Code)
</TABLE>
(617) 647-3900
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on which registered
------------------- ---------------------
<S> <C>
Common Stock, $0.001 American Stock Exchange
per share par value
</TABLE>
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
------------------------
Title of Class
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirement for the past 90 days. Yes X No
__.
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year ended December 31, 1997
were $52,250,371.
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the registrant's stock on the
American Stock Exchange on February 2, 1997 was $52,130,475.
As of February 2, 1998 the Registrant had 9,751,419 shares of common stock,
par value $0.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes __ No X
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Items 9, 10, 11 and 12 of Part III of this
Annual Report on Form 10-KSB is hereby incorporated by reference from the
Company's definitive Proxy Statement with respect to its 1998 Annual
Stockholders' meeting to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A.
================================================================================
<PAGE> 2
PART I
This report on Form 10-KSB contains forward-looking statements that involve
risk and uncertainties including, but not limited to, product demand, market
acceptance, changing economic conditions, risks in product and technology
development, regulatory approvals, the effect of the Company's accounting
policies and other risk factors detailed in the Company's filings with the
Securities and Exchange Commission.
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT.
Selfcare, Inc. (the "Company" or "Selfcare"), was incorporated in Delaware
on August 25, 1992 and acquired its predecessor company, Superior Sensors, Inc.,
by merger on September 15, 1992. The company's principal executive offices are
located at 200 Prospect Street, Waltham, Massachusetts 02154 and its telephone
number is (781) 647-3900.
BUSINESS OF REGISTRANT.
Principal Products, Markets and Strategy
Selfcare is engaged in the development, manufacture and marketing of
self-test diagnostic products for the diabetes, women's health and infectious
disease markets, as well as the marketing of nutritional supplement products,
several of which are targeted primarily at the women's health market. The
Company's existing and planned self-test 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 HIV. As part of its strategy for addressing the
diabetes management market, the Company has entered into an exclusive worldwide
alliance and distribution agreement with LifeScan, Inc., a subsidiary of Johnson
& Johnson ("LifeScan"), and recently acquired Can-Am Care Corp., a supplier of
diabetes care products. Under the terms of the alliance with LifeScan ("LifeScan
Alliance"), Selfcare manufactures and LifeScan distributes Selfcare's
proprietary electrochemical blood glucose monitoring system for the management
of diabetes. In addition, the Company has commenced commercial production and
marketing of disposable generic test strips that can be used in electrochemical
blood glucose monitoring systems currently sold by another leading manufacturer.
In the women's health market, Selfcare is currently marketing home
pregnancy and ovulation prediction tests under the Selfcare brand name and under
various private labels. Pregnancy products packaged and distributed by Selfcare
are currently available on a private label basis or under the Selfcare brand in
approximately 90% of U.S. pharmacy chain outlets, including Wal-Mart, Walgreens,
CVS/Pharmacy, Eckerd Drug, Osco Drug, Revco Pharmacy and Target Stores. On
February 19, 1997, the Company acquired from American Home Products Corporation
("AHP") the U.S. rights to several nutritional supplement product lines (the
"Nutritional Supplement Lines"), which had domestic sales of approximately $24.0
million in 1996, for consideration totaling $36.0 million (the "Nutritional
Supplement Lines Acquisition"). Included in these product lines are Stresstabs
(R)(a B-complex vitamin with folic acid), Stresstabs plus iron, Ferro-Sequels
(R)(an iron supplement) and Posture (R)(a calcium supplement), which are
targeted primarily at the women's health market. The Company expects to continue
to expand its women's health product line with products supplied by or
co-developed with third-party manufacturers, as well as products developed by
the Company.
Through its wholly owned Irish subsidiary, Cambridge Diagnostics Ireland
Limited ("Cambridge Diagnostics"), the Company is currently producing diagnostic
test kits primarily for detecting antibodies to HIV. The Company also produces
other tests for the detection of hepatitis and Lyme disease infections. In
addition, Orgenics, Ltd., a wholly owned Israeli subsidiary ("Orgenics"),
develops, manufactures, and markets self-contained test kits for the
professional market which detect antibodies and/or infectious agents, including
those associated with AIDS and chlamydia.
2
<PAGE> 3
Diabetes Products under Development
FastTake(TM). The Company's principal product for the diabetes market is
an electrochemical, biosensor-based blood glucose monitoring system being
distributed by LifeScan. The system, to be known as FastTake(TM), consists of an
instrument, referred to as a meter, and a disposable test strip. The meter
component of the system incorporates all of the significant features of the
leading systems currently on the market, including results displayed in less
than 30 seconds, a large, easy-to-read display to assist visually impaired
users, and a simple user interface. The test strips to be used with the system
have been improved by the implementation of careful process control in the
manufacturing of such strips which the Company believes will result in a more
consistent product than the test strips currently on the market. In September
1996, the Company received regulatory clearance from the U.S. Food and Drug
Administration (the "FDA") for the system. In conjunction with LifeScan, the
Company subsequently undertook certain enhancements to the user interface
features for the system. However, the underlying chemistry and function of the
disposable strips for the enhanced version of the system (hereinafter referred
to as "FastTake(TM)") were not changed from those of the prior version of
FastTake(TM).
On October 9, 1996, the Company and LifeScan entered into a distribution
agreement (the "Distribution Agreement") with respect to FastTake(TM), pursuant
to which Selfcare will supply FastTake(TM) to LifeScan and LifeScan will be the
exclusive, worldwide distributor of FastTake(TM). In February 1997, the Company
submitted a pre-market clearance notification (a "Section 510(k) Notification")
to the FDA pursuant to Section 510(k) of the Federal Food, Drug and Cosmetics
Act, as amended (the "FDC Act"), seeking permission from the FDA ("FDA
Clearance") to begin commercial distribution of the enhanced version of
FastTake(TM). The Company received FDA clearance on June 20, 1997 and commenced
manufacture of the system in late 1997 following further testing by LifeScan.
Initial shipments to LifeScan commenced in late 1997. The Company's future
results of operations depend to a substantial degree on LifeScan's ability to
market and sell FastTake(TM). No assurance can be given as to the market
acceptance of FastTake(TM). The failure to produce, market and distribute
FastTake(TM) successfully would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Government
Regulation" and "Patents and Proprietary Technology; Trademarks."
To operate the FastTake(TM), the strip is inserted into the meter, which
automatically activates in a standby mode. The user then places a small blood
sample obtained by a finger prick on the end of the test strip, which senses the
size of the necessary sample and automatically runs the test when the necessary
amount of blood is available, providing results in 15 seconds.
The Company and LifeScan expect FastTake(TM) to become one of LifeScan's
principal blood glucose monitoring products, supplementing LifeScan's existing
photometric systems. Although LifeScan is currently the leader in the home blood
glucose monitoring market, with an estimated U.S. market share of 46% in 1997,
LifeScan does not currently market an electrochemical blood glucose monitoring
system. The Company believes that the addition of FastTake(TM) to LifeScan's
current product line will allow LifeScan to continue to compete successfully in
the blood glucose monitoring market.
Generic Test Strips. Many companies in the blood glucose monitoring
industry market products based on an electrochemical, biosensor technology. A
complete system consists of a meter and a disposable test strip. Selfcare plans
to develop, manufacture, and market disposable, electrochemical, biosensor test
strips which can be used in electrochemical blood glucose monitoring meters
currently sold by the other leading manufacturers in the United States and
Europe. Under the terms of the LifeScan Alliance, the Company cannot develop a
generic test strip for FastTake(TM). However, the Company is developing generic
test strips for use with several other meters, including Abbott, Inc's
("Abbott") ExacTech(TM) and Companion 2(TM), Bayer's Glucometer Elite(TM) and
Boehringer Mannheim's Accu-Chek(R) Advantage(TM). On June 28, 1996, the Company
obtained FDA Clearance for its first generic test strip, which is compatible
with the ExacTech system sold by Abbott, and the Company commenced shipments of
such strips in Europe in the third quarter of 1997.
The functions of the principal components of all electrochemical blood
glucose meters are similar. The design of test strips, however, varies in both
dimensions and materials, because some features are unique to each meter. The
general strip design is a multi-layer sandwich of materials that receives a
collected blood
3
<PAGE> 4
sample and allows the sample to be analyzed in a meter which then provides a
reading which can be used by the patient to take actions to regulate his or her
blood glucose level through medication, exercise and diet.
Selfcare believes that it has developed manufacturing technology to enable
it to be the first company to produce high quality generic test strips at a cost
which is as low as, or lower than, those made by most manufacturers of branded
test strips. To achieve this goal, Selfcare has established multi-disciplinary
development teams which are able to work on several products in parallel. The
goal of each team is to design a new test strip configuration for each target
branded product which, while delivering equivalent or superior results, uses
less expensive materials and is simpler to construct. At the same time, the
teams hope to maintain the general similarities among the test strips which may
lead to efficiencies in manufacturing.
The Company intends to sell the generic test strips under the Selfcare
brand name through the low cost distribution channels that Selfcare has already
established for its women's health self-test diagnostic products in the United
States and Europe. See "Marketing and Sales." In the future, the Company may
offer its generic strips to retailers as private label products. The Company
commenced marketing its generic test strip designed to be compatible with
Abbott's ExacTech system in Europe in the third quarter of 1997 and intends to
commence marketing this generic strip under the name "Excel(TM)" in the United
States in the second quarter of 1998.
The Company currently plans to manufacture future blood glucose-related
products at the Company's facilities in Inverness, Scotland (the "Inverness
Facility") and Galway, Ireland (the "Galway Facility").
FastTake(TM) is a trademark of Johnson & Johnson Incorporated. Excel(TM) is
a trademark of Selfcare, Inc. Elite is a trademark of Bayer. Accu-Chek and
Advantage are trademarks of Boehringer Mannheim. ExacTech and Companion are
trademarks of Abbott, Inc.
In August 1996, the Company, through a wholly-owned subsidiary, Selfcare
International GmbH, entered into a supply agreement with A. Menarini Industrie
Farmaceutical Riunite S.r.L. of Florence, Italy ("Menarini"). The agreement
provides that the Company will be a principal supplier to Menarini of blood
glucose strips distributed or to be distributed by Menarini in selected markets
in Europe and certain countries in other parts of the world. The blood glucose
test strips are manufactured at the Inverness Facility. Shipments under this
agreement commenced in early 1998. Under the agreement, Menarini is subject to
certain minimum purchases of products from the Company, and the Company has
agreed not to supply any third party with such products in the selected markets
for the term of the agreement.
Women's Health Products
Selfcare is currently marketing pregnancy and ovulation prediction self
tests which the Company purchases from third-party manufacturers, principally
Princeton BioMeditech Corporation ("Princeton"), and then repackages under
private labels, as well as under the Selfcare brand. In order to reduce product
costs and ensure quality, Selfcare commenced manufacture of pregnancy sticks in
the Galway Facility in early 1997. The Company believes that pregnancy and
ovulation prediction tests manufactured by Selfcare will be of the same quality
as the tests that are now currently obtained from contract suppliers. In
September 1996, the Company entered into an agreement with Nova Biomedical
Corporation ("Nova") pursuant to which Nova agreed to repackage and supply
Selfcare with early pregnancy and ovulation test kits. The agreement with Nova
was terminated in December 1997 and the Company has transferred the repackaging
to Consolidated Products and Services, Inc. ("CP&S") of Braintree,
Massachusetts. The Company is also developing a birth control aid for
introduction in markets outside the United States.
Pregnancy Products. Selfcare markets a full line of pregnancy self-test
kits from various manufacturers in both stick and cassette versions. The stick
version has an exposed wick which absorbs urine when placed in the urine stream,
while the cassette version requires the user to first collect a urine sample in
a cup and then utilize an enclosed dropper to place the urine sample in the test
well. Both versions employ identical technology enabling the display of visual
results in approximately three minutes.
4
<PAGE> 5
Ovulation Prediction Products. Selfcare's LH ovulation prediction tests,
marketed as the Early Ovulation Predictor under both the Selfcare brand name and
private labels, provide 24 to 48-hour notice of when ovulation is likely to
occur. By identifying the days when a woman is most fertile, these tests assist
couples in their family planning. The Early Ovulation Predictor has an
easy-to-use and easily read self-test cassette which is used by applying a urine
sample to the sample well with a supplied dropper. Clinically accurate results
are available in approximately three minutes.
Birth Control Aid. The Company is co-developing a birth control aid with
Princeton which will allow a woman to accurately identify the six-day period
when she is likely to be able to conceive. Selfcare's birth control aid is
designed to allow a woman to perform the test at any time during her monthly
cycle, and will yield the information on her fertility status almost immediately
utilizing an easy-to-use and read test device similar to the Company's pregnancy
tests and fertility monitors. The Company's birth control aid will be a
urine-based, estrogen and progesterone test which will give 72-hour notice of
ovulation and also indicate the end of a woman's fertile period. The system will
use a meter to read a test strip, and will have the capability to store previous
test results, as well as to prompt the user to commence testing. To date, the
FDA has not permitted such products to be marketed as a contraceptive aid in the
United States. Accordingly, this product will initially be introduced in
European countries where such claims are permitted. Unilever Corporation
("Unilever") has recently introduced a birth control product in the United
Kingdom, Italy and Germany which uses a urine strip and an instrument and
currently has a similar product in clinical trials in the United States.
Selfcare believes that it may benefit from Unilever's effort to bring a birth
control product to the U.S. market. However, there can be no assurance that any
such product will be approved for commercialization in the United States.
Nutritional Supplement Lines
The Stresstabs(R), Allbee(R) and Z-Bec(R) product lines included in the
Nutritional Supplement Lines Acquisition currently represent, according to
industry sources, approximately a 16% share of the B-complex vitamin category
sold through U.S. drug, food and mass merchandising retail chains. The following
table summarizes those Nutritional Supplement Lines which the Company believes
will form an important part of its retail marketing strategy:
<TABLE>
<CAPTION>
NUTRITIONAL SUPPLEMENT PRODUCT DESCRIPTION
------------------------------ -----------
<S> <C>
Stresstabs*............................. B-complex vitamin with folic acid (Daily
supplements of folic acid have been shown to be
important in preventing various neural tube
defects (NTDs) such as spina bifida and
Anencephaly. Daily supplements of folic acid and
vitamin B(6) and B(12) have been shown to be
important in protecting against the build-up of
homocystein in the blood.)
Stresstabs with Iron*................... B-complex vitamin with folic acid and iron
Stresstabs with Zinc.................... B-complex vitamin with folic acid and zinc
Ferro-Sequels(R) *...................... Iron supplement (iron supplements help prevent
anemia associated with menstruation and other
women's health conditions)
Posture(R).............................. Calcium supplement (a calcium-rich diet is
believed to be the most effective way of
preventing osteoporosis)
Protegra(R)............................. Antioxidant multivitamin and mineral supplement
Allbee.................................. B-complex vitamin with Vitamin E and Vitamin C
Z-Bec................................... B-complex vitamin with Vitamin C, Vitamin E and
zinc
</TABLE>
- ---------------
* Products formulated to address certain women's health requirements.
In connection with the Nutritional Supplement Lines Acquisition, the
Company and AHP entered into supply agreements, pursuant to which AHP agreed to
supply the Company with the products for the Nutritional Supplement Lines for up
to one year after the closing of the acquisition. The Company purchased
5
<PAGE> 6
such products at agreed upon prices from AHP in quantities based on quarterly
forecasts provided by the Company. AHP agreed to manufacture such products
itself, or, in the case of products it did not currently manufacture, obtain
them from third party suppliers. AHP agreed that the Nutritional Supplement
Lines supplied pursuant to such agreements would conform to agreed upon
specifications and that they would be manufactured in compliance with applicable
laws and regulations, including the FDC Act and Good Manufacturing Practices
("GMP"). The Company was required to establish alternative supply arrangements
for these products within one year and completed such arrangements prior to the
end of 1997.
In addition, the Company assumed responsibility for all marketing and sales
functions for the Nutritional Supplement Lines, as well as certain
administrative functions, including customer service. The Company also became
responsible for other administrative functions, including order receipt, billing
and collection, and the distribution of all products on May 20, 1997. The
Company is marketing the Nutritional Supplement Lines through its existing
retail distribution channels, and will seek to expand sales through trade
allowances, increased advertising and promotion, and cross-merchandising with
other Selfcare products. The Company will also reposition the brands which
address specific women's nutritional needs through redesigned packaging and
increased emphasis on the products' self-care benefits for women. The Company
expects to continue to expand its women's health product line with products
supplied by or co-developed with third party manufacturers, as well as products
developed by the Company.
As part of its plans for maintaining and expanding sales of these products,
the Company expects to incur substantial marketing and promotional expenses and
allowances in 1998 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
primary product focus to date has been on diagnostic tests of various kinds and
except for the limited operating experience during 1997, 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. Selfcare is also developing additional
nutritional supplement products, but there can be no assurances that these can
be successfully introduced.
Stresstabs, Ferro-Sequels, Posture, Protegra, Albee and Z-Bec, are
registered trademarks of Selfcare Consumer Products, Inc ("SCPI").
Infectious Disease Products
Selfcare is currently marketing a wide array of professional diagnostic
test kits for infectious disease agents, including human immunodeficiency
viruses ("HIV"), hepatitis and Lyme disease. In addition, the Company has
developed self-test products for HIV 1/2 and other diseases and conditions that
mainly effect women. Orgenics, in which the Company owns a 99.8% interest, also
markets professional diagnostic kits for HIV, hepatitis and other infectious
disease agents, including chlamydia, and is developing several professional
diagnostic products in various formats for a variety of other infectious
diseases.
HIV Tests. At its Galway Facility, Selfcare produces two visually-read,
rapid test HIV products for the emergency blood screening and clinical
diagnostic markets. The first of these tests, the rapid test device ("RTD"), is
a membrane-based, rapid enzyme immunoassay ("EIA") test employing recombinant
HIV-1 and HIV-2 coated latex attached to a plastic membrane as an antibody
capture mechanism. This product has been on the market since June 1991 and is
registered for sale in India, a number of European countries, as well as many
countries in Africa and the Middle East. The second test is in a patented format
licensed from Cambridge Biotech Corporation ("Cambridge Biotech") under the
trademarked name Capillus(TM). Capillus is an instrument or visually-read latex
agglutination assay employing an acrylic capillary slide to achieve
agglutination. The instrument is a simple, low cost, battery-run photometer. The
World Health Organization regularly purchases HIV tests for shipment to
developing countries, such as India, to be used in major government AIDS control
programs. Currently, approximately 33% of the Indian government's requirements
for HIV rapid tests are purchased from the Company through the World Health
Organization. Approximately the same percentage of such requirements is
purchased from Orgenics. With the completion of the acquisition of Orgenics, the
Company is now the supplier of approximately two-thirds of these requirements.
However,
6
<PAGE> 7
there can be no assurance that the Company will be able to maintain this market
share in the future. Capillus is a trademark of Cambridge Biotech.
At its Galway Facility, the Company also produces an HIV 1/2 microtiter
plate screening assay that is used mainly in blood collection and donation
centers. Three individual EIA products are also produced for hepatitis-D
antigen, total antibody and IgM in human blood serum. Sales are mainly under
private label to Murex Ltd. and Sanofi Pasteur.
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. At the time of the
agreement ChemTrak was seeking FDA approval to market the product in the United
States. 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 retained 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. In June of 1997 ChemTrak
informed the Company that it was not commercially reasonable to pursue FDA
approval of the HIV testing system. The Company now considers the agreement with
ChemTrak terminated and does not currently intend to seek alternative products.
In view of the low rate of acceptance of mail-in blood collection HIV tests, the
Company now considers that the market for a true home HIV test will be
significantly smaller than previously estimated. Accordingly, the Company has
suspended its efforts to develop a one-stop true home HIV test and has refocused
its product development resources on home self-tests for women. The new tests,
which include tests for osteoporosis and follicle stimulating hormone
("F.S.H."), are not expected to be available for sale until 1999. There can be
no assurances that such products will be successfully developed or that the
market will accept them.
Orgenics manufactures professional diagnostic test products based on
several proprietary technological systems including genetic assays,
immunoassays, rapid tests and confirmatory tests using multiple antigens. These
tests, or adaptations of them, are applicable to detecting a wide variety of
infectious diseases and agents, including HIV-1 and HIV-2, hepatitis, and
chlamydia. Orgenics' products are designed to enable small-to-medium-sized
laboratories to analyze low volumes of tests economically. In May 1995, Orgenics
introduced DoubleCheck(TM), a single sample, compact diagnostic device which, in
its first commercialized application, detects HIV in saliva and blood serum
samples in less than ten minutes, making it suitable for use in physicians'
offices and other patient point-of-care sites. Orgenics has developed a
DoubleCheck test which will detect H. pylori (a bacterium associated with
stomach ulcers and stomach cancer), as well as a new, easily performed DNA
probe-based genetic assay test called GeneComb(TM), which Orgenics believes will
substantially reduce the time required to perform testing for genetic material,
including HIV. Orgenics' current products are sold in more than 20 countries,
principally in Europe, Latin America, Africa and Asia. Orgenics has obtained
regulatory approval for sale of its DoubleCheck HIV test in France and Latin
America, has FDA Clearance for ImmunoComb(R) for chlamydia, cytomegalovirus and
toxoplasmosis, and intends to submit a Section 510(k) Notification for H.
pylori. The DoubleCheck and ImmunoComb test formats are immunoassay-based tests
which detect the presence of infectious disease agents. DoubleCheck and GeneComb
are trademarks of Orgenics, Ltd.
MARKETING AND SALES
The Company markets and distributes its products primarily through
independent retail brokers and distributors. The Company generally has written
agreements with such brokers and distributors, although it also has a limited
number of oral arrangements. In general, these brokers and distributors are not
subject to minimum purchase requirements and may discontinue marketing the
Company's products with little or no notice. Certain of the Company's retail
brokers and distributors also market products which compete with the Company's
products and which may, from time to time, offer greater sales incentives than
the Company's products. The loss of, or a significant reduction in sales volume
through, one or more of the Company's retail
7
<PAGE> 8
brokers or distributors could have a material adverse effect on the Company's
business, financial condition or results of operations.
United States
In the United States, Selfcare has created an effective, low overhead sales
network. The Company's sales efforts are currently focused on large drug, food
and mass merchandising retail chains, as well as wholesalers who service smaller
accounts. The Company currently contracts with its broker agencies
geographically distributed across the United States. The LifeScan Alliance
contemplates that FastTake(TM) will be distributed worldwide exclusively by
LifeScan, whose marketing resources can more effectively leverage this
technology.
Women's Health Products. The Company currently markets several
over-the-counter pregnancy and ovulation prediction self tests. The Company
purchases its pregnancy and ovulation prediction self tests from third-party
manufacturers and repackages them for sale. The Company also started the
manufacturing of a pregnancy stick at its Galway Facility in early 1997. These
tests are marketed under both the Selfcare label and a variety of private labels
through major drug, food store and mass merchandising chains. Selfcare pregnancy
products are currently available in approximately 90% of pharmacy chain outlets
in the United States and are becoming available in new outlets. Early in 1997,
Selfcare commenced marketing CarePlus(R), a combined condom and spermicide
product under the Selfcare label through major drug, food store and mass
merchandising chains in the United States.
Nutritional Supplements. In connection with the Nutritional Supplement
Lines Acquisition, the Company assumed responsibility for all marketing and
sales functions for the Nutritional Supplement Lines, as well as certain
administrative functions, including customer service. The Company became
responsible for other administrative functions, including order receipt, billing
and collection, and the distribution of all products on May 20, 1997. The
Company was permitted to use packaging and labels bearing the names of AHP and
its affiliates for the Nutritional Supplement Lines until AHP's current
inventory of such packaging and labels was exhausted. The Company has completed
the redesign of such packaging and labels. The Company is marketing the
Nutritional Supplement Lines through its existing retail distribution channels,
and will seek to expand sales through trade allowances, increased advertising
and promotion, and cross-merchandising with other Selfcare products. The Company
will also reposition the brands which address specific women's nutritional needs
through redesigned packaging and increased emphasis on the products' self-care
benefits for women.
International
The Company has manufacturing facilities in Galway, Ireland and Inverness,
Scotland and markets and sells its products in several international markets. In
1997, approximately 17% of the Company's net sales were to customers in Europe
and 22% of the Company's net sales were to customers in regions other than North
America and Europe. If the Company's revenues generated by foreign activities
are not adequate to offset the expense of establishing and maintaining these
foreign activities, the Company's business, financial condition and results of
operations could be materially adversely affected. In addition, there are
certain risks inherent in doing business internationally, such as changes in
applicable laws and regulatory requirements, export and import restrictions,
export controls relating to technology, tariffs and other trade barriers, less
favorable intellectual property laws, difficulties in staffing and managing
foreign operations, longer payment cycles, difficulties in collecting accounts
receivable, political instability, fluctuations in currency exchange rates,
expatriation controls and potential adverse tax consequences, which could
adversely impact the success of the Company's international activities. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's future international activities and,
consequently, on the Company's business, financial condition and results of
operations.
The executive offices and production facilities of Orgenics are located in
the State of Israel, and Orgenics is directly affected by political, economic
and military conditions in that country. On many occasions since December 1987,
Israel has experienced severe civil unrest, primarily in the areas that have
been under its control since 1967. No assurance can be given that hostilities or
other political, economic and military
8
<PAGE> 9
conditions in Israel will not have a material adverse effect on the business and
operations of Orgenics. Any such effect could have a material adverse effect on
the business, operations or financial condition of the Company.
STRATEGIC TRANSACTIONS
An important part of Selfcare's business strategy is to enter into
strategic alliances and licensing arrangements with third parties, primarily
medical products companies, for the development and distribution of certain
products. The Company also pursues a strategy of selective acquisitions of
companies, assets and technologies which it believes will enhance its ability to
offer and distribute products to the family health, diabetes, nutritional
supplement and infectious disease markets.
Acquisition of Nutritional Supplement Lines from American Home Products
On February 19, 1997, the Company acquired from American Home Products
("AHP") the U. S. rights to several nutritional supplement product lines that
had domestic sales of approximately $24 million in 1996. See Nutritional
Supplement Lines above.
Can-Am Care Corporation
On February 18, 1998 the Company's wholly owned subsidiary, SCPI, acquired
Can-Am Care Corporation. See Subsequent Events below.
Princeton BioMeditech Corporation Agreements
In March 1996, the Company entered into an agreement (the "Manufacturing
Agreement") with Princeton BioMeditech Corporation ("Princeton") pursuant to
which the Company, among other things, agreed to purchase certain minimum
amounts of product relating to the Company's pregnancy self-test products from
Princeton over a three year term and provide $500,000 in capital to Princeton
for the purchase of equipment necessary to implement the agreement. As of
December 31, 1996, the Company had paid Princeton the $500,000 for the
equipment, which the Company owns but which is currently installed at Princeton.
On August 6, 1997, the Company and Princeton amended the Manufacturing
Agreement to extend the term of certain provisions of the agreement for a period
of four years beginning on July 1, 1997. During the first year of the extended
contract, the Company is obligated to purchase minimum amounts of products from
Princeton at agreed upon prices totaling $2,656,000, which prices are subject in
each case to renegotiation if significant changes occur in the marketplace to
significantly erode the Company's ability to aggressively market such products.
During the remaining three years of the agreement, the Company is obligated to
purchase minimum amounts of products at prices to be mutually agreed upon based
upon market conditions.
Also on August 6, 1997, the Company and Princeton, together with
wholly-owned subsidiaries of each of the Company (the "Selfcare Sub") and
Princeton (the "Princeton Sub"), and PBM-Selfcare LLC, a limited liability
company owned and managed by the Company and Princeton (the "LLC"), entered into
a Joint Venture Agreement (the "Joint Venture Agreement"). The purpose of the
joint venture is to own, develop and exploit certain intellectual property
rights related to rapid immunochemical diagnostic tests (the "Intellectual
Property"). Under the Joint Venture Agreement, Princeton contributed its rights
in the Intellectual Property to the LLC while Selfcare Sub agreed to contribute
up to $2,000,000, on an as needed basis, to cover expenses incurred by the LLC
in enforcing the rights of the LLC in the Intellectual Property. Selfcare Sub
and Princeton Sub are also obligated to cover 50% of any other operating
expenses of the LLC. The LLC entered into license agreements with both Selfcare
and Princeton granting each a non-exclusive, worldwide, royalty-free license to
the Intellectual Property. To date the Company has not incurred material costs
pursuant to the Joint Venture Agreement and does not anticipate expending
material resources in connection with this activity during the 1998 fiscal year.
9
<PAGE> 10
MANUFACTURING
The Company has no facilities to manufacture the Nutritional Supplement
Lines. The Company currently relies on third-party manufacturers for products
constituting the Nutritional Supplement Lines. The supply agreements with AHP
expired on February 17, 1998. If the Company should encounter delays or other
difficulties in the supply of any of these products from third parties, these
interruptions could have a material adverse effect on the Company's result of
operations and result in significant quarter-to-quarter fluctuations. In
addition, contract manufacturers that the Company uses or may use to supply
products for the Nutritional Supplement Lines must adhere to the FDA's GMP
regulations. Failure to do so could result in the withdrawal of FDA approval of
such manufacturers and consequent interruptions in the supply of products to the
Company.
The Company has entered into a manufacturing agreement with Nova Biomedical
Corporation ("Nova") to supply Selfcare with electrochemical blood glucose
meters. The meters manufactured by Nova, together with the Company's test
strips, form FastTake(TM). The Company's ability to ship FastTake(TM) on time
and in accordance with LifeScan's requirements is highly dependent upon receipt
of an adequate supply of electrochemical blood glucose meters. There can be no
assurance that the Company's supply of electrochemical blood glucose meters will
not be interrupted, or that if such supply were interrupted, that the Company
would be able to contract with another supplier on a timely or satisfactory
basis. If such supply were interrupted, the Company could incur set-up costs and
delays in manufacturing FastTake(TM)which could have a material adverse effect
on the Company's business, financial condition and results of operations. If any
such delay were to occur, and were to result in the Company being unable to
supply LifeScan with certain required amounts of meters for FastTake(TM) under
the LifeScan Alliance, LifeScan would automatically receive a license to
manufacture, or to have manufactured on its behalf, FastTake(TM), subject to
payment of a royalty to the Company. In such event, the Company could begin
supplying FastTake(TM) to LifeScan again at any time, but would be required to
reimburse LifeScan for certain expenses incurred by LifeScan to produce
FastTake(TM).
The Company currently manufactures its existing infectious disease
diagnostic products for the professional market and a portion of its pregnancy
self-test products at its Galway Facility. It also obtains pregnancy and
ovulation self-test products from contract manufacturers. The Company believes
that there are multiple qualified sources for its existing women's health
products and for the materials and components used in the manufacture of its
other existing products and therefore does not consider it necessary to maintain
protected supply arrangements with any supplier.
The Company has expended substantial efforts on the manufacturing scale-up
activities necessary to support the introduction of its planned new products.
The Company's Inverness Facility has been configured for highly automated, low
cost production of disposable test strips for use with electrochemical blood
glucose monitoring systems. Sophisticated control instrumentation systems
automatically print, cut and pack strips in vials. The Company is currently
manufacturing blood glucose test strips for distribution by Menarini. The
Company has implemented a program to produce generic electrochemical glucose
test strips for one or more systems at the Galway Facility. There can be no
assurance, however, that the Company will be successful in achieving the
production of new products at its facilities at the volumes or cost levels
required to support commercialization in the United States or abroad. Orgenics
manufactures infectious disease diagnostic tests for the professional markets at
a facility in Israel.
The Company has entered into an agreement with CP&S pursuant to which CP&S
will perform the final packaging of early pregnancy and ovulation test kits for
Selfcare.
PATENTS AND PROPRIETARY TECHNOLOGY; TRADEMARKS
Self-Test Products
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
10
<PAGE> 11
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 patent position of medical products and diagnostic testing firms is
often highly uncertain and usually involves complex legal and factual questions.
There is a substantial backlog of patents at the U.S. Patent and Trademark
Office. No consistent policy has emerged regarding the breadth of claims covered
in medical products patents. Accordingly, there can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, such patents will afford adequate
protection to the Company's products or, if patents are issued to the Company,
that its competitors will not be able to design around such patents. In
addition, the medical products industry, including the diagnostic testing
industry, has been characterized by extensive litigation regarding patents,
licenses and other intellectual property rights. The Company could incur
substantial costs in defending itself against patent infringement claims or in
asserting such claims against others. If the outcome of any such litigation is
adverse to the Company, the Company's business could be materially adversely
affected. To determine the priority of inventions, the Company may also have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office, which could also result in substantial costs to the Company.
See "Item 3. -- Legal Proceedings."
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. Under the distribution agreement entered into pursuant to
the LifeScan Alliance, Selfcare has agreed to indemnify LifeScan for any claims
that FastTake(TM) infringes any patents.
The Company also seeks to protect its proprietary technology, including
technology that may not be patented nor patentable, in part through
confidentiality agreements and, if applicable, inventors' rights agreements with
its collaborators, advisors, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise be disclosed to, or discovered by, competitors. Moreover, the Company
may from time to time conduct research through academic advisors and
collaborators who are prohibited by their academic institutions from entering
into confidentiality or inventors' rights agreements.
Nutritional Supplements
In connection with the Nutritional Supplement Lines Acquisition, the
Company acquired certain trademarks which, the Company believes, are valuable
assets and are very important to the marketing of the Nutritional Supplement
Lines. Substantially all of these trademarks have been registered with the U.S.
Patent and Trademark Office. There can be no assurance, however, that such
registrations will afford adequate protection to the Company and not be
challenged as unenforceable or invalid, or not be infringed. In addition, the
Company could incur substantial costs in defending suits brought against it or
in prosecuting suits in which the Company asserted rights under such
registrations. If the outcome of such litigation were adverse to the Company,
the Company's business and results of operations could be materially adversely
affected.
GOVERNMENT REGULATION
Self-Test Products
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 self-test products, including those licensed by the Company
from third parties, require governmental approvals for commercialization that
have not yet been obtained and are
11
<PAGE> 12
not expected to be obtained for several years. Pre-clinical and clinical trials
and manufacturing and marketing of many of the Company's products will be
subject to the rigorous testing and approval process of the FDA and
corresponding foreign regulatory authorities. The regulatory process, which
includes pre-clinical and clinical testing of many of the Company's products to
establish their safety and efficacy, can take many years and require the
expenditure of substantial financial and other resources. Data obtained from
pre-clinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. In addition, delays or
rejection may be encountered based upon changes in, or additions to, regulatory
policies for device marketing authorization 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.
In addition, the Company is required to meet regulatory requirements in
countries outside the United States, which can change rapidly with relatively
short notice, resulting in the Company's products being banned in certain
countries with consequent loss of revenues and income. Foreign regulatory
agencies could also introduce test format changes which, if not quickly
addressed by the Company, could result in restrictions on sales of the Company's
products. Such changes are not uncommon due to advances in basic research and
the nature of certain infectious diseases and agents such as HIV, which is a
mutating virus capable of producing new strains and subtypes. In July 1993, the
French Ministry of Health prohibited the sale in France of certain diagnostic
tests for HIV, due to a concern that the tests did not meet required sensitivity
levels. The Ministry of Health has subsequently imposed a separate ban on a
single HIV test manufactured and sold due to the failure of such test to
identify a newly discovered HIV subtype. There can be no assurance that there
will not be similar actions in the future.
Nutritional Supplements
The manufacturing, processing, formulation, packaging, labeling and
advertising of nutritional supplements such as the Nutritional Supplement Lines
are subject to regulation by one or more federal agencies, including the FDA,
the Federal Trade Commission ("FTC") and the Consumer Product Safety Commission.
These activities are also regulated by various agencies of the states,
localities and foreign countries in which Nutritional Supplement Lines are now
sold or may be sold in the future. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, as well as food additives, over-the-counter
("OTC") and prescription drugs and cosmetics. The regulations that are
promulgated by the FDA relating to the manufacturing process are known as GMPs,
and are different for drug and food products. In addition, the FTC has
overlapping jurisdiction with the FDA to regulate the promotion and advertising
of dietary supplements, OTC drugs, cosmetics and foods.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA"), which
amends the Food, Drug and Cosmetic Act by defining dietary supplements as a new
category of food separate from conventional food, was enacted on October 25,
1994. The FDA has finalized certain regulations to implement DSHEA, including
those relating to nutritional labeling requirements, but has not finalized other
regulations. The finalized regulations require different labeling for the
Nutritional Supplement Lines and, with respect to nutritional supplement
products under development by Selfcare, impose new notification procedures and
scientific substantiation requirements regarding ingredients, product claims and
safety. The Company cannot determine what effect these regulations will have on
its business in the future. Failure to comply with applicable FDA requirements
could result in sanctions being imposed on the Company or the manufacturers of
its products, including warning letters, product recalls and seizures,
injunctions or criminal prosecution. With respect to regulations that have not
been finalized, the Company anticipates that the FDA will promulgate specific
Good Manufacturing Practices to regulate dietary supplements which are modeled
on the current GMPs for food. The Company believes that the manufacture of the
Nutritional Supplement Lines is currently in compliance with the proposed GMPs
for dietary supplements. No assurance can be given that the final GMPs for
dietary supplements will not change in ways that require changes in the
manufacture of the Nutritional Supplement Lines.
12
<PAGE> 13
THIRD-PARTY REIMBURSEMENT
In both the United States and elsewhere, sales of some of the Company's
products will be dependent in part on the availability of reimbursement from
third-party payors, such as government and private insurance plans. Third-party
payors are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing one or more of such products to
market, there can be no assurance that these products will be considered
cost-effective, that reimbursement will be available or, if available, that the
level of reimbursement will be sufficient to allow the Company to sell its
products on a profitable basis.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The testing, manufacturing and marketing of medical diagnostic devices,
such as the Company's blood glucose monitoring systems, entail an inherent risk
of product liability claims. In addition, the marketing of the Nutritional
Supplement Lines may cause the Company to be subjected to various product
liability claims, including, among others, that the Nutritional Supplement Lines
have inadequate warnings concerning side effects and interactions with other
substances. Potential product liability claims may exceed the amount of the
Company's insurance coverage or may be excluded from coverage under the terms of
the policy. There can be no assurance that the Company's existing insurance can
be renewed at a cost and level of coverage comparable to that presently in
effect, if at all. In the event that the Company is held liable for a claim
against which it is not indemnified or for damages exceeding the limits of its
insurance coverage, such claim could have a material adverse effect on the
Company's business, financial condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company is focusing its research and development efforts primarily on
the development of its diabetes products, including its electrochemical blood
glucose monitoring system, generic test strips, and non-invasive blood glucose
technologies. In addition, the Company utilizes its in-house research and
development resources to adapt its existing technologies and technologies it
acquires from third parties into self-test formats, including formats addressing
HIV, chlamydia and Strep-A. The Company also seeks to develop new technologies
which it is not able to obtain from others. From time to time, the Company
engages in co-development projects with third parties with respect to new
diagnostic products the Company may want to market in the future. The Company
may provide financial development assistance to such parties and may also
utilize its own research and development resources to design certain portions of
such products. The research and development department of the Company, including
Inverness, Galway, Orgenics, and Selfcare Development GmbH & Co. KG (a German
subsidiary), employs 39 full-time researchers, including 23 Ph.D.s. Total
research and development expenses for the years ended December 31, 1997, 1996
and 1995 were $15.6 million, $6.6 million and $1.5 million, respectively. The
Company expects that it will continue to expend a significant amount on research
and development efforts during the fiscal year ended December 31, 1998.
COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE
Self-Test Products
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
13
<PAGE> 14
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. In the
women's health market, the Company believes that it has already developed a
significant market penetration with its private label and branded pregnancy and
ovulation tests. The Company believes that it can continue to compete
effectively in the women's health market based on its planned product line
expansions, supported by its research and development capabilities, its advanced
manufacturing expertise, and its established distribution force. The Company is
seeking to develop and market generic test strips that are compatible with other
manufacturers' electrochemical blood glucose monitoring systems. If the Company
succeeds in these efforts, others may attempt to enter this market with similar
products. In addition, the introduction of lower-priced generic test strips
could lead the manufacturers of the systems with which such test strips are
compatible to lower their own test strip prices, thereby reducing or eliminating
the price advantage enjoyed by the generic test strip producers. On June 28,
1996, the Company obtained FDA Clearance for its first generic test strip, to be
sold under the name "Excel(TM)," which is compatible with the ExacTech(TM)
System sold by Abbott. The Company initially intended to commence marketing this
product in the United States in 1997, but has delayed the commencement of such
marketing until mid-1998. Although the Company believes that its Excel generic
test strip will be priced lower than the strips produced by Abbott for the
ExacTech(TM) System and therefore will compete effectively with the Abbott
product, there can be no assurance that Abbott will not institute price cuts and
thereby reduce or eliminate any price advantage which the Company's product may
enjoy.
The Company is also aware of several of its competitors who are attempting
to develop a noninvasive blood glucose monitoring technology. Noninvasive blood
glucose monitoring involves methods for measuring blood glucose levels without
the need to draw blood and, in certain proposed configurations, without the need
to utilize disposable components, such as test strips. The Company believes that
manufacturers are pursuing a number of different technological approaches to
noninvasive blood glucose monitoring. These include near-infrared spectroscopy,
which involves shining a beam of near-infrared light to penetrate the skin and
determine the amount of glucose in the blood, and reverse iontophoresis, which
utilizes a "patch" system to extract glucose through the skin for measurement by
an external meter. In addition, several manufacturers are pursuing minimally
invasive approaches to blood glucose monitoring, such as using a fine needle to
withdraw a small sample of interstitial fluid which is analyzed by use of
mid-infrared spectroscopy. 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.
Nutritional Supplements
The market for the sale of vitamins and nutritional supplements such as the
Nutritional Supplement Lines is highly competitive. Competition is based
principally upon price, quality of products, customer service and marketing
support. There are numerous companies in the vitamin and nutritional supplement
industry selling products to retailers such as mass merchandisers, drug store
chains, independent drug stores, supermarkets and health food stores. Most of
these companies are privately held and the Company is unable to assess precisely
the size of such competitors. However, a number of the Company's competitors,
particularly manufacturers of nationally advertised brand name products, are
substantially larger than the Company and have greater financial resources.
Orgenics Infectious Disease Products
The primary competitors for Orgenics' ImmunoComb line of products are
standard, enzyme-linked immunoabsorbent assay ("ELISA") systems such as those
produced by Organon, Inc., Pasteur Sanofi Diagnostics, Abbott Laboratories,
Boehringher Mannheim and other diagnostic tests produced by Abbott Laboratories,
Ortho Diagnostic Systems, Inc. and Hybritech, Inc. ELISA tests are generally
used by high-volume batch processors such as blood banks and other centralized
laboratories. In addition, there are other rapid testing systems, generally for
HIV, based upon immunoconcentration, which can provide results in five to ten
minutes. In contrast to ImmunoComb, an immunoassay-based test which can be used
to simultaneously test multiple samples for multiple analytes, the
immunoconcentration systems are single sample and mostly
14
<PAGE> 15
single analyte systems. Based on Orgenics' assertions, the Company believes that
other characteristics of the immunoconcentration systems are that: (i) the
single sample presentation results in production costs per test that are two to
three times more expensive than those of ImmunoComb; and (ii) the procedure for
each immunoconcentration test limits the number of tests that can be processed
at one time resulting in less flexibility in the number of samples that can be
processed at one time. The Company expects that Orgenics' DoubleCheck HIV test
will be competitive with single-analyte immunoconcentration tests in speed, but
will offer greater sensitivity at lower cost.
In the field of DNA probe products, Orgenics competes with, among others,
Molecular Biosystems, Inc., Abbott Laboratories, Roche Molecular Systems, a
division of Hoffman La-Roche, Sanofi Diagnostics, Organon, Inc., Enzo Biochem,
Inc., Gene-Trak Systems, Inc. and Gen-Probe, Incorporated. Several of Orgenics'
competitors use a labeling technology in which precursors of DNA are labeled by
either Biotin or a radioactive marker and incorporated into the DNA probe by an
enzymatic reaction. The use of an enzymatic reaction requires highly-purified
DNA material. It is difficult for most clinical laboratories to achieve high
purification levels without highly-trained personnel. Orgenics' non-enzymatic
Chemi-Probe labeling technology, which does not require highly-purified DNA, is
not subject to these limitations. In addition, the Company believes that
Orgenics' non-enzymatic, genetic assay GeneComb technology provides a simpler,
more rapid assay than do competing detection systems which rely on enzyme
immunoassay methodology.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had a total of
419 full time employees, of which 37 employees are located in the United States.
In addition, the Company utilizes the services of a number of consultants
specializing in: research and development in the Company's targeted markets,
regulatory compliance, strategic planning, marketing and legal matters.
SUBSEQUENT EVENTS
On February 18, 1998, the Company's subsidiary SCPI acquired Can-Am Care
Corporation ("Can-Am"), a leading supplier of diabetes care products, for
approximately $27.9 million, consisting of $13.6 million in cash, notes in the
aggregate principal amount of $2 million (subject to potential premiums of up to
an additional $2 million in the aggregate based upon increases in the Company's
common stock during the term of the Notes) and approximately 1.1 million shares
of the Company's Common Stock. Can-Am sells insulin syringes, blood lancets,
glucose tablets and specialty skin creams to pharmacies across the United
States. Can-Am's revenues for the fiscal year ended May 31, 1997 were
approximately $25.9 million. Upon the closing of the acquisition, Mr. Robert
Oringer, President of Can-Am, became a member of the Company's Board of
Directors and continued as President of Can-Am.
In consideration for the sale of his interest in Can-Am, Mr. Oringer
received from the Company 277,083 shares of the Company's Common Stock and a
Non-Negotiable Note, maturing February 18, 2001, in the principal amount of
$500,000, bearing interest at an annual rate of 6%. In connection with the
acquisition, Can-Am entered into a Supply Agreement with A.M.G. Medical, Inc.
("AMG") whereby Can-Am agreed, with certain exceptions, to purchase 100% of its
requirements for monolet-compatible lancets from AMG for so long as Can-Am is in
the business of selling monolet compatible lancets. In addition, Can-Am entered
into a Management Services Agreement with AMG whereby AMG will provide labor,
office space, office related services and insurance to Can-Am for a term of five
years. Under the Management Services Agreement, Can-Am will pay AMG a fixed fee
to cover the costs of office space, tax, heating, maintenance and insurance
costs associated therewith, office expenses and telephone and computer equipment
and access expenses ("Fixed Fee"); a variable fee to cover the costs of
salaries, overtime pay, bonuses and related compensation of employees providing
services to Can-Am ("Variable Fee"); and the costs of all direct expenses
incurred by AMG, including supply expenses, postage costs, printing costs, and
other miscellaneous charges and expenses ("Direct Expenses"). During the first
year of the term of the Management Services Agreement, the Fixed Fee will be
$112,800. This fixed Fee will increase by 5% annually and is subject to change
after renegotiation based upon changes in the scope of services required by
Can-Am. The Variable Fee is based on the actual salaries paid by AMG to the AMG
employees providing services to Can-Am and the percentage of their time such
15
<PAGE> 16
employees devote to providing services to Can-Am. The Direct Expenses are based
on the actual costs AMG incurs. Robert Oringer's wife owns 33% of AMG through a
personal holding company.
To fund the cash portion of the purchase price, the Company and SCPI
entered into a $42 million credit agreement with a The Chase Manhattan Bank
("Chase"). The new credit agreement consists of a $37 million term loan and a $5
million revolving line of credit. Of the proceeds from this term loan, SCPI used
$32 million to finance the cash portion of the Can-Am purchase price and to
refinance the existing bank debt with Fleet National Bank ("Fleet"). The
remaining $5 million was used to repay a $5 million note payable by SCPI to the
Company. SCPI will use the remaining availability under the new credit facility
to fund working capital.
The new credit agreement requires compliance with various financial and
non-financial covenants for both the Company and SCPI. The primary financial
covenants pertain to, among other things, interest coverage, debt services
coverage, leverage, and earnings before interest, taxes, depreciation and
amortization (EBITDA).
The term loan and revolving line of credit allow SCPI to borrow funds at
varying rates, including options to borrow at an alternate base rate, as
defined, plus a spread from .25% to 1.75%, or the LIBOR rate plus a spread from
1.75% to 3.00%. The spreads discussed above depend on SCPI's ratio of senior
funded debt to EBITDA.
Borrowings are secured by SCPI's stock, and the assets of SCPI, CanAm and
the Company and its subsidiaries. Borrowings under the revolving line of credit
are based on certain percentages of eligible assets, as defined. SCPI is
required to pay an annual fee of .375% for the unused portion of the revolving
line of credit. The revolving line of credit expires on February 18, 2002.
SCPI is required to make quarterly principal payments ranging from $1.3
million to $1.95 million through December 31, 2003, with payments of
approximately $1.4 million beginning on June 30, 1998. SCPI and the Company must
also make mandatory prepayments on the term loan if they meet certain cash flow
thresholds, sell assets outside of the ordinary course of business, issue or
sell indebtedness or issue stock, as defined in the credit agreement.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal corporate administrative offices are housed in
10,000 square feet of leased space in Waltham, Massachusetts. The lease for this
facility is for a three-year term, expiring December 31, 1999, with a Company
option to extend for a two-year period and provides for monthly rent of $8,333.
The Company also leases facilities in Brussels, Belgium for a marketing and
sales office and for warehousing, and in Munich, Germany for offices and
warehouse space. The lease for the Company's facility in Belgium covers 80
square meters of space, provides for monthly rent of $800 and is terminable on
three months notice. The lease for the Company's facility in Germany covers 380
square meters of space, provides for rent of $6,666 per month and is for a term
ending May 31, 2000. The Company believes that its current facilities are
adequate for its existing operations for the foreseeable future.
The Company's own manufacturing facilities are located in the United
Kingdom, Ireland and Scotland. The Inverness, Scotland facility consists of
50,000 square feet and includes areas for manufacture, warehousing, research and
development, and administrative offices. The Company manufactures diabetes
products (including generic test strips and test strips for FastTake(TM) and
blood glucose test strips for distribution by Menarini) at the Inverness
Facility. The Inverness Facility lease expires in 2015, with an option to
purchase at the open market value of the premises, and was rent-free through
1997. Cambridge Diagnostics is located in Galway, Ireland in a 40,000 square
foot facility leased from the Industrial Development Agency of Ireland and a
private developer under a lease which expires in 2022. The Galway Facility
houses the central manufacturing, warehousing, research and development, and
administrative functions of Cambridge Diagnostics, which is responsible for the
development, production and distribution of some of the Company's infectious
disease diagnostic products. In addition, pregnancy, ovulation prediction, birth
control and other women's health self-test products for the European market are
packaged at the Galway Facility and it is also used for the manufacture of
products for the diabetes and women's health markets.
16
<PAGE> 17
The FDA regulates companies that manufacture commercial medical devices and
requires that such companies manufacture such devices in a properly designed
environment. The Inverness Facility was designed and constructed, and the Galway
Facility has been upgraded, with the intention of complying with the FDA's GMP
regulations and requirements necessary for approvals and commercial sales within
the United States. The Company is required to register these facilities with the
FDA and to ensure that each meets GMP requirements prior to commercial sales in
the United States. Each registered facility is required to submit to an FDA
inspection no less frequently than every two years. The Company completed ISO
9002 regulation of the Galway Facility in August 1996 and registered the
Inverness Facility with the FDA during 1997.
Orgenics houses its executive offices, development and manufacturing in a
leased facility of approximately 10,000 square feet in Yavne, Israel. The lease
for this facility expires in 2006 and carries rent of approximately $21,000 per
month. The facility includes a number of specialized features and equipment,
including environmentally controlled areas, customized production equipment, and
computerized systems for purchasing, inventory, and materials tracking. Orgenics
also maintains small sales offices in Courbevoie, France, Sao Paulo, Brazil, and
Bogota, Columbia. The lease for the French facility runs through 2006 and
carries monthly rent of approximately $6,000 which is linked to the French
building cost index. The lease for the Brazilian office is for one year with
monthly rent of approximately $2,000 and an option for another year. The lease
for the Columbian office is for a one year with monthly rent of approximately
$1,300 with a non-limited option. Orgenics' management has informed the Company
that they believe the existing facilities are adequate for Orgenics' present
level of operations for the foreseeable future.
The company has insurance coverage for the properties and equipment that it
owns or houses.
ITEM 3. LEGAL PROCEEDINGS
Medical Selfcare, Inc. v. Selfcare, Inc.
On November 15, 1997, Medical Selfcare, Inc. ("Medical") served process on
the Company in an action filed in the United States District Court for the
Northern District of California ("District Court") asserting service mark and
trade name infringement, unfair competition, dilution, and related claims
arising from the Company's use of the mark "Selfcare" for medical devices,
pharmaceutical products and nutritional supplements. Medical is seeking damages
for lost profits in an amount to be determined at trial, injunctive relief
barring the Company's use of the name and mark "Selfcare" in connection with its
products and services, destruction of products using the said name or mark,
disgorgement of profits gained from the alleged infringement, treble damages,
restitution, punitive damages and attorneys fees. The Company intends to defend
this litigation vigorously. The Company has answered the complaint and asserted
various defenses and has filed a counterclaim seeking cancellation of Medical's
federal service mark registrations. The Company has advised the District Court
of its intention to phase out the use of the mark in connection with its
nutritional supplement products. A hearing was held on Medical's motion for a
preliminary injunction before the District Court on December 19, 1997. On
January 5, 1998, the District Court entered an order, in the form proposed by
the Company, requiring that, effective six months thereafter, the Company cease
using the mark "Selfcare" on nutritional supplement products or packaging or
distributing nutritional supplement products or packaging bearing the mark, and
that the Company remove from its packaging the statement that the mark is
"registered." The case is now in the discovery stage of litigation. Although the
Company does not believe that the preliminary injunction will have a material
adverse impact on the Company's sales, operations and financial performance, a
final ruling against the Company on the merits of the case could have such an
impact.
Institut Pasteur et al. v. Cambridge Biotech Corporation
Through its wholly owned Irish subsidiary, Cambridge Diagnostics Ireland
Ltd. ("Cambridge Diagnostics"), the Company is currently producing diagnostic
test kits primarily for detecting antibodies to HIV, which are associated with
Acquired Immune Deficiency Syndrome ("AIDS"). Selfcare acquired Cambridge
Diagnostics (formerly known as Cambridge Biotech Limited) in November 1994 from
Cambridge Biotech Corporation ("Cambridge Biotech"), which at that time was
operating in Massachusetts under Chapter 11 of the U.S. Bankruptcy Code. Prior
to the acquisition (the "Cambridge Diagnostics Acquisition"), Cambridge
17
<PAGE> 18
Biotech licensed from Pasteur Sanofi Diagnostics (formerly known as Diagnostics
Pasteur), certain HIV 1/2 immunoassay technologies relating to patents and
proprietary rights held by Institute Pasteur (the "Pasteur HIV Technologies"),
and required for production of HIV test kits, including the Selfcare HIV test
kits manufactured by Cambridge Diagnostics. Under the terms of Cambridge
Biotech's license agreements with Pasteur Sanofi Diagnostics, Cambridge Biotech
could not assign or sublicense its rights with respect to the Pasteur HIV
Technologies to Selfcare or to Cambridge Diagnostics. In order to allow Selfcare
and Cambridge Diagnostics to have access to such technologies, Selfcare and
Cambridge Biotech formed Cambridge Affiliate Corporation ("Cambridge
Affiliate"), 51% owned by Cambridge Biotech, and 49% owned by Selfcare, but
managed by Cambridge Diagnostics. The establishment of Cambridge Affiliate and
the terms of the arrangements relating thereto were considered and approved by
both U.S. and Irish bankruptcy courts in connection with the approval of the
sale of Cambridge Diagnostics by such courts. Cambridge Affiliate maintains its
own accounts and records and makes payments of royalties due under the Pasteur
Sanofi Diagnostics licenses to Cambridge Biotech. The licenses of the Pasteur
HIV Technologies to Cambridge Biotech are nonexclusive and cover diagnostic test
kits in finished form embodying the Pasteur HIV Technologies. The territorial
scope of the licenses is worldwide, with the exception of exclusive rights which
Pasteur Sanofi Diagnostics asserted to have granted in the Pasteur HIV
Technologies to Genetic Systems Corporation ("Genetic Systems") in the United
States, Canada, Mexico, Australia, New Zealand and India (the "Excluded
Countries"). However, the licenses provide that, to the extent that Pasteur
Sanofi Diagnostics recovers the right to practice the patents underlying the
Pasteur HIV Technologies in the Excluded Countries, Cambridge Biotech is
entitled to non-exclusive rights in such technology in such countries. In 1990,
Pasteur Sanofi Diagnostics acquired ownership of Genetic Systems, whereupon
Cambridge Biotech commenced selling products incorporating the Pasteur HIV
Technologies in the United States. These activities were challenged in a patent
infringement lawsuit filed in the United States Bankruptcy Court of the District
of Massachusetts (Western District) in March 1995 by Institute Pasteur, the
minority stockholders of Pasteur Sanofi Diagnostics and Genetic Systems. In
September 1995, the bankruptcy court ruled in favor of Cambridge Biotech on this
issue, and Institute Pasteur and Genetic Systems Corporation subsequently filed
an appeal to the United States District Court for the District of Massachusetts.
On July 18, 1997, a hearing was held on the merits of the appeal to the District
court by Institut Pasteur and Genetic Systems Corporation. The District court
affirmed the rulings of the bankruptcy court, holding that Cambridge Biotech may
sell products incorporating the Pasteur HIV Technologies in the United States.
Institut Pasteur and Genetic Systems Corporation have filed an appeal to the
Federal Circuit Court of Appeals and Cambridge Biotech has cross appealed to the
First Circuit Court of Appeals. The First Circuit has stayed Cambridge Biotech's
cross appeals pending a decision by the Federal Circuit on Cambridge Biotech's
motion filed in the Federal Circuit to have Institut Pasteur and Genetic Systems
Corporation's appeals either transferred to the First Circuit or dismissed. If
the bankruptcy court decision were reversed on appeal, the territories to which
Cambridge Affiliate could sell HIV-related products would be limited but this
would not have a material adverse effect on the Company.
Enviromed plc
The Company has been involved in a dispute with Enviromed plc with respect
to a joint venture agreement entered into between the Company and Enviromed in
March 1994 and other agreements (collectively, the "Disputed Enviromed
Agreements") entered into between the Company and Enviromed and its wholly-owned
subsidiary Cranfield Biotechnology Ltd. ("Cranfield") and the issuance of shares
of Common Stock to Enviromed in connection therewith. In connection with this
dispute, the Company has informed Enviromed that, due to the failure of
Enviromed and Cranfield to perform their obligations under the Disputed
Enviromed Agreements, it disputes Enviromed's ownership of the Common Stock held
of record by Enviromed. On July 5, 1996, Enviromed filed suit against the
Company and the representatives of the underwriters (the "IPO Representatives")
of Selfcare's initial public offering (the "Initial Public Offering") in United
States District Court for the Southern District of New York alleging breach of a
registration rights agreement relating to the Common Stock held of record by
Enviromed. Enviromed claimed that its rights under a registration rights
agreement were breached in connection with the Initial Public Offering and
requested damages, injunctive relief and a declaratory judgment that Enviromed
is the lawful owner of the
18
<PAGE> 19
shares. The Company has filed counterclaims against Enviromed arising out of the
failure of Enviromed and Cranfield to perform their obligations under the
Disputed Enviromed Agreements and is contesting Enviromed's claims vigorously.
On October 18, 1996, the case was ordered transferred to the United States
District Court for the District of Massachusetts. The Company is not able to
estimate the amount of damages, if any, which might result from Enviromed's
claims against the Company, but believes that any such damages would not be in
an amount which would have a material adverse effect on the Company. The Company
agreed to indemnify the IPO Representatives for any losses they might incur,
including reasonable attorney's fees and expenses, as a result of the Enviromed
lawsuit. On November 15, 1996, Enviromed filed a dismissal without prejudice of
its claims against the IPO Representatives. On March 11, 1997, Enviromed and the
Company filed a stipulation of dismissal without prejudice of all the claims and
counterclaims in the case, and the case has been dismissed without prejudice.
FLAMBELLE LIMITED AND EASTCOURT LIMITED
Trinity Biotech plc ("Trinity") and Eastcourt Limited ("Eastcourt") have
filed Schedule 13Ds with the Securities and Exchange Commission (the
"Commission") stating that Enviromed plc 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 plc and damages for alleged breach of a registration
rights agreement. As of March 6, 1998, the Company entered into a settlement
agreement with Trinity and Flambelle whereby the parties agreed that Flambelle
shall have title to 80% of the shares of Selfcare stock in dispute, amounting to
622,898 shares of the Company's Common Stock, and Selfcare shall have title to
20% of said shares, amounting to 155,724 shares of its Common Stock. Replacement
stock certificates have been issued and the lawsuit has been dismissed with
prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "SLF." The following table sets forth, for the periods
indicated, the high and low sale prices of the Common Stock on the AMEX. The
Initial Public Offering of the Common Stock at $8.50 per share was completed on
August 6, 1996.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1996
3rd Quarter (commencing August 7, 1996)................ $17.7500 $ 8.5000
4th Quarter............................................ 18.0000 11.5000
Year ended December 31, 1997
1st Quarter............................................ $13.6250 $ 8.7500
2nd Quarter............................................ 13.6875 8.6250
3rd Quarter............................................ 13.4375 11.0000
4th Quarter............................................ 12.8750 8.2500
</TABLE>
At February 25, 1998, there were 211 holders of record of the Company's
Common Stock.
19
<PAGE> 20
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, on the Common Stock will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. Holders of Series A
Preferred Shares were generally entitled to receive cumulative quarterly
dividends payable in cash at the rate of 6% per annum.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each transaction
(with the exception of the transactions described in paragraphs 6 and 8 below)
was exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), by reason of Section 4(2) thereof, based on the
private nature of the transactions and the financial sophistication of the
purchasers, all of whom had access to complete information concerning the
Company and acquired the securities for investment and not with a view to the
distribution thereof. The Company believes that the transactions described in
paragraphs 6 and 8 below were exempt from the registration requirements of the
Securities Act by reason of Rule 701 promulgated thereunder, because the
issuance of the options described was pursuant to a written compensatory benefit
plan of the Company, a copy of which was given to each participant in the plan,
and the aggregate offering price did not exceed the limit prescribed by Rule
701.
1. On January 1, 1995, the Company, in connection with the Company's
issuance of the Cambridge Diagnostics Notes to finance the Cambridge Diagnostics
Acquisition, issued an aggregate of 119,834 shares of Common Stock to USB '93 as
consideration for its services as placement agent for the Cambridge Diagnostic
Notes.
2. On January 31, 1995, the Company, in connection with the Cambridge
Diagnostics Acquisition, issued an aggregate of 92,950 shares of Common Stock to
Ron Zwanziger in consideration of Mr. Zwanziger's personal guarantee of the
Cambridge Diagnostic Notes.
3. On February 1, 1995, the Company issued an aggregate of 27,690 shares of
Common Stock for an aggregate purchase price of $70,013 to certain existing
stockholders in connection with the Company's outstanding November 23, 1994
offer to sell additional shares of Common Stock.
4. On March 1, 1995, the Company issued an aggregate of 13,000 shares of
Common Stock for an aggregate purchase price of $32,870 to James Yafrate.
5. On March 30, 1995, the Company, in connection with the Company's
financing of the Cambridge Diagnostics Acquisition through the issuance of the
Cambridge Diagnostics Notes, issued the Cambridge Diagnostics Warrants to the
purchasers of the Cambridge Diagnostic's Notes, including Mr. Zwanziger, Dr.
Scott and Mr. Umphrey, for an aggregate purchase price of $30,000. The number of
shares of Common Stock issuable pursuant to the Cambridge Diagnostics Warrants
is calculated based on the net sales of Cambridge Diagnostics for the fiscal
year preceding the repayment of the Cambridge Diagnostics Notes, divided by
$32.87. On December 31, 1996, the Company agreed to issue, for no additional
consideration, 1,133,113 shares of Common Stock upon the earlier to occur of
January 15, 2000 or a change in control of the Company, in exchange for the
termination and cancellation of the Cambridge Diagnostic Warrants which, if
exercisable as of December 31, 1996, would have been exercisable for 1,133,113
shares of Common Stock.
6. On October 15, 1995, the Company granted options to purchase up to
118,508 shares of Common Stock to certain employees in lieu of salary at an
exercise price of $2.53 per share.
7. On December 1, 1995, the Company issued an aggregate of 14,365 shares of
Common Stock for an aggregate purchase price of $36,315 to certain employees of
the Company.
20
<PAGE> 21
8. On December 1, 1995, pursuant to Jim Walsh's exercise of a partially
vested option granted on November 11, 1994 under the 1994 Incentive and
Non-Qualified Stock Option Plan to purchase up to 39,000 shares of Common Stock
and a fully vested option granted on November 11, 1994 to purchase up to 19,500
shares of Common Stock, the Company issued an aggregate of 27,300 shares of
Common Stock for an aggregate purchase price of $69,027 to Mr. Walsh.
9. On December 29, 1995, the Company issued an aggregate of 2,028 shares of
Common Stock for an aggregate purchase price of $5,128 to Geoff Hall.
10. On May 7, 1996, the Company issued an aggregate of 135,421 shares of
Common Stock to Medica Investments (Israel) L.P. and Medica Investments (U.S.)
L.P. in connection with the Company's exercise of its right to acquire their
interest in the $1.0 million debenture issued by Orgenics Ltd.
11. On October 7, 1996, the Company issued 201,622 shares of Common Stock
to Johnson & Johnson Development Corporation ("JJDC") in connection with the
LifeScan Alliance. On January 16, 1998 the Company issued an additional 9,743
shares of Common Stock to JJDC in connection with the LifeScan Alliance.
12. On October 10, 1996, the Company issued an aggregate of 3,000 shares of
Series A Convertible Preferred Stock ("Series A Preferred Shares") to certain
non-U.S. investors for an aggregate of $3,000,000.
13. On October 14, 1996, the Company issued 1,000 Series A Preferred Shares
to Societe Generale for $1,000,000.
14. On October 17, 1996, the Company issued 500 Series A Preferred Shares
to Gifford Fund Ltd for $500,000.
15. On October 24, 1996, the Company issued 500 Series A Preferred Shares
to Privatinvest Bank AG for $500,000.
16. On October 28, 1996, the Company issued 500 Series A Preferred Shares
to Selfcare Holdings, Ltd. for $500,000.
17. All of the Series A Preferred Shares have been converted into shares of
Common Stock pursuant to the terms of such Series A Preferred Shares.
18. On November 8, 1996, pursuant to Christopher Covington's exercise of
vested options granted on September 3, 1993 and April 30, 1993 under the
Selfcare 1992 Stock Plan, the Company issued an aggregate of 45,500 shares of
Common Stock for an aggregate purchase price of $70,000 to Mr. Covington.
19. On August 26, 1997, the Company issued an aggregate of 8,000 shares of
Series B Convertible Preferred Stock ("Series B Preferred Shares") having a
total aggregate purchase price of $8 million to Capital Ventures International,
C.C. Investments LDC, Proprietary Convertible Investment Group, Inc. The Series
B Preferred Shares convert into shares of Common Stock of the Company. As of
March 24, 1998, 7,250 Series B Preferred Shares remained unconverted.
20. On October 27, 1998, the Company issued Senior Subordinated Convertible
Notes due October 28, 2002, in the aggregate principal amount of $10,000,000 and
warrants which are exercisable for up to 106,700 shares of the Company's Common
Stock to Elliot Associates, L.P. and Westgate International, L.P. and an
additional 31,250 shares of Common Stock to Shoreline Pacific Institutional
Finance, a Division of Financial West Group.
21. 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. 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 (the "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
21
<PAGE> 22
Agreement (the "EN PLC Notes"). In December 1997, the Company exchanged notes
that are convertible into shares of Common Stock (the "Convertible EN PLC
Notes") in a principal amount equal to approximately $1.6 million for payments
due in January and April 1998 under the EN PLC Notes. The Convertible EN PLC
Notes bear interest at the rate of 10% per year, mature on the six-month
anniversary of the date of issuance of the Convertible EN PLC Notes (the
"Convertible EN PLC Notes Maturity Date"), are convertible by the holders
thereof in whole at any time on or prior to the Convertible EN PLC Notes
Maturity Date into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus any accrued interest
thereon by $7.225 (the "EN PLC Conversion Price") and will automatically
convert, without any action on the part of the holders thereof, on the
Convertible EN PLC Notes Maturity Date, in the event they are not sooner prepaid
or converted, into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus the accrued interest
thereon by the EN PLC Conversion Price. The shares of Common Stock into which
the Convertible EN PLC Notes are convertible did not receive rights to register
such shares under the Securities Act. Therefore, such shares of Common Stock
will not be freely transferable absent an available exemption from registration.
The EN PLC Conversion Price represents a 15% discount from the closing price of
the Company's Common Stock on the date immediately preceding the effective date
of the exchange of the amounts due under the EN PLC Notes in January and April
1998 for the Convertible EN PLC Notes, reflecting in part the fact that shares
issuable upon conversion of the Convertible EN PLC Notes are not freely
transferable. The holders of EN PLC Notes included the following directors and
officers, which directors and officers exchanged an aggregate amount of
approximately $0.8 million on identical terms with all other holders of EN PLC
Notes: Carol R. Goldberg, John F. Levy, Willard L. Umphrey and Ron Zwanziger.
The other holders of the EN PLC Notes were: Alex Bodkin, Andrew Bodkin, Steve
Chubb, John Glode, Orit Goldstein, Leroy Schecter, and Lois Silverman.
22. In November 1994, Selfcare acquired Cambridge Diagnostics from
Cambridge Biotech Corporation for an aggregate of $2.1 million and the
assumption of certain liabilities. In addition, the Company furnished Cambridge
Diagnostics with a $900,000 working capital line of credit. Selfcare financed
the acquisition of Cambridge Diagnostics by utilizing a bank line of credit and
subsequently refinanced the amount borrowed through the issuance of an aggregate
of $3.0 million in original principal amount of 10% promissory notes (the "CDIL
Notes"), together with attached warrants with an aggregate purchase price of
$30,000 (the "CDIL Warrants"). The CDIL Notes were due March 31, 1998, and bore
interest at the rate of 10% per year. The number of shares of Common Stock
issuable pursuant to the CDIL Warrants is equal to 69% of the net sales of
Cambridge Diagnostics for the fiscal year preceding the repayment of the CDIL
Notes, divided by $32.87. Based on this formula and Cambridge Diagnostics' net
sales for fiscal year 1995, had the CDIL Notes been repaid on December 31, 1996,
all of the CDIL Warrants would have become exercisable for an aggregate of
1,142,635 shares of Common Stock. On December 31, 1996, the holders of $2.6
million in principal amount of the CDIL Notes entered into agreements (the
"Extension Agreements") to terminate and cancel their CDIL Warrants, in exchange
for which the Company agreed to transfer to such holders, for no additional
consideration, an aggregate of 990,050 shares of Common Stock on the earlier of
January 15, 2000, or the occurrence of a change in control (as defined in the
Extension Agreements) of the Company. In December 1997, the Company accelerated
the issuance of the 990,050 shares to December 17, 1997. In December 1997, the
Company entered into exchange agreements with the holders of approximately $2.95
million of CDIL Notes pursuant to which the Company exchanged notes convertible
into shares of Common Stock (the "Convertible CDIL Notes") for the CDIL Notes.
The Convertible CDIL Notes were issued in a principal amount equal to the
principal amount of the CDIL Notes exchanged by the holders thereof, bear
interest at the rate of 10% per year, mature on the six-month anniversary of the
date of issuance of the Convertible CDIL Notes (the "Convertible CDIL Notes
Maturity Date"), are convertible by the holders of such Convertible CDIL Notes
in whole at any time on or prior to the Maturity Date into that number of shares
of Common Stock determined by dividing the principal balance of such Convertible
CDIL Notes plus any accrued interest thereon by $7.225 (the "CDIL Conversion
Price"), and will automatically convert, without any action on the part of the
holders, on the Convertible CDIL Notes Maturity Date, in the event they are not
sooner prepaid or converted, into that number of shares of Common Stock
determined by dividing the principal balance of such Convertible CDIL Notes plus
the accrued interest thereon by the Conversion Price. The shares of Common
22
<PAGE> 23
Stock into which the Convertible CDIL Notes are convertible did not receive
rights to register such shares under the Securities Act. Therefore, such shares
of Common Stock will not be freely transferable absent an available exemption
from registration. The CDIL Conversion Price represents a 15% discount from the
closing price of the Company's Common Stock on the date immediately preceding
the effective date of the exchange of the CDIL Notes for the Convertible CDIL
Notes, reflecting in part the fact that shares issuable upon conversion of the
Convertible CDIL Notes are not freely transferable. The direct and indirect
holders of CDIL Notes included the following directors and officers, which
directors and officers exchanged an aggregate principal amount of approximately
$0.8 million of CDIL Notes on identical terms with all other holders of CDIL
Notes: John F. Levy, Willard L. Umphrey and Ron Zwanziger. The other holders of
the CDIL Notes were; Douglas Alcaide, Murat Anamur & Deniz Ozel, Alex Bodkin,
Charles T. Comiso, Ann M. Dignam, Edward Eagan, Kenton & Hannalore Eldridge,
Alan S. Fitz MPPP, Ralph Freidin, T. Lawrence Gasse, John B. Glode, Orit
Goldstein, Tonlyn Investments Ltd., Susan Hartz, George Howell, James L. Katz,
Roy E. Kent, Ming Lash, Martin P. Lele, Steven D. Levy, Kathleen Mason, Richard
Mastromatteo, Sue Beth Mazer, Lawrie Okurowski, Mark Parent, Domenic Pugliares,
David Scott, Barbara Sherman, Donald S. and Barbara Sherman JT WROS, Lois
Silverman, Dorairaju Thavaseelan, M.J. Tolkoff, U.S. Boston Corp. Profit Sharing
Retirement Plan FBO Leon Okurowski, and Arieh & Miriam Zwanziger. In addition,
U.S. Boston Capital Corporation, a broker-dealer, the President of which is
Willard L. Umphrey, a director and principal stockholder of the Company,
received a fee of three percent (3%) of the principal amount of the CDIL Notes
exchanged as compensation for services rendered by U.S. Boston Capital
Corporation in connection with the exchange.
23. On February 19, 1998, the Company issued a total of 1,108,331 shares of
its Common Stock as part of the consideration for the acquisition of Can-Am Care
Corporation. Pursuant to the acquisition, Robert Oringer received 277,083
shares, Cover Family Trust received 277,083 shares, Allan M. Goldenburg received
277,084 shares and Benjamin Topor received 277,083 shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues. Net revenues in 1997 increased $33.2 million or 174% to
$52.3 million from $19.1 million in 1996. Net product sales increased $36.8
million or 262% to $50.9 million from $14.1 million in 1996. The primary reason
for the increase in revenues was the addition of the Nutritional Supplement
Lines acquired in February 1997. Net sales of Nutritional Supplement Lines were
$18.1 million in 1997. The Company's net sales for women's health products for
1997 were $14.4 million, an increase of $6.9 million or 92% from net sales of
$7.5 million in 1996. The increase in the net sales of women's health products
is attributed to new private label accounts. Net sales of diagnostic products
for 1997 were $18.3 million, an increase of $11.7 million or 178% from net sales
of $6.6 million in 1996. The increase in diagnostic product sales is primarily
due to the Company's acquisition of Orgenics in October 1996. In December 1997,
the Company had its first sales of its electrochemical blood glucose monitoring
system to LifeScan. The net sales to LifeScan accounted for only $144,000 in
1997, but the Company expects sales to LifeScan and in the diabetes segment of
the business in general to be a significant portion of 1998 and future revenues.
Grant and other revenue was $1.4 million, in 1997, a decrease of $3.6 million or
73% from grant and other revenue of $5.0 million in 1996. In 1996, the Company
recognized $4.0 million of revenue related to a $7.0 million success fee
received from LifeScan in October 1996. The Company did not recognize revenue
related to the aforementioned success fee in 1997. Approximately $1.1 million of
the revenues for 1997 was attributable to the amortization of deferred revenue
associated with certain development and capital grants relating to the Inverness
Facility. There was approximately $722,000 of revenue recognized in connection
with the grants related to the Inverness Facility for 1996.
Gross Profit. Gross profit for 1997 increased $17.9 million or 220% to
$26.0 million from $8.1 million in 1996. Gross profit as a percentage of net
revenues increased to 50% for 1997 from 43% in 1996. Gross profit on product
sales was 47% in 1997 and 16% in 1996. The increase in gross profit was
primarily attributable to the addition of revenue from the Nutritional
Supplement Lines. Gross profit on the Nutritional Supplement Lines was $11.6
million or 64% of the net sales of the Nutritional Supplement Lines. Gross
profit on women's health
23
<PAGE> 24
products was $4.4 million or 31% of the net sales of women's health products in
1997 compared to $600,000 or 8% of the net sales of women's health products in
1996. The increase was primarily due to provisions for product returns recorded
in 1996 due to consolidation in the industry and cost reductions realized in
1997 from the manufacture of pregnancy test sticks at the Company's facility in
Galway, Ireland. Gross profit on diagnostic products was $9.9 million or 54% of
the net sales diagnostic products in 1997 compared to $2.5 or 38% of the net
sales of diagnostic products in 1996. The increase in gross profit on diagnostic
product sales is primarily due to the Company's acquisition of Orgenics in
October 1996.
Research and Development Expense. Research and development expense for
1997 increased $9.0 million or 135% to $15.6 million from $6.6 million in 1996.
The increase was primarily due to expenses incurred in connection with the
development of the Company's electrochemical blood glucose monitoring system and
increased spending on research related to noninvasive blood glucose
technologies. These development activities accounted for $11.5 million of the
1997 research and development expense. In addition, the Company continues to
allocate research and development resources to the areas of women's health
products, nutritional supplements and infectious diseases, principally those
related to the detection of HIV. The Company expects to continue to spend
significant amounts on research and development throughout 1998.
Charge for In Process Research and Development. A portion of the purchase
price of the Company's acquisition of Orgenics was allocated to in process
research and development projects that did not achieve technological feasibility
and did not have future alternative uses. The total charge for in process
research and development was $7.7 million of which $3.3 million was expensed in
1997 and $4.4 million was expensed in 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $15.1 million or 144% to $25.6 million from
$10.5 million in the 1996. The increase was primarily attributable to the
acquisition of Orgenics and marketing efforts and the hiring of additional staff
to support the sales of the Nutritional Supplement Lines. Selling, general and
administrative expense, as a percentage of net revenues, decreased during 1997
as compared to 1996. Selling, general and administrative expense were 49% of net
revenues for 1997 compared to 55% for 1996.
