SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from ____
to ____
COMMISSION FILE NUMBER 0-20871
SELFCARE, INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 04-3164127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02453
(Address of principal executive offices)
(781) 647-3900
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
The number of shares outstanding of the registrant's Common Stock
as of July 31, 1998 was 12,647,856.
Transitional Small Business Disclosure Format (check one):
Yes No X
SELFCARE, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 1998
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking
statements. Some of the factors that might cause such a difference are
discussed in the section entitled "Certain Factors Affecting Future
Operating Results" on page 11 of this Form 10-Q.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Statements of Operations for the
three months ended June 30, 1998 and 1997 and
the six months ended June 30, 1998 and 1997.
b) Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997.
c) Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997.
d) Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Securities
Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net product sales $29,268,859 $12,338,237 $53,253,730 $21,095,418
Grants and other revenue 1,459,758 338,147 2,065,631 675,573
---------- ---------- ---------- ----------
Net revenues 30,728,617 12,676,384 55,319,361 21,770,991
Cost of revenues 20,735,557 6,024,885 37,301,981 11,061,863
---------- ---------- ---------- ----------
Gross profit 9,993,060 6,651,499 18,017,380 10,709,128
Operating Expenses:
Research and development 1,849,566 4,303,646 3,412,745 7,378,839
Charge for in-process research and
development (Note 4) -- 1,278,200 -- 1,278,200
Selling, general and administrative 8,619,339 5,939,926 16,344,587 10,701,384
Noncash compensation charge -- 37,629 -- 75,258
---------- ---------- ---------- ----------
Total operating expenses 10,468,905 11,559,401 19,757,332 19,433,681
---------- ---------- ---------- ----------
Operating loss (475,845) (4,907,902) (1,739,952) (8,724,553)
Interest expense, including noncash
interest expense relating to
issuance of convertible notes (2,203,002) (1,124,209) (5,612,874) (1,729,641)
Interest income 146,922 262,039 328,455 405,014
Equity in net income of affiliate 132,708 -- 237,773 --
Other income (expense) 251,608 (5,617) 1,724,280 (751,985)
---------- ---------- ---------- ----------
Loss before minority interest,
dividends and accretion on preferred
stock of a subsidiary (2,147,609) (5,775,689) (5,062,318) (10,801,165)
Minority interest in subsidiaries'
income 36,894 (29,120) 73,683 130,420
Dividends and accretion on
mandatorily redeemable preferred
stock of a subsidiary (28,896) (28,810) (57,979) (56,989)
---------- ---------- ---------- ----------
Loss before income taxes (2,139,611) (5,833,619) (5,046,614) (10,727,734)
---------- ---------- ---------- ----------
Provision for income taxes 46,312 -- 136,312 --
---------- ---------- ---------- ----------
Net loss $(2,185,923) $(5,833,619) $(5,182,926) $(10,727,734)
========== ========== ========== ==========
Basic and diluted net loss per
common and potential common share $(0.18) $(0.71) $(.0.47) $(1.45)
========== ========== ========== ==========
Basic and diluted weighted average
number of common and potential
common shares outstanding 11,956,178 8,233,655 11,131,260 7,416,996
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $9,883,741 $15,669,898
Accounts receivable, net of allowance for doubtful
accounts of $989,000 in 1998 and $1,158,000 in 1997 13,566,252 7,232,755
Inventories (Note 3) 10,452,927 5,344,531
Note receivable -- 4,979,232
Prepaid expenses and other current assets 2,580,626 1,452,855
------------ -----------
Total current assets 36,483,546 34,679,271
------------ -----------
PROPERTY AND EQUIPMENT, NET 9,763,294 10,508,032
INVESTMENTS IN AFFILIATED COMPANIES 3,656,609 3,405,609
LOAN TO AFFILIATED COMPANY 759,825 742,105
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 72,295,400 43,393,263
OTHER ASSETS 8,473,103 3,035,414
------------ -----------
Total assets $131,431,777 $95,763,694
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable 14,291,992 20,426,511
Accounts payable 14,487,974 6,079,242
Accrued expenses and other current liabilities 11,662,470 8,251,021
Current portion of deferred revenue 2,188,022 2,204,159
------------ -----------
Total current liabilities 42,630,458 36,960,933
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion 230,749 2,674,971
Notes payable, net of current portion 54,928,080 39,476,074
Other long-term liabilities 2,500,000 --
------------ -----------
Total long-term liabilities 57,658,829 42,151,045
COMMITMENTS AND CONTINGENCIES (Notes 5 through 7)
MINORITY INTEREST IN SUBSIDIARIES 27,488 70,496
------------ -----------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY 1,926,006 1,868,027
------------ -----------
SERIES B CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE 7,179,848 9,272,508
Issued-8,000 shares, outstanding - 6,200 in 1998 and ------------ -----------
8,000 in 1997
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.001 par value - -- --
Issued and outstanding - 0 in 1998 and 400 in 1997
Common Stock, $.001 par value -
Authorized - 40,000,000 shares
Issued -12,749,689 and 9,681,389 shares in 1998
and 1997, respectively 12,750 9,681
Additional paid-in capital 99,128,560 75,753,699
Less-Treasury stock, at cost, 187,921 and 32,197 shares
in 1998 and 1997, respectively (1,710,304) (211,460)
Accumulated deficit (75,398,240) (70,183,506)
Cumulative translation adjustment (23,618) 72,271
------------ -----------
Total stockholders' equity 22,009,148 5,440,685
------------ -----------
Total liabilities and stockholders' equity $131,431,777 $95,763,694
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
SELFCARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(5,182,926) $(10,727,734)
Adjustments to reconcile net loss to net cash used in
operating activities:
Dividends and accretion on preferred stock of a subsidiary 57,979 56,989
Non-cash interest expense related to issuance of notes
payable & warrants 1,579,866 --
Non-cash income related to treasury stock received in
settlement of lawsuit (1,498,844) --
Non-cash in-process research and development expense -- 1,278,200
Compensation expense related to issuance of common stock
options -- 13,726
Amortization of deferred revenue (2,076,098) (699,639)
Depreciation and amortization 4,114,576 2,213,396
Equity in net income of affiliate (237,773) --
Minority interest in subsidiaries' loss (73,683) (155,521)
Changes in assets and liabilities:
Accounts receivable (6,284,782) (1,748,335)
Inventories (5,129,998) (2,549,990)
Prepaid and other current assets (1,159,680) (739,445)
Accounts payable 8,366,753 3,063,754
Accrued expenses and other current liabilities 2,386,516 2,398,665
----------- -----------
Net cash used in operating activities (5,138,094) (7,595,934)
Cash Flows From Investing Activities:
Purchases of property and equipment (723,504) (3,575,275)
Cash paid for acquisition of Can-Am Care Corporation (13,600,000) --
Cash paid for purchase of USB '93 Technology Associates
Limited Partnership (471,354) --
Cash paid for license from ChemTrak -- (333,000)
Cash paid for investment in Orgenics Ltd. (91,089) (6,939,613)
Cash paid for purchase of Nutritional Supplement Lines -- (37,067,579)
Cash loaned to affiliated company -- (572,105)
Cash received from affiliated company as repayment of loan 81,350 --
Increase in other assets (270,430) (57,072)
----------- -----------
Net cash used in investing activities (15,075,027) (48,544,644)
----------- -----------
Cash Flows From Financing Activities:
Cash paid for deferred financing costs (1,886,728) --
Net proceeds from issuance of common stock 845,678 16,656,041
Proceeds from borrowings under notes payable 44,023,282 44,298,967
Repayments of notes payable (28,525,605) (5,458,539)
----------- -----------
Net cash provided by financing activities 14,456,627 55,496,469
----------- -----------
Foreign Exchange Effect on Cash and Cash Equivalents (29,663) 335,742
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (5,786,157) (308,367)
Cash and Cash Equivalents, beginning of year 15,669,898 16,458,654
----------- -----------
Cash and Cash Equivalents, end of period 9,883,741 $16,150,287
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for -
Interest $1,972,264 $1,390,905
Income taxes $368,535 $5,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation of Financial Information
The accompanying consolidated financial statements of Selfcare, Inc.
and its subsidiaries (the "Company" or "Selfcare") are condensed and
unaudited. In the opinion of management, the unaudited, condensed,
consolidated financial statements contain all adjustments considered
normal and recurring necessary for their fair presentation. Interim
results are not necessarily indicative of results to be expected for the
year. These interim financial statements have been prepared in
accordance with the instructions for Form 10-Q and therefore do not
include all information and footnotes necessary for a complete
presentation of operations, financial position, and cash flows of the
Company in conformity with generally accepted accounting principles. The
Company filed audited consolidated financial statements, which included
information and footnotes necessary for such presentation, for the year
ended December 31, 1997 on Form 10-KSB. These unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and related notes for the period ended
December 31, 1997 included on Form 10-KSB filed with the Securities and
Exchange Commission.