Non-Cash Compensation Expense. The non-cash compensation expense of
$168,000 for 1997 relates to compensation pertaining to the grant of certain
stock options to employees. Substantially all of the non-cash compensation
expense for 1996 related to certain stock options granted to certain employees
of the Company. For 1996 the non-cash compensation expense related to a stock
option granted to the Company's Chief Executive Officer in August 1995 was $3.2
million. Additional non-cash compensation expense of $680,000 for 1996 related
to stock options granted to certain other employees that were contingent on
certain goals that were met. In accordance with SFAS No. 123, Accounting for
Stock Based Compensation, the Company recorded non-cash compensation expense of
$76,000 for stock options granted to outside consultants. The remaining $199,000
of non-cash compensation expense for 1996 relates to the amortization of
deferred compensation pertaining to the grant of certain stock options to
employees.
Interest and Other Income (Expense). In 1997, the Company recognized
$498,000 of non-cash interest expense for the amortization of the original issue
discount on convertible notes and warrants. In 1996, the Company recognized
$10.6 million of non-cash interest expense relating to certain warrants issued
in connection with the acquisition of Cambridge Diagnostics. The charge relates
to the increase in the fair market value of the underlying Common Stock at
December 31, 1996 as compared to the estimated fair market value at December 31,
1995. Excluding the aforementioned non-cash charges, interest expense was $5.0
million for 1997 as compared to $662,000 for 1996. The increase in interest
expense is due to new financing activities in 1997 that are described under the
caption of "Liquidity and Capital Resources". The interest expense on financing
received in 1997 was $1.8 million on the loans from Fleet National Bank,
$400,000 on the AHP Note, $900,000 on the Subordinated Revenue Royalty Notes,
$800,000 on the Senior Subordinated Convertible Notes, and $300,000 on a loan
from LifeScan. Interest income increased by $425,000 to $968,000 for 1997 from
$543,000 in 1996, primarily due to larger cash balances.
24
<PAGE> 25
The Company incurred an unrealized loss of $717,000 in 1997 on the
translation of intercompany receivables. Fluctuations in foreign currency did
not significantly impact revenue performance measured in U.S. dollars for 1997.
Substantially all sales are paid in the functional currency of the selling
entity.
Dividends and Minority Interest. The Company's subsidiary in Inverness,
Scotland accrued $114,000 for 1997, representing a 6% dividend payable on its
outstanding cumulative redeemable preference shares, as compared to $110,000 for
1996. The Company recognized a $327,000 loss in 1997 related to its 28.9% equity
in the net loss of Enviromed compared to a $200,000 loss recognized in 1996.
Minority interest in certain of the Company's subsidiaries was $181,000 in 1997
and $133,000 in 1996.
Extraordinary Loss. In 1997, the Company incurred a non-cash charge of
$579,000 for the extinguishment of debt related to the Cambridge Diagnostics
Notes and ENPLC Notes which were exchanged for convertible notes.
Income Taxes. In 1997, the Company recorded provisions of $196,000 for
income taxes of which $175,000 is estimated Pennsylvania state income tax.
Net Loss. Net loss for 1997 was approximately $24.7 million or ($3.36) per
common share as compared to $28.6 million or ($6.00) per common share in 1996.
The net loss in 1997 includes non-cash charges for (i) interest expense of
$498,000, (ii) an extraordinary loss on the extinguishment of debt of $579,000,
(iii) in process research and development of $3.3 million and (iv) equity in the
net loss of Enviromed of $327,000. The net loss in 1996 includes non-cash
charges for (i) interest expense of $10.6 million, (ii) compensation expense of
$4.2 million, (iii) in process research and development of $4.4 million and (iv)
equity in the net loss of Enviromed of $200,000. Excluding the non-cash charges
results in a net loss of $20.0 million or ($2.50) per common share in 1997 as
compared to $9.2 million or ($1.92) per common share for 1996. These losses
reflect increased spending on research and development as well as expansion of
the Company's sales and marketing efforts and the hiring of additional staff to
support the Company's operations.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenues. Net revenues increased $11.8 million or 163% to $19.1
million from $7.2 million in 1995. Net product sales increased $7.3 million or
109% to $14.1 million from $6.7 million in 1995. Two significant factors
contributed to the increase. The first was the acquisition of 57.1% of Orgenics
on October 24, 1996, which accounted for $2.0 million of the sales in 1996. The
second was the increased demand in the United States for the Company's pregnancy
and ovulation prediction products. Net product sales for the Company's U.S.
operations for 1996 were $6.6 million, an increase of $4.5 million or 218% from
net product sales of $2.1 million in 1995. The Company also recognized $4.0
million of revenue related to a $7.0 million success fee received from LifeScan
in October 1996. Approximately $722,000 of the revenues for 1996 was
attributable to the amortization of deferred revenue associated with certain
development and capital grants relating to the Inverness Facility. There was
approximately $216,000 of revenue recognized in connection with these grants for
1995.
Gross Profit. Gross profit for 1996 increased $6.4 million or 384% to $8.1
million from $1.7 million in 1995. Gross profit as a percentage of net revenues
increased to 43% for 1996 from 23% in 1995. The increase in gross profit was
primarily attributable to the revenue related to the success fee from LifeScan
and the amortization of deferred revenue of certain development and capital
grants relating to the Inverness Facility. Gross profit on product sales was 16%
for both years.
Research and Development Expense. Research and development expense for
1996 increased $5.1 million or 333% to $6.6 million from $1.5 million in 1995.
The increase was primarily due to expenses incurred in connection with the
development of the Company's New System and generic electrochemical blood
glucose test strips. These development activities accounted for $4.0 million of
the increase in 1996. In addition, the Company continues to allocate research
and development resources to the areas of women's health products and infectious
diseases, principally those related to the detection of HIV.
25
<PAGE> 26
Charge for In Process Research and Development. A portion of the purchase
price of the Company's 57.1% interest in Orgenics was allocated to in process
research and development projects that did not achieve technological feasibility
and did not have future alternative uses.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $4.9 million or 86% to $10.5 million from $5.6
million in the 1995. The increase was primarily attributable to expansion of the
Company's marketing efforts in the United States and Europe and the hiring of
additional staff to support the Company's operations. Selling, general and
administrative expense, as a percentage of net revenues, decreased during 1996
as compared to 1995. Selling, general and administrative expense were 55% of net
revenues for 1996 compared to 78% for 1995.
Non-Cash Compensation Expense. Substantially all of the non-cash
compensation expense for 1996 related to certain stock options granted to
certain employees of the Company. For 1996 the non-cash compensation expense
related to a stock option granted to the Company's Chief Executive Officer in
August 1995 was $3.2 million. Non-cash compensation expense of $680,000 for 1996
related to stock options granted to certain employees that were contingent on
certain goals which have now been met. In accordance with SFAS No. 123,
Accounting for Stock Based Compensation, the Company recorded non-cash
compensation expense of $76,000 for stock options granted to outside
consultants. The remaining $199,000 of non-cash compensation expense for 1996
relates to the amortization of deferred compensation pertaining to the grant of
certain stock options to employees.
Interest and Other Income (Expense). In 1996, the Company recognized $10.6
million of non-cash interest expense relating to certain warrants issued in
connection with the acquisition of Cambridge Diagnostics. The charge relates to
the increase in the fair market value of the underlying Common Stock at December
31, 1996 as compared to the estimated fair market value at December 31, 1995.
Excluding the non-cash interest expense relating to the warrants, interest
expense was $662,000 for 1996 as compared to $283,000 for 1995. Interest income
increased by $505,000 for 1996 as compared to last year, primarily due to larger
cash balances.
Fluctuations in foreign currency did not significantly impact revenue
performance measured in U.S. dollars for 1996. Substantially all sales are paid
in the functional currency of the selling entity.
Dividends and Minority Interest. The Company's subsidiary in Inverness,
Scotland accrued $110,000 for 1996, representing a 6% dividend payable on its
outstanding cumulative redeemable preference shares, as compared to $56,000 for
1995. The Company also recognized a $200,000 loss related to its 28.9% equity in
the net loss of Enviromed and an allocation of $133,000 minority interest in
Orgenics.
Net Loss. Net loss for 1996 was approximately $28.6 million or ($6.00) per
common share as compared to $10.1 million or ($2.61) per common share in 1995.
Excluding the previously described non-cash interest expense of $10.6 million,
non-cash compensation expense of $4.2 million, non-cash charge for in process
research and development of $4.4 million and equity in the net loss of Enviromed
of $200,000 in 1996 and non-cash interest expense of $4.2 million in 1995
results in a net loss of $9.2 million or ($1.92) per common and common
equivalent share in 1996 as compared to $5.8 million or ($1.52) per common and
common equivalent share for 1995. These losses reflect increased spending on
research and development as well as expansion of the Company's sales and
marketing efforts and the hiring of additional staff to support the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the funds it has
received in connection with the Initial Public Offering, a secondary public
offering, funds received in connection with the LifeScan Alliance, private
placements of debt and equity securities, a bank line of credit and other
borrowings, cash from product sales and grants from government development
agencies.
In November 1995, in connection with the closing of an investment agreement
between Johnson & Johnson Development Corporation ("JJDC") and the Company,
Selfcare received an advance of $7.0 million from JJDC. The Company received an
additional $6.7 million advance in May 1996 in connection with the
26
<PAGE> 27
Company's filing of a Section 510(k) Notification with respect to the prior
version of FastTake(TM) and the acceptance for the filing by the FDA on May 21,
1996 of such notification. In September 1996, the Company received FDA Clearance
for the prior version of the FastTake(TM). In conjunction with LifeScan, the
Company subsequently undertook certain enhancements to the user interface
features for the prior version of the FastTake(TM). The underlying chemistry and
function of the disposable strips of FastTake(TM), however, were not changed
from those of the prior version of FastTake(TM). On October 22, 1996 the Company
announced that it had entered into the Distribution Agreement with LifeScan
pursuant to which LifeScan will distribute the FastTake(TM). The Company filed a
Section 510(k) Notification in February 1997 with the FDA with respect to
FastTake(TM). FastTake(TM) received FDA clearance to market on June 20, 1997. As
contemplated by the November 10, 1995 agreements between Selfcare and LifeScan,
LifeScan paid Selfcare in October 1996 a $7.0 million success fee and JJDC
converted its previous cash advances to Selfcare of approximately $13.7 million
into 201,622 shares of Common Stock upon the consummation of the distribution
agreement with the Company. In addition, JJDC will also receive, for no
additional consideration, additional shares of Common Stock equal to 5% of all
Common Stock issued by the Company pursuant to options and warrants that were
outstanding as of November 10, 1995. To date, JJDC has received an additional
9,743 shares of Common Stock. The Company estimates that JJDC will ultimately
receive approximately an additional 245,583 shares of Common Stock.
In November 1994, Selfcare acquired Cambridge Diagnostics from Cambridge
Biotech Corporation for an aggregate of $2.1 million and the assumption of
certain liabilities. In addition, the Company furnished Cambridge Diagnostics
with a $900,000 working capital line of credit. Selfcare financed the
acquisition of Cambridge Diagnostics by utilizing a bank line of credit and
subsequently refinanced the amount borrowed through the issuance of an aggregate
of $3.0 million in original principal amount of 10% promissory notes (the "CDIL
Notes"), together with attached warrants with an aggregate purchase price of
$30,000 (the "CDIL Warrants"). The CDIL Notes were due March 31, 1998, and bore
interest at the rate of 10% per year. The number of shares of Common Stock
issuable pursuant to the CDIL Warrants is equal to 69% of the net sales of
Cambridge Diagnostics for the fiscal year preceding the repayment of the CDIL
Notes, divided by $32.87. Based on this formula and Cambridge Diagnostics' net
sales for fiscal year 1995, had the CDIL Notes been repaid on December 31, 1996,
all of the CDIL Warrants would have become exercisable for an aggregate of
1,142,635 shares of Common Stock. On December 31, 1996, the holders of $2.6
million in principal amount of the CDIL Notes entered into agreements (the
"Extension Agreements") to terminate and cancel their CDIL Warrants, in exchange
for which the Company agreed to transfer to such holders, for no additional
consideration, an aggregate of 990,050 shares of Common Stock on the earlier of
January 15, 2000, or the occurrence of a change in control (as defined in the
Extension Agreements) of the Company. In December 1997, the Company accelerated
the issuance of the 1,142,635 shares to December 17, 1997. In December 1997, the
Company entered into exchange agreements with the holders of approximately $2.95
million of CDIL Notes pursuant to which the Company exchanged notes convertible
into shares of Common Stock (the "Convertible CDIL Notes") for the CDIL Notes.
The Convertible CDIL Notes were issued in a principal amount equal to the
principal amount of the CDIL Notes exchanged by the holders thereof, bear
interest at the rate of 10% per year, mature on the six-month anniversary of the
date of issuance of the Convertible CDIL Notes (the "Convertible CDIL Notes
Maturity Date"), are convertible by the holders of such Convertible CDIL Notes
in whole at any time on or prior to the Maturity Date into that number of shares
of Common Stock determined by dividing the principal balance of such Convertible
CDIL Notes plus any accrued interest thereon by $7.225 (the "CDIL Conversion
Price"), and will automatically convert, without any action on the part of the
holders, on the Convertible CDIL Notes Maturity Date, in the event they are not
sooner prepaid or converted, into that number of shares of Common Stock
determined by dividing the principal balance of such Convertible CDIL Notes plus
the accrued interest thereon by the Conversion Price. The shares of Common Stock
into which the Convertible CDIL Notes are convertible did not receive rights to
register such shares under the Securities Act. Therefore, such shares of Common
Stock will not be freely transferable absent an available exemption from
registration. The CDIL Conversion Price represents a 15% discount from the
closing price of the Company's Common Stock on the date immediately preceding
the effective date of the exchange of the CDIL Notes for the Convertible CDIL
Notes, reflecting in part the fact that shares issuable upon conversion of the
Convertible CDIL Notes are not freely transferable. The direct and indirect
holders of
27
<PAGE> 28
CDIL Notes included the following directors and officers, which directors and
officers exchanged an aggregate principal amount of approximately $0.8 million
of CDIL Notes on identical terms with all other holders of CDIL Notes: John F.
Levy, Willard L. Umphrey and Ron Zwanziger. The other holders of the CDIL Notes
were; Douglas Alcaide, Murat Anamur & Deniz Ozel, Alex Bodkin, Charles T.
Comiso, Ann M. Dignam, Edward Eagan, Kenton & Hannalore Eldridge, Alan S. Fitz
MPPP, Ralph Freidin, T. Lawrence Gasse, John B. Glode, Orit Goldstein, Tonlyn
Investments Ltd., Susan Hartz, George Howell, James L. Katz, Roy E. Kent, Ming
Lash, Martin P. Lele, Steven D. Levy, Kathleen Mason, Richard Mastromatteo, Sue
Beth Mazer, Lawrie Okurowski, Mark Parent, Domenic Pugliares, David Scott,
Barbara Sherman, Donald S. and Barbara Sherman JT WROS, Lois Silverman,
Dorairaju Thavaseelan, M.J. Tolkoff, U.S. Boston Corp. Profit Sharing Retirement
Plan FBO Leon Okurowski, and Arieh & Miriam Zwanziger. In addition, U.S. Boston
Capital Corporation, a broker-dealer, the President of which is Willard L.
Umphrey, a director and principal stockholder of the Company, received a fee of
three percent (3%) of the principal amount of the CDIL Notes exchanged as
compensation for services rendered by U.S. Boston Capital Corporation in
connection with the exchange.
The Company received $1.6 million in June 1995 from an investment by
Inverness & Nairn Local Enterprise Corporation ("INLEC"), a development agency
funded by the government of the United Kingdom, in 1,000,000 shares of 6%
Cumulative Redeemable Preference Shares (the "Preference Shares") of Inverness
to finance a portion of the start-up costs relating to the facility in
Inverness, Scotland. The Preference Shares held by INLEC (including cumulative
dividend) are reflected in the accompanying consolidated balance sheets as
mandatorily redeemable preferred stock of a subsidiary. The Company must redeem
all 1,000,000 Preference Shares by May 31, 2000. If the Company cannot legally
redeem the Preference Shares on that date, it must redeem the shares as soon as
legally permissible at a price of approximately $1.91 per share plus any accrued
and unpaid dividends. Upon liquidation of Inverness, the Preference Shareholders
are entitled to receive approximately $1.59 per share, plus any accrued and
unpaid dividends; thereafter, the ordinary stockholders shall equally share with
the Preference Shareholders in the remaining assets to be distributed. The
Preference Shareholders do not hold any voting rights.
In March 1996, the Company entered into an agreement (the "Manufacturing
Agreement") with Princeton BioMeditech Corporation ("Princeton") pursuant to
which the Company, among other things, agreed to purchase certain minimum
amounts of product relating to the Company's pregnancy self-test products from
Princeton over a three year term and provide $500,000 in capital to Princeton
for the purchase of equipment necessary to implement the agreement. As of
December 31, 1996, the Company had paid Princeton the $500,000 for the
equipment, which the Company owns but which is currently installed at Princeton.
On August 6, 1997, the Company and Princeton amended the Manufacturing Agreement
to extend the term of certain provisions of the agreement for a period of four
years beginning on July 1, 1997. During the first year of the extended contract,
the Company is obligated to purchase minimum amounts of products from Princeton
at agreed upon prices totaling $2,656,000, which prices are subject in each case
to renegotiation if significant changes occur in the marketplace to
significantly erode the Company's ability to aggressively market such products.
During the remaining three years of the agreement, the Company is obligated to
purchase minimum amounts of products at prices to be mutually agreed upon based
upon market conditions.
Also on August 6, 1997, the Company and Princeton, together with
wholly-owned subsidiaries of each of the Company (the "Selfcare Sub") and
Princeton (the "Princeton Sub"), and PBM-Selfcare LLC, a limited liability
company owned and managed by the Company and Princeton (the "LLC"), entered into
a Joint Venture Agreement (the "Joint Venture Agreement"). The purpose of the
joint venture is to own, develop and exploit certain intellectual property
rights related to rapid immunochemical diagnostic tests (the "Intellectual
Property"). Under the Joint Venture Agreement, Princeton contributed its rights
in the Intellectual Property to the LLC while Selfcare Sub agreed to contribute
up to $2,000,000, on an as needed basis, to cover expenses incurred by the LLC
in enforcing the rights of the LLC in the Intellectual Property. Selfcare Sub
and Princeton Sub are also obligated to cover 50% of any other operating
expenses of the LLC. The LLC entered into license agreements with both Selfcare
and Princeton granting each a non-exclusive, worldwide, royalty-free license to
the Intellectual Property. To date the Company has not incurred material
28
<PAGE> 29
costs pursuant to the Joint Venture Agreement and does not anticipate expending
material resources in connection with this activity during the 1998 fiscal year.
In October 1996, Selfcare acquired a 57.1% direct and indirect equity
interest in Orgenics, as a result of the conversion of the Orgenics Debenture
and purchase of outstanding shares of Orgenics and Orgenics International. The
Company paid approximately $7.0 million in cash. On March 6, 1997 the Company
exercised its call rights to purchase substantially all of the remaining shares
in Orgenics and Orgenics International pursuant to option agreements with
substantially all of the holders of Orgenics and Orgenics International shares.
In total, the Company paid $18.4 million in cash and Common Stock, including
approximately $100,000 of direct acquisition costs, for 99.8% of Orgenics and
Orgenics International shares. In addition, the Company has granted options to
purchase up to 85,800 shares of Common Stock having a fair market value of
approximately $1.1 million.
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. 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 (the "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 (the "EN PLC Notes"). In December 1997, the Company exchanged
notes that are convertible into shares of Common Stock (the "Convertible EN PLC
Notes") in a principal amount equal to approximately $1.6 million for payments
due in January and April 1998 under the EN PLC Notes. The Convertible EN PLC
Notes bear interest at the rate of 10% per year, mature on the six-month
anniversary of the date of issuance of the Convertible EN PLC Notes (the
"Convertible EN PLC Notes Maturity Date"), are convertible by the holders
thereof in whole at any time on or prior to the Convertible EN PLC Notes
Maturity Date into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus any accrued interest
thereon by $7.225 (the "EN PLC Conversion Price") and will automatically
convert, without any action on the part of the holders thereof, on the
Convertible EN PLC Notes Maturity Date, in the event they are not sooner prepaid
or converted, into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus the accrued interest
thereon by the EN PLC Conversion Price. The shares of Common Stock into which
the Convertible EN PLC Notes are convertible did not receive rights to register
such shares under the Securities Act. Therefore, such shares of Common Stock
will not be freely transferable absent an available exemption from registration.
The EN PLC Conversion Price represents a 15% discount from the closing price of
the Company's Common Stock on the date immediately preceding the effective date
of the exchange of the amounts due under the EN PLC Notes in January and April
1998 for the Convertible EN PLC Notes, reflecting in part the fact that shares
issuable upon conversion of the Convertible EN PLC Notes are not freely
transferable. The holders of EN PLC Notes included the following directors and
officers, which directors and officers exchanged an aggregate amount of
approximately $0.8 million on identical terms with all other holders of EN PLC
Notes: Carol R. Goldberg, John F. Levy, Willard L. Umphrey and Ron Zwanziger.
On January 17, 1997, at a meeting of the shareholders of Enviromed called
at the request of Selfcare, the shareholders of Enviromed voted to remove the
existing Board of Directors of Enviromed and to elect as directors four
individuals nominated by Selfcare. The Company has provided loans of $742,000 of
which $320,000 is secured by a debenture ranking second behind Enviromed's bank.
The additional $422,000 is unsecured. The Company does not currently contemplate
making further loans to Enviromed at this time. Subject to Enviromed's
shareholders consent a further $240,000 may be loaned on a secured basis.
Selfcare has informed the board of Enviromed that it is no longer considering
further equity investments.
On February 19, 1997, the Company completed the Nutritional Supplement
Lines Acquisition, pursuant to which a newly-formed subsidiary of the Company,
Selfcare Consumer Products, Inc. ("SCPI") acquired the Nutritional Supplement
Lines from AHP. As consideration for the Nutritional Supplement Lines, SCPI paid
to AHP $30.0 million in cash and the Company issued to AHP a $6.0 million
promissory note (the "AHP Note"). The Company funded the cash portion of the
purchase price with a credit facility consisting of
29
<PAGE> 30
a $25.0 million term loan ("the AHP Term Loan") and a $5.0 million bridge loan
(the "AHP Bridge Loan"). The AHP Note was 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. The Company and AHP have agreed
to extend the note. The Company paid $2.0 million on February 27, 1998 and will
pay $2.0 million on April 1, 1998 and another $2.0 million on June 30, 1998.
The AHP Bridge Loan was repaid June 4, 1997. The Company paid $3.0 million
of principal on the AHP Term Loan in 1997 and paid the remainder of the AHP Term
Loan on February 19, 1998 from funds received from Chase (See "Subsequent
Events").
At December 31, 1997, the Company had cash and cash equivalents of $15.7
million, an $800,000 decrease from December 31, 1996. Cash used for operations
in 1997 was $15.9 million due largely to net losses of $24.7 million in 1997.
However, the net loss for 1997 included $9.9 million of non-cash items. Other
uses of cash in operating activities included increases in both accounts
receivable and inventory in the aggregate of $5.1 million reflecting the
Company's increase in sales. Prepaid and other current assets increased $228,000
due primarily to an increase in value added taxes (VAT) receivable. Cash was
provided for operations in part by an increase in accounts payable, accrued
expenses, and other current liabilities of $4.4 million.
During 1997, the Company used $5.4 million to purchase property and
equipment. Approximately $2.9 million of the purchased property and equipment
was for the Inverness Facility.
In March 1997, the Company sold 1.8 million shares of Common Stock in a
secondary public offering (the "March 1997 Offering"). The total net proceeds
from the March 1997 Offering were approximately $16.1 million after deducting
the underwriters' commission and approximately $900,000 of expenses.
Financing activities provided approximately $63.1 million before
commissions and expenses in 1997. The most significant financing activities
were: the March 1997 Offering with proceeds of $18.0 million before commissions
and expenses, the issuance of Subordinated Revenue Royalty Notes in June and
July, 1997 having an aggregate issue price of $7,500,000, the sale on August 26,
1997, of Series B Convertible Preferred shares in the total amount of
$8,000,000, the issuance on October 27, 1998 of the Senior Subordinated
Convertible Notes due October 28, 2002, in the aggregate principal amount of
$10,000,000 and warrants to receive up to 137,950 shares of the Company's
Common, and the conversion of certain amounts due under the EN PLC and
substantially all amounts due under the CDIL Notes, each as discussed above.
As of December 31, 1997, the Company had approximately $16.9 million and
$46.7 million of domestic and foreign net operating loss carryforwards,
respectively, and approximately $65,000 of research and development tax credit
carryforwards, which expire at various dates through 2012. These losses and tax
credits are available to reduce federal taxable income and federal income taxes,
respectively, in future years, if any. These losses and tax credits are subject
to review and possible adjustment by the Internal Revenue Service and may be
limited in the event of certain cumulative changes in ownership interests of
significant shareholders over a three-year period in excess of 50%. The Company
has recorded a 100% valuation allowance against these deferred tax assets, as
the realization of such assets is uncertain.
The Company currently plans to continue its research and development of new
technologies and pursue the acquisition of new products and technologies,
whether through licensing arrangements, business acquisitions, or otherwise. The
Company anticipates that it will be required to raise substantial additional
funds for such projects or strategies. There can be no assurance that any such
additional capital will be available on terms acceptable to the Company, or at
all.
The Company currently anticipates that its existing capital resources,
including funds expected to be generated from operations and other financing
activities, will be adequate to satisfy its capital requirements for at least
the next 12 months. No assurance can be given that additional financing,
including currently planned 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
30
<PAGE> 31
require the Company to relinquish rights to certain of its technologies or
products which the Company would otherwise pursue on its own.
Subsequent Events
On February 18, 1998, the Company's subsidiary SCPI acquired Can-Am Care
Corporation ("Can-Am"), a leading supplier of diabetes care products, for
approximately $27.9 million, consisting of $13.6 million in cash, notes in the
aggregate principal amount of $2 million (subject to potential premiums of up to
an additional $2 million in the aggregate based upon increases in the Company's
common stock during the term of the Notes) and approximately 1.1 million shares
of the Company's Common Stock. Can-Am sells insulin syringes, blood lancets,
glucose tablets and specialty skin creams to pharmacies across the United
States. Can-Am's revenues for the fiscal year ended May 31, 1997 were
approximately $25.9 million. Upon the closing of the acquisition, Mr. Robert
Oringer, President of Can-Am, became a member of the Company's Board of
Directors and continued as President of Can-Am.
In consideration for the sale of his interest in Can-Am, Mr. Oringer
received from the Company 277,083 shares of the Company's Common Stock and a
Non-Negotiable Note, maturing February 18, 2001, in the principal amount of
$500,000, bearing interest at an annual rate of 6%. In connection with the
acquisition, Can-Am entered into a Supply Agreement with A.M.G. Medical, Inc.
("AMG") whereby Can-Am agreed, with certain exceptions, to purchase 100% of its
requirements for monolet-compatible lancets from AMG for so long as Can-Am is in
the business of selling monolet compatible lancets. In addition, Can-Am entered
into a Management Services Agreement with AMG whereby AMG will provide labor,
office space, office related services and insurance to Can-Am for a term of five
years. Under the Management Services Agreement, Can-Am will pay AMG a fixed fee
to cover the costs of office space, tax, heating, maintenance and insurance
costs associated therewith, office expenses and telephone and computer equipment
and access expenses ("Fixed Fee"); a variable fee to cover the costs of
salaries, overtime pay, bonuses and related compensation of employees providing
services to Can-Am ("Variable Fee"); and the costs of all direct expenses
incurred by AMG, including supply expenses, postage costs, printing costs, and
other miscellaneous charges and expenses ("Direct Expenses"). During the first
year of the term of the Management Services Agreement, the Fixed Fee will be
$112,800. This fixed Fee will increase by 5% annually and is subject to change
after renegotiation based upon changes in the scope of services required by
Can-Am. The Variable Fee is based on the actual salaries paid by AMG to the AMG
employees providing services to Can-Am and the percentage of their time such
employees devote to providing services to Can-Am. The Direct Expenses are based
on the actual costs AMG incurs. Robert Oringer's wife owns 33% of AMG through a
personal holding company.
To fund the cash portion of the purchase price, the Company and SCPI
entered into a $42 million credit agreement with a The Chase Manhattan Bank
("Chase"). The new credit agreement consists of a $37 million term loan and a $5
million revolving line of credit. Of the proceeds from this term loan, SCPI used
$32 million to finance the cash portion of the Can-Am purchase price and to
refinance the existing bank debt with Fleet National Bank ("Fleet"). The
remaining $5 million was used to repay a $5 million note payable by SCPI to the
Company. SCPI will use the remaining availability under the new credit facility
to fund working capital.
The new credit agreement requires compliance with various financial and
non-financial covenants for both the Company and SCPI. The primary financial
covenants pertain to, among other things, interest coverage, debt services
coverage, leverage, and earnings before interest, taxes, depreciation and
amortization (EBITDA).
The term loan and revolving line of credit allow SCPI to borrow funds at
varying rates, including options to borrow at an alternate base rate, as
defined, plus a spread from .25% to 1.75%, or the LIBOR rate plus a spread from
1.75% to 3.00%. The spreads discussed above depend on SCPI's ratio of senior
funded debt to EBITDA.
Borrowings are secured by SCPI's stock, and the assets of SCPI, CanAm and
the Company and its subsidiaries. Borrowings under the revolving line of credit
are based on certain percentages of eligible assets, as defined. SCPI is
required to pay an annual fee of .375% for the unused portion of the revolving
line of credit. The revolving line of credit expires on February 18, 2002.
31
<PAGE> 32
SCPI is required to make quarterly principal payments ranging from $1.3
million to $1.95 million through December 31, 2003, with payments of
approximately $1.4 million beginning on June 30, 1998. SCPI and the Company must
also make mandatory prepayments on the term loan if they meet certain cash flow
thresholds, sell assets outside of the ordinary course of business, issue or
sell indebtedness or issue stock, as defined in the credit agreement.
ITEM 7. FINANCIAL STATEMENTS.
See Financial Statements and Schedules attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by Items 9, 10, 11 and 12 of Part III of this
Report on Form 10-KSB is hereby incorporated by reference from the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
a) The following documents are filed as part of this Annual Report on Form
10-KSB: 1. Financial Statements -- See Index on page F-1.
2. The following is a complete list of Exhibits filed as part of this
Annual Report on Form 10-KSB:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
3.2 Certificate of Designation for the Selfcare, Inc. Series A
Convertible Preferred Stock (incorporated by reference to
Exhibit 3.2 to the Company's registration statement on Form
SB-2, No. 333-19911)
3.3 Amended and Restated By-laws (incorporated by reference to
Exhibit 3.2 to the Company's registration statement on Form
SB-2, No. 333-4830-NY)
4.1 Specimen certificate for shares of Common Stock, par value
$.001 per share, of the Company (incorporated by reference
to Exhibit 4.1 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
4.2 Specimen certificate for shares of Series A Convertible
Preferred Stock, par value $.001 par share, of the Company
(incorporated by reference to Exhibit 4.2 to the Company's
registration statement on Form SB-2, No. 333-19911)
9.1 Voting Agreement, dated May 13, 1996, by and among the
stockholders of Selfcare, Inc. who are signatories thereto.
(incorporated by reference to Exhibit 9.1 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
+10.1 Agreement, dated March 22, 1996, between Selfcare, Inc. and
Princeton BioMeditech Corporation (incorporated by reference
to Exhibit 10.1 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.2 Master Agreement, dated as of November 10, 1995, by and
among Johnson & Johnson Development Corporation, LifeScan,
Inc. and Selfcare, Inc. (incorporated by reference to
Exhibit 10.2 to the Company's registration statement on Form
SB-2, No. 333-4830-NY)
10.3 Form of Sales Distribution Agreement for Testing System for
Blood Glucose between LifeScan, Inc. and Selfcare, Inc.
(incorporated by reference to Exhibit 10.3 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.4 Investment Agreement, dated as of November 10, 1995, by and
between Johnson & Johnson and Selfcare, Inc. (incorporated
by reference to Exhibit 10.4 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.5 Master Agreement, dated as of November 30, 1994, among
Selfcare, Inc., Cambridge Biotech Limited (Cambridge
Diagnostics Ireland Limited) and Cambridge Biotech
Corporation (incorporated by reference to Exhibit 10.5 to
the Company's registration statement on Form SB-2, No.
333-4830-NY)
10.6 Sale and Subscription Agreement, dated as of November 30,
1994, between Cambridge Biotech Limited (Cambridge
Diagnostics Ireland Limited), Cambridge Biotech Corporation
and Selfcare, Inc. (incorporated by reference to Exhibit
10.6 to the Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.7 Indemnification Agreement dated as of November 30, 1994, by
and between, Cambridge Biotech Corporation and Cambridge
Biotech Limited (Cambridge Diagnostics Ireland Limited)
(incorporated by reference to Exhibit 10.7 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.8 License Agreement [CAPILLUS], dated November 30, 1994,
between Cambridge Biotech Corporation and Cambridge Biotech
Limited (Cambridge Diagnostics Ireland Limited)
(incorporated by reference to Exhibit 10.8 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.9 License Agreement [HIV 1/2 EIA], dated November 30, 1994,
between Cambridge Biotech Corporation and and Cambridge
Biotech Limited (Cambridge Diagnostics Ireland Limited)
(incorporated by reference to Exhibit 10.9 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.10 License Agreement [HIV 1/2 RTD], dated November 30, 1994,
between Cambridge Biotech Corporation and Cambridge Biotech
Limited (Cambridge Diagnostics Ireland Limited)
(incorporated by reference to Exhibit 10.10 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.11 License Agreement [LYME], dated November 30, 1994, between
Cambridge Biotech Corporation and Cambridge Biotech Limited
(Cambridge Diagnostics Ireland Limited) (incorporated by
reference to Exhibit 10.11 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.12 License Agreement [RAPID TEST], dated November 30, 1994,
between Cambridge Biotech Corporation and Cambridge Biotech
Limited (Cambridge Diagnostics Ireland Limited)
(incorporated by reference to Exhibit 10.12 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.13 License Agreement [HEP D], dated November 30, 1994, between
Cambridge Biotech Limited (Cambridge Diagnostics Ireland
Limited) and Cambridge Biotech Corporation (incorporated by
reference to Exhibit 10.13 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.14 Shareholders' Agreement, dated November 30, 1994, by and
among Selfcare, Inc., Cambridge Biotech Corporation and
Cambridge Biotech Affiliated Corporation) (Cambridge
Affiliate Corporation) (incorporated by reference to Exhibit
10.14 to the Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.15 Management Agreement, dated November 30, 1994, between
Cambridge Biotech Affiliated Corporation (Cambridge
Affiliate Corporation) and Cambridge Biotech Limited
(Cambridge Diagnostics Ireland Limited) (incorporated by
reference to Exhibit 10.15 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.16 Manufacturing Agreement, dated November 30, 1994, between
Cambridge Biotech Affiliated Corporation (Cambridge
Affiliate Corporation) and Cambridge Biotech Limited
(Cambridge Diagnostics Ireland Limited) (incorporated by
reference to Exhibit 10.16 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.17 Sales Agent Agreement, dated November 30, 1994, between
Cambridge Biotech Affiliated Corporation (Cambridge
Affiliate Corporation) and Cambridge Biotech Limited
(Cambridge Diagnostics Ireland Limited) (incorporated by
reference to Exhibit 10.17 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.18 Stock Purchase Agreement, dated as of March 8, 1994, among
Selfcare, Inc., Ron Zwanziger and Enviromed plc
(incorporated by reference to Exhibit 10.18 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.19 Registration Rights Agreement, dated April 5, 1994, between
Selfcare, Inc., USB '93 Technology Associates Limited
Partnership and Enviromed plc (incorporated by reference to
Exhibit 10.19 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.20 Shareholders' Agreement, dated as of March 15, 1994, among
Selfcare, Inc., USB '93 Technology Associates Limited
Partnership, Enviromed plc and the Ron Zwanziger Family
Trust (incorporated by reference to Exhibit 10.20 to the
Company's registration statement on Form SB-2, No.
333-4830-NY)
10.21 Technology Purchase and Sale Agreement, dated as of December
29, 1993, between Selfcare, Inc. and USB '93 Technology
Associates Limited Partnership (incorporated by reference to
Exhibit 10.21 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.22 Technology License and Development Agreement, dated as of
December 29, 1993, between Selfcare, Inc. and USB '93
Technology Associates Limited Partnership (incorporated by
reference to Exhibit 10.22 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.23 Guarantee and Debenture, dated August 30, 1995, between
Cambridge Biotech Limited (Cambridge Diagnostics Ireland
Limited) and USB '93 Technology, Inc. (incorporated by
reference to Exhibit 10.23 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.24 Guarantee of Selfcare, Inc., dated June 11, 1995, in favor
of Highlands and Islands Enterprises (incorporated by
reference to Exhibit 10.24 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.25 Guarantee of Selfcare, Inc., dated June 11, 1995, in favor
of Inverness and Nairn Enterprise Company (incorporated by
reference to Exhibit 10.25 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.26 Investment and Loan Agreement, dated December 24, 1995, by
and between Orgenics Ltd. and Selfcare, Inc. (incorporated
by reference to Exhibit 10.26 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.27 Form of Option Agreement by and between Selfcare, Inc. and
stockholders of Orgenics, Ltd. and Orgenics International
Holdings, B.V., together with letter amendment thereto dated
July 11, 1996. (incorporated by reference to Exhibit 10.27
to the Company's registration statement on Form SB-2, No.
333-4830-NY)
10.28 Grant Agreement, dated February 21, 1992, among The
Industrial Development Authority of Ireland, Cambridge
Biotech Limited (Cambridge Diagnostics Ireland Limited) and
Cambridge Biotech Corporation (incorporated by reference to
Exhibit 10.28 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.29 Grant Agreement, dated October 2, 1992, among The Industrial
Development Authority of Ireland, Cambridge Biotech Limited
(Cambridge Diagnostics Ireland Limited) and Cambridge
Biotech Corporation (incorporated by reference to Exhibit
10.29 to the Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.30 Grant Agreement, dated December 5, 1995, among The
Industrial Development Authority of Ireland, Cambridge
Biotech Limited (Cambridge Diagnostics Ireland Limited) and
Cambridge Biotech Corporation (incorporated by reference to
Exhibit 10.30 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.31 Employment Agreement, dated October 15, 1991, between
Superior Sensors, Inc. (Selfcare, Inc.) and Kenneth D. Legg,
Ph.D. (incorporated by reference to Exhibit 10.31 to the
Company's registration statement on Form SB-2, No.
333-4830-NY)
10.32 Employment Agreement, dated June 15, 1992, between Superior
Sensors, Inc. (Selfcare, Inc.) and Richard Pinkowitz, Ph.D.
(incorporated by reference to Exhibit 10.32 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.33 Employment Agreement, dated November 13, 1994, between
Selfcare International GmbH and Otto Wahl (incorporated by
reference to Exhibit 10.33 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.34 Selfcare, Inc. 1992 Stock Plan (incorporated by reference to
Exhibit 10.34 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.35 Selfcare, Inc. 1994 Incentive and Non-qualified Stock Option
Plan (incorporated by reference to Exhibit 10.35 to the
Company's registration statement on Form SB-2, No.
333-4830-NY)
10.36 Amended and Restated Selfcare, Inc. 1996 Stock Option and
Grant Plan (incorporated by reference to Exhibit 4.1 to the
Company's registration statement on Form S-8, No. 333-15583)
10.37 Selfcare, Inc. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.37 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.38 Standard form Commercial Lease, dated July 15, 1992, between
Superior Sensors, Inc. (Selfcare, Inc.) and Nova Realty
Associates (incorporated by reference to Exhibit 10.38 to
the Company's registration statement on Form SB-2, No.
333-4830-NY)
10.39 Lease, dated February 21, 1992, between The Industrial
Development Authority of Ireland and Cambridge Biotech
Limited (Cambridge Diagnostics Ireland Limited)
(incorporated by reference to Exhibit 10.39 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.40 Form of lease between Highlands and Islands Enterprises and
Hebocraft Limited (Inverness Medical Limited) (incorporated
by reference to Exhibit 10.40 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.41 Joint Venture Agreement, dated March 8, 1994, between
Enviromed Plc. and Selfcare, Inc. (incorporated by reference
to Exhibit 10.41 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.42 Lease for Selfcare, Inc.'s facility in Brussels, Belgium
(incorporated by reference to Exhibit 10.42 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
10.43 Lease for Selfcare International GmbH's facility in Munich,
Germany (incorporated by reference to Exhibit 10.43 to the
Company's registration statement on Form SB-2, No.
333-4830-NY)
10.44 Form of Cambridge Diagnostics Note, together with schedule
of noteholders (incorporated by reference to Exhibit 10.44
to the Company's registration statement on Form SB-2, No.
333-4830-NY)
10.45 Manufacturing Agreement, dated June 3, 1996, between Nova
Biomedical Corporation and Selfcare, Inc. (incorporated by
reference to Exhibit 10.45 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.46 Form of Cambridge Diagnostics Warrants, together with
schedule of warrantholders (incorporated by reference to
Exhibit 10.47 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.47 Agreement between Inverness Medical Limited (formerly,
Hebocraft Limited) and Highlands and Islands Enterprise,
dated May 31, 1995 (incorporated by reference to Exhibit
10.47 to the Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.48 Agreement between Inverness Medical Limited (formerly,
Hebocraft Limited) and Inverness & Nairn Local Enterprise
Company, dated May 31, 1995 (incorporated by reference to
Exhibit 10.48 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.49 Form of Letter Agreement by and between Selfcare, Inc. and
certain holders of Cambridge Diagnostics Notes dated July
19, 1996 (incorporated by reference to Exhibit 10.49 to the
Company's registration statement on Form SB-2, No.
333-4830-NY)
10.50 Supply Agreement dated August 27, 1996, by and between
Selfcare, Inc., Selfcare International GmbH and A. Menarini
Industrie Parmaceutiche Riunite S.r.L. (incorporated by
reference to Exhibit 10.50 to the Company's quarterly report
on Form 10-QSB for the period ended September 30, 1996)
10.51 Manufacturing Agreement for Pregnancy and Ovulation
Stick/Cassette Test Kits, dated September 7, 1996, by and
between Nova BioMedical Corp. and Selfcare, Inc.
(incorporated by reference to Exhibit 10.51 to the Company's
quarterly report on Form 10-QSB for the period ended
September 30, 1996)
10.52 Development and Distribution Agreement dated as of December
31, 1996 between ChemTrak Incorporated and Selfcare, Inc.
(incorporated by reference to Exhibit 10.52 to the Company's
registration statement on Form SB-2, No.333-19911)
10.53 Asset Purchase Agreement dated as of January 14, 1997 by and
between American Home Products Corporation, American
Cyanamid Company, A.H. Robbins Company, Incorporated and
Selfcare, Inc. and Selfcare Acquisition Corp. with certain
exhibits (incorporated by reference to Exhibit 10.53 to the
Company's registration statement on Form SB-2, No.
333-19911)
10.54 Agreement between EN PLC Limited Partnership and Selfcare,
Inc. dated October 17, 1996, together with an amendment
thereto dated as of January 1, 1997 (incorporated by
reference to Exhibit 10.54 to the Company's registration
statement on Form SB-2, No. 333-19911)
10.55 Form of Letter Agreement by and between Selfcare, Inc. and
certain holders of Cambridge Diagnostics Notes dated
November 23, 1996 (incorporated by reference to Exhibit
10.55 to the Company's registration statement on Form SB-2,
No. 333-19911)
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.56 Form of Letter Agreement by and between Selfcare, Inc. and
certain holders of Cambridge Diagnostics Notes dated
December 31, 1996 (incorporated by reference to Exhibit
10.56 to the Company's registration statement on Form SB-2,
No. 333-19911)
10.57 Sales Distribution Agreement for Testing System for Blood
Glucose between LifeScan, Inc. and Selfcare, Inc. dated
October 9, 1996 (incorporated by reference to Exhibit 10.57
to the Company's registration statement on Form SB-2, No.
333-19911)
10.58 Form of Offshore Convertible Securities Subscription
Agreement by and between Safecare, Inc. and certain
investors dated October, 1996, together with a form of
letter amendment thereto dated as of February 22, 1997
(incorporated by reference to Exhibit 10.58 to the Company's
registration statement on Form SB-2, No. 333-19911)
10.59 [Reserved]
10.60 Securities Purchase Agreement, dated as of October 27, 1997,
by and between Selfcare, Inc., Elliott Associates, L.P. and
Westgate International, L.P. (incorporated by reference to
Exhibit 99.5 to Selfcare, Inc.'s 10-QSB for the quarter
ending September 30, 1997)
10.61 Registration Rights Agreement, dated as October 27, 1997, by
and between Selfcare, Inc., Elliott Associates, L.P. and
Westgate International, L.P. (incorporated by reference to
Exhibit 99.5 to Selfcare, Inc.'s 10-QSB for the quarter
ending September 30, 1997)
10.62 Form of Senior Subordinated Convertible Note due October 28,
2002 (incorporated by reference to Exhibit 99.7 to Selfcare,
Inc.'s 10-QSB for the quarter ending September 30, 1997)
10.63 Form of Common Stock Purchase Warrant Certificate, dated as
of October 27, 1997 (incorporated by reference to Exhibit
99.8 to Selfcare, Inc.'s 10-QSB for the quarter ended
September 30, 1997)
10.64 Registration Rights Agreement, dated March 8, 1994, between
Selfcare, Inc., USB '93 Technology Associates Limited
Partnership and Enviromed plc (incorporated by reference to
Exhibit 10.19 to Selfcare Inc.'s registration statement on
Form SB-2, file no. 333-4830-NY)
10.65 Registration Rights Agreement dated August 26, 1997, by and
among the Company and Capital Ventures International, CC
Investments LDC, and Proprietary Convertible Investments
Group, Inc. (incorporated by reference to Exhibit 99.1 to
Selfcare Inc.'s registration statement on Form S-3, file no.
333-37961)
10.66 Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of Selfcare, Inc.
(incorporated by reference to Exhibit 99.1 to Selfcare
Inc.'s registration statement on Form S-3, file no.
333-37961)
10.67 Securities Purchase Agreement, dated August 26, 1997 by and
among the Company and Capital Ventures International, CC
Investments LDC, and Proprietary Convertible Investments
Group, Inc. (incorporated by reference to Exhibit 99.1 to
Selfcare Inc.'s registration statement on Form S-3, file no.
333-37961)
10.68 Form of Warrant to Purchase Shares of Common Stock of the
Company issued to Capital Ventures International, CC
Investments LDC and Proprietary Convertible Investments
Group, Inc. (incorporated by reference to Exhibit 99.1 to
Selfcare Inc.'s registration statement on Form S-3, file no.
333-37961)
+10.69 Form of Amendment to Agreement between Selfcare, Inc. and
Princeton BioMeditech Corporation dated August 6, 1997
(incorporated by reference to the Company's report on Form
10-QSB for the period ending September, 30, 1997)
10.70 Form of Stock Purchase Agreement dated February 18,1998 by
and among Can-Am Care Corporation, Selfcare, Inc., Selfcare
Consumer Products, Inc. and the stockholders of Can-Am Care
Corporation (incorporated by reference to Exhibit 2.1 to the
Company's report on Form 8-K dated February 18, 1998)
10.71 Form of Exchange Agreement relating to the Conversion of
Cambridge Diagnostics Note to Convertible Promissory Note
10.72 Form of Exchange Agreement relating to the Conversion of EN
PLC Note to Convertible Promissory Note
10.73 Form of Note issued by Company in connection with the
conversion of Cambridge Diagnostics and EN PLC Notes to
Convertible Promissory Notes, dated December 12, 1997
10.74 Form of Supply Agreement dated as of February 18, 1998 made
by and between A.M.G. Medical Inc., and Can-Am Care
Corporation
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.75 Form of Management Services Agreement dated February 18,
1998 made by and between A.M.G. Medical Inc., and Can-Am
Care Corporation
10.76 Form of Employment Agreement dated February 18, 1998 made by
and between Selfcare Consumer Products, Inc., Selfcare,
Inc., and Herbert Cover.
10.77 From of Employment Agreement dated February 18, 1998 made by
and between Selfcare Consumer Products, Inc., Selfcare,
Inc., and Robert Oringer.
10.78 Form of 6% Non-Negotiable Promissory Note, principal amount
$500,000, dated February 18, 1998 between Selfcare, Inc. and
Robert Oringer
10.79 Form of 6% Non-Negotiable Promissory Note, principal amount
$500,000, dated February 18, 1998 between Selfcare, Inc. and
Cover Family Trust
10.80 Form of Credit Agreement dated as of February 18, 1998,
among Selfcare Consumer Products, Inc., as the Borrower,
Selfcare, Inc., as the Guarantor, Certain Financial
Institutions, as the Lenders, and The Chase Manhattan Bank,
as the Agent for the Lenders
10.81 Stock Purchase Agreement, dated February 18, 1998, by and
among Selfcare, Inc., Selfcare Consumer Products, Inc.,
Can-Am Care Corporation, and the Stockholders party thereto
(incorporated by reference to Exhibit 2.1 to the Company's
Form 8-K dated February 18, 1998)
11.1 Statement re: computation of per share earnings
(incorporated by reference to Exhibit 11.1 to the Company's
registration statement on Form SB-2, No. 333-19911
21.1 Schedule of Subsidiaries of Registrant (incorporated by
reference to Exhibit 21.1 to the Company's registration
statement on Form SB-2, No. 333-19911)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kost Levary and Forer
27.1 Financial Data Schedule
27.2 Financial Data Schedule Restated 1996
27.3 Financial Data Schedule Restated 1995
99.1 [Reserved]
99.2 Judgment and Opinion of U.S. Bankruptcy Court (D. Mass. W.
Division), In re: Cambridge Biotech Corporation, Chapter 11
Case No. 94-43054-JFQ, entered September 1, 1995.
(incorporated by reference to Exhibit 99.2 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
99.3 Order of Approval of Scheme of Arrangement by The High Court
of Ireland (incorporated by reference to Exhibit 99.3 to the
Company's registration statement on Form SB-2, No.
333-4830-NY)
99.4 Order of U.S. Bankruptcy Court (D. Mass. W. Division), In
re: Cambridge Biotech Corporation, Chapter 11 Case No.
94-43054-JFQ, entered November 18, 1994 (incorporated by
reference to Exhibit 99.4 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
</TABLE>
- ---------------
+ Confidential treatment requested
(b) During the last quarter of the period covered by this Annual Report on
Form 10-KSB the Company filed no reports on Form 8-K.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ RON ZWANZIGER
----------------------------------
RON ZWANZIGER
Chairman, President and Chief
Executive Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RON ZWANZIGER President, Chief Executive March 31, 1998
- --------------------------------------------------- Officer and Director (Principal
RON ZWANZIGER Executive Officer)
/s/ ANTHONY HALL Chief Financial Officer March 31, 1998
- --------------------------------------------------- (Principal Financial Officer and
ANTHONY H. HALL Principal Accounting Officer)
/s/ JONATHAN J. FLEMING Director March 31, 1998
- ---------------------------------------------------
JONATHAN J. FLEMING
/s/ CAROL R. GOLDBERG Director March 31, 1998
- ---------------------------------------------------
CAROL R. GOLDBERG
/s/ JOHN F. LEVY Director March 31, 1998
- ---------------------------------------------------
JOHN F. LEVY
/s/ ROBERT ORINGER Director March 31, 1998
- ---------------------------------------------------
ROBERT ORINGER
/s/ EDWARD B. ROBERTS Director March 31, 1998
- ---------------------------------------------------
EDWARD B. ROBERTS
/s/ PETER TOWNSEND Director March 31, 1998
- ---------------------------------------------------
PETER TOWNSEND
/s/ WILLARD LEE UMPHREY Director March 31, 1998
- ---------------------------------------------------
WILLARD LEE UMPHREY
</TABLE>
38
<PAGE> 39
SELFCARE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SELFCARE, INC AND SUBSIDIARIES:
Reports of Independent Public Accountants.............. F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997.................................................. F-4
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1996 and 1997................ F-5
Consolidated Statements of Stockholders' Equity
(Deficit) for the Years Ended December 31, 1995, 1996
and 1997.............................................. F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997................ F-7
Notes to Consolidated Financial Statements............. F-8
</TABLE>
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Selfcare, Inc.:
We have audited the accompanying consolidated balance sheets of Selfcare,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1996 consolidated financial statements of Orgenics, Ltd., a majority-owned
subsidiary of the Company, which statements reflect total assets and total
revenues of 20% and 11% in 1996, respectively, of the consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Selfcare, Inc. and subsidiaries as
of December 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1998
F-2
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Orgenics Ltd.:
We have audited the consolidated balance sheet of Orgenics Ltd. (the
Company) as of December 31, 1996, and the related consolidated statement of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 1996 (not included herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of CPEI Orgenics LTDA (not included herein), a consolidated
subsidiary as of December 31, 1996 and for the year ended December 31, 1996,
which statements reflect total assets constituting 4% of total consolidated
assets and total revenues for the year ended December 31, 1996, constituting 20%
of total consolidated revenues. These statements were audited by other auditors
whose reports have been furnished to us, and our opinion, as it relates to the
amounts included for CPEI Orgenics LTDA, is based solely on the reports of the
other auditor.
We conducted our audit in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973 which do not differ significantly from
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statements included herein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly in all
material respects the consolidated financial position of the Company as of
December 31, 1996 and the consolidated results of their operations and cash
flows for the year ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel.
The Company did not account for stock options issued to employees according
to the requirement of generally accepted auditing standards in the United
States. For a description of the differences between generally accepted
accounting principles in Israel and United States generally accepted accounting
principles as applicable in these financial statements see notes 2n, 2o, and 2p
(not included herein) (see Note 2(a) included herein).
KOST LEVARY AND FORER
Certified Public Accountants (Israel)
A Member of Ernst & Young
International
Tel-Aviv, Israel
February 13, 1997
F-3
<PAGE> 42
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 16,458,654 $ 15,669,898
Accounts receivable, net of allowance for doubtful
accounts of approximately $316,000 in 1996 and
$1,158,000 in 1997...................................... 5,478,814 7,232,755
Inventories............................................... 2,266,234 5,344,531
Note receivable........................................... -- 4,979,232
Prepaid and other current assets.......................... 1,034,260 1,452,855
------------ ------------
Total current assets................................ 25,237,962 34,679,271
------------ ------------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and laboratory equipment........................ 7,275,161 11,908,740
Leasehold improvements.................................... 1,109,658 1,337,809
Furniture and fixtures.................................... 408,639 649,591
Computer equipment........................................ 657,780 1,367,492
------------ ------------
9,451,238 15,263,632
Less -- Accumulated depreciation and amortization........... 1,592,353 4,755,600
------------ ------------
7,858,885 10,508,032
------------ ------------
INTANGIBLE AND OTHER ASSETS:
Investments in affiliated companies....................... 3,732,609 3,405,609
Loan to affiliated company................................ -- 742,105
Goodwill and other intangible assets, net................. 3,741,171 43,393,263
Other assets.............................................. 518,825 3,035,414
------------ ------------
Total intangible and other assets................... 7,992,605 50,576,391
------------ ------------
$ 41,089,452 $ 95,763,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 2,936,851 $ 20,426,511
Accounts payable.......................................... 4,991,543 6,079,242
Accrued expenses and other current liabilities............ 5,826,952 8,251,021
Current portion of deferred revenue....................... 1,619,152 2,204,159
------------ ------------
Total current liabilities........................... 15,374,498 36,960,933
------------ ------------
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion.................. 4,786,347 2,674,971
Notes payable, net of current portion..................... 5,895,701 39,476,074
------------ ------------
Total long-term liabilities......................... 10,682,048 42,151,045
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
MINORITY INTEREST IN SUBSIDIARY............................. 1,199,684 70,496
------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY...... 1,753,928 1,868,027
------------ ------------
SERIES B CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE:
Issued and outstanding -- 8,000 shares in 1997............ -- 9,272,508
------------ ------------
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.001 par value --
Issued and outstanding -- 5,200 and 400 shares in 1996
and 1997............................................... 5 --
Common Stock, $.001 par value --
Authorized -- 45,000,000 shares
Issued -- 5,975,263 and 9,681,389 shares in 1996 and
1997, respectively..................................... 5,975 9,681
Additional paid-in capital................................ 55,233,847 75,753,699
Less -- Treasury Stock, at cost, 15,600 and 32,197 shares
in 1996 and 1997, respectively.......................... (15,200) (211,460)
Accumulated deficit....................................... (43,318,898) (70,183,506)
Cumulative translation adjustment......................... 173,565 72,271
------------ ------------
Total stockholders' equity.......................... 12,079,294 5,440,685
------------ ------------
$ 41,089,452 $ 95,763,694
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 43
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net product sales................................. $ 6,722,625 $ 14,066,630 $ 50,891,221
Grants and other revenue.......................... 516,087 4,996,158 1,359,150
------------ ------------ ------------
Net revenue.................................. 7,238,712 19,062,788 52,250,371
Cost of sales..................................... 5,564,438 10,958,024 26,277,645
------------ ------------ ------------
Gross profit................................. 1,674,274 8,104,764 25,972,726
------------ ------------ ------------
Operating Expenses:
Research and development........................ 1,532,496 6,643,186 15,632,789
Charge for in-process research and
development.................................. -- 4,396,700 3,303,300
Selling, general and administrative............. 5,649,781 10,517,790 25,636,823
Noncash compensation charge..................... 52,000 4,195,437 167,938
------------ ------------ ------------
Total operating expenses..................... 7,234,277 25,753,113 44,740,850
------------ ------------ ------------
Operating loss............................... (5,560,003) (17,648,349) (18,768,124)
Interest expense, including noncash interest
relating to issuance of warrants (Note 13(c))
and amortization of original issue discount
(Note 9)........................................ (4,519,375) (11,561,276) (5,486,835)
Interest and other income, net.................... 38,055 809,341 579,973
Equity in net loss of affiliate................... -- (200,000) (327,000)
------------ ------------ ------------
Loss before minority interest and dividends
and accretion on mandatorily redeemable
preferred stock of a subsidiary............ (10,041,323) (28,600,284) (24,001,986)
Minority interest in subsidiary's loss............ -- 132,990 181,017
Dividends and accretion on mandatorily redeemable
preferred stock of a subsidiary................. (55,580) (110,348) (114,099)
------------ ------------ ------------
Loss before extraordinary loss and income
taxes...................................... (10,096,903) (28,577,642) (23,935,068)
Extraordinary loss on early extinguishment of
notes payable (Note 2(n))....................... -- -- (579,354)
------------ ------------ ------------
Loss before income taxes..................... (10,096,903) (28,577,642) (24,514,422)
Provision for income taxes........................ -- -- 195,872
------------ ------------ ------------
Net loss..................................... $(10,096,903) $(28,577,642) $(24,710,294)
============ ============ ============
Basic and diluted net loss per common and
potential common share.......................... $ (2.61) $ (6.00) $ (3.36)
============ ============ ============
Basic and diluted weighted average number of
common and potential common shares
outstanding..................................... 3,866,841 4,767,493 7,990,666
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 44
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ---------------------
NUMBER $.001 NUMBER
OF PAR OF $.001 ADDITIONAL DEFERRED
SHARES VALUE SHARES PAR VALUE PAID-IN CAPITAL COMPENSATION
-------- -------- --------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... -- $ -- 3,760,757 $3,760 $ 4,658,147 $ --
Subsidiary's issuance of Preferred
Stock........................... -- -- -- -- -- --
Issuance of Common Stock in
connection with notes payable... -- -- 212,784 213 179,835 --
Issuance of Common Stock.......... -- -- 57,083 58 144,260 --
Issuance of Common Stock warrants
in connection with notes
payable......................... -- -- -- -- 30,000 --
Noncash interest expense related
to Common Stock warrants issued
in connection with notes
payable......................... -- -- -- -- 4,235,768 --
Exercise of Common Stock
options......................... -- -- 27,300 27 69,045 --
Deferred compensation related to
grants of Common Stock
options......................... -- -- -- -- 250,965 (250,965)
Amortization of deferred
compensation related to grants
of Common Stock options......... -- -- -- -- -- 52,000
Purchase of treasury stock........ -- -- -- -- -- --
Purchase of Common Stock
options......................... -- -- -- -- (14,800) --
Change in cumulative translation
adjustment...................... -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- --
-------- -------- --------- ------ ----------- ---------
Balance, December 31, 1995......... -- -- 4,057,924 4,058 9,553,220 (198,965)
Issuance of Common Stock, net of
issuance costs of approximately
$2,343,000...................... -- -- 1,505,508 1,505 10,439,344 --
Issuance of Common Stock related
to convertible advances......... -- -- 135,421 135 499,865 --
Issuance of Series A Convertible
Preferred Stock, net of issuance
costs of approximately
$338,000........................ 5,500 5 -- -- 5,161,850 --
Dividends accrued on Series A
Convertible Preferred Stock..... -- -- -- -- -- --
Conversion of Series A Convertible
Preferred Stock to Common
Stock........................... (300) -- 22,892 23 14,162 --
Conversion of note payable into
Common Stock.................... -- -- 201,622 202 13,693,346 --
Exercise of stock options......... -- -- 51,896 52 80,017 --
Noncash interest expense related
to Common Stock warrants issued
in connection with promissory
notes payable................... -- -- -- -- 10,632,842 --
Noncash compensation expense
related to Common Stock options
issued to Company's president... -- -- -- -- 3,240,000 --
Noncash compensation expense
related to grants of Common
Stock options................... -- -- -- -- 756,472 --
Noncash interest expense related
to Common Stock warrants issued
in connection with promissory
notes payable................... -- -- -- -- 106,729 --
Options granted in connection with
the Orgenics Acquisition........ -- -- -- -- 1,056,000 --
Amortization of deferred
compensation related to grant of
Common Stock options............ -- -- -- -- -- 198,965
Change in cumulative translation
adjustment...................... -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- --
-------- -------- --------- ------ ----------- ---------
Balance, December 31, 1996......... 5,200 5 5,975,263 5,975 55,233,847 --
Issuance of Common Stock, net of
issuance costs of approximately
$2,078,000...................... -- -- 1,813,201 1,813 16,051,352 --
Conversion of Series A Convertible
Preferred Stock to Common
Stock........................... (4,800) (5) 508,019 508 126,039 --
Issuance of Common Stock in
connection with the purchase of
Orgenics, Ltd................... -- -- 90,344 90 1,068,230 --
Issuance of Common Stock related
to warrants issued in connection
with Cambridge Diagnostics
Notes........................... -- -- 1,142,635 1,143 (1,143) --
Exercise of Common Stock options
and warrants.................... -- -- 151,927 152 280,954 --
Purchase of treasury stock........ -- -- -- -- -- --
Original issuance discount on
convertible notes and accretion
on Series B Preferred Stock
pertaining to guaranteed
discount upon conversion and
valuation of warrants........... -- -- -- -- 2,966,967 --
Deferred compensation related to
grants of Common Stock
options......................... -- -- -- -- 27,453 (27,453)
Amortization of deferred
compensation related to grants
of Common Stock options......... -- -- -- -- -- 27,453
Reversal of accrued dividends on
Series A Convertible Preferred
Stock........................... -- -- -- -- -- --
Changes in cumulative transition
adjustment...................... -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- --
-------- -------- --------- ------ ----------- ---------
Balance, December 31, 1997......... 400 $ -- 9,681,389 $9,681 $75,753,699 $ --
======== ======== ========= ====== =========== =========
<CAPTION>
TREASURY STOCK TOTAL
--------------------- CUMULATIVE STOCKHOLDERS'
NUMBER OF ACCUMULATED TRANSLATION EQUITY
SHARES COST DEFICIT ADJUSTMENT (DEFICIT)
--------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... -- $ -- $(4,579,131) $ -- $ 82,776
Subsidiary's issuance of Preferred
Stock........................... -- -- -- -- --
Issuance of Common Stock in
connection with notes payable... -- -- -- -- 180,048
Issuance of Common Stock.......... -- -- -- -- 144,318
Issuance of Common Stock warrants
in connection with notes
payable......................... -- -- -- -- 30,000
Noncash interest expense related
to Common Stock warrants issued
in connection with notes
payable......................... -- -- -- -- 4,235,768
Exercise of Common Stock
options......................... -- -- -- -- 69,072
Deferred compensation related to
grants of Common Stock
options......................... -- -- -- -- --
Amortization of deferred
compensation related to grants
of Common Stock options......... -- -- -- -- 52,000
Purchase of treasury stock........ (15,600) (15,200) -- -- (15,200)
Purchase of Common Stock
options......................... -- -- -- -- (14,800)
Change in cumulative translation
adjustment...................... -- -- -- 102,524 102,524
Net loss.......................... -- -- (10,096,903) -- (10,096,903)
------- --------- ------------ -------- ------------
Balance, December 31, 1995......... (15,600) (15,200) (14,676,034) 102,524 (5,230,397)
Issuance of Common Stock, net of
issuance costs of approximately
$2,343,000...................... -- -- -- -- 10,440,849
Issuance of Common Stock related
to convertible advances......... -- -- -- -- 500,000
Issuance of Series A Convertible
Preferred Stock, net of issuance
costs of approximately
$338,000........................ -- -- -- -- 5,161,855
Dividends accrued on Series A
Convertible Preferred Stock..... -- -- (51,037) -- (51,037)
Conversion of Series A Convertible
Preferred Stock to Common
Stock........................... -- -- (14,185) -- --
Conversion of note payable into
Common Stock.................... -- -- -- -- 13,693,548
Exercise of stock options......... -- -- -- -- 80,069
Noncash interest expense related
to Common Stock warrants issued
in connection with promissory
notes payable................... -- -- -- -- 10,632,842
Noncash compensation expense
related to Common Stock options
issued to Company's president... -- -- -- -- 3,240,000
Noncash compensation expense
related to grants of Common
Stock options................... -- -- -- -- 756,472
Noncash interest expense related
to Common Stock warrants issued
in connection with promissory
notes payable................... -- -- -- -- 106,729
Options granted in connection with
the Orgenics Acquisition........ -- -- -- -- 1,056,000
Amortization of deferred
compensation related to grant of
Common Stock options............ -- -- -- -- 198,965
Change in cumulative translation
adjustment...................... -- -- -- 71,041 71,041
Net loss.......................... -- -- (28,577,642) -- (28,577,642)
------- --------- ------------ -------- ------------
Balance, December 31, 1996......... (15,600) (15,200) (43,318,898) 173,565 12,079,294
Issuance of Common Stock, net of
issuance costs of approximately
$2,078,000...................... -- -- -- -- 16,053,165
Conversion of Series A Convertible
Preferred Stock to Common
Stock........................... -- -- (126,542) -- --
Issuance of Common Stock in
connection with the purchase of
Orgenics, Ltd................... -- -- -- -- 1,068,320
Issuance of Common Stock related
to warrants issued in connection
with Cambridge Diagnostics
Notes........................... -- -- -- -- --
Exercise of Common Stock options
and warrants.................... -- -- -- -- 281,106
Purchase of treasury stock........ (16,597) (196,260) -- -- (196,260)
Original issuance discount on
convertible notes and accretion
on Series B Preferred Stock
pertaining to guaranteed
discount upon conversion and
valuation of warrants........... -- -- (2,049,545) -- 917,422
Deferred compensation related to
grants of Common Stock
options......................... -- -- -- -- --
Amortization of deferred
compensation related to grants
of Common Stock options......... -- -- -- -- 27,453
Reversal of accrued dividends on
Series A Convertible Preferred
Stock........................... -- -- 21,773 -- 21,773
Changes in cumulative transition
adjustment...................... -- -- -- (101,294) (101,294)
Net loss.......................... -- -- (24,710,294) -- (24,710,294)
------- --------- ------------ -------- ------------
Balance, December 31, 1997......... (32,197) $(211,460) $(70,183,506) $ 72,271 $ 5,440,685
======= ========= ============ ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 45
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................ $(10,096,903) $(28,577,642) $(24,710,294)
Adjustments to reconcile net loss to net cash used in
operating activities --
Accretion on Preferred Stock of a subsidiary.......... 55,580 110,348 114,099
Amortization of original issue discounts on
convertible notes and Series B Preferred Stock..... -- -- 497,702
Noncash interest expense related to issuance of
warrants........................................... 4,235,768 10,739,571 --
Noncash compensation expense related to issuance of
Common Stock options............................... 52,000 955,437 27,453
Noncash compensation expense related to Common Stock
options issued to the Company's Chief Executive
Officer............................................ -- 3,240,000 --
Extraordinary loss on extinguishment of debt.......... -- -- 579,354
Write-off of in-process research and development
expense............................................ -- 4,396,700 3,303,300
Amortization of deferred revenue...................... (506,374) (1,034,974) (1,406,078)
Depreciation and amortization......................... 576,463 1,044,136 6,597,051
Equity in net loss of affiliate....................... -- 200,000 327,000
Minority interest in subsidiary's loss................ -- (132,990) (181,017)
Changes in assets and liabilities, net of assets and
liabilities acquired in connection with the
Acquisition of Orgenics in 1996 and 1997 and The
Nutritional Supplement Lines in 1997 --
Accounts receivable.............................. (476,750) (1,937,323) (2,010,303)
Inventories...................................... (163,860) 80,341 (3,129,256)
Prepaid and other current assets................. (229,573) (215,400) (228,394)
Accounts payable................................. 801,224 2,194,066 1,347,664
Accrued expenses and other current liabilities... 948,364 2,382,366 3,014,748
------------ ------------ ------------
Net cash used in operating activities.......... (4,804,061) (6,555,364) (15,856,971)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment..................... (1,189,824) (4,749,476) (5,400,952)
Increase in other assets................................ -- (448,050) (2,622,715)
Cash loaned to affiliated company....................... -- -- (742,105)
Cash paid for purchase of Nutritional Supplement
Lines................................................. -- -- (31,067,580)
Cash paid for investment in affiliated companies........ -- (129,057) --
Cash paid for investment in Orgenics, Ltd. net of cash
acquired.............................................. (500,000) (5,515,659) (8,417,325)
------------ ------------ ------------
Net cash used in investing activities.......... (1,689,824) (10,842,242) (48,250,677)
------------ ------------ ------------
Cash Flows from Financing Activities:
Decrease in restricted cash............................. 69,346 -- --
Cash paid for deferred financing cost................... -- -- (1,677,749)
Net proceeds from the issuance of Common Stock.......... 213,390 10,520,918 16,551,014
Net proceeds from issuance of Preferred Stock and
warrants.............................................. -- 5,161,855 7,533,008
Repayments on line of credit............................ (2,167,685) -- --
Proceeds from borrowings under notes payable............ 10,000,000 6,878,692 51,406,273
Increase in deferred revenue............................ 2,432,000 3,815,336 --
Repayments of notes payable............................. -- (17,076) (10,556,994)
Proceeds from issuance of Common Stock warrants in
connection with notes payable......................... 30,000 -- --
Purchase of treasury stock.............................. (15,200) -- (196,260)
Purchase of Common Stock options........................ (14,800) -- --
Proceeds from sale of Preferred Stock of a subsidiary... 1,588,000 -- --
------------ ------------ ------------
Net cash provided by financing activities........ 12,135,051 26,359,725 63,059,292
------------ ------------ ------------
Foreign Exchange Effect on Cash and Cash Equivalents...... (8,524) 101,785 259,600
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents...... 5,632,642 9,063,904 (788,756)
Cash and Cash Equivalents, Beginning of Year.............. 1,762,108 7,394,750 16,458,654
------------ ------------ ------------
Cash and Cash Equivalents, End of Year.................... $ 7,394,750 $ 16,458,654 $ 15,669,898
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 46
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Selfcare, Inc. and its subsidiaries (the Company) is engaged in the
development, manufacturing 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 virus (HIV).
During 1996 and 1997, the Company acquired a 99.8% direct and indirect
equity interest in Orgenics Ltd. and subsidiaries (Orgenics) for total
consideration of $18,368,000, which primarily consisted of $16,417,000 in cash,
options to purchase 85,800 shares of the Company's Common Stock and 73,747
shares of the Company's Common Stock, net of treasury stock repurchases (see
Note 3).
On February 19, 1997, the Company acquired the U.S. rights to several
nutritional supplement product lines (the Nutritional Supplement Lines
Acquisition) from American Home Products Corporation (AHP) for $30,000,000 in
cash and the issuance of a $6,000,000, 7% promissory note (see Note 4).
On February 18, 1998, the Company entered into an agreement to acquire all
of the outstanding stock of Can-Am Care Corporation (Can-Am), a distributor of
certain diabetes-related home health care products. The total cost of the
Acquisition was $27,900,000, which consisted of $13,600,000 in cash, a
$2,000,000 note payable and approximately 1,100,000 shares of the Company's
Common Stock (see Note 19(a)).
Since inception, the Company has devoted substantially all of its efforts
toward the research and development of products, the establishment of
distribution networks in the United States and Europe, raising capital and
identifying strategic Acquisitions and partnerships. The acquisitions noted
above have significantly increased the Company's operations. Management
anticipates that substantially all future revenues will be derived from products
under development or those developed or acquired in the future. Principal risks
to the Company include the ability of the Company to obtain adequate financing
to fund future operations, the management and integration of acquired companies,
dependence on key individuals, competition from substitute products and larger
companies, obtaining regulatory approval, and the successful development and
marketing of commercial products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the results of
the Company and its wholly owned subsidiaries: Cambridge Diagnostics, Ltd.
(Cambridge Diagnostics) (an Irish corporation), Selfhelp Israel, Ltd. (an
Israeli corporation), Selfcare International GmbH (a German corporation) and
subsidiaries, Selfcare Europe Ltd. (SCE) (a UK corporation), Inverness Medical
Limited (Inverness) (a Scottish corporation), Selfcare Consumer Products, Inc.
(SCP), Orgenics, Ltd. (Orgenics) (an Israeli Corporation) and subsidiaries,
Selfcare Technologies, Inc. and its 70%-owned subsidiary, Jmar Ames, Inc. Also
included in the accompanying consolidated financial statements is the Company's
49% minority interest in Cambridge Affiliate Corporation (Cambridge Affiliate)
(see Note 12(c)) and its 29.8% interest in Enviromed, plc (Enviromed) (see Note
15), both of which are accounted for under the equity method. All material
intercompany balances and transactions have been eliminated in consolidation.
The accounts of Selfcare International GmbH include its wholly owned
subsidiaries, Selfcare Development Verwaltungsellschaft mbH, Selfcare GmbH (a
German corporation), Selfcare Development GmbH & Co, KG and Buba Selfcare
Benelux sprl (a Belgian corporation).
SCE was a joint venture between the Company and Enviromed in which the
Company originally held a 50% interest. Due to default by Enviromed on certain
covenants of the joint venture agreement during 1995, the Company has assumed
100% ownership and effective operating control of SCE (see Note 15).
F-8
<PAGE> 47
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, the Company considers this entity to be a wholly owned subsidiary
and has included its results of operations in the accompanying consolidated
financial statements for the years ended December 31, 1996 and 1997.
The accounts of Orgenics also includes its wholly owned subsidiaries PBS
S.A. (PBS) (a French corporation), Organics Reagentes Para Laboratories
(formerly CPEI Orgenics LTDA) (a Brazilian corporation), Do Brazil Ltda (Do
Brazil) (a Brazilian corporation) and Orgencis Biosensors Ltd. (an Israeli
corporation). The Orgenics financial statements were prepared in accordance with
Israeli generally accepted accounting principles (GAAP) which, for the purposes
of the Company's consolidated financial statements, do not materially differ
from U.S. GAAP.
The minority interest reflected in the accompanying 1997 consolidated
balance sheet relates primarily to Jmar Ames, Inc. The minority interest
reflected in the accompanying 1997 consolidated statement of operations relates
to both Jmar Ames, Inc. and Orgenics.
(b) Revenue Recognition
Product revenue is recognized when products are shipped to customers, at
which time title is transferred. The Company is recognizing deferred revenue
relating to the 1993 sale of technology over a defined life (see Note 12(a)).
The Company is recognizing deferred revenue relating to the LifeScan alliance as
unfulfilled obligations are met (see Note 10). The Company has also recorded
deferred revenue in the accompanying consolidated balance sheets relating to
amounts received in advance on certain contracts and grants (see Note 11(b)).
The Company records the related revenue on funded amounts relating to facilities
and equipment over their estimated useful lives and related costs based on when
such costs are incurred.
(c) Cash and Cash Equivalents
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified its cash equivalents as held-to-maturity
and recorded them at amortized cost, which approximates market value. The
Company considers all highly liquid cash investments with original maturities of
three months or less at the date of acquisition to be cash equivalents. Cash and
cash equivalents consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash and money market funds............................... $ 2,622,824 $15,669,898
Overnight time deposits................................... 13,835,830 --
----------- -----------
$16,458,654 $15,669,898
=========== ===========
</TABLE>
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Raw materials............................................. $ 1,363,168 $ 3,006,076
Work-in-process........................................... 272,466 405,404
Finished goods............................................ 630,600 1,933,051
----------- -----------
$ 2,266,234 $ 5,344,531
=========== ===========
</TABLE>
F-9
<PAGE> 48
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Depreciation and Amortization
Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------------------
<S> <C>
Machinery and laboratory equipment.................... 3 - 5 years
Leasehold improvements................................ Lesser of Life of Lease
or Life of Asset
Furniture and fixtures................................ 3 - 7 years
Computer equipment.................................... 3 - 5 years
</TABLE>
(f) Postretirement Benefits
The Company does not have any obligations for postretirement or
postemployment benefits, as defined by SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, as it does not currently offer such
benefits. Orgenics does provide certain severance benefits (see Note 11(f)).
(g) Net Loss per Common Share
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share, which established new standards for calculating and
presenting earnings per share. Basic net loss per common share was computed by
dividing net loss less Preferred Stock dividends by the weighted average number
of common shares outstanding during the year. Diluted loss per share is the same
as basic loss per share, as the effects of the Company's potential Common Stock
(5,417,334, 6,701,441 and 5,335,267 shares in 1995, 1996 and 1997, respectively)
are antidilutive. In accordance with Staff Accounting Bulletin (SAB) No. 98, the
Company has determined that there were no nominal issuances of Common Stock or
potential Common Stock in the period prior to the Company's initial public
offering.