2) Cash and Cash Equivalents
The Company considers all highly liquid cash investments with
maturities of three months or less at the date of acquisition to be cash
equivalents. At June 30, 1998, the Company's cash equivalents consisted
of repurchase agreements and money market funds. The Company follows the
provisions of Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
As of December 31, 1997 and June 30, 1998, all of the Company's cash
equivalents are classified as held to maturity and carried at amortized
cost, which approximates market value.
3) Inventory
Inventory is comprised of the following:
June 30, 1998 December 31, 1997
------------- -----------------
Raw materials $ 3,422,532 $ 3,006,076
Work in-process 842,732 405,404
Finished goods 6,187,663 1,933,051
-------------- ------------
$ 10,452,927 $ 5,344,531
============== ============
4) Non recurring, non-cash income and expenses
For the three and six month periods ended June 30, 1998, the Company
recognized $408,000 and $1.6 million, respectively, of non-cash interest
expense for the amortization of the original issue discount on
convertible notes. Also, for the six months ended June 30, 1998, the
Company recognized $1.5 million of non-cash income related to 155,724
shares of the Company's Common Stock received into treasury in
connection with the Settlement Agreement dated March 6, 1998 by and
between the Company, Trinity Biotech PLC, Flambelle Limited and
Eastcourt Limited.
For the three and six months ended June 30, 1997, the Company
recognized expense of $1,278,200 for in-process research and development
related to the acquisition of Orgenics, Ltd. The allocation of a
portion of the purchase price to in-process research and development
represented the applicable pro-rata portion of its appraised value of
$7,700,000. For the six months ended June 30, 1997, the Company
recorded an unrealized loss of $717,000 related to foreign currency
translation of intercompany balances.
5) Subordinated Promissory Notes
On June 26, 1998, the Company entered into a Securities Purchase
Agreement to sell Units (the "Units") having an aggregate purchase price
of up to $10 million. Each Unit consists of (i) $25,000 in principal
amount of a Subordinated Note (individually a "Note" and collectively
the "Notes") and (ii) a warrant (individually a "Warrant" and
collectively the "Warrants"), to acquire such number of shares of the
Company's Common Stock, par value $.00l per share (the "Common Stock")
as is determined by dividing $3,750 by the Exercise Price (as
hereinafter defined) as of the date of issuance of such Warrant. The
"Exercise Price" as of a particular date shall mean the average of the
closing prices for shares of the Company's Common Stock on the American
Stock Exchange on the five trading days immediately preceding such date.
The issue price for each Unit shall be $25,000. The Notes will be due
on the second anniversary of their date of issuance and the Warrants may
be exercised, in whole or in part, at any time on or prior to the fifth
anniversary of their issuance.
The Notes bear interest at a rate equal to thirteen percent (13%) per
annum and are payable quarterly on the first day of each quarter,
beginning with October 1, 1998. Interest or principal which is not paid
when due shall bear interest, compounded daily, at the rate of eighteen
percent (18%). Whenever the Company makes a payment of principal under
the Notes, it shall at the same time pay a premium (the "Premium") equal
to 5% of the principal amount then being paid. The Notes may be prepaid
by the Company in whole or in part at any time after December 31, 1998
so long as the Company at the same time pays the holder of the Notes the
Premium with respect to the principal amount then being prepaid.
On June 26, 1998, the Company sold Units consisting of an aggregate of
$4.9 million of Notes and Warrants exercisable for 72,588 shares at
$10.125 per share. On July 17, 1998, the Company sold Units consisting
of an aggregate of $2.45 million of Notes and Warrants exercisable for
40,330 shares at $9.1125 per share.
U.S. Boston Capital Corporation ("U.S. Boston Capital") acted as
placement agent for the offering of the Notes. As compensation for its
services as placement agent, U.S. Boston Capital received a cash
commission of $441,000, which the Company recorded as deferred financing
costs and will amortize over the 2-year life of the Notes. U.S. Boston
Capital was also reimbursed for the fees and disbursements of its
counsel and received a non-accountable expense allowance of $7,350. A
Director of the Company is the Chairman, President, Treasurer and a
Director of U.S. Boston Capital. In addition, Jonathan J. Fleming, John
F. Levy, and Willard L. Umphrey, Directors of the Company, purchased
Units with an aggregate issue price of $775,000 on June 26, 1998.
Pear Tree Royalty Company, Inc. ("Pear Tree Royalty Company"), as the
authorized representative of the Noteholders, is entitled to receive a
Warrant, at each closing at which Units are sold, for a number of shares
equal to one-third of the aggregate number of shares issuable under the
other Warrants issued at such closing. Mr. Umphrey is also a Director
and shareholder of Pear Tree Royalty Company. On June 26, 1998, Pear
Tree Royalty Company received a Warrant for 24,196 shares and on July
17, 1998, Pear Tree Royalty Company received a Warrant for 13,443 shares
Upon issuance of the Notes and Warrants on June 26, 1998, the Company
allocated $404,000 of the proceeds to the Warrants and is amortizing the
related original issuance discount and deferred financing costs over the
2-year life of the Notes.
6) Medical Selfcare, Inc. v. Selfcare, Inc.
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. On June 30, 1998,
the Company entered into a settlement agreement resolving Medical's
claims and the Company's counterclaims. Pursuant to the settlement
agreement, the Company will receive a payment from Medical and will
phase out its use of the name and mark "Selfcare".
7) Abbott Laboratories v. Selfcare, Inc. and Princeton BioMeditech
Corporation
On April 22, 1998, Abbott Laboratories ("Abbott") served process on
the Company and Princeton BioMeditech Corporation ("PBM"), which
manufactures certain products for the Company, asserting patent
infringement arising from the Company and PBM's manufacture, use and
sale of pregnancy and ovulation products. Abbott is seeking an order
finding that the Company and PBM infringe the Patents, an order
preliminarily and permanently enjoining the Company and PBM from
infringing the Patents, compensatory damages to be determined at trial,
treble damages, costs, prejudgment and postjudgment interest on Abbott's
compensatory damages, attorneys' fees, and a recall of all existing
Company or PBM products found to infringe the Patents. The court has
denied Abbott's motion for a preliminary injunction. The Company intends
to defend this litigation vigorously. A final ruling against the Company
could have a material adverse effect on the Company's business,
financial condition and results of operations.
8) Net Loss per Common Share.
In February 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. This
standard is effective for periods ending after December 15, 1997, with
earlier application not permitted. These condensed financial statements
have been prepared and presented based on the new standard. Prior
period amounts have been restated to conform to the current
presentation. Basic net loss per share is computed by dividing net loss
by the weighted average number of common shares outstanding during the
period. Diluted net loss per share for the periods presented is the same
as basic net loss per share since the inclusion of the potential common
stock equivalents would be antidilutive.
9) Comprehensive Income
The Company adopted SFAS 130, "Reporting Comprehensive Income",
effective January 1, 1998. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in financial
statements. The Company's only item of other comprehensive income
relates to foreign currency translation adjustments and is presented
separately on the balance sheet as required. If presented on the
statement of operations, comprehensive income would be approximately
$145,000 more than reported net income for the three months ended June
30, 1998 and $96,000 less than reported net income for the six months
ended June 30, 1998, due to foreign currency translation adjustments.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Selfcare, Inc. (the "Company" or "Selfcare") is engaged in the
development, manufacture, and marketing of self-test diagnostic products
for the diabetes, women's health and infectious disease markets, 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 products are targeted at the two largest existing
markets for self-care diagnostics, diabetes management and women's
health, as well as the emerging market for self-tests for infectious
diseases and agents, including human immunodeficiency viruses ("HIV")
and nutritional supplements. An important part of the Company's business
strategy is to enter into strategic alliances, joint ventures and
licensing arrangements with third parties, primarily medical products
companies, for the development, manufacture, and distribution of certain
products. The Company is also pursuing a strategy of selective
acquisitions of companies, assets and technologies, which it believes,
will enhance its ability to deliver innovative diagnostic products to
the marketplace at a low cost.
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased $18.0 million, or 142%, to $30.7
million for the three months ended June 30, 1998 from $12.7 million for
the three months ended June 30, 1997. Net revenues increased $33.5
million, or 154%, to $55.3 million for the six months ended June 30,
1998 from $21.8 million for the six months ended June 30, 1997. The
most significant increase is attributed to the Company's diabetes
business, which commenced shipments to LifeScan, Inc., a subsidiary of
Johnson & Johnson ("LifeScan") in December 1997 and had revenues of
$16.4 million and $26.9 million for the three and six months ended June
30, 1998, respectively. The Company's principal product for the
diabetes market is an electrochemical, biosensor-based blood glucose
monitoring system being distributed by LifeScan, known as FastTakeTM.
The FastTake system consists of an instrument, referred to as a meter,
and a disposable test strip. Also, on February 18, 1998, the Company's
subsidiary, Selfcare Consumer Products, Inc., acquired Can-Am Care
Corporation ("Can-Am"), a leading supplier of diabetes care products.
Net revenues of women's health products increased approximately $812,000
and $1.2 million for the three and six months ended June 30, 1998 as
compared to the three and six months ended June 30, 1997, respectively.
Approximately $228,000 of the increase in net revenues for the three
months ended June 30, 1998 as compared to the three months ended June
30, 1997 is attributed to sales of nutritional supplements. Net
revenues of nutritional supplements increased $4.3 million for the six
months ended June 30, 1998 as compared to the period of February 19 (the
date of acquisition) to June 30, 1997. Net revenues of diagnostic
products for infectious diseases decreased by $485,000 for the three
months ended June 30, 1998 compared to the three months ended June 30,
1997, but the decrease for the infectious diseases products was only
$169,000 for the six months ended June 30, 1998 as compared to the
similar period last year. Grant and other revenue was approximately $1.5
million and $2.1 million for the three and six months ended June 30,
1998 compared to $338,000 and $676,000 for the three and six months
ended June 30, 1997. The Company deferred $3.0 million of a $7.0 million
success fee received from LifeScan in October 1996. The Company
recognizes the revenue related to the success fee as FastTake meters are
shipped to LifeScan. The Company has accelerated the recognition of
this revenue based on the change in the estimated life of the current
meter because of the planned introduction of an improved meter. The
remainder of the deferred revenue relates to certain development and
capital grants for the Company's facility in Inverness, Scotland.
Gross profit. Gross profit increased by $3.3 million or 50% to $10.0
million for the quarter ended June 30, 1998 from $6.7 million for the
quarter ended June 30, 1997. The increase in the absolute amount of
gross profit dollars was derived primarily from net sales of the
diabetes products, which accounted for $1.7 million of the increase, and
the increased grant and other revenue of $1.1 million. The gross
profits on women's health products and nutritional supplements for the
three months ended June 30, 1998 increased by $315,000 and $158,000,
respectively, while the gross profits on net sales of diagnostic
products for infectious diseases decreased by $196,000 due to the lower
sales volume of those products. Gross profit increased by $7.3 million
or 68% to $18.0 million for the six months ended June 30, 1998 from
$10.7 million for the six months ended June 30, 1997. Gross profits on
net sales of the nutritional supplements accounted for $3.2 million of
the increase for the six-month period. Gross profits on diabetes
products accounted for $2.2 million of the increase, while gross profits
on grant and other revenue increased $1.4 million. Gross profit as a
percentage of net revenues decreased to 33% for both the three and six-
month periods ended June 30, 1998 from 52% and 49% of net revenues for
the three and six months ended June 30, 1997, respectively. The decrease
in gross profit as a percentage of net revenues was due to large
shipments of FastTake meters, which are sold at the Company's cost per
the agreement with LifeScan. This was partially offset by the increase
in the recognition of deferred revenue. The Company expects that the
blended gross profit, excluding the effect of the recognition of
deferred revenue, will improve as volumes of test strips for the
FastTake system increase.
Research and Development Expense. Research and development expense
decreased by $2.5 million or 57% for the three months ended June 30,
1998 to $1.8 million from $4.3 million for the three months ended June
30, 1997. For the six months ended June 30, 1998, research and
development expense decreased by $4.0 million or 54% to $3.4 million
from $7.4 million for the six months ended June 30, 1997. The decrease
was primarily due to the transition of the FastTake system from research
and development into production. The Company expects to continue to
spend significant amounts on research and development throughout 1998
and although the Company does not expect 1998 research and development
expenditure to be as high as research and development expenditure in
1997, it is expected to be at a higher level than for the three and six
months ended June 30, 1998.
Charge for In-Process Research and Development. For the three and six
months ended June 30, 1997, the Company recognized $1.3 million in
expense, representing a prorata portion of the purchase price of the
Company's interest in Orgenics, Ltd., which 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 $2.7 million or 45% to $8.6 million for
the three months ended June 30, 1998 from $5.9 million for the three
months ended June 30, 1997. Selling, general, and administrative expense
increased $5.6 million or 53% to $16.3 million for the six months ended
June 30, 1998 from $10.7 million for the six months ended June 30, 1997.
The increases were primarily attributable to increased spending on
marketing of the nutritional supplements and to the selling, general and
administrative expenses of Can-Am, which the Company acquired on
February 18, 1998. Amortization of goodwill and intangible assets
resulting from the acquisitions of the nutritional supplement lines, Can-
Am, and Orgenics, Ltd accounted for $310,000 and $915,000 of the
increase for the three and six-month periods. Selling, general and
administrative expense, as a percentage of net revenues, decreased to
28% and 30% of net revenues during the three and six months ended June
30, 1998 as compared to 47% and 49% of net revenues for the same periods
in 1997.
Interest and Other Income (Expense). For the three and six months
ended June 30, 1998 the Company incurred $2.2 million and $5.6 million,
respectively, in interest expense compared to $1.1 million and $1.7
million for the three and six months ended June 30, 1997. The Company
recognized $408,000 and $1.6 million of non-cash interest expense for
the amortization of the original issue discount on convertible notes,
predominately related to Senior Subordinated Convertible Notes for the
three and six months ended June 30, 1998, respectively. The Company
also incurred interest expense on Subordinated Revenue Royalty Notes of
$522,000 and $990,000 for the three and six months ended June 30, 1998,
respectively, compared to $72,000 for both the three and six months
ended June 30, 1997. The Company's subsidiary SCPI incurred increased
interest expense of $216,000 and $565,000 for the three and six months
ended June 30, 1998 as compared to the similar periods last year due to
increased borrowings used to acquire Can-Am. Also, for the six months
ended June 30, 1998, the Company recognized $1.5 million of non-cash
income related to 155,724 shares of the Company's Common Stock received
into treasury in connection with the settlement agreement dated March 6,
1998 by and between the Company, Trinity Biotech PLC, Flambelle Limited
and Eastcourt Limited.
Dividends and Accretion on Mandatorily Redeemable Preferred Stock of a
Subsidiary and Minority Interest. The Company's subsidiary in Inverness,
Scotland accrued $29,000 and 58,000 for the three and six months ended
June 30, 1998, respectively, representing a 6% dividend payable and
accretion on the outstanding cumulative redeemable preference shares.
The accrued dividends payable and accretion were the same amounts as for
the similar periods last year. Minority interest in certain of the
Company's subsidiaries was an income of $37,000 and $74,000 for the
three and six months ended June 30, 1998, respectively, as compared to
expense of $29,000 and income of $130,000 for the three and six months
ended June 30, 1997, respectively.
Foreign Currency Translation. Fluctuations in foreign currency did not
significantly impact revenue performance measured in U.S. dollars for
the three or six months ended June 30, 1998. Substantially all of the
Company's foreign sales are paid in the functional currency of the
selling entity. The Company recorded an unrealized gain of $2,000 for
the three months ended June 30, 1997 and an unrealized loss of $717,000
for the six months ended June 30, 1997 related to foreign currency
translation of intercompany balances.