In the year ended December 31, 1997, the Company recorded accretion of
$2,050,000 representing the 6% premium and 5% conversion discount on the Series
B Preferred Stock. The Company has also recorded $105,000 of dividends on the
Series A Preferred Stock. The following table reconciles the net loss per common
and common equivalent shares.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net loss................................. $(10,096,903) $(28,577,642) $(24,710,294)
Dividends on Series A Preferred Stock.... -- (51,037) (104,769)
Accretion on Series B Preferred Stock.... -- -- (2,049,545)
------------ ------------ ------------
Loss attributable to common
shareholders................. $(10,096,903) $(28,628,679) $(26,864,608)
============ ============ ============
Basic and diluted net loss per common and
potential common share................. $ (2.61) $ (6.00) $ (3.36)
============ ============ ============
Weighted average number of common and
potential common shares outstanding.... 3,866,841 4,767,493 7,990,666
============ ============ ============
</TABLE>
F-10
<PAGE> 49
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Foreign Currency Translation
The accounts of the Company's subsidiaries are translated in accordance
with SFAS No. 52, Foreign Currency Translation. Accordingly, assets and
liabilities of the Company's foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date. Income and expense
accounts are translated using an average rate of exchange during the period.
Cumulative translation gains or losses are reflected as a separate component of
consolidated stockholders' equity (deficit). Foreign currency exchange
transaction gain of $324,000 and loss of $717,000 for the years ended December
31, 1996 and 1997, respectively, are reflected as a component of interest and
other income, net, in the accompanying consolidated statements of operations.
There were no significant exchange transaction gains and losses during 1995.
(i) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts, other
foreign hedging arrangements or concentration of significant accounts receivable
balances. The Company maintains the majority of its cash balances and its
overnight time deposits with financial institutions. See Note 16 for financial
information by geographic area.
(k) Derivative Financial Instruments and Fair Value of Financial Instruments
The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
accounts receivable and debt. The estimated fair value of these financial
instruments approximates their carrying value at December 31, 1996 and 1997. The
estimated fair values have been determined through information obtained from
market sources and management estimates.
(l) Recapitalization
On June 13, 1996, the Company's Board of Directors authorized 5,000,000
shares of Preferred Stock and declared a 13-for-1 stock split of the Company's
Common Stock, effected as a dividend for all Common Stockholders of record as of
June 20, 1996. All share and per share amounts of Common Stock for all periods
presented have been retroactively adjusted to reflect the stock split.
(m) Prior Year Account Balances
Certain prior year account balances have been reclassified to be consistent
with the current year's presentation.
F-11
<PAGE> 50
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) Extraordinary Loss on Early Extinguishment of Debt
On December 12, 1997, the Company effectively extinguished two series of
notes, whereby the Company recorded extraordinary losses. The Company
extinguished certain amounts due under notes pertaining to its investment in
Enviromed (see Note 15) and substantially all of the notes issued in connection
with its acquisition of Cambridge Diagnostics (see Note 7) and recorded
extraordinary losses of approximately $206,000 and $373,000, respectively.
(o) Goodwill, Trademarks and Other Intangible Assets
Goodwill, trademarks and other intangible assets consist of the following
as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Goodwill........................................... $3,355,465 $23,813,768
Trademarks......................................... -- 21,600,000
Patents............................................ 730,000 1,117,000
---------- -----------
Less -- Accumulated amortization................... 344,294 3,137,505
---------- -----------
$3,741,171 $43,393,263
========== ===========
</TABLE>
The Company is amortizing goodwill and trademarks related to the
acquisition of the Nutritional Supplement Lines using the straight-line method
over 25 years (see Note 4). The Company is amortizing Orgenics-related goodwill
over 5 years (see Note 3). The Company recorded amortization expense of
approximately $105,000 and $2,643,000 in 1996 and 1997, respectively, related to
goodwill and trademarks.
Patents held by Orgenics are being amortized over their useful lives, which
have been determined to be 5 to 10 years.
The Company follows the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in
1997. SFAS No. 121 requires that long-lived assets be reviewed for impairment by
comparing the fair value of the assets with their carrying amount. Any write-
downs are to be treated as permanent reductions in the carrying amount of the
assets. The Company believes that the carrying value of these assets are
realizable as of December 31, 1997.
F-12
<PAGE> 51
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Noncash Investing and Financing Activities
The following table summarizes the supplemental disclosures of the
Company's noncash financing and investing transactions for the periods indicated
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
-------- ----------- -----------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid for --
Interest............................................ $254,134 $ 396,118 $ 3,590,446
======== =========== ===========
Income taxes........................................ $ 6,162 $ 47,705 $ 21,600
======== =========== ===========
Supplemental Disclosure of Noncash Investing and
Financing Activities:
On October 24, 1996, the Company acquired 57.1% of the
assets and liabilities of Orgenics, Ltd.; in 1997,
the Company acquired substantially all of the
remaining shares --................................. $ -- $ 1,660,326 $ 1,113,201
In-process research and development................... -- 4,396,700 3,303,300
Goodwill.............................................. -- 3,020,176 4,873,824
Conversion of debenture into shares of Orgenics....... -- (1,000,000) --
Options granted in connection with the acquisition.... -- (1,056,000) --
Issuance of Common Stock.............................. -- -- (873,000)
Less cash acquired.................................... -- (1,505,543) --
-------- ----------- -----------
Cash Paid for Acquisition, Net of Cash Acquired......... $ -- $ 5,515,659 $ 8,417,325
======== =========== ===========
On February 19, 1997, the Company acquired the
Nutritional Supplement Lines from American Home
Products (AHP):
Goodwill.............................................. $ -- $ -- $15,467,580
Trademarks............................................ -- -- 21,600,000
Note payable to AHP................................... -- -- (6,000,000)
======== =========== ===========
Cash Paid for Purchase of Nutritional Supplement
Lines................................................. $ -- $ -- $31,067,580
======== =========== ===========
Cash Paid for Investment in Affiliated Companies:
Cost of investment.................................... $ -- $ 3,932,609 $ --
Stock acquired through issuance of promissory notes
payable............................................. -- 3,803,552 --
-------- ----------- -----------
$ -- $ 129,057 $ --
======== =========== ===========
Conversion of Convertible Advance into Common Stock..... $ -- $13,693,548 $ --
======== =========== ===========
Conversion of Convertible Payable into Common Stock..... $ -- $ 500,000 $ --
======== =========== ===========
Forgiveness of Accounts Receivable as Consideration for
a Noncompete Agreement in Connection With Orgenics
Purchase of the Minority Interest in its Brazilian
Subsidiary............................................ $ -- -- $ 1,375,000
======== =========== ===========
Early Extinguishment of Certain Notes Payable........... $ -- $ -- $ 4,580,940
======== =========== ===========
Original Issue Discount on Notes Payable Pertaining to
Guaranteed Discount Upon Conversion................... $ -- $ -- $ 1,994,265
======== =========== ===========
Accretion and Dividends on Preferred Stock.............. $ -- $ 51,037 $ 2,154,314
======== =========== ===========
</TABLE>
(3) ACQUISITION OF ORGENICS
On December 23, 1995, the Company and Orgenics entered into an Investment
and Loan Agreement whereby the Company purchased a $1,000,000, 18-month,
unsecured, interest-bearing debenture that was
F-13
<PAGE> 52
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
convertible into redeemable preferred shares of Orgenics (the Debenture). In
October 1996, the Company exercised its right to convert the Debenture, at which
time the principal amount, together with accrued interest, converted into 20% of
the then issued and outstanding share capital of Orgenics. 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 cash payments of approximately
$7,000,000. In addition, the Company granted options to purchase 85,800 shares
of Common Stock having a fair market value of $1,056,000 (Note 13(b)) and
incurred direct acquisition costs of $100,000. Throughout 1997, the Company
acquired additional shares of Orgenics for approximately $8,417,000 in cash and
73,747 shares of Common Stock (with a fair value of $872,000, net of treasury
stock repurchases), resulting in a 99.8% ownership interest in Orgenics.
The aggregate purchase price of the Company's 99.8% direct and indirect
interest in Orgenics of approximately $18,367,000 was allocated based on the
relative fair values of the assets acquired as follows:
<TABLE>
<S> <C>
Fair value of net assets................................ $ 2,533,000
In-process research and development..................... 7,700,000
Goodwill................................................ 8,134,000
-----------
$18,367,000
===========
</TABLE>
The portion of the purchase price allocated to goodwill and other
intangible assets relates primarily to acquired technology, trade names and
goodwill and are being 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.
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.
In December 1997, Orgenics purchased the 45% minority interest in Do
Brazil. As consideration, Orgenics forgave certain amount due from the minority
shareholders. The parties also entered into a one-year noncompete agreement,
valued at $1,375,000. The assets and results of operations of Do Brazil are not
material to the Company's operations.
For pro forma financial information reflecting the Orgenics Acquisition and
Nutritional Supplement Lines Acquisition, see Note 4.
(4) ACQUISITION AND FINANCING OF NUTRITIONAL SUPPLEMENT LINES
On February 19, 1997, the Company acquired the Nutritional Supplement Lines
from AHP. As consideration for the Nutritional Supplement Lines, the Company
paid to AHP a total of $36,000,000 in cash. Including direct acquisition-related
costs, the total purchase price was approximately $37,100,000. The entire
purchase price was allocated to intangible assets, approximately $15,500,000 to
trademarks and $21,600,000 to goodwill. The Company funded the $30,000,000 cash
portion of the purchase price with bank debt, the AHP Term Loan and the AHP
Bridge Loan (collectively, the Acquisition Facility) with original principal
amounts of $25,000,000 and $5,000,000, respectively. The remaining $6,000,000 is
in the form of a note payable from the Company to AHP. The Company paid this
amount subsequent to year-end.
The AHP Term Loan had an initial principal balance of $25,000,000 and a
five-year term, with quarterly amortization of principal ranging from $3,000,000
to $5,000,000, and a $6,250,000 balloon payment at maturity.
F-14
<PAGE> 53
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The AHP Term Loan, at the Company's election, bore interest at an annual
floating rate equal to either LIBOR plus 2% or the bank's prime rate. The AHP
Bridge Loan was due June 3, 1997, and at the Company's election, bore interest
at an annual floating rate equal to either LIBOR plus 3.5% or the bank's prime
rate plus 1.5%. In June 1997, the Company paid the $5,000,000 Bridge Loan.
In connection with the Acquisition Facility, the Company obtained from the
bank a $5,000,000 revolving credit line (the Credit Line). The Credit Line, at
the Company's election, bore interest at an annual floating rate equal to either
LIBOR plus 1.75% or the bank's prime rate and matures in three years. The
Acquisition Facility and the Credit Line were secured by a first priority lien
on substantially all of the Company's U.S. assets.
Subsequent to year-end, the Company refinanced its obligations under these
agreements with another bank (see Note 19(b)).
The following table presents selected unaudited financial information of
the Company, the Nutritional Supplement Lines and Orgenics (see Note 3),
assuming the companies combined on January 1, 1996. The pro forma results are
not necessarily indicative of either actual results that would have occurred had
the acquisition been consummated on January 1, 1996 or of future results.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
UNAUDITED
<S> <C> <C>
Pro forma net revenue................... $ 53,784,788 $ 54,833,394
============ ============
Pro forma loss before extraordinary loss
and taxes............................. $(20,424,504) $(23,023,052)
============ ============
Pro forma net loss(1)................... $(20,424,504) $(23,798,278)
============ ============
Pro forma basic and diluted net loss per
common and potential common share..... $ (3.08) $ (2.98)
============ ============
Pro forma basic and diluted weighted
average common and potential common
shares outstanding(2)................. 6,639,675 7,990,666
============ ============
</TABLE>
(1) excludes non-recurring charges for in-process research and development
of $4,396,700 and $3,300,300 in 1996 and 1997, respectively (see Note
3).
(2) assumes completion of initial and secondary public offerings and the
use of proceeds to consumate both the Orgenics (see Note 3) and
Nutritional Supplement Lines Acquisitions.
(5) INVESTMENT IN INVERNESS MEDICAL LIMITED
On May 31, 1995, the Company invested approximately $1,588,000 to fund
initial operations and to acquire a 50% interest in Inverness. Inverness
(formerly named Hebocraft Limited) was founded on November 1, 1994 and had no
significant activities, assets or liabilities at the time of the Company's
investment. Inverness & Nairn Local Enterprise Company (INLEC) holds the
remaining 50% interest in Inverness and also paid in $1,588,000 for its
interest. The Company holds 1,000,000 ordinary shares of stock, while INLEC
holds 1,000,000 shares of 6% Cumulative Redeemable Preference Shares (the
Preference Shares). This investment is consolidated by the Company due to its
ownership of 100% of Inverness' ordinary shares. The Preference Shares held by
INLEC (including cumulative dividend) are reflected in the accompanying
consolidated balance sheets as mandatorily redeemable Preferred Stock of a
subsidiary.
The Preference Shareholders are entitled to receive, out of funds legally
available, a cumulative annual dividend of approximately $0.095 per share,
payable annually on April 30, beginning in 1996. At the option of
F-15
<PAGE> 54
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company and subject to certain limitations on each redemption, the
Preference Shares may be redeemed for approximately $1.67 per share, plus any
accrued and unpaid dividends. The Company must redeem all 1,000,000 Preference
Shares by May 31, 2000. If the Company cannot legally redeem the Preference
Shares on that date, it must redeem the shares as soon as legally permissible at
a price of approximately $1.91 per share plus any accrued and unpaid dividends.
Upon liquidation of Inverness, the Preference Shareholders are entitled to
receive approximately $1.59 per share, plus any accrued and unpaid dividends;
thereafter, the ordinary stockholders shall equally share with the Preference
Shareholders in the remaining assets to be distributed. The Preference
Shareholders do not hold any voting rights.
Under a related agreement, Highlands and Islands Enterprise (HIE), a party
related to INLEC, constructed a 50,000-square-foot production facility for
Inverness to use for manufacturing its products. Inverness has entered into a
20-year facility lease, with an option to purchase the facility for fair market
value. The rent due under this lease will be approximately $550,000 per year,
subject to increases each five years, dependent upon then-current market rates,
as defined. Inverness is not obligated to pay rent for the first two years of
the lease. The Company is guarantor to HIE for these payments if Inverness
defaults on its payments.
Through December 31, 1996, INLEC provided Inverness with L2,100,00 British
Pounds Sterling (approximately $3,596,000 at December 31, 1996) for the purpose
of outfitting the facility with required equipment, providing training for the
Inverness work force and certain other defined costs. These funds shall be
permanently invested in Inverness, so long as no events of default by Inverness
occur within five years of the funding. Events of default are defined as the
insolvency of Inverness, defined changes in ownership of Inverness and certain
other similar related criteria. Should a default occur within five years of the
funding by INLEC to Inverness, the Company will be liable to INLEC for a
declining portion, as defined, of the amounts paid by INLEC.
Inverness recognizes as revenue the funded amounts relating to the facility
and equipment over the estimated useful life of the facility and equipment and
amounts related to training and other costs based on when such costs are
incurred. Inverness recognized grant revenue of approximately $216,000, $722,000
and $1,128,000 during the years ended December 31, 1995, 1996 and 1997,
respectively, which are included in grants and other revenues in the
accompanying consolidated statements of operations. Unearned amounts of
approximately $1,312,000 at December 31, 1997 are included in deferred revenue
in the accompanying consolidated balance sheets.
F-16
<PAGE> 55
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) NOTES PAYABLE
The Company has the following debt outstanding as of December 31, 1996 and
1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Bank debt -- Orgenics...................... $1,337,000 $ 2,577,000
Long-term debt -- Orgenics................. 692,000 1,933,000
Note payable to AHP (Notes 4 and 19(b)).... -- 6,000,000
Promissory note payable to EN PLC (Note
15)...................................... 3,803,552 3,378,278
Cambridge Diagnostic notes (Note 7)........ 3,000,000 2,827,500
Long-term debt to a bank (Notes 4 and
19(b))................................... -- 22,000,000
Note payable to customer (Note 10)......... -- 4,951,079
Subordinated revenue royalty notes (Note
8)....................................... -- 7,500,000
Senior subordinated convertible notes (Note
9)....................................... -- 8,649,181
Other miscellaneous notes payable.......... -- 86,547
---------- -----------
8,832,552 59,902,585
Less -- Current portion.................... 2,936,851 20,426,511
---------- -----------
$5,895,701 $39,476,074
========== ===========
</TABLE>
Each of the debt instruments listed above is discussed in the notes to the
consolidated financial statements as referenced, except as follows:
(a) Short-Term Bank Debt -- Orgenics
Orgenics has approximately $2,577,000 of notes payable to a bank
outstanding at December 31, 1997. The outstanding balance is collateralized by
certain Orgenics assets. The notes bear interest at rates ranging from 5% to
16.5% and are payable monthly through 2002.
(b) Long-Term Notes Payable -- Orgenics
Orgenics holds long-term notes payable with several banks. The notes bear
interest at LIBOR various interest rates (5-9% as of December 31, 1997).
Orgenics has granted liens on all of its assets, insurance rights, share
capital, goodwill and shares of a subsidiary as collateral on the debt.
F-17
<PAGE> 56
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Maturities of Notes Payable
Certain of the Company's debt instruments provide for either a mandatory or
optional conversion to Common Stock (see Notes 7, 9 and 15). Future maturities
of the Company's debt instruments, including convertible debt, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998.................................................... $20,426,511
1999.................................................... 6,420,500
2000.................................................... 5,378,500
2001.................................................... 6,433,000
2002.................................................... 36,000
Thereafter.............................................. 8,207,000
-----------
46,901,511
Plus -- Notes payable convertible into Common Stock (see
Notes 7, 9 and 15).................................... 13,001,074
-----------
$59,902,585
===========
</TABLE>
(7) CAMBRIDGE DIAGNOSTIC NOTES AND WARRANTS
In connection with the 1994 Cambridge Diagnostics Acquisition, 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. As of December
31, 1996, $825,000 of such notes were due to certain directors and officers of
the Company.
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, whereby the Company canceled the
Cambridge Diagnostics Warrants and 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. During
December 1997, all of such shares of Common Stock were issued for no additional
consideration. The Company recorded noncash interest charges of approximately
$10,633,000 for the year ended December 31, 1996, which represents the
difference between the fair market value of the underlying Common Stock and the
exercise price of the Cambridge Diagnostics Warrants.
On December 31, 1996, the Company entered into an agreement with
substantially all the principal holders of the Cambridge Diagnostic Notes,
pursuant to which such holders agreed to defer repayment of the principal amount
of their notes until January 15, 1998 and effectively fix the ultimate number of
shares of Common Stock to be issued. 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 $12.88
(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.
On December 12, 1997, substantially all of the Cambridge Diagnostic
Noteholders agreed to exchange all amounts due under the existing Cambridge
Diagnostic Notes for new promissory notes (the New Cambridge Diagnostics Notes).
Under the terms of the New Cambridge Diagnostic Notes, the noteholders can
convert
F-18
<PAGE> 57
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the New Cambridge Diagnostic Notes, plus accrued interest at an annual rate of
10%, into Common Stock at a conversion price of $7.23. The conversion price
represents a 15% discount to the market price on the date the New Cambridge
Diagnostic Notes were issued. The New Cambridge Diagnostic Noteholders may
exercise their conversion right at any time through the maturity date (June 12,
1998), at which time the New Cambridge Diagnostic Notes automatically convert
into Common Stock; holders of the New Cambridge Diagnostic Notes cannot receive
cash payments in lieu of conversion. The Company has accounted for this
transaction as an early extinguishment of debt and the issuance of two new
instruments, the New Cambridge Diagnostic Notes and a forward contract to
purchase Common Stock. Accordingly, the Company has recorded the value of the
forward contract as a component of stockholder's equity, the New Cambridge
Diagnostic Notes at their fair value and an extraordinary loss of $373,000 on
the retirement of the original Cambridge Diagnostic Notes.
In connection with Selfcare's financing of the acquisition of Cambridge
Diagnostics, Cambridge Diagnostics entered into a Guarantee and Debenture, dated
August 30, 1995, with USB '93 Technology, Inc. (USB '93, Inc.), a corporation
whose president and chief executive officer is a director of the Company.
Pursuant to the Guarantee and Debenture, USB '93, Inc. became the guarantor of
an aggregate of $3,000,000 in notes issued by Selfcare to certain investors. In
return for this guarantee, Cambridge Diagnostics granted USB '93, Inc. a
security interest in its machinery, equipment, securities, goodwill and uncalled
capital, patents, trademarks, patent applications, brand names, copyrights, any
and all rights acquired by Cambridge Diagnostics as a licensee or sub-licensee,
and all present and future benefit, right, title and interest in any and all
moneys, payments and proceeds of insurance presently maintained or obtained in
the future.
The Company issued 119,834 shares of Common Stock to U.S. Boston Capital
Corporation (U.S. Boston Capital), the president of which is a director of the
Company, for its services as placement agent on the Cambridge Diagnostics Notes.
Additionally, the Company issued 92,950 shares of Common Stock to the Company's
president for his personal guarantee of these notes. The total fair value of the
shares issued to both the president and USB '93 ($101,000 and $79,000,
respectively) have been recorded as deferred financing costs in 1996, which are
included in other assets in the accompanying consolidated financial statements,
and are being amortized over the original life of the Cambridge Diagnostics
Notes.
(8) SUBORDINATED REVENUE ROYALTY NOTES
In June 1997, the Company sold Subordinated Revenue Royalty Notes (the
Royalty Notes) having an aggregate issue price of $7,500,000. Each Royalty Note
entitles the holder thereof (each, a Royalty Noteholder) to payments relating to
net revenue of the Company during each fiscal quarter the Royalty Note is
outstanding, which payments are pro rated with respect to the number of days the
Royalty 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
Royalty Note (the Total Repayment Amount). In addition, the Company may elect to
prepay the Royalty 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 during such fiscal
quarter or (ii) $1,300. Until the Total Repayment Amount has been paid, the
Company will pay Royalty Payments as to each Royalty 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 Royalty Note is outstanding and
will cover Royalty Payments for such fiscal quarter and the prior fiscal
quarters during which such Royalty Note was outstanding; provided, however, that
the aggregate Royalty Payments 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. Based on
the estimated repayment schedule, the Company imputed an interest rate of 23.3%
and recorded interest expense of $904,000 in 1997.
F-19
<PAGE> 58
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company elects to prepay the amount due under the Royalty Notes or
if an event of default (as defined below) is not cured with 30 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 Royalty 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 Royalty Notes plus an annualized internal rate of return the issue price
equal to 30% calculated from the issue date of the Royalty 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).
The Royalty Notes will bear interest only in the event of a late Royalty
Payment, an event of default or a prepayment. If a Royal Payment is not made
within 45 days of the end of the relevant fiscal quarter, the overdue amount
will accrue interest (Late Payment Interest) at the rate of 18% per annum,
compounded daily, accruing from the date such Royalty Payment is 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 acted as a placement agent for the offering of Royalty
Notes. As compensation for its services as placement agent, U.S. Boston Capital
received a cash commission of $600,000, which the Company has recorded as
deferred financing costs and will amortize over the estimated 14-year life of
the Royalty Notes. U.S. Boston Capital was also reimbursed for the fees and
disbursements of its counsel and received a nonaccountable expense allowance of
$5,000. A director of the Company is also an officer and director of U.S. Boston
Capital.
(9) SENIOR SUBORDINATED CONVERTIBLE NOTES
On October 28, 1997, the Company sold in a private placement Senior
Subordinated Convertible Notes (the Convertible Notes) having an aggregate face
value of $10,000,000 and warrants (the Convertible Note Warrants) to purchase up
to 106,700 shares of Common Stock to two institutional investors for gross
proceeds of $10,000,000.
The principal of the Convertible Notes is payable on October 28, 2002. The
unpaid principal of each Convertible Note accrues interest at the rate of 16%
per year payable in cash until the later of (i) the date of filing of a
registration statement (the Notes Registration Date) covering the shares of
Common Stock underlying the Convertible Notes and the Convertible Note Warrants
(the Registrable Securities), and (ii) a date between 180 and 270 days after
October 28, 1997, selected by the Company (the Variable Conversion Date).
Thereafter, interest on the unpaid principal accrues at the rate of 8% per year
payable in cash or, at the Company's option subject to certain conditions,
shares of Common Stock calculated at a price per share equal to 95% of the
Recent Market Price. The Recent Market Price as of any date is the lowest market
price at which shares of Common Stock traded at any time during the five trading
days immediately preceding such date. During the occurrence of an event of
default (as defined), the outstanding principal amount and accrued but unpaid
interest will accrue interest at a rate of the lower of the Citibank Prime Rate
per year plus 8% or the highest rate permitted by law.
The holder of each Convertible Note may convert all or a portion of such
Convertible Note into shares of Common Stock prior to October 28, 2002. Prior to
the Variable Conversion Date, each Convertible Note converts into shares of
Common Stock at 120% of the Recent Market Price as of October 27, 1997.
Following the Variable Conversion Date, each Convertible Note converts at a
conversion price per share equal to the Applicable Percentage (as defined below)
multiplied by the lesser of (i) 125% of the Recent Market Price as of October
27, 1997, as of the Variable Conversion Date or (if later) as of the Notes
Registration Date, whichever is least (the Ceiling Price), and (ii) the Recent
Market Price as of the date on which the conversion notice is sent. The
Applicable Percentage is a percentage ranging from 100% to 92.5% depending upon
the date that the Company chooses as the Variable Conversion Date.
Notwithstanding the above, the holder of a Convertible Note may on any date
elect to fix permanently with respect to all or a portion of the
F-20
<PAGE> 59
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Note the conversion price per share in effect on such date, in which
event the Convertible Note (or portion thereof) that the holder thereof would
otherwise have converted for a price equal to the fair market value of the
shares of Common Stock that would have been issued plus accrued interest on the
Convertible Note (or portion thereof) so redeemed.
After October 27, 1999, the Company may elect to redeem the Convertible
Notes, in whole or in part, at 105% of their face value plus accrued but unpaid
interest, provided that the Recent Market Price has been equal to or greater
than the Ceiling Price for 75 consecutive trading days immediately preceding the
date of the redemption notice and for the 15 trading days commencing on that
date.
The number of shares of Common Stock issuable upon conversion of the
Convertible Notes and the exercise of the Convertible Note Warrants, and the
conversion price and exercise price, respectively, thereof, are subject to
antidilutive provisions and may be adjusted, among others, upon (i) the issuance
of stock dividends, or the occurrence of stock splits, reclassifications,
recapitalizations and similar events; (iii) any consolidation, merger,
reorganization or similar fundamental restructuring; and (iii) the issuance of
shares of Common Stock or convertible securities for consideration below a
specified discount below the market price of the Common Stock.
Shoreline Pacific Institutional Finance, the Institutional Division of
Financial West Group (Shoreline), acted as placement agent for the offering of
the Convertible Notes and the Convertible Note Warrants. As compensation for its
services as placement agent, Shoreline received a cash commission of $500,000,
representing 5% of the gross proceeds of the offering. In addition, the Company
issued four warrants to purchase up to an aggregate of 31,250 shares of Common
Stock with substantially the same terms as the Convertible Note Warrants to
certain designees of Shoreline (the Shoreline Warrants). The Company recorded
both the commission and the value of the Shoreline Warrants ($600,000) as
deferred financing costs. Such costs are included as a component of other assets
and are being amortized over the life of the Convertible Notes.
Upon issuance of the Convertible Notes and Convertible Note Warrants, the
Company allocated $662,657 of the proceeds to the Convertible Note Warrants and
is amortizing the related original issuance discount over 270 days, the point at
which the terms of the conversion are most beneficial to the Convertible
Noteholders. Also, pursuant to the conversion terms whereby the Convertible
Noteholders have been guaranteed a discount after the 180th day, the Company has
recorded an additional original discount of $1,185,864, which represents the
maximum guaranteed return available to the Convertible Noteholders on the
issuance date. This portion of the original issuance discount is also being
amortized over 270 days in a manner consistent with the sliding scale discount.
Total amortization of the aggregate original issuance discount in 1997 was
$497,703.
(10) LIFESCAN ALLIANCE
On November 10, 1995, the Company entered into an agreement with Johnson
and Johnson Development Corporation (JJDC) and LifeScan, Inc. (LifeScan), an
affiliate of JJDC (the Master Agreement) which included an equity investment
agreement, a glucose distribution agreement and a summary of terms to be
included in other distribution agreements.
The equity investment provided for $13,700,000 of advances from JJDC, which
converted into 201,622 shares of Company Common Stock in 1996. Upon conversion
of the advances, LifeScan also paid the Company a success fee of $7,000,000. The
number of shares issued represents 5% of (i) the Common Stock outstanding as of
November 10, 1995, and (ii) any shares of Common Stock issued prior to such
conversion pursuant to the exercise of rights to acquire Common Stock
outstanding as of November 10, 1995. In addition, under the terms of the
LifeScan Alliance, the Company must issue to JJDC, for no additional
consideration, shares of Common Stock equal to 5% of any additional Common Stock
issued pursuant to the exercise of
F-21
<PAGE> 60
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rights to acquire Common Stock outstanding as of November 10, 1995 (the total of
all shares so issued, the Conversion Shares). The precise number of Conversion
Shares depends on the number of shares of Common Stock that the Company is
required to issue in connection with the financing of the Inverness Facility as
well as the vesting and exercise of options and warrants that were outstanding
on November 10, 1995. To date, JJDC has received an additional 9,743 shares of
Common Stock. The Company estimates that JJDC will ultimately receive an
additional 245,583 shares of Common Stock. The Company has deferred revenue
recognition on $3,000,000 of the success fee based on management's estimate of
its future commitments under the Distribution Agreement. The Company is
recognizing this amount as revenue as such obligations are met, which management
estimates will be over four years.
The Master Agreement also covers two other Company products. Upon Food and
Drug Administration (FDA) acceptance of the Company's filing for each of these
products, LifeScan may, at its sole discretion, pay the Company $3,000,000 and
require the Company to enter into a distribution agreement for each product,
under the terms set forth below. If LifeScan elects to make the $3,000,000
payment and the product receives FDA clearance, then LifeScan shall make an
additional payment of $2,000,000. If LifeScan makes the $3,000,000 payment and
the Company does not receive FDA clearance within one year of the payment, the
$3,000,000 must be repaid in eight quarterly installments without interest
(provided payments are made in a timely manner), and the related distribution
agreement will terminate.
In order to fund start-up manufacturing and operating costs, LifeScan
loaned the Company $5,000,000 in August 1997. The Company then loaned the
$5,000,000 to its primary supplier. Both the loans payable and receivable bear
interest at 12% and will be repaid through product credits for the first 130,000
meters shipped. The Company expects both the note payable to customer and note
receivable to be repaid during 1998.
(11) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company has operating lease commitments for certain of its facilities
and equipment that expire through 2026. The following schedule outlines future
minimum annual rental payments under these leases at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ -----------
<S> <C>
1998.................................................... $ 1,264,000
1999.................................................... 1,245,000
2000.................................................... 1,050,000
2001.................................................... 1,015,000
2002.................................................... 1,000,000
Thereafter.............................................. 12,970,000
-----------
$18,544,000
===========
</TABLE>
Rent expense relating to these operating leases was approximately $315,000,
$401,000 and $778,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
(b) Industrial Development Authority of Ireland Grants
Prior to the Company's acquisition of Cambridge Diagnostics, Cambridge
Diagnostics received certain capital expenditure and revenue grants from the
Industrial Development Authority of Ireland (the IDA). Cambridge Diagnostics
recognizes revenue on the capital expenditure grants over the estimated useful
lives of the related assets and on revenue grants as the related costs are
incurred.
F-22
<PAGE> 61
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a condition to retaining the grants, the IDA requires Cambridge
Diagnostics to maintain a certain number of employees in Ireland. The IDA also
prohibits the Company from disposing of assets or terminating business
activities that were funded by the grants within 10 years of such grants. As of
December 31, 1996 and 1997, Cambridge Diagnostics was not in compliance with the
employment provisions of the grants. As a result, the IDA could require
Cambridge Diagnostics to repay capital expenditure and revenue grants totaling
414,770 Irish Pounds (approximately $630,000 at December 31, 1997). The IDA has
not historically pursued its right to recoup these grants from Cambridge
Diagnostics and, as of December 31, 1996 and 1997, Cambridge Diagnostics
management believes that the IDA is unlikely to do so, provided that Cambridge
Diagnostics does not terminate its operations in Ireland. Accordingly, as
management believes that repayment is not probable, Cambridge Diagnostics has
not provided for a potential liability for the repayment of these grants.
If the IDA did pursue its rights to recoup these grants, it could have a
material adverse effect on the Company and Cambridge Diagnostics.
(c) Legal Proceedings
From time to time, the Company may be exposed to litigation arising out of
its products and operations. The Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company's financial condition or results of operations, except as
discussed below.
Pasteur Sanofi Diagnostics licensed the Pasteur HIV Technology to Cambridge
Biotech and its affiliates, including Cambridge Affiliate, relating to patents
and proprietary rights underlying the Company's HIV-related products (see Note
12(c)). The licenses of the Pasteur HIV Technologies to Cambridge Biotech are
nonexclusive and cover diagnostic test kits in finished form embodying the
Pasteur HIV Technologies. The territorial scope of the licenses is worldwide,
with the exception of exclusive rights which Pasteur Sanofi Diagnostics asserted
to have granted in the Pasteur HIV Technologies to Genetic Systems Corporation
(Genetic Systems) in the United States, Canada, Mexico, Australia, New Zealand
and India (the Excluded Countries). However, the licenses provided that, to the
extent that Pasteur Sanofi Diagnostics recovers the right to practice the
patents underlying the Pasteur HIV Technologies in the Excluded Countries,
Cambridge Biotech is entitled to nonexclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholder of Pasteur Sanofi
Diagnostics, and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems subsequently filed an appeal in district court. In July 1997, the
district court affirmed the rulings of the bankruptcy court. Institut Pasteur
and Genetic Systems Corporation have filed an appeal to the Federal Circuit
Court of Appeals. If the bankruptcy court and district court decisions were
reversed on appeal, the territories to which Cambridge Affiliate could sell
HIV-related products would be limited, however, the Company does not believe
this would have a material adverse effect on its operations.
Pasteur Sanofi Diagnostics has notified Orgenics that as a result of
Orgenics' use of certain peptides, Orgenics may be liable for infringement of
certain patents held by Institut Pasteur and under which Pasteur Sanofi
Diagnostics holds an exclusive license.
The Company has been involved in a dispute with Enviromed (see Note 15)
with respect to a joint venture agreement entered into between the Company and
Enviromed in March 1994 and other agreements (collectively, the Disputed
Enviromed Agreements) entered into between the Company and Enviromed and its
wholly owned subsidiary, Cranfield Biotechnology Ltd., and the issuance of
shares of Common Stock to Enviromed in connection therewith. In connection with
this dispute, the Company has informed Enviromed
F-23
<PAGE> 62
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that, due to the failure of Enviromed and Cranfield to perform their obligations
under the Disputed Enviromed Agreements, it disputes Enviromed's ownership of
the Common Stock held of record (and subsequently sold) by Enviromed. On July 5,
1996, Enviromed filed suit against the Company and the representatives of the
underwriters of the Company's initial public offering (the IPO Representatives)
alleging breach of a registration rights agreement relating to the Common Stock
held of record by Enviromed. Enviromed claimed that its rights under a
registration rights agreement were breached in connection with the IPO and
requested damages, injunctive relief and a declaratory judgment that Enviromed
is the lawful owner of the shares. The Company has filed counterclaims against
Enviromed arising out of the failure of Enviromed and Cranfield to perform their
obligations under the Disputed Enviromed Agreement and is contesting Enviromed's
claims vigorously. On November 15, 1996, Enviromed filed a dismissal without
prejudice of its claims against the IPO Representatives. March 11, 1997,
Enviromed and the Company filed a stipulation of dismissal without prejudice of
all the claims and counterclaims in the case.
The Company intends to contest vigorously all claims filed by Enviromed and
certain other parties to whom Enviromed sold the common stock. On March 23,
1998, the Company entered into a settlement agreement with certain parties to
whom Enviromed sold the Company's Common Stock whereby the parties agreed that
such parties shall have title to 80% of Common Stock in dispute, or 622,898
shares, and the Company shall have title to the remaining 20% of said shares, or
155,724 shares. The parties agreed to dismiss the lawsuit with prejudice and to
release each other from any liability arising out of the lawsuit.
On November 15, 1997, Medical Selfcare, Inc. (Medical) served process on
the Company asserting service mark and trade name infringement, unfair
competition, dilution and related claims arising from the Company's use of the
mark "Selfcare" for medical devices, pharmaceutical products and nutritional
supplements. Medical is seeking damages for lost profits in an amount to be
determined at trial, injunctive relief barring the Company's use of the name and
mark "Selfcare" in connection with its products and services, destruction of
products using the said name or mark, disgorgement of profits gained from the
alleged infringement, treble damages, restitution, punitive damages and
attorneys' fees. The Company intends to defend this litigation vigorously. The
Company has answered the complaint and asserted various defenses and a
counterclaim seeking cancellation of Medical's federal service mark
registrations. The Company has advised the District Court of its intention to
phase out the use of the mark in connection with its nutritional supplements. A
hearing was held on Medical's motion for a preliminary injunction before the
District Court on December 19, 1997. On January 5, 1998, the District Court
entered an order, in the form proposed by the Company, requiring that, effective
six months thereafter, the Company cease using the mark "Selfcare" on
nutritional supplement products or packaging or distributing nutritional
supplement products or packaging bearing the mark, and that the Company remove
from its packaging the statement that the mark is "registered." The case is now
in the discovery stage of litigation. Although the Company does not believe that
the preliminary injunction will have a material adverse impact on the Company's
sales, operations and financial performance, a final ruling against the Company
on the merits of the case could have such an impact.
(d) Agreement with Princeton BioMeditech Corporation
On March 15, 1996, the Company entered into an agreement with Princeton
BioMeditech Corporation (Princeton) that provides for the development of certain
specific infectious disease tests by Princeton for marketing by Selfcare on a
nonexclusive basis. The agreement also grants the Company an option to market
under its own brand name other infectious disease tests and certain other types
of tests developed by Princeton on terms to be agreed. Pursuant to the
agreement, the Company is also obligated to purchase $6,900,000 of certain test
kits from Princeton through 1998 and will provide $500,000 to finance the
purchase of equipment, which will remain the property of the Company, to be used
in producing test kits for the Company.
On August 6, 1997, the Company and Princeton amended their manufacturing
agreement by extending the term of the original agreement to July 1, 2001,
adjusting the pricing and establishing new minimum
F-24
<PAGE> 63
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase quantities in the aggregate amount of $2,656,000 over the course of the
first year. The Company is obligated over the remaining three years to purchase
minimum amounts of products to be mutually agreed upon by the parties. Also on
August 6, 1997, the Company and Princeton, along with wholly owned subsidiaries
of each and a limited liability company, PBM-Selfcare LLC (the LLC) in which
each party owns a 50% interest, entered into a joint venture and a series of
related technology transfer and licensing agreements, to develop a comprehensive
strategy to commercially exploit products, and related intellectual property, in
the area of pregnancy detection and ovulation prediction (collectively the Joint
Venture Agreement). Under the Joint Venture Agreement, the parties each
contributed intellectual property and, in addition, the Company agreed to spend
up to $2,000,000 on an as-needed basis to cover expenses incurred by the LLC in
enforcing the rights of the LLC in the intellectual property. The parties are
also obligated to cover 50% of any other operating expenses of the LLC. To date,
the Company has not incurred material costs pursuant to the Joint Venture
Agreement and does not anticipate expending material resources in connection
with this activity during 1998.
(e) Orgenics Royalty Commitment
Orgenics finances its research and development expenditures in Israel under
programs sponsored by the Chief Scientist of the Ministry of Trade of Israel for
the support of research and development projects. In the event that development
of the products in which the Chief Scientist participates is successful,
Orgenics will be obligated to pay royalties at the rate of 2% to 5% of the sales
of products developed with funds provided by the Chief Scientist, up to an
amount equal to 100% of the Chief Scientist's research and development grants to
such projects. The maximum contingent royalty as of December 31, 1997 was
approximately $1,900,000. Orgenics does not have any liability to the State of
Israel for amounts received in support of unsuccessful programs or unsaleable
products.
(f) Orgenics Severance Obligations
Orgenics' liability for severance pay, pursuant to Israeli law, is provided
by managers insurance policies and by severance pay funds. Severance expenses
were $300,000, $139,000 and $248,000 for the years ended December 31, 1995, 1996
and 1997, respectively. The related liability is not material at either December
31, 1996 or 1997.
France has a state-run mandatory pension plan to which contributions are
made monthly by both the employee and employer based on the gross monthly
salary. Orgenics' liability is fully covered by these contributions.
In addition, pursuant to industry employment agreements, a lump sum
severance is payable upon retirement to employees still in the service of PBS at
the date of retirement. Orgenics has fully provided for the obligations as of
December 31, 1996 and 1997.
(12) RESEARCH, MANAGEMENT AND MANUFACTURING AGREEMENTS
(a) U.S. Boston Technology Associates Limited Partnership
On December 30, 1993, the Company entered into a purchase and sale
agreement with USB '93 for the sale of the Company's core immuno-assay
technology (the Technology) for $1,360,000. USB '93 is a limited partnership,
the general partner of which is USB '93 Inc., a corporation whose president and
chief executive officer is a director of the Company. The Company may repurchase
the Technology for $6,000,000.
The Company and the USB '93 also entered into a license and development
agreement on December 30, 1993 whereby the Company leased back the rights to the
Technology from USB '93 in consideration for three warrants to purchase up to an
aggregate of 438,750 shares of the Company's Common Stock at an exercise price
of $1.54 per share and the payment of 1.5% of gross sales and 22.5% of royalty
income, up to an
F-25
<PAGE> 64
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate total payment of $6,000,000. The license agreement remains in effect
until such time that the Company reacquires the Technology or pays $6,000,000 in
royalties. This agreement is immediately void if the Company decides to
repurchase the rights to the Technology according to terms of the Technology
purchase and sale agreement noted above. Pursuant to this agreement, the Company
has charged approximately $104,000, $235,000 and $702,000 to cost of sales in
the accompanying consolidated statements of operations for the years ended
December 31, 1995 1996 and 1997, respectively.
The income from the sale of technology has been included in deferred
revenue in the accompanying consolidated balance sheets and will be recognized
on the earlier of (1) a straight-line basis over a period of six years, the
Technology's estimated useful life, or (2) will be eliminated upon the
repurchase of the Technology if the Company opts to repurchase the Technology,
as discussed above. The Company has recognized approximately $227,000 as grants
and other revenue in the accompanying consolidated statements of operations for
each of the three years ended December 31, 1997. Accordingly, the remaining
$453,334 is included in deferred revenue in the accompanying consolidated
balance sheet as of December 31, 1997.
(b) University College of Wales/Aberystwyth
On February 10, 1992, the Company entered into a research and development
contract with University College of Wales/Aberystwyth, a corporation organized
and existing under the laws of England and Wales, whereby the Company obtained
the right to develop and market certain technology in consideration for a
royalty stream of 1.5% of gross revenues generated from the technology. The
agreement will remain in effect for the duration of the life of any patent
issued with respect to the technology, or any improvements thereof, unless
terminated pursuant to provisions of the agreement. As of December 31, 1996 and
1997, the Company had not generated any revenues related to this technology and,
therefore, did not incur any royalty expense for the year then ended.
(c) Cambridge Biotech Corporation
On November 30, 1994, Selfcare acquired Cambridge Diagnostics from
Cambridge Biotech, which at that time was operating in Massachusetts under
Chapter 11 of the U.S. Bankruptcy Code. Cambridge Diagnostics, located in
Galway, Ireland, produces three categories of tests for infectious diseases as
well as packages products for the Company's European customers, including
pregnancy tests, birth control and other women's health products. At the time of
the acquisition, Cambridge Diagnostics (then known as Cambridge Biotech Limited)
was operating under the protection of a court-appointed examiner in a procedure
analogous to a Chapter 11 reorganization under U.S. bankruptcy law. Pursuant to
the acquisition agreements, the terms of which were approved by the United
States Bankruptcy Court and the Irish High Court, Selfcare acquired all of
Cambridge Diagnostics' issued and outstanding capital stock and, pursuant to
certain license agreements, acquired certain technologies necessary for the
production of Cambridge Diagnostics' HIV 1/2 RDT, Capillus, Rapid Test and Lyme
disease test kits for an aggregate of $2,100,000 and the assumption of certain
liabilities. Under the terms of Cambridge Biotech's license agreements with
Pasteur Sanofi Diagnostics, Cambridge Biotech could not assign or sublicense its
rights with respect to certain of these technologies directly to the Company. In
order to allow the Company to have access to such technologies, Selfcare and
Cambridge Biotech formed an affiliate, Cambridge Affiliate, 51%-owned by
Cambridge Biotech and 49%-owned by Selfcare. A series of contracts were entered
into between Cambridge Affiliate and Cambridge Diagnostics, pursuant to which
Cambridge Diagnostics manages Cambridge Affiliate and manufactures and sells
products on behalf of Cambridge Affiliate. Cambridge Affiliate is managed and
funded separately from Selfcare and Cambridge Diagnostics.
The Company acquired the 49% interest in Cambridge Affiliate for $1.00. The
Company is accounting for this investment under the equity method. Pursuant to
the series of contracts between Cambridge Affiliate and Cambridge Diagnostics
described above and in Note 7, Cambridge Diagnostics and Cambridge Affiliate owe
F-26
<PAGE> 65
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cambridge Biotech royalties ranging from 4% to 6% of certain net sales, as
defined. In return for the goods and services provided by Cambridge Diagnostics
pursuant to the series of contracts between Cambridge Affiliate and Cambridge
Diagnostics described above, Cambridge Affiliate has agreed to pay to Cambridge
Diagnostics an aggregate amount equal to its net revenues from sales of the
products, less (i) operating expenses attributable to such products (including
the royalties that Cambridge Affiliate pays to Cambridge Biotech), and (ii) an
amount equal to 10% of such royalty payments payable by Cambridge Affiliate. The
additional 10% of royalties deducted is designed to create a retention within
Cambridge Affiliate to cover its operating costs. The royalties paid by
Cambridge Affiliate to Cambridge Biotech are equal to the royalties owed by
Cambridge Biotech to Pasteur Sanofi Diagnostics. Portions of the aggregate
amounts payable by Cambridge Affiliate to Cambridge Diagnostics are allocated
75%, 5% and 20% to the manufacturing agreement, the management agreement and the
sales agreement, respectively. Royalty payments made by Cambridge Diagnostics to
Cambridge Biotech during the years ended December 31, 1995, 1996 and 1997 were
approximately $45,000, $56,000 and $86,000, respectively, and Cambridge
Diagnostics received approximately $1,914,000, $1,942,000 and $2,513,000 during
the years ended December 31, 1995, 1996 and 1997, respectively, from Cambridge
Affiliate under the manufacturing agreement. In addition, Cambridge Diagnostics
received approximately $128,000, $129,000 and $168,000 from Cambridge Affiliate
during the years ended December 31, 1995, 1996 and 1997, respectively, under the
management agreement and approximately $510,000, $518,000 and $670,000 from
Cambridge Affiliate during the years ended December 31, 1995, 1996 and 1997,
respectively, under the sales agreement.
Cambridge Biotech has since sold its rights under these arrangements to an
unrelated party. Certain of the arrangements described above have been contested
by certain of the patent holders. To date, the validity of these arrangements
has been sustained. If the patent holders ultimately succeed in invalidating
these arrangements, Cambridge Diagnostics may lose its ability to use the
licenses described above, which may have an adverse effect on the Company.
(13) STOCKHOLDERS' EQUITY
(a) Stock Option Plans
In 1992, the Company adopted the 1992 Stock Plan (the 1992 Plan), which
provided for granting to directors, officers, employees and consultants of the
Company, at the discretion of the Board of Directors, incentive stock options,
nonqualified stock options and stock awards for the purchase of up to 10,725,000
shares of Common Stock under terms similar to those in the 1996 Plan, as
described below. In June 1996, the Company amended the 1992 Plan to provide that
no additional stock options would be granted under the 1992 Plan. As of December
31, 1997, no options to purchase shares of Common Stock remain outstanding.
In 1994, the Company adopted the 1994 Incentive and Nonqualified Stock
Option Plan (the 1994 Plan), which provided for the granting of up to 3,380,000
shares of Common Stock under terms similar to those in the 1996 Plan, as
described below. In June 1996, the Company amended the 1994 Plan to provide that
no additional stock options would be granted under the 1994 Plan. As of December
31, 1997, no options to purchase shares of Common Stock remain outstanding.
In 1996, the Company adopted the 1996 Stock Option and Grant Plan (the 1996
Plan). The 1996 Plan may be administered by the Board of Directors or by an
Option Committee, as defined (in either case, the Administrator), to grant
incentive stock options, nonqualified stock options, restricted stock,
unrestricted stock, stock appreciation rights (SAR), performance share awards
and dividend equivalent rights. The Company has reserved a total of 1,500,000
shares of Common Stock for future grant under the 1996 Plan. As of December 31,
1997, options to purchase up to 531,408 shares of Common Stock remain
outstanding. The key terms of the amended 1996 Plan include the granting of
incentive stock options or nonqualified stock options with a term of up to 10
years and the granting of stock appreciation rights, restricted stock,
unrestricted stock, performance share awards and dividend equivalent rights. The
Plan also provides for option
F-27
<PAGE> 66
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
grants to nonemployee directors and automatic acceleration of all options and
stock appreciation rights upon a change in control.
(b) Other Stock Options
On August 15, 1995, the Company entered into a stock option agreement (the
Agreement) with the president of the Company. Under the Agreement, the president
received an option to acquire 520,000 shares of the Company's Common Stock. The
option vests and becomes exercisable, within a two-year period, if a liquidity
event, such as an initial public offering or the sale of the Company, occurs;
otherwise, the option expires. The exercise price per share is determined by the
liquidity price per share. The exercise price per share will decrease $1 for
every $1 that the liquidity price per share exceeds $5.38 per share.
Accordingly, upon completion of the Company's initial public offering in 1996,
the Company recorded a compensation charge of approximately $3,240,000
representing the difference between the exercise price per share and the fair
market value per share at the date of vesting.
On October 17, 1995, the Company entered into stock option agreements with
certain officers and key employees granting them options to acquire up to
253,500 shares of Common Stock at an exercise price of $1.54 per share. These
shares are exercisable after 10 years of continuous employment or earlier if
certain milestones, such as meeting certain financial targets and the
effectiveness of an IPO, are achieved. At the date of grant, the fair market
value per share of the Company's Common Stock exceeded the exercise price of the
options; therefore, the Company recorded deferred compensation of $250,965
related to this difference at the date of grant. Such goals were met in 1996
and, accordingly, the Company fully amortized the deferred compensation in 1996.
During the years ended December 31, 1995 and 1996, the Company recorded
compensation expense of approximately $52,000 and $199,000, respectively,
related to these option grants in the accompanying consolidated statements of
operations.
During the year ended December 31, 1996, the Company recorded compensation
expense of approximately $680,000 related to stock options granted to employees
that were contingent on certain goals that have now been met. No compensation
expense was recorded during 1997 relating to these plans. In accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, the Company also recorded
compensation expense of $76,000 for options granted to nonemployees in 1996. No
compensation expenses relating to nonemployees was recorded during 1997.
On December 29, 1995, the Company entered into stock option agreements with
certain shareholders and officers of Orgenics granting them options to acquire
up to 85,800 shares of Common Stock at an exercise price of $3.69 per share.
These options vest over a four-year period but were not to be considered granted
until the Company's ownership of Orgenics exceeded 51%, which occurred during
October 1996. The difference between the exercise price and the fair market
value price per share of $1,056,000 is included as a component of the Orgenics
purchase price.
F-28
<PAGE> 67
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of all stock option activity during the three
years ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES OPTION PRICE OPTION PRICE
--------- ------------ ------------
<S> <C> <C> <C>
Options outstanding, December 31, 1994......... 1,127,607 $.001- 2.53 $ 1.69
Granted...................................... 2,591,056 .001- 3.69 2.61
Exercised.................................... (27,300) 2.53 2.53
Terminated................................... (308,919) .001- 2.53 1.26
--------- ----------- ------
Options outstanding, December 31, 1995......... 3,382,444 1.15- 3.69 2.41
Granted...................................... 842,292 3.69-15.38 12.58
Exercised.................................... (51,675) 1.54 1.54
--------- ----------- ------
Options outstanding, December 31, 1996......... 4,173,061 1.15-15.38 4.47
Granted...................................... 130,200 9.25-12.38 10.33
Exercised.................................... (148,898) 1.15- 2.53 1.84
Terminated................................... (9,425) 1.54- 2.53 2.41
--------- ----------- ------
Options outstanding, December 31, 1997......... 4,144,938 $1.15-15.38 $ 4.75
========= =========== ======
Options exercisable, December 31, 1997......... 2,800,661 $1.15-15.38 $ 2.49
========= =========== ======
</TABLE>
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACT EXERCISE NUMBER OF EXERCISE
EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
- -------------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 1.15- 1.54 665,877 5.56 $ 1.41 651,577 $ 1.41
2.27- 2.53 2,032,069 7.23 2.46 1,770,634 2.45
3.46- 4.62 478,400 7.35 3.83 320,450 3.67
7.33-10.13 298,892 9.07 8.91 50,500 8.78
11.88-15.38 669,700 9.16 13.79 7,500 14.42
--------- ---- ------ --------- ------
4,144,938 7.09 $ 4.75 2,800,661 $ 2.49
========= ==== ====== ========= ======
</TABLE>
The weighted average fair value under the Black-Scholes option pricing
model of options granted during the years ended December 31, 1995, 1996 and 1997
under these plans is $1.55, $8.76 and $5.33, respectively.
On December 10, 1996, the Company granted 600,000 options at an exercise
price of $13.875 to the president and certain officers and key employees of the
Company. The options vest in seven years unless certain performance goals, as
defined, are met. In the event that such performance goals are met, the vesting
of these options will accelerate.
F-29
<PAGE> 68
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock options
or warrants to be included in the statement of income or disclosed in the notes
to the financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No.
123. The Company has computed the pro forma disclosures required under SFAS No.
123 for stock options and warrants granted after January 1, 1995 using the
Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions
used were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................. 6.3% 6.2% 6.0%
Expected dividend yield............................. -- -- --
Expected lives...................................... 5 years 5 years 5 years
Expected volatility................................. 60% 74% 51%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss........................... As reported $(10,096,903) $(28,577,642) $(24,710,294)
Pro forma.. (11,517,942) (29,878,119) (26,269,519)
As
Net loss per share................. reported... $ (2.61) $ (6.00) $ (3.36)
Pro forma.. (2.98) (6.27) (3.56)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
(c) Warrants
The following is a summary of all warranty activity during the three years
ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Warrants outstanding, December 31, 1994.................. 892,255 $ 1.54- 2.53
Granted................................................ 1,142,635 --
--------- ------------
Warrants outstanding, December 31, 1995.................. 2,034,890 1.54- 2.53
Granted................................................ 54,090 12.88
--------- ------------
Warrants outstanding, December 31, 1996.................. 2,088,980 1.54-12.88
Granted................................................ 267,979 11.94-13.96
Exercised.............................................. 1,145,664 2.93
--------- ------------
Warrants outstanding, December 31, 1997.................. 1,211,295 $ 1.54-13.96
========= ============
Warrants exercisable, December 31, 1997.................. 1,211,295 $ 1.54-13.96
========= ============
</TABLE>
Prior to 1996, and as described elsewhere, the Company granted
approximately 900,000 warrants related to various financing transactions.
As discussed in Note 7, on December 31, 1996, the Company entered into
agreement with substantially all of the principal noteholders of the Cambridge
Diagnostics Notes and fixed the number of shares of Common Stock to be issued at
1,142,635, of which 314,222 will be issued to certain directors and officers of
the Company. All such shares of Common Stock will be issued for no additional
consideration on the earlier of January 15, 2000 or the date on which a change
in control of the Company (as defined) occurs. In addition,
F-30
<PAGE> 69
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company agreed to issue five-year warrants to purchase an aggregate of
54,090 shares of Common Stock, which are fully exercisable at an exercise price
of $12.88 to such holders, of which 14,999 will be exercisable by certain
directors and officers of the Company. In accordance with SFAS No. 123, the
Company has recorded interest expense of approximately $394,000 related to the
grant of these warrants.
As discussed in Note 15, warrants to purchase 15,401 shares of Common Stock
at an exercise price of $12.88 were issued in consideration of the amendment to
the EN PLC Notes.
As discussed in Note 13(f), warrants to purchase 114,628 shares were issued
in connection with Series B Preferred Stock issuance.
As discussed in Note 9, warrants to purchase 137,950 were issued in
connection with the Convertible Notes.
(d) Employee Stock Purchase Plan
Upon the consummation of the IPO, the Company adopted the Selfcare, Inc.
Employee Stock Purchase Plan (the Stock Purchase Plan). The Company has reserved
250,000 shares of Common Stock for issuance under the Stock Purchase Plan. Under
the Stock Purchase Plan, eligible employees will be able to purchase shares of
the Company's Common Stock at 85% of fair market value, as defined, subject to
certain limitations. The Company has issued 23,709 shares under the Stock
Purchase Plan as of December 31, 1997.
(e) Series A Preferred Stock
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 5,000,000 shares of Preferred
Stock in classes or series and to fix the designations, powers, preferences and
the relative, participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereon as set
forth in the Certificate of Incorporation. Any such Preferred Stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock.
In October 1996, the Board of Directors adopted a resolution authorizing
10,000 shares of Series A Convertible Preferred Stock, $.001 par value (the
Series A Preferred Stock). In October 1996, the Company sold 5,500 shares of
Series A Preferred Stock at a price of $1,000 per share to various non-U.S.
investors. The net proceeds of such sales of approximately $5,200,000 were used
to fund a portion of the Orgenics purchase price. The holders of Series A
Preferred Stock generally are entitled to receive cumulative quarterly dividends
at the rate of 6% per year and their shares of Series A Preferred Stock will
become convertible into shares of the Company's Common Stock in five equal
installments over a 120-day period beginning in December 1996. Shares of Series
A Preferred Stock are generally 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, subject to certain restrictions. Any
shares of Series A Preferred Stock not previously converted will automatically
convert into shares of the Company's Common Stock on October 15, 1998 at the
closing bid price at the time. In 1996 and 1997, all but 400 shares of the
Series A Preferred Stock were converted into an aggregate of 530,911 shares of
Common Stock. The 400 remaining shares of Series A Preferred Stock will convert
into 49,058 shares of Common Stock assuming an average closing market price of
$8.73 per share at the time of conversion resulting in a conversion price of
$8.75 per share. The Company has accreted dividends of $155,806 as of December
31, 1997 relating to the outstanding shares of Series A Preferred Stock.
(f) Series B Preferred Stock
On August 26, 1997, the Company sold to investors in a private placement an
aggregate of 8,000 shares of Series B Redeemable Convertible Preferred Stock
(the Series B Preferred Stock) and warrants (the
F-31
<PAGE> 70
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants) to purchase an aggregate of 114,628 shares of Common Stock (the
Warrant Shares) for gross proceeds of $8,000,000. The Series B Preferred Stock
accrues a premium of 6% per annum (the Premium) and is convertible into
Conversion Shares of Common Stock. The actual number of Conversion Shares
issuable upon conversion of the Series B Preferred Stock is equal to the
aggregate stated value per share (the Face Value) (i.e., $1,000 per share), plus
any accrued but unpaid Premium through the date of such conversion, divided by
(x) if the conversion occurs on or before December 31, 1997, a conversion price
of $13.9581 per share (the Fixed Conversion Price), (y) in the case of
conversions after December 31, 1997; and before May 24, 1998, a conversion price
equal to the lower of the Fixed Conversion Price and the average of the five
lowest closing bid prices of the Common Stock during the 30 trading days
preceding such conversion (the Variable Conversion Price), and (z) in the case
of conversions after May 24, 1998, a conversion price equal to the lower of the
Fixed Conversion Price and 95% of the Variable Conversion Price then in effect.
The Series B Preferred Stockholders may elect to convert Series B Preferred
Shares at any time on or after the earlier of (i) the filing of a registration
statement (the Registration Statement) registering the Conversion Shares and
(ii) November 24, 1997. After August 26, 1998, the Company may require the
conversion of all, but not less than all, of the Series B Preferred Shares,
provided that the closing bid prices of the Common Stock are equal to or greater
than 200% of the Fixed Conversion Price for 20 consecutive trading days
preceding any such conversion. Any unconverted Series B Preferred Stock will
automatically convert into shares of Common Stock on August 26, 2000.
The Series B Shares may also be redeemed under certain circumstances for
cash. A holder of Series B Preferred Stock may require the Company to redeem any
or all of such holder's Series B Preferred Stock, as defined.
The Company may also redeem (consisting of at least 50% of the then
outstanding Series B Shares) outstanding Series B Preferred Stock at its option,
provided that the closing bid prices for any five consecutive trading days is
less than $9.00. The Redemption Amount in such case is equal to 115% of the Face
Value of the Series B Preferred Stock plus any accrued but unpaid Premium.
One-half of the Warrants vested immediately while the remaining Warrants
vest on August 25, 1998, provided, however, that to the extent any of the Series
B Preferred Stock is converted prior to such date, the number of Warrants
vesting will be reduced ratably. The Warrants are exercisable at any time after
August 25, 1997.
Both the exercise price and the number of Warrant Shares issuable under the
Warrant are subject to antidilution provisions, as defined.
Upon issuance of the Series B Preferred Stock and the Warrants, the Company
allocated $310,045 of the proceeds to the Warrants. Also, pursuant to the
conversion terms whereby the Series B Preferred Stockholders have been
guaranteed a discount after May 24, 1998, the Company has recorded aggregate
accretion of $2,049,545, which represents the maximum guaranteed return
available to Series B Preferred stockholders. This accretion was charged
directly to accumulated deficit. Due to the redemption provision described
above, the Company classified the Series B Preferred Stock outside of
stockholders' equity in the accompanying consolidated balance sheets.
(14) INCOME TAXES
The Company provides for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. Accordingly, a deferred tax asset or
liability is determined based on the difference between the financial statement
and tax bases of assets and liabilities, as measured by the enacted tax rates
expected to be in effect when these differences reverse.
F-32
<PAGE> 71
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax provision of $195,872 in the accompanying consolidated statement of
operations for the year ended December 31, 1997 relates entirely to current
state taxes payable.
The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences at December 31,
1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Deferred tax assets --
Nondeductible reserves.................. $ 70,000 $ 522,000 $ 140,000
Deferred revenue........................ 338,000 1,288,000 1,209,000
Net domestic and foreign operating loss
and tax credit carryforwards......... 7,800,000 12,382,000 20,089,000
----------- ------------ ------------
8,208,000 14,192,000 21,438,000
----------- ------------ ------------
Deferred tax liabilities --
Depreciation............................ $ (2,000) (19,000) (23,000)
Other temporary differences............. (3,000) (2,000) (2,000)
----------- ------------ ------------
(5,000) (21,000) (25,000)
----------- ------------ ------------
Valuation allowance....................... (8,203,000) (14,171,000) (21,413,000)
----------- ------------ ------------
Net deferred tax asset.................. $ -- $ -- $ --
=========== ============ ============
</TABLE>
The Company has available domestic and foreign net operating loss
carryforwards of approximately $16,922,000 and $46,717,000, respectively, as of
December 31, 1997 and federal research and development credit carryforwards of
approximately $65,000 as of December 31, 1997 to reduce future income taxes, if
any. These carryforwards expire on various dates through 2012 and are subject to
review and possible adjustment by the appropriate taxing authorities.
The Internal Revenue Code contains provisions that limit the amount of
federal net operating loss and credit carryforwards that the Company may utilize
in any one year in the event of certain cumulative changes in ownership over a
three-year period in excess of 50%, as defined. The Company has recorded a 100%
valuation allowance against the deferred tax asset, as the realization of the
asset is uncertain at this time.
(15) TRANSACTIONS WITH ENVIROMED AND EN PLC LIMITED PARTNERSHIP
In March 1994, the Company entered into a joint venture agreement with
Enviromed for the purpose of distributing diabetes and women's health products
in European Union countries. The joint venture activities were to be conducted
through a newly formed entity, Selfcare Europe Ltd. (SCE), in which the Company
and Enviromed each held 50% equity interests, but for which the Company had sole
management responsibility. The capital requirements of SCE were to be funded 75%
by Enviromed and 25% by Selfcare, in accordance with the agreed SCE budgets. In
connection with the formation of SCE, SCE entered into certain distributorship
agreements with Selfcare and affiliates of Enviromed, and Enviromed purchased
593,528 shares of Common Stock in consideration for certain manufacturing rights
granted by an affiliate of Enviromed. In June 1995, Selfcare notified Enviromed
that Enviromed was in breach of its obligation to make agreed payments to fund
SCE's capital needs. In July 1995, Selfcare notified Enviromed that as a result
of Enviromed's failure to cure this breach, Enviromed's shares in SCE were
deemed to be transferred to Selfcare pursuant to the terms of SCE's charter and
the joint venture agreement. For its part, Enviromed informed Selfcare that it
denied Selfcare's claims of breach and claimed that Selfcare was in breach of
the joint venture agreement in several respects. SCE is currently classified as
a wholly owned subsidiary in the Company's
F-33
<PAGE> 72
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements (see Note 2). In April 1995, the Company's president
resigned as a director of Enviromed and his counterpart at Enviromed resigned as
a director of the Company. The Company does not consider SCE to be material to
its business or operations.
In October 1995, EN PLC Limited Partnership (EN PLC) was formed by the
Company's president and a group of investors for the purpose of purchasing
ordinary shares of Enviromed. As of May 1, 1996, EN PLC had acquired 27.0% of
Enviromed's outstanding voting stock. The Company's president shares control of
EN PLC's general partner with another individual who is not affiliated with the
Company. The Company's president and two Company directors are among EN PLC's
limited partners. In October 1996, the Company purchased 200,000 common shares
of Enviromed and entered into an agreement with EN PLC (the EN PLC Agreement)
pursuant to which the Company purchased 7,961,386 shares of Enviromed held by EN
PLC for approximately $3,800,000. As a result of the purchase, along with a
subsequent purchase of an additional 100,000 shares of Enviromed, the Company's
ownership interest in Enviromed is 28.9%. The Company's purchase price for these
shares was based on their quoted market price at the date of the Company's
acquisition of such shares from EN PLC. On January 1, 1997, the Company and EN
PLC entered into an amendment to the EN PLC Agreement pursuant to which the
Company agreed to issue two promissory notes, in principal amounts of
approximately $2,800,000 and $1,000,000, respectively. The notes are payable in
various installments in 1997 and 1998, plus interest at the prime rate plus
1.5%. 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 these warrants.
On December 12, 1997, certain EN PLC shareholders agreed to exchange their
existing promissory notes for new promissory notes, whereby certain January and
April 1998 principal payments of approximately $1,600,000 will be convertible
into Common Stock if the new notes are not sooner repaid, the terms of the
subsequent principal payments remain unchanged. Under the terms of the new
promissory notes, the noteholders can convert the new promissory notes, plus
accrued interest at an annual rate of 10%, into Common Stock at a conversion
price of $7.225. The conversion price represents a 15% discount to the market
price on the date the new promissory notes were issued. The noteholders may
exercise their conversion right at any time through the maturity date (June 10,
1998), at which time the new promissory notes automatically convert into Common
Stock if not repaid prior to such date; holders of the new promissory notes
cannot receive cash payments in lieu of conversion. The Company has accounted
for this transaction as an early extinguishment of debt and the issuance of two
new instruments, the new promissory notes and a forward contract to purchase
Common Stock. Accordingly, the Company has recorded the value of the forward
contract as a component of stockholder's equity, the new promissory notes at
their fair value and an extraordinary loss of $206,000 on the retirement of the
original promissory notes.
Following the Company's acquisition of its ownership interest in Enviromed,
the Company has accounted for its investment under the equity method. In the
years ended December 31, 1996 and 1997, the Company has recorded a loss of
$200,000 and $327,000, respectively, representing the Company's pro rata share
of Enviromed's results of operations during the Company's period of ownership.
F-34
<PAGE> 73
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Revenues by geographic destination and as a percentage of total revenues
for the years ended December 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
DESTINATION 1995 1996 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C>
North America................................ $2,993,249 $11,484,380 $31,870,395
Europe....................................... 1,875,855 4,761,713 8,813,867
South America................................ -- 545,000 6,087,000
Africa....................................... 86,400 947,390 2,323,077
Asia......................................... 800,000 585,055 2,428,951
Middle East.................................. 1,075,200 356,435 466,201
Other........................................ 408,008 382,815 260,880
---------- ----------- -----------
$7,238,712 $19,062,788 $52,250,371
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
North America.................................. 41% 60% 61%
Europe......................................... 26 25 17
South America.................................. -- -- 12
Africa......................................... 1 5 4
Asia........................................... 11 3 5
Middle East.................................... 15 2 1
Other.......................................... 6 5 --
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Revenues, net income, and identifiable assets for the Company's United
States, Irish, Scottish, Israeli and other European operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED UNITED OTHER INTERCOMPANY
DECEMBER 31, STATES IRELAND SCOTLAND ISRAEL EUROPEAN ELIMINATIONS CONSOLIDATED
------------ ------------ ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 --
Revenues........... $ 2,302,154 $ 4,187,104 $ -- $ -- $ 749,454 $ -- $ 7,238,712
============ =========== ============ =========== =========== ============ ============
Net loss........... (7,339,808) (710,400) (519,661) -- (1,527,034) -- (10,096,903)
============ =========== ============ =========== =========== ============ ============
Identifiable
assets........... 11,421,961 2,946,355 5,316,234 -- 1,941,297 (7,933,499) 13,692,348
============ =========== ============ =========== =========== ============ ============
1996 --
Revenues........... $ 10,834,816 $ 4,601,838 $ 722,163 $ 2,036,000 $ 867,971 $ -- $ 19,062,788
============ =========== ============ =========== =========== ============ ============
Net loss........... (16,471,342) (747,888) (4,745,715) (310,000) (2,249,659) (4,053,038) (28,577,642)
============ =========== ============ =========== =========== ============ ============
Identifiable
assets........... 41,578,973 3,570,683 9,335,606 8,129,000 2,929,440 (24,454,250) 41,089,452
============ =========== ============ =========== =========== ============ ============
1997 --
Revenues........... $ 31,461,946 $ 5,251,109 $ 1,317,670 $14,529,000 $ 1,212,754 $ (1,522,108) $ 52,250,371
============ =========== ============ =========== =========== ============ ============
Net income
(loss)........... (3,309,312) (2,805,893) (12,732,821) 812,000 (1,572,003) (5,102,265) (24,710,294)
============ =========== ============ =========== =========== ============ ============
Identifiable
assets........... 127,016,917 3,414,733 13,300,035 10,239,000 4,103,371 (62,310,362) 95,763,694
============ =========== ============ =========== =========== ============ ============
</TABLE>
F-35
<PAGE> 74
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following
at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Compensation and compensation-related....................... $1,181,337 $1,471,289
Professional fees........................................... 499,174 615,112
Product return reserve...................................... 1,183,630 257,042
Advertising and marketing................................... 84,000 1,161,144
Interest payable............................................ 150,580 1,448,481
Other....................................................... 2,728,231 3,297,953
---------- ----------
$5,826,952 $8,251,021
========== ==========
</TABLE>
(18) VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts
receivable reserve account:
<TABLE>
<CAPTION>
BALANCE AT OTHER UNCOLLECTIBLE BALANCE AT
BEGINNING OF PROVISION FOR ADDITIONS TO ACCOUNTS END OF
PERIOD BAD DEBT ALLOWANCES(1) WRITTEN OFF PERIOD
------------ ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1995........................... 94,190 37,372 -- (38,184) 93,378
1996........................... 93,378 191,662 51,000 (19,821) 316,219
1997........................... 316,219 889,043 -- (46,804) 1,158,458
</TABLE>
- ---------------
(1) Additions arising through the acquisition of Orgenics in 1996.
(19) OTHER EVENTS
(a) Can-Am Acquisition
On February 18 and 19, 1998, the Company purchased all of the outstanding
stock of Can-Am Care Corporation (Can-Am), a distributor of certain
diabetes-related home health care products and entered into a new bank lending
agreement (Note 19(b)). The aggregate purchase price of $27,900,000 consisted of
the following: $13,600,000 in cash, 1,108,333 shares of the Company's stock with
a fair value of $10,600,000, a $2,000,000 subordinated note payable by the
Company and estimated closing costs of approximately $1,700,000. The Company
estimates that the aggregate purchase price will be allocated to the acquired
assets and liabilities as follows:
<TABLE>
<S> <C>
Accounts receivable..................................... $ 2,812,000
Inventory............................................... 3,766,000
Other current assets.................................... 313,000
Fixed assets............................................ 32,000
Goodwill................................................ 26,900,000
Liabilities assumed..................................... (5,923,000)
-----------
$27,900,000
===========
</TABLE>
Of the Company's shares delivered at closing, 284,168 are to be held in
escrow until no later than 30 days following the delivery of Can-Am audited
financial statements for the year ending December 31, 1998. Pursuant to the
terms of the escrow agreement, the Company may file a claim with the escrow
agent until this
F-36
<PAGE> 75
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
time. The purchase price is subject to adjustment if, pursuant to a closing
balance sheet audit of Can-Am, the net assets of Can-Am at closing are less than
$1,000,000.
In connection with the purchase of Can-Am, Can-Am's shareholders granted a
first right of refusal to the Company to purchase the assets or stock of an
entity under common control, A.M.G. Medical, Inc. (AMG). AMG historically
performed certain administrative, management and manufacturing functions for
Can-Am and concurrent with the purchase of Can-Am, Can-Am and AMG entered into
formal management services and supply agreements. Under the terms of the
management services agreement, AMG will continue to provide such administrative
and management services to Can-Am on an arms-length basis. The management
services agreement provides a mechanism to adjust charges for services based on
the needs of Can-Am and an arbitration provision in the event the parties can
not agree on such charges. Under the terms of the supply agreement, Can-Am must
purchase 100% of its lancet product requirements from AMG, unless AMG is unable
to meet Can-Am's requirements. Further, Can-Am's president entered into an
employment agreement with the Company to continue managing Can-Am for three
years at an annual salary of $150,000.
Both the stock and promissory note issued by the Company are subject to
adjustment in certain circumstances. The number of shares issued may be reduced
based on the occurrence of certain events, as defined. The principal amount of
the promissory note is subject to adjustment based on the performance of the
Company's Common Stock. The computation of the ultimate principal due on the
maturity date, February 19, 2001, will yield an amount not less than $2,000,000
nor greater than $4,000,000.
(b) Refinancing
To fund the cash portion of the purchase price and refinance existing bank
debt (see Note 4), the Company entered into a $42,000,000 credit agreement with
a new bank. The new credit agreement consists of a $37,000,000 term loan and a
$5,000,000 revolving line of credit. Of the proceeds from this term loan, the
Company used $32,000,000 to finance the cash portion of the Can-Am purchase
price (Note 19(a)) and refinance the existing bank debt (see Note 4). The
remaining $5,000,000 was used to repay certain intercompany indebtedness.
The new credit agreement requires compliance with various financial and
nonfinancial covenants for the Company. The primary financial covenants pertain
to, among other things, interest coverage, debt services coverage, leverage, and
earnings before interest, taxes, depreciation and amortization (EBITDA).
The term loan and revolving line of credit allow the Company to borrow
funds at varying rates, including options to borrow at an alternate base rate,
as defined, plus a spread from .25% to 1.75%, or the LIBOR rate plus a spread
from 1.75% to 3.00%. The spreads discussed above depend on the Company's ratio
of senior funded debt to EBITDA.
Borrowings are secured by the Company's stock, and the assets of the
Company and Can-Am. Borrowings under the revolving line of credit are based on
certain percentages of eligible assets, as defined. The Company is required to
pay an annual fee of .375% for the unused portion of the revolving line of
credit. The revolving line of credit expires on February 18, 2002.
The Company is required to make quarterly principal payments ranging from
$1,300,000 to $1,950,000 through December 31, 2003, with payments of $1,433,333
beginning on June 30, 1998. The Company must also make mandatory prepayments on
the term loan if they meet certain cash flow thresholds, sell assets not in the
ordinary course of business, issue or sell indebtedness or issue stock, as
defined.
F-37
<PAGE> 1
EXHIBIT 10.71
SELFCARE, INC.
EXCHANGE AGREEMENT- CDIL NOTES
To: Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
You have advised the undersigned that Selfcare, Inc., (the "Company" or
"you") is offering to certain investors the opportunity to exchange principal
amounts outstanding on certain notes (the "Original Notes") for promissory notes
(the "Convertible Notes") which will be convertible (as more fully described
below) into shares of common stock, par value $.001 per share (the "Common
Stock"), of the Company. The Original Notes constitute those certain promissory
notes issued by the Company in 1995, in an aggregate principal amount of $3.0
million at an annual interest rate of 10%, to refinance certain debt incurred by
the Company to acquire Cambridge Diagnostics Ireland, Ltd. The amounts to be
exchanged for the Convertible Notes, if this Exchange Agreement is accepted by
the Company, consist of the principal currently outstanding on the Original
Notes which the undersigned understands is an aggregate of $2.975 million.
Accrued interest on the Original Notes will be paid by the Company to the
undersigned by check.
The Convertible Notes will be issued in a principal amount equal to the
principal amount of the Original Note(s) exchanged by the undersigned, will bear
interest at the rate of ten percent (10%) per annum, will mature on the six
month anniversary of the date of issuance of the Convertible Notes (the
"Maturity Date"), will be convertible by the holder of such Convertible Notes in
whole at any time on or prior to the Maturity Date into that number of shares of
Common Stock determined by dividing the principal balance of such Convertible
Note plus any accrued interest thereon by the Conversion Price (as defined
below) and will automatically convert, without any action on the part of the
holder, on the Maturity Date into that number of shares of Common Stock
determined by dividing the principal balance of such Convertible Note plus the
accrued interest thereon by the Conversion Price. The "Conversion Price" for a
Convertible Note will be equal to the closing bid price of a share of Common
Stock, as quoted on the American Stock Exchange, on the day immediately
preceding the day of issuance of such Convertible Note multiplied by eighty-five
percent (85%). The undersigned acknowledges that the Convertible Notes and the
Common Stock are more fully described in the Information Package (as defined
below).
Based on the foregoing and subject to the terms and conditions of this
Exchange Agreement (the "Exchange Agreement"), the undersigned agrees with you
as follows:
<PAGE> 2
1. THE EXCHANGE.
The undersigned hereby tenders this Exchange Agreement for the exchange
(the "Exchange") of the principal amount(s) currently due and outstanding (the
"Converted Balance") under the Original Note(s) held by the undersigned for a
Convertible Note issued in a principal amount equal to the Converted Balance.