Net Loss. For the three months ended June 30, 1998, the Company had a
net loss of $2.2 million or ($0.18) per common and potential common
share compared to a net loss of $5.8 million or ($0.71) per common and
potential common share for the three months ended June 30, 1997. The
results for the three-month periods ending June 30, 1997 and June 30,
1998 included significant non-recurring, non-cash charges and income as
detailed above. Excluding these charges, the net loss for the three
months ended June 30, 1998 was $1.8 million or ($0.15) per common and
potential common share compared to a net loss of $4.6 million or ($0.55)
per common and potential common share for the three months ended June
30, 1997. For the six months ended June 30, 1998, the Company had a net
loss of $5.2 million or ($0.47) per common and potential common share
compared to a net loss of $10.7 million or ($1.45) per common and
potential common share for the six months ended June 30, 1997. The
results for the six-month periods ending June 30, 1997 and June 30, 1998
included significant non-recurring, non-cash charges and income as
detailed above. Excluding these charges, the net loss for the six
months ended June 30, 1998 was $5.1 million or ($0.46) per common and
potential common share compared to a net loss of $8.7 million or ($1.18)
per common and potential common share for the six months ended June 30,
1997.
For the three months ended June 30, 1998, earnings before interest,
taxes, depreciation and amortization ("EBITDA") before non-recurring,
non-cash charges was $124,000 or $0.01 per common and potential common
share compared to a loss of $2.2 million or ($0.26) per common and
potential common share for the three months ended June 30, 1997. For the
six months ended June 30, 1998, EBITDA before non-recurring, non-cash
charges was $435,000 or $0.04 per common and potential common share
compared to a loss of $5.2 million or ($0.70) per common and potential
common share for the three months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the funds it
has received in connection with its initial public offering, a follow-on
public offering, funds received in connection with the alliance with
LifeScan, private placements of debt and equity securities, bank loans
and lines of credit, capital lease obligations, cash from product sales
and grants from government development agencies.
At June 30, 1998, the Company had cash and cash equivalents of $10.0
million, a $5.6 million decrease from December 31, 1997. The net cash
used in operating activities in the six months ended June 30, 1998 was
$5.1 million due largely to net losses of $5.2 million. However, the
net loss includes non-cash charges and income described above. Other
uses of cash in operating activities included increases in both accounts
receivable and inventory of $11.4 million, of which $6.4 million is due
to the acquisition of Can-Am. Prepaid and other current assets increased
$1.2 million. Cash was provided for operations in part by an increase in
accounts payable, accrued expenses, and other current liabilities of
$10.8 million. During the six months ended June 30, 1998, the Company
used $724,000 to purchase property and equipment.
During the six months ended June 30, 1998, the Company borrowed $38.4
million from The Chase Manhattan Bank. The Company used the majority of
these funds to finance the $13.6 million cash portion of the Can-Am
purchase price and to refinance the existing bank debt, $22.0 million,
with Fleet. The Company also paid $1.9 million in deferred financing
costs, primarily related to the purchase of Can-Am. On June 26, 1998,
the Company raised $4.9 million before expenses from the issuance of
subordinated promissory notes and warrants (See Note 5 of the "Notes to
Consolidated Financial Statements"). On July 17, 1998, the Company
issued an additional $2.45 million of subordinated promissory notes,
before expenses. In addition, during the six months ended June 30,
1998, the Company repaid $4.0 million of principal on a note payable to
American Home Products. The Company repaid the final $2.0 million of
principal on the note payable to American Home Products on July 1, 1998.
On August 14, 1998, the Company is required to pay $1.8 million to
holders of the Senior Subordinated Convertible Notes.
The Company currently anticipates that it will need to raise
additional capital, either through borrowings and/or issuance of equity
securities, during 1998 to help fund its operations and scheduled debt
payments. 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 require the Company to
relinquish rights to certain of its technologies or products which the
Company would otherwise pursue on its own.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking
statements. Some factors that might cause such a difference are set
forth below.
Risks Related to the LifeScan Alliance
The Company has entered into an exclusive worldwide alliance and
distribution agreement (the "LifeScan Alliance") with LifeScan, Inc., a
subsidiary of Johnson & Johnson ("LifeScan"). Under the terms of the
LifeScan Alliance Selfcare manufactures and LifeScan distributes
Selfcare's proprietary electrochemical blood glucose monitoring system
for the management of diabetes known as FastTake. Selfcare commenced
shipments of FastTake in December 1997. The Company's future results of
operations depend to a substantial degree on LifeScan's ability to
market and sell FastTake. No assurance can be given as to the market
acceptance of FastTake. The failure to produce, market and distribute
successfully FastTake would have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Related to the Nutritional Supplement Lines Acquisition
On February 19, 1997, the Company acquired the U.S. rights to several
nutritional supplement product lines (the "Nutritional Supplement
Lines") from American Home Products Corporation ("AHP"). 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. Selfcare is also developing additional nutritional supplement
products, but there can be no assurances that these can be successfully
introduced.
Risks Related to Can-Am Acquisition
On February 18, 1998, Selfcare's subsidiary SCPI acquired (the "Can-Am
Acquisition") Can-Am Care Corporation ("Can-Am"), a leading supplier of
diabetes care products, for approximately $27.9 million. 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.
The Company expects to realize cost savings and efficiencies by, among
others, eliminating redundant management functions and by coordinating
the distribution channels of Selfcare and Can-Am. No assurance can be
given that such cost savings and efficiencies can be realized or that
the Company will not incur significant costs in attempting to realize
such cost savings and efficiencies.
Risks Related to the Conversion to the Euro
On January 1, 1999, eleven of the fifteen member countries of the
European Union (the "Participating Countries") are scheduled to
establish fixed conversion rates between their sovereign currencies and
the Euro, and have agreed to adopt the Euro as their common legal
currency. The Euro will then trade on currency exchanges and be
available for non-cash transactions. The Participating Countries will
issue sovereign debt exclusively in Euro, and will redenominate
outstanding debt. Beginning January 1, 2002, the Participating
Countries will issue new Euro-denominated bills and coins for use in
cash transactions. No later than July 1, 2002, the Participating
Countries will withdraw all bills and coins denominated in their
sovereign currencies, making the conversion to the Euro complete.
Certain of the Company's European Subsidiaries will need to adapt their
information technology systems to accommodate Euro-denominated
transactions. In addition, it is likely that there will be a greater
transparency of pricing in the Participating Countries, making Europe a
more competitive environment The Company's European Subsidiaries may
need to respond by adjusting their business and financial strategies.
The cost has not been quantified at this time. However, the Company
does not believe that the consequences of the Euro conversion will have
a material effect on the Company, although no assurances can be given.
Risks Related to the Year 2000
The Company, including all of its business units, began investigating
the impact of the Year 2000 issue in 1997, starting with internal
information systems. Over the past few months, the Company has expanded
the scope of its review to include external entities having critical or
significant relationships with the Company (e.g. certain suppliers,
customers, etc.). The basic process in addressing the Company's Year
2000 compliance efforts consists of the following activities:
- - Compiling an inventory of all software, hardware,
telecommunications, facility and manufacturing systems with
potential date problems.
- - Inventory assessment to determine compliance status; preparation of
a business impact/risk analysis for use in setting priorities,
contingency planning and scheduling.
- - Survey of customer, business partner, key supplier and vendor
readiness
- - Repair or replacement of hardware, software, facility and
operational equipment to achieve year 2000 compliance
- - Thorough testing procedures.
- - Implementation and review of new or repaired systems and equipment
to ensure accurate processing of dates, full functionality and
acceptable level of service.
The Company is committed to identifying all business critical Year 2000
problems by December 31, 1998 and correcting them by June 30, 1999. To
the extent that systems or components are testable, the Company will
endeavor to ensure that each system or component is Year 2000 compliant.
For systems or components that are not testable by the Company, the
Company will work to procure certification from the appropriate source
that the system or components are Year 2000 compliant. The Company is
in the process of attempting to produce detailed plans that document the
inventory of equipment, determine compliance, and recommend actions to
upgrade all impacted systems. Costs will be estimated as a part of this
plan but are not known at this time. Each subsidiary will have its own
plan but will be incorporated into a master plan.
If the Company were to fail in its efforts to be Year 2000 compliant;
the failure could have a material adverse effect on the Company's
business, financial condition and results of operations.