Upon acceptance of this Exchange Agreement by the Company, the undersigned
will promptly deliver the Note(s) held by the undersigned to the Company and the
Company will promptly issue the Convertible Note. The Company will also pay
accrued interest on the Original Note(s) held by the undersigned accrued through
the date of acceptance of this Exchange Agreement by check. The Convertible Note
issued to the undersigned will begin accruing interest on the date of acceptance
of this Exchange Agreement.
2. INFORMATION.
The undersigned acknowledges receipt of an information package (the
"Information Package") containing the following items:
1. A description of the Convertible Notes and the Common Stock, a
summary of certain risk factors applicable to the Company and the
securities proposed to be exchanged herefor, a discussion of
certain recent developments and a discussion of the use of the
proceeds (if any) from the offering contemplated hereby;
2. The Company's Annual Report on Form 10-KSB/A;
3. The Company's Proxy Statement for its most recent Annual Meeting
of Stockholders;
4. The Company's Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997;
5. The Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission (the "SEC") on March 5, 1997,
as amended by the Form 8-K/A filed with the SEC on May 5, 1997;
6. The Company's Amended and Restated Certificate of Incorporation,
as amended; and
7. The Company's Amended and Restated By-laws.
2
<PAGE> 3
3. ACCEPTANCE OF EXCHANGE.
It is understood and agreed that this Exchange Agreement is made subject to
the following terms and conditions:
(a) The Company shall have the right to accept or reject this Exchange
Agreement, in whole or in part, for any reason, including the inability of the
undersigned to meet the standards imposed by Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act, the ineligibility
of the undersigned to meet the standards imposed by applicable state or foreign
securities laws, or for any other reason, or for no reason. If this Exchange
Agreement is rejected, the Original Note(s) held by the undersigned will be
satisfied pursuant to the terms thereof.
(b) Two copies of this Agreement are being executed by the
undersigned. If accepted, one copy of this Agreement will be retained by the
Company and one copy of this Agreement, after execution by the Company, shall be
delivered to the undersigned.
4. WITHDRAWAL OF OFFERING OR EXCHANGE.
(a) The Company reserves the right to withdraw this offering in whole
or in part for any reason or for no reason.
(b) If the offering is withdrawn by the Company, the undersigned will
be paid the amounts outstanding under the Original Note(s) held by the
undersigned pursuant to the term thereof and will have no liability to the
Company other than to return to the Company the Information Package and other
documents, if any, furnished to the undersigned by or on behalf of the Company
in connection with the offering, and the Company will have no further liability
to the undersigned with respect to the Exchange.
5.REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED.
The undersigned hereby represents and warrants to the Company as
follows:
(a) all information provided and representations made by the
undersigned in the Prospective Investor Questionnaire (the "Questionnaire") of
the Company, a form of which Questionnaire is attached hereto as EXHIBIT A, are
true and correct in all respects as of the date hereof.
(b) The address set forth at the foot of this Exchange Agreement is
the address of the undersigned's principal residence or place of business, and
the undersigned has no present intention of becoming a resident of any other
country, state or jurisdiction.
3
<PAGE> 4
(c) Unless the undersigned shall have notified the Company to the
contrary in writing prior to or together with the tendering of this Exchange
Agreement, the undersigned acknowledges that the undersigned has not relied upon
the advice of a "Purchaser Representative" (as defined in the aforementioned
Regulation D) in evaluating the risks and merits of this investment.
(d) The undersigned has received and read or reviewed and is
familiar with the Information Package (including the exhibits thereto) and the
undersigned confirms that all documents, records, and books pertaining to the
investment in the Company and requested by the undersigned have been made
available or delivered to the undersigned.
(e) The undersigned has had an opportunity to ask questions of and
receive answers from the Company, or a person or persons acting on the Company's
behalf, concerning the terms and conditions of this investment.
(f) The undersigned understands and acknowledges the following:
(i) the securities for which the undersigned hereby subscribes
(including any securities into which such securities may be converted)
have not been registered under the Securities Act or under the
securities laws of any state or other jurisdiction in reliance upon
exemptions for private offerings;
(ii) while the Company may in the future register such securities
(or any securities into which such securities may be converted), it is
under no obligation to do so, except as otherwise provided herein;
(iii) such securities (including any securities into which such
securities may be converted) cannot be resold unless registered under
the Securities Act and any applicable securities law of any state or
other jurisdiction, or an exemption from registration is available;
(iv) as of the date hereof, there is no public market for such
securities (including any securities into which such securities may be
converted);
(v) the undersigned is purchasing such securities without being
furnished any offering literature or prospectus other than the
Information Package, and is relying only on the information contained
therein and herein in evaluating the risks and merits of this
investment; and
(vi) no person or entity has been authorized to give any
information or make any representations in connection with this
investment other than that contained in the Information Package.
4
<PAGE> 5
(g) The securities for which the undersigned hereby subscribes
are being acquired solely for the undersigned's own account, for investment and
not with a view to or for the resale, distribution, subdivision, or
fractionalization thereof; the undersigned has no present plans to enter into
any contract, undertaking, agreement, or arrangement relating thereto.
(h) The undersigned has such knowledge and experience that the
undersigned is capable of evaluating the matters set forth in the Information
Package and the risks and merits relating thereto.
(i) The undersigned, if it is a corporation or other entity,
acknowledges that it, through the officer(s) and/or director(s) and/or other
employees responsible for making an investment decision with regard to the
Exchange, has such knowledge and experience in financial and business matters
that it is capable of evaluating the relative risks and merits of this
investment, and further acknowledges that the representations and warranties
contained in this Section 4 are true and accurate with respect to it.
(j) The undersigned, if he, she or it is an officer, director or
greater than 10% stockholder of the Company, has not directly or indirectly sold
any shares of the Company's Common Stock during the preceding six month period
and, if this Exchange Agreement is accepted, understands that he, she or it may
not sell any such shares during the six month period following the Exchange
without possibly subjecting himself, herself or itself to liability under
Section 16 of the Securities Exchange Act of 1934, as amended.
The foregoing representations and warranties are true and accurate as of
the date hereof and shall be true and accurate as of the date of acceptance of
this Exchange Agreement and delivery of the shares of Common Stock and shall
survive such delivery.
6. TRANSFERABILITY; LEGEND.
This Exchange Agreement, or any of the undersigned's interest herein, may
not be transferred or assigned and any assignment or transfer of the Convertible
Notes or the shares of Common Stock issuable upon conversion thereof shall be
made only in accordance with applicable securities laws. In addition, the
undersigned understands that the Convertible Notes and the certificate(s)
representing the shares of Common Stock issuable upon conversion thereof shall
bear the following restrictive legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES
OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER THE ACT OR (2)
5
<PAGE> 6
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
7. REVOCATION.
The undersigned agrees that the undersigned shall not cancel,
terminate or revoke this Exchange Agreement or any agreement of the undersigned
made hereunder, and that this Exchange Agreement shall survive the death or
disability of the undersigned.
8. PAYMENTS TO U.S. BOSTON CAPITAL CORPORATION.
U.S. Boston Capital Corporation, a broker-dealer ("U.S. Boston"), the
President of which is Willard Lee Umphrey, a director and principal stockholder
of the Company, will receive a fee of three percent (3%) of the principal amount
of all Notes exchanged in connection with the offering contemplated hereby.
9. MISCELLANEOUS.
(a) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of any party to this Exchange Agreement, in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
(b) ADDRESSES FOR NOTICES, ETC. All notices requests, demands and
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed, telecommunicated, telegraphed, telexed or
delivered:
If to the Company, to the address set forth above, Telecopier: (781)
647-3939, Attention: Ron Zwanziger, or at such other address as shall be
designated by the Company in a written notice to the undersigned complying as to
delivery with the terms of this Section 8. A copy of all notices, demands and
other communications to the Company shall be sent to the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, Attention:
Martin Carmichael III, P.C. and Stephen W. Carr, P.C.
If to the undersigned, at its address as set forth on the signature page
hereof or at such other address as shall be designated by the undersigned in a
written notice to the Company complying as to delivery with the terms of this
Section 9.
6
<PAGE> 7
All such notices, requests, demands and other communications shall, when
mailed, registered or certified mail, return receipt requested, postage prepaid,
telecommunicated, telegraphed or telexed, respectively, be effective when
deposited in the mails, confirmed received by telecommunication or delivered to
the telegraph or telex company, respectively, addressed as aforesaid.
(c) SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
(d) GOVERNING LAW. This Subscription shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Massachusetts,
without regard to the choice of law principles thereunder.
[Remainder of Page Intentionally Blank]
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned has executed this Exchange Agreement as
of this __ day of December, 1997.
- --------------------------------- --------------------------------
Name of Investor (Please print) Signature of Investor
and Capacity in Which
Subscription is Made
Address of Investor:
- --------------------------------- --------------------------------
Number Street Signature of Co-Investor, if any
- ---------------------------------
City State Zip Code
- ---------------------------------
Country
Tel. No. ( ) _______________
- ---------------------------------
Social Security Number for
Individual or other Taxpayer
Identification Number
ACCEPTED BY:
SELFCARE, INC.
By:_______________________________________
NUMBER OF SHARES OF COMMON STOCK:_______________________
8
<PAGE> 9
EXHIBIT A
NAME OF INVESTOR: ________________________
PROSPECTIVE INVESTOR QUESTIONNAIRE
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
The securities of Selfcare, Inc. (the "Company") are being offered in
reliance on Regulation D under the Securities Act of 1933, as amended
("Regulation D"), and similar provisions of state law. To satisfy the
requirements of Regulation D and applicable state law, the Company must
determine whether a prospective investor (the "Investor") meets the Regulation D
and state law definitions of "accredited investor" before selling (or, in some
states, offering) securities to such person. This Questionnaire is designed to
assist the Company in making this determination.
Please complete, execute and date this Prospective Investor Questionnaire
and deliver it along with an executed Exchange Agreement to the Company at the
address set forth above. Your answers will, at all times, be kept confidential
except as necessary to establish that the offering and sale of the securities
will not result in a violation of applicable law.
1) To establish the basis of the Investor's status as an accredited
investor, please answer the questions set forth below.
a) Is the Investor an individual with a net worth (or net worth with
his or her spouse) in excess of $1 million?
Yes ______ No ______
A-1
<PAGE> 10
b) Is the Investor an individual with net income (without including
any net income of the Investor's spouse) in excess of $200,000,
or joint income with the Investor's spouse in excess of $300,000,
in each of the two most recent years, and does the Investor
reasonably expect to reach the same income level in the current
year?
Yes ______ No ______
c) Is the Investor an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 (hereinafter
"ERISA") whose decision to invest in the Company is being made by
a plan fiduciary which is either a bank, savings and loan
association, insurance company or registered investment adviser
or, alternatively, does the employee benefit plan have total
assets in excess of $5,000,000 or is the employee benefit plan
"self-directed" with investment decisions made solely by
person(s) who are accredited investors(s)?
Yes ______ No ______
d) Is the Investor a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a
state or its political subdivisions for the benefit of its
employees with total assets in excess of $5,000,000?
Yes ______ No ______
e) Is the Investor a trust (including an individual retirement
arrangement formed as a trust or a tax-qualified pension and
profit sharing plan (E.G., a Keogh Plan) formed as a trust but
not subject to ERISA) with total assets in excess of $5,000,000
that was not formed for the specific purpose of acquiring
securities of the Company and whose purchase is directed by a
person with such knowledge and experience in financial and
business matters that such person is capable of evaluating the
merits and risks of the prospective investment?
Yes ______ No ______
A-2
<PAGE> 11
f) Is the Investor a corporation, partnership, Massachusetts or
similar business trust or an organization described in Section
501(c)(3) of the Internal Revenue Code that was not formed for
the specific purpose of acquiring securities of the Company and
whose total assets exceed $5,000,000?
Yes ______ No ______
g) Is the Investor one of the following entities:
(i) A "bank" as defined in Section 3(a)(2) of the Securities Act
or any "savings and loan association" or other institution
as defined in Section 3(a)(5)(A) of the Securities Act
whether acting in an individual or fiduciary capacity;
(ii) A "broker/dealer" registered pursuant to Section 15 of the
Securities Exchange Act of 1934;
(iii) An "insurance company," as defined in Section 2(13) of the
Securities Act;
(iv) An "investment company" registered under the Investment
Company Act of 1940 or a "business development company" as
defined in Section 2(a)(48) of the Investment Company Act of
1940;
(v) A "Small Business Investment Company" licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; or
(vi) A "Private Business Development Company" as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940?
Yes ______ No ______
If yes, then which entity (i.e., (g)(i) through (vi) above)?
------------
A-3
<PAGE> 12
h) Is the Investor an entity (other than a trust but including
a grantor trust) in which all of the equity owners can
answer "Yes" to any one question set forth in Sections 1(a)
through 1(g) immediately above?
Yes ______ No ______
2) Is the Investor acquiring securities of the Company as a
principal for the purpose of investment and not with a view
to resale or distribution?
Yes ______ No ______
3) By signing this Questionnaire, the Investor hereby confirms
the following statements:
a) The Investor shall immediately provide the Company with
corrected information in the event any information
given herein was untrue.
b) The Investor acknowledges that any delivery to the
Investor of information relating to the Company, prior
to the determination by the Company of the suitability
of the Investor as an investor in the Company, shall
not constitute an offer of securities of the Company
until such determination of suitability shall be made.
c) The answers of the Investor to the foregoing questions
are true and complete to the best of the information
and belief of the undersigned, and the Company shall be
notified promptly of any changes in the foregoing
answers.
- --------------------------------- ------------------------------------
Signature of Investor Signature of Investor
(or duly authorized agent) (or duly authorized agent)
- --------------------------------- ------------------------------------
Title: Title:
- --------------------------------- ------------------------------------
Print Name Signed Above Print Name Signed Above
A-4
<PAGE> 1
EXHIBIT 10.72
SELFCARE, INC.
EXCHANGE AGREEMENT- EN PLC NOTES
To: Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
You have advised the undersigned that Selfcare, Inc., (the "Company" or
"you") is offering to certain investors the opportunity to exchange certain
principal amounts outstanding on certain notes (the "Notes") for promissory
notes (the "Convertible Notes") which will be convertible (as more fully
described below) into shares of common stock, par value $.001 per share (the
"Common Stock"), of the Company. The Original Notes constitute those certain
promissory notes issued by the Company in 1997, in an aggregate principal amount
of approximately $3.8 million at an annual interest rate equal to the Bank of
Boston prime rate plus 1.5%, to finance the purchase of certain shares of
capital stock of Enviromed, plc from EN PLC Limited Partnership. The amounts to
be exchanged for the Convertible Notes, if this Exchange Agreement is accepted
by the Company, consist of certain of the principal amounts payable by the
Company to certain of the holders of the Original Notes during January and April
1998. The undersigned understands that such principal amounts aggregate
approximately $1.85 million. Accrued interest on the Original Notes will be paid
by the Company to the undersigned by check.
The Convertible Notes will be issued in a principal amount equal to the
principal amount of the Original Note(s) exchanged by the holders thereof, will
bear interest at the rate of ten percent (10%) per annum, will mature on the
six month anniversary of the date of issuance of the Convertible Notes (the
"Maturity Date"), will be convertible by the holder of such Convertible Notes in
whole at any time on or prior to the Maturity Date into that number of shares of
Common Stock determined by dividing the principal balance of such Convertible
Note plus any accrued interest thereon by the Conversion Price (as defined
below) and will automatically convert, without any action on the part of the
holder thereof, on the Maturity Date into that number of shares of Common Stock
determined by dividing the principal balance of such Convertible Note plus the
accrued interest thereon by the Conversion Price. The "Conversion Price" for a
Convertible Note will be equal to the closing bid price of a share of Common
Stock, as quoted on the American Stock Exchange, on the day immediately
preceding the date of issuance of such Convertible Note multiplied by
eighty-five percent (85%). The undersigned acknowledges that the Convertible
Notes and the Common Stock are more fully described in the Information Package
(as defined below).
Based on the foregoing and subject to the terms and conditions of this
Exchange Agreement (the "Exchange Agreement"), the undersigned agrees with you
as follows:
<PAGE> 2
1. THE EXCHANGE.
The undersigned hereby tenders this Exchange Agreement for the exchange
(the "Exchange") of the principal amount(s) due and payable in January and April
1998 (the Converted Balance") under the Original Note(s) held by the undersigned
for a Convertible Note issued in a principal amount equal to the Converted
Balance.
Upon acceptance of this Exchange Agreement by the Company, the undersigned
will promptly deliver the Note(s) held by the undersigned to the Company and the
Company will promptly issue the Convertible Note. The Company will also pay any
interest on the Original Note(s) held by the undersigned through the date of
acceptance of this Exchange Agreement by check. The Convertible Note issued to
the undersigned will begin accruing interest on the date of acceptance of this
Exchange Agreement.
2. INFORMATION.
The undersigned acknowledges receipt of an information package (the
"Information Package") containing the following items:
1. A description of the Convertible Notes and the Capital Stock, a
summary of certain risk factors applicable to the Company and the
securities proposed to be exchanged herefor, a discussion of certain
recent developments and a discussion of the use of the proceeds (if
any) from the offering contemplated hereby;
2. The Company's Annual Report on Form 10-KSB/A;
3. The Company's Proxy Statement for its most recent Annual Meeting of
Stockholders;
4. The Company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
5. The Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission (the "SEC") on March 5, 1997, as amended by the
Form 8-K/A filed with the SEC on May 5, 1997;
6. The Company's Amended and Restated Certificate of Incorporation, as
amended; and
7. The Company's Amended and Restated By-laws.
2
<PAGE> 3
3. ACCEPTANCE OF EXCHANGE.
It is understood and agreed that this Exchange Agreement is made subject to
the following terms and conditions:
(a) The Company shall have the right to accept or reject this Exchange
Agreement, in whole or in part, for any reason, including the inability of the
undersigned to meet the standards imposed by Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act, the ineligibility
of the undersigned to meet the standards imposed by applicable state or foreign
securities laws, or for any other reason, or for no reason. If this Exchange
Agreement is rejected, the Original Note(s) held by the undersigned will be
satisfied pursuant to the terms thereof.
(b) Two copies of this Agreement are being executed by the undersigned.
If accepted, one copy of this Agreement will be retained by the Company and one
copy of this Agreement, after execution by the Company, shall be delivered to
the undersigned.
4. WITHDRAWAL OF OFFERING OR EXCHANGE.
(a) The Company reserves the right to withdraw this offering in whole
or in part for any reason or for no reason.
(b) If the offering is withdrawn by the Company, the undersigned will
be paid the amounts outstanding under the Original Notes pursuant to the term
thereof and will have no liability to the Company other than to return to the
Company the Information Package and other documents, if any, furnished to the
undersigned by or on behalf of the Company in connection with the offering, and
the Company will have no further liability to the undersigned with respect to
the Exchange.
5. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED.
The undersigned hereby represents and warrants to the Company as follows:
(a) all information provided and representations made by the
undersigned in the Prospective Investor Questionnaire (the "Questionnaire") of
the Company, a form of which Questionnaire is attached hereto as EXHIBIT A, are
true and correct in all respects as of the date hereof.
(b) The address set forth at the foot of this Exchange Agreement is the
address of the undersigned's principal residence or place of business, and the
undersigned has no present intention of becoming a resident of any other
country, state or jurisdiction.
3
<PAGE> 4
(c) Unless the undersigned shall have notified the Company to the
contrary in writing prior to or together with the tendering of this Exchange
Agreement, the undersigned acknowledges that the undersigned has not relied upon
the advice of a "Purchaser Representative" (as defined in the aforementioned
Regulation D) in evaluating the risks and merits of this investment.
(d) The undersigned has received and read or reviewed and is familiar
with the Information Package (including the exhibits thereto) and the
undersigned confirms that all documents, records, and books pertaining to the
investment in the Company and requested by the undersigned have been made
available or delivered to the undersigned.
(e) The undersigned has had an opportunity to ask questions of and
receive answers from the Company, or a person or persons acting on the Company's
behalf, concerning the terms and conditions of this investment.
(f) The undersigned understands and acknowledges the following:
(i) the securities for which the undersigned hereby subscribes
(including any securities into which such securities may be converted) have
not been registered under the Securities Act or under the securities laws
of any state or other jurisdiction in reliance upon exemptions for private
offerings;
(ii) while the Company may in the future register such securities
(or any securities into which such securities may be converted), it is
under no obligation to do so, except as otherwise provided herein;
(iii) such securities (including any securities into which such
securities may be converted) cannot be resold unless registered under the
Securities Act and any applicable securities law of any state or other
jurisdiction, or an exemption from registration is available;
(iv) as of the date hereof, there is no public market for such
securities (including any securities into which such securities may be
converted);
(v) the undersigned is purchasing such securities without being
furnished any offering literature or prospectus other than the Information
Package, and is relying only on the information contained therein and
herein in evaluating the risks and merits of this investment; and
(vi) no person or entity has been authorized to give any
information or make any representations in connection with this investment
other than that contained in the Information Package.
4
<PAGE> 5
(g) The securities for which the undersigned hereby subscribes are
being acquired solely for the undersigned's own account, for investment and not
with a view to or for the resale, distribution, subdivision, or
fractionalization thereof; the undersigned has no present plans to enter into
any contract, undertaking, agreement, or arrangement relating thereto.
(h) The undersigned has such knowledge and experience that the
undersigned is capable of evaluating the matters set forth in the Information
Package and the risks and merits relating thereto.
(i) The undersigned, if it is a corporation or other entity,
acknowledges that it, through the officer(s) and/or director(s) and/or other
employees responsible for making an investment decision with regard to the
Exchange, has such knowledge and experience in financial and business matters
that it is capable of evaluating the relative risks and merits of this
investment, and further acknowledges that the representations and warranties
contained in this Section 4 are true and accurate with respect to it.
(j) The undersigned, if he, she or it is an officer, director or
greater than 10% stockholder of the Company, has not directly or indirectly sold
any shares of the Company's Common Stock during the preceding six month period
and, if this Exchange Agreement is accepted, understands that he, she or it may
not sell any such shares during the six month period following the Exchange
without possibly subjecting himself, herself or itself to liability under
Section 16 of the Securities Exchange Act of 1934, as amended.
The foregoing representations and warranties are true and accurate as of
the date hereof and shall be true and accurate as of the date of acceptance of
this Exchange Agreement and delivery of the shares of Common Stock and shall
survive such delivery.
6. TRANSFERABILITY; LEGEND.
This Exchange Agreement, or any of the undersigned's interest herein, may
not be transferred or assigned and any assignment or transfer of the Convertible
Notes or the shares of Common Stock issuable upon conversion thereof shall be
made only in accordance with applicable securities laws. In addition, the
undersigned understands that the Convertible Notes and the certificate(s)
representing the shares of Common Stock issuable upon conversion thereof shall
bear the following restrictive legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES OR
BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2)
5
<PAGE> 6
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES AND BLUE SKY LAWS.
7. REVOCATION.
The undersigned agrees that the undersigned shall not cancel, terminate or
revoke this Exchange Agreement or any agreement of the undersigned made
hereunder, and that this Exchange Agreement shall survive the death or
disability of the undersigned.
8. MISCELLANEOUS.
(a) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of any party to this Exchange Agreement, in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
(b) ADDRESSES FOR NOTICES, ETC. All notices requests, demands and
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed, telecommunicated, telegraphed, telexed or
delivered:
If to the Company, to the address set forth above, Telecopier: (781)
647-3939, Attention: Ron Zwanziger, or at such other address as shall be
designated by the Company in a written notice to the undersigned complying as to
delivery with the terms of this Section 8. A copy of all notices, demands and
other communications to the Company shall be sent to the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, Attention:
Martin Carmichael III, P.C. and Stephen W. Carr, P.C.
If to the undersigned, at its address as set forth on the signature page
hereof or at such other address as shall be designated by the undersigned in a
written notice to the Company complying as to delivery with the terms of this
Section 8.
All such notices, requests, demands and other communications shall, when
mailed, registered or certified mail, return receipt requested, postage prepaid,
telecommunicated, telegraphed or telexed, respectively, be effective when
deposited in the mails, confirmed received by telecommunication or delivered to
the telegraph or telex company, respectively, addressed as aforesaid.
(c) Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
6
<PAGE> 7
(d) GOVERNING LAW. This Subscription shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Massachusetts,
without regard to the choice of law principles thereunder.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned has executed this Exchange Agreement as
of this day of December, 1997.
- --------------------------------------- ---------------------------------
Name of Investor (Please print) Signature of Investor
and Capacity in Which
Subscription is Made
Address of Investor:
- --------------------------------------- ---------------------------------
Number Street Signature of Co-Investor, if any
- ---------------------------------------
City State Zip Code
- ---------------------------------------
Country
Tel. No. ( ) --------------------------
- ---------------------------------------
Social Security Number for
Individual or other Taxpayer
Identification Number
ACCEPTED BY:
SELFCARE, INC.
By: -----------------------------------
NUMBER OF SHARES OF COMMON STOCK: -----------------------------
8
<PAGE> 9
EXHIBIT A
NAME OF INVESTOR:______________________________
PROSPECTIVE INVESTOR QUESTIONNAIRE
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
The securities of Selfcare, Inc. (the "Company") are being offered in
reliance on Regulation D under the Securities Act of 1933, as amended
("Regulation D"), and similar provisions of state law. To satisfy the
requirements of Regulation D and applicable state law, the Company must
determine whether a prospective investor (the "Investor") meets the Regulation D
and state law definitions of "accredited investor" before selling (or, in some
states, offering) securities to such person. This Questionnaire is designed to
assist the Company in making this determination.
Please complete, execute and date this Prospective Investor Questionnaire
and deliver it along with an executed Exchange Agreement to the Company at the
address set forth above. Your answers will, at all times, be kept confidential
except as necessary to establish that the offering and sale of the securities
will not result in a violation of applicable law.
1) To establish the basis of the Investor's status as an accredited investor,
please answer the questions set forth below.
a) Is the Investor an individual with a net worth (or net worth with his
or her spouse) in excess of $1 million?
Yes________ No_______
A-1
<PAGE> 10
b) Is the Investor an individual with net income (without including any
net income of the Investor's spouse) in excess of $200,000, or joint
income with the Investor's spouse in excess of $300,000, in each of
the two most recent years, and does the Investor reasonably expect to
reach the same income level in the current year?
Yes_______ No_______
c) Is the Investor an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 (hereinafter "ERISA")
whose decision to invest in the Company is being made by a plan
fiduciary which is either a bank, savings and loan association,
insurance company or registered investment adviser or, alternatively,
does the employee benefit plan have total assets in excess of
$5,000,000 or is the employee benefit plan "self-directed" with
investment decisions made solely by person(s) who are accredited
investors(s)?
Yes_______ No_______
d) Is the Investor a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or
its political subdivisions for the benefit of its employees with total
assets in excess of $5,000,000?
Yes_______ No_______
e) Is the Investor a trust (including an individual retirement
arrangement formed as a trust or a tax-qualified pension and profit
sharing plan (e.g., a Keogh Plan) formed as a trust but not subject
to ERISA) with total assets in excess of $5,000,000 that was not
formed for the specific purpose of acquiring securities of the Company
and whose purchase is directed by a person with such knowledge and
experience in financial and business matters that such person is
capable of evaluating the merits and risks of the prospective
investment?
Yes_______ No_______
A-2
<PAGE> 11
f) Is the Investor a corporation, partnership, Massachusetts or similar
business trust or an organization described in Section 501(c)(3) of
the Internal Revenue Code that was not formed for the specific purpose
of acquiring securities of the Company and whose total assets exceed
$5,000,000?
Yes_______ No_______
g) Is the Investor one of the following entities:
(i) A "bank" as defined in Section 3(a)(2) of the Securities Act or
any "savings and loan association" or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether
acting in an individual or fiduciary capacity;
(ii) A "broker/dealer" registered pursuant to Section 15 of the
Securities Exchange Act of 1934;
(iii) An "insurance company,"as defined in Section 2(13) of the
Securities Act;
(iv) An "investment company" registered under the Investment Company
Act of 1940 or a "business development company" as defined in
Section 2(a)(48) of the Investment Company Act of 1940;
(v) A "Small Business Investment Company" licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; or
(vi) A "Private Business Development Company" as defined in Section
202(a)(22) of the Investment Advisers Act of 19407
Yes_______ No_______
If yes, then which entity (i.e., (g)(i) through (vi) above)?
-------------------
A-3
<PAGE> 12
h) Is the Investor an entity (other than a trust but including a
grantor trust) in which all of the equity owners can answer "Yes"
to any one question set forth in Sections l(a) through l(g)
immediately above?
Yes_______ No_______
2) Is the Investor acquiring securities of the Company as a principal for the
purpose of investment and not with a view to resale or distribution?
Yes_______ No_______
3) By signing this Questionnaire, the Investor hereby confirms the following
statements:
a) The Investor shall immediately provide the Company with corrected
information in the event any information given herein was untrue.
b) The Investor acknowledges that any delivery to the Investor of
information relating to the Company, prior to the determination by the
Company of the suitability of the Investor as an investor in the
Company, shall not constitute an offer of securities of the Company
until such determination of suitability shall be made.
c) The answers of the Investor to the foregoing questions are true and
complete to the best of the information and belief of the undersigned,
and the Company shall be notified promptly of any changes in the
foregoing answers.
- --------------------------------- ------------------------------
Signature of Investor Signature of Investor
(or duly authorized agent) (or duly authorized agent)
- --------------------------------- ------------------------------
Title: Title:
- --------------------------------- ------------------------------
Print Name Signed Above Print Name Signed Above
A-4
<PAGE> 1
EXHIBIT 10.73
THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. IN ADDITION, THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF ABSENT REGISTRATION OF
SUCH SECURITIES UNDER SAID ACT AND SAID LAWS UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED.
SELFCARE, INC.
FORM OF
CONVERTIBLE PROMISSORY NOTE
FIELD(Amount)
December 12, 1997
FOR VALUE RECEIVED, the undersigned, SELFCARE, INC. (the "Company"), a
corporation organized and existing under the laws of the State of Delaware,
hereby unconditionally promises to pay to FIELD(Name) (the "Holder") the
principal sum of FIELD(Amount )) (FIELD(Amount)), on June 12, 1998, (the
"Maturity Date"), with interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid balance thereof at the rate of ten percent
(10%) per annum from the date hereof which shall accrue and be payable in
interest only on the Maturity Date and in accordance with terms hereof until (i)
the principal hereof shall have become due and payable, or (ii) the principal
and interest accrued hereunder shall have been converted as herein provided, or
(iii) this Note has been redeemed by the Company as provided herein, whichever
shall occur first.
Unless this Note is converted as provided herein, payment of principal and
interest is to be made in lawful money of the United States of America to the
Holder at the offices of the Company located in Waltham, Massachusetts or at
such other place as the Holder may designate in writing to the Company.
l. CONVERSION OF NOTE.
(a) At the option of Holder, at any time on or prior to the Maturity
Date, this Note shall be convertible, in whole (including accrued but
unpaid interest) but not in part at the then-applicable Conversion Price
(as hereinafter defined) into fully paid and nonassessable shares of Common
Stock, par value $.001 per share ("Common Stock"). In order to exercise its
option to convert as provided herein, Holder shall deliver and surrender
this Note to the Company accompanied by written notice of its election to
convert this Note pursuant to the conversion form attached as EXHIBIT A.
<PAGE> 2
(b) If not sooner redeemed or converted, this Note shall be converted
in whole (including accrued but unpaid interest) on the Maturity Date at
the then-applicable Conversion Price in fully paid and nonassessable shares
of Common Stock.
(c) The conversion price for this Note shall be $7.225, provided,
however, that such price shall be subject to adjustment as hereinafter
provided (such amount, as and to the extent adjusted as herein provided, is
referred to as the "Conversion Price"); so that upon conversion of this
Note, Holder shall be entitled to receive a number of shares of Common
Stock equal to (x) the total indebtedness (i.e., principal and accrued (but
unpaid) interest through the date prior to the date of such conversion)
still due and payable under this Note, divided by (y) the Conversion Price.
No fractional shares of Common Stock shall be issued upon the conversion of
this Note. Instead of a fraction of a share of Common Stock which would
otherwise be issuable upon conversion of this Note, the Company shall pay a
cash adjustment in respect of such fraction of a share of Common Stock in
an amount equal to the same fractional interest of the Conversion Price.
Upon conversion of this Note, this Note shall be delivered and surrendered
to the Company, duly endorsed to the Company or accompanied by proper
instruments of transfer, and Holder shall provide to the Company, a written
notice of the name or names in which the certificate or certificates for
shares of Common Stock shall be issued. Upon such surrender and delivery of
such notice and this Note, Holder shall be entitled to receive stock
certificates evidencing the number of shares of Common Stock into which
this Note is convertible, interest on this Note shall cease to accrue, and
this Note shall be cancelled and shall not thereafter be deemed to be
outstanding. The Company shall pay all taxes and other charges in respect
of the issuance of shares of Common Stock to Holder upon any such
conversion.
2. ADJUSTMENT. The Conversion Price shall be subject to adjustment from
time to time prior to the Conversion Date upon the happening of certain events,
as follows:
(a) Whenever the Company shall change the number of shares of Common
Stock issued and outstanding as a result of a stock split, subdivision,
stock dividend, combination or similar recapitalization with respect to
such stock, then, and in each such case, the Conversion Price then in
effect shall be adjusted so that Holder shall thereafter be entitled to
receive upon conversion of this Note the number of shares of Common Stock
or other securities which Holder would own or be entitled to receive after
the happening of any of the events described in this Section 2(a) had this
Note been converted immediately prior to the happening of such event or any
record date with respect thereto.
(b) No adjustments shall be made in connection with, among other items
not described in Section 2(a), (i) the issuance of shares of Common Stock
upon any conversion of this Note or similar notes, or (ii) the issuance or
grant, or exercise, of any stock options, rights, warrants or restricted
stock grants to employees, consultants
2
<PAGE> 3
or directors of the Company or (iii) the issuance of stock or rights to buy
stock in connection with any acquisition by or related transactions of, the
Company.
(c) In the event of any consolidation or merger of the Company with or
into another company or any reclassification of the Common Stock (other
than a reclassification referred to in Section 2(a) above) as a result of
which the holders of the shares of Common Stock become holders of other
shares or securities of another company or other entity, or such holders
receive cash or other assets, or in the event of any sale or conveyance to
another company or other entity of the property, assets or business of the
Company as an entirety or substantially as an entirety, this Note shall
automatically be converted pursuant to Section 1 upon the happening of such
consolidation, merger, sale or conveyance, and the shares of Common Stock
into which this Note shall be converted shall be exchanged for shares
and/or other securities and property of such other company or entity, or
for other shares or securities of the Company, as the case may be, that the
holder of the shares of Common Stock received upon such conversion would
have been entitled to receive or retain if such shares of Common Stock had
been issued and outstanding immediately prior to such consolidation,
merger, sale or conveyance.
3. DEFAULT. If any of the following events shall occur and be continuing
for any reason whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or otherwise):
(a) The Company shall fail to pay within ten business days after
written notice of such failure has been received by the Company from the
Holder any amount payable hereunder; or
(b) The Company shall (i) apply for, or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or substantially all of its property, (ii)
be generally not paying its debts as such debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect), (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce in writing to any
petition filed against it an involuntary case under such Bankruptcy Code,
(vii) take any action under the laws of its jurisdiction of incorporation
similar to any of the foregoing, or (viii) take any corporate action for
the propose of effecting any of the foregoing; or
(c) A proceeding or case shall be commenced, without the application
or consent of the Company in any court of competent jurisdiction, seeking
(i) the liquidation, reorganization, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Company or of
all or any substantial part of its assets, or (iii) similar relief in
respect of the Company under any law providing for the relief of debtors,
and such
3
<PAGE> 4
proceeding or case shall continue undismissed, or unstayed and in effect,
for a period of sixty days; or an order for relief shall be entered against
the Company as debtor in an involuntary case under such Bankruptcy Code; or
action similar to any of the foregoing shall be taken under the laws of the
jurisdiction of incorporation of the Company with respect to the Company
without its consent and shall continue unstayed and in effect for any
period of ninety consecutive days, then, the Holder may, at its option, by
notice in writing to the Company, declare this Note to be, and this Note
shall thereupon be and become, immediately due and payable together with
interest accrued thereon, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company.
4. OPTIONAL REDEMPTION, PREPAYMENT. This Note is subject to redemption by
the Company (at its option), in whole but not in part, at any time or from time
to time prior to the Maturity Date. With respect to any such redemption, this
Note will be redeemable by payment to the Holder in cash of the then-outstanding
principal amount hereof plus accrued interest to the redemption date. With
respect to any such redemption, the Company shall give at least 15 but not more
than 30 days prior notice of such redemption to the Holder, which notice shall
state the date of redemption of this Note. Such redemption notice shall be
deemed to have been duly and properly given when and if, among other methods of
notice delivery, such notice is deposited in the United States mail or given in
person at the address of the Holder last given to the Company. This Note shall
not otherwise be prepayable except through the redemption provided in this
Section.
5. AMENDMENT; MODIFICATION. This Note may be amended, modified or
supplemented only by a written instrument executed by the Company and Holder.
6. GOVERNING LAW. This Note is intended to be performed in The Commonwealth
of Massachusetts and shall be construed and enforced in accordance with the law
of such Commonwealth.
7. NO RECOURSE AGAINST OTHERS. No director, officer, employee, consultant,
advisor or stockholder of the Company or any affiliate of the Company, as such,
shall have any liability for any obligations, including, without limitation,
indebtedness, of the Company under this Note or for any claim based on, in
respect of, or by reason of, such obligations or their creation. The Holder by
accepting this Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this Note.
[Remainder of Page Intentionally Left Blank]
4
<PAGE> 5
IN WITNESS WHEREOF, SELFCARE, INC. has caused this Convertible Promissory
Note to be executed in its corporate name by its duly authorized officer and its
corporate seal to be hereunto affixed, all as of the day and year first above
written.
SELFCARE, INC., a Delaware corporation
By:___________________________________
Name: Ron Zwanziger
Title: Chief Executive Officer
5
<PAGE> 6
EXHIBIT "A"
CONVERSION FORM
To convert this Note into shares of Common Stock of Selfcare, Inc., check
this box:
If you want common stock certificates, if any, made out in another person's
name, fill in the form below:
___________________________________________________________________________
(Print or type assignee's name, address and zip code)
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Insert assignee's social sec. or tax I.D. no.)
By: _________________________
________________________________ Name: _______________________
DATE: _______________________
6
<PAGE> 1
EXHIBIT 10.74
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement"), dated as of February 18,
1998, made by and between A.M.G. Medical Inc., a Quebec corporation ("AMG"), and
Can-Am Care Corporation, a New York corporation ("Can-Am"),
W I T N E S S E T H T H A T:
WHEREAS, AMG is, among other things, engaged in the manufacture and
distribution of private label monolet compatible lancets for use by diabetic
consumers ("M/C Lancets");
WHEREAS, Can-Am has purchased M/C Lancets from AMG and wishes to
continue to purchase M/C Lancets from AMG; and
WHEREAS, AMG desires to continue to supply M/C Lancets to Can-Am on the
terms and conditions and for the prices set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto covenant and agree
as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"ACT" shall mean the Federal Food Drug and Cosmetic Act, as amended.
"AFFILIATE" shall mean any individual, corporation or other entity
that, directly or indirectly, through stock ownership or otherwise, controls, is
controlled by, or is under common control with, the designated party, but only
for so long as the relationship exists.
"CONTRACTOR" shall mean the manufacturer that is AMG's principal
supplier of injection-molded lancet components used in the manufacture of M/C
Lancets.
"EFFECTIVE DATE" shall be the date first written above.
"FDA" shall mean the United States Food and Drug Administration, any of
its successor agencies or departments, or any other agency serving the same or
similar function.
"FORECAST" shall have the meaning set forth in Section 4(a) of this
Agreement.
<PAGE> 2
"LOSS" shall mean any and all losses, damages, costs and expenses of
any kind and nature whatsoever (including, without limitation, reasonable
attorneys' fees and disbursements) which may be sustained or suffered by either
party to this Agreement, arising out of or resulting from any claims, demands,
actions, suits, and judgments instituted by third parties against such party.
"M/C LANCETS" shall have the meaning set forth in the first "whereas"
clause of this Agreement.
"SPECIFICATIONS" shall mean the finished product and process and
manufacturing specifications and instructions, quality assurance, sterilization
and other applicable procedures, and product descriptions applicable to M/C
Lancets and/or the packaging thereof consistent with AMG's past practices and as
described on Schedule 7 hereto.
"STOCK PURCHASE AGREEMENT" shall mean that certain agreement, dated as
of February 18, 1998, by and among Selfcare, Inc., Selfcare Consumer Products,
Inc. (collectively with Selfcare, Inc., the "Purchasers"), Can-Am and the four
stockholders of Can-Am, which, among other matters, provides for the purchase by
the Purchasers of all of the issued and outstanding capital stock, convertible
securities and option securities from the stockholders of Can-Am.
"TERM" shall mean the period set forth in Section 3.
SECTION 2. Supply.
(a) Subject to the terms and conditions of this Agreement, AMG
shall sell and deliver to Can-Am and Can-Am shall purchase and accept from AMG
100% of Can-Am's M/C Lancets requirements.
(b) Notwithstanding Section 2(a), Can-Am may enter into
short-term ("spot") arrangements to acquire M/C Lancets from third parties to
meet its M/C Lancets requirements if (i) AMG is prevented from supplying M/C
Lancets by circumstances qualifying as Force Majeure under Section 13, or is
otherwise unable to deliver M/C Lancets pursuant to this Agreement in sufficient
quantities, (ii) AMG's M/C Lancets fail to meet the Specifications, or (iii) AMG
is in material default under any of its obligations under this Agreement.
Can-Am's rights under the preceding sentence are in addition to any remedies it
shall be entitled to under this Agreement.
(c) No provision of this Agreement shall restrict Can-Am from
manufacturing, purchasing or distributing other products which may be
competitive with M/C Lancets.
(d) AMG shall maintain facilities adequate to manufacture M/C
Lancets in quantities sufficient to meet the Forecasts and conform to the
Specifications. In supplying M/C Lancets, AMG shall be responsible for obtaining
all raw materials, shippers, packers, and packaging materials and for providing
all labor and other overhead necessary to manufacture M/C Lancets.
2
<PAGE> 3
(e) AMG shall not sell M/C Lancets to any customer other than
Can-Am, except that (i) AMG may continue to supply M/C Lancets to the customers
listed in Schedule 2(e), but only in the territories set forth opposite the
names of such customers in Schedule 2(e), and in each case on substantially the
same terms and conditions as in effect on the Effective Date; provided, that no
sales to customers other than Can-Am shall adversely affect AMG's performance
hereunder.
SECTION 3. Term. Subject to earlier termination as provided in Section
14, the term of this Agreement shall commence on the Effective Date and shall
continue until Can-Am is no longer in the business of selling M/C Lancets.
SECTION 4. Forecasts and Orders.
(a) Every ninety (90) days during the Term, Can-Am shall
provide AMG with (i) a good faith forecast (a "Forecast") of its anticipated
purchases of M/C Lancets during each of the four (4) three-month periods
("Quarters") following the date of the forecast (the "Forecast Date"), and (ii)
a binding purchase order ("Purchase Order") for M/C Lancets to be shipped from
time to time in accordance with the provisions of this Agreement. Can-Am agrees
to purchase from AMG (A) no less than 100% of the M/C Lancets that it forecasted
that it would purchase during the first two Quarters of its most recent
Forecast, and (B) no less than 85% of the M/C Lancets that it forecasted that it
would purchase during the third and fourth Quarters of its most recent Forecast.
(b) Can-Am shall authorize shipment of M/C Lancets by issuing
a Purchase Order to AMG, and AMG shall cause M/C Lancets to be shipped in
accordance with the Purchase Order. Each Purchase Order shall be in the form of
Exhibit A hereto. Each Purchase Order shall identify (i) the quantity and other
characteristics (including pack size, packaging information, gauge, SKU and
color) of M/C Lancets to be delivered and (ii) the required delivery date, which
date shall not be less than ten (10) days after the date of the relevant
Purchase Order.
(c) AMG shall promptly acknowledge each Purchase Order by
signing and returning to Can-Am the acknowledgment copy of each Purchase Order
promptly after its receipt. AMG shall be deemed to have accepted a Purchase
Order unless it delivers to Can-Am a written notice objecting to such Purchase
Order within five (5) business days after receipt of such Purchase Order.
(d) In the event of any conflict between the terms and
conditions of this Agreement and the terms and conditions of Can-Am's Purchase
Order or any other document, the terms and conditions of this Agreement shall be
controlling.
(e) The parties hereto may agree to modify the procedures for
ordering and delivering M/C Lancets hereunder.
3
<PAGE> 4
SECTION 5. Price and Payment.
(a) Subject to the terms and conditions of this Agreement,
Can-Am shall purchase and AMG shall sell all M/C Lancets for which a Purchase
Order has been submitted and accepted by AMG. Can-Am shall pay AMG the prices
listed in the Price List attached hereto as Schedule 5. AMG represents and
warrants that the prices listed in the Price List are no greater than average
prices, except as adjusted for labor costs, packaging costs, and sterilization
costs, that AMG charged Can-Am for M/C Lancets during Can-Am's fiscal year ended
May 31, 1997.
(b) All dues, duties, fees, taxes, charges, or other expenses
on or pertaining to the import into the United States of M/C Lancets, shall be
borne by Can-Am. AMG shall be responsible for obtaining all export/import
permits or similar approvals required for the delivery of M/C Lancets.
(c) Except as provided in Section 5(d) below, the costs
associated with any and all changes in packaging and/or labeling components of
M/C Lancets requested in writing by Can-Am shall be borne exclusively by (and in
the case of decreases in costs, inure to the benefit of) Can-Am.
(d) The prices set forth on the Price List shall remain
unchanged until the first anniversary of this Agreement. Within ten (10) days of
each anniversary of the date of this Agreement, Can-Am and AMG shall meet to
review the cost of the raw materials of the M/C Lancets, the Japanese Yen/U.S.
dollar exchange rate and the costs of boxing, labor and sterilization, and,
subject to the last sentence of this Section 5(d), AMG may make changes to the
Price List in accordance with Schedule 5. AMG may change the prices in the Price
List in accordance with Schedule 5; provided, that AMG shall not sell M/C
Lancets to Can-Am on terms and conditions or for a price less favorable to
Can-Am than the most favorable terms and conditions and prices offered to AMG's
other customers for comparable products.
(e) Subject to Can-Am's compliance with its obligations
specified in the last sentence of Section 4(a), Can-Am shall have the right to
obtain all or any portion of its requirements for M/C Lancets from sources other
than AMG if (i) the profit margin that Can-Am generally earns on resale of the
M/C Lancets it purchases from AMG, determined in accordance with generally
accepted accounting principles consistently applied, falls below Can-Am's
historic margins due to market conditions and competitive factors applicable to
the M/C Lancet market generally, (ii) Can-Am and AMG have negotiated in good
faith for an adjustment to the prices in the Price List, which adjustment would
cause the profit margins each party earns (Can-Am on resale of the M/C Lancets
to its customers and AMG on resale of the M/C Lancets to Can-Am) to decrease
proportionally from their respective historical profit margins, (iii) Can-Am and
AMG have been unable to agree on such a price adjustment, and (iv) Can-Am is
able to obtain M/C Lancets of comparable quality at lower cost or on better
terms and conditions (taking into account factors such as ability to fulfill
orders on short notice) from sources other than AMG, provided, however, that if
pursuant to this Section 5(e), Can-Am begins to obtain M/C Lancets from another
source, Can-Am shall continue to purchase M/C Lancets from AMG for the next four
Quarters, in accordance with Section 4(a). If, in accordance with the forgoing,
Can-Am does choose another source to supply its requirement of M/C Lancets and
4
<PAGE> 5
that supplier later alters the prices, terms and/or conditions of the supply
arrangement, Can-Am shall provide AMG another opportunity to meet the new
prices, terms and/or conditions, and if AMG does, Can-Am will again use AMG as
its source of supply for its requirements of M/C Lancets, in accordance with the
terms of this Agreement.
(f) Except as provided in Section 14(a)(ii) hereof, AMG shall
invoice Can-Am for each shipment of M/C Lancets promptly upon the pick-up of the
M/C Lancets by Can-Am's transportation company or agent. Payment for M/C Lancets
shall be made by Can-Am to AMG in United States dollars within sixty (60) days
from the date of receipt of AMG's invoice. In the event Can-Am fails to pay the
amount owed as reflected on an invoice within 120 days of receipt of such
invoice, AMG may discontinue further shipment of M/C Lancets unless Can-Am (i)
begins paying interest on the overdue amount at the rate of 12% per annum and
(ii) either (A) agrees to pay cash on delivery for M/C Lancets, (B) posts a
letter of credit, or (C) provides AMG with other reasonable assurances that
payment for such M/C Lancets shall be made (the reasonableness of such
assurances to be determined by AMG in its sole reasonable discretion).
SECTION 6. Delivery.
(a) All M/C Lancets shall be delivered F.O.B. Montreal to
Can-Am's transportation company or agent on the date specified in the applicable
Purchase Order.
(b) AMG shall have good and marketable title to all M/C
Lancets to be sold by AMG to Can-Am and all such M/C Lancets delivered to
Can-Am's transportation company or agent shall be free and clear of all liens
and adverse claims of every kind. AMG's tender of any shipment of M/C Lancets
shall be deemed a representation and warranty by AMG to Can-Am that such
shipment complies with the requirements of the preceding sentence.
(c) Title to, possession and risk of loss of M/C Lancets shall
pass to Can-Am, and delivery of such M/C Lancets shall be deemed completed, when
and to the extent that M/C Lancets are picked up by Can-Am's transportation
company or agent. Any loss of or damage to such M/C Lancets occurring before
title and risk of loss have passed from AMG to Can-Am shall be solely for the
account of AMG.
(d) Upon delivery of M/C Lancets, Can-Am shall promptly
inspect all M/C Lancets to determine whether the M/C Lancets conform to the
Specifications and are properly branded within the meaning of the Act. Can-Am
shall have the right to reject any M/C Lancets which are not as warranted in
Section 9(a) for a period of thirty (30) days following the date of delivery. In
such event, AMG shall be responsible for the shipping costs associated with
returning the non-conforming M/C Lancets to AMG's loading dock.
(e) Subject to the terms and conditions of this Agreement, AMG
shall use commercially reasonable efforts to deliver M/C Lancets on the
scheduled delivery date(s). If the amount of M/C Lancets ordered to be delivered
in a three (3) month period exceeds the amount
5
<PAGE> 6
Forecasted for such period, AMG shall use its commercially reasonable efforts to
deliver the Forecasted amounts on the scheduled delivery dates and shall use
commercially reasonable efforts to deliver any additional amounts in accordance
with the terms of the Purchase Orders.
SECTION 7. Specifications.
(a) Subject to the terms and conditions of this Agreement, AMG
shall manufacture and package M/C Lancets(s) in conformance with the
Specifications.
(b) Can-Am and AMG agree to meet once every six (6) months to
review the Specifications. Subject to the approval of Can-Am, which will not be
unreasonably withheld, AMG may make minor cosmetic changes to the
Specifications; provided, that after such changes to the Specifications, the M/C
Lancets would remain monolet compatible. Can-Am may request minor changes to the
Specifications; provided, that (i) after such changes to the Specifications, the
M/C Lancets would remain monolet compatible, (ii) such changes are acceptable to
the Contractor, and (iii) AMG shall, at its sole discretion, not be required to
deliver M/C Lancets that meet the modified Specifications for a reasonable
period of time after the requested change; and provided further, that the
parties shall agree on a reasonable adjustment to the Price List to reflect any
additional costs incurred by AMG to conform to the modified Specifications. The
parties shall modify Schedule 5 and Schedule 7 after each change to the
Specifications.
(c) Notwithstanding anything to the contrary in Section 7(b)
above, if, after a material change to the Specifications, AMG is not able to
obtain from the Contractor M/C Lancets which meet the modified Specifications
after making diligent best efforts to obtain same, on substantially similar
terms as it had prior to the change in Specifications, AMG shall, at its option,
be able to terminate this Agreement in accordance with Section 14(a)(iv) hereof.
SECTION 8. Regulatory Matters and Documentation.
(a) During the term of this Agreement, AMG shall at all times
comply with, and shall use reasonable efforts to ensure that Contractor is in
compliance with, all applicable local, state, federal, laws and regulations,
including the Act, applicable current "Good Manufacturing Practices" and any
other relevant regulations promulgated by the FDA, as well as any other
applicable requirements set forth in the Specifications.
(b) AMG shall keep, and shall use reasonable efforts to ensure
that Contractor keeps, complete and accurate records of all operations in the
manufacture and supply of injection-molded lancet components.
(c) Upon reasonable prior notice, AMG shall use its reasonable
efforts to secure permission for Can-Am, its designated agents and
representatives, or representatives of any United States regulatory agency to
inspect, during normal business hours, any facility used by Contractor in the
manufacture of injection-molded lancet components. Such inspection may include,
without
6
<PAGE> 7
limitation, a review of Contractor's manufacturing procedures, quality assurance
procedures, and any records relating to the manufacture and supply of
injection-molded lancet components. AMG shall promptly notify Can-Am in the
event of any such inspection by representatives of any United States regulatory
agency and shall provide copies to Can-Am of any documents relating to such
inspection, including, without limitation, the respective agency's inspection
report and Contractor's response thereto.
SECTION 9. Warranty.
(a) AMG warrants that, at the time of delivery to Can-Am, M/C
Lancets shall (i) conform to the Specifications, and (ii) not be misbranded
within the meaning of the Act.
(b) (i) If AMG disputes any finding by Can-Am that any M/C
Lancets fail to conform to the applicable Specifications, or are misbranded, the
parties hereto agree to make a good faith effort to resolve such dispute. If,
however, after 10 days, such dispute is not resolved, the parties will submit
the matter to arbitration, as provided in Section 15(k) of this Agreement. All
fees and disbursements incurred in connection with any independent determination
shall be borne by the party which determined incorrectly that M/C Lancets do or
do not conform to the Specifications, or are or are not misbranded.
(ii) AMG shall promptly replace any M/C Lancets not
conforming to the applicable Specifications, or otherwise misbranded (unless
such non-conformance is due to any act or omission by Can-Am or its agents or
subcontractors).
(iii) AMG, at its option, may instruct Can-Am to (A)
return to AMG by a carrier and at a cost approved by AMG, or (B) destroy in an
environmentally acceptable manner at AMG's expense, any Lancet order, or portion
thereof, which does not conform to the applicable Specifications or is
misbranded.
(c) THE WARRANTIES CONTAINED IN THIS SECTION 9 SHALL SUPERSEDE
ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING THOSE SET FORTH IN ANY
PURCHASE ORDER OR INVOICE RECEIVED PURSUANT TO THIS AGREEMENT.
SECTION 10. Indemnification.
(a) (i) AMG shall, at its expense, defend any action or
claim instituted against Can-Am or its Affiliates and indemnify and hold
harmless Can-Am and its Affiliates, together with their respective officers,
directors, employees, agents, and insurers for any Loss (A) arising out of AMG's
breach of (1) the warranties set forth in this Agreement or (2) AMG's covenants
under this Agreement or (B) any product liability claims incurred by Can-Am and
related to the M/C Lancets.
7
<PAGE> 8
(ii) Can-Am shall, at its expense, defend any action or
claim instituted against AMG, Contractor or their Affiliates and indemnify and
hold harmless AMG, Contractor and their Affiliates, together with their
respective officers, directors, employees, agents, and insurers for any Loss
other than those described in Section 10(a)(i) hereof, including, without
limitation, any Loss arising out of Can-Am's breach of the (1) warranties set
forth in this Agreement or (2) Can-Am's covenants under this Agreement.
(b) The parties hereto agree that a party seeking
indemnification hereunder shall implement the procedure set forth in Section 8
of the Stock Purchase Agreement.
SECTION 11. Recalls.
(a) If either party determines that it may be necessary to
recall any M/C Lancet, it shall immediately notify the other party. The decision
to implement any such recall of M/C Lancets shall be made solely by AMG, and AMG
will indemnify Can-Am against any Loss it incurs in connection with such
recalls.
(b) Prior to commencing any recall, the parties shall review
with one another the manner in which the recall is to be carried out and any
instructions or suggestions of the applicable regulatory authorities.
(c) The costs associated with any recall shall be borne by the
party whose actions necessitated the recall.
SECTION 12. Intellectual Property.
(a) Can-Am may advertise, promote, market and/or sell M/C
Lancets under any trademarks, copyrights, tradenames, or logos, whether
registered or unregistered; provided, that Can-Am shall not utilize the names of
AMG, its Affiliates or Contractor in connection with the advertisement,
promotion, marketing and/or sale of M/C Lancets.
(b) From time to time, Can-Am may submit to AMG new UPC codes
for use on the packaging of the M/C Lancets.
SECTION 13. Force Majeure. Neither party shall be liable for failure to
perform any of its obligations under this Agreement during any period in which,
and to the extent which, such performance is delayed by fire, flood or other
natural disaster, embargo, riot, changes in applicable laws, rules or
regulations, whether foreign or domestic, the intervention of any governmental
authority, the failure of Contractor to supply, or the unavailability of,
injection-molded lancet components, or any other reasons or conditions beyond
the control of the parties. AMG and Can-Am shall promptly notify the other of
the occurrence of any such conditions.
8
<PAGE> 9
SECTION 14. Termination.
(a) (i) In the event that either party materially breaches
or defaults on any of its obligations, representations, warranties, or covenants
under this Agreement, the other party may give notice to the defaulting party
setting forth in reasonable detail the nature of such breach or default;
provided, however, that AMG's failure to deliver M/C Lancets based on the
inability of AMG to obtain injection-molded lancet components from the
Contractor, despite its diligent best efforts, on substantially similar terms
and conditions as it currently obtains such components, or in quantities
sufficient to fulfill its obligations under this Agreement, shall not be
considered a breach or default by AMG under this Agreement. If the defaulting
party fails to cure such breach or default within sixty (60) days from the date
of such notice, this Agreement shall be subject to immediate termination by the
terminating party upon additional written notice to the defaulting party.
(ii) If Can-Am applies for or consents to the
appointment of a receiver, trustee or liquidator for all or a substantial part
of its assets; admits in writing its inability to pay its debts generally as
they mature; makes a general assignment for the benefit of creditors; is
adjudicated a bankrupt; submits a petition or an answer seeking an arrangement
with creditors; takes advantage of any insolvency law except as a creditor;
submits an answer admitting the material allegations of a petition in bankruptcy
or insolvency proceeding; has an order, judgment or decree entered by any court
of competent jurisdiction approving a petition seeking reorganization of Can-Am
or appointing a receiver, trustee or liquidator for Can-Am, or for all or a
substantial part of any of its assets and such order, judgment or decree shall
continue unstayed and in effect for a period of ninety (90) consecutive days;
files a voluntary petition of bankruptcy or fails to remove an involuntary
petition in bankruptcy filed against it within ninety (90) days of the filing
thereof (each of which shall hereinafter be referred to as an "Insolvency
Instance"), AMG shall not have further obligations to deliver M/C Lancets to
Can-Am unless Can-Am (A) agrees to pay cash on delivery for M/C Lancets, (B)
posts a letter of credit, or (C) provides AMG with other reasonable assurances
that payment for such M/C Lancets shall be made (the reasonableness of such
assurances to be determined by AMG in its sole discretion).
(iii) AMG may terminate this Agreement upon one hundred
and eighty (180) days prior written notice to Can-Am if, acting in good faith,
and despite using its diligent best efforts, it is not able to obtain
injection-molded lancet components from the Contractor in quantities sufficient
to fulfill its obligations under this Agreement. In connection with a
termination pursuant to this Section 14(a)(iii), AMG shall not have any
liability, under this Agreement or under applicable laws, arising out of any
such failure to deliver M/C Lancets or termination of this Agreement under such
circumstances.
(iv) In the event that a condition of force majeure, as
defined in Section 13, prevents either party from performing any of its material
obligations for more than sixty (60) days, then the party which is not prevented
from performing may immediately terminate this Agreement by giving written
notice to the other party.
9
<PAGE> 10
(b) Except as provided in Section 14(a)(iii), the termination
of this Agreement by either party pursuant to this Section 14 shall not affect
the rights of the terminating party under this Agreement or under applicable
laws.
SECTION 15. Miscellaneous.
(a) Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supercedes all other prior or contemporaneous agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof. Any Purchase Order shall be solely for the purpose of specifying the
type and quantity of M/C Lancets so ordered and Can-Am's delivery requirements.
(b) Amendments and Supplements. This Agreement may not be
amended, supplemented or discharged, and no provision hereof may be modified or
waived, except by an instrument in writing signed by both parties.
(c) No Waiver. No provision hereof may be waived, except by an
instrument in writing signed by the party waiving compliance. The failure of any
party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
such party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
(d) Binding Effect. This Agreement shall be binding upon and
shall inure to the exclusive benefit of the respective parties, their legal
representatives, successors, or permitted assigns. This Agreement is not
intended to, nor shall it create any right in any other party.
(e) Successors and Assigns. Neither this Agreement nor any
rights or obligations hereunder are assignable by either party without the prior
written consent of the other party; provided, that either party may assign this
Agreement and the rights and obligations hereunder to any third party who merges
or consolidates with such party or purchases or otherwise acquires all or
substantially all of such party's assets.
(f) Independent Contractors. Both parties agree to perform
under this Agreement solely as independent contractors and shall not hold
themselves out as employees or agents of the other.
(g) Notices. All notices, consents, approvals, directions and
instructions required or permitted under this Agreement shall be effective when
received and shall be given in writing and delivered either by hand or by
registered or certified mail, postage prepaid, or by telecopier, and addressed
as follows:
10
<PAGE> 11
If to AMG:
A.M.G. Medical, Inc.
8505 Dalton
Montreal, Quebec, Canada
H4T 1V5
Attention: Benjamin Topor
Facsimile: (514) 737-6572
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Stuart D. Freedman, Esq.
Facsimile: (212) 593-5955
If to Can-Am:
c/o Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger, Chairman and Chief Executive Officer
Facsimile: (617) 647-3939
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Facsimile: (617) 832-7000
(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the state of New York, including the provisions of
the Uniform Commercial Code, except to the extent the laws of any other
jurisdiction are mandatorily applicable. Any provision hereof which may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(i) Construction of Agreement. A reference to a Section shall
mean a Section in this Agreement unless otherwise expressly stated. The titles
and headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be
11
<PAGE> 12
considered as a whole. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation".
(j) No Conflict. Each of the parties does hereby represent and
warrant to the other that nothing herein conflicts with or shall cause a default
under any document, agreement, instrument or other writing to which said party
is a party or by which said party is bound.
(k) Arbitration. Any dispute arising under this Agreement
shall be resolved by compulsory and binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction.
(l) Survival. The provisions contained in Sections 10, 11, 12,
14 and 15 shall survive the termination for any reason of this Agreement.
(m) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
* * * * *
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Supply Agreement to be
duly executed as a sealed instrument as of the day and year first above written.
A.M.G. MEDICAL INC.
By:________________________
Name: Benjamin Topor
Title: Vice President
CAN-AM CARE CORPORATION
By:_______________________
Name: Robert Oringer
Title: President
13
<PAGE> 1
EXHIBIT 10.75
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement"), dated as of
February 18, 1998, made by and between A.M.G. Medical Inc., a Quebec corporation
("AMG") and Can-Am Care Corporation, a New York corporation ("Can-Am"),
W I T N E S S E T H T H A T:
WHEREAS, Can-Am is in the business of distributing home health care
products for care of diabetes ("Products") and owning and operating assets
associated therewith;
WHEREAS, AMG has heretofore provided purchasing, marketing, shipping,
billing and other general management and administrative services to Can-Am;
WHEREAS, certain individuals, including certain stockholders of AMG,
have contemporaneously herewith sold all of the capital stock of Can-Am to
Selfcare, Inc. ("Selfcare") or its wholly-owned subsidiary Selfcare Consumer
Products, Inc.;
WHEREAS, Can-Am desires to contract with a professional and dependable
organization to obtain the services described below on the terms and subject to
the conditions set forth herein; and
WHEREAS, AMG is capable of providing such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties hereto covenant and agree as
follows:
SECTION 1. Services to be Provided by AMG. Subject to and in accordance
with the terms of this Agreement, Can-Am hereby retains AMG to provide the
services set forth on Schedule A (the "Services") and AMG accepts such retention
and agrees to provide the Services at substantially the same quality as provided
prior to the date hereof.
SECTION 2. Financial Arrangement.
(a) Subject to Section 3, as compensation to AMG for the
Services provided hereunder, Can-Am shall pay to AMG (i) a fixed annual fee, as
described on Schedule B (the "Fixed Annual Fee"), subject to adjustment as
described in Section 3(a), (ii) a variable fee, as described on Schedule B
("Variable Fee"), subject to adjustment as described in Section 3(b), and (iii)
all direct expenses of Can-Am, as described on Schedule B (the "Direct
Expenses").
<PAGE> 2
(b) An amount representing a portion of the Fixed Annual Fee
and the Variable Fee shall be paid by Can-Am within thirty (30) days of receipt
of the respective invoice corresponding to such item. The Direct Expenses shall
be paid by Can-Am within sixty (60) days of receipt of the invoice for such
Direct Expenses. Invoices covering expenses incurred by AMG during the preceding
month shall be sent by AMG on a monthly basis. Any amounts not paid within such
thirty (30) or sixty (60) day period, as the case may be, shall accrue interest
at a rate of twelve percent (12%) per annum.
SECTION 3. Changes to Fee and Services.
(a) Fixed Annual Fee.
(i) In the event that Can-Am provides written notice
to AMG requesting an increase, decrease, modification, addition, deletion or
other change (a "Change") in the scope, nature or type of Fixed Services, AMG
shall use commercially reasonable efforts to provide for such Change, and the
parties shall renegotiate the Fixed Annual Fee to reflect such Changes. If the
parties cannot agree on an adjusted Fixed Annual Fee within 30 days after the
receipt of the written notice by AMG (during which time the then existing Fixed
Annual Fee shall apply), Arthur Andersen LLP will review the scope of the
Changes and determine the adjusted Fixed Annual Fee to apply from the date of
such Changes, which determination will be binding on the parties.
(ii) Beginning on January 1, 1999, the Fixed Annual
Fee shall be increased by five percent (5%) at the start of each calendar year,
effective January 1.
(b) Variable Fee.
(i) In the event that Can-Am provides written notice
requesting a Change in the scope, nature or type of Variable Services, the
parties shall review such request, AMG shall inform Can-Am whether in the
reasonable good faith opinion of AMG such Change will require AMG to hire
additional Full-Time Allocated Personnel or to terminate any Full-Time Allocated
Personnel, and AMG shall in good faith determine an adjusted Variable Fee which
reflects the corresponding changes in its expenses, including any increase or
decrease in expenses attributable to the hiring or termination of Full-Time
Allocated Personnel. AMG shall use commercially reasonable efforts to provide
for the requested Change, provided that the President of Can-Am or his designee,
which designee shall be reasonably acceptable to AMG (the "Can-Am Designee"),
approves of any fee adjustment and additional hiring of Full-Time Allocated
Personnel prior to such Change.
(ii) In the event that AMG decides to increase the
salary or other cash compensation of any Full-Time Allocated Personnel or
Part-Time Allocated Personnel, AMG shall adjust the Variable Fee to reflect such
increase; provided, however, that prior to any such increase that would result
in a member of the Full-Time Allocated personnel or Part-Time Allocated
Personnel receiving a greater than 5% increase over such person's total annual
cash compensation from the previous year, the Can-Am Designee must approve such
increase.
2
<PAGE> 3
SECTION 4. Management of Business. Selfcare and Can-Am shall be
responsible for the management of Can-Am and AMG shall have no right to
participate in the management or control of the business of Can-Am, other than
the hiring of Full-Time Allocated Personnel or Part-Time Allocated Personnel as
provided herein. All managerial and business decisions, including those
involving marketing, advertising and distribution strategies relating to Can-Am
products shall be made by Can-Am. The parties hereby agree that AMG's Services
under this Agreement are provided at the request of, and for the benefit of,
Can-Am in furtherance of Can-Am's business plans. In addition, the hiring or
termination of Full-Time Allocated Personnel and Part-Time Allocated Personnel
who devote fifty percent (50%) or more of their time to Can-Am matters shall be
approved in advance in writing by the Can-Am Designee, which approval shall not
be unreasonably withheld or delayed.
SECTION 5. Indemnity.
(a) AMG agrees to indemnify and hold Can-Am harmless against
any claims, losses, liabilities, damages, or expenses (including, without
limitation, all interest and penalties accruing thereon and all reasonable
attorney's fees) ("Losses") resulting from or arising in connection with (i) any
breach by AMG of any of its obligations under this Agreement or (ii) any claim
made by a third party based upon any act, omission, or neglect by AMG or its
employees or other agents in connection with its activities within the scope of
this Agreement; provided, that AMG shall not be obligated to indemnify Can-Am
for any Losses in excess of an amount equal to the sum of (A) the Fixed Annual
Fee for the year such Losses were incurred and (B) that portion of the Variable
Fee for the year such Losses were incurred which is attributable to the salaries
of the Part-Time Allocated Personnel; and provided, further, that AMG shall have
no liability to Can-Am for Losses incurred by Can-Am as a result of any act,
omission or neglect by Full-Time Allocated Personnel or Part-Time Allocated
Personnel while performing services requested by Can-Am.
(b) Can-Am agrees to indemnify and hold AMG harmless against
any Losses resulting from or arising in connection with (i) any breach by Can-Am
of any of Can-Am's obligations under this Agreement or (ii) any claim made by a
third party based upon any act, omission, or neglect by Can-Am or its employees
or other agents in connection with their activities within the scope of this
Agreement, or by the employees or other agents of AMG acting under the direction
of Can-Am.
SECTION 6. Confidentiality. AMG and Can-Am agree that all information
made available to the other party in connection with this Agreement that is not
generally ascertainable from public or published information or trade sources
will be maintained in the strictest confidence by the party receiving such
information and that none of the information that is provided to the other party
will be disclosed to persons other than Can-Am or its employees or the employees
of AMG, without first obtaining written permission for said disclosure from the
other party; provided, however, that the party receiving such information and
its respective representatives may provide such documents and other papers and
information in response to legal, judicial or administrative process or
applicable
3
<PAGE> 4
governmental, regulatory or administrative statutes, laws, ordinances, codes,
rules, regulations or orders, but only that portion of the documents and other
papers and information which is legally required to be furnished, and provided,
further, that such party notifies the other party of any such obligation to
provide any such document or other papers or information prior to such
disclosure and fully cooperates with such other party to protect the
confidentiality of such documents and other papers and information under
applicable law.
SECTION 7. Access to Records. AMG and Can-Am shall provide each other
with access to records relating to all services provided. Upon termination of
this Agreement, AMG and Can-Am agree to maintain the originals of all records
intact for at least five (5) years, and any longer period required by applicable
law, and that same shall be available to the other party for such reasonable
purposes as may arise during the five (5) years or longer period referred to
herein.
SECTION 8. Insurance. AMG shall maintain general liability insurance in
the manner and to the extent necessary for businesses of like nature to maintain
against such risks and pursuant to such terms (including deductible items) as
are customary for such businesses.
SECTION 9. Term and Termination.
(a) Initial and Renewal Terms. This Agreement shall remain in
force for an initial term of five (5) years from the date hereof and shall be
automatically renewed, without any further action by AMG or Can-Am, for
successive one (1) year terms following the expiration of the original five (5)
year period; subject, however, to earlier termination pursuant to Section 9(b)
hereof.
(b) Termination. This Agreement may be terminated on the first
to occur of the following:
(i) Termination by Agreement. In the event Can-Am and
AMG shall mutually agree in writing, this Agreement may be terminated on the
terms and date stipulated therein.
(ii) Termination on Notice of Default. In the event
either party shall give written notice to the other that such other party has
substantially defaulted in the performance of any obligation under this
Agreement, and such default shall not have been cured within forty-five (45)
days following of such notice by certified mail, the party giving such notice
shall have the right to immediately terminate this Agreement.
(iii) Termination by Notice. In the event that after
four (4) years, AMG or Can-Am shall give at least one year's prior written
notice to the other that it has elected to terminate this Agreement.
(iv) Termination Due to Termination of Supply
Agreement. In the event that the Supply Agreement dated as of even date
herewith, made by and between AMG and Can-Am shall be terminated for any reason,
AMG and Can-Am shall each have the right to terminate this Agreement.
4
<PAGE> 5
(c) Effects of Termination. Upon termination of this
Agreement, pursuant to Section 9(b), neither party shall have any further
obligation hereunder except for (i) obligations accruing prior to the date of
termination and (ii) obligations, promises, or covenants contained herein which
by their nature extend beyond the term of this Agreement, including
confidentiality of information, indemnities, and the obligations of the parties
under Section 7 hereof.
SECTION 10. Miscellaneous.
(a) Agreement. This Agreement supercedes all other prior or
contemporaneous agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
(b) Amendments and Supplements. This Agreement may not be
amended, supplemented or discharged, and no provision hereof may be modified or
waived, except by an instrument in writing signed by both parties.
(c) No Waiver. No provision hereof may be waived, except by an
instrument in writing signed by the party waiving compliance. The failure of any
party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
such party thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a waiver of
any other or subsequent breach or non-compliance. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
(d) Successors and Assigns. Neither this Agreement nor any
rights or obligations hereunder are assignable by either party without the prior
written consent of the other party; provided, that either party may assign this
Agreement and the rights and obligations hereunder to any third party who merges
or consolidates with such party or purchases or otherwise acquires all or
substantially all of such party's assets.
(e) Notices. All notices, consents, approvals, directions and
instructions required or permitted under this Agreement shall be effective when
received and shall be given in writing and delivered either by hand or by
registered or certified mail, postage prepaid, or by telecopier, and addressed
as follows:
If to AMG:
A.M.G. Medical, Inc.
8505 Dalton
Montreal, Quebec, Canada
H4T 1V5
Attention: Benjamin Topor
Facsimile: (514) 737-6572
5
<PAGE> 6
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Stuart D. Freedman, Esq.
Facsimile: (212) 593-5955
If to Can-Am:
c/o Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger, Chairman and Chief Executive Officer
Facsimile: (617) 647-3939
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Facsimile: (617) 832-7000
(f) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the state of New York except to the extent the
laws of any other jurisdiction are mandatorily applicable.
(g) Severability. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(h) Construction of Agreement. A reference to a Section shall
mean a Section in this Agreement unless otherwise expressly stated. The titles
and headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation".
(i) Relationship of Parties. The relationship between the
parties established by this Agreement is solely that of seller and buyer. AMG is
an independent contractor with respect to Can-Am and not a servant, or employee
thereof or joint venturer therewith.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Services Agreement to
be duly executed as a sealed instrument as of the day and year first above
written.
A.M.G. MEDICAL INC.
By: ________________________________
Name: Benjamin Topor
Title: Vice President
CAN-AM CARE CORPORATION
By: ________________________________
Name: Robert Oringer
Title: President
7
<PAGE> 1
EXHIBIT 10.76
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 18,
1998, made by and between Selfcare Consumer Products, Inc., a Delaware
corporation (the "Company"), Selfcare, Inc., a Delaware corporation and the
parent corporation of the Company ("Selfcare") and Herbert Cover, an individual
residing at 6924 E. Night Glow Circle, Scottsdale, Arizona (the "Employee"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Employee as one of its executive
officers for the period and upon and subject to the terms herein provided;
WHEREAS, the Company desires to be assured that Employee will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Employee is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties hereto covenant and agree as
follows:
SECTION 1. Term of Employment; Compensation. The Company agrees to
employ Employee from the date hereof for three (3) years thereafter. The Company
will pay Employee for his services during the term of the Employee's employment
hereunder at an annual rate of One Hundred and Fifty Thousand U.S. Dollars
($150,000), payable in arrears, in equal installments, in accordance with
standard Company practice, but in any event not less often than monthly, subject
only to such payroll and withholding deductions as are required by law. Such
annual compensation shall be subject to an annual review and may be increased as
mutually agreed upon by the Company and the Employee. Employee shall also be
eligible for any bonuses and other cash and non-cash compensation customarily
awarded by the Company or Selfcare to senior executives of the Company or
Selfcare.
SECTION 2. Office and Duties; Location. Employee shall have the usual
duties of managerial personnel, shall have responsibility for participating in
the management and direction of the Company's business and operations and shall
perform such specific other tasks, which are appropriate for a senior executive
of Selfcare, as may from time to time be assigned to the Employee and, in
particular, Employee shall, as Executive Vice President of Sales and Trade
Relations of the Company's wholly-owned subsidiary, Can-Am Care Corporation
("Can-Am"), be responsible for the sale and marketing of Can-Am's products,
subject to the direction of the President and Board of
<PAGE> 2
Directors of Can-Am. Employee shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder in a manner which will faithfully and diligently further
the business and interests of the Company. Except as expressly provided herein,
during the term of his employment, Employee shall not directly or indirectly
pursue any other business activity, without the Company's prior written consent.
The Company shall not require Employee to relocate outside the greater
Scottsdale, Arizona area. Employee agrees not to move to any location outside of
North America that would materially adversely affect the performance of his
obligations under this Agreement. Employee agrees that he will travel to the
extent that is reasonably necessary in the conduct of the Company's business;
provided, however, that such travel is consistent with past practices at Can-Am.
SECTION 3. Expenses. Employee shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers therefor in accordance with such procedures
as the Company has heretofore or may hereafter establish.
SECTION 4. Vacation During Employment. Employee shall be entitled to
such reasonable vacations as may be allowed by the Company for senior executives
of the Selfcare or the Company, but in any event not less than four (4) weeks
during each twelve (12) month period.
SECTION 5. Additional Benefits. Nothing herein contained shall preclude
Employee, to the extent he is otherwise eligible, from participation in all
group insurance programs, stock option plans, or other fringe benefit plans
which the Selfcare or the Company makes available or may hereafter make
available generally to its senior executives, in its sole and absolute
discretion, but neither Selfcare nor the Company shall be required to establish
or maintain any such program or plan except, that, the Selfcare or Company shall
provide disability insurance coverage during the term of this Agreement.
SECTION 6. Termination of Employment.
(a) Notwithstanding any other provision of this Agreement, Employee's
employment may be terminated:
(i) By the Company without cause upon not less than ninety
(90) days' written notice in which event the Company shall pay to Employee an
amount equal to fifty per cent (50%) of the base salary required to be paid
under this Agreement, for the remainder of the term of this Agreement, which
payments will be made in the same periodic installments as were Employees salary
payments during Employee's employment.
(ii) By the Company for "Cause" (as herein defined) in which
event the Company's obligation to pay future compensation hereunder shall cease
forthwith, except for any obligation of
2
<PAGE> 3
the Company under any compensation or benefit plan in which Employee is then a
vested beneficiary. "Cause" means:
(A) Employee's material failure, refusal or
inability to perform, neglect of or carrying out in an irresponsible way his
duties hereunder, or breach of any one or more of the material provisions of
this Agreement, which shall have continued for a period of thirty (30) days (or
such longer period as is reasonably required to cure such breach with diligent
and good faith effort) after written notice to Employee from the Chairman of
Selfcare or other representative of the Board of Directors of Selfcare
specifying such breach or failure and which shall not have resulted from a
breach of any material provision of this Agreement by Selfcare or the Company;
(B) inability of Employee to discharge his duties
hereunder for one or more periods totaling six (6) months during any consecutive
twelve (12) month period due to illness, accident or other disability (mental or
physical); or
(C) Employee's theft or embezzlement from the
Company or commission of, plea of nolo contendere to, or conviction of any crime
involving moral turpitude or any other illegal act that materially adversely
reflects upon the business, affairs or reputation of the Company or on
Employee's ability to perform his duties hereunder.
(iii) By the Employee for any reason upon ninety (90) days'
written notice, in which event the Company's obligation to pay future
compensation hereunder shall cease forthwith, except for any obligation of
Selfcare or the Company under any compensation or benefit plan in which Employee
is then a vested beneficiary; provided, however, that if such termination by the
Employee is the result of a material breach by Selfcare or the Company of the
terms hereof which continues for ten (10) days (or such longer period as is
reasonably required to cure such breach with diligent and good faith effort)
after the Company's receipt of written notice thereof, then the Company shall
pay to Employee an amount equal to fifty per cent (50%) of the base salary
required to be paid under this Agreement, for the remainder of the initial term
of this Agreement, which payments will be made in the same periodic installments
as were Employees salary payments during Employee's employment.
(b) In the event of Employee's death during the term of his employment,
the Company's obligation to pay further compensation hereunder shall cease
forthwith, except that Employee's legal representative shall be entitled to
receive his fixed compensation for the period up to the last day of the month in
which such death shall have occurred.
(c) In the event that Employee's employment is terminated pursuant to
Section 6(a)(i) or 6(a)(iii), Selfcare or the Company shall continue to provide,
beyond such period as is required by applicable law, at Employee's expense, any
health, medical and/or dental insurance coverage provided for such Employee
during his employment for as long as the Employee desires, provided such
coverage is permitted by the Company's insurance carrier.
3
<PAGE> 4
SECTION 7. Disclosure and Assignment of Intellectual Property. Employee
shall promptly disclose to the Company and any successor or assign of the
Company, and grant to Selfcare or the Company, and their successors and assigns
(without any separate remuneration or compensation other than that received by
him from time to time in the course of his employment) his entire right, title
and interest throughout the world in and to all research, information,
inventions, designs, procedures, developments, discoveries, improvements,
patents and applications therefor, trademarks and applications therefor,
copyrights and applications therefor, trade secrets, drawings, plans, systems,
methods, specifications, and all other manufacturing, engineering, technical,
research and development data and know-how made, conceived, developed and/or
acquired by him solely or jointly with others during the period of his
employment with the Company or within one year thereafter, which relate to the
manufacture, production or processing of any products developed or sold by
Selfcare or the Company (herein sometimes "Intellectual Property") during the
term of this Agreement or which are within the scope of or usable in connection
with the business of Selfcare or the Company as it may, from time to time,
hereafter be conducted or proposed to be conducted. (It is understood and agreed
that Employee has heretofore disclosed to the Company, and assigned to it, all
Intellectual Property now known to him over which he has any control.) Employee
agrees to execute all appropriate patent applications securing all United States
and foreign patents on all Intellectual Property, and to do, execute and deliver
any and all acts and instruments that may be necessary or proper to vest all
Intellectual Property in Selfcare or the Company, or their nominee or designee,
and to enable Selfcare or the Company, or their nominee or designee, to obtain
all such patents; and Employee agrees to render to Selfcare or the Company, or
their nominee or designee, all such assistance as it may require in the
preparation and prosecution of all such patent applications and applications for
the re-issue of such patents, and in the prosecution or defense of all
interferences which may be declared involving any of said patent applications or
patents, but the expense of all such assignments and patent applications, or all
other proceedings referred to herein above, shall be borne by the Company.
Employee shall be entitled to fair and reasonable compensation for any such
assistance requested by the Company or its nominee or designee and furnished by
him after the termination of his employment.
SECTION 8.
(a) Confidentiality. Employee shall not (other than in
connection with his employment with the Company, Selfcare or any of its
subsidiaries), either during the period of his employment with the Company or
thereafter, use or disclose to any competitor or other third party any
Confidential Information (as herein defined). Employee acknowledges that the
continued success of Selfcare and the Company is largely dependent upon
maintaining the confidentiality of such information and preventing its
disclosure to competitors and other third parties. "Confidential Information"
means information pertaining to research and development of new product designs,
sales, distribution and marketing information, trade secrets, any Intellectual
Property or any of the other types of information referred to in Section 8, and
customer data of Selfcare or the Company, but shall not include any information
relating to, or obtained in the ordinary course of his past or future dealings
with AMG Medical, Inc. "Customer data" means any information pertaining to a
customer, distributor, supplier or other person or entity contracted to utilize
Selfcare's or the
4
<PAGE> 5
Company's services or purchase or license their products, including, but not
limited to, preferences, pricing information, service needs, and similar insider
knowledge of such parties' requirements obtained by Selfcare or the Company or
obtained by Employee. Employee agrees that for as long as Employee is employed
by the Company and for a period of two (2) years thereafter, Employee will not
(except to the extent required by the regular performance of his duties)
disclose to any unauthorized person or use for his own account, anywhere within
the Restricted Territory (as herein defined) any Confidential Information
without the prior written consent of the Company, unless and to the extent the
aforementioned matters become known to or available for use by the public
otherwise than as a result of Employee's acts or omissions to act. Employee
further agrees that upon termination of this Agreement he will not withhold or
retain any records, papers, letters or other data and information with respect
to Selfcare's or the Company's business without the prior written consent of the
Company's Board of Directors. For purposes of this agreement, "Restricted
Territory" means the entire world.
(b) Non-competition. As long as Employee is employed by the
Company and for a period of two (2) years thereafter, Employee agrees that,
except with the prior written consent of the Company's Board of Directors, he
will not directly or indirectly solicit, divert, attempt to take away or
interfere with any customer, client or distributor of Selfcare or the Company,
nor will he or any member of his immediate family own, manage, operate, control,
be employed by, participate in or otherwise engage in, or permit his name to be
used by or in connection with a Restricted Business (as herein defined) in a
Restricted Territory, whether such activity shall be for profit or not. The
parties agree that the Employee's ownership of no more than five percent of the
outstanding voting stock of a publicly traded corporation shall not constitute a
violation of this provision. For purposes of this Agreement, "Restricted
Business" shall mean any business which provides the same types of products and
services that Selfcare or the Company provides as of the date hereof; provided,
however, that "Restricted Business" shall not include the sale, marketing or
distribution of durable medical equipment in any area, including the Restricted
Territory.
(c) Non-solicitation. As long as Employee is employed by the
Company and for a period of two (2) years thereafter, Employee agrees that,
except with the prior written consent of the Company's Board of Directors, he
will not solicit, induce, attempt to hire, or hire any employee of Selfcare or
the Company (or any other person who may have been employed by the Company
during the six (6) months immediately preceding such solicitation), or assist in
such hiring by any other person or business entity or encourage any such
employee to terminate his employment with Selfcare or the Company.
(d) Construction. Employee and the Company are of the belief
that the period of time, the area and the scope of the prohibited activity
herein specified are reasonable, in view of the nature of the business in which
Selfcare and the Company are engaged and propose to engage, the state of their
product development and Employee's knowledge of this business. However, if such
period, such area or such scope of prohibited activity should be adjudged
unreasonable in any judicial proceeding, then the period of time shall be
reduced by such number of months, such area shall be reduced by elimination of
such portion of such area or such scope of prohibited activity shall be
5
<PAGE> 6
reduced, or all, as are deemed unreasonable, so that this covenant may be
enforced in such area, during such period of time and within the scope of
activity as is adjudged to be reasonable.
SECTION 9. No Conflicts. Employee represents and warrants to the
Company that he is not now under any obligations to any person, firm or
corporation, and has no other interest which is inconsistent or in conflict with
this Agreement, or which would prevent, limit or impair, in any way, the
performance by him of any of the covenants or his duties in his said employment.
SECTION 10. Equitable Relief. Employee recognizes and agrees that
Selfcare's and the Company's remedy at law for any breach of the provisions of
Section 7 or 8 hereof would be inadequate, and he agrees that for breach of such
provisions, the Selfcare and the Company shall, in addition to such other
remedies as may be available to them at law or in equity or as provided in this
Agreement, be entitled to injunctive relief and to enforce their rights by an
action for specific performance to the extent permitted by law. Should Employee
engage in any activities prohibited by this Agreement, he agrees to pay over to
Selfcare or the Company all compensation, remunerations or moneys or property of
any sort received in connection with such activities; such payment shall not
impair any rights or remedies of Selfcare or the Company or obligations or
liabilities of Employee which such parties may have under this Agreement or
applicable law.
SECTION 11. Miscellaneous.
(a) Entire Agreement, etc. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supercedes all other prior or contemporaneous agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
(b) Amendments and Supplements. This Agreement may not be
amended, supplemented or discharged, and no provision hereof may be modified or
waived, except by an instrument in writing signed by both parties hereto.
(c) No Waiver. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of or non-compliance with
this Agreement shall be held to be a waiver of any other or subsequent breach or
non-compliance. The rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any party may otherwise have at law
or in equity.
(d) Assignability. In the event that the Company shall be
merged with, or consolidated into, any other corporation, or in the event that
it shall sell and transfer substantially all of its assets to another
corporation, the terms of this Agreement shall inure to the benefit of, and be
assumed by, the corporation resulting from such merger or consolidation, or to
which the Company's assets shall be sold and transferred. This Agreement shall
not be assignable by
6
<PAGE> 7
Employee, but it shall be binding upon, and to the extent provided in Section 6
shall inure to the benefit of, his heirs, executors, administrators and legal
representatives.
(e) Severability. If any provision of this Agreement shall be
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
(f) Survival. Employee agrees that his obligations under
Sections 7 and 8 of this Agreement shall be binding upon him irrespective of the
duration of his employment by the Company, the reasons for any cessation of his
employment by the Company, or the amount of his compensation and shall survive
the termination of this Agreement (whether such termination is by the Company,
by Employee, upon expiration of this Agreement or otherwise).
(g) Notices. All notices, consents, approvals, directions and
instructions required or permitted under this Agreement shall be effective when
received and shall be given in writing and delivered either by hand or by
registered or certified mail, postage prepaid, or by telecopier, and addressed
as follows:
If to Employee:
Herbert Cover
6924 E. Night Glow Circle
Scottsdale, AZ 85262
Facsimile: (602) 488-4684
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Stuart Freedman, Esq.
Facsimile: (212) 593-5955
7
<PAGE> 8
If to the Company or Selfcare:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger, Chairman and Chief Executive Officer
Facsimile: (617) 647-3939
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Facsimile: (617) 832-7000
(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the State of New York except to the extent the
laws of any other jurisdiction are mandatorily applicable.
(i) Construction of Agreement. A reference to a Section shall
mean a Section in this Agreement unless otherwise expressly stated. The titles
and headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation". All personal
pronouns used in this Agreement shall include the other gender whether used in
the masculine or feminine or neuter gender, and the singular shall include the
plural whenever and as often as may be appropriate.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
* * * * *
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Employment Agreement to be duly executed as a sealed instrument as of the
day and year first above written.
SELFCARE CONSUMER PRODUCTS, INC.
By:_____________________________
Name: Anthony Hall
Title: Treasurer
SELFCARE, INC.
By:_____________________________
Name: Anthony Hall
Title: Chief Financial Officer
________________________________
Herbert Cover
9
<PAGE> 1
EXHIBIT 10.77
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 18,
1998, made by and between Selfcare Consumer Products, Inc., a Delaware
corporation (the "Company"), Selfcare, Inc., a Delaware corporation and the
parent corporation of the Company ("Selfcare"), and Robert Oringer, an
individual residing at 3 Cleve Road, Hampstead, Quebec, Canada (the "Employee"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Employee as one of its executive
officers for the period and upon and subject to the terms herein provided;
WHEREAS, the Company desires to be assured that Employee will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Employee is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties hereto covenant and agree as
follows:
SECTION 1. Term of Employment; Compensation. The Company agrees to
employ Employee from the date hereof for three (3) years thereafter. The Company
will pay Employee for his services during the term of the Employee's employment
hereunder at an annual rate of One Hundred and Fifty Thousand U.S. Dollars
($150,000), payable in arrears, in equal installments, in accordance with
standard Company practice, but in any event not less often than monthly, subject
only to such payroll and withholding deductions as are required by law. Such
annual compensation shall be subject to an annual review and may be increased as
mutually agreed upon by the Company and the Employee. Employee shall also be
eligible for any bonuses and other cash and non-cash compensation customarily
awarded by the Company or Selfcare to senior executives of the Company or
Selfcare.
SECTION 2. Office and Duties; Location. Employee shall have the usual
duties of managerial personnel, shall have responsibility for participating in
the management and direction of the Company's business and operations and shall
perform such specific other tasks, which are appropriate for a senior executive
of Selfcare, as may from time to time be assigned to the Employee and, in
particular, Employee shall, as President of the Company's wholly-owned
subsidiary, Can-Am Care Corporation ("Can-Am"), be responsible for the
management of Can-Am and be responsible for the implementation of its business
plan and the roll-out of its products, subject to the direction of the Board of
Directors and Chief Executive Officer of Selfcare. Employee shall devote
substantially all
<PAGE> 2
of his business time, labor, skill, undivided attention and best ability to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of the Company, except that
Employee may spend up to five (5) hours per week performing services for AMG
Medical Inc. ("AMG") for so long as AMG is a party to that certain Management
Services Agreement dated as of the date hereof between AMG and Can-Am. Except as
expressly provided herein, during the term of his employment, Employee shall not
directly or indirectly pursue any other business activity, without the Company's
prior written consent.
The Company shall not require Employee to relocate outside the greater
Montreal area. Employee agrees not to move to any location outside of North
America that would materially adversely affect the performance of his
obligations under this Agreement. Employee agrees that he will travel to the
extent that is reasonably necessary in the conduct of the Company's business;
provided, however, that such travel is consistent with past practices at Can-Am.
SECTION 3. Expenses. Employee shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers therefor in accordance with such procedures
as the Company has heretofore or may hereafter establish.
SECTION 4. Vacation During Employment. Employee shall be entitled to
such reasonable vacations as may be allowed by the Company for senior executives
of Selfcare or the Company, but in any event not less than four (4) weeks during
each twelve (12) month period.
SECTION 5. Additional Benefits. Nothing herein contained shall preclude
Employee, to the extent he is otherwise eligible, from participation in all
group insurance programs, stock option plans, or other fringe benefit plans
which Selfcare or the Company makes available or may hereafter make available
generally to its senior executives, in its sole and absolute discretion, but
neither Selfcare nor the Company shall be required to establish or maintain any
such program or plan except, that, Selfcare or the Company shall provide
disability insurance coverage during the term of this Agreement.
SECTION 6. Termination of Employment.
(a) Notwithstanding any other provision of this Agreement, Employee's
employment may be terminated:
(i) By the Company without cause upon not less than ninety
(90) days' written notice in which event the Company shall pay to Employee an
amount equal to fifty per cent (50%) of the base salary required to be paid
under this Agreement, for the remainder of the term of this Agreement, which
payments will be made in the same periodic installments as were Employees salary
payments during Employee's employment.
(ii) By the Company for "Cause" (as herein defined) in which
event the Company's obligation to pay future compensation hereunder shall cease
forthwith, except for any obligation of
2
<PAGE> 3
the Company under any compensation or benefit plan in which Employee is then a
vested beneficiary. "Cause" means:
(A) Employee's material failure, refusal or
inability to perform, neglect of or carrying out in an irresponsible way his
duties hereunder, or breach of any one or more of the material provisions of
this Agreement, which shall have continued for a period of thirty (30) days (or
such longer period as is reasonably required to cure such breach with diligent
and good faith effort) after written notice to Employee from the Chairman of
Selfcare or other representative of the Board of Directors of Selfcare
specifying such breach or failure and which shall not have resulted from a
breach of any material provision of this Agreement by Selfcare or the Company;
(B) inability of Employee to discharge his duties
hereunder for one or more periods totaling six (6) months during any consecutive
twelve (12) month period due to illness, accident or other disability (mental or
physical); or
(C) Employee's theft or embezzlement from the
Company or commission of, plea of nolo contendere to, or conviction of any crime
involving moral turpitude or any other illegal act that materially adversely
reflects upon the business, affairs or reputation of the Company or on
Employee's ability to perform his duties hereunder.
(iii) By the Employee for any reason upon ninety (90) days'
written notice, in which event the Company's obligation to pay future
compensation hereunder shall cease forthwith, except for any obligation of
Selfcare or the Company under any compensation or benefit plan in which Employee
is then a vested beneficiary; provided, however, that if such termination by the
Employee is the result of a material breach by Selfcare or the Company of the
terms hereof which continues for ten (10) days (or such longer period as is
reasonably required to cure such breach with diligent and good faith effort)
after the Company's receipt of written notice thereof, then the Company shall
pay to Employee an amount equal to fifty per cent (50%) of the base salary
required to be paid under this Agreement, for the remainder of the initial term
of this Agreement, which payments will be made in the same periodic installments
as were Employees salary payments during Employee's employment.
(b) In the event of Employee's death during the term of his employment,
the Company's obligation to pay further compensation hereunder shall cease
forthwith, except that Employee's legal representative shall be entitled to
receive his fixed compensation for the period up to the last day of the month in
which such death shall have occurred.
(c) In the event that Employee's employment is terminated pursuant to
Section 6(a)(i) or 6(a)(iii), Selfcare or the Company shall continue to provide,
beyond such period as is required by applicable law, at Employee's expense, any
health, medical and/or dental insurance coverage provided for such Employee
during his employment for as long as the Employee desires, provided such
coverage is permitted by the Company's insurance carrier.
3
<PAGE> 4
SECTION 7. Disclosure and Assignment of Intellectual Property. Employee
shall promptly disclose to the Company and any successor or assign of the
Company, and grant to Selfcare or the Company, and their successors and assigns
(without any separate remuneration or compensation other than that received by
him from time to time in the course of his employment) his entire right, title
and interest throughout the world in and to all research, information,
inventions, designs, procedures, developments, discoveries, improvements,
patents and applications therefor, trademarks and applications therefor,
copyrights and applications therefor, trade secrets, drawings, plans, systems,
methods, specifications, and all other manufacturing, engineering, technical,
research and development data and know-how made, conceived, developed and/or
acquired by him solely or jointly with others during the period of his
employment with the Company or within one year thereafter, which relate to the
manufacture, production or processing of any products developed or sold by
Selfcare or the Company (herein sometimes "Intellectual Property") during the
term of this Agreement or which are within the scope of or usable in connection
with the business of Selfcare or the Company as it may, from time to time,
hereafter be conducted or proposed to be conducted. (It is understood and agreed
that Employee has heretofore disclosed to the Company, and assigned to it, all
Intellectual Property now known to him over which he has any control.) Employee
agrees to execute all appropriate patent applications securing all United States
and foreign patents on all Intellectual Property, and to do, execute and deliver
any and all acts and instruments that may be necessary or proper to vest all
Intellectual Property in Selfcare or the Company, or their nominee or designee,
and to enable Selfcare or the Company, or their nominee or designee, to obtain
all such patents; and Employee agrees to render to Selfcare or the Company, or
their nominee or designee, all such assistance as it may require in the
preparation and prosecution of all such patent applications and applications for
the re-issue of such patents, and in the prosecution or defense of all
interferences which may be declared involving any of said patent applications or
patents, but the expense of all such assignments and patent applications, or all
other proceedings referred to herein above, shall be borne by the Company.
Employee shall be entitled to fair and reasonable compensation for any such
assistance requested by the Company or its nominee or designee and furnished by
him after the termination of his employment.
SECTION 8.
(a) Confidentiality. Employee shall not (other than in
connection with his employment with the Company, Selfcare or any of its
subsidiaries), either during the period of his employment with the Company or
thereafter, use or disclose to any competitor or other third party any
Confidential Information (as herein defined). Employee acknowledges that the
continued success of Selfcare and the Company is largely dependent upon
maintaining the confidentiality of such information and preventing its
disclosure to competitors and other third parties. "Confidential Information"
means information pertaining to research and development of new product designs,
sales, distribution and marketing information, trade secrets, any Intellectual
Property or any of the other types of information referred to in Section 8, and
customer data of Selfcare or the Company, but shall not include any information
relating to, or obtained in the ordinary course of his past or future dealings
with AMG Medical, Inc. "Customer data" means any information pertaining to a
customer, distributor, supplier or other person or entity contracted to utilize
Selfcare's or the
4
<PAGE> 5
Company's services or purchase or license their products, including, but not
limited to, preferences, pricing information, service needs, and similar insider
knowledge of such parties' requirements obtained by Selfcare or the Company or
obtained by Employee. Employee agrees that for as long as Employee is employed
by the Company and for a period of two (2) years thereafter, Employee will not
(except to the extent required by the regular performance of his duties)
disclose to any unauthorized person or use for his own account, anywhere within
the Restricted Territory (as herein defined) any Confidential Information
without the prior written consent of the Company, unless and to the extent the
aforementioned matters become known to or available for use by the public
otherwise than as a result of Employee's acts or omissions to act. Employee
further agrees that upon termination of this Agreement he will not withhold or
retain any records, papers, letters or other data and information with respect
to Selfcare's or the Company's business without the prior written consent of the
Company's Board of Directors. For purposes of this agreement, "Restricted
Territory" means the entire world.
(b) Non-competition. As long as Employee is employed by the
Company and for a period of two (2) years thereafter, Employee agrees that,
except with the prior written consent of the Company's Board of Directors, he
will not directly or indirectly solicit, divert, attempt to take away or
interfere with any customer, client or distributor of Selfcare or the Company,
nor will he or any member of his immediate family own, manage, operate, control,
be employed by, participate in or otherwise engage in, or permit his name to be
used by or in connection with a Restricted Business (as herein defined) in a
Restricted Territory, whether such activity shall be for profit or not. The
parties agree that the Employee's ownership of no more than five percent of the
outstanding voting stock of a publicly traded corporation shall not constitute a
violation of this provision. For purposes of this Agreement, "Restricted
Business" shall mean any business which provides the same types of products and
services that Selfcare or the Company provides as of the date hereof; provided,
however, that "Restricted Business" shall not include the sale, marketing or
distribution of durable medical equipment in any area, including the Restricted
Territory.
(c) Non-solicitation. As long as Employee is employed by the
Company and for a period of two (2) years thereafter, Employee agrees that,
except with the prior written consent of the Company's Board of Directors, he
will not solicit, induce, attempt to hire, or hire any employee of Selfcare or
the Company (or any other person who may have been employed by the Company
during the six (6) months immediately preceding such solicitation), or assist in
such hiring by any other person or business entity or encourage any such
employee to terminate his employment with Selfcare or the Company.
(d) Construction. Employee and the Company are of the belief
that the period of time, the area and the scope of the prohibited activity
herein specified are reasonable, in view of the nature of the business in which
Selfcare and the Company are engaged and propose to engage, the state of their
product development and Employee's knowledge of this business. However, if such
period, such area or such scope of prohibited activity should be adjudged
unreasonable in any judicial proceeding, then the period of time shall be
reduced by such number of months, such area shall be reduced by elimination of
such portion of such area or such scope of prohibited activity shall be
5
<PAGE> 6
reduced, or all, as are deemed unreasonable, so that this covenant may be
enforced in such area, during such period of time and within the scope of
activity as is adjudged to be reasonable.
SECTION 9. No Conflicts. Employee represents and warrants to the
Company that he is not now under any obligations to any person, firm or
corporation, and has no other interest which is inconsistent or in conflict with
this Agreement, or which would prevent, limit or impair, in any way, the
performance by him of any of the covenants or his duties in his said employment.
SECTION 10. Equitable Relief. Employee recognizes and agrees that
Selfcare's and the Company's remedy at law for any breach of the provisions of
Section 7 or 8 hereof would be inadequate, and he agrees that for breach of such
provisions, Selfcare and the Company shall, in addition to such other remedies
as may be available to them at law or in equity or as provided in this
Agreement, be entitled to injunctive relief and to enforce their rights by an
action for specific performance to the extent permitted by law. Should Employee
engage in any activities prohibited by this Agreement, he agrees to pay over to
Selfcare or the Company all compensation, remunerations or moneys or property of
any sort received in connection with such activities; such payment shall not
impair any rights or remedies of Selfcare or the Company or obligations or
liabilities of Employee which such parties may have under this Agreement or
applicable law.
SECTION 11. Miscellaneous.
(a) Entire Agreement, etc. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supercedes all other prior or contemporaneous agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
(b) Amendments and Supplements. This Agreement may not be
amended, supplemented or discharged, and no provision hereof may be modified or
waived, except by an instrument in writing signed by both parties hereto.
(c) No Waiver. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of or non-compliance with
this Agreement shall be held to be a waiver of any other or subsequent breach or
non-compliance. The rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any party may otherwise have at law
or in equity.
(d) Assignability. In the event that the Company shall be
merged with, or consolidated into, any other corporation, or in the event that
it shall sell and transfer substantially all of its assets to another
corporation, the terms of this Agreement shall inure to the benefit of, and be
assumed by, the corporation resulting from such merger or consolidation, or to
which the Company's assets shall be sold and transferred. This Agreement shall
not be assignable by
6
<PAGE> 7
Employee, but it shall be binding upon, and to the extent provided in Section 6
shall inure to the benefit of, his heirs, executors, administrators and legal
representatives.
(e) Severability. If any provision of this Agreement shall be
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
(f) Survival. Employee agrees that his obligations under
Sections 7 and 8 of this Agreement shall be binding upon him irrespective of the
duration of his employment by the Company, the reasons for any cessation of his
employment by the Company, or the amount of his compensation and shall survive
the termination of this Agreement (whether such termination is by the Company,
by Employee, upon expiration of this Agreement or otherwise).
(g) Notices. All notices, consents, approvals, directions and
instructions required or permitted under this Agreement shall be effective when
received and shall be given in writing and delivered either by hand or by
registered or certified mail, postage prepaid, or by telecopier, and addressed
as follows:
If to Employee:
Robert Oringer
3 Cleve Road
Hampstead, Quebec, Canada
H3X 1A5
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
7
<PAGE> 8
New York, NY 10022
Attention: Stuart Freedman, Esq.
Facsimile: (212) 593-5955
If to the Company or Selfcare:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger, Chairman and Chief Executive Officer
Facsimile: (617) 647-3939
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Facsimile: (617) 832-7000
(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the State of New York except to the extent the
laws of any other jurisdiction are mandatorily applicable.
(i) Construction of Agreement. A reference to a Section shall
mean a Section in this Agreement unless otherwise expressly stated. The titles
and headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation". All personal
pronouns used in this Agreement shall include the other gender whether used in
the masculine or feminine or neuter gender, and the singular shall include the
plural whenever and as often as may be appropriate.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
* * * * *
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Employment Agreement to be duly executed as a sealed instrument as of the
day and year first above written.
SELFCARE CONSUMER PRODUCTS, INC.
By:_____________________________
Name: Anthony Hall
Title: Treasurer
SELFCARE, INC.
By:_____________________________
Name: Anthony Hall
Title: Chief Financial Officer
________________________________
Robert Oringer
9
<PAGE> 1
EXHIBIT 10.78
6% NON-NEGOTIABLE PROMISSORY NOTE
$500,000 Boston, Massachusetts
February 18, 1998
On February 18, 2001 (the "Maturity Date"), for value received, the
undersigned Selfcare, Inc., a Delaware corporation (the "Maker"), promises to
pay to Robert Oringer (the "Payee"), the principal sum of FIVE HUNDRED THOUSAND
United States Dollars ($500,000) or the then outstanding principal amount
hereof, together with interest on any and all principal amounts remaining unpaid
hereunder from time to time outstanding from the date hereof until payment in
full, such interest to be payable at such rates and such times as are
hereinafter specified.
1. INTEREST AND PRINCIPAL
1.01 Interest. The Maker shall pay interest on the outstanding
principal amount of this Note ("Note") from the date hereof until the principal
amount of this Note is paid in full at the rate of six percent (6%) per annum.
Interest payments shall be made quarterly on the last day of March, June,
September and December of each year (the "Payment Dates"). Any overdue
installment of interest or principal shall bear interest at the rate of fifteen
percent (15%) per annum. Interest shall be calculated on the basis of a 365 day
year for the actual number of days elapsed.
1.02 Principal. The entire outstanding principal amount of this Note
together with interest accrued and unpaid thereon and Premium, if any, shall be
paid on the Maturity Date.
1.03 Premium. On the Maturity Date, the Payee shall be paid, in
addition to the principal amount of this Note, a premium (the "Premium") to be
determined in accordance with the formula set forth below; provided, that the
Premium shall in no event exceed the original principal amount of this Note.
P = N x (FCP - CP)3
-----------
CP
<PAGE> 2
P = The Premium.
CP = $13.50, as adjusted to reflect any stock dividend, subdivision,
reclassification, recapitalization, split, spin-off, combination or
exchange of shares which occurs prior to the Maturity Date; provided,
that no adjustment shall be made to CP on account of a "Transaction"
(as defined in the Purchase Agreement dated February 18, 1998, by and
among the Maker, Selfcare Consumer Products, Inc., Can-Am Care
Corporation (the "Company") and the stockholders of the Company).
FCP = The "Maturity Date Closing Price" shall be an amount equal to either
(a) average of the closing prices for the common stock $.001 par value
per share of Maker, or the shares of a subsidiary or spin-off of
Selfcare retained by Selfcare shareholders following a Transaction,
(the "Common Stock") as officially reported on the principal national
securities exchange on which the Common Stock is then listed or
admitted for trading, during the 90 days preceding the Maturity Date or
(b) if such Common Stock is not then listed or admitted for trading on
any national securities exchange but is designated as a national market
system security by the National Association of Securities Dealers, Inc.
(the "NASD"), the average of the closing bid and asked prices of the
Common Stock as shown by the NASD automated quotation system, during
the 90 days preceding the Maturity Date, or (c) if such Common Stock is
not then listed or admitted for trading on any national exchange or
quoted in the over-the-counter market, as determined by the Maker and
the holder of this Note. Such Maturity Date Closing Price shall be
adjusted to reflect any stock dividend, subdivision, reclassification,
recapitalization, split, spin-off, combination or exchange of shares
which occurs prior to the Maturity Date.
N = The original principal amount of this Note.
In the event of a Change of Control (as hereinafter defined) of Maker
prior to the Maturity Date, the entire outstanding principal amount of this Note
shall become due and payable immediately. In such event, the Premium shall be
calculated in the same manner as above, except that (i) in the event of a Change
of Control as described in (a) below, the closing price of the Common Stock on
the date of the Change in Control shall be substituted for the Maturity Date
Closing Price, (ii) in the event of a Change of Control as described in (b)
below, the price per share for Common Stock paid by the Acquiror (defined below)
in the transaction causing the Change of Control shall be substituted for the
Maturity Date Closing Price, (iii) in the event of a Change of Control as
described in (c) below, the price per share paid by the purchaser for all or
substantially all of the assets of the Maker shall be substituted for the
Maturity Date Closing Price; or (iv) in the event of a Change of Control as
described in (d) below, the Maturity Date Closing Price shall be replaced by the
greater of (A) the "Pre-Transaction Closing Price" (as defined below) and (B)
the sum of the Pre-Transaction Closing Price and the difference between the
Maturity Date Closing Price and the Post-Transaction Closing Price.
2
<PAGE> 3
"Change of Control" shall mean (a) any change in the board of directors
of Maker after which the current directors of Maker, or persons nominated or
appointed to serve as directors by the current directors of Maker, shall cease
to constitute a majority of the directors of Maker or (b) any change in the
ownership of the capital stock of Maker after which any individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity (an "Acquiror") shall acquire capital stock with a majority of the
voting power of the capital stock of the Maker necessary to elect directors to
the board of directors of the Maker or (c) a sale or disposition of all or
substantially all of the assets of Maker; or (d) a Transaction.
"Post-Transaction Closing Price" is the average of the closing prices
for the Common Stock during the five (5) trading days immediately after the
consummation of a Transaction, as adjusted to reflect any stock dividend,
subdivision, reclassification, recapitalization, split, spin-off, combination or
exchange of shares; provided, that no adjustment shall be made to the
Post-Transaction Closing Price on account of a Transaction.
"Pre-Transaction Closing Price" is the average of the closing prices
for the Common Stock during the five (5) trading days immediately prior to the
consummation of a Transaction, as adjusted to reflect any stock dividend,
subdivision, reclassification, recapitalization, split, spin-off, combination or
exchange of shares; provided, that no adjustment shall be made to the
Pre-Transaction Closing Price on account of a Transaction.
1.04 Prepayment. This Note may not be prepaid without the prior written
consent of the Payee.
1.05 Delivery of Payment. All payments made hereunder shall be made by
wire transfer, in accordance with instructions as may be provided by Payee, or
by check mailed first class, postage paid to the Payee at the address set forth
above or to such other address as the Payee may from time to time designate in
writing to the Maker. If any payments are required to be made on a day which is
not a Business Day (as hereinafter defined) the date on which such payment is
required to be made shall be extended to, and such payment shall be required to
be made on, the next Business Day. "Business Day" shall mean a day other than
Saturday, Sunday and any day which shall be in the City of Boston,
Massachusetts, a legal holiday or a day on which banking institutions are
authorized by law to close.
2. SUBORDINATION
2.01 Subordinated Debt. The indebtedness evidenced by this instrument
("Subordinated Debt") is subordinate and junior in right of payment, to the
extent and in the manner set forth below, to all Superior Debt (as defined in
Section 2.02 ) of the Maker to the extent provided in this section.
3
<PAGE> 4
2.02 Superior Debt. For the purpose of these subordination provisions
the term "Superior Debt" shall mean all principal, interest, charges, expenses
and attorneys' fees arising out of or relating to all indebtedness (including
any guarantee) of Maker owing to commercial lending institutions ("Senior
Lenders") whether outstanding on the date of this Note or subsequently incurred
including, without limitation, to increase, renew, extend, modify or otherwise
amend existing Superior Debt, unless under the instrument evidencing the same or
under which the same is outstanding, it is expressly provided that such
indebtedness is junior and subordinate to other indebtedness and obligations of
the Maker. "Superior Debt" shall not include indebtedness of Maker that (i) is
incurred in connection with an acquisition of assets or stock of a third party
seller and (ii) is convertible into Common Stock or which otherwise has a return
determined by reference to the price of the Common Stock or the financial
performance of the Company or a subsidiary or affiliate thereof ("Seller's
Debt"). All Seller's Debt shall rank pari passu with, or be subordinated to, the
Subordinated Debt.
2.03 Permitted Payments. Maker shall make all regularly scheduled
payments of accrued interest, principal, or Premium, if any, on this Note unless
at the time of any such scheduled payment there exists a default under the
Superior Debt, in which case the extent to which the Maker may make any payment
on the Note shall be governed by Section 2.04.
2.04 Default on Superior Debt. (a) The Maker may not make any payment
of accrued interest, principal or Premium, if any, on or in respect of this Note
if (i) a default in the payment of the principal of, premium, if any, or
interest on Superior Debt ("Payment Default") occurs and is continuing beyond
any applicable period of grace (or is not paid at maturity) or (ii) any other
default occurs and is continuing with respect to Superior Debt that permits
holders of such Superior Debt to accelerate its maturity ("Nonpayment Default")
and, with respect to any Nonpayment Default, the Payee receives a notice of such
a default (a "Payment Blockage Notice") from the Maker or any holder of any
Superior Debt. Any such Payment Blockage Notice shall be delivered promptly
after a Nonpayment Default and state that a Nonpayment Default has occurred and
that the Payment Blockage Notice is being delivered pursuant to this Note.
Payments in respect to this Note may and shall be resumed after the Payment
Blockage Termination Date. For purposes of this Note, the term "Payment Blockage
Termination Date" shall mean (a) in the case of a Payment Default, the earlier
of (i) the date on which such default is cured or waived in writing and (ii) the
later of (A) 270 days after the occurrence of the Payment Default and (B) the
date that the Senior Lender to which Superior Debt is owed and with respect to
which there has been a Payment Default ceases to actively pursue remedies with
respect to such Payment Default, and (b) in case of a Nonpayment Default, the
earlier of (i) the date on which such Nonpayment Default is cured or waived in
writing or (ii) 180 days after the date on which the applicable Payment Blockage
Notice is received. No Nonpayment Default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Payee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
(b) The foregoing provisions of Section 2.04(a) shall be subject to the
following additional conditions and limitations:
4
<PAGE> 5
(i) For the purposes hereof, "Payment Blockage Period" shall
mean the period commencing on the date a payment Blockage Notice is given by
Maker or any holder of any Superior Debt and ending on the applicable Payment
Blockage Termination Date.
(ii) No Payment Blockage Notice may be given during the
pendency of any Payment Blockage Period and no more than one Payment Blockage
Period, other than a Payment Blockage Period based on a Payment Default, may be
commenced during any period of 360 consecutive days.
(iii) No facts or circumstances constituting a Superior Debt
default existing on the date any Payment Blockage Notice is given and of which
an officer of the holder of such Superior Debt has knowledge may be used as a
basis for any additional or subsequent Payment Blockage Notice.
2.05 Certain Events of Bankruptcy. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Maker or to its creditors, as such, or to it property;
(b) any proceedings for the liquidation, dissolution or other
winding-up of the Maker, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(c) any assignment by the Maker for the benefit of its creditors; or
(d) any other marshaling of the assets of the Maker, all Superior Debt
(including any interest on same accruing at the legal rate after the
commencement of any such proceedings and any additional interest that
would have accrued on same but for the commencement of such
proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be
made to Payee on account of any Subordinated Debt. Any payment or
distribution, whether in cash, securities or other property, which
would otherwise (but for these subordination provisions) be payable or
deliverable in respect of this Subordinated Debt shall be paid or
deliverable directly to the Senior Lenders (including any interest
thereon accruing at the legal rate after the commencement of any such
proceedings and any additional interest that would have accrued on same
but for the commencement of such proceedings) shall have been paid in
full.
2.06 Payments in Trust. If any payment or distribution, whether in
cash, securities or other property, shall be received by Payee in contravention
of any of the terms of this Note and before all the Superior Debt shall have
been paid in full, such payment or distribution shall be received in trust for
the benefit of, and shall be paid over or delivered and transferred to, the
Senior Lenders for application to the payment of all Superior Debt remaining
unpaid to the extent
5
<PAGE> 6
necessary to pay all such Superior Debt in full. In the event of the failure of
Payee to endorse or assign any such payment or distribution, each Senior Lender,
including the holder of the Existing Superior Debt, is hereby irrevocably
authorized to endorse or assign the same.
2.07 Certain Rights of Subordinated Debt. No Senior Lender shall be
prejudiced in the right to enforce subordination of Subordinated Debt by any act
or failure to act on the part of the such Senior Lender. The foregoing
provisions as to subordination are solely for the purpose of defining the
relative rights of Senior Lenders, on the one hand, and the Payee, on the other
hand. Nothing contained herein shall impair, as between the Maker and the Payee,
the obligation of the Maker, which is unconditional and absolute, to pay to the
Payee the principal hereof and interest on this Note as and when the same shall
become due and payable in accordance with the terms of this Note, or prevent the
Payee from exercising all rights, powers and remedies otherwise permitted by
applicable law or under this Note upon a default or Event of Default (as
hereinafter defined) under this Note, all subject to the rights of Senior
Lenders to receive cash, securities or other property otherwise payable or
deliverable to Senior Lenders.
2.08 Future Action. The Payee will take such action (including, without
limitation, the delivery of this instrument to an agent for Senior Lenders or
consent to the filing of a financing statement with respect thereto) as may, in
the opinion of counsel designated by Senior Lenders, be necessary or appropriate
to assure the effectiveness of the subordination effected by these provisions.
3. DEFAULTS AND REMEDIES.
3.01 Events of Default. An "Event of Default" shall occur if:
(a) the Maker shall fail to make payment of interest on this
Note when the same becomes due and payable hereunder and such failure
to make a payment continues for a period of 30 days;
(b) the Maker shall fail to make the payment of principal or
Premium on this Note when the same becomes due and payable hereunder,
at maturity or otherwise;
(c) the Maker fails to comply with any of the other agreements
contained in this Note, and such default continues for the period and
after the notice specified below;
(d) the Maker pursuant to or within the meaning of any
Bankruptcy Law (as hereinafter defined):
(i) commences a voluntary case;
6
<PAGE> 7
(ii) consents to the entry of an order against it for
relief in an involuntary case or an involuntary case against maker
remains undismissed, undischarged or unbonded for a period of 90 days;
or
(iii) makes a general assignment for the benefit of
its creditors; or
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Maker in an involuntary
case;
(ii) appoints a Custodian (as hereinafter defined) for
all or substantially all of the assets of the Company; or
(iii) orders a liquidation of the Company.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law. The term "Custodian" means any receiver, trustee,
assignee, liquidator, or similar official under any Bankruptcy Law.
A default under clause (c) above shall not constitute an Event of
Default until Payee notifies the Maker of the default and the Maker does not
cure the default within 30 days of such notice. The notice must specify the
Event of Default, demand that it be remedied, and state that it is a notice of
Event of Default.
3.2 Acceleration. In the event that an Event of Default shall occur and
be continuing, then, and in any such event and at any time thereafter, so long
as such Event of Default shall then be continuing, all amounts of principal,
interest premium, if any, and other sums and charges hereunder may, at the
option of the Payee, be declared (by written notice to the Maker) to be,
whereupon the same shall henceforth become, immediately due and payable, subject
to the provisions of Section 2 hereof.
3.3 Other Remedies. Subject to Section 2.02, if an Event of Default
occurs and is continuing, the holder of this Note may pursue any available
remedy to collect the payment of interest, principal or premium, if any, on this
Note or to enforce any provision of this Note. A delay or omission by the holder
of this Note in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver or acquiesce in the
Event of Default. All remedies are cumulative to the extent permitted by law.
4. AMENDMENT
No amendment or waiver of any provision of this Note, nor
consent to any departure by the Maker or the Payee here from, shall in any event
be effective unless the same
7
<PAGE> 8
shall be in writing and signed by the Maker and the Payee, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
5. NOTICES
All notices and other communications provided for hereunder
shall be in writing and sent by mail, telecopy or hand delivery, with receipt
acknowledged, and shall be deemed given upon receipt:
if to the Maker, to: Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger
Telephone: (617) 647-3900
Facsimile: (617) 647-3939
with a copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Telephone: (617) 832-1144
Facsimile: (617) 832-7000
and, if to Payee, to: Robert Oringer
3 Cleve Road
Hampstead, Quebec
Canada H3X 1A5
Telephone: (514) 485- 9063
with a copy to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Stuart D. Freedman, Esq.
Telephone: (212) 756-2407
Facsimile: (212) 593-5955
6. USURY.
It is the intention of the parties hereto to conform strictly to
applicable usury laws now or hereafter in effect. In the event that any of the
terms or provisions of this Note are in conflict
8
<PAGE> 9
with applicable usury law this Section 6 shall govern as to such terms or
provisions, and this Note shall in all other respects remain in full force and
effect. If any transaction contemplated hereby would be usurious, it is agreed
that the aggregate of all consideration which constitutes interest under
applicable law that is contracted for, charged or received under this Note shall
under no circumstances exceed the maximum interest allowed by applicable law.
Accordingly, if interest in excess of the legal maximum is contracted for,
charged or received: (i) this Note shall be automatically reformed so that the
effective rate of interest shall be reduced to the maximum rate of interest
permitted by applicable law, for the purpose of determining said rate and to the
extent permitted by applicable law, all interest contracted for, charged or
received shall be amortized, prorated and spread throughout the full term of
this Note so that the effective rate of interest is uniform throughout the life
of this Note, and (ii) any excess of interest over the maximum amount allowed
under applicable law shall be applied as a credit against the then unpaid
principal amount hereof.
7. MISCELLANEOUS
The undersigned hereby waives presentment, demand for payment, notice
of dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by the
Payee in respect to the time of payment or any other provision of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
(EXCLUSIVE OF THE LAWS GOVERNING CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
SELFCARE, INC.
By:___________________________________
Name: Anthony H. Hall
Title: Chief Financial Officer
9
<PAGE> 1
EXHIBIT 10.79
6% NON-NEGOTIABLE PROMISSORY NOTE
$500,000 Boston, Massachusetts
February 18, 1998
On February 18, 2001 (the "Maturity Date"), for value received, the
undersigned Selfcare, Inc., a Delaware corporation (the "Maker"), promises to
pay to Cover Family Trust (the "Payee"), the principal sum of FIVE HUNDRED
THOUSAND United States Dollars ($500,000) or the then outstanding principal
amount hereof, together with interest on any and all principal amounts remaining
unpaid hereunder from time to time outstanding from the date hereof until
payment in full, such interest to be payable at such rates and such times as are
hereinafter specified.
1. INTEREST AND PRINCIPAL
1.01 Interest. The Maker shall pay interest on the outstanding
principal amount of this Note ("Note") from the date hereof until the principal
amount of this Note is paid in full at the rate of six percent (6%) per annum.
Interest payments shall be made quarterly on the last day of March, June,
September and December of each year (the "Payment Dates"). Any overdue
installment of interest or principal shall bear interest at the rate of fifteen
percent (15%) per annum. Interest shall be calculated on the basis of a 365 day
year for the actual number of days elapsed.
1.02 Principal. The entire outstanding principal amount of this Note
together with interest accrued and unpaid thereon and Premium, if any, shall be
paid on the Maturity Date.
1.03 Premium. On the Maturity Date, the Payee shall be paid, in
addition to the principal amount of this Note, a premium (the "Premium") to be
determined in accordance with the formula set forth below; provided, that the
Premium shall in no event exceed the original principal amount of this Note.
P = N x (FCP - CP)3
-----------
CP
<PAGE> 2
P = The Premium.
CP = $13.50, as adjusted to reflect any stock dividend, subdivision,
reclassification, recapitalization, split, spin-off, combination or
exchange of shares which occurs prior to the Maturity Date; provided,
that no adjustment shall be made to CP on account of a "Transaction"
(as defined in the Purchase Agreement dated February 18, 1998, by and
among the Maker, Selfcare Consumer Products, Inc., Can-Am Care
Corporation (the "Company") and the stockholders of the Company).
FCP = The "Maturity Date Closing Price" shall be an amount equal to either
(a) average of the closing prices for the common stock $.001 par value
per share of Maker, or the shares of a subsidiary or spin-off of
Selfcare retained by Selfcare shareholders following a Transaction,
(the "Common Stock") as officially reported on the principal
national securities exchange on which the Common Stock is then
listed or admitted for trading, during the 90 days preceding the
Maturity Date or (b) if such Common Stock is not then listed or
admitted for trading on any national securities exchange but is
designated as a national market system security by the National
Association of Securities Dealers, Inc. (the "NASD"), the average of
the closing bid and asked prices of the Common Stock as shown by
the NASD automated quotation system, during the 90 days preceding the
Maturity Date, or (c) if such Common Stock is not then listed or
admitted for trading on any national exchange or quoted in the
over-the-counter market, as determined by the Maker and the holder of
this Note. Such Maturity Date Closing Price shall be adjusted to
reflect any stock dividend, subdivision, reclassification,
recapitalization, split, spin-off, combination or exchange of shares
which occurs prior to the Maturity Date.
N = The original principal amount of this Note.
In the event of a Change of Control (as hereinafter defined) of Maker
prior to the Maturity Date, the entire outstanding principal amount of this Note
shall become due and payable immediately. In such event, the Premium shall be
calculated in the same manner as above, except that (i) in the event of a Change
of Control as described in (a) below, the closing price of the Common Stock on
the date of the Change in Control shall be substituted for the Maturity Date
Closing Price, (ii) in the event of a Change of Control as described in (b)
below, the price per share for Common Stock paid by the Acquiror (defined below)
in the transaction causing the Change of Control shall be substituted for the
Maturity Date Closing Price, (iii) in the event of a Change of Control as
described in (c) below, the price per share paid by the purchaser for all or
substantially all of the assets of the Maker shall be substituted for the
Maturity Date Closing Price; or (iv) in the event of a Change of Control as
described in (d) below, the Maturity Date Closing Price shall be replaced by the
greater of (A) the "Pre-Transaction Closing Price" (as defined below) and (B)
the sum of the Pre-Transaction Closing Price and the difference between the
Maturity Date Closing Price and the Post-Transaction Closing Price.
2
<PAGE> 3
"Change of Control" shall mean (a) any change in the board of directors
of Maker after which the current directors of Maker, or persons nominated or
appointed to serve as directors by the current directors of Maker, shall cease
to constitute a majority of the directors of Maker or (b) any change in the
ownership of the capital stock of Maker after which any individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity (an "Acquiror") shall acquire capital stock with a majority of the
voting power of the capital stock of the Maker necessary to elect directors to
the board of directors of the Maker or (c) a sale or disposition of all or
substantially all of the assets of Maker; or (d) a Transaction.
"Post-Transaction Closing Price" is the average of the closing prices
for the Common Stock during the five (5) trading days immediately after the
consummation of a Transaction, as adjusted to reflect any stock dividend,
subdivision, reclassification, recapitalization, split, spin-off, combination or
exchange of shares; provided, that no adjustment shall be made to the
Post-Transaction Closing Price on account of a Transaction.
"Pre-Transaction Closing Price" is the average of the closing prices
for the Common Stock during the five (5) trading days immediately prior to the
consummation of a Transaction, as adjusted to reflect any stock dividend,
subdivision, reclassification, recapitalization, split, spin-off, combination or
exchange of shares; provided, that no adjustment shall be made to the
Pre-Transaction Closing Price on account of a Transaction.
1.04 Prepayment. This Note may not be prepaid without the prior written
consent of the Payee.
1.05 Delivery of Payment. All payments made hereunder shall be made by
wire transfer, in accordance with instructions as may be provided by Payee, or
by check mailed first class, postage paid to the Payee at the address set forth
above or to such other address as the Payee may from time to time designate in
writing to the Maker. If any payments are required to be made on a day which is
not a Business Day (as hereinafter defined) the date on which such payment is
required to be made shall be extended to, and such payment shall be required to
be made on, the next Business Day. "Business Day" shall mean a day other than
Saturday, Sunday and any day which shall be in the City of Boston,
Massachusetts, a legal holiday or a day on which banking institutions are
authorized by law to close.
2. SUBORDINATION
2.01 Subordinated Debt. The indebtedness evidenced by this instrument
("Subordinated Debt") is subordinate and junior in right of payment, to the
extent and in the manner set forth below, to all Superior Debt (as defined in
Section 2.02 ) of the Maker to the extent provided in this section.
3
<PAGE> 4
2.02 Superior Debt. For the purpose of these subordination provisions
the term "Superior Debt" shall mean all principal, interest, charges, expenses
and attorneys' fees arising out of or relating to all indebtedness (including
any guarantee) of Maker owing to commercial lending institutions ("Senior
Lenders") whether outstanding on the date of this Note or subsequently incurred
including, without limitation, to increase, renew, extend, modify or otherwise
amend existing Superior Debt, unless under the instrument evidencing the same or
under which the same is outstanding, it is expressly provided that such
indebtedness is junior and subordinate to other indebtedness and obligations of
the Maker. "Superior Debt" shall not include indebtedness of Maker that (i) is
incurred in connection with an acquisition of assets or stock of a third party
seller and (ii) is convertible into Common Stock or which otherwise has a return
determined by reference to the price of the Common Stock or the financial
performance of the Company or a subsidiary or affiliate thereof ("Seller's
Debt"). All Seller's Debt shall rank pari passu with, or be subordinated to, the
Subordinated Debt.
2.03 Permitted Payments. Maker shall make all regularly scheduled
payments of accrued interest, principal, or Premium, if any, on this Note unless
at the time of any such scheduled payment there exists a default under the
Superior Debt, in which case the extent to which the Maker may make any payment
on the Note shall be governed by Section 2.04.
2.04 Default on Superior Debt. (a) The Maker may not make any payment
of accrued interest, principal or Premium, if any, on or in respect of this Note
if (i) a default in the payment of the principal of, premium, if any, or
interest on Superior Debt ("Payment Default") occurs and is continuing beyond
any applicable period of grace (or is not paid at maturity) or (ii) any other
default occurs and is continuing with respect to Superior Debt that permits
holders of such Superior Debt to accelerate its maturity ("Nonpayment Default")
and, with respect to any Nonpayment Default, the Payee receives a notice of such
a default (a "Payment Blockage Notice") from the Maker or any holder of any
Superior Debt. Any such Payment Blockage Notice shall be delivered promptly
after a Nonpayment Default and state that a Nonpayment Default has occurred and
that the Payment Blockage Notice is being delivered pursuant to this Note.
Payments in respect to this Note may and shall be resumed after the Payment
Blockage Termination Date. For purposes of this Note, the term "Payment Blockage
Termination Date" shall mean (a) in the case of a Payment Default, the earlier
of (i) the date on which such default is cured or waived in writing and (ii) the
later of (A) 270 days after the occurrence of the Payment Default and (B) the
date that the Senior Lender to which Superior Debt is owed and with respect to
which there has been a Payment Default ceases to actively pursue remedies with
respect to such Payment Default, and (b) in case of a Nonpayment Default, the
earlier of (i) the date on which such Nonpayment Default is cured or waived in
writing or (ii) 180 days after the date on which the applicable Payment Blockage
Notice is received. No Nonpayment Default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Payee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
(b) The foregoing provisions of Section 2.04(a) shall be subject to the
following additional conditions and limitations:
4
<PAGE> 5
(i) For the purposes hereof, "Payment Blockage Period" shall
mean the period commencing on the date a payment Blockage Notice is given by
Maker or any holder of any Superior Debt and ending on the applicable Payment
Blockage Termination Date.
(ii) No Payment Blockage Notice may be given during the
pendency of any Payment Blockage Period and no more than one Payment Blockage
Period, other than a Payment Blockage Period based on a Payment Default, may be
commenced during any period of 360 consecutive days.
(iii) No facts or circumstances constituting a Superior Debt
default existing on the date any Payment Blockage Notice is given and of which
an officer of the holder of such Superior Debt has knowledge may be used as a
basis for any additional or subsequent Payment Blockage Notice.
2.05 Certain Events of Bankruptcy. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Maker or to its creditors, as such, or to it property;
(b) any proceedings for the liquidation, dissolution or other
winding-up of the Maker, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(c) any assignment by the Maker for the benefit of its creditors; or
(d) any other marshaling of the assets of the Maker, all Superior Debt
(including any interest on same accruing at the legal rate after the
commencement of any such proceedings and any additional interest that
would have accrued on same but for the commencement of such
proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be
made to Payee on account of any Subordinated Debt. Any payment or
distribution, whether in cash, securities or other property, which
would otherwise (but for these subordination provisions) be payable or
deliverable in respect of this Subordinated Debt shall be paid or
deliverable directly to the Senior Lenders (including any interest
thereon accruing at the legal rate after the commencement of any such
proceedings and any additional interest that would have accrued on same
but for the commencement of such proceedings) shall have been paid in
full.
2.06 Payments in Trust. If any payment or distribution, whether in
cash, securities or other property, shall be received by Payee in contravention
of any of the terms of this Note and before all the Superior Debt shall have
been paid in full, such payment or distribution shall be received in trust for
the benefit of, and shall be paid over or delivered and transferred to, the
Senior Lenders for application to the payment of all Superior Debt remaining
unpaid to the extent
5
<PAGE> 6
necessary to pay all such Superior Debt in full. In the event of the failure of
Payee to endorse or assign any such payment or distribution, each Senior Lender,
including the holder of the Existing Superior Debt, is hereby irrevocably
authorized to endorse or assign the same.
2.07 Certain Rights of Subordinated Debt. No Senior Lender shall be
prejudiced in the right to enforce subordination of Subordinated Debt by any act
or failure to act on the part of the such Senior Lender. The foregoing
provisions as to subordination are solely for the purpose of defining the
relative rights of Senior Lenders, on the one hand, and the Payee, on the other
hand. Nothing contained herein shall impair, as between the Maker and the Payee,
the obligation of the Maker, which is unconditional and absolute, to pay to the
Payee the principal hereof and interest on this Note as and when the same shall
become due and payable in accordance with the terms of this Note, or prevent the
Payee from exercising all rights, powers and remedies otherwise permitted by
applicable law or under this Note upon a default or Event of Default (as
hereinafter defined) under this Note, all subject to the rights of Senior
Lenders to receive cash, securities or other property otherwise payable or
deliverable to Senior Lenders.
2.08 Future Action. The Payee will take such action (including, without
limitation, the delivery of this instrument to an agent for Senior Lenders or
consent to the filing of a financing statement with respect thereto) as may, in
the opinion of counsel designated by Senior Lenders, be necessary or appropriate
to assure the effectiveness of the subordination effected by these provisions.
3. DEFAULTS AND REMEDIES.
3.01 Events of Default. An "Event of Default" shall occur if:
(a) the Maker shall fail to make payment of interest on this Note
when the same becomes due and payable hereunder and such failure
to make a payment continues for a period of 30 days;
(b) the Maker shall fail to make the payment of principal or
Premium on this Note when the same becomes due and payable
hereunder, at maturity or otherwise;
(c) the Maker fails to comply with any of the other agreements
contained in this Note, and such default continues for the period
and after the notice specified below;
(d) the Maker pursuant to or within the meaning of any Bankruptcy
Law (as hereinafter defined):
(i) commences a voluntary case;
6
<PAGE> 7
(ii) consents to the entry of an order against it for relief
in an involuntary case or an involuntary case against maker remains
undismissed, undischarged or unbonded for a period of 90 days; or
(iii) makes a general assignment for the benefit of its
creditors; or
(e) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Maker in an involuntary case;
(ii) appoints a Custodian (as hereinafter defined) for all or
substantially all of the assets of the Company; or
(iii) orders a liquidation of the Company.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law. The term "Custodian" means any receiver, trustee,
assignee, liquidator, or similar official under any Bankruptcy Law.
A default under clause (c) above shall not constitute an Event of
Default until Payee notifies the Maker of the default and the Maker does not
cure the default within 30 days of such notice. The notice must specify the
Event of Default, demand that it be remedied, and state that it is a notice of
Event of Default.
3.2 Acceleration. In the event that an Event of Default shall occur and
be continuing, then, and in any such event and at any time thereafter, so long
as such Event of Default shall then be continuing, all amounts of principal,
interest premium, if any, and other sums and charges hereunder may, at the
option of the Payee, be declared (by written notice to the Maker) to be,
whereupon the same shall henceforth become, immediately due and payable, subject
to the provisions of Section 2 hereof.
3.3 Other Remedies. Subject to Section 2.02, if an Event of Default
occurs and is continuing, the holder of this Note may pursue any available
remedy to collect the payment of interest, principal or premium, if any, on this
Note or to enforce any provision of this Note. A delay or omission by the holder
of this Note in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver or acquiesce in the
Event of Default. All remedies are cumulative to the extent permitted by law.
4. AMENDMENT
No amendment or waiver of any provision of this Note, nor
consent to any departure by the Maker or the Payee here from, shall in any event
be effective unless the same
7
<PAGE> 8
shall be in writing and signed by the Maker and the Payee, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
5. NOTICES
All notices and other communications provided for hereunder
shall be in writing and sent by mail, telecopy or hand delivery, with receipt
acknowledged, and shall be deemed given upon receipt:
if to the Maker, to: Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger
Telephone: (617) 647-3900
Facsimile: (617) 647-3939
with a copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Telephone: (617) 832-1144
Facsimile: (617) 832-7000
and, if to Payee, to: Cover Family Trust
c/o Herbert Cover
6924 E. Night Glow Circle
Scottsdale, AZ 85262
with a copy to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Stuart D. Freedman, Esq.
Telephone: (212) 756-2407
Facsimile: (212) 593-5955
6. USURY.
It is the intention of the parties hereto to conform strictly to
applicable usury laws now or hereafter in effect. In the event that any of the
terms or provisions of this Note are in conflict with applicable usury law this
Section 6 shall govern as to such terms or provisions, and this Note
8
<PAGE> 9
shall in all other respects remain in full force and effect. If any transaction
contemplated hereby would be usurious, it is agreed that the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, charged or received under this Note shall under no circumstances exceed the
maximum interest allowed by applicable law. Accordingly, if interest in excess
of the legal maximum is contracted for, charged or received: (i) this Note shall
be automatically reformed so that the effective rate of interest shall be
reduced to the maximum rate of interest permitted by applicable law, for the
purpose of determining said rate and to the extent permitted by applicable law,
all interest contracted for, charged or received shall be amortized, prorated
and spread throughout the full term of this Note so that the effective rate of
interest is uniform throughout the life of this Note, and (ii) any excess of
interest over the maximum amount allowed under applicable law shall be applied
as a credit against the then unpaid principal amount hereof.
7. MISCELLANEOUS
The undersigned hereby waives presentment, demand for payment, notice
of dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by the
Payee in respect to the time of payment or any other provision of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
(EXCLUSIVE OF THE LAWS GOVERNING CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
SELFCARE, INC.
By:___________________________________
Name: Anthony H. Hall
Title: Chief Financial Officer
9
<PAGE> 1
EXHIBIT 10.80
[EXECUTION COPY]
$42,000,000
CREDIT AGREEMENT,
dated as of February 18, 1998,
among
SELFCARE CONSUMER PRODUCTS, INC.,
as the Borrower,
SELFCARE, INC.,
as the Guarantor,
CERTAIN FINANCIAL INSTITUTIONS,
as the Lenders,
and
THE CHASE MANHATTAN BANK,
as the Agent for the Lenders.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms ...............................................................................2
1.2. Use of Defined Terms .......................................................................29
1.3. Cross-References ...........................................................................29
1.4. Accounting and Financial Determinations ....................................................29
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES,
LETTERS OF CREDIT AND NOTES
2.1. Commitments ................................................................................30
2.1.1. Term Loan Commitment .......................................................................30
2.1.2. Revolving Loan Commitment ..................................................................30
2.1.3. Letter of Credit Commitment ................................................................30
2.2. Lenders Not Permitted or Required To Make Credit Extensions ................................30
2.2.1. Term Loans .................................................................................30
2.2.2. Revolving Loans and Letters of Credit ......................................................30
2.3. Reduction of the Commitment Amounts ........................................................31
2.4. Borrowing Procedure ........................................................................31
2.5. Continuation and Conversion Elections ......................................................31
2.6. Funding ....................................................................................32
2.7. Letters of Credit. .........................................................................32
2.7.1. Issuance Procedures ........................................................................32
2.7.2. Other Lenders' Participation ...............................................................33
2.7.3. Disbursements ..............................................................................33
2.7.4. Reimbursement ..............................................................................33
2.7.5. Deemed Disbursements .......................................................................33
2.7.6. Nature of Reimbursement Obligations ........................................................34
2.8. Notes ......................................................................................34
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments .................................................................35
3.1.1. Voluntary Prepayments ......................................................................35
3.1.2. Mandatory Repayments and Prepayments .......................................................35
3.2. Interest Provisions ........................................................................37
3.2.1. Rates ......................................................................................38
3.2.2. Post-Default Rates .........................................................................38
3.2.3. Payment Dates ..............................................................................39
3.3. Fees .......................................................................................39
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
3.3.1. Commitment Fee .............................................................................39
3.3.2. Letter of Credit Fee .......................................................................39
3.3.3. Agent's Fees, etc ..........................................................................40
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful .................................................................40
4.2. Deposits Unavailable .......................................................................40
4.3. Increased Costs, etc. ......................................................................40
4.4. Funding Losses .............................................................................41
4.5. Increased Capital Costs ....................................................................42
4.6. Taxes ......................................................................................42
4.7. Payments, Computations, etc. ...............................................................43
4.8. Sharing of Payments ........................................................................44
4.9. Setoff .....................................................................................44
4.10. Use of Proceeds ............................................................................44
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extension ...................................................................45
5.1.1. Resolutions, etc ...........................................................................45
5.1.2. Agreement ..................................................................................45
5.1.3. Delivery of Notes ..........................................................................45
5.1.4. Required Consents and Approvals ............................................................45
5.1.5. Consummation of the Acquisition ............................................................46
5.1.6. Collection Account Agreements ..............................................................46
5.1.7. Borrowing Base Certificate .................................................................46
5.1.8. Financial Information, etc .................................................................46
5.1.9. Consent to Assignment of Operational Agreement .............................................48
5.1.10. Guaranty ...................................................................................48
5.1.11. Pledged Property ...........................................................................48
5.1.12. UCC Search Results .........................................................................48
5.1.13. Security Agreements, Filings, etc ..........................................................48
5.1.14. Solvency Certificate .......................................................................49
5.1.15. Closing Date Certificate ...................................................................49
5.1.16. Reliance Letters ...........................................................................49
5.1.17. Evidence of Insurance ......................................................................49
5.1.18. Environmental Matters ......................................................................49
5.1.19. Payment of Outstanding Indebtedness, etc ...................................................49
5.1.20. Escrow Agreement ...........................................................................49
5.1.21. Tax Sharing Agreement ......................................................................50
5.1.22. Opinions of Counsel ........................................................................50
5.1.23. Bailee Waivers .............................................................................50
5.1.24. Agent's Closing Fees, Expenses, etc. .......................................................50
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
5.1.25. Other Closing Expenses .....................................................................50
5.2. All Credit Extensions ......................................................................50
5.2.1. Compliance with Warranties, No Default, etc ................................................50
5.2.2. Credit Extension Request, etc ..............................................................50
5.2.3. Satisfactory Legal Form ....................................................................51
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc. .........................................................................51
6.2. Due Authorization, Non-Contravention, etc. .................................................51
6.3. Government Approval, Regulation, etc. ......................................................52
6.4. Validity, etc. .............................................................................52
6.5. Financial Information ......................................................................52
6.6. No Material Adverse Change .................................................................52
6.7. Litigation, Labor Controversies, etc. ......................................................53
6.8. Subsidiaries ...............................................................................53
6.9. Ownership of Properties ....................................................................53
6.10. Taxes ......................................................................................53
6.11. Pension and Benefit Plans ..................................................................53
6.12. Environmental Warranties ...................................................................54
6.13. Inventory ..................................................................................55
6.14. Accuracy of Information ....................................................................55
6.15. Purchase Agreement .........................................................................56
6.16. Absence of Default .........................................................................56
6.17. Regulations G, U and X .....................................................................56
6.18. Government Regulation ......................................................................56
6.19. Solvency ...................................................................................56
6.20. Insurance. .................................................................................56
6.21. Senior Indebtedness, etc. ..................................................................57
6.22. Operational Agreements. ....................................................................57
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants ......................................................................57
7.1.1. Financial Information, Reports, Notices, etc ...............................................57
7.1.2. Compliance with Laws, etc ..................................................................60
7.1.3. Maintenance of Properties ..................................................................60
7.1.4. Insurance ..................................................................................60
7.1.5. Books and Records; Accounts ................................................................62
7.1.6. Environmental Covenant .....................................................................62
7.1.7. Further Assurances .........................................................................63
7.1.8. As to Intellectual Property Collateral .....................................................64
7.1.9. Future Subsidiaries ........................................................................65
7.1.10. Rate Protection Agreements .................................................................66
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
7.1.11. Certain Post-Closing Covenants .............................................................66
7.1.12. Jmar Ames, Inc. ............................................................................67
7.2. Negative Covenants .........................................................................68
7.2.1. Business Activities ........................................................................68
7.2.2. Indebtedness ...............................................................................68
7.2.3. Liens ......................................................................................69
7.2.4. Financial Condition ........................................................................70
7.2.5. Investments ................................................................................71
7.2.6. Restricted Payments, etc ...................................................................72
7.2.7. Capital Expenditures, etc ..................................................................72
7.2.8. Take or Pay Contracts ......................................................................73
7.2.9. Consolidation, Merger, etc .................................................................73
7.2.10. Asset Dispositions, etc ....................................................................74
7.2.11. Modification of Certain Agreements .........................................................74
7.2.12. Transactions with Affiliates; Separate Existence ...........................................75
7.2.13. Negative Pledges, Restrictive Agreements, etc ..............................................76
7.2.14. Management Fees, Expenses, etc .............................................................77
7.2.15. Fiscal Year End ............................................................................77
7.2.16. Limitation on Sale and Leaseback Transactions...............................................77
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default ...............................................................77
8.1.1. Non-Payment of Obligations .................................................................77
8.1.2. Breach of Representations and Warranties ...................................................77
8.1.3. Non-Performance of Certain Covenants and Obligations .......................................77
8.1.4. Non-Performance of Other Covenants and Obligations .........................................78
8.1.5. Default On Other Indebtedness ..............................................................78
8.1.6. Judgments ..................................................................................78
8.1.7. Pension Plans ..............................................................................78
8.1.8. Control of Holdings and the Borrower .......................................................78
8.1.9. Bankruptcy, Insolvency, etc ................................................................79
8.1.10. Impairment of Security, etc ................................................................79
8.1.11. Subordinated Notes .........................................................................79
8.1.12. Non-Payment of Taxes .......................................................................79
8.2. Action if Bankruptcy Exists ................................................................80
8.3. Action if Other Event of Default Exists ....................................................80
8.4. Payments Upon Acceleration .................................................................80
ARTICLE IX
THE AGENT
9.1. Actions ....................................................................................81
9.2. Funding Reliance, etc. .....................................................................81
9.3. Exculpation ................................................................................81
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
9.4. Successor ..................................................................................82
9.5. Loans by Chase .............................................................................82
9.6. Credit Decisions ...........................................................................82
9.7. Copies, etc. ...............................................................................82
9.8. Certain Collateral Matters .................................................................82
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Waivers, Amendments, etc. ..................................................................83
10.2. Notices ....................................................................................84
10.3. Payment of Costs and Expenses ..............................................................84
10.4. Indemnification ............................................................................85
10.5. Survival ...................................................................................86
10.6. Severability ...............................................................................86
10.7. Headings ...................................................................................86
10.8. Execution in Counterparts, Effectiveness, etc. .............................................86
10.9. Governing Law; Entire Agreement ............................................................86
10.10. Successors and Assigns .....................................................................87
10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes ....................87
10.11.1. Assignments ................................................................................87
10.11.2. Participations .............................................................................88
10.11.3. Certain Other Provisions ...................................................................89
10.12. Other Transactions .........................................................................89
10.13. Guaranty of Holdings .......................................................................89
10.14. Forum Selection and Consent to Jurisdiction ................................................91
10.15. Waiver of Jury Trial, etc. .................................................................92
</TABLE>
-v-
<PAGE> 7
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Percentages
SCHEDULE III - Administrative Information
EXHIBIT A - Form of Revolving Note
EXHIBIT B - Form of Term Note
EXHIBIT C-1 - Form of Borrowing Request
EXHIBIT C-2 - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Issuance Request
EXHIBIT E - Form of Borrowing Base Certificate
EXHIBIT F-1 - Form of Compliance Certificate
EXHIBIT F-2 - Form of Holdings' Compliance Certificate
EXHIBIT G - Form of Pledge Agreement
EXHIBIT H - Form of Security Agreement
EXHIBIT I - Form of Collection Account Agreement
EXHIBIT J - Form of Subsidiary Guaranty
EXHIBIT K - Form of Closing Date Certificate
EXHIBIT L - Form of Solvency Certificate
EXHIBIT M - Form of Lender Assignment Agreement
EXHIBIT N - Form of Escrow Agreement
EXHIBIT O - Form of Tax Sharing Agreement
EXHIBIT P-1 - Form of Legal Opinion of Counsel to Holdings and the Borrower
EXHIBIT P-2 - Form of Legal Opinion of Ohio Counsel to Jmar Ames, Inc.
</TABLE>
-vi-
<PAGE> 8
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of February 18, 1998, among SELFCARE
CONSUMER PRODUCTS, INC., a Delaware corporation (the "Borrower"), SELFCARE,
INC., a Delaware corporation ("Holdings"), as guarantor, the various financial
institutions as are or may become parties hereto (collectively, the "Lenders"),
and THE CHASE MANHATTAN BANK ("Chase"), as agent (in such capacity, the "Agent")
for the Lenders.
W I T N E S S E T H:
WHEREAS, Holdings is engaged in the business of developing,
manufacturing and marketing health care products, including nutritionals and
self-test diagnostic products for the diabetes, women's health and infectious
disease markets;
WHEREAS, upon consummation of the Acquisition (such capitalized term
and all other capitalized terms used in these recitals without definition shall
have the meanings provided for in Article I hereto) the Borrower and its
Wholly-Owned Subsidiaries will be engaged in the business of developing and
marketing nutritional supplements and diabetes care products; and
WHEREAS, all the capital stock of the Borrower is owned by Holdings;
and
WHEREAS, the Borrower desires to obtain from the Lenders
(a) Term Loan Commitments pursuant to which Term Loans will be made by
the Lenders on the date of the initial Credit Extension in an aggregate
principal amount not to exceed $37,000,000; and
(b) Revolving Loan Commitments pursuant to which Revolving Loans will
be made by the Lenders from time and time in an aggregate principal amount at
any one time outstanding not to exceed $5,000,000 and Letters of Credit will be
issued by the Issuer from time to time in a maximum aggregate principal amount
at any one time outstanding not to exceed $1,000,000, provided that, in any
event, the aggregate outstanding principal amount of all Revolving Loans,
together with the aggregate amount of all Letter of Credit Outstandings, shall
not at any one time exceed the lesser of the Revolving Loan Commitment or the
Borrowing Base Amount in effect at such time; and
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such
Commitments and make such Loans to the Borrower and issue (or participate in)
Letters of Credit for the account of the Borrower;
<PAGE> 9
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. The following terms (whether or not underscored)
when used in this Agreement, including its preamble and recitals, shall, except
where the context otherwise requires, have the following meanings (such meanings
to be equally applicable to the singular and plural forms thereof):
"ACCOUNT" means any "account" (as that term is defined in Section 9-106 of the
U.C.C.) of any Person.
"ACCOUNT DEBTOR" is defined in clause (e) of the definition of "Eligible
Account".
"ACQUISITION" means the acquisition by the Borrower of all the capital stock of
Can-Am pursuant to the Purchase Agreement.
"ADJUSTED PERCENTAGE" means, (a) at a time when no Lender Default exists, for
each Lender such Lender's Percentage and (b) at a time when a Lender Default
exists (i) for each Lender that is a Defaulting Lender, zero and (ii) for each
Lender that is a Non-Defaulting Lender, the percentage determined by dividing an
amount equal to such Lender's Percentage of the Total Commitment Amount at such
time by the Adjusted Total Commitment Amount at such time, it being understood
that all references herein to Commitments and the Adjusted Total Commitment
Amount at a time when the Total Commitment Amount or Adjusted Total Commitment
Amount, as the case may be, has been terminated shall be references to the
Commitments or Adjusted Total Commitment Amount, as the case may be, in effect
immediately prior to such termination.
"ADJUSTED TOTAL COMMITMENT AMOUNT" means, at any time, the Total Commitment
Amount less the aggregate Commitments of all Defaulting Lenders.
"AFFILIATE" of any Person means any other Person which, directly or indirectly,
controls, is controlled by or is under common control with such Person
(excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power
(a) to vote 5% or more of the securities (on a fully diluted basis) or
other interests having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"AGENT" is defined in the preamble and includes each other Person as shall have
subsequently been appointed as the successor Agent pursuant to Section 9.4.
"AGREEMENT" means this Credit Agreement, as amended, supplemented, restated or
otherwise modified from time to time.
-2-
<PAGE> 10
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% per annum, and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1% per annum. "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by the Agent at it principal office
in New York City as its prime rate in effect at such time. "Base CD Rate" shall
mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and
(ii) Statutory Reserves and (b) the Assessment Rate. "Three-Month Secondary CD
Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Agent from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it. "Statutory Reserves" shall mean a fraction
(expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the maximum reserve percentage
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal, established by the Board and any other banking authority to which
the Agent is subject with respect to the Base CD Rate, for new negotiable non
personal time deposits in dollars of over $100,000 with maturities approximately
equal to three months. Statutory Reserves shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage. "Assessment
Rate" shall mean the annual assessment rate (net of refunds and rounded upwards,
if necessary, to the next 1/16 of 1%) estimated by the Agent to be payable by
the Agent to the Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of time deposits made in
dollars at the Agent's domestic offices during the current calendar year.
"Federal Funds Effective Rate" shall mean, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Agent shall have determined in a commercially reasonable manner (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds Effective Rate, or both, for any
reason, including, the inability or failure of the Agent to obtain sufficient
quotations in accordance with the terms hereof, the Alternate Base Rate shall be
determined without regard to clause (b) or (c), or both, of the first sentence
of this definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"AMG" means AMG Medical Inc., a Canadian corporation.