Managing and Maintaining Growth
The Company is currently experiencing a period of rapid growth and
expansion, including growth and expansion experienced since the
consummation of the Nutritional Supplement Lines Acquisition and the Can-
Am Acquisition. This growth and expansion has placed, and could continue
to place, a significant strain on the Company's management, customer
service and support, operations, sales and administrative personnel and
other resources. In order to serve the needs of its existing and future
customers, the Company has increased and will continue to increase its
workforce, which requires the Company to attract, train, motivate and
manage qualified employees. The Company's ability to manage its planned
growth depends upon the Company's success in continuing to expand its
operating, management, information and financial systems, which may
significantly increase its operating expenses. If the Company fails to
achieve its growth as planned or is unsuccessful in managing its
anticipated growth, there could be a material adverse effect on the
Company.
Risks Related to New Product Development
Certain of the Company's products are in various stages of research
and development and the Company has generated no revenue from the
commercialization of these products under development. Some of these
products will require substantial additional development, pre-clinical
and clinical testing and investment prior to their commercialization.
There can be no assurance that the Company's research and development
efforts will be successful, that any of the Company's products under
development will prove to be safe or effective in clinical trials, that
the Company will be able to obtain regulatory approval to market any of
its products, that any of its products can be manufactured at acceptable
cost and with appropriate quality, or that any of its products, if and
when approved, can be successfully marketed.
Comprehensive 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
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 Food and Drug Administration (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.
The Company is developing home self-tests for women, which include
tests for osteoporosis and follicle stimulating hormone and plans to
develop self-tests for certain infectious disease in the future. There
can be no assurance that requisite regulatory approvals for the
Company's self-test products will be obtained within a reasonable period
of time, if at all. Moreover, if regulatory approval of a product is
granted, such approval may impose limitations on the indicated uses, or
methods of use, for which such product may be marketed. Further, even
if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual
review and periodic inspections, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer, including withdrawal of
the product from the market. Failure to comply with the applicable
regulatory requirements can result in, among other things, fines,
suspensions of regulatory approvals, product recalls, operating
restrictions and criminal prosecution.
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 Good Manufacturing Practices
("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.
Dependence on 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 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 product 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 "-Risks Related to Certain Licensing Arrangements."
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 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.
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 potential competitors have or may have
substantially greater research and development capabilities, clinical,
manufacturing, regulatory and marketing experience and financial and
managerial resources than the Company. The Company is seeking to
develop and market generic test strips, which 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," which is compatible with the ExacTech
System sold by MediSense, Inc. ("MediSense"). The Company initially
intended to commence marketing this product in the United States in
1997, but has delayed the commencement of such marketing until late-
1998. Although the Company believes that its Excel generic test strip
will be priced lower than the strips produced by MediSense for the
ExacTech System and therefore will compete effectively with the
MediSense product, there can be no assurance that MediSense 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.
Risk of Inadequate Funding; Future Capital Needs
The Company currently anticipates that it will need to raise
additional capital, either through borrowings and/or issuance of equity
securities, during 1998 to help fund its operations and scheduled debt
payments. 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 curtail significantly one or more of its
research and development programs, or obtain funds through arrangements
with collaborative partners or others that may require the Company to
relinquish rights to certain of its technologies or products which the
Company would otherwise pursue on its own.
Dependence upon Key Personnel
The Company is highly dependent on the services of Ron Zwanziger,
its Chairman, President and Chief Executive Officer, and certain other
members of its management and scientific staff, and the loss of Mr.
Zwanziger or one or more of such employees could have a material adverse
effect on the Company. In addition, the Company believes that its
future success will depend in large part upon its ability to attract and
retain highly skilled scientific, managerial and marketing personnel,
particularly as the Company expands its activities, including product
development and regulatory affairs, research and development and sales
and manufacturing. The Company faces significant competition for such
personnel from other companies, research and academic institutions,
government entities and other organizations. There can be no assurance
that the Company will be successful in hiring or retaining the personnel
it requires for continued growth. The failure to hire and retain such
personnel could materially and adversely affect the Company's prospects.
Litigation
On April 22, 1998, Abbott Laboratories ("Abbott") served process on
the Company and Princeton BioMeditech Corporation ("PBM"), which
manufactures certain products for the Company, in an action filed in the
United States District Court for the District of Massachusetts
("District Court"), asserting patent infringement arising from the
Company and PBM's manufacture, use and sale of products that Abbott
claims are covered by one or more of the claims of U.S. Patent Nos.
5,073,484 and 5,654,162 (the "Patents") to which Abbott asserts that it
is the exclusive licensee. Abbott claims that certain Selfcare products
relating to pregnancy detection and ovulation prediction infringe the
Patents. Abbott is seeking an order finding that the Company and PBM
infringe the Patents, an order preliminarily and permanently enjoining
the Company and PBM from infringing the Patents, compensatory damages to
be determined at trial, treble damages, costs, prejudgment and
postjudgment interest on Abbott's compensatory damages, attorneys' fees,
and a recall of all existing Company or PBM products found to infringe
the Patents. The court has denied Abbott's motion for a preliminary
injunction. The Company intends to defend this litigation vigorously.
A final ruling against the Company could have a material adverse effect
on the Company's business, financial condition and results of
operations.
PART II - OTHER INFORMATION
ITEM 1. 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 sought 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 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." On June 30,
1998, the Company entered into a settlement agreement resolving
Medical's claims and the Company's counterclaims. Pursuant to the
settlement agreement, the Company will receive a payment from Medical
and will phase out its use of the name and mark "Selfcare".
Abbott Laboratories v. Selfcare, Inc. and Princeton BioMeditech
Corporation
On April 22, 1998, Abbott Laboratories ("Abbott") served process on
the Company and Princeton BioMeditech Corporation ("PBM"), which
manufactures certain products for the Company, in an action filed in the
United States District Court for the District of Massachusetts
("District Court"), asserting patent infringement arising from the
Company and PBM's manufacture, use and sale of products that Abbott
claims are covered by one or more of the claims of U.S. Patent Nos.
5,073,484 and 5,654,162 (the "Patents") to which Abbott asserts that it
is the exclusive licensee. Abbott claims that certain Selfcare products
relating to pregnancy detection and ovulation prediction infringe the
Patents. Abbott is seeking an order finding that the Company and PBM
infringe the Patents, an order preliminarily and permanently enjoining
the Company and PBM from infringing the Patents, compensatory damages to
be determined at trial, treble damages, costs, prejudgment and
postjudgment interest on Abbott's compensatory damages, attorneys' fees,
and a recall of all existing Company or PBM products found to infringe
the Patents. The court has denied Abbott's motion for a preliminary
injunction. The Company intends to defend this litigation vigorously. A
final ruling against the Company could have a material adverse effect on
the Company's business, financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES
On June 26, 1998, the Company entered into a Securities Purchase
Agreement to sell Units (the "Units") having an aggregate purchase price
of up to $10 million. Each Unit consists of (i) $25,000 in principal
amount of a Subordinated Note (individually a "Note" and collectively
the "Notes") and (ii) a warrant (individually a "Warrant" and
collectively the "Warrants"), to acquire such number of shares of the
Company's Common Stock, par value $.00l per share (the "Common Stock")
as is determined by dividing $3,750 by the Exercise Price (as
hereinafter defined) as of the date of issuance of such Warrant. The
"Exercise Price" as of a particular date shall mean the average of the
closing prices for shares of the Company's Common Stock on the American
Stock Exchange on the five trading days immediately preceding such date.
The issue price for each Unit shall be $25,000. The Warrants may be
exercised, in whole or in part, at any time on or prior to the fifth
anniversary of their issuance.
On June 26, 1998, the Company sold Units consisting of an aggregate of
$4.9 million of Notes and Warrants exercisable for 72,588 shares at
$10.125 per share. On July 17, 1998, the Company sold Units consisting
of an aggregate of $2.45 million of Notes and Warrants exercisable for
40,330 shares at $9.1125 per share.
U.S. Boston Capital Corporation ("U.S. Boston Capital") acted as
placement agent for the offering of the Royalty Notes. Willard L.
Umphrey, a Director of the Company, is the Chairman, President,
Treasurer and a Director of U.S. Boston Capital. In addition, Jonathan
J. Fleming, John F. Levy, and Willard L. Umphrey, Directors of the
Company, received Warrants for an aggregate of 11,483 shares of Common
Stock.