"APPLICABLE MARGIN" means (a) with respect to the unpaid principal amount of
each Base Rate Loan, the applicable percentage set forth below in the column
entitled "Applicable Margin for Base Rate Loans"; and (b) with respect to the
unpaid principal amount of each LIBO Rate Loan, the applicable percentage set
forth below in the column entitled "Applicable Margin for LIBO Rate Loans":
-3-
<PAGE> 11
<TABLE>
<CAPTION>
Applicable Applicable
Senior Funded Debt Margin For Margin For
to EBITDA Ratio Base Rate Loans LIBO Rate Loans
------------------- --------------- ---------------
<S> <C> <C> <C>
A. Greater than 1.50% 3.00%
4.00:1.00
B. Equal to or less than 1.25% 2.75%
4.00:1.00 but greater than
3.50:1.00
C. Equal to or less than 1.00% 2.50%
3.50:1.00 but greater than
2.50:1.00
D. Equal to or less than .75% 2.25%
2.50:1.00 but greater than
2.00:1.00
E. Equal to or less than .50% 2.00%
2.00:1.00 but greater than
1.50:1.00
F. Equal to or less than .25% 1.75%
1.50:1.00
</TABLE>
The Senior Funded Debt to EBITDA Ratio used to compute the Applicable Margin
shall be the Senior Funded Debt to EBITDA Ratio set forth in the Compliance
Certificate most recently delivered by the Borrower to the Agent pursuant to
clause (e) of Section 7.1.1, and changes in the Applicable Margin resulting from
a change in the Senior Funded Debt to EBITDA Ratio shall become effective upon
delivery by the Borrower to the Agent of a new Compliance Certificate pursuant
to clause (e) of Section 7.1.1; provided, however, that from and after the
Effective Date and until the earlier of the receipt by the Agent and the Lenders
of (i) the audited financial statements pursuant to clause (c) of Section 7.1.1
for the Borrower's 1998 Fiscal Year or (ii) audited financial statements for the
Borrower and Can-Am for each of their 1997 Fiscal Years (such financial
statements to be prepared by Arthur Anderson LLP or other independent public
accountants acceptable to the Agent in accordance with GAAP consistently applied
and free of any Impermissible Qualifications) the Applicable Margin shall equal
the Applicable Margin set forth in row C above unless the Compliance Certificate
most recently delivered by the Borrower to the Agent pursuant to clause (e) of
Section 7.1.1 indicates that the Applicable Margin should be greater, in which
case the Applicable Margin shall be the percentage indicated in rows A or B
above, as applicable. If the Borrower shall fail to deliver a Compliance
Certificate within 45 days after the end of any Fiscal Quarter as required
pursuant to clause (e) of Section 7.1.1, the Applicable Margin from and
including the 45th day after the end of such Fiscal Quarter to but not including
the date the Borrower delivers to the Agent a Compliance Certificate with
respect to such Fiscal Quarter shall conclusively be presumed to equal the
relevant Applicable Margin set forth at row A above. In addition, the Applicable
Margin shall be automatically increased to the Applicable Margin set forth in
row A above during all periods of time in which any Default or Event of Default
has occurred and is continuing.
"ASSESSMENT RATE" is defined in the definition of Alternate Base Rate.
-4-
<PAGE> 12
"AUTHORIZED OFFICER" means, relative to any Obligor, those of its officers whose
signatures and incumbency shall have been certified to the Agent and the Lenders
pursuant to Section 5.1.1.
"BASE CD RATE" is defined in the definition of Alternate Base Rate.
"BASE RATE LOAN" means a Loan bearing interest at a fluctuating interest rate
determined by reference to the Alternate Base Rate.
"BORROWER" is defined in the preamble.
"BORROWER SUBORDINATED NOTES" means collectively (a) the Promissory Note, dated
the date hereof, of the Borrower in favor of Holdings and in the original
principal amount of $2,000,000 and (b) the Subordinated Promissory Note, dated
the date hereof, of the Borrower in favor of Holdings and in the original
principal amount of $5,000,000, as amended, supplemented, restated or otherwise
modified from time to time in accordance with Section 7.2.11.
"BORROWING" means the Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period, made by all Lenders on the same Business
Day and pursuant to the same Borrowing Request in accordance with Section 2.1.
"BORROWING BASE AMOUNT" means, at any time, the sum of
(a) 83% of the aggregate amount of all Eligible Accounts of the
Borrower at such time;
(b) 80% of the aggregate amount of all Eligible Accounts of Can-Am at
such time; and
(c) 50% of the aggregate amount of all Eligible Inventory at such time.
The Borrowing Base Amount shall initially be computed by the Borrower in each
Borrowing Base Certificate delivered from time to time to the Agent pursuant to
clause (i) of Section 7.1.1. The Agent shall have the right to review such
computations and if, in the Agent's reasonable judgment, such computations have
not been computed in accordance with the terms of this Agreement, the Agent
shall have the right to adjust such computations, such adjustment to be binding
on the Borrower absent manifest error.
"BORROWING BASE CERTIFICATE" means the Borrowing Base Certificate duly completed
and executed by the chief financial Authorized Officer of the Borrower,
substantially in the form of Exhibit E hereto, together with such changes
thereto as the Agent may from time to time reasonably request for the purpose of
monitoring the Borrower's compliance therewith.
"BORROWING REQUEST" means a Borrowing Request, duly executed by an Authorized
Officer of the Borrower, in substantially the form of Exhibit C-1 hereto.
"BUSINESS DAY" means
(a) any day which is neither a Saturday or Sunday nor a legal holiday
on which banks are authorized or required to be closed in New York, New York;
and
-5-
<PAGE> 13
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loan, any day which is a Business Day described in clause (a) above
and which is also a day on which dealings in Dollars are carried on in the
interbank eurodollar market of the Agent's LIBOR Office.
"CAN-AM" means Can-Am Care Corporation, a New York corporation.
"CAPITAL EXPENDITURES" means, for any period, the sum (without duplication) of
(a) the aggregate amount of all expenditures of the Borrower and its
Subsidiaries for fixed or capital assets or additions to equipment (including
replacements and capitalized repairs) made during such period which, in
accordance with GAAP, would be classified as capital expenditures; and
(b) the aggregate amount of all Capitalized Lease Liabilities payments
during such period.
"CAPITALIZED LEASE LIABILITIES" means all monetary obligations of the Borrower
or any of its Subsidiaries under any leasing or similar arrangement which, in
accordance with GAAP, would be classified as capitalized leases, and, for
purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one year after
the date of issuance, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than nine months from the date
of issuance and rated at least A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investors Service, Inc., which is issued by
(i) a corporation (other than an Affiliate of any Obligor)
organized under the laws of any state of the United States or of the District of
Columbia, or
(ii) any Lender or any Affiliate thereof;
(c) any certificate of deposit or bankers acceptance, maturing not more
than one year after such time, which is issued by a Lender or a commercial
banking institution that is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than
$1,000,000,000;
(d) any repurchase agreement entered into with any Lender (or other
commercial banking institution of the stature referred to in clause (c)) secured
by a fully perfected Lien in any obligation thereunder of the type described in
any of clauses (a) through (c), having a market value at the time such
repurchase agreement is entered into of not less than 100% of the repurchase
obligation thereunder of such Lender or other commercial banking institution; or
-6-
<PAGE> 14
(e) any mutual fund or pooled investment vehicle rate Aa or better by
Moody's Investors Service, Inc. or AA or better by Standard and Poor's Rating
Group that is managed or otherwise controlled by Chase or its Affiliates and
invests principally in the type of obligations described above.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response Compensation, and
Liability Information System from time to time.
"CHANGE IN CONTROL"
(a) the failure at any time of the Investor Group to own beneficially,
on or prior to March 31, 2001, at least 3.5% of the issued and outstanding
shares of the common stock of Holdings (whether voting or non-voting), on a
fully diluted basis; provided, that if any member of the Investor Group ceases
to be employed by both Holdings and the Borrower, such minimum percentage
requirement shall be reduced by a fraction (calculated as a percentage), the
numerator of which equals the number of shares of common stock of Holdings owned
by such member of the Investor Group and the denominator of which equals the
total number of issued and outstanding shares of common stock of Holdings, on a
fully diluted basis, in each case as of the date such member of the Investor
Group ceases to be so employed;
(b) the failure of Holdings at any time to own beneficially 100% of the
issued and outstanding shares of common stock of the Borrower (whether voting or
non-voting), on a fully diluted basis, such shares to be held free and clear of
all Liens (other than Liens in favor of the Agent); or
(c) the failure of the Borrower at any time to own beneficially 100% of
the issued and outstanding shares of common stock of any of its Subsidiaries
(whether voting or non-voting), on a fully diluted basis, such shares to be held
free and clear of all Liens (other than Liens in favor of the Agent);
(d) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), excluding the Investor Group, shall become, or obtain rights (whether by
means or warrants, options or otherwise) to become, the "beneficial owner" (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of more than 20% of the outstanding common stock of Holdings;
(e) the board of directors of Holdings shall cease to consist of a
majority of Continuing Directors;
(f) the failure of (i) Ron Zwanziger, at any time, (ii) Robert Oringer,
at any time on or prior to February 28, 2002, or (iii) with respect Kenneth D.
Legg, Richard A. Pinkowitz, Anthony H. Hall and Gary E. Long, more than one of
such Persons at any time, to be employed by both Holdings and the Borrower in
the same or comparable positions as to which each of them were employed on the
date of the initial Credit Extension, having substantially the same
responsibilities and spending at the Borrower in his capacity as an employee in
such same or comparable position no less than the percentage of his total work
time as provided in the Holdings' consolidated budget for its 1998 Fiscal Year;
provided, however, that the failure of either Ron Zwanziger or Robert Oringer to
be so employed shall not constitute a Change in Control if, within 120 days the
occurrence thereof, Ron Zwanziger or Robert Oringer, as the case may be, is
replaced by a Person that is reasonably satisfactory to the Agent; or
-7-
<PAGE> 15
(g) any change in control (or similar event, however denominated) with
respect to Holdings, the Borrower or any Subsidiary thereof shall occur under
and as defined in any of the Holdings' Subordinated Notes or any other
agreement, note or document to which Holdings, the Borrower or any Subsidiary
thereof is a party in respect of any Indebtedness in an aggregate principal
amount of $1,000,000 or more.
"CHASE" is defined in the preamble.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COLLATERAL" means the common stock of the Borrower and any assets of Holdings,
the Borrower or any of their Subsidiaries subject to a Lien pursuant to any Loan
Document.
"COMMITMENT" means, as the context may require, a Lender's Revolving Loan
Commitment, Term Loan Commitment or Letter of Credit Commitment.
"COMMITMENT AMOUNT" means, as the context may require, either the Revolving Loan
Commitment Amount or the Term Loan Commitment Amount.
"COMMITMENT TERMINATION DATE" means, as the context may require, either the
Revolving Loan Commitment Termination Date or the Term Loan Commitment
Termination Date.
"COMMITMENT TERMINATION EVENT" means
(a) the occurrence of any Default described in clauses (a) through (d)
of Section 8.1.9; or
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of the Loans to be due and payable
pursuant to Section 8.3, or
(ii) the giving of notice by the Agent, acting at the
direction of the Required Lenders, to the Borrower that the Commitments have
been terminated.
"COMMONLY CONTROLLED ENTITY" means an entity, whether or not incorporated, which
is under common control with Holdings or the Borrower within the meaning of
Section 4001 of ERISA or is a part of a group which includes Holdings or the
Borrower and which is created as a single employer under Section 414 of the
Code.
"COMPLIANCE CERTIFICATE" means a Compliance Certificate duly executed by the
chief financial Authorized Officer of the Borrower, substantially in the form of
Exhibit F-1 hereto or in such other form as may be acceptable to the Agent,
together with such changes thereto as the Agent may from time to time reasonably
request for the purpose of monitoring the Borrower's compliance with the
financial covenants contained herein.
"CONSOLIDATED DEBT" means the outstanding principal amount of all Indebtedness
of the Borrower and its Wholly-Owned Subsidiaries of the type referred to in
clause (a), (b) or (c) of the definition of
-8-
<PAGE> 16
"Indebtedness" and (without duplication) any Contingent Liability in respect of
any of the foregoing, it being understood and agreed that Consolidated Debt
shall include the Credit Extensions.
"CONTINGENT LIABILITY" means any agreement, undertaking or arrangement by which
any Person guarantees, endorses or otherwise becomes or is contingently liable
upon (by direct or indirect agreement, contingent or otherwise, to provide funds
for payment, to supply funds to, or otherwise to invest in, a debtor, or
otherwise to assure a creditor against loss) the indebtedness, obligation or any
other liability of any other Person (other than by endorsements of instruments
in the course of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person. The principal amount of any
Person's obligation under any Contingent Liability shall (subject to any
limitation set forth therein) be deemed to be the outstanding principal amount
(or maximum principal amount, if larger) of the debt, obligation or other
liability guaranteed thereby.
"CONTINUATION/CONVERSION NOTICE" means a Continuation/Conversion Notice duly
executed by an Authorized Officer of the Borrower, substantially in the form of
Exhibit C-2 hereto.
"CONTINUING DIRECTOR" means (a) any director of the board of directors of
Holdings on the date of the initial Credit Extension, (b) a director whose
nomination for election to the board of directors of Holdings is recommended by
at least 50% of the then Continuing Directors or (c) a director elected to the
board of directors of Holdings with the approval of the holders of at least 50%
of the voting common stock of Holdings held by members of the Investor Group.
"CREDIT EXTENSION" means, as the context may require,
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, or the extension of any
Stated Expiry Date of any existing Letter of Credit, by an Issuer.
"CREDIT EXTENSION REQUEST" means, as the context may require, any Borrowing
Request or Issuance Request.
"DEBT SERVICE COVERAGE RATIO" means, for any period, the ratio of
(a) Net Cash Flow for such period;
to
(b) Debt Service Expense for such period;
"DEBT SERVICE EXPENSE" means, with respect to any period, the aggregate of all
regularly scheduled principal payments (whether or not such scheduled payments
are actually paid) of Funded Debt.
"DEFAULT" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"DEFAULTING LENDER" shall mean any Lender with respect to which a Lender Default
is in effect.
-9-
<PAGE> 17
"DISBURSEMENT" is defined in Section 2.7.3.
"DISBURSEMENT DATE" is defined in Section 2.7.3.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached hereto as Schedule
I, as it may be amended, supplemented or otherwise modified from time to time by
the Borrower with the consent of the Agent and the Required Lenders.
"DOLLAR" and the symbol "$" mean lawful money of the United States.
"DOMESTIC OFFICE" means, relative to any Lender, the office of such Lender
designated as such on Schedule III hereto or designated in a Lender Assignment
Agreement, or such other office of a Lender (or any successor or assign of such
Lender) within the United States as may be designated from time to time by
notice from such Lender to the Borrower and the Agent.
"DOMESTIC SUBSIDIARY" means each Subsidiary of Holdings or the Borrower that is
organized under the laws of any State of the United States of America or the
District of Columbia.
"EBITDA" means, for any period, the sum, without duplication, for such period,
of
(a) Net Income during such period;
plus
(b) the amount deducted, in determining Net Income, of all dividends
paid by the Borrower to Holdings to the extent permitted in the proviso of
Section 7.2.6 during such period ;
plus
(c) Interest Expense during such period;
plus
(d) the amount deducted, in determining Net Income, representing
amortization, depreciation of assets and other non-cash items properly deducted
or subtracted (if properly added) in determining Net Income of the Borrower and
its Wholly-Owned Subsidiaries during such period.
"EFFECTIVE DATE" means the date this Agreement becomes effective pursuant to
Section 10.8.
"ELIGIBLE ACCOUNT" means, at any time of determination thereof, any Account of
the Borrower or Can-Am which the Agent, in its sole judgment, determines to be
eligible for the purpose of making Credit Extensions to the Borrower. In
addition, without limiting the Agent's discretion, no Account shall be as
Eligible Account unless each of the following requirements has been fulfilled to
the satisfaction of the Agent:
(a) the Borrower or Can-Am has lawful and absolute title to such
Account, free and clear of all Liens other than the Liens in favor of the Agent
for the benefit of the Lenders;
-10-
<PAGE> 18
(b) the Agent has a security interest in such Account, which security
interest is legal, valid, binding, perfected and first priority under the
U.C.C.; provided, however, that
(i) no Account as to which any United States federal or state
governmental agency or instrumentality is the Account Debtor may be an Eligible
Account, except to the extent the Borrower or Can-Am has complied with the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727; 41 U.S.C.
Section 15), by delivering to the Agent a notice of assignment in favor of the
Agent under such Act and in compliance with applicable provisions of 31 C.F.R.
Section 7-103.8 and 41 C.F.R. Section 1-30.7, or with similar state law; and
(ii) no Account as to which any other government or agency of
such government is the Account Debtor may be an Eligible Account;
(c) the Borrower or Can-Am has the full and unqualified right to assign
and grant a security interest in such Account to the Agent;
(d) such Account is payable in Dollars and, to the best knowledge of
the Borrower or Can-Am, is a legal, valid, binding and enforceable obligation of
the Person who is obligated under such Account (the "Account Debtor");
(e) such Account is not subject to any dispute, setoff, counterclaim or
other claim or defense on the part of the Account Debtor denying liability under
such Account, in whole or in part;
(f) such Account is evidenced by an invoice rendered to the Account
Debtor and evidences monetary obligations;
(g) such Account is a bona fide Account which arose in the ordinary
course of business, and with respect to which,
(i) in the case of an Account arising from the sale of goods,
such goods have been shipped or delivered to and not rejected by the Account
Debtor, such Account was created as a result of a sale on an absolute basis and
not on a consignment, approval or sale-and-return basis and all other actions
necessary to create a binding obligation on the part of the Account Debtor for
such Account have been taken, and
(ii) in the case of an Account relating to the sale of
services, such services have been performed or completed and accepted by the
Account Debtor and all other actions necessary to create a binding obligation on
the part of the Account Debtor have been taken;
(h) with respect to such Account, the Account Debtor is not
(i) an Affiliate, Subsidiary, officer, director or employee of
Holdings or any of its Subsidiaries (including the Borrower or Can-Am);
(ii) located in a jurisdiction other than the United States;
(iii) a domestic or foreign government or any agency,
department or instrumentality thereof (except to the extent clause (b) is
complied with); or
-11-
<PAGE> 19
(iv) the subject of any reorganization, bankruptcy,
receivership, custodianship or insolvency or any other condition of the type
described in clauses (a) through (d) of Section 8.1.9;
(i) all or any part of such Account is not outstanding more than 90
days past the original invoice date with respect thereto;
(j) such Account is not an Account owing by an Account Debtor (i) more
than 20% of the Accounts of which are more than 90 days past the original
invoice date therefor or (ii) whose Accounts comprise more than 20% of the
aggregate Accounts owing to the Borrower or Can-Am;
(k) payment with respect to such Account, if by check, has not been
returned for insufficient funds;
(l) such Account has not been placed with a lawyer or other agent for
collection;
(m) neither the Borrower, Can-Am nor any of their Subsidiaries is
indebted to such Account Debtor, unless the Borrower, Can-Am and the relevant
Subsidiary, on the one hand, and such Account Debtor, on the other hand, have
entered into an agreement whereby the Account Debtor is prohibited from
exercising any right of setoff with respect to the Accounts of the Borrower or
Can-Am;
(n) neither the Borrower nor Can-Am has not made any agreement with the
Account Debtor of such Account for any deduction therefrom, except a discount or
allowance allowed by the Borrower or Can-Am in the ordinary course of its
business;
(o) such Account complies with all material requirements of all
applicable laws, rules and regulations;
(p) such Account is not with respect to an Account Debtor located in
New Jersey, Minnesota or another State denying creditors access to its courts in
the absence of a Notice of Business Activities Report or other similar filing,
unless the Borrower or Can-Am, as the case may be, is duly qualified as a
foreign corporation in each such State or has duly filed and has a currently
effective Notice of Business Activities Report or other similar filing;
(q) to the best of the Borrower's or Can-Am's knowledge, there are no
facts, events or occurrences which in any material respect may impair the
validity or enforceability of such Account or may reduce materially the amount
payable thereunder as shown on the Borrower's or Can-Am's books and records; and
(r) neither the Borrower nor Can-Am has knowledge of any fact or
circumstance which could reasonably be expected to impair materially the
validity or collectibility of such Account or render it ineligible under the
criteria set forth in clauses (a) through (q) above.
"ELIGIBLE INVENTORY" means, at any time of determination thereof, any Inventory
of the Borrower or Can-Am which the Agent, in its sole judgment, determines to
be eligible for the purpose of making Credit Extensions to the Borrower. In
addition, without limiting the Agent's discretion, no Inventory shall be
Eligible Inventory unless it arose in the ordinary course of business of the
Borrower or Can-Am and each of the following requirements has been fulfilled to
the satisfaction of the Agent:
-12-
<PAGE> 20
(a) such Inventory is located in the United States on real property
that is either (i) owned by the Borrower or Can-Am, free and clear of any Liens
other than of the nature referred to in clauses (a) or (h) of Section 7.2.3 or
(ii) located in or with, as the case may be, a public warehouse or third party
described in Item 6.13(a) ("Inventory Location") of the Disclosure Schedule
attached hereto (provided that the Borrower or Can-Am shall have delivered to
the Agent or landlord or bailee waiver, as applicable, as required by in clause
(a) of Section 6.13);
(b) the Borrower or Can-Am has full and unqualified right to assign and
grant a Lien in such Inventory to the Agent for the benefit of the Lenders;
(c) the Borrower or Can-Am has full and lawful title to such Inventory,
free and clear of all Liens, other than any Liens in favor of the Agent for the
benefit of the Lenders;
(d) the Agent has a security interest in such Inventory, which security
interest is legal, valid, binding, perfected and first priority under the
U.C.C.;
(e) none of such Inventory shall consist of
(i) items in the custody of third parties (other than the
Borrower or Can-Am) for processing or manufacture (except that up to $500,000 of
such Inventory may be held by manufacturers for processing if each such
manufacturer shall have delivered a bailee waiver as required by clause (a) of
Section 6.13);
(ii) items in the Borrower's or Can-Am's possession but
intended by the Borrower or Can-Am for return to the suppliers thereof;
(iii) items belonging to third parties (other than the
Borrower or Can-Am) that have been consigned to the Borrower or Can-Am or are
otherwise in the Borrower's or Can-Am's custody or possession; or
(iv) items in the Borrower's or Can-Am's custody and
possession on a sale-on-approval or sale-or-return basis or subject to any other
repurchase or return agreement;
(f) none of such Inventory is
(i) obsolete, unsalable, damaged or otherwise unfit for sale
or further processing in the ordinary course of the Borrower's or Can-Am's
business; or
(ii) a work in process.
"ENVIRONMENTAL CONSULTANT" is defined in clause (b) of Section 7.1.6.
"ENVIRONMENTAL LAWS" means all applicable federal, state or local statutes,
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment, preservation or reclamation of natural resources,
the Release of any Hazardous Material or to health and safety matters, including
CERCLA, the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. Sections 1251
et seq., the Clean Air Act of 1970, 42 U.S.C. Sections 7401 et seq., the Toxic
Substances
-13-
<PAGE> 21
Control Act of 1976, 15 U.S.C. Sections 2601 et seq., the Occupational Safety
and Health Act of 1970, as amended, 29 U.S.C., Sections 651 et seq., the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections
11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C.
Sections 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 5101 et seq., and any similar implementing state or local law, and all
amendments or regulations promulgated under any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA also refer to any successor sections.
"ESCROW ACCOUNT" means the escrow account maintained pursuant to the Escrow
Agreement.
"ESCROW AGREEMENT" means the Escrow Agreement executed and delivered pursuant to
Section 5.1.21, substantially in the form of Exhibit N hereto, as amended,
supplemented, restated and otherwise modified from time to time.
"EVENT OF DEFAULT" is defined in Section 8.1.
"EXCESS CASH FLOW" means, for any Fiscal Year of the Borrower, the sum for such
Fiscal Year of:
(a) Net Cash Flow;
minus
(b) all prepayments and repayments of Funded Debt (including the Term
Loans pursuant to Section 3.1.1 and clauses (b) and (d) of Section 3.1.2);
"EXCLUDED FOREIGN SUBSIDIARIES" means any Foreign Subsidiary the pledge of all
or any part of whose capital stock or other property or assets as Collateral, or
the guaranty of the Obligations by, would result in material adverse tax
consequences to Holdings or the Borrower, provided that for purposes of this
definition (a) the term "Foreign Subsidiary" shall not include any Subsidiary
(i) which is properly treated as a partnership or branch of Holdings or the
Borrower or a Domestic Subsidiary for United States federal income tax purposes
and (ii) the pledge of all of any part of whose capital stock or other property
or assets as Collateral, or the guaranty of the Obligations by, would not result
in material adverse tax consequences to Holdings or the Borrower and (b) any
determination as to whether a Subsidiary is an Excluded Foreign Subsidiary shall
be approved by the Agent.
"FEE LETTER" means the confidential fee letter, dated as of the date hereof,
from Chase, addressed to, and agreed and accepted by, the Borrower.
"FEDERAL FUNDS EFFECTIVE RATE" is defined in the definition of Alternate Base
Rate.
"FISCAL MONTH" means any month of a Fiscal Year.
"FISCAL QUARTER" means any quarter of a Fiscal Year.
-14-
<PAGE> 22
"FISCAL YEAR" means any period of twelve consecutive calendar months ending on
December 31. References to a Fiscal Year with a number corresponding to any
calendar year (e.g., "Fiscal Year 1998") refer to the Fiscal Year ending during
such calendar year.
"F.R.S. BOARD" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"FOREIGN SUBSIDIARY" means each Subsidiary of Holdings or the Borrower that is
not a Domestic Subsidiary.
"FUNDED DEBT" means Consolidated Debt which
(a) matures more than one year from the date of creation;
(b) matures within one year from the date of creation but is renewable
or extendible, at the sole option of the Borrower or any of its Wholly-Owned
Subsidiaries, to a date more than one year from such date; or
(c) arises under a revolving credit or similar agreement which
obligates the lender or lenders thereof to extend such Indebtedness for a period
of more than one year from such date, including, without limitation, all current
maturities and current sinking fund payments in respect of such Indebtedness
whether or not required to be paid within one year from the date of its creation
and, in the case of the Borrower, Indebtedness in respect of the Loans.
"GAAP" is defined in Section 1.4.
"HAZARDOUS MATERIAL" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation and
Recovery Act;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any applicable federal,
state or local law, regulation, ordinance or requirement (including consent
decrees and administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous waste,
substance or material, all as amended or hereafter amended.
"HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities of such
Person under any Rate Protection Agreement.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms contained in this
Agreement or any other Loan Document refer to this Agreement or such other Loan
Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"HOLDINGS" is defined in the preamble.
-15-
<PAGE> 23
"HOLDINGS' COMPLIANCE CERTIFICATE" means a Compliance Certificate duly executed
by the chief financial Authorized Officer of Holdings, substantially in the form
of Exhibit F-2 hereto or in such other form as may be acceptable to the Agent.
"HOLDINGS' CONSOLIDATED DEBT" means the outstanding principal amount of all
Indebtedness of Holdings and its Subsidiaries (other than the Borrower and its
Wholly-Owned Subsidiaries) of the type referred to in clauses (a), (b) or (c) of
the definition of "Indebtedness" and (without duplication) any Contingent
Liability in respect of the foregoing.
"HOLDINGS' CONSOLIDATED DEBT TO HOLDINGS' TOTAL CAPITAL RATIO" means, as of any
date of determination, the ratio of:
(a) Holdings' Consolidated Debt as of such date;
to
(b) (i) Holdings' Consolidated Debt as of such date;
plus
(ii) Holdings' Stockholders' Equity as of such date.
"HOLDINGS' EQUITY DOCUMENTS" means collectively the agreements identified in
Item 1.1 ("Holdings' Equity Documents") of the Disclosure Schedule, as each such
agreement referred to therein is amended, supplemented, restated or otherwise
modified from time to time in accordance with Section 7.2.11.
"HOLDINGS' FUNDED DEBT" means Holdings Consolidated Debt which
(a) matures more than one year from the date of creation;
(b) matures within one year from the date of creation but is renewable
or extendible, at the sole option of Holdings or any of its Subsidiaries (other
than the Borrower and its Wholly-Owned Subsidiaries), to a date more than one
year from such date; or
(c) arises under a revolving credit or similar agreement which
obligates the lender or lenders thereof to extend such Indebtedness during a
period of more than one year from such date, including, without limitation, all
current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation.
"HOLDINGS' STOCKHOLDERS' EQUITY" means, as of any date:
(a) the sum of all the assets of Holdings and its Subsidiaries (other
than the Borrower and its Wholly-Owned Subsidiaries);
minus
(b) the sum of all the liabilities of Holdings and its Subsidiaries
(other than the Borrower and its Wholly-Owned Subsidiaries).
-16-
<PAGE> 24
"HOLDINGS' SUBORDINATED NOTES" means collectively (a) each Non-Negotiable
Promissory Note, dated February 18, 1998, of Holdings and issued to each Seller
pursuant to the Purchase Agreement in the aggregate original principal amount of
$2,000,000, (b) each Subordinated Revenue Royalty Note, dated June 3, 1997, June
30, 1997 and July 30, 1997 of Holdings and issued pursuant to various
subscription agreements with the parties named therein in the aggregate original
principal amount of $7,500,000 and (c) each Senior Subordinated Convertible
Note, dated October 27, 1997, of Holdings and issued to Elliott Associates, L.P.
and Westgate International, L.P., as amended, supplemented, restated or
otherwise modified from time to time in accordance with Section 7.2.11.
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion or certification of
any independent public accountant as to any financial statement of any Obligor,
any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would require
an adjustment to such item the effect of which would be to cause such Obligor to
be in default of any of its obligations under Section 7.2.4.
"INCLUDING" means including without limiting the generality of any description
preceding such term, and, for purposes of this Agreement and each other Loan
Document, the parties hereto agree that the rule of contract interpretation to
the effect that where general words are followed by a specific listing of items,
the general words shall be given their widest meaning and shall not be limited
by an enumeration of specific matters.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money, including all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments (including, with respect to Holdings, the Holdings'
Subordinated Notes and, with respect to the Borrower, the Borrower Subordinated
Notes);
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's acceptances
issued for the account of such Person;
(c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities;
(d) net liabilities of such Person with respect to each Hedging
Obligation;
(e) whether or not so included as liabilities in accordance with GAAP,
all obligations of such Person to pay the deferred purchase price of property or
services, and indebtedness (excluding prepaid interest thereon) secured by a
Lien on property owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements), whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse;
-17-
<PAGE> 25
(f) all obligations of such Person to purchase, redeem, retire or
otherwise acquire for value any capital stock (other than common stock) of such
Person;
(g) the liquidation value of any preferred capital stock of such Person
or its Subsidiaries held by any Person other than such Person and its
Wholly-Owned Subsidiaries; and
(h) all Contingent Liabilities of such Person in respect of any of the
foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer.
"INDEMNIFIED LIABILITIES" is defined in Section 10.4.
"INDEMNIFIED PARTIES" is defined in Section 10.4.
"INDEPENDENT DIRECTOR" is defined in clause (a) of Section 7.1.11.
"INTELLECTUAL PROPERTY COLLATERAL" has the meaning provided for such term in the
Security Agreement.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of:
(a) (i) EBITDA for such period,
less
(ii) the aggregate amount of Capital Expenditures incurred by
the Borrower and its Wholly-Owned Subsidiaries during such period in accordance
with Section 7.2.7;
to
(b) Interest Expense paid in cash for such period.
"INTEREST EXPENSE" means, for any period, the aggregate consolidated interest
expense of the Borrower and its Wholly-Owned Subsidiaries for such period, as
determined in accordance with GAAP, including, without duplication, the portion
of any Capitalized Lease Liabilities allocable to interest expense, all
commissions, discounts and other fees charged with respect to letters of credit
and bankers' acceptance financing, the amortization of debt discounts and the
net costs under Rate Protection Agreements, in each case paid or payable during
such period.
"INTEREST PERIOD" means, relative to any LIBO Rate Loan, the period beginning on
(and including) the date on which such LIBO Rate Loan is made or continued as,
or converted into, a LIBO Rate Loan pursuant to Section 2.4 or 2.5 and shall end
on (but exclude) the day which numerically corresponds to such date one, three
or six months thereafter, as the Borrower may select in its relevant notice
pursuant to Section 2.4 or 2.5; provided, however, that
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more than
four different dates;
-18-
<PAGE> 26
(b) if such Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next following Business Day
(unless such next following Business Day is the first Business Day of a calendar
week or month, as the case may be, in which case such Interest Period shall end
on the Business Day next preceding such numerically corresponding day);
(c) if there is no numerically corresponding day in such month, such
Interest Period shall end on the last Business Day of such month;
(d) the Borrower shall not be permitted to select, and there shall not
be applicable, any Interest Period that would be broken by reason of a mandatory
payment of Term Loans required pursuant to Section 3.1.2(b) or any Interest
Period for any Loan which would end later than the Stated Maturity Date for such
Loan; and
(e) prior to the Syndication Date, no Interest Period shall be in
excess of one month and on the Syndication Date the Interest Period for each
LIBO Rate Loan then outstanding shall be redetermined based upon the Interest
Period selected by the Borrower and communicated to the Agent as herein
provided.
"INVENTORY" means any "inventory" (as defined in Section 9-109(4) of the U.C.C.)
of any Person.
"INVERNESS" means Inverness Medical Limited, a corporation organized under the
laws of Scotland.
"INVESTOR GROUP" means collectively Ron Zwanziger, Kenneth D. Legg, Richard A.
Pinkowitz, Anthony H. Hall and Robert Oringer.
"INVESTMENT" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business);
(b) any Contingent Liability of such Person incurred in connection with
loans or advances described in clause (a); and
(c) any ownership or similar interest held by such Person in any other
Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"ISSUANCE REQUEST" means an Issuance Request, duly executed by an Authorized
Officer of the Borrower, in substantially the form of Exhibit D hereto.
"ISSUER" means Chase in its capacity as issuer of the Letters of Credit. At the
request of Chase, another Lender or an Affiliate of Chase may issue one or more
Letters of Credit hereunder.
"LENDER ASSIGNMENT AGREEMENT" means each Lender Assignment agreement in
substantially the form of Exhibit M hereto.
-19-
<PAGE> 27
"LENDER DEFAULT" shall mean (a) the refusal (which has not been retracted) of a
Lender to make available its portion of any Credit Extension or (b) a Lender
having notified in writing the Borrower and/or the Agent that it does not intend
to comply with its obligations under Section 2.1 or 2.2, in either case as a
result of any takeover of such Lender by any regulatory authority or agency.
"LENDERS" is defined in the preamble.
"LETTER OF CREDIT" is defined in clause (a) of Section 2.1.3.
"LETTER OF CREDIT OUTSTANDINGS" means, on any date, an amount equal to the sum
of
(a) the then aggregate amount which is undrawn and available under all
issued and outstanding Letters of Credit;
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"LEVERAGE RATIO" means, for any period, the ratio of :
(a) Senior Funded Debt as of the last day of such period;
to
(b) Net Cash Flow for such period.
"LIBO RATE" is defined in Section 3.2.1.
"LIBO RATE LOAN" means a Loan bearing interest, at all times during an Interest
Period applicable to such Loan, at a fixed rate of interest determined by
reference to the LIBO Rate (Reserve Adjusted).
"LIBO RATE (RESERVE ADJUSTED)" is defined in Section 3.2.1.
"LIBOR OFFICE" means, relative to any Lender, the office of such Lender
designated as such on Schedule III hereto or designated in a Lender Assignment
Agreement, or such other office of a Lender that is designated from time to time
by notice from such Lender to the Borrower and the Agent, whether or not outside
the United States, which shall be making or maintaining LIBO Rate Loans of such
Lender hereunder.
"LIBOR RESERVE PERCENTAGE" is defined in Section 3.2.1.
"LIEN" means any security interest, mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), charge against
or interest in property to secure payment of a debt or performance of an
obligation or other priority or preferential arrangement of any kind or nature
whatsoever.
"LOAN" means, as the context may require, either a Revolving Loan or a Term
Loan.
-20-
<PAGE> 28
"LOAN DOCUMENT" means this Agreement, the Notes, the Letters of Credit, the Fee
Letter, the Security Agreement, the Pledge Agreement, the Subsidiary Guaranty,
the Escrow Agreement, any Rate Protection Agreement with a Lender, each Lender
Assignment Agreement and each other instrument or document executed and
delivered pursuant to or in connection with this Agreement and the other Loan
Documents.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (i) the
business, assets, operations, properties, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole, (ii) the
ability of Holdings, the Borrower, or any other Obligor to perform or pay the
Obligations in accordance with the terms hereof or of any other Loan Document,
(iii) the Agent's security interest on any material portion of the Collateral or
the priority of such security interest or (iv) the validity or enforceability of
this Agreement or any of the other Loan Documents.
"MATERIAL ENVIRONMENTAL AMOUNT" means an amount payable by Holdings, the
Borrower or any of their Subsidiaries in excess of (a) $250,000, in the case of
the Borrower and its Wholly-Owned Subsidiaries, and (b) $1,000,000, in the case
of Holdings and its Subsidiaries (other than the Borrower and its Wholly-Owned
Subsidiaries), for remedial costs, compliance costs, compensatory damages,
punitive damages, fines, penalties or any combination thereof, in each case with
respect to Environmental Laws.
"MULTIEMPLOYER PLAN" means a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"MEMORANDUM" means the Selfcare Acquisition Corporation Information Memorandum,
dated October 22, 1997.
"NET CASH FLOW" means (without duplication), for any period
(a) (i) Net Income during such period;
plus
(ii) the amount deducted, in determining Net Income,
representing amortization and depreciation of assets of the Borrower and its
Wholly-Owned Subsidiaries during such period;
plus
(iii) the amount deducted, in determining Net Income, with
respect to all non-cash items during such period;
plus
(iv) the change (expressed as a positive number, in the event
of an increase, or a negative number, in the event of a decrease) in deferred
tax liabilities during such period;
plus
(v) the change (expressed as a negative number, in the event
of an increase, or a positive number, in the event of decrease) in deferred
taxes assets during such period;
-21-
<PAGE> 29
minus
(b) (i) the aggregate amount of Capital Expenditures incurred by
the Borrower and its Wholly-Owned Subsidiaries in accordance with Section 7.2.7
during such period;
plus
(ii) the amount added, in determining Net Income, with respect
to all non-cash items during such period.
"NET DEBT PROCEEDS" means, in the case of the issuance, placement or sale of any
Indebtedness of the type referred to in clause (a) of the definition thereof
(excluding, in the case of the Borrower and it Wholly-Owned Subsidiaries, the
Indebtedness permitted to be outstanding pursuant to Section 7.2.2 and, in the
case of Holdings and its Subsidiaries (other than the Borrower and it
Wholly-Owned Subsidiaries), intercompany Indebtedness of the nature referred to
in the last sentence of Section 7.2.2 and the refinancing of any Holdings'
Subordinated Note, provided that (i) the Agent has determined that (w) the
interest rate of the refinanced Indebtedness is lower than the interest rate on
the Indebtedness being refinanced, (x) the subordination provisions contained in
the refinanced Indebtedness are no less favorable in any respect to the Agent
and the Lenders than the subordination provisions contained in the Indebtedness
being refinanced, (y) none of the other terms in such refinanced Indebtedness
(including with respect to sinking funds, redemptions, fees, covenants and
defaults) are more restrictive to Holdings or less advantageous to the Agent and
the Lenders and (ii) no Default or Event of Default has occurred or is
continuing immediately prior to or after giving effect to any such refinancing;
provided, further, however, that to the extent the principal amount of the
refinanced Indebtedness exceeds the outstanding principal amount of the
Indebtedness being so refinanced immediately prior to the consummation of such
refinancing, such excess amount shall constitute Net Debt Proceeds), the sum of
(a) the gross cash proceeds received by Holdings, the Borrower or any
of their Subsidiaries, as the case may be, from such issuance, placement or sale
of permitted Indebtedness (including any cash payments received by way of
deferred payment of principal pursuant to a permitted promissory note or
installment receivable or otherwise, but only as and when received);
minus
(b) in connection with the issuance, placement or sale of such
permitted Indebtedness, all reasonable and customary fees and expenses and
underwriters' discounts and commissions actually paid by Holdings, the Borrower
or any of their Subsidiaries to Persons other than Holdings, the Borrower, any
of their Subsidiaries or any of their Affiliates.
"NET DISPOSITION PROCEEDS" means the sum of
(a) the gross cash proceeds received by Holdings, the Borrower or any
of their Subsidiaries, as the case may be, from any Permitted Disposition (other
than proceeds from any sale of inventory of Holdings, the Borrower or any of
their Subsidiaries in the ordinary course of their business), including any cash
payments received by way of a deferred payment of principal pursuant to a
permitted note or installment receivable or otherwise (including the sale of any
non-cash consideration received by Holdings or any of its Subsidiaries as
provided in the definition of "Permitted Disposition), but only when and as
received;
-22-
<PAGE> 30
minus
(b) (i) all reasonable and customary fees and expenses with respect to
legal, investment banking, brokerage, accounting and other professional fees
actually incurred by Holdings, the Borrower and their Subsidiaries in connection
with such Permitted Disposition which have not been paid to Holdings, the
Borrower, any of their Subsidiaries or any of their Affiliates and (ii) all
taxes actually paid or estimated by Holdings, the Borrower or any of their
Subsidiaries (in good faith) to be payable in cash in connection with such
Permitted Disposition; provided, however, that if, after the payment of all
taxes with respect to such Permitted Disposition, the amount of estimated taxes,
if any, pursuant to clause (ii) above exceeded the amount actually paid in cash
in respect of such Permitted Disposition, the aggregate amount of such excess
shall be immediately payable, pursuant to clause (c) of Section 3.1.2, as Net
Disposition Proceeds.
"NET INCOME" means, for any period, the sum of (a) all amounts (exclusive of all
amounts in respect of any extraordinary gains or losses) which, in accordance
with GAAP, would be included as net income on the consolidated statements of
income of the Borrower and its Wholly-Owned Subsidiaries at such time, minus (b)
the aggregate amount of dividends paid by the Borrower to Holdings during such
period to the extent permitted in the proviso of Section 7.2.6.
"NET INSURANCE PROCEEDS" means the insurance proceeds received by the Agent
pursuant to clause (d) of Section 7.1.4 and constituting "Net Insurance
Proceeds" as therein provided.
"NET SECURITIES PROCEEDS" means, in the case of the issuance, placement or sale
of equity securities or any obligations convertible into or exchangeable for, or
giving any Person a right, option or warrant to acquire such securities or such
convertible or exchangeable obligations (in each case whether pursuant to a
public or private offering), from and after the Effective Date, the sum of
(a) the gross cash proceeds received by Holdings, the Borrower or any
of their Subsidiaries, as the case may be, from such issuance, placement or sale
of equity securities or other obligations (including any cash payments received
by way of deferred payment of principal pursuant to a permitted promissory note
or installment receivable or otherwise, but only as and when received);
minus
(b) in connection with such issuance, placement or sale of such equity
securities, all reasonable and customary fees and expenses and underwriters'
discounts and commissions actually paid by Holdings, the Borrower or any of
their Subsidiaries to Persons other than Holdings, the Borrower, any of their
Subsidiaries or any of their Affiliates.
"NET TRANSACTION PROCEEDS" means the gross payments (whether in the form of
common stock of Holdings, cash or otherwise) received by Holdings or the
Borrower pursuant to the Purchase Agreement (including any payments received by
way of any adjustment to the purchase price provided for therein, but only when
and as received), minus the payments (whether in the form of common stock of
Holdings, cash or otherwise) paid by Holdings or the Borrower to the Sellers
pursuant to the Purchase Agreement, in each case as a result of purchase price
adjustments or indemnity payments thereunder; provided, that any Net Transaction
Proceeds that (a) is not in the form of cash and (b) if not converted into cash
would affect adversely the ability of the Borrower or Holdings to comply with
the applicable financial covenants contained in Section 7.2.4, the Borrower or
Holdings, as the case may be, shall promptly convert such
-23-
<PAGE> 31
non-cash Net Transaction Proceeds into cash on terms satisfactory to the Agent;
provided, however, that any Net Transaction Proceeds that is not in the form of
cash shall be held by the Agent as additional Collateral pursuant to the
Security Agreement.
"NON-DEFAULTING LENDER" shall mean each Lender other than a Defaulting Lender.
"NON-U.S. LENDER" is defined in Section 4.6.
"NOTE" means, as the context may require, either a Revolving Note or a Term
Note.
"OBLIGATIONS" means all obligations (monetary or otherwise) of Holdings, the
Borrower and each other Obligor arising under or in connection with this
Agreement, the Notes and each other Loan Document, including principal, interest
(including post-default interest and interest accruing after the commencement of
any bankruptcy, insolvency or similar proceeding referred to in Section 8.1.9,
whether or not a claim for post-filing or post-petition interest is allowed in
any such proceeding), reimbursement obligations, fees, indemnities, costs and
expenses (including the fees and disbursements of counsel to the Agent and each
Lender required to be paid by the Borrower) that are owing under this Agreement
and the other Loan Documents, in each case whether now existing or hereafter
incurred, direct or indirect, absolute or contingent, and due or to become due.
"OBLIGOR" means Holdings, the Borrower or any other Person (other than the
Agent, any Issuer, or any Lender) obligated under any Loan Document.
"OPERATIONAL AGREEMENTS" means collectively (a) the Exclusive Distribution
Agreement, dated October 2, 1994, between Sherwood Medical Company and Can-Am,
as amended by amendments one through four thereto, (b) the Management Services
Agreement, dated as of the date hereof, between Can-Am and AMG, (c) the Supply
Agreement, dated as of the date hereof, between Can-Am and AMG and (d) the
Manufacturing and Marketing Agreement, dated March 31, 1992, among P.J. Noyes
Company, Inc., Can-Am and AMG, as each of the foregoing may be amended,
supplemented, restated or otherwise modified from time to time in accordance
with Section 7.2.11.
"ORGANIC DOCUMENT" means, relative to any Obligor, its articles of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock, as amended, supplemented, restated or otherwise modified from time to
time in accordance with Section 7.2.11.
"PARTICIPANT" is defined in Section 10.11.2.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding
to any or all of its functions under ERISA.
"PENSION PLAN" means any employee benefit plan which is covered by ERISA and in
respect of which Holdings, the Borrower or a Commonly Controlled Entity is (or,
if such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PERCENTAGE" means, relative to any Lender, the percentage set forth opposite
the name of such Lender on Schedule II hereto or set forth in a duly executed
Lender Assignment Agreement, as such percentage
-24-
<PAGE> 32
may be adjusted from time to time pursuant to each Lender Assignment Agreement
executed and delivered by such Lender and its Assignee Lender pursuant to
Section 10.11.
"PERMITTED DISPOSITION" means any sale, lease, transfer or other disposition of
assets (including without limitation capital stock and receivables) of Holdings,
the Borrower or any of their Subsidiaries not otherwise permitted by clause (a)
or (c) of Section 7.2.10, provided that (a) the Borrower and each of its
Wholly-Owned Subsidiaries shall receive only cash consideration therefor, (b)
the aggregate fair market value of all such dispositions shall not exceed, in
the case of the Borrower and its Wholly-Owned Subsidiaries, $150,000 in any
Fiscal Year of the Borrower, (c) Holdings, the Borrower and each of their
Subsidiaries shall have received fair value therefor (d) both immediately before
and after giving effect to each such disposition no Default or Event of Default
shall have occurred and be continuing and (e) if Holdings or any of its
Subsidiaries receives non-cash consideration, such consideration shall be
subject to a valid, first priority security interest in favor of the Agent
pursuant to the Security Agreement or the Pledge Agreement, as the case may be,
and Holdings and each such Subsidiary shall have taken all actions reasonably
requested by the Agent to perfect its security interest in the same..
"PERMITTED ENCUMBRANCES" means Liens permitted under Section 7.2.3.
"PERMITTED BORROWER SUBORDINATED DEBT" means the Borrower Subordinated Notes and
all other Indebtedness of the Borrower that is subordinated in right of payment
to the Obligations on terms in form and substance satisfactory to the Agent.
"PERSON" means any natural person, corporation, partnership, firm, association,
trust, government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"PLAN" means any Pension Plan or Welfare Plan.
"PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered pursuant to
Section 5.1.11, substantially in the form of Exhibit G hereto, as the same may
be amended, supplemented, amended and restated or otherwise modified from time
to time.
"PRIME RATE" is defined in the definition of Alternate Base Rate.
"PURCHASE AGREEMENT" means the Stock Purchase Agreement, dated as of the date
hereof, among the Borrower, Holdings, Can-Am and the Sellers, together with all
agreements annexed thereto or required to be delivered thereunder, as amended,
supplemented, restated or otherwise modified from time to time in accordance
with Section 7.2.11.
"QUARTERLY PAYMENT DATE" means the last day of each March, June, September and
December or, if any such day is not a Business Day, the next succeeding Business
Day.
"RATE PROTECTION AGREEMENT" means any interest rate cap agreement, interest rate
collar agreement or similar arrangement designed to protect a Person against
fluctuations in interest rates.
"REIMBURSEMENT OBLIGATION" is defined in Section 2.7.4.
"RELEASE" means a "release" or "threatened release" as such terms are defined in
CERCLA.
-25-
<PAGE> 33
"REPORTABLE EVENT" means any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg Section 2615.
"REQUIRED LENDERS" means, at the time any determination thereof is to be made,
Non-Defaulting Lenders holding more than 66 2/3% of the then aggregate unpaid
principal amount of the Notes and Letter of Credit Outstandings (excluding the
aggregate unpaid principal amount of Notes and Letter of Credit Outstandings
held by Defaulting Lenders) or, if no such principal amount or Letter of Credit
Outstandings are outstanding, Non-Defaulting Lenders having an aggregate
Adjusted Percentage of more than 66 2/3% of the Adjusted Total Commitment
Amount.
"RESOURCE CONSERVATION AND RECOVERY ACT" means collectively the Resource
Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste
Amendments of 1984, as amended, 42 U.S.C. Sections 6901, et seq., as in
effect from time to time.
"REVOLVING LOAN" is defined in Section 2.1.2.
"REVOLVING LOAN COMMITMENT" means, relative to any Lender, such Lender's
obligation to make Revolving Loans pursuant to Section 2.1.2.
"REVOLVING LOAN COMMITMENT AMOUNT" means, on any date, $5,000,000, as such
amount is reduced from time to time pursuant to Section 2.3.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) February 18, 2002;
(b) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to Section 2.3; and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in clause (b) or (c), the Revolving
Loan Commitments shall terminate automatically and without any further action.
"REVOLVING NOTE" means a promissory note of the Borrower payable to any Lender,
in the form of Exhibit A hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from outstanding Revolving
Loans, and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"ROLLING PERIOD" means, as of any date of calculation, the immediately preceding
four Fiscal Quarters, provided, however, that prior to the first four Fiscal
Quarters following the date of the initial Credit Extension, (a) the Rolling
Period as of any date of calculation of the Senior Funded Debt to EBITDA Ratio
shall be based upon the number of full Fiscal Quarters since the date of the
initial Credit Extension, with such results to be annualized, and (b) the
Rolling Period with respect to any calculation pursuant to Section 7.2.4 shall
be based solely upon the actual number of full Fiscal Quarters since the date of
the initial Credit Extension.
-26-
<PAGE> 34
"SECURITY AGREEMENT" means the Security Agreement executed and delivered
pursuant to Section 5.1.13, substantially in the form of Exhibit H hereto,
together with the Security Agreement (Trademark), Security Agreement (Patent)
and Security Agreement (Copyright) related thereto, in each case as amended,
supplemented, restated or otherwise modified from time to time.
"SELLERS" mean collectively Allan M. Goldenberg, Benjamin Topor, Robert Oringer
and the Cover Family Trust.
"SENIOR FUNDED DEBT" means Funded Debt less Permitted Borrower Subordinated
Debt.
"SENIOR FUNDED DEBT TO EBITDA RATIO" means, for any period, the ratio of:
(a) Senior Funded Debt as of the last day of such period;
to
(b) EBITDA for the Rolling Period ending as of the last day of such
period.
"SINGLE EMPLOYER PLAN" means any Pension Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"SOLVENT" means, when used with respect to any Person, that, as of any date of
determination, (a) the fair value of the assets of such Person, at a fair
valuation, will, as of such date, exceed the amount of all liabilities of such
Person, contingent or otherwise, as of such date, (b) the fair value of the
tangible and intangible assets of such Person, at a fair valuation, will, as of
such date, be greater than the amount the will be required to pay the liability
of such Person on its debts as such debts become absolute and matured, (c) such
Person will not have, as of such date, an unreasonably small amount of capital
with which to conduct its business, and (d) such Person will be able to pay its
debts as they mature. For purposes of this definition, (i) "debt" means
liability on a "claim," (ii) "claim" means any (x) right to payment, whether or
not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured, and (iii) all liabilities
with respect to any litigation shall be determined based upon the reasonably
anticipated liabilities with respect to such litigation after considering all
the relevant facts.
"STATED AMOUNT" of each Letter of Credit means the total amount available to be
drawn under such Letter of Credit upon the issuance thereof.
"STATED EXPIRY DATE" is defined in Section 2.7.1.
"STATED MATURITY DATE" means (a) with respect to the Revolving Loans, February
18, 2002, and (b) with respect to the Term Loans, December 31, 2003.
"STATUTORY RESERVES" is defined in the definition of Alternate Base Rate.
"SUBORDINATION PROVISIONS" is defined in Section 8.1.11.
-27-
<PAGE> 35
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person or by
one or more Subsidiaries of such Person, or (b) any partnership, joint venture,
or other entity as to which such Person or one or more Subsidiaries owns more
than a 50% ownership, equity or similar interest or has power to direct or cause
the direction of management and policies, or the power to elect the managing
partner (or the equivalent), of such partnership, joint venture or other entity,
as the case may be.
"SUBSIDIARY GUARANTY" means the Guaranty (Subsidiary) executed and delivered
pursuant to clause (c) of Section 5.1.10, substantially in the form of Exhibit J
hereto, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time.
"SYNDICATION DATE" means the earlier of (a) the date which is 180 days following
the date of the initial Credit Extension and (b) the date on which the Agent
notifies the Borrower that it has completed the syndication of the Commitments
and the entities selected in the syndication process become parties to this
Agreement.
"TAXES" is defined in Section 4.6.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement executed and delivered
pursuant to Section 5.1.21, substantially in the form of Exhibit O hereto, as
the same may be amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with Section 7.2.11.
"TERM LOAN" is defined in Section 2.1.1.
"TERM LOAN COMMITMENT" means, relative to any Lender, such Lender's obligation
to make Term Loans pursuant to Section 2.1.1.
"TERM LOAN COMMITMENT AMOUNT" means, on any date prior to the Term Loan
Commitment Termination Date, $37,000,000.
"TERM LOAN COMMITMENT TERMINATION DATE" means the earlier of
(a) immediately after the making of the initial Credit Extension; or
(b) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in clause (a) or (b), the Term Loan
Commitments shall terminate automatically and without any further action.
"TERM NOTE" means a promissory note of the Borrower payable to any Lender, in
the form of Exhibit B hereto (as such promissory note may be amended, endorsed
or otherwise modified from time to time), evidencing the aggregate Indebtedness
of the Borrower to such Lender resulting from outstanding Term Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor or renewal thereof.
-28-
<PAGE> 36
"THREE MONTH SECONDARY CD RATE" is defined in the definition of Alternate Base
Rate.
"TOTAL COMMITMENT AMOUNT" means the sum, without duplication, of the Term Loan
Commitment Amount and the Revolving Loan Commitment Amount.
"TRANSFEREE" is defined in Section 10.11.3.
"TYPE" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"U.C.C." means the Uniform Commercial Code as from time to time in effect in the
State of New York.
"UNITED STATES" or "U.S." means the United States of America, its fifty States
and the District of Columbia.
"WELFARE PLAN" means a "welfare plan" (as such term is defined in Section 3(1)
of ERISA), maintained by Holdings or the Borrower or for which Holdings or the
Borrower or any of their Subsidiaries has any contractual liability.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary of Holdings or the Borrower of
which the securities (except for directors' qualifying shares) or other
ownership interests representing 100% of the equity is, at the time any
determination is being made, owned, controlled or held by Holdings or the
Borrower, as the case may be, or one or more Wholly-Owned Subsidiaries of
Holdings or the Borrower, as the case may be.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in the Disclosure Schedule and each other
Loan Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in this
Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles ("GAAP") applied
in the preparation of the financial statements referred to in clause (e) of
Section 5.1.8, in the case of the Borrower and its Wholly-Owned Subsidiaries,
and clause (a) of Section 5.1.8, in the case of Holdings and its Subsidiaries
(other than the Borrower and its Wholly-Owned Subsidiaries). In the event that
any "Accounting Change" (as defined below) shall occur and such change results
in a change in the method of calculation of financial covenants, standards or
terms in this Agreement, Holdings and the Borrower, as the case may be, and the
Agent shall enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating Holdings' and the Borrower's financial
condition shall be the same after such Accounting Changes as if such Accounting
Changes had
-29-
<PAGE> 37
not been made. Until such time as such an amendment shall have been executed and
delivered by Holdings, the Borrower, the Agent and the Required Lenders, all
financial covenants, standards and terms in this Agreement shall continue to be
calculated or construed as if such Accounting Changes had not occurred.
"Accounting Change" refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the Securities and Exchange Commission.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES,
LETTERS OF CREDIT AND NOTES
SECTION 2.1. COMMITMENTS. On the terms and subject to the conditions of this
Agreement (including Article V), each Lender severally agrees to make Loans
pursuant to the Commitments described in this Section 2.1.
SECTION 2.1.1. TERM LOAN COMMITMENT. On the Business Day the Acquisition is
consummated (but only if such date occurs prior to the Term Loan Commitment
Termination Date), each Lender agrees to make Loans (relative to such Lender,
its "Term Loans") to the Borrower equal to such Lender's Percentage of
$37,000,000. The Commitment of each Lender described in this Section 2.1.1 is
herein referred to as its "Term Loan Commitment". No amounts paid or prepaid
with respect to Term Loans may be reborrowed.
SECTION 2.1.2. REVOLVING LOAN COMMITMENT. From time to time on any Business Day
occurring prior to the Revolving Loan Commitment Termination Date, each Lender
agrees to make Loans (relative to such Lender, its "Revolving Loans") to the
Borrower equal to such Lender's Percentage of the aggregate amount of the
Borrowing of the Revolving Loans requested by the Borrower to be made on such
day. The Commitment of each Lender described in this Section 2.1.2 is herein
referred to as its "Revolving Loan Commitment". On the terms and subject to the
conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow the Revolving Loans.
SECTION 2.1.3. LETTER OF CREDIT COMMITMENT. From time to time on any Business
Day occurring prior to the Revolving Loan Commitment Termination Date, the
Issuer will
(a) issue one or more standby or documentary letters of credit
(relative to such Issuer, its "Letter of Credit") for the account of the
Borrower in Stated Amounts requested by the Borrower on such day with a Stated
Expiry Date; or
(b) extend the Stated Expiry Date of an existing Letter of Credit
previously issued hereunder to a date not later than the earlier of (i) two
Business Days prior to the Revolving Loan Commitment Termination Date and (ii)
one year from the date of such extension, in the case of any standby Letter of
Credit, and 90 days from the date of any such extension, in the case of any
documentary Letter of Credit.
SECTION 2.2. LENDERS NOT PERMITTED OR REQUIRED TO MAKE CREDIT EXTENSIONS. No
Lender shall be permitted or required to make any Loan, and no Issuer shall be
obligated to issue or extend any Letter of Credit, under any circumstance
described below in this Section 2.2.
-30-
<PAGE> 38
SECTION 2.2.1. TERM LOANS. No Borrowing of Term Loans shall be made if, after
giving effect thereto, the aggregate outstanding principal amount of all the
Term Loans (a) of all Lenders would exceed the Term Loan Commitment Amount or
(b) of such Lender would exceed such Lender's Percentage of the Term Loan
Commitment Amount.
SECTION 2.2.2. REVOLVING LOANS AND LETTERS OF CREDIT. No Borrowing of Revolving
Loans or issuance or extension of a Letter of Credit shall be made if, after
giving effect thereto,
(a) the aggregate outstanding principal amount of all the Revolving
Loans, together with the aggregate amount of all Letter of Credit Outstandings,
(i) of all the Lenders would exceed the lesser of (x) the Revolving
Loan Commitment Amount or (y) the Borrowing Base Amount; or (ii) of such Lender
would exceed the lesser of (x) such Lender's Percentage of the Revolving Loan
Commitment Amount or (y) such Lender's Percentage of the then existing Borrowing
Base Amount; or
(b) the aggregate amount of all Letter of Credit Outstandings would
exceed the lesser of (i) the Revolving Loan Commitment Amount or (ii)
$1,000,000.
SECTION 2.3. REDUCTION OF THE COMMITMENT AMOUNTS.
(a) Optional Reduction. The Borrower may, from time to time on any
Business Day after the date of the initial Credit Extension, voluntarily reduce
the unused amount of the Revolving Loan Commitment Amount; provided, however,
that all such reductions shall require at least one Business Days' prior notice
to the Agent and be permanent, and any partial reduction of the unused amount of
the Revolving Loan Commitment Amount shall be in a minimum amount of $500,000
and in integral multiples in excess thereof of $100,000.
(b) Mandatory Reduction. The Revolving Loan Commitment Amount shall be
permanently reduced by the aggregate amount resulting from the operation of
clauses (c)(iii)(B) and (C) of Section 3.1.2.
SECTION 2.4. BORROWING PROCEDURE.
(a) Borrowing Requests. By delivering a Borrowing Request to the Agent
on or before 12:00 p.m. (New York City time), on a Business Day, the Borrower
may from time to time irrevocably request that Base Rate Loans be made on the
next following Business Day or on another Business Day within five Business Days
of such Business Day, or that LIBO Rate Loans be made on any Business Day not
less than three nor more than five Business Days thereafter; provided, that no
Revolving Loan shall be made as a LIBO Rate Loan after the day that is one month
prior to the Revolving Loan Commitment Termination Date. All Base Rate Loans may
be in any minimum or multiple amount, all LIBO Rate Loans made prior to the
Syndication Date shall be in a minimum amount equal to the product of (i) the
number of Lenders on the date the relevant Borrowing Request is delivered to the
Agent multiplied by (ii) $500,000 and in integral multiples in excess thereof of
$100,000, and all LIBO Rate Loans from and after the Syndication Date shall be
made in a minimum amount equal to the product of (x) the number of Lenders on
the Syndicate Date multiplied by (y) $500,000 and in integral multiples in
excess thereof of $100,000. If the Borrower requests any LIBO Rate Loans on the
date of the initial Credit Extension it shall have executed an indemnity
agreement in form and substance satisfactory to the Agent. All the proceeds of
all Loans shall be used solely for the purposes described in Section 4.10.
-31-
<PAGE> 39
(b) Funding by Lenders. On the terms and subject to the conditions of
this Agreement, each Borrowing shall be made on the Business Day, specified in
such Borrowing Request. On or before 1:00 p.m. (New York City time) on such
Business Day each Lender shall deposit with the Agent same day funds in an
amount equal to such Lender's Percentage of the requested Borrowing. Such
deposit will be made to an account which the Agent shall specify from time to
time by notice to the Lenders. To the extent funds are received from the
Lenders, the Agent shall make such funds available to the Borrower by wire
transfer to the accounts the Borrower shall have specified in its Borrowing
Request. No Lender's obligation to make any Loan shall be affected by any other
Lender's failure to make any Loan.
SECTION 2.5. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the Agent on or before 12:00 a.m. (New York
City time) on a Business Day, the Borrower may from time to time irrevocably
elect, on not less than one Business Day's notice in the case of Base Rate
Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in
either case not more than five Business Days' notice, that all or any portion
(in an aggregate minimum amount with respect to continuations of or conversions
into LIBO Rate Loans, prior to the Syndication Date equal to the product of (i)
the number of Lenders on the date the relevant Continuation/ Conversion Notice
is delivered to the Agent multiplied by (ii) $500,000 and in integral multiples
in excess thereof of $100,000, and from and after the Syndication Date equal to
the product of (x) the number of Lenders on the Syndication Date multiplied by
(y) $500,000 and in integral multiples in excess thereof of $100,000) be, in the
case of Base Rate Loans, converted into LIBO Rate Loans or be, in the case of
LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans
(in the absence of delivery of a Continuation/Conversion Notice with respect to
any LIBO Rate Loan at least three Business Days (but not more than five Business
Days) before the last day of the then current Interest Period with respect
thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a
Base Rate Loan); provided, however, that (a) each such conversion or
continuation shall be prorated among the applicable outstanding Revolving Loans
of all Lenders, and (b) no portion of the outstanding principal amount of any
Revolving Loans may be continued as, or be converted into, LIBO Rate Loans when
any Default has occurred and is continuing, unless the Required Lenders
otherwise agree in writing and (c) no Loans may be continued as, or be converted
into, LIBO Rate Loans after the day that is one month prior to the Maturity Date
or Revolving Loan Commitment Termination Date, as the case may be.
SECTION 2.6. FUNDING. Each Lender may, if it so elects, fulfill its obligation
to make, continue or convert LIBO Rate Loans hereunder by causing one of its
foreign branches or Affiliates (or an international banking facility created by
such Lender) to make or maintain such LIBO Rate Loan; provided, however, that
such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held
by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan
shall nevertheless be to such Lender for the account of such foreign branch,
Affiliate or international banking facility. In addition, the Borrower hereby
consents and agrees that, for purposes of any determination to be made for
purposes of Sections 4.1 through 4.5, it shall be conclusively assumed that each
Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its
LIBOR Office's interbank eurodollar market.
SECTION 2.7. LETTERS OF CREDIT. The Borrower may request, in accordance with the
terms hereof, the issuance of a Letter of Credit for its own account, in a form
reasonably acceptable to the Agent and the applicable Issuer, at any time and
from time to time while the Revolving Loan Commitment remains in effect.
SECTION 2.7.1. ISSUANCE PROCEDURES. By delivering to the Agent and the Issuer an
Issuance Request on or before 1:00 p.m., (New York City time) on a Business Day,
the Borrower may, from time to time
-32-
<PAGE> 40
irrevocably request, on not less than three nor more than five Business Days'
notice, that the Issuer issue, or extend the Stated Expiry Date of, as the case
may be, a Letter of Credit in such form as may be requested by the Borrower and
approved by the Issuer, such Letter of Credit to be used solely for the purposes
described in Section 4.10. Each Letter of Credit shall by its terms be stated to
expire on a date (its "Stated Expiry Date") no later than the earlier of (a) one
year from the date of issuance, in the case of any standby Letter of Credit, and
90 days from the date of any such issuance, in the case of any documentary
Letter of Credit,and (b) two Business Days prior to the Revolving Loan
Commitment Termination Date. The Issuer will make available to the beneficiary
thereof the original of each Letter of Credit which it issues hereunder. Unless
notified in writing by the Required Banks before it issues a Letter of Credit
that a Default or Event of Default exists, the Issuer may issue the requested
Letter of Credit in accordance with the Issuer's customary practices.
SECTION 2.7.2. OTHER LENDERS' PARTICIPATION. Upon the issuance of each Letter of
Credit issued by the Issuer pursuant hereto, and without further action, each
Lender (other than the Issuer) shall be deemed to have irrevocably and
unconditionally purchased (without recourse, representation or warranty), to the
extent of its Percentage, a participation interest in such Letter of Credit
(including the Contingent Liability and any Reimbursement Obligation with
respect thereto), and such Lender shall, to the extent of its Percentage, be
responsible for reimbursing promptly (and in any event within one Business Day
together with interest at the Federal Funds Effective Rate for each day until
reimbursement is made) the Issuer for Reimbursement Obligations which have not
been reimbursed by the Borrower in accordance with Section 2.7.4 or which have
been reimbursed by the Borrower but have been required to be returned or
disgorged by the Issuer. In addition, such Lender shall, to the extent of its
Percentage and so long as it shall have complied with its obligations under this
Sections 2.7.2 and 2.7.4, be entitled to receive a ratable portion of the Letter
of Credit fees payable pursuant to Section 3.3.2 with respect to each Letter of
Credit and of interest payable pursuant to Section 3.2 with respect to any
Reimbursement Obligation.
SECTION 2.7.3. DISBURSEMENTS. The Issuer will notify the Borrower and the Agent
promptly of the presentment for payment of any Letter of Credit issued by the
Issuer, together with notice of the date (the "Disbursement Date") such payment
shall be made (each such payment, a "Disbursement"). Subject to the terms and
provisions of such Letter of Credit and this Agreement, the Issuer shall make
such payment to the beneficiary (or its designee) of such Letter of Credit.
Prior to 11:00 a.m. (New York City time) on the first Business Day following the
Disbursement Date, the Borrower will reimburse the Agent, for the account of the
Issuer, for all amounts which the Issuer has disbursed under such Letter of
Credit, together with interest thereon at a rate per annum equal to the highest
rate per annum then in effect pursuant to Section 3.2 for the period from the
Disbursement Date through the date of such reimbursement.
SECTION 2.7.4. REIMBURSEMENT. The obligation (a "Reimbursement Obligation") of
the Borrower under Section 2.7.3 to reimburse the Issuer with respect to each
Disbursement (including interest thereon) and, upon the failure of the Borrower
to reimburse the Issuer (or if any reimbursement by the Borrower must be
returned or disgorged by the Issuer for any reason), each Lender's obligation
under Section 2.7.2 to reimburse the Issuer, shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower or such Lender, as the case may be, may
have or have had against the Issuer or any Lender, including any defense based
upon the failure of any Disbursement to conform to the terms of the applicable
Letter of Credit or any non-application or misapplication by the beneficiary of
the proceeds of such Letter of Credit; provided, however, that after paying in
full its Reimbursement Obligation hereunder, nothing herein shall adversely
affect the right of the Borrower or such Lender, as the case may be, to commence
any proceeding against
-33-
<PAGE> 41
the Issuer for any wrongful Disbursement made by the Issuer under a Letter of
Credit as a result of acts or omissions constituting gross negligence or wilful
misconduct on the part of such Issuer.
SECTION 2.7.5. DEEMED DISBURSEMENTS. Upon the occurrence and during the
continuation of any Default of the type described in Section 8.1.9 or, with
notice from the Agent, upon the occurrence and during the continuation of any
other Event of Default
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is undrawn and
available under all Letters of Credit issued and outstanding for the account of
the Borrower shall, without demand upon or notice to the Borrower, be deemed to
have been paid or disbursed by the Issuer under such Letters of Credit
(notwithstanding that such amount may not in fact have been so paid or
disbursed); and
(b) upon notification by the Agent to the Borrower of its obligations
under this Section, the Borrower shall be immediately obligated to reimburse the
Issuer for the amount deemed to have been so paid or disbursed by such Issuer.
Any amounts so payable by the Borrower pursuant to this Section shall
be deposited in cash with the Agent and held as collateral security for the
Obligations in connection with the Letters of Credit issued by the Issuers. In
the case of any such deemed disbursement resulting from the occurrence of a
Default or Event of Default, if such Default or Event of Default has been cured
or waived, the Agent shall return to the Borrower all amounts then on deposit
with the Agent pursuant to this Section which have not been applied to the
partial satisfaction of such Obligations.
SECTION 2.7.6. NATURE OF REIMBURSEMENT OBLIGATIONS. The Borrower and, to the
extent set forth in Section 2.7.2, each Lender shall assume all risks of the
acts, omissions or misuse of any Letter of Credit by the beneficiary thereof.
Neither the Issuer (except to the extent a final judgment of a court of
competent jurisdiction has determined that the Issuer has acted with gross
negligence or willful misconduct), the Agent nor any Lender shall be responsible
for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any Loan Document, any Letter of Credit or any document submitted by
any party in connection with the application for and issuance of a Letter of
Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any instrument transferring or assigning or purporting to transfer or
assign a Letter of Credit or the rights or benefits thereunder or the proceeds
thereof in whole or in part, which may prove to be invalid or ineffective for
any reason;
(c) failure of the beneficiary to comply fully with conditions required
in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise;
(e) any loss or delay in the transmission or otherwise of any document
or draft required in order to make a Disbursement under a Letter of Credit; or
-34-
<PAGE> 42
(f) any other act or omission to act or delay of any kind of the
Issuer, the Lenders, the Agent or any other Person or any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section, constitute a legal or equitable
discharge of the Borrower's obligations hereunder.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to the Issuer, the Agent or any Lender hereunder. In
furtherance and extension and not in limitation or derogation of any of the
foregoing, any action taken or omitted to be taken by an Issuer shall be binding
upon the Borrower and each such Lender, and shall not put such Issuer under any
resulting liability to the Borrower or any such Lender, as the case may be.
SECTION 2.8. NOTES. Each Lender's Loans under a Commitment shall be evidenced by
a Note payable to the order of such Lender in a maximum principal amount equal
to such Lender's Percentage of the original applicable Commitment Amount. The
Borrower hereby irrevocably authorizes each Lender to make (or cause to be made)
appropriate notations on the grid attached to such Lender's Notes (or on any
continuation of such grid), which notations, if made, shall evidence, inter
alia, the date of, the outstanding principal of, and the interest rate
applicable to, the Loans evidenced thereby. Such notations shall be conclusive
and binding on the Borrower absent manifest error; provided, however, that the
failure of any Lender to make any such notations shall not limit or otherwise
affect any Obligations of the Borrower or any other Obligor.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. REPAYMENTS AND PREPAYMENTS. The Borrower shall repay in full the
unpaid principal amount of each Loan upon the Stated Maturity Date therefor and
pursuant to Sections 8.2 through 8.4. Prior thereto, repayments and prepayments
of Loans shall be made as set forth in this Section 3.1.
SECTION 3.1.1. VOLUNTARY PREPAYMENTS. Prior to the Stated Maturity Date, the
Borrower may, from time to time on any Business Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of the
Loans; provided, however, that
(a) any such prepayments shall be made pro rata among Loans of the same
Type and, if applicable, having the same Interest Period of all the Lenders; and
(b) all such voluntary prepayments shall require (i) at least one but
no more than five Business Days' prior notice, in the case of Base Rate Loans,
(ii) and at least at three but not more than five Business Days' prior notice,
in the case of LIBO Rate Loans, in each case to the Agent.
Each voluntary prepayment of Term Loans made pursuant to this Section
shall be applied, to the extent of such prepayment, pro rata to the scheduled
repayments of Term Loans set forth in clause (b) of Section 3.1.2. Each
prepayment of any Loans made pursuant to this Section shall be without premium
or penalty but subject to Section 4.4.
SECTION 3.1.2. MANDATORY REPAYMENTS AND PREPAYMENTS.
-35-
<PAGE> 43
(a) Revolving Loans. The Borrower shall, on each date when the sum of
(i) the aggregate outstanding principal amount of all Revolving Loans and (ii)
Letter of Credit Outstandings exceeds the lesser of (x) the Revolving Loan
Commitment Amount (as it may be reduced from time to time) or (y) the then
existing Borrowing Base Amount, make a mandatory prepayment of all Revolving
Loans in an amount equal to such excess.
(b) Term Loans. The Borrower shall, on each date set forth below, make
a scheduled repayment of the aggregate outstanding principal amount of all Term
Loans in the amount set forth opposite each such date:
<TABLE>
<CAPTION>
AMOUNT OF REQUIRED
PAYMENT DATE PRINCIPAL PAYMENT
------------ -----------------
<S> <C> <C>
June 30, 1998 $ 1,433,333
September 30, 1998 $ 1,433,333
December 31, 1998 $ 1,433,334
March 31, 1999 $ 1,550,000
June 30, 1999 $ 1,550,000
September 30, 1999 $ 1,550,000
December 31, 1999 $ 1,550,000
March 31, 2000 $ 1,300,000
June 30, 2000 $ 1,300,000
September 30, 2000 $ 1,300,000
December 31, 2000 $ 1,300,000
March 31, 2001 $ 1,625,000
June 30, 2001 $ 1,625,000
September 30, 2001 $ 1,625,000
December 31, 2001 $ 1,625,000
March 31, 2002 $ 1,750,000
June 30, 2002 $ 1,750,000
September 30, 2002 $ 1,750,000
December 31, 2002 $ 1,750,000
March 31, 2003 $ 1,950,000
June 30, 2003 $ 1,950,000
September 30, 2003 $ 1,950,000
December 31, 2003 $ 1,950,000
</TABLE>
(c) Mandatory Prepayments and Commitment Reductions from Certain
Sources.
(i) Borrower Mandatory Prepayments. The Borrower shall, and
shall cause each of its Wholly-Owned Subsidiaries, (A) on the date of receipt by
the Borrower or any such Subsidiary of any Net Transaction Proceeds, Net
Securities Proceeds, Net Debt Proceeds or Net Disposition Proceeds, (B) on the
dates specified in Section 7.1.4 with respect to Net Insurance Proceeds, and (C)
on the date of delivery of its audited financial statements pursuant to clause
(c) of Section 7.1.1 (and, in any event, on the date 90 days after the end of
each Fiscal Year of the Borrower), in the case of Excess Cash Flow, to apply (I)
100% of the Net Transaction Proceeds, Net Securities Proceeds, Net Debt
Proceeds, Net Disposition Proceeds and Net Insurance Proceeds; and (II) 50% of
all Excess Cash Flow for its
-36-
<PAGE> 44
immediately preceding Fiscal Year (beginning with Excess Cash Flow calculated
for the Fiscal Year of the Borrower ending December 31, 1998), in each case as
provided in clause (iii) below.
(ii) Holdings Mandatory Prepayments. Holdings shall, and shall
cause each of its Subsidiaries (other than the Borrower and its Wholly-Owned
Subsidiaries), (A) on the date of receipt of Holdings or any such Subsidiary of
any Net Transaction Proceeds, Net Securities Proceeds, Net Debt Proceeds or Net
Disposition Proceeds and (B) on the dates specified in Section 7.1.4 with
respect to Net Insurance Proceeds to apply (I) 100% of all Net Transaction
Proceeds; (II) until the sum of the aggregate principal amount of outstanding
Term Loans plus the Revolving Loan Commitment Amount is equal to or less than
$27,720,000, 25% of all Net Securities Proceeds in excess of $10,000,000 since
the Closing Date; (III) 25% of all Net Debt Proceeds (other than Net Debt
Proceeds (w) resulting from Indebtedness assumed in connection with the
acquisition of any property or asset by Holdings and its Subsidiaries (other
than the Borrower and its Wholly-Owned Subsidiaries) and was not incurred in
contemplation of such acquisition, (x) not more than $7,000,000 of Indebtedness
incurred by Inverness in connection with the working capital financing referred
to in clause (i)(ii) of Section 7.2.3 and (y) resulting form Indebtedness
incurred by Orgenics, Ltd. to the extent that Holdings has not, either directly
or indirectly, guaranteed or provided assets to secure the repayment thereof) in
excess of $10,000,000 since the Closing Date; (IV) 100% of all Net Disposition
Proceeds (other than Net Disposition Proceeds resulting from machinery and
equipment of Inverness subject to a sale and leaseback transaction referred to
in clause (i) of Section 7.2.3) in excess of $1,000,000 since the Closing Date;
and (V) 25% of the Net Insurance Proceeds, in the case of Holdings and its
Subsidiaries (other than the Borrower and its Wholly-Owned Subsidiaries), and
100% of the Net Insurance Proceeds, in the case of the Borrower and its
Wholly-Owned Subsidiaries, in each case as provided in clause (iii) below.
(iii) Application of Mandatory Prepayments. All amounts
required to be prepaid pursuant to this clause (c) shall be applied.
(A) first, make a mandatory prepayment of the Term
Loans, to be applied pro rata to the scheduled repayments of the Term
Loans set forth in clause (b); and
(B) second, if all the Term Loans have been paid in
full, make a mandatory prepayment of the Revolving Loans; and
(C) third, if all the Term Loans and Revolving Loans
have been paid in full, permanently reduce the Revolving Loan
Commitment Amount; and
(D) fourth, if all the Term Loans and Revolving Loans
have been paid in full and the Revolving Loan Commitment Amount has
been reduced to zero, cash collateralize all Letter of Credit
Outstandings on terms in form and substance satisfactory to the Agent.
The Borrower shall deliver to the Agent, at the time of each prepayment
required under this Section, (i) a certificate signed by its chief financial
Authorized Officer setting forth in reasonable detail the calculation of the
amount of such prepayment and (ii) to the extent practicable, at least one
Business Day prior written notice of such prepayment.
(d) Stated Maturity Date. On the Stated Maturity Date of the Term
Loans, the Borrower shall repay in full the aggregate outstanding principal
amount of the Term Loans. On the Stated Maturity Date
-37-
<PAGE> 45
of the Revolving Loans, the Borrower shall repay in full the aggregate
outstanding principal amount of the Revolving Loans then outstanding and all
Letters of Credit Outstandings.
(e) Acceleration. The Borrower shall, immediately upon any acceleration
of the Stated Maturity Date of any Loans or Letter of Credit Outstandings
pursuant to Section 8.2 or Section 8.3, repay all (or if only a portion is
accelerated thereunder, such portion of) the Loans then outstanding and Letter
of Credit Outstandings.
Each prepayment of any Loans made pursuant to this Section shall be made without
premium or penalty, except as specified herein, and applied first, to the
prepayment of Base Rate Loans and, second, to the prepayment of LIBO Rate Loans.
SECTION 3.2. INTEREST PROVISIONS. Interest on the outstanding principal amount
of Loans shall accrue and be payable in accordance with this Section 3.2.
SECTION 3.2.1. RATES. Subject to Sections 2.4 and 2.5, the Borrower may elect,
pursuant to an appropriately delivered Borrowing Request or
Continuation/Conversion Notice, that Loans comprising a Borrowing accrue
interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan,
equal to the sum of the Alternate Base Rate from time to time in effect plus the
Applicable Margin; and
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve
Adjusted) for such Interest Period plus the Applicable Margin.
The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
(Reserve Adjusted) -------------------------------
1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans
will be determined by the Agent on the basis of the LIBOR Reserve Percentage in
effect on, and the applicable rates furnished to and received by the Agent from
Chase, two Business Days before the first day of such Interest Period.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate
of interest equal to the average (rounded upwards, if necessary, to the nearest
1/16 of 1%) of the rates per annum at which Dollar deposits in immediately
available funds are offered to Chase's LIBOR Office in the London, England
interbank market at or about 11:00 a.m. (London, England time) two Business Days
prior to the beginning of such Interest Period for delivery on the first day of
such Interest Period, and in an amount approximately equal to the amount of
Chase's LIBO Rate Loan and for a period approximately equal to such Interest
Period.
"LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate
Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional
-38-
<PAGE> 46
adjustments or other scheduled changes in reserve requirements) specified under
regulations issued from time to time by the F.R.S. Board and then applicable to
assets or liabilities consisting of or including "Eurocurrency Liabilities", as
currently defined in Regulation D of the F.R.S. Board, having a term
approximately equal or comparable to such Interest Period. All LIBO Rate Loans
shall bear interest from and including the first day of the applicable Interest
Period to (but not including) the last day of such Interest Period at the
interest rate determined as applicable to such LIBO Rate Loan.
SECTION 3.2.2. POST-DEFAULT RATES. Upon the occurrence and during the
continuation of any Default, or after any other monetary Obligation of the
Borrower shall have become due and payable, the Borrower shall pay, but only to
the extent permitted by law, interest (after as well as before judgment) on such
amounts at a rate per annum equal to (a), in the case of Loans, the rate per
annum otherwise in effect plus a margin of 2% per annum and (b) in the case of
Letter of Credit Outstandings and other Obligations payable hereunder, interest
at a rate per annum equal to the rate applicable to Base Rate Loans plus 2%, in
each case, with respect to clauses (a) and (b), from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
SECTION 3.2.3. PAYMENT DATES. Interest accrued on each Loan shall be payable,
without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in part, of
principal outstanding on such Loan on the principal amount so paid or prepaid;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date;
(d) with respect to LIBO Rate Loans, on the last day of each applicable
Interest Period (and, if such Interest Period shall exceed 90 days, on the 90th
day of such Interest Period);
(e) with respect to any Base Rate Loans converted into LIBO Rate Loans
on a day when interest would not otherwise have been payable pursuant to clause
(c), on the date of such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such
acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.3. FEES. The Borrower agrees to pay the fees set forth in this Section
3.3. All such fees shall be non-refundable.
SECTION 3.3.1. COMMITMENT FEE. The Borrower agrees to pay to the Agent, for the
pro rata account of each Lender of Revolving Loans, for the period (including
any portion thereof when the Revolving Loan Commitment is suspended by reason of
the Borrower's inability to satisfy any condition of Article V) commencing on
the Effective Date and continuing through the Revolving Loan Commitment
Termination Date, a commitment fee at the rate of .375% per annum on such
Lender's Percentage of the sum of the average daily unused portion of the
Revolving Loan Commitment Amount. Such commitment fees shall
-39-
<PAGE> 47
be payable by the Borrower in arrears on each Quarterly Payment Date, commencing
with the first Quarterly Payment Date following the Effective Date, and on the
Revolving Loan Commitment Termination Date.
SECTION 3.3.2. LETTER OF CREDIT FEE. The Borrower agrees to pay to the Agent,
for the pro rata account of the Issuer and each other Lender of Revolving Loans,
a Letter of Credit fee in an amount equal to the then Applicable Margin on LIBO
Rate Loans multiplied by the average daily Letter of Credit Outstandings of each
such Letter of Credit, such fees to be paid by the Borrower in arrears on each
Quarterly Payment Date (commencing with the first Quarterly Payment Date
following the Effective Date) and on the Revolving Loan Commitment Termination
Date. The Borrower further agrees to pay to the Issuer an issuance fee in an
amount equal to .125% per annum multiplied by the average daily Letter of Credit
Outstandings, such fee to be paid in arrears on each Quarterly Payment Date
(commencing with the first Quarterly Payment Date following the Effective Date)
and on the Revolving Loan Commitment Termination Date, (b) an amendment fee in
an amount to be specified by the Agent if any of the terms of any existing
Letter of Credit is amended or the Stated Expiry Date of any existing Letter of
Credit is extended and (c) all customary costs and expenses incurred by the
Issuer in connection with each Letter of Credit.
SECTION 3.3.3. AGENT'S FEES, ETC. The Borrower agrees to pay to the Agent, for
its own account, fees in the amounts, on the dates and in the manner set forth
in the Fee Letter.
ARTICLE II
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO RATE LENDING UNLAWFUL. If any Lender shall determine (which
determination shall, upon notice thereof to the Borrower and the Agent, be
conclusive and binding on the Borrower) that the introduction of or any change
in or in the interpretation of any law makes it unlawful, or any central bank or
other governmental authority asserts that it is unlawful, for such Lender to
make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate
Loan, the obligations of such Lender to make, continue, maintain or convert any
such LIBO Rate Loan shall, upon such determination, forthwith be suspended until
such Lender shall notify the Agent that the circumstances causing such
suspension no longer exist, and all outstanding LIBO Rate Loans shall
automatically convert into Base Rate Loans at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.
SECTION 4.2. DEPOSITS UNAVAILABLE. If the Agent shall have determined or been
instructed by the Required Lenders that
(a) Dollar certificates of deposit or Dollar deposits, as the case may
be, in the relevant amount and for the relevant Interest Period are not
available to Chase in its relevant market; or
(b) by reason of circumstances affecting Chase's relevant market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to LIBO Rate Loans,
then, upon notice from the Agent to the Borrower and the Lenders, the
obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue
any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be
suspended until the Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
-40-
<PAGE> 48
SECTION 4.3. INCREASED COSTS, ETC. The Borrower agrees to reimburse each Lender
for any increase in the cost to such Lender of, or any reduction in the amount
of any sum receivable by such Lender in respect of, making, continuing or
maintaining (or of its obligation to make, continue or maintain) any Loans as,
or of converting (or of its obligation to convert) any Loans into, LIBO Rate
Loans (including but not limited to any imposition or effectiveness of reserve
requirements) that arise in connection with any change in, or the introduction,
adoption, effectiveness, interpretation, reinterpretation or phase-in of, any
law or regulation, directive, guideline, decision or request (whether or not
having the force of law) of any court, central bank, regulator or other
governmental authority. Such Lender shall promptly notify the Agent and the
Borrower in writing of the occurrence of any such event, such notice to state,
in reasonable detail, the reasons therefor and the additional amount required
fully to compensate such Lender for such increased cost or reduced amount. Such
additional amounts shall be paid by the Borrower directly to such Lender
promptly (and, in any event, within three Business Days of receipt of such
notice), and such notice shall, in the absence of manifest error, be conclusive
and binding on the Borrower.
(b) If at any time the introduction or effectiveness of or any change
in any applicable law, rule or regulation (including without limitation those
announced or published prior to the date of this Agreement), or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Lender
with any request or directive by any such authority (whether or not having the
force of law) shall either (i) impose, modify or make applicable any reserve,
deposit, capital adequacy or similar requirement against letters of credit
issued, or participated in, by any Issuer or Lender, or (ii) impose on any
Issuer or Lender any other conditions affecting this Agreement or any Letter of
Credit, and the result of any of the foregoing is to increase the cost to any
Issuer or Lender of issuing, maintaining or participating in any Letter of
Credit, or reduce the amount of any sum received or receivable by any Issuer or
Lender hereunder with respect to Letters of Credit, then, within ten days of the
receipt of the notice referred to below (which notice shall be given by the
respective Issuer or Lender promptly after it determines such increased cost or
reduction is applicable to Letters of Credit or its participation therein) to
the Borrower by the respective Issuer or Lender (a copy of which notice shall be
sent by such Issuer or Lender to the Agent), the Borrower shall pay to such
Issuer or Lender such additional amount or amounts as will compensate such
Issuer or Lender for such increased cost or reduction. A notice submitted to the
Borrower by such Issuer or Lender, setting forth in reasonable detail the
reasons therefor and the basis for the calculation of such additional amount or
amounts necessary to compensate such Issuer or Lender as aforesaid shall be
conclusive and binding on the Borrower absent manifest error.
SECTION 4.4. FUNDING LOSSES. In the event any Lender shall incur any loss or
expense (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a LIBO Rate Loan)
as a result of
(a) any conversion or repayment or prepayment of the principal amount
of any LIBO Rate Loans on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to Section 3.1 or
otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance with the
Borrowing Request therefor; or
-41-
<PAGE> 49
(c) any Loans not being continued as, or converted into, LIBO Rate
Loans in accordance with the Continuation/Conversion Notice therefor,
then, upon the written notice of such Lender to the Borrower (with a copy to the
Agent), the Borrower shall promptly (and, in any event, within three Business
Days of receipt of such notice) pay directly to such Lender such amount as will
(in the determination of such Lender) reimburse such Lender for such loss or
expense. Such written notice (which shall include calculations in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower. Such reimbursement shall include an amount equal to the excess, if
any, of (i) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to the
last day of such Interest Period (or, in the case of a failure to borrow,
convert, or continue to the last day of such Interest Period that would have
commenced on the date of such failure), in each case at the applicable rate of
interest for such Loans provided for herein over (ii) the amount of interest (as
reasonably determined by such Lender) which would have accrued to such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market.
SECTION 4.5. INCREASED CAPITAL COSTS. If any change in, or the introduction,
adoption, effectiveness, interpretation, reinterpretation or phase-in of, any
law or regulation, directive, guideline, decision or request (whether or not
having the force of law) of any court, central bank, regulator or other
governmental authority affects or would affect the amount of capital required or
expected to be maintained by any Lender or any Person controlling such Lender,
and such Lender determines (in its sole and absolute discretion) that the rate
of return on its or such controlling Person's capital as a consequence of its
Commitments or the Loans made by such Lender or Letters of Credit issued or
participated in by such Lender or Issuer is reduced to a level below that which
such Lender, Issuing Bank or such controlling Person could have achieved but for
the occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender or Issuer to the Borrower, the Borrower shall
immediately pay directly to such Lender or Issuer additional amounts sufficient
to compensate such Lender or Issuer or such controlling Person for such
reduction in rate of return. A statement of such Lender or Issuing Bank as to
any such additional amount or amounts (including calculations thereof in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the Borrower. In determining such amount, such Lender or Issuing Bank
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
SECTION 4.6. TAXES. All payments by the Borrower of principal of, and interest
on, the Loans and all other amounts payable hereunder shall be made free and
clear of and without deduction for any present or future income, excise, stamp
or franchise taxes and other taxes, fees, duties, withholdings or other charges
of any nature whatsoever imposed by any taxing authority, but excluding
franchise taxes and taxes imposed on or measured by any Lender's net income or
receipts by the jurisdiction under the laws of which each such Lender is
organized or any political subdivision thereof (such non-excluded items being
called "TAXES"). In the event that any withholding or deduction from any payment
to be made by the Borrower hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
-42-
<PAGE> 50
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Lenders such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Lender will equal the full amount such Lender would have
received had no such withholding or deduction been required (including
penalties, interest and expenses (including reasonable attorney's fees and
expenses) arising therefrom or with respect thereto).
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by such Person after the payment
of such Taxes (including any Taxes on such additional amount) shall equal the
amount such Person would have received had not such Taxes been asserted. A
certificate from any Lender as to the amount of such Taxes that are owing,
absent manifest error, shall be final, conclusive and binding for all purposes.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent for the account of the
respective Lenders the required receipts or other required documentary evidence,
the Borrower shall indemnify the Lenders for any incremental Taxes, interest or
penalties that may become payable by any Lender as a result of any such failure.
For purposes of this Section 4.6, a distribution hereunder by the Agent or any
Lender to or for the account of any Lender shall be deemed a payment by the
Borrower.
If any Lender or the Agent receives a refund in respect of any Taxes as
to which the Borrower has paid amounts pursuant to this Section it shall, within
30 days from the date of such receipt, pay such refund to the Borrower (but only
to the extent of additional amounts paid by the Borrower under this Section with
respect to the Taxes giving rise to such refund), net of all reasonable
out-of-pocket expenses of (and all Taxes that may be imposed by virtue of the
receipt of such tax refund by) such Lender or the Agent and without interest
(other than interest, if any, paid by the relevant governmental authority with
respect to such refund); provided, however, that the Borrower, upon the request
of such Lender or the Agent, agrees to promptly repay the amount paid over to
the Borrower (plus penalties, interest or other charges) to such Lender or the
Agent in the event such Lender or the Agent is required to repay such refund to
such governmental authority.
Each Lender that is not a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States (or any jurisdiction thereof), or any estate or trust
that is subject to federal income taxation regardless of the source of its
income (a "Non-U.S. Lender"), shall deliver to the Borrower and the Agent two
copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or any
subsequent versions thereof or successors thereto, properly completed and duly
executed by such Non-U.S. Lender claiming complete exemption from, or a reduced
rate of, U.S. federal withholding tax on all payments by the Borrower under this
Agreement and the other Loan Documents. Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to this Agreement. In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other
-43-
<PAGE> 51
provision of this Section 4.6, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this Section that such Non-U.S. Lender is not
legally able to deliver. In addition, nothing contained in this Section 4.6
shall require any Lender to make available any of its tax returns (or any other
information that it deems to be confidential or proprietary).
SECTION 4.7. PAYMENTS, COMPUTATIONS, ETC. Unless otherwise expressly provided,
all payments by the Borrower pursuant to or in respect of this Agreement, the
Notes, each Letter of Credit or any other Loan Document shall be made by the
Borrower to the Agent for the pro rata account of the Lenders entitled to
receive such payment. All such payments required to be made to the Agent shall
be made, without setoff, deduction or counterclaim, not later than 11:00 a.m.
(New York City time), on the date due, in same day or immediately available
funds, to such account as the Agent shall specify from time to time by notice to
the Borrower. Funds received after that time shall be deemed to have been
received by the Agent on the next succeeding Business Day. The Agent shall
promptly remit in same day funds to each Lender its share, if any, of such
payments received by the Agent for the account of such Lender. All interest and
fees shall be computed on the basis of the actual number of days (including the
first day but excluding the last day) occurring during the period for which such
interest or fee is payable over a year comprised of 360 days (or, in the case of
interest on Base Rate Loans, 365 days or, if appropriate, 366 days). Whenever
any payment to be made shall otherwise be due on a day which is not a Business
Day, such payment shall (except as otherwise required by clause (c) of the
definition of the term "Interest Period" with respect to LIBO Rate Loans) be
made on the next succeeding Business Day and such extension of time shall be
included in computing interest and fees, if any, in connection with such
payment. The Agent is authorized to charge any account maintained by the
Borrower with it for any Obligations owing to it or any of the Lenders.
SECTION 4.8. SHARING OF PAYMENTS. If any Lender shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Sections
4.3, 4.4, 4.5 and 4.6) in excess of its pro rata share of payments pursuant to
Section 4.7, then or therewith obtained by all Lenders, such Lender shall
purchase from the other Lenders such participations in Credit Extensions made by
them (without recourse, representation or warranty) as shall be necessary to
cause such purchasing Lender to share the excess payment or other recovery
ratably with each of them; provided, however, that if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and each Lender which has sold a
participation to the purchasing Lender shall repay to the purchasing Lender to
the purchase price to the ratable extent of such recovery together with an
amount equal to such selling Lender's ratable share (according to the proportion
of (a) the amount of such selling Lender's required repayment to the purchasing
Lender to (b) the total amount so recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing Lender in respect of
the total amount so recovered. The Borrower agrees that any Lender so purchasing
a participation from another Lender pursuant to this Section may, to the fullest
extent permitted by law, exercise all its rights of payment (including pursuant
to Section 4.9) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such participation. If
under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this Section applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section to share in the benefits of any recovery on such secured
claim.
SECTION 4.9. SETOFF. Each Lender shall, upon the occurrence of any Event of
Default and with the consent of the Required Lenders, have the right to
appropriate and apply to the payment of the Obligations
-44-
<PAGE> 52
owing to it (whether or not then due), and (as security for such Obligations)
the Borrower hereby grants to each Lender a continuing security interest in, any
and all balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter maintained with such Lender; provided, however, that any such
appropriation and application shall be subject to the provisions of Section 4.8
(each Lender agreeing promptly to notify the Borrower and the Agent after any
such setoff and application made by such Lender; but the failure to give such
notice shall not affect the validity of such setoff and application). The rights
of each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which such
Lender may have.
SECTION 4.10. USE OF PROCEEDS. The Borrower shall (a) apply $32,000,000 of the
proceeds of the Term Loans to (i) pay its purchase price obligations in
connection with the Acquisition, (ii) pay the transaction costs and expenses
incurred by the Borrower in connection herewith and therewith and (iii) repay
the Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the
Disclosure Schedule and (b) deposit $5,000,000 of the proceeds of the Term Loans
into the Escrow Account. The proceeds from all other Credit Extensions shall be
applied (a) for working capital corporate purposes of the Borrower and (b) for
issuing Letters of Credit for working capital purposes of the Borrower, except
that the proceeds of any Revolving Loans made on the date of the initial Credit
Extension may also be applied by the Borrower, after the application of all the
Term Loans pursuant to clause (a) of the preceding sentence, to pay for those
matters referred to such clause (a). All the amounts on deposit in the Escrow
Account shall, if they are released to the Borrower as provided in the Escrow
Agreement, be applied to prepay the Subordinated Promissory Note in the
principal amount of $5,000,000, dated as of the date hereof, between the
Borrower, as payor, and Holdings, as payee, and, if they are not released to the
Borrower as provided in the Escrow Agreement, shall be applied to prepay the
Loans as provided in clause (c)(iii) of Section 3.1.2 (except that all such
prepayments of the Term Loans pursuant to clause (c)(iii)(A) of Section 3.1.2
shall be made in the inverse order of the scheduled repayments of the Term Loans
set forth in clause (b) of Section 3.1.2).
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1. INITIAL CREDIT EXTENSION. The obligations of the Lenders and, if
applicable, the Issuer to fund the initial Credit Extension shall be subject to
the prior or concurrent fulfillment of each of the conditions precedent set
forth in this Section 5.1 to the satisfaction of the Agent.
SECTION 5.1.1. RESOLUTIONS, ETC. The Agent shall have received from Holdings,
the Borrower and each other Obligor a certificate, dated as of the date of the
initial Credit Extension, of its Secretary or Assistant Secretary as to
(a) resolutions of its Board of Directors then in full force and effect
authorizing the execution, delivery and performance of this Agreement, the Notes
and each other Loan Document to be executed by it;
(b) each Organic Document of the Holdings, the Borrower and each such
Obligor; and
(c) the incumbency and signatures of each officer of Holdings, the
Borrower and each such Obligor authorized to act with respect to this Agreement,
the Notes and each other Loan Document executed by it,
-45-
<PAGE> 53
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary of
Holdings, the Borrower or any such Obligor canceling or amending such prior
certificate.
SECTION 5.1.2. AGREEMENT. The Agent shall have received, with counterparts for
each Lender, this Agreement duly executed by each Lender, the Agent and an
Authorized Officer of Holdings and the Borrower.
SECTION 5.1.3. DELIVERY OF NOTES. The Agent shall have received, for the account
of each Lender entitled thereto, its Term Note and Revolving Note dated the date
of the initial Credit Extension and duly executed and delivered by an Authorized
Officer of the Borrower.
SECTION 5.1.4. REQUIRED CONSENTS AND APPROVALS. All required consents and
approvals shall have been obtained and be in full force and effect with respect
to the transactions contemplated hereby and the Acquisition from (a) all
relevant governmental authorities and regulatory bodies and (b) any other Person
whose consent or approval the Agent deems necessary or appropriate to effect the
transactions contemplated hereby and by the Acquisition. In addition, all
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, shall have expired or been terminated, and all notices and filings
(including the relevant Notification and Request Forms) required to have been
delivered pursuant thereto shall have been duly prepared and delivered.
SECTION 5.1.5. CONSUMMATION OF THE ACQUISITION. The Agent shall have received
evidence satisfactory to it that the Purchase Agreement has not been amended,
modified or supplemented without the Lenders' prior written consent; that all
conditions precedent to the consummation of the transactions contemplated by the
Purchase Agreement have been fully satisfied or, with the prior written consent
of the Lenders, waived; that the Acquisition has been consummated in accordance
with all the terms of the Purchase Agreement; and the total purchase price for
the Acquisition shall not exceed $27,000,000 (subject to adjustment as provided
in Section 1(b) of the Acquisition Agreement), which shall be paid from no more
than $13,600,000 in cash, the Holdings' Subordinated Notes referred to in clause
(a) of the definition thereof in the amount of $2,000,000 and the remainder in
common stock of Holdings. In addition, the Borrower shall have delivered or
caused to be delivered to the Agent counterparts for each Lender of the
following (all of which shall be satisfactory to the Agent and each Lender):
(a) Resolutions. Resolutions of the Boards of Directors and
stockholders of each Seller that is a corporation, partnership or similar
entity, and Holdings and the Borrower, each certified by the Secretary or an
Assistant Secretary of each such Seller, Holdings and the Borrower, as the case
may be, duly adopted and in full force and effect on the date of the initial
Credit Extension, authorizing the execution, delivery and performance by each
such Seller, Holdings and the Borrower, as the case may be, of the Purchase
Agreement and all other agreements, documents and instruments being delivered in
connection therewith; and
(b) Certificates. A certificate from an Authorized Officer of the
Borrower to the effect that attached thereto are true and correct copies of the
Purchase Agreement (including all schedules and annexes thereto), each of the
agreements, documents, instruments, opinions, filings, consents and approvals
that have been executed, delivered, furnished or filed pursuant to the Purchase
Agreement and each Operational Agreement.
-46-
<PAGE> 54
SECTION 5.1.6. COLLECTION ACCOUNT AGREEMENTS. All bank accounts maintained by
Holdings, the Borrower or any of their Domestic Subsidiaries that is a party to
the Security Agreement at a financial institution other than the Agent or Fleet
National Bank shall be subject to a Collection Account Agreement in the form of
Exhibit I attached hereto or such other form as may be reasonably acceptable to
the Agent.
SECTION 5.1.7. BORROWING BASE CERTIFICATE. The Agent shall have received, with
counterparts for each Lender, an initial Borrowing Base Certificate from the
Borrower, dated the date of the initial Credit Extension and calculated as of a
recent date satisfactory to the Agent, duly executed and delivered by the chief
financial Authorized Officer of the Borrower. The Borrowing Base Certificate
shall evidence the ability of the Borrower to make Borrowings of Revolving Loans
in an aggregate principal amount of not less than $2,000,000.
SECTION 5.1.8. FINANCIAL INFORMATION, ETC. The Agent shall have received, with
counterparts for each Lender, each of the following (all of which shall be
satisfactory to the Agent and each Lender):
(a) (i) audited consolidated financial statements for Holdings and its
Subsidiaries for its 1995 and 1996 Fiscal Years, (ii) unaudited consolidating
financial statements for Holdings and its Subsidiaries for its 1996 Fiscal Year,
(iii) an audited balance sheet for its 1995 and 1996 Fiscal Years and (iv)
estimated income statements for its 1997 Fiscal Year, prepared in accordance
with GAAP consistently applied and, in the case of clauses (i) and (iii), free
of any Impermissible Qualification;
(b) quarterly consolidated and consolidating unaudited financial
statements for Holdings and its Subsidiaries (including the Borrower and its
Wholly-Owned Subsidiaries) for the nine month period ending September 30, 1997,
certified by the chief financial Authorized Officer of Holdings, prepared in
accordance with GAAP consistently applied and subject to year-end audit
adjustments and the addition of schedules and footnotes at year-end;
(c) with respect to Can-Am, reviewed financial statements for its 1995
and 1996 fiscal years and audited financial statements for its 1997 fiscal year,
in each case prepared in accordance with GAAP consistently applied and, in the
case of the audited financial statements for its 1997 fiscal year, free of any
Impermissible Qualification;
(d) (i) unaudited financial statements for Can-Am for the seven month
period ending December 31, 1997, certified by the chief financial officer of
Can-Am, prepared in accordance with GAAP consistently applied and subject to
year-end audit adjustments and the addition of schedules and footnotes at
year-end, and (ii) the management estimate of financial results for Can-Am for
the twelve month period ending December 31, 1997;
(e) with respect to the Borrower, (i) audited statements of net assets
sold by American Home Products' Whitehall Robin Health Care Division and certain
domestic vitamin supplements and consumer health care brands, as of November 30,
1995 and 1996, and related statements of net revenues in excess of direct
expenses and (ii) unaudited income statements for its 1997 Fiscal Year, such
financial statements having been prepared in accordance with GAAP consistently
applied;
(f) monthly unaudited income statements and year-end balance sheets for
the Women's Home Testing product line of Holdings for Holdings' 1997 Fiscal
Year;
-47-
<PAGE> 55
(g) (i) a pro forma balance sheet for the Borrower and its Wholly-Owned
Subsidiaries, including the Women's Home Testing product line of Holdings, and
(ii) a pro forma balance sheet for the Borrower and its Wholly-Owned
Subsidiaries, excluding the Women's Home Testing product line of Holdings, in
each case after giving effect to the consummation of the transactions
contemplated by this Agreement and the other Loan Documents and the consummation
of the Acquisition. Such pro forma balance sheets shall, among other things,
evidence that the Borrower and its Wholly-Owned Subsidiaries have a total
stockholders' equity (i.e., the sum of all assets of the Borrower and its
Wholly-Owned Subsidiaries minus the sum of all liabilities of the Borrower and
its Wholly-Owned Subsidiaries) of not less than $21,000,000;
(h) pro forma financial statements for the Borrower and its
Wholly-Owned Subsidiaries for the period from the Effective Date through
December 31, 2003, after giving effect to the transactions contemplated by this
Agreement and the other Loan Documents and the consummation of the Acquisition,
which financial statements (i) shall be prepared on a monthly basis for its
Fiscal Year ending December 31, 1998, on a quarterly basis for its Fiscal Year
1999 and on an annual basis thereafter and (ii) shall establish, on a pro forma
basis from the Effective Date through December 31, 2003, compliance with the
financial covenants contained in Section 7.2.4, together with a certification by
the chief financial Authorized Officer of the Borrower to the effect that such
pro forma statements have been prepared in good faith based upon assumptions
believed by him to be reasonable at the time such assumptions are made;
(i) a pro forma balance sheet for Holdings and its Subsidiaries (other
than the Borrower and its Wholly-Owned Subsidiaries) after giving effect to the
consummation of the transactions contemplated by this Agreement and the other
Loan Documents and the consummation of the Acquisition; and
(j) projections for Holdings and its Subsidiaries (other than the
Borrower and its Wholly-Owned Subsidiaries) for the period from the Effective
Date through December 31, 2003, after giving effect to the transactions
contemplated by this Agreement and the other Loan Documents and the consummation
of the Acquisition, which financial statements (i) shall be prepared quarterly
for its Fiscal Year ending December 31, 1998 and on an annual basis thereafter
and (ii) shall establish, on a pro forma basis from the Effective Date through
December 31, 2003, compliance with the financial covenants set forth in clause
(b) of Section 7.2.4, together with a certification by the chief financial
Authorized Officer of Holdings to the effect that such pro forma statements have
been prepared in good faith based upon assumptions believed by him to be
reasonable at the time such assumptions are made.
SECTION 5.1.9. CONSENT TO ASSIGNMENT OF OPERATIONAL AGREEMENTS. Each party
(other than the Borrower and its Wholly-Owned Subsidiaries) to an Operational
Agreement referred to in clauses (b) and (c) of the definition thereof shall
have executed a consent in substantially the form of Exhibit D to the Security
Agreement.
SECTION 5.1.10. GUARANTY. The Agent shall have received the Subsidiary Guaranty,
dated as of the date hereof and duly executed by each Subsidiary of Holdings and
the Borrower (other than any Excluded Foreign Subsidiary).
-48-
<PAGE> 56
SECTION 5.1.11. PLEDGED PROPERTY. The Agent shall have received:
(a) the Pledge Agreement, dated as of the date hereof, duly executed by
Holdings, the Borrower and each Subsidiary of Holdings and the Borrower (other
than any Excluded Foreign Subsidiary);
(b) the original certificates evidencing all of the issued and
outstanding shares of capital stock required to be pledged pursuant to the terms
of the Pledge Agreement (other than the outstanding shares of capital stock
which are required to be so pledged as provided in Section 7.1.11), which
certificates shall be accompanied by undated stock powers duly executed in blank
by each relevant pledgor; and
(c) the original promissory notes evidencing intercompany Indebtedness
required to be pledged pursuant to the terms of the Pledge Agreement, duly
endorsed in blank by each relevant pledgor in favor of the Agent.
SECTION 5.1.12. UCC SEARCH RESULTS. The Agent shall have received certified
copies of Uniform Commercial Code Requests for Information or Copies (Form
UCC-11), or a similar search report certified by a party acceptable to the
Agent, dated a date reasonably near (but prior to) the date of the initial
Credit Extension, listing all effective financing statements, tax liens and
judgment liens which name Holdings, the Borrower or any Subsidiary as the debtor
and which are filed in the jurisdictions in which filings are to be made
pursuant to this Agreement and the other Loan Documents, and in such other
jurisdictions as the Agent may reasonably request, together with copies of such
financing statements (none of which (other than financing statements filed
pursuant to the terms hereof in favor of the Agent, if such Form UCC-11 or
search report, as the case may be, is current enough to list such financing
statements) shall cover any of the Collateral).
SECTION 5.1.13. SECURITY AGREEMENTS, FILINGS, ETC. The Agent shall have received
the Security Agreement, dated as of the date hereof, duly executed by Holdings,
the Borrower and each Subsidiary of Holdings and the Borrower (other than Jmar
Ames, Inc. and each Excluded Foreign Subsidiary), together with duly completed
and executed U.C.C. financing statements naming Holdings, the Borrower and each
such Subsidiary, as the case may be, as the debtor and the Agent as the secured
party, to be filed under the U.C.C. of all jurisdictions as may be necessary or,
in the opinion of the Agent, desirable to perfect the first priority security
interest of the Agent pursuant to the Security Agreement, together with evidence
satisfactory to the Agent of the filing (or delivery for filing) of appropriate
trademark, copyright and patent security supplements.
SECTION 5.1.14. SOLVENCY CERTIFICATE. The Agent shall have received, with copies
for each Lender, a solvency certificate in substantially the form of Exhibit L
attached hereto, duly executed by the chief financial Authorized Officer of
Holdings dated the date of the initial Credit Extension and expressly permitting
the Agent and the Lenders to rely thereon.
SECTION 5.1.15. CLOSING DATE CERTIFICATE. The Agent shall have received, with
copies for each Lender, a Closing Date Certificate in substantially the form of
Exhibit K attached hereto, duly executed by the chief financial Authorized
Officer of Holdings and the Borrower and dated the date of the initial Credit
Extension, in which certificate Holdings and the Borrower shall agree and
acknowledge that the statements made therein shall be true and correct
representations and warranties of Holdings and the Borrower as of such date. All
documents and agreements appended to such Closing Date Certificate shall be in
form and substance satisfactory to the Agent and the Lenders.
-49-
<PAGE> 57
SECTION 5.1.16. RELIANCE LETTERS. The Agent shall have received reliance letters
or other satisfactory authorization in favor of the Agent and the Lenders from
legal counsel providing the opinions rendered in connection with the
Acquisition, to the effect that the Agent and the Lenders shall be entitled to
rely on such opinions, together with copies of such opinions.
SECTION 5.1.17. EVIDENCE OF INSURANCE. The Agent shall have received evidence of
the insurance coverage required to be maintained pursuant to Section 7.1.4,
which insurance shall have been reviewed by one or more of the Agent's risk
managers and be satisfactory to the same.
SECTION 5.1.18. ENVIRONMENTAL MATTERS. To the extent available, the Agent shall
have received, with copies for each Lender, a certificate signed by an
Authorized Officer and dated as of the date of the initial Credit Extension,
certifying true and correct copies of all environmental assessment reports with
respect to the Borrower, each of its Subsidiaries and their respective property,
all of the foregoing to be satisfactory to the Agent and each of the Lenders.
SECTION 5.1.19. PAYMENT OF OUTSTANDING INDEBTEDNESS, ETC. The Agent shall have
received satisfactory evidence that all the Indebtedness identified in Item
7.2.2(b) ("Indebtedness to be Paid") of the Disclosure Schedule, together with
all interest, all prepayment premiums and other amounts due and payable with
respect thereto, have been paid in full and all obligations with respect thereto
have been terminated, and that all Liens securing payment of any such
Indebtedness have been released. In addition, the Agent shall have received
termination agreements and Uniform Commercial Code Form UCC-3 termination
statements or other instruments as may be suitable or appropriate in connection
with the foregoing.
SECTION 5.1.20. ESCROW AGREEMENT. The Agent shall have received executed
counterparts of the Escrow Agreement, dated as of the date hereof, duly executed
by the Borrower.
SECTION 5.1.21. TAX SHARING AGREEMENT. The Agent shall have received copies for
each Lender of duly executed counterparts of the Tax Sharing Agreement, dated as
of the date hereof, duly executed by Holdings and the Borrower, and the Agent
and each Lender shall be satisfied with the terms of the Tax Sharing Agreement
and all tax matters relating to the Transaction, Holdings, the Borrower and
their Subsidiaries.
SECTION 5.1.22. OPINIONS OF COUNSEL. The Agent shall have received legal
opinions, dated the date of the initial Credit Extension and addressed to the
Agent and all the Lenders, from Foley, Hoag & Eliot LLP, counsel to Holdings and
the Borrower, and Ohio counsel to Jmar Ames, Inc., substantially in the form of
Exhibits P-1 and P-2 hereto.
SECTION 5.1.23. BAILEE WAIVERS. If any Inventory of Holdings, the Borrower or
any of their Subsidiaries is located in a public warehouse or other facility
under the control of a third Person, each such Person shall have executed a
bailee waiver that is satisfactory to the Agent.
SECTION 5.1.24. AGENT'S CLOSING FEES, EXPENSES, ETC. The Agent shall have
received for its own account, and for the account of each Lender, as the case
may be, all fees, costs and expenses due and payable pursuant to Sections 3.3
and, if then invoiced, 10.3.
-50-
<PAGE> 58
SECTION 5.1.25. OTHER CLOSING EXPENSES. The Agent shall have received a
breakdown, in reasonable detail, of all expensed and estimated fees and expenses
payable in connection with the Acquisition and the transactions contemplated
hereby, and the same shall be satisfactory to the Agent.
SECTION 5.2. ALL CREDIT EXTENSIONS. The obligation of each Lender and Issuer to
make any Credit Extension (including the initial Credit Extension) shall be
subject to the fulfillment of each of the conditions precedent set forth in this
Section 5.2 to the satisfaction of the Agent:
SECTION 5.2.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and
after giving effect to any Credit Extension:
(a) the representations and warranties set forth in Article VI and in
the other Loan Documents shall be true and correct in all material respects with
the same effect as if then made (unless stated to relate solely to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date);
(b) the sum of the aggregate outstanding principal amount of all
Revolving Loans and aggregate amount of Letter of Credit Outstandings does not
exceed the lesser of (i) the Revolving Loan commitment Amount or (ii) the then
existing Borrowing Base Amount;
(c) the aggregate amount of Letter of Credit Outstandings does not
exceed the lesser of (i) the Revolving Loan Commitment Amount or (ii)
$1,000,000; and
(d) no Default or Event of Default shall have then occurred and be
continuing.
SECTION 5.2.2. CREDIT EXTENSION REQUEST, ETC. The Agent shall have
received a Borrowing Request, if Loans are being requested, or an Issuance
Request, if a Letter of Credit is being requested or extended, in each case as
herein provided. Each of the delivery of a Borrowing Request or Issuance Request
and the acceptance by the Borrower of the proceeds of such Credit Extension
shall constitute a representation and warranty by the Borrower that on the date
of such Credit Extension (both immediately before and after giving effect to
such Credit Extension and the application of the proceeds thereof) the
statements made in Section 5.2.1 are true and correct.
SECTION 5.2.3. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be satisfactory in form and substance
to the Agent, the Lenders and their counsel, and the Agent, the Lenders and
their counsel shall have received all information, approvals, opinions,
documents or instruments as the Agent, the Lenders or their counsel may
reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, each Issuer and the Agent to
enter into this Agreement and to make Credit Extensions hereunder, Holdings and
the Borrower represents and warrants for itself (as applicable) to the Agent,
each Issuer and each Lender as set forth in this Article VI.
-51-
<PAGE> 59
SECTION 6.1. ORGANIZATION, ETC. Holdings, the Borrower and each of their
Subsidiaries is a corporation validly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its business requires such qualification
(except where the failure to be so qualified would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect or impair in
any material respect the ability of the Agent to enforce its rights hereunder),
and has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its Obligations under this
Agreement, the Notes and each other Loan Document to which it is a party and to
own and hold under lease its property and to conduct its business substantially
as currently conducted by it.
SECTION 6.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, delivery
and performance by Holdings and the Borrower of this Agreement, the Notes and
each other Loan Document executed or to be executed by it, and the execution,
delivery and performance by each other Obligor of each Loan Document executed or
to be executed by it, are within Holdings', the Borrower's and each such
Obligor's corporate powers, have been duly authorized by all necessary corporate
action, and do not
(a) contravene or result in a default under Holdings', the Borrower's
or any such Obligor's Organic Documents;
(b) contravene or result in a default under any law or governmental
regulation or court decree or order binding on Holdings, the Borrower or any
such Obligor;
(c) contravene (i) any material provision of any indenture, agreement
or other instrument to which Holdings, the Borrower or any such Obligor is a
party or by which any of them or any of their property is or may be bound or
(ii) be in conflict with, result in a breach of or constitute (along or with
notice or lapse of time or both) a default under, or give rise to any right to
accelerate or to require the prepayment, repurchase or redemption of any
obligation under any such indenture, agreement or other instrument; or
(d) result in, or require the creation or imposition of, any Lien on
Holdings', the Borrower's or any such Obligor's properties.
SECTION 6.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or other Person is required for
(a) the due execution, delivery or performance by Holdings, the
Borrower or any other Obligor of this Agreement, the Notes or any other Loan
Document to which it is a party;
(b) the grant by Holdings, the Borrower of the security interests,
pledges and Liens granted by the Loan Documents; or
(c) for the perfection of or the exercise by the Agent of its rights
and remedies under this Agreement or any other Loan Document.
SECTION 6.4. VALIDITY, ETC. This Agreement constitutes, and the Notes and each
other Loan Document executed by Holdings and the Borrower will, on the due
execution and delivery thereof, constitute, the
-52-
<PAGE> 60
legal, valid and binding obligations of Holdings and the Borrower enforceable in
accordance with their respective terms; and each Loan Document executed pursuant
hereto by each other Obligor will, on the due execution and delivery thereof by
such Obligor, be the legal, valid and binding obligation of such Obligor
enforceable in accordance with its terms, subject in each case to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally, and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law). Each of the Loan Documents which purports to create a security
interest creates a valid first priority registered or possessory security
interest in the Collateral subject thereto subject (in the case of
non-possessory security interests) only to Liens permitted by Section 7.2.3,
securing the payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interest have been
duly taken (except with respect to the UCC-1 financing statements to be filed
pursuant to Section 5.1.13, which UCC-1 financing statements shall be filed
promptly following the date of the initial Credit Extension).
SECTION 6.5. FINANCIAL INFORMATION. The balance sheets and financial statements
of Holdings and the Borrower delivered pursuant to Section 5.1.8 and Section
7.1.1 have each been or will be, as the case may be, prepared in accordance with
GAAP consistently applied and do or will, as the case may be, present fairly the
financial condition of the corporations covered thereby as at the dates thereof
and the results of their operations for the periods then ended.
SECTION 6.6. NO MATERIAL ADVERSE CHANGE.
(a) There has been no material adverse change in the condition
(financial or otherwise), operations, assets, business, properties or prospects
of Holdings and its Subsidiaries (other than the Borrower and its Wholly-Owned
Subsidiaries), taken as a whole, since December 31, 1996, the Borrower since
December 31, 1997 and Can-Am since May 31, 1997, in each case as reflected in
the applicable financial statements delivered pursuant to Section 5.1.8.
(b) From and after the date of the initial Credit Extension, there has
been no material adverse change in the condition (financial or otherwise),
operations, assets, business, properties or prospects of Holdings and its
Subsidiaries, taken as a whole, or the Borrower and its Wholly-Owned
Subsidiaries, taken as a whole, as reflected in the pro forma balance sheet
delivered pursuant to clause (e) of Section 5.1.8.
SECTION 6.7. LITIGATION, LABOR CONTROVERSIES, ETC. There is no pending or, to
the knowledge of Holdings or the Borrower, threatened litigation, action,
proceeding or labor controversy affecting Holdings, the Borrower or any of their
Subsidiaries, or any of their respective properties, businesses, assets or
revenues, (a) with respect to this Agreement, the Notes or any other Loan
Document or (b) which could reasonably be expected to have a Material Adverse
Effect. The hours worked by and payments made to employees of Holdings, the
Borrower and their Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or other law dealing
with such matters. The consummation of the Acquisition will not give rise to any
right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which the Borrower or any such Subsidiary
is bound.
SECTION 6.8. SUBSIDIARIES. As of the date of the initial Credit Extension, the
authorized capital stock or the other equity interests in Holdings, the
Borrower, their Subsidiaries and their Affiliates, including the holders
thereof, is set forth in Item 6.8 ("Initial Capitalization") of the Disclosure
Schedule, and Holdings will not have any additional Subsidiaries after the date
of the initial Credit Extension except to
-53-
<PAGE> 61
the extent that it has complied with Section 7.1.9. The Borrower will not
establish after the Effective Date (a) any additional Subsidiaries without (i)
obtaining the prior consent of the Agent and (ii) complying with Section 7.1.9
or (b) make any Investments in any other Person without complying with the
applicable terms of this Agreement. The shares of capital stock or other
ownership interests so indicated on the Disclosure Schedule are fully paid and
non-assessable and are owned by the Borrower, directly or indirectly, free and
clear of all Liens (other than Liens in favor of the Agent pursuant to the Loan
Documents).
SECTION 6.9. OWNERSHIP OF PROPERTIES. Holdings, the Borrower and each of their
Subsidiaries has good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all Liens, charges or claims (including infringement claims with respect to
patents, trademarks, copyrights and the like) except as permitted pursuant to
Section 7.2.3. Holdings, the Borrower and each of their Subsidiaries has
complied in all material respect with all obligations under all material leases
to which it is a party and all such leases are in full force and effect.
Holdings, the Borrower and each of their Subsidiaries enjoys peaceful and
undisturbed possession under all such material leases.
SECTION 6.10. TAXES. Holdings, the Borrower and each of their Subsidiaries have
filed all tax returns and reports required by law to have been filed by it and
have paid all taxes and governmental charges thereby shown to be owing, except
any such taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books.
SECTION 6.11. PENSION AND BENEFIT PLANS. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section 412 of the Code
or Section 302 of ERISA) has occurred during the five-year period prior to the
date on which this representation is made with respect to any Pension Plan, and
each Pension Plan has complied in all material respects with the applicable
provisions of ERISA and the Code. No termination of a Single Employer Plan has
occurred, and no Lien in favor of the PBGC or a Pension Plan has arisen during
such five-year period. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Pension
Plans) did not, as of the last annual valuation date prior to the date on which
this representation is made, exceed the value of the assets of such Pension Plan
allocable to such accrued benefits by a material amount. Neither Holdings, the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan which has resulted or could reasonably be
expected to result in a material liability under ERISA, and neither Holdings,
the Borrower nor any Commonly Controlled Entity would become subject to any
material liability under ERISA if the Borrower or any such Commonly Controlled
Entity were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation is
made.
SECTION 6.12. ENVIRONMENTAL WARRANTIES. Except as set forth in Item 6.12
("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and property (including underlying groundwater) owned,
operated or leased by Holdings, the Borrower or any of their Subsidiaries have
been, and continue to be, owned, operated or leased by Holdings, the Borrower
and their Subsidiaries in compliance with all Environmental Laws, except for
such violations that, singly or in the aggregate, would not reasonably be
expected to result in a liability exceeding a Material Environmental Amount;
-54-
<PAGE> 62
(b) there have been no past, and there are no pending or threatened
(i) claims, complaints, notices or requests for information
received by Holdings, the Borrower or any of their Subsidiaries with respect to
any alleged violation of any Environmental Law that, singly or in the aggregate,
may reasonably be expected to result in a liability exceeding a Material
Environmental Amount; or
(ii) complaints, notices or inquiries to Holdings, the
Borrower or any of their Subsidiaries regarding potential liability under any
Environmental Law that, singly or in the aggregate, may reasonably be expected
to result in a liability exceeding a Material Environmental Amount;
(c) there have been no Releases of Hazardous Materials at, on or under
any property now or previously owned, operated or leased by Holdings, the
Borrower or any of their Subsidiaries that, singly or in the aggregate, has, or
may reasonably be expected to result in having, a liability exceeding a Material
Environmental Amount;
(d) Holdings, the Borrower and their Subsidiaries have been issued and
are in material compliance with all permits, certificates, approvals, licenses
and other authorizations relating to environmental matters and necessary or
desirable for their businesses;
(e) no property now or previously owned, operated or leased by
Holdings, the Borrower or any of their Subsidiaries is listed or (to the best of
their knowledge) proposed for listing on the National Priorities List pursuant
to CERCLA, on the CERCLIS or on any similar state list of sites requiring
investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or previously
owned or leased by Holdings, the Borrower or any of their Subsidiaries;
(g) neither Holdings, the Borrower nor any of their Subsidiaries has
transported or arranged for the transportation of any Hazardous Material to any
location which is listed or (to the best of their knowledge) proposed for
listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on
any similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against
Holdings, the Borrower or any such Subsidiary thereof for any remedial work,
damage to natural resources or personal injury (including claims under CERCLA)
which, singly or in the aggregate, may reasonably be expected to result in a
liability exceeding a Material Environmental Amount;
(h) there are no polychlorinated biphenyls or friable asbestos present
at any property now or previously owned, operated or leased by Holdings, the
Borrower or any of their Subsidiaries that, singly or in the aggregate, may
reasonably be expected to result in a liability exceeding a Material
Environmental Amount; and
(i) no conditions exist at, on or under any property now or previously
owned, operated or leased by Holdings, the Borrower or any of their Subsidiaries
which, with the passage of time, or the giving of notice or both, would give
rise to liability under any Environmental Law which would reasonably be expected
to have a Material Environmental Amount.
-55-
<PAGE> 63
SECTION 6.13. INVENTORY.
(a) All Inventory of Holdings, the Borrower and their Domestic
Subsidiaries are located on or is in transit to the premises described on Item
6.13(a) ("Inventory Locations") of the Disclosure Schedule, as such Item may
hereafter be supplemented from time to time. All Inventory located on any
property leased to Holdings, the Borrower or any of their Domestic Subsidiaries
or in or with, as the case may be, a public warehouse or other third party is
subject to a landlord or bailee waiver, as applicable, and appropriately
completed and filed UCC-1 financing statements, in each case to which the Agent
has confirmed to the Borrower is in form and substance acceptable to it.
(b) The Borrower shall at all times hereafter keep correct and accurate
records itemizing and describing generally the kind, type and quantity of
Inventory, the Borrower's cost therefor and daily withdrawals therefrom and
additions thereto, all of which records shall be available during the Borrower's
usual business hours at the request of the Agent.
SECTION 6.14. ACCURACY OF INFORMATION.
(a) All factual information heretofore or contemporaneously furnished
by or on behalf of Holdings, the Borrower, any of their Subsidiaries in writing
to the Agent or any Lender for purposes of or in connection with this Agreement
or any transaction contemplated hereby or by the Acquisition is, and all other
such factual information hereafter furnished by or on behalf of Holdings, the
Borrower, any of their Subsidiaries and any of their Affiliates to the Agent or
any Lender will be, true and accurate in every material respect (taken as a
whole) on the date as of which such information is dated or certified and, as to
information heretofore delivered, as of the date of the initial Credit
Extension, and such information does not, or shall not, as the case may be,
taken as a whole omit to state any material fact necessary to make such
information not misleading.
(b) All written information prepared by any consultant or professional
advisor on behalf of Holdings, the Borrower or any of its Subsidiaries which was
furnished to the Agent or any Lender in connection with the preparation,
execution and delivery of this Agreement (including, without limitation, the
Memorandum), has been reviewed by Holdings or the Borrower, as the case may be,
and nothing has come to the attention of Holdings or the Borrower in the context
of such review which would lead it to believe that such information or the
assumptions on which such information is based, taken as a whole (together with
the information referred to in clause (a)), is not true and correct in all
material respects or that such information, taken as a whole, omits to state any
material fact necessary to make such information not misleading in any material
respect.
(c) Insofar as any of the information described above includes
assumptions, estimates, projections or opinions, Holdings or the Borrower, as
the case may be, has reviewed such matters and nothing has come to the attention
of Holdings or the Borrower, as the case may be, in the context of such review
which would lead it to believe that such matters, taken as a whole, were not or
are not true and correct in all material respects or that such assumptions,
estimates, projections or opinions omit to state any material fact necessary to
make such assumptions, estimates, projections or opinions not reasonable or not
misleading in any material respect. All projections and estimates have been
prepared in good faith on the basis of reasonable assumptions and represent the
best estimate of future performance by the party supplying the same at the time
such assumptions were made.
-56-
<PAGE> 64
SECTION 6.15. PURCHASE AGREEMENT. All representations and warranties by Holdings
and the Borrower in the Purchase Agreement are true and correct in all material
respects as of the date hereof as if made on the date hereof and, to the best
knowledge of Holdings and the Borrower, all the representations and warranties
by the Sellers in the Purchase Agreement are true and correct in all material
respects as of the date of the initial Credit Extension.
SECTION 6.16. ABSENCE OF DEFAULT. Neither Holdings, the Borrower nor any of
their Subsidiaries is in default in the payment of (or in the performance of any
obligation applicable to) any Indebtedness, or in violation of any law or
governmental regulation or court decree or order in any material respect.
SECTION 6.17. REGULATIONS G, U AND X. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
"margin stock". None of the proceeds of any Loan or any Letter of Credit will be
used for the purpose of, or be made available by the Borrower or any of its
Subsidiaries in any manner to any other Person to enable or assist such Person
in, directly or indirectly purchasing or carrying "margin stock". Terms for
which meanings are provided in F.R.S. Board Regulation G, U or X or any
regulations substituted therefor, as from time to time in effect, are used in
this Section 6.17 with such meanings.
SECTION 6.18. GOVERNMENT REGULATION. Neither Holdings, the Borrower nor any of
their Subsidiaries is an "investment company" nor a "company controlled by an
investment company" within the meaning of the Investment Company Act of 1940, as
amended, or a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 6.19. SOLVENCY. Holdings and its Domestic Subsidiaries (other than the
Borrower and its Wholly-Owned Subsidiaries), taken as a whole, and the Borrower
and its Wholly-Owned Subsidiaries, taken as a whole, are, and after giving
effect to the Acquisition and the incurrence of all Indebtedness and obligations
being incurred in connection herewith and therewith pursuant to the Loan
Documents or otherwise will be, and will continue to be, Solvent.
SECTION 6.20. INSURANCE. Item 6.20 ("Insurance") of the Disclosure Schedule sets
forth a true, complete and correct description of all insurance maintained by
Holdings, the Borrower and their Subsidiaries as of the date of the initial
Credit Extension. As of such date, such insurance is in full force and effect
and all premiums have been duly paid.
SECTION 6.21. SENIOR INDEBTEDNESS, ETC. All principal of, and accrued interest
owing on, all the Credit Extensions and all other Obligations owing hereunder
and under the other Loan Documents are "Senior Indebtedness," "Senior Debt" and
"Superior Debt", as applicable, under the Holdings' Subordinated Notes and the
Borrower Subordinated Notes. Holdings and the Borrower have duly executed and
delivered each Holdings' Subordinated Note and the Borrower Subordinated Note,
as the case may be, and each such Note constitutes the legal, valid and binding
obligation of Holdings and the Borrower, as the case may be, enforceable against
Holdings and the Borrower, as the case may be, in accordance with its terms
subject, as to enforcement, only to bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of creditors' rights
generally. Holdings and the Borrower have delivered true and complete copies of
each Holdings' Subordinated Note and Borrower Subordinated Note, as the case may
be, to the Lenders, together with all amendments, waivers and other changes
thereto. Notwithstanding any bankruptcy, insolvency, reorganization, moratorium
or similar proceeding in respect of Holdings or
-57-
<PAGE> 65
the Borrower, at all times (i) the subordination provisions of each Holdings'
Subordinated Note and Borrower Subordinated Note will be enforceable against the
holders thereof by the Agent and the Lenders, (ii) all Obligations, including
the Obligations to pay principal of and interest on the Credit Extensions,
constitute "Senior Indebtedness", "Senior Debt" and "Superior Debt", as
applicable, as defined in each Holdings' Subordinated Note and Borrower
Subordinated Note, as applicable, and all such Obligations will be entitled to
the benefits of subordination created by the Holdings' Subordinated Notes and
(iii) all payments of principal of or interest on each Holdings' Subordinated
Note and Borrower Subordinated Note made by Holdings or the Borrower, as the
case may be, from the liquidation of its property will be subject to such
subordination provisions. At the time of the execution and delivery of each
Holdings' Subordinated Note and Borrower Subordinated Note, the same was duly
registered or qualified under all applicable United States Federal and state
securities laws or exempt therefrom. Holdings and the Borrower acknowledge that
each of the Agent and Lender is entering into this Agreement, and has extended
the Loans and other Credit Extensions, in reliance upon the subordination
provisions contained in each Holdings' Subordinated Note and Borrower
Subordinated Note and the representations and warranties made pursuant to this
Section.
SECTION 6.22. OPERATIONAL AGREEMENTS. The agreements identified in the
definition "Operational Agreements" are all material agreements, as of the date
of the initial Credit Extension, with respect to the Borrower or its
Subsidiaries relating to the provision of behalf of the Borrower or its
Subsidiaries of management, supply of product, distribution, marketing or
manufacturing services, which services the subject of such agreements could not
be readily replaced (without disrupting in any material respect the business or
operations of the Borrower or its Subsidiaries) within a reasonable period of
time by another Person providing such services at a price and quality reasonably
comparable to the price and quality such services are provided on the date of
the initial Credit Extension.
ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS. Holdings and the Borrower agree for itself
with the Agent, each Issuer and each Lender that, until all Commitments have
terminated and all Obligations have been paid in cash and performed in full,
Holdings and the Borrower will (to the extent applicable) perform the
obligations set forth in this Section 7.1.
SECTION 7.1.1. FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. Holdings and the
Borrower will (to the extent applicable) furnish, or will cause to be furnished,
to each Lender and the Agent copies of the following financial statements,
reports, notices and information:
(a) as soon as available and in any event within 30 days after the end
of each of Fiscal Month of the Borrower, consolidated and consolidating
unaudited balance sheets of the Borrower and its consolidated Subsidiaries as of
the end of such Fiscal Month and its consolidated and consolidating unaudited
statements of earnings and cash flow of the Borrower and its consolidated
Subsidiaries for such Fiscal Month and for the period commencing at the end of
the previous Fiscal Year of the Borrower and ending with the end of such Fiscal
Month, together with (i) comparable information adjusted to reflect any changes
at the close of and for the corresponding Fiscal Month for the prior Fiscal Year
and for the corresponding portion of such Fiscal Year and (ii) a comparison of
such financial condition with the projections for the applicable period provided
under clause (j), in each case certified by the chief financial Authorized
Officer of the Borrower as fairly presenting the financial position of the
Borrower and its
-58-
<PAGE> 66
consolidated Subsidiaries as of the date thereof and for the period then ended,
subject to normal year-end adjustments and the addition of notes and schedules
at year-end;
(b) as soon as available and in any event within 45 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower,
consolidated and consolidating unaudited balance sheets of the Borrower and its
consolidated Subsidiaries as of the end of such Fiscal Quarter and unaudited
consolidated and consolidating statements of earnings and cash flow of the
Borrower and its consolidated Subsidiaries for such Fiscal Quarter and for the
period commencing at the end of the previous Fiscal Year of the Borrower and
ending with the end of such Fiscal Quarter, together with (i) comparable
information adjusted to reflect any changes at the close of and for the
corresponding Fiscal Quarter for the prior Fiscal Year and for the corresponding
portion of such Fiscal Year and (ii) a comparison of such financial condition
with the projections for the applicable period provided under clause (j), in
each case certified by the chief financial Authorized Officer of the Borrower as
fairly presenting the financial position of the Borrower and its consolidated
Subsidiaries as of the date thereof and for the period then ended, subject to
normal year-end adjustments and the addition of notes and schedules at year-end;
(c) as soon as available and in any event within 90 days after the end
of each Fiscal Year of the Borrower, a copy of the annual audit report for such
Fiscal Year for the Borrower and its Subsidiaries, including therein
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such Fiscal Year and consolidated and
consolidating statements of earnings and consolidated statements of cash flow of
the Borrower and its Subsidiaries for such Fiscal Year, in each case certified
(without any Impermissible Qualification) in a manner acceptable to the Agent
and the Required Lenders by Arthur Anderson LLP or other independent public
accountants acceptable to the Agent and the Required Lenders, together with a
separate certificate (which may be limited to accounting matters and disclaim
any responsibility for legal interpretation) from such accountants containing a
computation of, and showing compliance with, each of the financial ratios and
restrictions contained in clause (a) of Section 7.2.4 and to the effect that, in
making the examination necessary for the signing of such annual report by such
accountants, they have not become aware of any Default or Event of Default that
has occurred and is continuing, or, if they have become aware of such Default or
Event of Default, describing such Default or Event of Default and the steps, if
any, being taken to cure it, and together with a certificate, executed by the
chief financial Authorized Officer of the Borrower, showing (in reasonable
detail and with appropriate calculations and computations in all respects
satisfactory to the Agent) the calculation of Excess Cash Flow; provided, that
the consolidating balance sheets and financial statements referred to above are
not required to be audited;
(d) concurrently with the delivery of the financial statements pursuant
to clauses (b) and (c), a certificate from the chief financial Authorized
Officer of the Borrower that, to the best of his knowledge, each Obligor during
the period covered by such financial statements has observed or performed all of
its covenants and other agreements contained in this Agreement and the other
Loan Documents required to be observed, performed or satisfied by it, and that
such Authorized Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate;
(e) as soon as available and in any event within 45 days after the end
of each Fiscal Quarter of the Borrower and Holdings, as the case may be, (a) a
Compliance Certificate executed by the chief financial Authorized Officer of the
Borrower and (b) a Holdings' Compliance Certificate executed by the chief
financial Authorized Officer of Holdings, showing in each case (in reasonable
detail and with appropriate calculations and computations in all respects
satisfactory to the Agent) compliance with the applicable financial covenants
set forth in Section 7.2.4 and otherwise herein;
-59-
<PAGE> 67
(f) as soon as possible and in any event within three Business Days
after the occurrence of each Default, a statement of an Authorized Officer of
the Holdings or the Borrower, as the case may be, setting forth details of such
Default and the action which Holdings or the Borrower has taken and proposes to
take with respect thereto;
(g) as soon as possible and in any event within three days after (i)
the occurrence of any adverse development with respect to any litigation,
action, proceeding, or labor controversy described in Section 6.7 or (ii) the
commencement of any labor controversy, litigation, action, proceeding of the
type described in Section 6.7, notice thereof by an Authorized Officer of
Holdings or the Borrower, as the case may be, and copies of all documentation
relating thereto;
(h) concurrently after the sending or filing thereof, copies of (i) all
reports and documents which Holdings, the Borrower or any of their Subsidiaries
sends to its security holders generally and (ii) all reports, financial
statements and registration statements which Holdings, the Borrower or any of
their Subsidiaries files with the Securities Commission or any securities
exchange, except that neither Holdings nor the Borrower shall be required to
deliver any of the foregoing which has previously been delivered hereunder;
(i) within 15 days after the end of each Fiscal Month of the Borrower,
a Borrowing Base Certificate calculated as of the last day of the immediately
preceding Fiscal Month, and executed by the chief financial Authorized Officer
of the Borrower;
(j) promptly when available and, in any event, within 30 days prior to
the last day of each Fiscal Year of the Borrower, a budget in form and scope
satisfactory to the Agent for the Borrower for its next succeeding Fiscal Year
(including monthly consolidated income statements and quarterly consolidated
balance sheets and cash flows) which projections shall be accompanied by a
certificate of the chief financial Authorized Officer of the Borrower stating
that such projections are based on reasonable estimates, information and
assumptions and that such Authorized Officer has no reason to believe that such
projections are incorrect or misleading in any material respect;
(k) concurrently with any delivery under clause (c), the final
management letter,if any, prepared by the independent public accountants who
prepared the delivered financial statements with respect to internal audit and
financial controls of the Borrower and its Subsidiaries;
(l) as soon as possible, all purchase price adjustments that are made
pursuant to the Purchase Agreement;
(m) within 15 days after the end of each Fiscal Month of the Borrower,
an aging schedule of Receivables and a schedule of Inventory designations, all
in a form that is satisfactory to the Agent;
(n) promptly after the receipt thereof, copies of any notice of
non-payment or underpayment of taxes or other governmental charges by Holdings'
or the Borrower that is received from any relevant governmental authority;
(o) promptly following the receipt, and concurrently with the delivery
of, all material notices under any Operational Agreement, any Borrower
Subordinated Note or any Holdings' Subordinated Note; and
-60-
<PAGE> 68
(p) such other information respecting the condition or operations,
financial or otherwise, of Holdings, the Borrower or any of their Subsidiaries
as any Lender through the Agent may from time to time reasonably request in
connection with the performance of their obligations hereunder, including, with
respect to the Borrower, establishing the eligibility of the Accounts comprising
the Eligible Accounts and the eligibility of the Inventory comprising the
Eligible Inventory included in each Borrowing Base Certificate delivered
pursuant to clause (i).
SECTION 7.1.2. COMPLIANCE WITH LAWS, ETC. Holdings and the Borrower will, and
will cause each of their Subsidiaries to, comply in all material respects with
all governmental rules and regulations and all other material applicable laws,
rules, regulations and orders, such compliance to include (without limitation):
(a) the maintenance and preservation of its corporate existence and
qualification as a foreign corporation in any jurisdiction where Holdings, the
Borrower or any of their Subsidiaries have assets or conduct business, except
where failure to maintain and preserve such existence or qualification which
would not reasonably be expected to have a Material Adverse Effect; and
(b) the payment, before the same become delinquent, of all (i) taxes,
assessments and governmental charges imposed upon it or upon its property and
(ii) all lawful claims for labor, materials and supplies or otherwise that, if
unpaid, could reasonably be expected to give rise to a Lien upon any of their
properties, except to the extent being diligently contested in good faith by
appropriate proceedings which suspend collection of the contested obligation,
tax, assessment or charge and enforcement of a Lien and for which adequate
reserves in accordance with GAAP shall have been set aside on its books.
SECTION 7.1.3. MAINTENANCE OF PROPERTIES. Holdings and the Borrower will, and
will cause each of their Subsidiaries to, maintain, preserve, protect and keep
its properties in good repair, working order and condition, and make necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
SECTION 7.1.4. INSURANCE.
(a) Holdings and the Borrower shall maintain, and shall cause each of
their Subsidiaries to maintain insurance policies and coverage with respect to
all their property and assets at least as expansive as set forth on Item 6.20
("Insurance") of the Disclosure Schedule and as may be required pursuant to
clause (g) of Section 7.1.11, and, in any event, to such extent and covering
such risks as is customary for companies in sound financial condition in the
same or similar businesses and operations and in the same or similar locations.
In addition, the Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain such other additional insurance coverage in such
amounts and with respect to such risks as the Agent or the Lenders may
reasonably request from time to time. All such insurance shall be provided (i)
by insurers authorized by Lloyds of London to underwrite such risks, (ii) by
insurers having an A.M. Best policyholders rating of not less than A or (iii) by
such other insurers as the Agent may approve in writing.
(b) All premiums on insurance policies required under this Section
shall be paid by Holdings or the Borrower, as applicable. All insurance policies
relating "key man" life insurance, business interruption and any loss or damage
sustained in respect of any item constituting a part of the Collateral shall
contain a loss payable endorsement, in form and substance satisfactory to the
Agent, in favor of the Agent. All insurance policies relating to general
liability, umbrella and excess insurance coverages shall
-61-
<PAGE> 69
contain an additional insured endorsement, in form and substance satisfactory to
the Agent, in favor of the Agent. All such insurance policies shall provide
that:
(i) neither Holdings, the Borrower, any of their Subsidiaries,
the Agent, the Issuers or any of the Lenders shall be a coinsurer thereunder;
and
(ii) such insurance shall not be affected by any unintentional
act or negligence or representation or warranty on the part of Holdings, the
Borrower or any of their Subsidiaries or other owner of the policy or the
property described in such policy.
All such insurance policies shall provide that the insurer shall, simultaneously
with the delivery to Holdings, the Borrower or any of their Subsidiaries of any
notice under such policy, deliver to the Agent a copy of such notice. All such
insurance policies and loss payable clauses shall provide that they may not be
cancelled, amended or terminated unless the Agent is given at least the same
number of days' notice that the insurance company which issued such policies is
required to give Holdings, the Borrower or any of their Subsidiaries, but in no
event less than 30 days' prior written notice.
(c) Holdings and the Borrower shall provide or cause to be provided to
the Agent and to its insurance consultant (or any agent, officer or employee of
the Agent) such other information relating to its insurance coverage as may be
reasonably requested by the Agent. The insurance consultant (through its
officers or employees) shall have the right to visit Holdings' and the
Borrower's offices, upon reasonable prior notice during usual business hours, to
inspect the insurance policies provided for herein. The reasonable fees, costs
and expenses of the insurance consultant shall be paid for by Holdings and the
Borrower, as the case may be.
(d) If no Default or Event of Default has occurred and is continuing,
Holdings, the Borrower and their Subsidiaries may, during the five Business Day
period following receipt by the Agent of any proceeds of insurance that has been
paid on account of the loss or damage to any Collateral, apply the same to
repair, restore or replace the asset or property on account of which such
proceeds of insurance were paid; provided, however, that in the case of the
Borrower and its Wholly-Owned Subsidiaries if such amount is $200,000 or greater
such proceeds may only be reinvested with the consent of the Agent. If Holdings
or the Borrower desire to so apply such insurance proceeds it shall notify the
Agent within five Business Days after receipt by the Agent of any such insurance
proceeds of its desire to do so and (i) described in reasonable detail the
nature of such loss or damage and (ii) include a statement that Holdings, the
Borrower or one or more of its Subsidiaries, as the case may be, has a
reasonable and good faith intention to apply such insurance proceeds within 60
days of its receipt to the repair, replacement or restoration of such lost or
damaged property. To the extent that Holdings or the Borrower does not send the
notice referred to in the preceding sentence, the relevant proceeds of insurance
shall constitute Net Insurance Proceeds and shall be applied by the Agent as
mandatory prepayment of the Loans pursuant to Section 3.1.2. In addition, to the
extent Holdings or the Borrower sends such notice but does not enter into a
binding agreement to apply such insurance proceeds for the repair, replacement
or restoration of such property or asset within 60 days after the receipt
thereof from the Agent, all of such unutilized insurance proceeds shall also
constitute Net Insurance Proceeds and be applied as a mandatory prepayment of
the Loans pursuant to Section 3.1.2. All proceeds of insurance paid on account
of the loss or damage to any Collateral of the Borrower or any of its
Wholly-Owned Subsidiaries in an amount exceeding $200,000 (unless the Agent
authorizes otherwise) or during the continuance of any Default or Event of
Default shall be retained by the Agent and immediately constitute Net Insurance
Proceeds to be applied as a mandatory prepayment of the Loans pursuant to
Section 3.1.2.
-62-
<PAGE> 70
(e) Following the occurrence and during the continuance of any Event of
Default, if Holdings, the Borrower or any of their Subsidiaries fail to maintain
any of the policies of insurance required by this Section the Agent may (but
shall not be required) at the cost and expense of Holdings, the Borrower and
their Subsidiaries to obtain and maintain such policies of insurance, pay the
related premiums and take such other action as it deems reasonably advisable.
SECTION 7.1.5. BOOKS AND RECORDS; ACCOUNTS.
(a) Holdings and the Borrower will, and will cause each of their
Subsidiaries to, keep books and records which accurately reflect all of its
business affairs and transactions.
(b) Holdings and the Borrower will, and will cause each of their
Subsidiaries to, permit the Agent and each Lender or any of their respective
representatives (including outside auditors), at reasonable times and intervals
and upon reasonable notice, to visit all of its offices, to discuss its
financial matters with its officers and independent public accountant (and
Holdings and the Borrower hereby authorize such independent public accountant to
discuss Holding's and the Borrower's financial matters with each Lender or its
representatives whether or not any representative of Holdings or the Borrower,
as the case may be, is present) and to examine (and, at the expense of the
Borrower, copy extracts from) and conduct audits of any of its inventory,
receivables, other assets and books or other corporate records (including
computer records).
(c) Holdings and the Borrower, as the case may be, shall pay any fees
of such independent public accountant incurred in connection with the Agent's or
(during the continuance of any Default or Event of Default) any Lender's
exercise of its rights pursuant to this Section. The Agent, in its sole
discretion and at the sole expense of Holdings and the Borrower, as the case may
be, may conduct such audits and examinations as the Agent reasonably deems
necessary or advisable.
SECTION 7.1.6. ENVIRONMENTAL COVENANT.
(a) Holdings and the Borrower will, and will cause each of their
Subsidiaries, lessees and other Persons occupying any of its properties to,
(i) use and operate all of its facilities and properties in
compliance with all Environmental Laws, keep all permits, approvals,
certificates, licenses and other authorizations relating to environmental
matters in effect and remain in compliance therewith, and handle all Hazardous
Materials in compliance with all applicable Environmental Laws, except where the
failure to do any of the foregoing would not, singly or in the aggregate,
reasonably be expected to result in a liability exceeding a Material Environment
Amount;
(ii) take all such actions as are necessary and appropriate so
that no liability with respect to the Environmental Laws may arise which could
reasonably be expected to result in a liability exceeding a Material Environment
Amount;
(iii) immediately notify the Agent and provide copies upon
receipt of all written claims, complaints, notices or inquiries relating to the
condition of its facilities and properties or compliance with Environmental
Laws, and shall promptly cure and have dismissed with prejudice to the
satisfaction of the Agent any actions and proceedings relating to compliance
with or liability pursuant to Environmental Laws
-63-
<PAGE> 71
which, singly or in the aggregate, could reasonably be expected to result in a
liability exceeding a Material Environment Amount;
(iv) provide such information and certifications which the
Agent may reasonably request from time to time to evidence compliance with this
Section 7.1.6.
(b) Prior to acquiring any ownership or leasehold interest in
real property, or other interest in any real property that could give rise to
Holdings, the Borrower or any of their Subsidiaries being found an owner,
operator or otherwise subject to potential liability under any Environmental
Law, Holdings and the Borrower shall (i) obtain a written report by a reputable
independent environmental consultant reasonably acceptable to the Agent (an
"Environmental Consultant") of the Environmental Consultant's assessment of the
presence or potential presence of significant levels of any Hazardous Material
on, in, under, or about such property, or of other conditions that could give
rise to a potentially significant liability under violations of any
Environmental Law relating to such acquisition, and notify the Agent of such
potential acquisition; and (ii) if requested by the Agent after learning of such
potential acquisition, provide such report to the Agent and afford the Agent a
reasonable opportunity to review and, if requested by the Agent, discuss such
report with the Environmental Consultant who prepared it and a knowledgeable
representative of Holdings or the Borrower, as the case may be. The Agent shall
have the right, but shall not have any duty, to obtain, review, or discuss any
such report.
(c) Promptly upon the Agent's request if there has occurred,
or the Agent reasonably anticipates the there may occur, an Event of Default,
permit an environmental consultant whom the Agent in its discretion designates,
subject to the approval of Holdings or the Borrower, as the case may be, which
shall not be unreasonably withheld or delayed, to perform an environmental
assessment on all real property owned or leased by Holdings, the Borrower or any
of their Subsidiaries (including, without limitation: reviewing documents;
interviewing knowledgeable persons; and sampling and analyzing soil, air,
surface water, groundwater, and/or other media in or about property owned or
leased by Holdings, the Borrower or any of their Subsidiaries, or on which
operations of Holdings, the Borrower or any of their Subsidiaries otherwise take
place.) Such environmental assessment shall be in form, scope and substance
reasonably satisfactory to the Agent, subject to the approval of Holdings or the
Borrower, as the case may be, which shall not be unreasonably withheld or
delayed. Holdings, the Borrower and each of their Subsidiaries shall cooperate
fully in the conduct of such environmental assessment, and shall therefor pay
the reasonable costs of such environmental assessment promptly following the
written demand therefor by the Agent. The Agent shall have the right, but not
the duty to obtain such environmental report.
SECTION 7.1.7. FURTHER ASSURANCES. Holdings and the Borrower agree that from
time to time, at the expense of Holdings or the Borrower, as the case may be,
they will, and will cause each of their Subsidiaries to, promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Agent may reasonably request, in
order to perfect and protect the assignments, security interests and Liens
granted or purported to be granted under the Loan Documents or to enable the
Agent to exercise and enforce its rights and remedies under this Agreement or
any other Loan Document with respect to any Collateral. Without limiting the
generality of the foregoing, Holdings and the Borrower will, and will cause each
of their Subsidiaries to,
(a) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as the Agent may request, in order to perfect and preserve the
assignments, security interests and Liens granted or purported to be granted
under the Loan Documents; and
-64-
<PAGE> 72
(b) furnish to the Agent, at the request of the Agent, an opinion of
counsel acceptable to the Required Lenders to the effect that all financing or
continuation statements have been filed, and all other action has been taken, to
perfect and validate continuously from the date hereof the assignments, security
interests and Liens granted under the Loan Documents; and
(c) furnish to the Agent, from time to time at the Agent's request,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
With respect to the foregoing and the grant of the security interest under the
Loan Documents, Holdings and the Borrower hereby authorize the Agent to file one
or more financing or continuation statements, and amendments thereto, relative
to all or any part of the Collateral without the signature of Holdings, the
Borrower or any of their Subsidiaries where permitted by law. A carbon,
photographic or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
SECTION 7.1.8. AS TO INTELLECTUAL PROPERTY COLLATERAL.
(a) Holdings and the Borrower shall not, and shall not permit any of
their Subsidiaries, unless the Borrower shall reasonably and in good faith
determine (and notice of such determination shall have been delivered to the
Agent) that any of the Intellectual Property Collateral is of negligible
economic value to Holdings, the Borrower or any such Subsidiary, do any act, or
omit to do any act, whereby any of the Intellectual Property Collateral may
lapse or become abandoned or dedicated to the public or unenforceable.
(b) Holdings, the Borrower and each of their Subsidiaries shall notify
the Agent promptly if it knows, or has reason to know, that any application or
registration relating to any material item of the Intellectual Property
Collateral may become abandoned or dedicated to the public or placed in the
public domain or invalid or unenforceable, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any foreign counterpart thereof or any
court) regarding Holding's, the Borrower's or any such Subsidiary's ownership of
any of the Intellectual Property Collateral, its right to register the same or
to keep and maintain and enforce the same.
(c) In no event shall Holdings, the Borrower or any of their
Subsidiaries file an application for the registration of any Intellectual
Property Collateral with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, unless it promptly informs the
Agent, and upon request of the Agent, executes and delivers any and all
agreements, instruments, documents and papers as the Agent may reasonably
request to evidence the Agent's security interest in such Intellectual Property
Collateral and the goodwill and general intangibles of Holdings, the Borrower
and each of their Subsidiaries relating thereto or represented thereby.
(d) Holdings, the Borrower and each of their Subsidiaries shall take
all necessary steps, including in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue any application (and to obtain the relevant registration) filed with
respect to, and to maintain any registration of, the Intellectual Property
Collateral, including the filing of applications for
-65-
<PAGE> 73
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings and the payment of fees and taxes
(except to the extent that dedication, abandonment or invalidation is permitted
under the foregoing clauses (a), (b) and (c)).