Pear Tree Royalty Company, Inc. ("Pear Tree Royalty Company"), as the
authorized representative of the Noteholders, is entitled to receive a
Warrant, at each closing at which Units are sold, for a number of shares
equal to one-third of the aggregate number of shares issuable under the
other Warrants issued at such closing. Mr. Umphrey is also a Director
and shareholder of Pear Tree Royalty Company. On June 26, 1998, Pear
Tree Royalty Company received a Warrant for 24,196 shares and on July
17, 1998, Pear Tree Royalty Company received a Warrant for 13,443 shares
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The annual meeting of stockholders of the Company was held on
Thursday, May 28, 1998. Carol R. Goldberg and Edward B. Roberts were re-
elected as directors of the Company at the meeting. The other directors
whose term of office continued after the meeting were: Jonathan J.
Fleming, John Levy, Robert Oringer, Peter Townsend, Willard L. Umphrey
and Ron Zwanziger
In addition to the election of directors, the stockholders also
ratified the selection of Arthur Andersen LLP as the Company's
independent auditors for the 1998 fiscal year ending December 31, 1998.
The following table summarizes the votes for, against or withheld and
the number of abstentions and broker non-votes with regard to each
matter voted upon:
Against or Broker
Matter For Withheld Abstentions Non-Votes
Election of:
Ms. Goldberg 8,493,157 0 34,104 0
Mr. Roberts 8,501,757 0 25,504 0
Ratify Selection
of Auditors 8,495,021 22,778 9,462 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit Number Title
10.1 Form of Securities Purchase Agreement dated June 26,
1998 among Selfcare, Inc., certain named purchasers,
and certain other parties
10.2 Form of 13% Subordinated Note issued by the Company in
connection with the Securities Purchase Agreement dated
June 26,1998
10.3 Form of Warrant to Purchase Shares of Common Stock of the
Company issued in connection with the Securities Purchase
Agreement dated June 26, 1998
27 Financial Data Schedule
b. Reports on Form 8-K:
The Company filed no reports on Form 8-K during the three-month period
ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SELFCARE, INC.
Date: August 13, 1998 /s/ Duane L. James
------------------
Duane L. James,
Chief Accounting Officer and an
authorized officer
EXHIBIT 10.1
SELFCARE, INC.
SECURITIES PURCHASE AGREEMENT
DATED AS OF JUNE 26, 1998
TABLE OF CONTENTS
SECTION 1 DESCRIPTION OF FINANCING
1.1 Authorization of Sale of Units
1.2 Initial Closing
1.3 Additional Closings
1.4 Subordination
1.5 No Demand
1.6 Alternative Delivery
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization and Good Standing of the Company
2.2 Authorization
2.3 Litigation
2.4 Use of Proceeds
2.5 Brokers or Finders
2.6 Exemptions from Securities Laws
SECTION 3 REPRESENTATIONS, WARRANTEES ANDAGREEMENTS OF THE
PURCHASERS
3.1 Binding Agreement
3.2 Investment Representations
3.3 Brokers or Finders
3.4 Transfer or Assignment of Note
3.5 Legends
3.6 Non-Disclosure
3.7 Tax Matters.
SECTION 4 FINANCIAL STATEMENTS
4.1 Quarterly Financial Statements
4.2 Annual Financial Statements
SECTION 5 AUTHORIZED REPRESENTATIVE
5.1 Powers and Authority
5.2 Term
5.3 Exculpation
5.4 Fee
SECTION 6 DEFAULTS
6.1 Events of Default
SECTION 7 MISCELLANEOUS
7.1 Survival
7.2 Successors and Assigns
7.3 Notices
7.4 Amendment
7.5 Integration
7.6 Interpretation
7.7 Governing Law; Jurisdiction
7.8 Counterparts
7.9 Captions
7.10 Replacement of Authorized Representative
SELFCARE, INC.
SECURITIES PURCHASE AGREEMENT
This Agreement, dated as of June 26, 1998, is among
Selfcare, Inc., a Delaware corporation (the "Company"), the
purchasers named on Exhibit A attached hereto (the "Initial
Purchasers"), such additional purchasers as may be identified on
such addenda to Exhibit A as may be agreed upon by the Company
and such additional purchasers in accordance with the terms of
this Agreement (the "Additional Purchasers" and, together with
the Initial Purchasers, the "Purchasers") and Pear Tree Royalty
Company, Inc., a Massachusetts corporation, as authorized
representative and agent for the Purchasers (the "Authorized
Representative").
The parties hereby agree as follows:
SECTION 1
DESCRIPTION OF FINANCING
1.1 AUTHORIZATION OF SALE OF UNITS. The Company has
authorized the issuance pursuant to this Agreement of up to
$7,500,000 aggregate issue price of Units ("Units") each of which
shall consist of $25,000 in principal amount of its Subordinated
Notes which shall be substantially in the form of Exhibit B
hereto, with blanks appropriately completed (individually a
"Note" and collectively the "Notes") and (ii) a warrant, which
shall be substantially in the form of Exhibit C hereto, with
blanks appropriately completed (individually a "Warrant" and
collectively the "Warrants"), to acquire such number of shares of
the Company's Common Stock, par value $.00l per share (the
"Common Stock") as is determined by dividing $3,750 by the
Exercise Price (as hereinafter defined) as of the date of
issuance of such Warrant. The "Exercise Price" as of a
particular date shall mean the (i) the average of the closing
prices for shares of Common Stock on the American Stock Exchange
on the five trading days immediately preceding such date, or (ii)
if the American Stock Exchange is then not the principal trading
market for shares of Common Stock, the average of the last
reported sales prices for such five trading days (or, if there is
no reported sales price for such trading days, the last reported
bid price for such trading days) on the principal trading market
for shares of Common Stock, or (iii) if neither clause (i) nor
clause (ii) is applicable, the fair market value on such date of
one share of Common Stock as determined by the Board of Directors
of the Company. The issue price for each Unit (the "Issue
Price") shall be $25,000.
1.2 INITIAL CLOSING. Subject to the terms and conditions
of this Agreement, at the initial closing pursuant to this
Agreement (the "Initial Closing"), the Company shall deliver to
each Initial Purchaser, against payment by such Initial Purchaser
of the Issue Price for each Unit being purchased by such Initial
Purchaser, by check payable to the order of the Company, an
executed Note in the principal amount of $25,000 multiplied by
the number of Units being purchased by such Initial Purchaser and
an executed Warrant for the number of shares of Common Stock
determined by multiplying $3,750 by the number of Units being
purchased by such Initial Purchaser and then dividing the
resulting product by the Exercise Price as of the date of the
Initial Closing. The number of Units to be purchased by an
Initial Purchaser is set forth opposite the name of such Initial
Purchaser on Exhibit A. The Initial Closing shall take place
simultaneously with the execution of this Agreement at the
offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston,
Massachusetts 02109.
1.3 ADDITIONAL CLOSINGS.
(a) Subject to the terms and conditions of this
Agreement, at one or more closings subsequent to the Initial
Closing (each, an "Additional Closing"), the Company may issue
and sell Units to one or more Additional Purchasers who enter
into this Agreement by executing one or more counterparts hereof
in the form attached hereto as Exhibit D; PROVIDED, HOWEVER, that
the aggregate Issue Prices of all Units to be issued under this
Agreement shall not exceed $5,000,000 unless the Company and the
Authorized Representative so agree and in any event shall not
exceed $7,500,000.
(b) Each Additional Closing shall take place at such
time, date and place as are mutually agreeable to the Company and
the Additional Purchasers participating in the Additional
Closing; PROVIDED, HOWEVER, that no Additional Closing shall take
place after September 30, 1998 unless extended by the Company
from time to time to a later date, but any such later date shall
not be later than December 31, 1998.
(c) At each Additional Closing, the Company shall
deliver to each Additional Purchaser participating in the
Additional Closing, against payment by each Additional Purchaser
of the Issue Price for each Unit being purchased by such
Additional Purchaser by check payable to the order of the
Company, (i) an executed Note in the principal amount of $25,000
multiplied by the number of Units being purchased by such Initial
Purchaser and (ii) an executed Warrant for the number of shares
of Common Stock determined by multiplying $3,750 by the number of
Units being purchased by such Additional Purchaser and then
dividing the resulting product by the Exercise Price as of the
date of the Additional Closing. The number of Units to be
purchased by an Additional Purchaser shall be set forth opposite
the Additional Purchaser's name on an addendum to Exhibit A in
the form attached hereto as Exhibit E. Each addendum shall be
executed by the Company and each such Additional Purchaser, a
copy of each addendum shall be delivered to the Authorized
Representative, and each addendum shall be deemed a part of this
Agreement ab initio.