SECTION 7.1.9. FUTURE SUBSIDIARIES. Upon any Person becoming, after the
Effective Date, either a direct or indirect Subsidiary of Holdings or the
Borrower, or upon Holdings or the Borrower acquiring additional capital stock of
any existing Subsidiary, Holdings or the Borrower, as the case may be, shall
notify the Agent of such acquisition and, on or prior to the consummation of
such acquisition,
(a) such Person shall, if it is not an Excluded Foreign Subsidiary and
not already a party to any of the following, become a party to the Subsidiary
Guaranty, the Pledge Agreement and the Security Agreement in a manner
satisfactory to the Agent and, if such Person maintains any bank accounts at a
financial institution other than the Agent, such Person shall be subject to a
Collection Account Agreement in the form of Exhibit I attached hereto;
(b) Holdings, the Borrower and each such Subsidiary that is not an
Excluded Foreign Subsidiary, shall, pursuant to the Pledge Agreement, pledge to
the Agent:
(i) all of the outstanding shares of such capital stock of
such Subsidiary owned directly by it (but, in the case of a Foreign Subsidiary,
not more than 66% of the capital stock of such Foreign Subsidiary shall be so
pledged), along with undated stock powers for such certificates, executed in
blank (or, if any such shares of capital stock are uncertificated, confirmation
and evidence satisfactory to the Agent that the security interest in such
uncertificated securities has been transferred to and perfected by the Agent in
accordance with the U.C.C. or any similar law which may be applicable); and
(ii) all notes evidencing intercompany Indebtedness in favor
of the Borrower and each such Subsidiary (which shall be in the form of Exhibit
A to the Pledge Agreement), as the case may be;
(c) the Agent shall have received from each such Subsidiary that is not
an Excluded Foreign Subsidiary certified copies of Uniform Commercial Code
Requests for Information or Copies (Form UCC-11), or a similar search report
certified by a party acceptable to the Agent, dated a date reasonably near (but
prior to) the date of any such Person becoming a direct or indirect Subsidiary
of Holdings or the Borrower, listing all effective financing statements, tax
liens and judgment liens which name such Person as the debtor and which are
filed in the jurisdictions in which filings are to be made pursuant to this
Agreement and the other Loan Documents, and in such other jurisdictions as the
Agent may reasonably request, together with copies of such financing statements
(none of which (other than financing statements filed pursuant to the terms
hereof in favor of the Agent, if such Form UCC-11 or search report, as the case
may be, is current enough to list such financing statements) shall cover any of
the Collateral); and
(d) the Agent shall have received from each such Subsidiary that is not
an Excluded Foreign Subsidiary, acknowledgment copies of properly filed U.C.C.
financing statements or such other evidence of filing or delivery for filing as
may be acceptable to the Agent, naming each such Subsidiary as the debtor and
the Agent as the secured party, filed under the U.C.C. of all jurisdictions as
may be necessary or, in the opinion of the Agent, desirable to perfect the first
priority security interest of the Agent of the assets of such Subsidiary that is
subject to the Security Agreement, together with evidence satisfactory to the
Agent of the filing (or delivery for filing) of appropriate trademark, copyright
and patent security supplements, together, in each case, with such opinions of
legal counsel for Holdings or the Borrower
-66-
<PAGE> 74
relating thereto, which legal opinions shall be in form and substance
satisfactory to the Agent. Holdings and the Borrower agree that if (i) any
Excluded Foreign Subsidiary is permitted to execute and deliver the Subsidiary
Guaranty, the Pledge Agreement or the Security Agreement or (ii) it is permitted
to pledge more than 66% of the capital stock of any Foreign Subsidiary, in any
such case without material adverse tax consequences which would result in such
Subsidiary being an Excluded Foreign Subsidiary, then the provisions of clauses
(a), (c), (d) and (e) of this Section 7.1.9 shall thereafter apply to such
Foreign Subsidiary and/or (as the case may be) the provisions of clause (b) of
this Section 7.1.9 shall thereafter apply to 100% of the capital stock of such
Foreign Subsidiary. Notwithstanding the foregoing, Holdings and its Subsidiaries
(other than the Borrower and its Wholly-Owned Subsidiaries) shall not be
required to subject any assets to a security interest in favor of the Agent if
it is already subject to a security interest in favor of a third Person as
provided in clause (i) (iii) of Section 7.2.4.
SECTION 7.1.10. RATE PROTECTION AGREEMENTS. All Rate Protection Agreements shall
be (a) with a counterparty that is a Lender or another Person that is reasonably
satisfactory to the Agent and (b) unsecured unless the counterparty is a Lender,
in which case the obligations under each such Rate Protection Agreement shall be
secured pro rata with all the other Obligations hereunder.
SECTION 7.1.11. CERTAIN POST-CLOSING COVENANTS.
(a) Not later than 30 days following the Effective Date (or such later
date as may be reasonably acceptable to the Agent) (i) there shall be named as a
member of the board of directors of the Borrower an Independent Director and
(ii) the Organic Documents of the Borrower shall have been amended, on terms
satisfactory to the Agent, to provide that, without the consent of the
Independent Director, the Borrower shall not file or subject itself to any
voluntary bankruptcy, reorganization, insolvency or similar proceeding, or
dissolve or wind-up its business, and provide that the Board of Directors of the
Borrower shall consist of two members. For purposes hereof, an "Independent
Director" means any individual who is not (i) at the time of his appointment as
an Independent Director and during the preceding five years a director, officer
or employee of, or a parent, child, spouse or sibling of any such Person, or a
supplier or customer of, Holdings, the Borrower, any of their Subsidiaries or
any of their Affiliates, or (ii) an individual that has a direct or indirect
relationship with Holdings, the Borrower, any of their Subsidiaries or any of
their Affiliates which would reasonably be expected to adversely influence the
judgement of such individual in carrying out his duties to the Borrower.
(b) Not later than 60 days following the Effective Date, 66% of the
capital stock of each Foreign Subsidiary of Holdings and the Borrower shall be
pledged to the Agent as provided in the Pledge Agreement; provided, however,
that (i) the capital stock of Cambridge Diagnostics Ireland, Limited and
Selfcare Europe, Ltd. shall not be required to be so pledged if Holdings
establishes, to the satisfaction of the Agent, that it is prohibited from
pledging such securities as a result of contractual restrictions existing prior
to the Effective Date that were not entered into in anticipation of the entering
into of this
-67-
<PAGE> 75
Agreement, and (ii) the capital stock of Selfhelp Israel, Ltd. shall not be
required to be so pledged until such capital stock is issued; provided further,
however, that the capital stock of such Subsidiaries referred to in clause (i)
shall be so pledged to the Agent promptly after any such contractual
restrictions is no longer effective.
(c) Not later than 45 days after the Effective Date the Borrower shall
have obtained "key-man" life insurance for Ron Zwanziger and Robert Oringer in
an amount not less than $5,000,000 and $1,000,000, respectively, and such
insurance shall be assigned in favor of the Agent on terms in form and substance
satisfactory to the Agent.
(d) Not later than 30 days after the Effective Date Holdings and the
Borrower shall establish (for and on behalf of themselves and all of their
Domestic Subsidiaries) an operating account and cash management system on terms
in form and substance satisfactory to the Agent, such cash management system to
require, among other things, that all checks or other amounts that are payable
to Holdings, the Borrower or any of their Domestic Subsidiaries from Accounts or
as a result of the sale of any property or assets (including Inventory) or for
the provision of services shall be payable in the name of the Person to whom
such amounts are being paid on account of or, if not payable to such Person to
whom such amounts are being paid on account of, the Borrower on behalf of such
Person (subject to the requirement of clause (b) of Section 7.2.12 that the
books and records of Holdings, the Borrower and their Subsidiaries accurately
reflect all liabilities and assets (including receivables) of each such Person).
(e) Not later than 60 days after the Effective Date, the Borrower shall
have entered into, on terms and with a Person satisfactory to the Agent, a Rate
Protection Agreement providing for an interest rate cap with an aggregate
notional principal amount of not less than 50% of the aggregate principal amount
of Term Loans made on the date of the initial Credit Extension and with a term
of not less than three years from the date of the initial Credit Extension.
(f) If the aging schedule of Receivables and schedule of Inventory
designations required to be delivered pursuant to clause (m) of Section 7.1.1.
for the first Fiscal Month following the date of the initial Credit Extension is
not in a form satisfactory to the Agent, the Women's Home Testing product line
of Holdings shall be contributed, on terms in form and substance satisfactory to
the Agent, to the Borrower within 15 days thereafter.
(g) Not later than 180 days after the Effective Date, Can-Am shall be
insured under Holdings' insurance policies at least to the same extent as the
Borrower is so insured. In addition, not later than 30 days after the Effective
Date, Holdings and its Subsidiaries shall have obtained (i) additional insurance
coverage not otherwise specified in Item 6.20 ("Insurance") of the Disclosure
Schedule as the Agent may reasonably request, including product recall and
business interruption insurance, and (ii) a lenders loss payable endorsement in
favor of the Agent with respect to all Inventory and a loss payable endorsement
in favor of the Agent with respect to business income, in each case on terms
satisfactory to the Agent.
(h) Holdings and the Borrower shall use their best efforts to obtain,
not later than 120 days after the Effective Date, from Sherwood Medical Company
(or its successor company) an executed consent which in substance has the effect
of Exhibit D to the Security Agreement with respect to the Operational Agreement
referred to in clause (a) of the definition thereof.
(i) Not later than 30 days following the Effective Date, all of the
capital stock owned by Holdings of Jmar Ames, Inc. and Selfcare Technology Inc.
shall be pledged to the Agent as provided in
-68-
<PAGE> 76
the Pledge Agreement and there shall be delivered all those items referred to in
clause (b) of Section 7.1.9 and a satisfactory legal opinion regarding the same.
SECTION 7.1.12. JMAR AMES, INC. If requested by the Agent, Holdings shall
promptly cause Jmar Ames, Inc. to become a party to the Security Agreement and
deliver all those items referred to in clauses (c) and (d) of Section 7.1.9 and
a satisfactory legal opinion regarding the same.
SECTION 7.2. NEGATIVE COVENANTS. Holdings and the Borrower agree for itself with
the Agent, each Issuer and each Lender that, until all Commitments have
terminated and all Obligations have been paid in cash and performed in full,
Holdings and the Borrower will (to the extent applicable) perform the
obligations set forth in this Section 7.2.
SECTION 7.2.1. BUSINESS ACTIVITIES. Holdings and the Borrower will not, and will
not permit any of their Subsidiaries to, engage in any business activity, except
those described in the first and second recitals and other activities reasonably
related thereto.
SECTION 7.2.2. INDEBTEDNESS. The Borrower will not, and will not permit any of
its Wholly-Owned Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Credit Extensions and other
Obligations;
(b) until the date of the initial Credit Extension, Indebtedness
identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the Disclosure
Schedule;
(c) Indebtedness identified in Item 7.2.2(c) ("Ongoing Indebtedness")
of the Disclosure Schedule;
(d) unsecured Indebtedness in an aggregate principal amount not to
exceed $250,000 at any time outstanding that is incurred in the ordinary course
of business (including open accounts extended by suppliers on normal trade terms
in connection with purchases of goods and services, but excluding the
Indebtedness of the nature referred to in clause (a) of the definition thereof
and Contingent Liabilities with respect thereto);
(e) Indebtedness in respect of the Capitalized Lease Liabilities to the
extent permitted by Section 7.2.7;
(f) Indebtedness in respect of any Rate Protection Agreement entered
into pursuant to Section 7.1.11(e);
(g) Indebtedness (i) of any Wholly-Owned Subsidiary of the Borrower
owing to the Borrower or any other Subsidiary of the Borrower or (ii) of the
Borrower owing to any of its Wholly-Owned Subsidiaries, which Indebtedness
(A) shall be evidenced by one or more promissory notes duly
executed and delivered to the Agent (each such promissory note to be in
substantially the form of Attachment II to the Pledge Agreement); and
-69-
<PAGE> 77
(B) shall not be forgiven or otherwise discharged for any
consideration other than payment in full in cash, unless the Agent and the
Required Lenders otherwise consent;
(h) Permitted Borrower Subordinated Debt;
provided, however, that no Indebtedness otherwise permitted by clauses (c) and
(f) shall be permitted if, immediately before or after giving effect to the
incurrence thereof, any Default or Event of Default shall have occurred and be
continuing. In addition, (x) all intercompany Indebtedness between Holdings and
its Subsidiaries (other than any Excluded Foreign Subsidiary that is an obligee
thereunder) shall be evidenced by one or more promissory notes duly executed and
delivered to the Agent (each such promissory note to be in substantially the
form of Attachment II to the Pledge Agreement), and shall not be forgiven or
otherwise discharged for any consideration other than the payment in full in
cash, unless the Agent otherwise consents and (y) Holdings shall not have any
Contingent Liability with respect to any Consolidated Debt other than the Loans
and Letters of Credit and the Indebtedness identified in Item 7.2.2(z)
("Holdings' Contingent Liabilities") of the Disclosure Schedule.
SECTION 7.2.3. LIENS. Neither Holdings nor the Borrower will, nor will either of
them permit any of their Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any of their property, revenues or assets, whether now owned
or hereafter acquired, except:
(a) Liens securing payment of the Obligations, granted pursuant to any
Loan Document;
(b) in the case of the Borrower and its Wholly-Owned Subsidiaries only,
Liens granted to secure payment of the Indebtedness permitted pursuant to clause
(d) of Section 7.2.2, provided that (i) each such Lien covers only those assets
acquired with the proceeds of such Indebtedness, (ii) each such Lien attaches to
the relevant property concurrently with the acquisition thereof and (iii) the
principal amount of such Indebtedness does not exceed 85% of the lesser of the
cost or fair market value of the relevant property; and, in the case of Holdings
and its Subsidiaries (other than the Borrower and its Wholly-Owned
Subsidiaries), Liens granted to secure payment of the type of Indebtedness
referred to in clause (d) of Section 7.2.2, provided that (i) each such Lien
covers only those assets acquired with the proceeds of such Indebtedness and
(ii) each such Lien attaches to the relevant property concurrently with the
acquisition thereof;
(c) Liens existing on the Effective Date and disclosed on Item 7.2.3(c)
("Existing Liens") of the Disclosure Schedule, provided that such Liens do not
spread to cover any additional property or assets after the Effective Date;
(d) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or being diligently contested in good faith by
appropriate proceedings which suspends enforcements of such Liens and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(e) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue or
being diligently contested in good faith by appropriate proceedings which
suspends enforcements of such Liens and for which adequate reserves in
accordance with GAAP shall have been set aside on its books;
-70-
<PAGE> 78
(f) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(g) judgment Liens in existence less than 10 days after the entry
thereof or with respect to which execution has been stayed or the payment of
which is covered in full (subject to a customary deductible) by insurance
maintained with insurance companies in accordance with the terms of Section
7.1.4; and
(h) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the business of the Borrower or its Subsidiaries; and
(i) in the case of Holdings and its Subsidiaries (other than the
Borrower and its Wholly-Owned Subsidiaries), (i) Liens on machinery and
equipment of Inverness, the subject of a sale-leaseback transaction, which Liens
are in favor of the lender of the lessor thereof that is financing the same,
(ii) Liens on the inventory and accounts receivable of Inverness which is
security for any lender providing working capital financing to Inverness and
(iii) Liens on assets acquired by Holdings or any such Subsidiary; provided that
no such Liens shall be incurred at any time when any Default or Event of Default
has occurred and is continuing.
SECTION 7.2.4. FINANCIAL CONDITION. The Borrower will be subject to the
financial covenants set forth in clause (a) and Holdings will be subject to the
financial covenant set forth in clause (b).
(a) Borrower Financial Covenants. The Borrower will not permit:
(i) Interest Coverage Ratio. Its Interest Coverage Ratio
(beginning with its Fiscal Quarter ending June 30, 1998) for the Rolling Period
ending on each date set forth below to be less than the ratio set forth below
opposite each such date:
<TABLE>
<CAPTION>
Date Minimum Interest Coverage Ratio
---- -------------------------------
<S> <C> <C>
June 30, 1998 2.50 : 1.00
September 30, 1998 2.75 : 1.00
December 31, 1998 2.75 : 1.00
March 31, 1999 3.00 : 1.00
June 30, 1999 3.25 : 1.00
September 30, 1999 and each 3.50 : 1.00
Fiscal Quarter thereafter
</TABLE>
(ii) Debt Service Coverage Ratio. Its Debt Service Coverage
Ratio (beginning with its Fiscal Quarter ending June 30, 1998) for the Rolling
Period ending on each date set forth below to be less than the ratio set forth
below opposite each such date:
-71-
<PAGE> 79
<TABLE>
<CAPTION>
Minimum Debt Service
Date Coverage Ratio
---- --------------
<S> <C> <C>
June 30, 1998 and each 1.25 : 1.00
Fiscal Quarter thereafter until
and including June 30, 1999
September 30, 1999 and each 1.30 : 1.00
Fiscal Quarter thereafter
</TABLE>
(iii) Leverage Ratio. Its Leverage Ratio (beginning with its
Fiscal Quarter ending March 31, 1999) for the Rolling Period ending on each date
set forth below to be greater than the ratio set forth opposite each such date:
<TABLE>
<CAPTION>
Date Maximum Leverage Ratio
---- ----------------------
<S> <C> <C>
March 31, 1999 5.00 : 1.00
June 30, 1999 4.50 : 1.00
September 30, 1999 4.00 : 1.00
December 31, 1999 and each 3.50 : 1.00
Fiscal Quarter thereafter until
and including September 30, 2001
December 31, 2001 and each 3.00 : 1.00
Fiscal Quarter thereafter
</TABLE>
(iv) Minimum EBITDA. Its EBITDA (beginning with its Fiscal
Quarter ending March 31, 1998) for the period beginning from the Effective Date
and ending on each date set forth below to be less than the amount set forth
below opposite each date set forth below:
<TABLE>
<CAPTION>
Date Minimum EBITDA
---- --------------
<S> <C> <C>
March 31, 1998 $ 500,000
June 30, 1998 $ 2,900,000
September 30, 1998 $ 5,600,000
December 31, 1998 $ 8,475,000
</TABLE>
(b) Holdings Financial Covenant. Holdings will not permit its Holdings'
Consolidated Debt to Holdings' Total Capital Ratio on the last day of each
Fiscal Quarter (beginning with its Fiscal Quarter ending June 30, 1998) to
exceed 80%.
-72-
<PAGE> 80
SECTION 7.2.5. INVESTMENTS. The Borrower will not, and will not permit any of
its Subsidiaries to, make, incur, assume or suffer to exist any Investment in
any other Person, except:
(a) Investments existing on the Effective Date and identified in Item
7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as Capital Expenditures
pursuant to Section 7.2.7; and
(d) Investments by the Borrower in Subsidiaries permitted by Section
6.8 comprising the equity ownership and initial approved capitalization of such
Subsidiaries;
provided, however, that any Investment which when made complies with the
requirements of the definition of the term "Cash Equivalent Investment" may
continue to be held notwithstanding that such Investment if made thereafter
would not comply with such requirements.
SECTION 7.2.6. RESTRICTED PAYMENTS, ETC.
(a) The Borrower will not (notwithstanding the terms of any Organic
Document) declare, pay or make any dividend or distribution (in cash, property
or obligations) on any shares of any class of capital stock (now or hereafter
outstanding) of the Borrower or on any warrants, options or other rights with
respect to any shares of any class of capital stock now or hereafter outstanding
of the Borrower (other than dividends or distributions payable in its common
stock or warrants to purchase its common stock or split-ups or reclassifications
of its stock into additional or other shares of its common stock) or apply, or
permit any of its Subsidiaries to apply, any of its funds, property or assets to
the purchase, redemption, sinking fund or other retirement of, or agree or
permit any of its Subsidiaries to purchase or redeem, any shares of any class of
capital stock (now or hereafter outstanding) of the Borrower, or warrants,
options or other rights with respect to any shares of any class of capital stock
(now or hereafter outstanding) of the Borrower;
(b) Neither Holdings nor the Borrower will, nor will they permit any of
their Subsidiaries to (notwithstanding the terms of any Borrower Subordinated
Note, and other Permitted Borrower Subordinated Debt or any Holdings'
Subordinated Note), to pay, prepay of repay any principal of or make any payment
of interest on, or redeem, purchase, set aside any funds for or defease (in each
case whether pursuant to any optional or mandatory provision with respect
thereto), or give any notice of redemption for, or purchase or otherwise
acquire, any Borrower Subordinated Note, any other Permitted Borrower
Subordinated Debt or any Holdings' Subordinated Note; and
(c) the Borrower will not, and will not permit any of its Subsidiaries
to, make any deposit for any of the foregoing purposes;
provided, however,
(i) the Borrower may, after the Agent has received
satisfactory evidence that $15,500,000 of net operating losses of Holdings have
been used to reduce the Borrower's taxable income, pay dividends to Holdings in
accordance with the terms of the Tax Sharing Agreement; provided that no such
dividend
-73-
<PAGE> 81
shall be paid if any Default or Event of Default shall have occurred and be
continuing or result therefrom; and
(ii) Holdings may, subject to the subordination provisions
contained in each Holdings' Subordinated Note, repay amounts owing with respect
thereto;
(iii) Holdings may, subject to the terms of the Escrow
Agreement, repay from amounts held on deposit pursuant to the Escrow Agreement
the Holdings' Subordinated Note referred to in clause (a) of the definition
thereof; and
(iv) Holdings may refinance any Holdings' Subordinated Note to
the extent permitted in the parenthetical contained in the definition of "Net
Debt Proceeds."
SECTION 7.2.7. CAPITAL EXPENDITURES, ETC. The Borrower will not, and will not
permit any of its Wholly-Owned Subsidiaries to, make or commit to make Capital
Expenditures in any Fiscal Year, except Capital Expenditures which do not
aggregate in any Fiscal Year in excess of the amount set forth opposite each
Fiscal Year below:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C> <C>
1998 $250,000
1999 $250,000
2000 $250,000
2001 $250,000
2002 $250,000
2003 $275,000;
</TABLE>
provided, however, that no such Capital Expenditure shall be made if any Default
or Event of Default shall have occurred and be continuing immediately prior to
or after giving effect to the making of any such Capital Expenditure, except
that during the continuance of any Default or Event of Default other than those
described in Section 8.1.1 or 8.1.9 the Borrower may make Capital Expenditures
in an aggregate amount not exceeding $75,000 if the Agent approves the making of
the same (such approval not to be unreasonably withheld if the Borrower
establishes, to the reasonable satisfaction of the Agent, that making such
Capital Expenditures are necessary in order for the Borrower to maintain its
ongoing operations).
SECTION 7.2.8. TAKE OR PAY CONTRACTS. Except as identified in Item 7.2.8 ("Take
or Pay Contracts") of the Disclosure Schedule and contracts requiring aggregate
payments during any Fiscal Year of the Borrower in an amount not exceeding
$250,000, the Borrower will not, and will not permit any of its Wholly-Owned
Subsidiaries to, enter into or be a party to any arrangement for the purchase of
materials, supplies, other property or services if such arrangement by its
express terms requires that payment be made by the Borrower or such Subsidiary
regardless of whether such materials, supplies, other property or services are
delivered or furnished to it.
SECTION 7.2.9. CONSOLIDATION, MERGER, ETC. Holdings and the Borrower will not,
and will not permit any of their Subsidiaries to, liquidate or dissolve,
consolidate or amalgamate with, or merge into or with, any other corporation, or
purchase, lease or otherwise acquire (in each case in one transaction or series
of transactions) all or any substantial part of the assets or stock of any
Person (or of any division thereof), other than
-74-
<PAGE> 82
(a) the consummation of the Acquisition;
(b) any Wholly-Owned Subsidiary of the Borrower (other than Can-Am) may
liquidate or dissolve voluntarily into, and may merge with and into, the
Borrower or any other Wholly-Owned Subsidiary of the Borrower, and the assets or
stock of any Wholly-Owned Subsidiary of the Borrower may be purchased or
otherwise acquired by the Borrower or any other Wholly-Owned Subsidiary of the
Borrower;
(c) any Wholly-Owned Subsidiary of Holdings (other than the Borrower
and its Wholly-Owned Subsidiaries) may liquidate or dissolve voluntarily into,
or may merge with and into, Holdings or any other Wholly-Owned Subsidiary of
Holdings (other than the Borrower and its Wholly-Owned Subsidiaries), and the
assets or stock of any Wholly-Owned Subsidiary of Holdings (other than the
Borrower and its Wholly-Owned Subsidiaries) may be purchased by Holdings or any
other Wholly-Owned Subsidiary of Holdings (other than the Borrower and its
Wholly-Owned Subsidiaries); and
(d) Holdings or any of its Subsidiaries (other than the Borrower and
its Wholly-Owned Subsidiaries) may merge into or with, or purchase, lease or
otherwise acquire all or any substantial part of the assets or stock of any
Person if (i) no Default or Event of Default results therefrom, (ii) in the case
of any merger Holdings or any such Subsidiary is either the surviving
corporation or, if it is not the surviving corporation, the corporation
surviving such merger assumes all the Obligations on terms satisfactory to the
Agent and (iii) prior to the occurrence of any such transaction Holdings
establishes on a pro forma basis compliance with the financial covenant
contained in clause (b) of Section 7.2.4.
SECTION 7.2.10. ASSET DISPOSITIONS, ETC. Holdings and the Borrower will not, and
will not permit any of their Subsidiaries to, sell, transfer, lease, contribute
or otherwise convey or dispose of, or grant options, warrants or other rights
with respect to (in each case in one transaction or series of transactions), all
or any part of its assets (including accounts receivable and capital stock) to
any Person, except
(a) if such sale, transfer, lease, contribution or conveyance is of
Inventory in the ordinary course of its business;
(b) if such disposition is a Permitted Disposition; or
(c) if such assets are worn out or obsolete and are sold in the
ordinary course of business.
SECTION 7.2.11. MODIFICATION OF CERTAIN AGREEMENTS.
(a) Neither Holdings, the Borrower nor any of their
Subsidiaries will consent to any amendment, supplement or other modification of
any of the terms or provisions contained in, or applicable to, any of their
Organic Documents, the Purchase Agreement, any Operational Agreement, any
Holdings' Subordinated Note, any Holdings' Equity Document, any Borrower
Subordinated Note, any agreement evidencing other Permitted Borrower
Subordinated Debt or the Tax Sharing Agreement which
(i) is contrary to the terms of this Agreement or any other
Loan Document (it being understood and agreed that any change to the Organic
Documents of the Borrower or any of its Wholly-Owned Subsidiaries with respect
to those matters required to be included therein pursuant to clause (a) of
Section 7.1.11 (after they are included therein) are prohibited),
-75-
<PAGE> 83
(ii) may reasonably be expected to be adverse to the rights,
interests or privileges of the Agent or the Lenders pursuant to the Loan
Documents or their ability to enforce the same or
(iii) results in the imposition or expansion in any material
respect of any restriction or burden on Holdings, the Borrower or any of their
Subsidiaries (it being understood and agreed that any such determination shall
be made in the discretion of the Agent and (A) any such amendment, supplement or
modification to the subordination provisions contained in the Holdings'
Subordinated Notes, the Borrower Subordinated Notes or any other Permitted
Borrower Subordinated Debt, or (B) any increase in the amount of, or any change
(other than a deferral) of the date for payment of, or any increased rate with
respect to, any redemption, fee, interest rate, principal repayment or other
payment (including payments required to be made by the Borrower under the Tax
Sharing Agreement) or sinking fund provisions, or (C) any amendment, supplement
or modification to any remedial or default provisions or covenant restrictions
and related definitions that result in any of the same being more onerous on
Holdings, the Borrower, or any of their Subsidiaries, shall in any event require
the consent of the Required Lenders). Holdings or the Borrower, as the case may
be, will, prior to entering into any amendment, addition or other modification
of any of the foregoing documents deliver to the Agent (with copies for each
Lender) reasonably in advance (and, in any event, within 10 Business Days) of
the execution thereof, any final or execution form copy of amendments,
supplements, additions or other modifications to such documents, and agrees not
to take any such action with respect to any such documents, in contravention of
the terms hereof.
(b) Neither the Borrower nor any of its Subsidiaries shall terminate
any Operational Agreement referred to in clauses (a) through (c) of the
definition thereof without obtaining the prior consent of the Agent.
SECTION 7.2.12. TRANSACTIONS WITH AFFILIATES; SEPARATE EXISTENCE.
(a) Except as identified in Item 7.2.12(a) ("Transaction with
Affiliates") of the Disclosure Schedule, the Borrower will not, and will not
permit any of its Wholly-Owned Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with, any of its other Affiliates
unless such arrangement or contract (a) is otherwise permitted by this
Agreement, (b) is in the ordinary course of business of the Borrower and (c) is
on fair and reasonable terms and is an arrangement or contract of the kind which
would be entered into by a prudent Person in the position of the Borrower or
such Subsidiary with a Person which is not one of its Affiliates. Without
limiting the foregoing, any distribution by Can-Am of generic test strips on
behalf of Holdings shall be done by Can-Am so that it earns a gross profit
margin of not less than 35%, except if such distribution arrangements result in
a loss to Holdings (in which case such gross profit margin shall be reduced to a
gross profit margin percentage which will not result in a loss to Holdings).
(b) Neither the Borrower nor any of its Wholly-Owned Subsidiaries will
(i) fail to conduct business correspondence in its own name and maintain
appropriate and separate books, records and financial statements; (ii) suffer
any limitation on the authority of its own directors and officers to conduct its
business and affairs in accordance with their independent business judgment, or
authorize or suffer any representative of Holdings or any of its other
Subsidiaries to act on its behalf with respect to any matter (other than matters
customarily delegated to others under powers of attorney) for which a
corporation's own directors and officers would customarily be responsible; (iii)
fail to (A) maintain physical possession of all its books and records, (B)
maintain capitalization adequate for the conduct of its business, (C) account
for and manage its liabilities separately from those of Holdings and its other
Subsidiaries,
-76-
<PAGE> 84
including, without limitation, payment of all payroll and other administrative
expenses and taxes from its own assets (provided that to the extent (x) any
director, officer, employee, consultant or agent for the Borrower or any of its
Wholly-Owned Subsidiaries is also a director, officer, employee, consultant or
agent of Holdings or any of its other Subsidiaries, the Borrower and Holdings
will reasonably allocate between themselves the costs for such services on a
basis which reasonably reflects the actual value of such services rendered or
(y) Holdings and its other Subsidiaries, on the one hand, and the Borrower and
its Wholly-Owned Subsidiaries, on the other hand, use an integrated accounting
system the separate assets (including Receivables) and liabilities of each such
Person shall be accurately and fully recorded therein so that they are readily
identifiable and all payments are, promptly after the receipt thereof, properly
segregated and allocated among each such Person), (D) segregate and identify
separately all of its money and assets from those of Holdings and its other
Subsidiaries (including, but not limited to, maintaining separate bank accounts
in its own name and accurate and complete accounting records), and (E) maintain
offices through which its business is conducted separate from those of Holdings
(provided that to the extent that the Borrower or any of its Wholly-Owned
Subsidiaries, on the one hand, and Holdings and its other Subsidiaries, on the
other hand, have offices in the same location, there shall be a fair and
appropriate allocation of overhead costs and expenses among them, and each such
entity shall bear its fair share of such costs and expenses and each such office
shall be conspicuously identified as the office of such entity); (iv) commingle
its money (except on a temporary basis as part of the collection process,
provided that such monies are promptly segregated thereafter) or other assets
with those of Holdings or any of its other Subsidiaries or use its funds for
other than the Borrower's or any such Wholly-Owned Subsidiaries's uses; (v) fail
to (A) maintain its books, financial statements, accounting records and other
business documents and records separate from those of Holdings and its other
Subsidiaries (provided that to the extent Holdings and its other Subsidiaries,
on the one hand, and the Borrower and its Wholly-Owned Subsidiaries, on the
other hand, use an integrated accounting system the separate assets (including
Receivables) and liabilities of each such Person shall be accurately and fully
recorded therein so that they can be readily identifiable and all payments are,
promptly after the receipt thereof, properly segregated and allocated among each
such Person); (B) act solely in its legal name and through its own authorized
officers and agents (provided that to the extent any officer or agent for the
Borrower and its Wholly-Owned Subsidiaries is also an officer or agent of
Holdings or any of its other Subsidiaries, the Borrower and Holdings shall
reasonably allocate between themselves the costs for such services on a basis
which reasonably reflects the actual value of such services rendered), (C)
separately manage its assets and liabilities from those of Holdings and its
other Subsidiaries and pay its own liabilities, including all administrative
expenses, from its own separate assets (provided that, to the extent the
employees of the Borrower and its Wholly-Owned Subsidiaries participate in
pension, insurance and other benefit plans of Holdings or any Affiliate thereof,
the Borrower and its Wholly-Owned Subsidiaries will reimburse Holdings or such
Affiliate, as the case may be, for an appropriate share of the costs thereof),
(E) pay from its assets all obligations and Indebtedness of any kind incurred by
it and (F) abide by all corporate legal formalities, including the maintenance
of current corporate records; (vi) assume the liabilities of the Holdings or any
Affiliate thereof; (vii) be involved in the day-to-day management of the
Holdings or any of its other Subsidiaries or permit Holdings or any of its other
Subsidiaries to be involved in the day-to-day management of the Borrower or any
of its Wholly-Owned Subsidiaries (except to the extent that the same Person is
acting as an officer or employee of Holdings or its other Subsidiaries, on the
one hand, and the Borrower and its Wholly-Owned Subsidiaries, on the other hand,
in which case Holdings and Borrower will reasonably allocate between themselves
the costs of any such services on a basis which reasonably reflects the actual
value of such services rendered); (viii) make any advances to Holdings or any of
its other Subsidiaries unless made for good and sound business reasons; (ix)
have insufficient officers and personnel to conduct its business and operations;
(x) fail to disclose in a note to the financial statements of Holdings the
existence as separate corporations the Borrower and each of its Wholly-Owned
-77-
<PAGE> 85
Subsidiaries; (xi) fail to have an Independent Director on its Board of
Directors and make the appropriate amendments to its Organic Documents from and
after 30 days following the Effective Date as provided in clause (a) of Section
7.1.11; (xii) fail to operate their business so that their separate assets and
liabilities cannot be readily identified or allocated; or (xiii) fail to
promptly correct any known misunderstanding or misinterpretation with respect to
any of the foregoing.
SECTION 7.2.13. NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. Holdings and the
Borrower will not, and will not permit any of their Subsidiaries to, enter into
any agreement (excluding this Agreement and any other Loan Document)
prohibiting:
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, or the ability of
Holdings, the Borrower or any other Obligor to amend or otherwise modify this
Agreement or any other Loan Document; or
(b) the ability of any Subsidiary (other than the Borrower or any
Wholly-Owned Subsidiary of the Borrower) of Holdings or Wholly-Owned Subsidiary
of the Borrower to make any payments, directly or indirectly, to Holdings, the
Borrower, or any of its Wholly-Owned Subsidiaries as the case may be, by way of
dividends, advances, repayments of loans or advances, reimbursements of
management and other intercompany charges, expenses and accruals or other
returns on investments, or any other agreement or arrangement which restricts
the ability of any such Subsidiary to make any payment, directly or indirectly,
to the Borrower.
SECTION 7.2.14. MANAGEMENT FEES, EXPENSES, ETC. The Borrower will not, and will
not permit any of its Wholly-Owned Subsidiaries to,
(a) pay management, advisory, consulting or other similar fees, other
than
(i) fees payable to the Lenders or any of their Affiliates;
and
(ii) fees payable to non-Affiliate consultants engaged on
arm's-length basis as approved by the President of the Borrower; or
(b) reimburse employees or any Affiliates for any expenses unless the
same shall be otherwise permitted hereunder and shall be reasonable and
documented in reasonable detail.
SECTION 7.2.15. FISCAL YEAR END. Neither Holdings, the Borrower nor any of their
Subsidiaries shall have a Fiscal Year ending on any date other than December
31st.
SECTION 7.2.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Borrower will
not, and will not permit any of its Wholly-Owned Subsidiaries to, enter into any
arrangement with any Person whereby in a substantially contemporaneous
transaction the Borrower or any of its Wholly-Owned Subsidiaries sells all or
substantially all of its right, title and interest in an asset and, in
connection therewith, acquires or leases back the right to use such asset.
ARTICLE VIII
EVENTS OF DEFAULT
-78-
<PAGE> 86
SECTION 8.1. LISTING OF EVENTS OF DEFAULT. Each of the following events or
occurrences described in this Section 8.1 shall constitute an "Event of
Default".
SECTION 8.1.1. NON-PAYMENT OF OBLIGATIONS. The Borrower shall default in the
payment or prepayment when due of any monetary Obligation hereunder or under any
other Loan Document (including, without limitation, any principal of, or
interest on, any Loan, any Reimbursement Obligation, any fees or any other
amounts payable hereunder or thereunder).
SECTION 8.1.2. BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of Holdings, the Borrower or any other Obligor made or deemed to be
made hereunder or in any other Loan Document executed by it or any other writing
or certificate furnished by or on behalf of Holdings, the Borrower or any other
Obligor to the Agent or any Lender for the purposes of or in connection with
this Agreement or any such other Loan Document (including any certificates
delivered pursuant to Article V) is or shall be incorrect when made in any
material respect.
SECTION 8.1.3. NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS. Holdings or
the Borrower shall default in the due performance and observance of any of its
obligations under clause (e) of Section 7.1.1 or Sections 4.10, 7.1.9, 7.1.11 or
7.2.
SECTION 8.1.4. NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. Any Obligor
shall default in the due performance and observance of any other agreement
contained herein or in any other Loan Document (other than items covered by
Section 8.1.3) executed by it, and such default shall continue unremedied for a
period of 30 days after Holdings or the Borrower has actual knowledge thereof or
notice thereof shall have been given to the Borrower by the Agent or any Lender.
SECTION 8.1.5. DEFAULT ON OTHER INDEBTEDNESS. A default shall occur in the
payment when due, whether by acceleration or otherwise, of any Holdings'
Subordinated Note, Borrower Subordinated Note, any other Permitted Borrower
Subordinated Debt or any other Indebtedness (other than Indebtedness described
in Section 8.1.1) of Holdings, the Borrower or any other Obligor having a
principal amount, individually or in the aggregate, in excess of $100,000, or a
default shall occur in the performance or observance of any obligation or
condition with respect to any such Note or such other Indebtedness if the effect
of such default is to accelerate the maturity of any such Note or other
Indebtedness or such default shall continue unremedied for any applicable period
of time sufficient to permit the holder or holders of any such Note or other
Indebtedness, or any trustee or agent for such holders, to cause any such Note
or other Indebtedness to become due and payable prior to its expressed maturity.
SECTION 8.1.6. JUDGMENTS. Any judgment or order for the payment of money (not
paid or fully covered by insurance maintained in accordance with the
requirements of this Agreement and as to which the relevant insurance company
has acknowledged coverage) in excess of $100,000 shall be rendered against
Holdings, the Borrower or any other Obligor and either
(a) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order; or
(b) there shall be any period of 30 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal,
bond or otherwise, shall not be in effect.
-79-
<PAGE> 87
SECTION 8.1.7. PENSION PLANS. Any of the following events shall occur with
respect to any Pension Plan:
(a) any Person shall engage in any "prohibited transaction" (as defined
in Section 406 of ERISA or Section 4975 of the Code) involving any Pension Plan,
(b) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Pension Plan or any Lien
in favor of the PBGC shall arise on the assets of Holdings, the Borrower or any
Commonly Controlled Entity, (c) a Reportable Event shall occur with respect to,
or proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Pension Plan for purposes of Title IV of ERISA, (d) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (e)
Holdings, the Borrower or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any liability on
connection with a withdrawal from, or the insolvency or reorganization of, a
Multiemployer Plan or (f) any other event or condition shall occur or exist with
respect to a Pension Plan; and in each case in clauses (a) through (f) above,
such event or condition, together with all other such events or conditions, if
any, could reasonably be expected to result in a liability exceeding $100,000.
SECTION 8.1.8. CONTROL OF HOLDINGS AND THE BORROWER. Any Change in Control shall
occur.
SECTION 8.1.9. BANKRUPTCY, INSOLVENCY, ETC. Holdings, the Borrower or any other
Obligor shall
(a) generally fail to pay debts as they become due, or admit in writing
its inability to pay debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator, or other custodian for Holdings, the Borrower
or any other Obligor or any property of any thereof, or make a general
assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence, permit
or suffer to exist the involuntary appointment of a trustee, receiver,
sequestrator or other custodian for Holdings, the Borrower or any other Obligor
or for a substantial part of the property of any thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged within 30
days;
(d) permit or suffer to exist the involuntary commencement of, or
voluntarily commence, any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any bankruptcy or insolvency laws, or permit or suffer
to exist the involuntary commencement of, or voluntarily commence, any
dissolution, winding up or liquidation proceeding, in each case, by or against
Holdings, the Borrower or any other Obligor, provided that if not commenced by
Holdings, the Borrower or any other Obligor such proceeding shall be consented
to or acquiesced in by Holdings, the Borrower or any other Obligor, or shall
result in the entry of an order for relief or shall remain for thirty days
undismissed; or
(e) take any corporate action authorizing, or in furtherance of, any of
the foregoing.
SECTION 8.1.10. IMPAIRMENT OF SECURITY, ETC. Without the consent of the Lenders,
any Loan Document, or any Lien granted thereunder, shall (except in accordance
with its terms), in whole or in part, terminate, cease to be effective or cease
to be the legally valid, binding and enforceable obligation of
-80-
<PAGE> 88
Holdings, the Borrower or any Obligor party thereto; Holdings, the Borrower, any
other Obligor or any other Person shall, directly or indirectly, contest in any
manner such effectiveness, validity, binding nature or enforceability; or any
Lien securing any Obligation shall, in whole or in part, cease to be a perfected
first registered priority Lien.
SECTION 8.1.11. SUBORDINATED NOTES. The subordination provisions relating to any
Holdings' Subordinated Note, Borrower Subordinated Note or any other Permitted
Borrower Subordinated Debt (collectively "the "Subordination Provisions") shall
fail to be enforceable by the Agent, any Lender or any Issuer which has not
effectively waived the benefits thereof, or the principal or interest on any
Loan, Reimbursement Obligation or other Obligation shall fail to constitute
"Senior Indebtedness, "Senior Debt," "Superior Debt" (as defined in each
Holdings' Subordinated Note and Borrower Subordinated Note, as the case may be);
Holdings, the Borrower or any of their Affiliates shall, directly or indirectly,
disavow or contest in any manner (i) the effectiveness, validity or
enforceability of any of the Subordination Provisions, (ii) that any of such
Subordination Provisions exist for the benefit of the Agent, each Issuer and the
Lenders or (iii) that all payments of principal or interest with respect to the
Holdings' Subordinated Notes, the Borrower Subordinated Notes or any other
Permitted Borrower Subordinated Debt made by Holdings or the Borrower, as the
case may be, or realized from the liquidation of any property of Holdings or the
Borrower, as the case may be, shall be subject to any of such Subordination
Provisions.
SECTION 8.1.12. NON-PAYMENT OF TAXES. Holdings shall have failed to pay when due
any taxes or other governmental charges in excess of $100,000, except any such
taxes or other governmental charges which are being diligently contested by it
in good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.
SECTION 8.2. ACTION IF BANKRUPTCY EXISTS. If any Event of Default described in
clauses (a) through (d) of Section 8.1.9 shall occur, the Commitments (if not
theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION 8.3. ACTION IF OTHER EVENT OF DEFAULT EXISTS. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of Section
8.1.9) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Agent, upon the direction of the Required Lenders, shall by
notice to the Borrower declare all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
Commitments (if not theretofore terminated) to be terminated, whereupon the full
unpaid amount of such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand or presentment, and/or, as the case may be, the Commitments shall
terminate.
SECTION 8.4. PAYMENTS UPON ACCELERATION. After the occurrence and during the
continuance of an Event of Default and the acceleration of the Obligations
pursuant to Sections 8.2 or 8.3, the Agent shall apply all payments in respect
of the Obligations and all proceeds of Collateral to the Obligations in the
following order:
(a) first, to pay Obligations in respect of any expense reimbursements
or indemnities then due to the Agent, including, without limitation, fees and
expenses referred to in Sections 10.3 and 10.4;
(b) second, to pay Obligations in respect of any expense reimbursements
or indemnities then due to the Lenders and the Issuer;
-81-
<PAGE> 89
(c) third, to pay Obligations in respect of any fees then due to the
Agent, the Lenders and the Issuer;
(d) fourth, to pay interest due in respect of the Loans and Letters of
Credit;
(e) fifth, to pay the principal outstanding with respect to the Loans
and cash collateralize, on terms satisfactory to the Agent, the Letter of Credit
Obligations; and
(f) sixth, to the payment of all other Obligations;
provided, however, if sufficient funds are not available to fund all payments to
be made in respect of any of the Obligations described in any of the foregoing
clauses (a) through (f), the available funds being applied with respect to any
such Obligations referred to in any one of such clauses shall be allocated to
the payment of such Obligations ratably, based on the proportion of the Agent's,
each Lender's and the Issuer's interest in the aggregate outstanding Obligations
described in such clauses.
ARTICLE IX
THE AGENT
SECTION 9.1. ACTIONS. Each Lender hereby appoints Chase as Agent under and for
purposes of this Agreement, the Notes and each other Loan Document. Each Lender
authorizes the Agent to act on behalf of such Lender under this Agreement, the
Notes and each other Loan Document and, in the absence of other written
instructions from the Required Lenders received from time to time by the Agent
(with respect to which the Agent agrees that it will comply, except as otherwise
provided in this Section or as otherwise advised by counsel), to exercise such
powers hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof, together with such powers as may be
reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity
shall survive any termination of this Agreement) the Agent, pro rata according
to such Lender's original percentage of the Term Loans and Revolving Loan
Commitments hereunder, from and against any and all liabilities, obligations,
losses, damages, claims, costs or expenses of any kind or nature whatsoever
which may at any time be imposed on, incurred by, or asserted against, the Agent
in any way relating to or arising out of this Agreement, the Notes and any other
Loan Document, including reasonable attorneys' fees, and as to which the Agent
is not reimbursed by the Borrower; provided, however, that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from the gross
negligence or wilful misconduct of the Agent. The Agent shall not be required to
take any action hereunder, under the Notes or under any other Loan Document, or
to prosecute or defend any suit in respect of this Agreement, the Notes or any
other Loan Document, unless it is indemnified hereunder to its satisfaction. If
any indemnity in favor of the Agent shall be or become, in the determination of
the Agent, inadequate, the Agent may call for additional indemnification from
the Lenders and cease to do the acts indemnified against hereunder until such
additional indemnity is given.
SECTION 9.2. FUNDING RELIANCE, ETC. Unless the Agent shall have been notified by
telephone, confirmed in writing, by any Lender by 5:00 p.m. (New York City
time), on the day prior to a Borrowing that such Lender will not make available
the amount which would constitute its Percentage of such Borrowing on the date
specified therefor, the Agent may assume that such Lender has made such amount
available to the Agent and, in reliance upon such assumption, make available to
the Borrower a
-82-
<PAGE> 90
corresponding amount. If and to the extent that such Lender shall not have made
such amount available to the Agent, such Lender and the Borrower severally agree
to repay the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date the Agent made such amount
available to the Borrower to the date such amount is repaid to the Agent at the
interest rate applicable at the time to Loans comprising such Borrowing.
SECTION 9.3. EXCULPATION. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable to any Lender for any action taken or
omitted to be taken by it under this Agreement or any other Loan Document, or in
connection herewith or therewith, except for its own wilful misconduct or
negligence, nor be responsible for any recitals or warranties herein or therein,
nor for the effectiveness, enforceability, validity or due execution of this
Agreement or any other Loan Document, nor for the creation, perfection or
priority of any Liens purported to be created by any of the Loan Documents, or
the validity, genuineness, enforceability, existence, value or sufficiency of
any collateral security, nor to make any inquiry respecting the performance by
the Borrower of its obligations hereunder or under any other Loan Document. Any
such inquiry which may be made by the Agent shall not obligate it to make any
further inquiry or to take any action. The Agent shall be entitled to rely upon
advice of counsel concerning legal matters and upon any notice, consent,
certificate, statement or writing which the Agent believes to be genuine and to
have been presented by a proper Person.
SECTION 9.4. SUCCESSOR. The Agent may resign as such at any time upon
at least 30 days' prior notice to the Borrower and all the Lenders. If no
successor Agent shall have been appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
(a) appoint a successor Agent, which shall be one of the Lenders or a commercial
banking or finance institution organized under the laws of the U.S. (or any
State thereof) or a U.S. branch or agency of a commercial banking institution,
and having a combined capital and surplus of at least $250,000,000 or (b)
designate the Lenders to perform the Agent's responsibilities. The successor
Agent shall be entitled to receive from the retiring Agent such documents of
transfer and assignment as such successor Agent may reasonably request, and
shall thereupon succeed to and become vested with all rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring Agent's
resignation hereunder as the Agent, the provisions of
(a) this Article IX shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was the Agent under this Agreement; and
(b) Section 10.3 and Section 10.4 shall continue to inure to its
benefit.
SECTION 9.5. LOANS BY CHASE. Chase shall have the same rights and powers with
respect to (a) the Loans and Letters of Credit made by it or any of its
Affiliates, and (b) the Notes held by it or any of its Affiliates as any other
Lender and may exercise the same as if it were not the Agent. Chase and each of
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of business with Holdings, the Borrower or any Subsidiary or Affiliate
thereof as if it were not the Agent hereunder.
SECTION 9.6. CREDIT DECISIONS. Each Lender acknowledges that it has,
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of the Borrower, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will,
-83-
<PAGE> 91
independently of the Agent and each other Lender, and based on such other
documents, information and investigations as it shall deem appropriate at any
time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under
this Agreement or any other Loan Document.
SECTION 9.7. COPIES, ETC. The Agent shall give prompt notice to each Lender of
each notice or request given to the Agent by Holdings or the Borrower and
required to be delivered to the Lenders pursuant to the terms of this Agreement
(unless concurrently delivered to the Lenders by Holdings or the Borrower, as
the case may be). The Agent will distribute to each Lender each document or
instrument received for its account and copies of all other communications
received by the Agent from Holdings or the Borrower for distribution to the
Lenders by the Agent in accordance with the terms of this Agreement.
SECTION 9.8. CERTAIN COLLATERAL MATTERS.
(a) The Agent is authorized on behalf of all the Lenders, without the
necessity of any notice to or further consent from the Lenders, from time to
time to take any action with respect to any Collateral or the Loan Documents
which may be necessary to perfect and maintain perfected the security interest
in and Liens upon the Collateral granted pursuant to the Loan Documents.
(b) Each Lender agrees that no Lender shall have any right individually
to seek to realize upon the security granted by any Loan Document, it being
understood and agreed that such rights and remedies may be exercised solely by
the Agent for the benefit of the Lenders.
(c) The Lenders irrevocably authorize the Agent, at its option and in
its discretion, to release any security interest or Lien granted to or held by
the Agent upon any Collateral (i) upon termination of the Commitments and
payment in full of all Loans and all other Obligations payable under this
Agreement and under any other Loan Document; (ii) constituting property sold or
to be sold or disposed of as part of or in connection with any disposition
permitted hereunder; (iii) constituting property in which Holdings, the Borrower
or any Subsidiary thereof owned no interest at the time the security interest
and/or Lien was granted or at any time thereafter; (iv) constituting property
leased to Holdings, the Borrower or any Subsidiary thereof under a lease which
has expired or been terminated in a transaction permitted under this Agreement
or is about to expire and which has not been, and is not intended by Holdings,
the Borrower or such Subsidiary to be, renewed or extended; (v) consisting of an
instrument evidencing Indebtedness or other debt instrument, if the Indebtedness
evidenced thereby has been paid in full; or (vi) if approved, authorized or
ratified in writing by the Required Lenders or, if required by Section 10.1,
each Lender. Upon request by the Agent at any time, the Lenders will confirm in
writing the Agent's authority to release particular types or items of collateral
pursuant to this Section 9.8.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement and of
each other Loan Document may from time to time be amended, modified or waived,
if such amendment, modification or waiver is in writing and consented to by
Holdings, the Borrower and the Agent (acting only at the direction or with the
authority of the Required Lenders); provided, however, that no such amendment,
modification or waiver which would:
-84-
<PAGE> 92
(a) modify any requirement hereunder that any particular action be
taken by all the Lenders or by the Required Lenders shall be effective unless
consented to by each Lender;
(b) modify this Section 10.1, change the definition of "Required
Lenders", increase any Commitment Amount or the Percentage of any Lender, reduce
any fees described in Article III, change the time for payment of fees to the
Lenders described in Article III, or release all or any substantial part of the
Collateral except as otherwise specifically provided in any Loan Document, shall
be made without the consent of any Lender affected thereby;
(c) extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment under clause (b), (c) or (d) of Section 3.1.2 of
principal of, or interest on, any Loan or Reimbursement Obligation (or reduce
the principal amount of or rate of interest on any Loan or Reimbursement
Obligation), change the schedule of reductions to the Commitments provided for
in Section 2.3(b) or extend any Commitment Termination Date without the consent
of the holder of that Note evidencing such Loan;
(d) amend, modify or waive any condition set forth in Section 5.2 to
the making of any Credit Extension;
(e) increase the Stated Amount of any Letter of Credit unless consented
to by each Issuer; or
(f) affect adversely the interests, rights or obligations of the Agent
in its capacity as Agent or the Issuer in its capacity as Issuer, without the
consent of the Agent or the Issuer, as the case may be.
No failure or delay on the part of the Agent, any Lender or the holder
of any Note in exercising any power or right under this Agreement or any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
the Borrower in any case shall entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by the Agent, any Lender or the
holder of any Note under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder. The
remedies provided in this Agreement are cumulative, and not exclusive of
remedies provided by law.
SECTION 10.2. NOTICES. All notices and other communications provided to any
party hereto under this Agreement or any other Loan Document shall be in writing
and addressed, delivered or transmitted to such party at its address or telecopy
number set forth on Schedule III hereto (or set forth in a Lender Assignment
Agreement) or at such other address or telecopy number as may be designated by
such party in a notice to the other parties given in accordance with this
Section 10.2. Any notice, if mailed and properly addressed with postage prepaid,
shall be deemed given three Business Days after posting; any notice, if sent by
prepaid overnight express shall be deemed delivered on the next Business Day;
any notice, if transmitted by telecopy, shall be deemed given when sent, with
confirmation of receipt; any notice, if transmitted by hand, shall be deemed
received when delivered. Any Borrowing Request or Continuation/Conversion Notice
delivered to the Agent by facsimile shall be confirmed by the prompt delivery of
the original thereof to the Agent (except that no such confirmation shall be
required with respect to any Borrowing Request, unless requested by the Agent,
to the extent that the proceeds therefrom
-85-
<PAGE> 93
are requested to be disbursed to the Borrower's controlled disbursement account
maintained with the Agent).
SECTION 10.3. PAYMENT OF COSTS AND EXPENSES. The Borrower agrees to pay on
demand all reasonable expenses of the Agent (including, without limitation, the
fees and out-of-pocket expenses of counsel to the Agent, including the allocated
fees and expenses of in-house counsel, and consultants, if any, who may be
retained in connection with the transactions contemplated hereby by the Agent)
in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and exhibits, and
any amendments, waivers, consents, supplements or other modifications to this
Agreement or any other Loan Document as may from time to time hereafter be
required, and the Lenders' and the Agent's consideration of their rights and
remedies hereunder or in connection herewith from time to time whether or not
the transactions contemplated hereby or thereby are consummated;
(b) the filing, recording, refiling or rerecording of the Pledge
Agreement, the Security Agreement (and any supplements thereto) and any other
security instruments executed in connection with the transactions contemplated
hereby and/or U.C.C. financing statements relating thereto, and all amendments,
supplements and modifications to any thereof and all other documents or
instruments of further assurance required to be filed or recorded or refiled or
rerecorded by the terms hereof or, the Pledge Agreement or the Security
Agreement or such other documents; and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document;
The Borrower further agrees to pay, and to save the Agent, the Issuer and the
Lenders harmless from all liability for, any stamp or other taxes which may be
payable in connection with the execution or delivery of this Agreement, the
borrowings hereunder, or the issuance of the Notes or any other Loan Documents.
The Borrower also agrees to reimburse the Agent, each Issuer and each Lender
upon demand for all reasonable expenses (including, without limitation, the fees
and out-of-pocket expenses of counsel to the Agent and each Lender, including
the allocated fees and expenses of in-house counsel and consultants, if any, who
may be retained by such persons) incurred by the Agent or each such Issuer or
Lender in connection with (x) the negotiation of any restructuring or
"work-out", whether or not consummated, of any Obligations and (y) the
enforcement of any Obligations. The Borrower further agrees to reimburse the
Agent on demand for all administration, audit and monitoring expenses incurred
in connection with the Eligible Accounts and Eligible Inventory and
determinations in respect thereof.
SECTION 10.4. INDEMNIFICATION. In consideration of the execution and delivery of
this Agreement by each Lender and the extension of the Commitments, the Borrower
and Holdings jointly and severally indemnify, exonerate and hold the Agent, the
Issuers and each Lender and each of their respective officers, directors,
employees and agents (collectively, the "Indemnified Parties") free and harmless
from and against any and all actions, causes of action, suits, losses, costs,
liabilities and damages, and expenses incurred in connection therewith
(irrespective of whether any such Indemnified Party is a party to the action for
which indemnification hereunder is sought), including reasonable attorneys' fees
and disbursements (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to
-86-
<PAGE> 94
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan or with any Letter of
Credit;
(b) the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties (including any action brought by
or on behalf of the Borrower as the result of any determination by the Required
Lenders pursuant to Article V not to fund any Borrowing);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its Subsidiaries
of all or any portion of the stock or assets of any Person, whether or not the
Agent or any Lender is party thereto;
(d) Environmental Laws relating to Holdings, the Borrower or any of
their Subsidiaries, including the assertion of any lien thereunder;
(e) the presence on or under, or the discharge, emission, spill or
disposal from, any real property owned or leased by Holdings, the Borrower or
any of their Subsidiaries or into or upon any land or the atmosphere, of any
Hazardous Material where a source of the Hazardous Material is such real
property (including, without limitation, (A) the costs of defending and or
counterclaiming or claiming over against third parties in respect of any action
or matter; and (B) any cost, liability or damage arising out of a settlement of
any action entered into by the Lender);
(f) in complying with or otherwise in connection with any order,
consent, decree, settlement, judgement or verdict arising from the deposit,
storage, disposal, burial, dumping, injection, spilling, leaking, or other
placement or release in, on or from any real property owned or leased by
Holdings, the Borrower or any of their Subsidiaries of any Hazardous Material
(including without limitation any order under the Environmental Laws to clean-up
or decommission), whether or not such deposit, storage, disposal, burial,
dumping, injecting, spillage, leaking or other placement or release in, on or
from any such real property of any Hazardous Material:
(i) results by, through or under property owned or leased by
Holdings or the Borrower; or
(ii) occurred with Holdings' or the Borrower's knowledge and
consent; or
(iii) occurred before or after the Effective Date;
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct as determined by a final judgment of a court of
competent jurisdiction. If and to the extent that the foregoing undertaking may
be unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
SECTION 10.5. SURVIVAL. The obligation, as applicable, of Holdings and the
Borrower under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations
of the Lenders under Section 9.1, shall in each case survive any termination of
this Agreement, the payment in full of all the Obligations and the termination
of all the Commitments. The representations and warranties made by each Obligor
in this Agreement and
-87-
<PAGE> 95
in each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION 10.6. SEVERABILITY. Any provision of this Agreement or any other Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7. HEADINGS. The various headings of this Agreement and of each other
Loan Document are inserted for convenience only and shall not affect the meaning
or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.
SECTION 10.8. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This Agreement may
be executed by the parties hereto in several counterparts, each of which shall
be executed by the Borrower and the Agent and be deemed to be an original and
all of which shall constitute together but one and the same agreement. This
Agreement shall become effective when counterparts hereof executed on behalf of
the Borrower and each initial Lender (or notice thereof satisfactory to the
Agent) shall have been received by the Agent and notice thereof shall have been
given by the Agent to the Borrower and each Lender.
SECTION 10.9. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT AND THE NOTES
SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and supersede any prior agreements, written or oral, with
respect thereto.
SECTION 10.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that:
(a) neither Holdings nor the Borrower may assign or transfer its rights
or obligations hereunder without the prior written consent of the Agent and all
Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 10.11.
SECTION 10.11. SALE AND TRANSFER OF LOANS AND NOTES; PARTICIPATIONS IN LOANS AND
NOTES. Each Lender may assign, or sell participations in, its Loans and
Commitments to one or more other Persons in accordance with this Section 10.11.
SECTION 10.11.1. ASSIGNMENTS.
(a) Any Lender, with the written consent of the Borrower and the Agent
(which consent, in the case of the Borrower, shall not to be unreasonably
withheld or delayed and shall not, in any event, be required if any Default or
Event of Default shall have occurred and be continuing), may at any time assign
and delegate all or any fraction of such Lender's Loans, Commitments and Letter
of Credit participations to one or more commercial banks or other financial
institutions, and with notice to the Borrower and the Agent, but without the
consent of the Borrower or the Agent, may assign and delegate to any of its
Affiliates or to any other Lender (each Person described in either of the
foregoing clauses as the Person to whom such assignment and delegation is to be
made being hereinafter referred to as an "Assignee
-88-
<PAGE> 96
Lender"), all or any fraction of such Lender's total Loans, Commitments and
Letter of Credit participations (which assignment and delegation shall be of a
constant, and not a varying, percentage of all the assigning Lender's Loans and
Commitments) in a minimum aggregate amount of $5,000,000 (or, if less, the total
of such Lender's Commitment Amount and aggregate principal amount of Loans
outstanding); provided, however, that the Borrower, each other Obligor and the
Agent shall be entitled to continue to deal solely and directly with such Lender
in connection with the interests so assigned and delegated to an Assignee Lender
until
(i) written notice of such assignment and delegation, together
with payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to the Borrower and the Agent by
such Lender and such Assignee Lender;
(ii) such Assignee Lender shall have executed and delivered to
the Borrower and the Agent a Lender Assignment Agreement, accepted by the Agent;
and
(iii) the processing fees described below shall have been
paid.
From and after the date that the Agent accepts such Lender Assignment Agreement,
(x) the Assignee Lender thereunder shall be deemed automatically to have become
a party hereto and to the extent that rights and obligations hereunder have been
assigned and delegated to such Assignee Lender in connection with such Lender
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan Documents.
Within five Business Days after its receipt of notice that the Agent has
received an executed Lender Assignment Agreement, the Borrower shall execute and
deliver to the Agent (for delivery to the relevant Assignee Lender) new Notes
evidencing such Assignee Lender's assigned Loans and Commitments and, if the
assignor Lender has retained Loans and Commitments hereunder, replacement Notes
in the principal amount of the Loans and Commitments retained by the assignor
Lender hereunder (such Notes to be in exchange for, but not in payment of, those
Notes then held by such assignor Lender). Each such Note shall be dated the date
of the predecessor Notes. The assignor Lender shall mark the predecessor Notes
"exchanged" and deliver them to the Borrower. Accrued interest on that part of
the predecessor Notes evidenced by the new Notes, and accrued fees, shall be
paid as provided in the Lender Assignment Agreement. Accrued interest on that
part of the predecessor Notes evidenced by the replacement Notes shall be paid
to the assignor Lender. Accrued interest and accrued fees shall be paid at the
same time or times provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such Assignee Lender must also pay a processing fee to the
Agent upon delivery of any Lender Assignment Agreement in the amount of $3,500.
Any attempted assignment and delegation not made in accordance with this Section
10.11.1 shall be null and void. The terms of this clause (a) shall not apply to
the original syndication of the Commitments by Chase.
(b) Notwithstanding clause (a), any Lender may assign and pledge all or
any portion of its Loans and Notes and other rights to a Federal Reserve Bank as
collateral security; provided, however, that no such assignment under this
clause (b) shall release the assignor Lender from any of its obligations
hereunder.
SECTION 10.11.2. PARTICIPATIONS.
-89-
<PAGE> 97
(a) Any Lender may at any time without the consent of the Borrower or
the Agent (but with prior written notice to the Borrower and the Agent) sell to
one or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "Participant") participating interests in
any of the Loans, Commitments, or other interests of such Lender hereunder;
provided, however, that
(i) no participation contemplated in this Section 10.11.2
shall relieve such Lender from its Commitments or its other obligations
hereunder or under any other Loan Document;
(ii) such Lender shall remain solely responsible for the
performance of its Commitments and such other obligations;
(iii) the Borrower and each other Obligor and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and each of the other Loan
Documents;
(iv) no Participant, unless such Participant is an Affiliate
of such Lender, or is itself a Lender, shall be entitled to require such Lender
to take or refrain from taking any action hereunder or under any other Loan
Document, except that such Lender may agree with any Participant that such
Lender will not, without such Participant's consent, take any actions of the
type described in clause (b) or (c) of Section 10.1; and
(v) the Borrower shall not be required to pay any amount under
clause (b) of this Section 10.11.2 that is greater than the amount which it
would have been required to pay had no participating interest been sold.
(b) The Borrower acknowledges and agrees that each Participant, for
purposes of Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, shall be considered a
Lender.
SECTION 10.11.3. CERTAIN OTHER PROVISIONS.
(a) The Borrower authorizes each Lender to disclose to any participant
or assignee (each, a "Transferee") and any prospective Transferee any and all
financial and other information in such Lender's possession concerning the
Borrower which has been delivered to such Lender by the Borrower pursuant to or
in connection with this Agreement or which has been delivered to such Lender by
the Borrower in connection with such Lender's credit evaluation of the Borrower
prior to entering into this Agreement.
(b) If, pursuant to this Section 10.11.3, any interest in this
Agreement or any Loan or Note is transferred to any Transferee which is
organized under the laws of any jurisdiction other than the United States or any
State thereof, the transferor Lender shall cause such Transferee (other than any
Participant), and may cause any Participant, concurrently with the effectiveness
of such transfer, (i) to represent to the transferor Lender (for the benefit of
the transferor Lender, the Agent and the Borrower) that under applicable law and
treaties, except as disclosed by such Transferee, no taxes will be required to
be withheld by the Agent, the Borrower or the transferor Lender with respect to
any payments to be made to such Transferee in respect of the Loans, (ii) to
furnish to the transferor Lender, the Agent and the Borrower either U.S.
Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001
(wherein such Transferee claims entitlement to whole or partial exemption from
U.S. federal withholding tax on all interest payments hereunder) and (iii) to
agree (for the benefit of the transferor Lender, the
-90-
<PAGE> 98
Agent and the Borrower) to provide the transferor Lender, the Agent and the
Borrower a new Form 4224 or Form 1001 upon the obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S. laws
and regulations and amendments duly executed and completed by such Transferee,
and to comply from time to time with all applicable U.S. laws and regulations
with regard to such withholding tax exemption.
SECTION 10.12. OTHER TRANSACTIONS. Nothing contained herein shall preclude
either the Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
SECTION 10.13. GUARANTY OF HOLDINGS.
(a) Guaranty. Holdings unconditionally and irrevocably guarantees the
full and prompt payment when due, whether at stated maturity, by acceleration or
otherwise (including, without limitation, all amounts which would have become
due but for the operation of the automatic stay under Section 362(a) of the
Federal Bankruptcy Code, 11 U.S.C. 362(a)), of all Obligations, whether for
principal, interest, fees, expenses or otherwise, and including any and all
costs and expenses (including reasonable attorney costs) incurred by the Agent
or any Lender in enforcing any of their respective rights with respect thereto.
The foregoing guaranty constitutes a guaranty of payment when due and not merely
of collection, and Holdings specifically agrees that it shall not be necessary
or required that the Agent or any Lender exercise any right, assert any claim or
demand or enforce any remedy whatsoever against any Borrower or any other
Obligor before or as a condition to the obligations of Holdings hereunder.
(b) Acceleration of Guaranty. Holdings and agrees that (i) in the event
that the Borrower or any other Obligor is subject to any proceeding of the
nature referred to in Section 8.1.9, or (ii) upon notice of acceleration of the
Obligations from the Agent pursuant to Section 8.3, and if any such event shall
occur at a time when any of the Obligations may not then be due and payable,
Holdings will pay to the Lenders forthwith the full amount which would be
payable hereunder by Holdings if all the Obligations were then due and payable.
(c) Guaranty Absolute. The guaranty pursuant to this Section 10.13 is a
continuing, absolute, unconditional and irrevocable guarantee of payment and
shall remain in full force and effect until all the Obligations have been
indefeasibly paid in full in cash and all Commitments shall have permanently
terminated. Holdings guarantees that the Obligations will be paid strictly in
accordance with the terms of each agreement under which they arise, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Agent or any of the Lenders
with respect thereto. The liability of each of Holdings under this Section 10.13
shall be absolute and unconditional irrespective of:
(i) any lack of validity, legality or enforceability of this
Agreement, the Notes, any other Loan Document, or any other agreement or
instrument relating to any thereof;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any compromise, renewal,
extension, acceleration or release with respect thereto, or any other amendment
or waiver of or any consent to departure from this Agreement, the Notes or any
other Loan Document;
-91-
<PAGE> 99
(iii) any addition, exchange, release or non-perfection of any
Collateral, or any release or amendment or waiver of or consent to departure
from any other guaranty, for all or any of the Obligations;
(iv) the failure of the Agent or any Lender
(A) to assert any claim or demand or to enforce any
right or remedy against Holdings, the Borrower, any other Obligor or
any other Person (including any other guarantor) under the provisions
of this Agreement, any Note, any other Loan Document or otherwise, or
(B) to exercise any right or remedy against any other
guarantor of, or Collateral securing, any of the Obligations;
(v) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of this
Agreement, any Note or any other Loan Document;
(vi) any defense, set-off or counterclaim which may at any
time be available to or be asserted by Holdings, the Borrower or any other
Obligor against the Agent or any Lender;
(vii) any reduction, limitation, impairment or termination of
the Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and Holdings
hereby waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality,
nongenuineness, irregularity, compromise, unenforceability of, or any other
event or occurrence affecting, the Obligations or otherwise; or
(viii) any other circumstance which might otherwise constitute
a defense available to, or a legal or equitable discharge of, the Borrower, any
other Obligor or Holdings.
(d) Reinstatement, etc. Holdings agrees that its guaranty hereunder
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment (in whole or in part) of any of the Obligations is rescinded or
must otherwise be restored by the Agent or any Lender, upon the Borrower or any
other Obligor being subject to any proceeding of the nature referred to in
Section 8.1.9 or otherwise, all as though such payment had not been made.
(e) Waiver. Holdings hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Obligations and this
guaranty, and any requirement that the Agent or any Lender protect, secure,
perfect or insure any Lien on any of the Collateral or other property or exhaust
any right or take any action against the Borrower, any other Obligor or any
other Person (including any other guarantor) or any Collateral securing the
Obligations.
(f) Waiver of Subrogation. Holdings hereby irrevocably waives any claim
or other rights which it may now or hereafter acquire against the Borrower or
any other Obligor that arise from the existence, payment, performance or
enforcement of its obligations under its guaranty hereunder, including any right
of subrogation, reimbursement, exoneration or indemnification, any right to
participate in any claim or remedy of the Agent or any Lender against the
Borrower or any other Obligor or any Collateral which the Agent or any Lender
now has or hereafter acquires, whether or not such claim, remedy or right arises
in equity, or under contract, statute or common law, including the right to take
or receive from the
-92-
<PAGE> 100
Borrower or any other Obligor, directly or indirectly, in cash or other property
or by set-off or in any manner, payment or security on account of such claim or
other rights. If any amount shall be paid to the Borrower in violation of the
preceding sentence and the Obligations shall not have been paid in cash in full
and the Commitments have not been permanently terminated, such amount shall be
deemed to have been paid to Holdings for the benefit of, and held in trust for,
the Lenders, and shall forthwith be paid to the Agent on behalf of the Lenders
to be credited and applied against the Obligations, whether matured or
unmatured. Holdings acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Agreement and that
the waiver set forth in this Section is knowingly made in contemplation of such
benefits.
SECTION 10.14. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS, HOLDINGS OR THE
BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE FEDERAL OR STATE
COURTS OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. HOLDINGS AND THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS
BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF NEW YORK. HOLDINGS AND THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
HOLDINGS OR THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, HOLDINGS AND THE BORROWER
HEREBY IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.15. WAIVER OF JURY TRIAL, ETC. THE AGENT, THE LENDERS, HOLDINGS AND
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS
THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS, HOLDINGS OR THE BORROWER.
HOLDINGS AND THE BORROWER ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF
-93-
<PAGE> 101
EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT
AND EACH SUCH OTHER LOAN DOCUMENT. IN NO EVENT SHALL ANY LENDER OR THE AGENT BE
LIABLE FOR ANY CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED IN CONNECTION HEREWITH
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
-94-
<PAGE> 102
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
SELFCARE CONSUMER PRODUCTS, INC.
By:________________________________
Name:
Title:
SELFCARE, INC.
By:_______________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as the Agent
By:________________________________
Name:
Title:
LENDERS
THE CHASE MANHATTAN BANK
By:________________________________
Name:
Title:
-95-
<PAGE> 103
SCHEDULE I
DISCLOSURE SCHEDULE
ITEM 1.1 Holdings' Equity Documents.
ITEM 6.8 Initial Capitalization.
ITEM 6.12 Environmental Matters.
ITEM 6.13(a) Inventory Locations.
ITEM 6.20 Insurance.
ITEM 7.2.2(b) Indebtedness to be Paid.
ITEM 7.2.2(c) Ongoing Indebtedness.
ITEM 7.2.2(z) Holdings' Contingent Liabilities.
ITEM 7.2.3(c) Existing Liens.
ITEM 7.2.5(a) Ongoing Investments.
ITEM 7.2.8 Take or Pay Contracts.
ITEM 7.2.12(a) Transactions with Affiliates.
<PAGE> 104
SCHEDULE II
PERCENTAGES
<TABLE>
<CAPTION>
Lender Revolving Loan Commitment Term Loan Commitment
- ------ ------------------------- --------------------
<S> <C> <C>
The Chase Manhattan Bank 100% 100%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 105
SCHEDULE III
ADMINISTRATIVE INFORMATION
BORROWER AND HOLDINGS
Selfcare, Inc.
Selfcare Consumer Products, Inc.
200 Prospect Street
Waltham, MA 02154
Telecopier No.: 617-647-3939
Attention: Anthony Hall
AGENT
The Chase Manhattan Bank
633 Third Avenue
New York, New York 10017
Telecopier No.: 212-622-5289
LENDERS
1. The Chase Manhattan Bank
Domestic Office
633 Third Avenue
New York, New York 10017
Telecopier No.: 212-622-5289
Attention: Credit Executive
LIBOR Office
633 Third Avenue
New York, New York 10017
Telecopier No.: 212-622-5289
Attention: Credit Executive
Administrative Information
633 Third Avenue
New York, New York 10017
Telecopier No.: 212-622-5289
Attention: Credit Executive
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-KSB, into the Company's
previously filed Registration Statement File Nos. 333-37961, 333-45534, and
333-15583.
ARTHUR ANDERSEN
March 25, 1998
Boston, Massachusetts
38
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our report,
dated February 13, 1997, on the financial statements of Orgenics Ltd. included
in this Form 10-KSB, and to the incorporation of our report into Selfcare,
Inc.'s previously filed Registration Statement File Nos. 333-37961, 333-45534,
and 333-15583, as amended.
KOST LEVARY AND FORER
Certified Public Accountants (Israel)
a Member of Ernst & Young International
March 26, 1998
Tel-Aviv, Israel
39
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 15,669,898
<SECURITIES> 0
<RECEIVABLES> 8,390,755
<ALLOWANCES> 1,158,000
<INVENTORY> 5,344,531
<CURRENT-ASSETS> 34,679,271
<PP&E> 15,263,632
<DEPRECIATION> 4,755,600
<TOTAL-ASSETS> 95,763,694
<CURRENT-LIABILITIES> 36,960,933
<BONDS> 39,476,074
1,868,027
9,272,508
<COMMON> 9,681
<OTHER-SE> 5,431,004
<TOTAL-LIABILITY-AND-EQUITY> 95,763,694
<SALES> 50,891,221
<TOTAL-REVENUES> 52,250,371
<CGS> 26,277,645
<TOTAL-COSTS> 41,269,612
<OTHER-EXPENSES> 3,471,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,486,835
<INCOME-PRETAX> (23,935,068)
<INCOME-TAX> 195,872
<INCOME-CONTINUING> (24,130,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 579,354
<CHANGES> 0
<NET-INCOME> (24,710,294)
<EPS-PRIMARY> (3.36)
<EPS-DILUTED> (3.36)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 16,458,654
<SECURITIES> 0
<RECEIVABLES> 5,794,814
<ALLOWANCES> 316,000
<INVENTORY> 2,266,234
<CURRENT-ASSETS> 25,237,962
<PP&E> 9,451,238
<DEPRECIATION> 1,592,353
<TOTAL-ASSETS> 41,089,452
<CURRENT-LIABILITIES> 15,374,498
<BONDS> 5,895,701
1,753,928
5
<COMMON> 5,975
<OTHER-SE> 12,079,294
<TOTAL-LIABILITY-AND-EQUITY> 41,089,452
<SALES> 14,066,630
<TOTAL-REVENUES> 19,062,788
<CGS> 10,958,024
<TOTAL-COSTS> 17,160,976
<OTHER-EXPENSES> 8,592,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,561,276
<INCOME-PRETAX> (28,577,642)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,577,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,577,642)
<EPS-PRIMARY> (6.00)
<EPS-DILUTED> (6.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 7,394,750
<SECURITIES> 0
<RECEIVABLES> 1,508,232
<ALLOWANCES> 94,000
<INVENTORY> 1,193,114
<CURRENT-ASSETS> 10,307,139
<PP&E> 2,844,615
<DEPRECIATION> 625,008
<TOTAL-ASSETS> 13,692,348
<CURRENT-LIABILITIES> 5,989,463
<BONDS> 8,166,667
1,643,580
0
<COMMON> 4,058
<OTHER-SE> (5,234,455)
<TOTAL-LIABILITY-AND-EQUITY> 13,692,348
<SALES> 6,722,625
<TOTAL-REVENUES> 7,238,712
<CGS> 5,564,438
<TOTAL-COSTS> 7,182,277
<OTHER-EXPENSES> 52,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,519,375
<INCOME-PRETAX> (10,096,903)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,096,903)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,096,903)
<EPS-PRIMARY> (2.61)
<EPS-DILUTED> (2.61)
</TABLE>