1.4 SUBORDINATION. Each of the Notes issued pursuant to
this Agreement shall be subordinated to all existing and future
"Senior Indebtedness" of the Company, as defined and provided for
in the form of Note attached hereto as Exhibit B. To the extent
provided in the Notes, Senior Indebtedness must be paid before
any Note may be paid.
1.5 NO DEMAND. Each of the Purchasers hereby agrees that
only the Authorized Representative shall have the right to demand
payment from the Company under any Note.
1.6 ALTERNATIVE DELIVERY. At the Initial Closing or any
Additional Closing the Company may deliver one or more of the
Notes or of the Warrants to the Authorized Representative rather
than to one or more of the Purchasers. The Authorized
Representative shall then forward any such Notes and Warrants to
the appropriate Purchaser.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the
Purchasers as follows:
2.1 ORGANIZATION AND GOOD STANDING OF THE COMPANY. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The
Company has the corporate power and authority to carry on its
business as now conducted or proposed to be conducted, to enter
into this Agreement, to issue the Notes as contemplated herein
and to carry out the provisions of this Agreement.
2.2 AUTHORIZATION. This Agreement, the Notes and the
Warrants when executed and delivered, shall be valid and binding
obligations of the Company, enforceable in accordance with their
respective terms except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting enforcement of
creditors' rights. The execution, delivery and performance of
this Agreement, the Notes and the Warrants have been duly
authorized by all necessary corporate or other action of the
Company. Neither the execution and delivery of this Agreement,
the Notes or the Warrants nor the consummation of the
transactions contemplated hereby or thereby will: (a) violate any
provisions of the charter or by-laws of the Company; (b) violate,
conflict with or result in the breach or termination of, or
otherwise give any other contracting party the right to
terminate, or constitute a default under the terms of, any
agreement or instrument to which the Company is a party or by or
to which the Company or any of the Company's property or assets
may be bound or subject; (c) result in the creation of any lien,
charge or encumbrance upon the properties or assets of the
Company pursuant to the terms of any such agreement or
instrument; (d) violate any judgment, order, injunction, decree
or award against, or binding upon, the Company or upon the
securities, property or business of the Company; or (e)
constitute a violation of any law or regulation of any applicable
jurisdiction.
2.3 LITIGATION. There is no action, proceeding or
investigation pending or to the knowledge of the Company
threatened (or any basis therefor) which questions the validity
of this Agreement, the issuance of the Notes or the Warrants or
any other actions taken or to be taken pursuant hereto or
contemplated hereby.
2.4 USE OF PROCEEDS. The Company shall use the net
proceeds of the sale of the Units as follows: for the repayment
of short term debt, for capital expenditures, and for working
capital and other general corporate purposes.
2.5 BROKERS OR FINDERS. The Company has not employed any
broker or finder in connection with the transactions contemplated
by this Agreement except U.S. Boston Capital Corporation, to
which the Company has agreed to pay the following: (a) a
commission of six percent (6%) of the Issue Price received by the
Company for each Unit issued pursuant to this Agreement, (b)
reimbursement of reasonable attorney fees and disbursements of
counsel to U.S. Boston Capital Corporation incurred in connection
with this Agreement and the Notes and Warrants and (c)
reimbursement pursuant to a non-accountable expense allowance of
up to $5,000 in other out-of-pocket costs, such amount to be
increased to $7,500 if the aggregate Issue Prices of all Units
sold hereunder equals $7,500,000.
2.6 EXEMPTIONS FROM SECURITIES LAWS. Subject to the
accuracy of the representations and warranties of the Purchasers
set forth in Section 3 hereof as of the date hereof and as of the
date of any closing hereunder, the provisions of Section 5 of the
federal Securities Act of 1933, as amended (the "Act") are
inapplicable to the offering, issuance, sale and delivery of the
Notes and the Warrants, and no consent, approval, qualification
or registration or filing under any state securities or blue sky
laws is required in connection therewith except such as have been
obtained or such as may be filed, or will be filed, after the
closing relating to such Notes and Warrants.
SECTION 3
REPRESENTATIONS, WARRANTEES AND
AGREEMENTS OF THE PURCHASERS
Each Purchaser (severally and not jointly) represents and
warrants to the Company as follows:
3.1 BINDING AGREEMENT. This Agreement constitutes a valid
and legally binding obligation of such Purchaser except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to
or affecting enforcement of creditors' rights.
3.2 INVESTMENT REPRESENTATIONS.
(a) Any Note and any Warrant to be received by a
Purchaser pursuant to this Agreement will be acquired for
investment for such Purchaser's own account, not as a nominee or
agent, and not with a view to the sale or distribution of any
part thereof, and such Purchaser has no present intention of
selling, granting participation in or otherwise distributing the
same (provided, however, that the disposition by each Purchaser
of such Purchaser's property shall at all times be within the
Purchaser's control). No Purchaser has a contract, undertaking,
agreement or arrangement with any person to sell, transfer or
grant participations to such person, or to any third person, with
respect to any of the securities of the Company acquired pursuant
to this Agreement.
(b) Each Purchaser understands that the Notes and the
Warrants will not be registered under the Act, on the grounds
that the sales provided for in this Agreement and the issuance of
securities hereunder are exempt from registration under the Act
pursuant to Section 4(2) thereof, and that the Company's reliance
on such exemption is predicated in part on such Purchaser's
representations set forth herein.
(c) Each Purchaser represents that such Purchaser has
such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of the
Purchaser's investment, and has the ability to bear the economic
risks of such investment. Each Purchaser further represents that
such Purchaser has had access, during the course of the
transaction and prior to any purchase hereunder, to all such
information as such Purchaser deemed necessary or appropriate (to
the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) and that such
Purchaser has had, during the course of the transaction and prior
to any purchase hereunder, the opportunity to ask questions of
and receive answers from the Company concerning the terms and
conditions of the offering of the Units and to obtain additional
information (to the extent the Company possessed such information
or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to
such Purchaser or to which such Purchaser had access.
(d) Each Purchaser understands that the Notes and
Warrants may not be sold, transferred or otherwise disposed of
other than pursuant to a registration under the Act or an
exemption therefrom. In particular, each Purchaser is aware that
the Notes and Warrants may not be sold pursuant to Rule 144
promulgated under the Act ("Rule 144") unless all of the
conditions of Rule 144 applying to such Purchaser and the Company
at the time of such sale are met. Each Purchaser represents
that, in the absence of an effective registration statement
covering the Notes and Warrants, such Purchaser will sell,
transfer or otherwise dispose of any of such securities only in a
manner consistent with such Purchaser's representations set forth
herein.
3.3 BROKERS OR FINDERS. Such Purchaser has not employed
any broker or finder in connection with the transactions
contemplated by this Agreement.
3.4 TRANSFER OR ASSIGNMENT OF NOTES AND WARRANTS. Each
Purchaser agrees that in no event will such Purchaser make a
transfer, assignment or other disposition of any of the Notes or
any of the Warrants (other than pursuant to an effective
registration statement under the Act) unless and until (i) such
Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement
of the circumstances relating to the proposed disposition, (ii)
at the expense of the Purchaser, transferee or assignee, such
Purchaser shall have furnished to the Company an opinion of
counsel, which counsel and opinion are reasonably satisfactory to
the Company, to the effect that such disposition may be made
without registration under the Act or qualification under state
securities laws, (iii) the Company shall have received such
written representations and warranties from the transferee or
assignee as it shall reasonably require to assure continued
compliance with the Act and such laws and (iv) the transferee or
assignee shall have agreed to be bound by the terms and
conditions of this Agreement. The opinion of counsel pursuant to
clause (ii) shall not be required in the case of any Purchaser's
transfer or assignment of a Note or a Warrant by gift or bequest
or through inheritance to, or for the benefit of, any member or
members of such Purchaser's immediate family.
3.5 LEGENDS. Each Purchaser acknowledges such Purchaser's
understanding that the Notes and the Warrants will bear a legend
substantially in the following forms until the Company's counsel
determines that the legend is no longer advisable or required:
THIS NOTE [WARRANT] IS SUBJECT TO
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT AMONG THE
REGISTERED OWNER OF THIS NOTE [WARRANT] AND
CERTAIN OTHERS. ANY TRANSFEREE OF A HOLDER
OF THIS NOTE [WARRANT] SHALL, AS A CONDITION
OF SUCH TRANSFER, BE REQUIRED TO BECOME A
PARTY TO SUCH AGREEMENT. THE COMPANY WILL
FURNISH A COPY OF THE AGREEMENT TO THE HOLDER
OF THIS NOTE [WARRANT] UPON REQUEST WITHOUT
CHARGE.
THIS NOTE [WARRANT] HAS BEEN ACQUIRED FOR
INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND EXCEPT AS SET FORTH IN SUCH
AGREEMENT MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
(i) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER SAID ACT OR (ii)
THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
[FOR THE NOTES ONLY] THIS NOTE WAS ISSUED WITH ORIGINAL
ISSUE DISCOUNT ("OID"). THE CHIEF FINANCIAL OFFICER OF
SELFCARE, INC., WHO CAN BE CONTACTED AT SELFCARE, INC.
200 PROSPECT STREET, WALTHAM, MA 02154, TEL. NO. 781-
647-3900, WILL MAKE AVAILABLE TO THE HOLDER HEREOF UPON
REQUEST THE ISSUE PRICE, THE AMOUNT OF OID, THE ISSUE
DATE AND THE YIELD TO MATURITY.
and that appropriate stop-transfer orders will be noted on the
Company's notes and warrants register with respect to all Notes
and Warrants so legended.
3.6 NON-DISCLOSURE. Other than for purposes of enforcement
of this Agreement, each Purchaser agrees to hold in confidence
any confidential information about the Company that such
Purchaser has received or hereafter receives pursuant to any
provision of this Agreement under circumstances indicating the
confidentiality of such information until the Company shall have
publicly disclosed such information.
3.7 TAX MATTERS. Each Purchaser agrees to treat the amount
to be specified by the Company as the fair market value of the
Note issued to such Purchaser as the issue price of such Note for
all tax purposes, including the filing of all tax returns and
reports.
SECTION 4
FINANCIAL STATEMENTS
So long as any of the Notes are outstanding, the Company
shall deliver the following to the Authorized Representative:
4.1 QUARTERLY FINANCIAL STATEMENTS. Within 50 days after
the end of each of the first three fiscal quarters of the
Company:
(a) The internally prepared consolidated balance
sheets of the Company and its subsidiaries as at the end of such
fiscal quarter, the consolidated statements of operation and the
consolidated statements of stockholders' equity and of cash flows
of the Company and the Company's subsidiaries for such fiscal
quarter and for the portion of the fiscal year then ended (all in
reasonable detail) and together, in the case of consolidated
financial statements, with comparative figures for the same
period in the preceding fiscal year.
(b) A certificate of the Company signed by an officer
of the Company to the effect that such financial statements have
been prepared in accordance with generally accepted accounting
principles as from time to time in effect, including the
statements and interpretations of the United States Financial
0Accounting Standards Board and any predecessor or successor
entity ("GAAP") and present fairly, in all material respects, the
financial position of the Company at the dates thereof and the
results of its operations for the periods covered thereby,
subject only to normal year-end audit adjustments and the
addition of footnotes and schedules at year end.
4.2 ANNUAL FINANCIAL STATEMENTS. Within 95 days after the
end of each fiscal year of the Company:
(a) Consolidated balance sheets of the Company and its
subsidiaries as at the end of such fiscal year, the consolidated
statements of operations and the consolidated statements of
stockholders' equity and of cash flows of the Company and its
subsidiaries for such fiscal year (all in reasonable detail) and
together, in the case of consolidated financial statements, with
comparative figures for the immediately preceding fiscal year.
(b) Reports of the Company's independent certified
public accountants to the effect that they have audited the
foregoing financial statements in accordance with generally
accepted auditing standards and that such financial statements
present fairly, in all material respects, the financial position
of the Company and its subsidiaries covered thereby at the dates
thereof and the results of their operations for the periods
covered thereby in conformity with GAAP.
SECTION 5
AUTHORIZED REPRESENTATIVE
5.1 POWERS AND AUTHORITY. The Purchasers hereby confirm
the appointment of the Authorized Representative as their agent
for the purposes specified in this Agreement. In furtherance of
these purposes, the Authorized Representative shall be empowered
and is hereby authorized by the Purchasers to take such actions
and exercise such powers as are necessary or appropriate to carry
out its obligations hereunder, together with such powers as are
reasonably incidental thereto, and to exercise any and all of the
rights, powers and remedies available to the Purchasers under
this Agreement, the Notes and under applicable law that the
Authorized Representative deems appropriate for the protection of
the Purchasers.
5.2 TERM. The Authorized Representative shall serve in
such capacity until it resigns or until it is replaced. The
Authorized Representative or any successor may be replaced by
written direction of the Majority of Holders.
5.3 EXCULPATION. As to any matters not expressly provided
for by this Agreement, the Authorized Representative shall not be
required to exercise any discretion or to take any action, but
shall be required to act or refrain from acting (and shall be
fully protected in so acting or refraining from acting) only upon
the written instructions of the Majority of Holders, provided,
however, that the Authorized Representative shall not be required
to take any action that it reasonably believes will expose it to
personal liability or to be contrary to this Agreement or
applicable law. The Authorized Representative shall not be
liable for any action taken or omitted to be taken by it under or
in connection with this Agreement, except for its own gross
negligence or willful misconduct. Without limiting the
generality of the foregoing, the Authorized Representative: (i)
may consult with legal counsel, independent public accountants
and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or
experts; (ii) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the Notes on the
part of the Company; (iii) shall not be responsible to any
Purchaser for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this
Agreement, any Note or any other instrument or document furnished
pursuant hereto; and (iv) shall incur no liability under or in
respect of this Agreement by acting upon any notice, consent,
certificate or other instrument or writing believed by it to be
genuine and believed by it to have been signed or sent by the
proper party or parties in accordance with Section 7.3 of this
Agreement. The Purchasers agree to indemnify the Authorized
Representative, ratably according to the proportion that the
total remaining unpaid principal amount of each Purchaser's Note
or Notes bears to the aggregate total remaining unpaid principal
amount of all Notes then outstanding, from and against any and
all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever that may be imposed upon, incurred
by, or asserted against the Authorized Representative in any way
relating to or arising out of this Agreement or any action taken
or omitted by the Authorized Representative under this Agreement,
PROVIDED that such indemnity shall not be applicable in the event
of the Authorized Representative's gross negligence or willful
misconduct.
5.4 FEE. As a fee for the services provided by the
Authorized Representative in connection with this Agreement and
the Units, the Authorized Representative will be issued a Warrant
by the Company on the date of the Initial Closing and, if
applicable, any Additional Closing to purchase, at the Exercise
Price for Warrants being issued at such closing, the number of
shares of Common Stock equal to one-third the number of shares of
Common Stock issuable pursuant to the Warrants being issued on
such date to the Initial Purchasers or the Additional Purchasers,
as the case may be.
SECTION 6
DEFAULTS
6.1 EVENTS OF DEFAULT. The following events are "Events of
Default" for purposes of the Notes:
(a) The Company shall fail to make any payment as
required by the Notes.
(b) The Company shall fail to perform or observe any
covenant, agreement or provision to be performed or observed by
it under this Agreement or any of the Notes.
(c) Any representation or warranty of or with respect
to the Company in, pursuant to or in connection with this
Agreement shall be materially false on the date as of which it
was made.
(d) (i) Any person, together with "affiliates" and
"associates" of such person within the meaning of Rule 12b-2 of
the federal Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any "group" including such person under
sections 13(d) and 14(d) of the Exchange Act, shall acquire after
the date hereof beneficial ownership within the meaning of Rule
13d-3 of the Exchange Act of fifty percent (50%) or more of
either the voting stock or total equity capital of the Company;
(ii) the Company shall initiate any action to dissolve, liquidate
or otherwise terminate its existence; (iii) the Company shall
merge or consolidate into another entity in a transaction in
which the stockholders of the Company immediately prior to such
merger or consolidation do not own fifty percent (50%) or more of
either the voting stock or total equity capital of the surviving
entity immediately after the transaction; or (iv) the Company
shall sell substantially all of its assets.
(e) The Company shall:
(i) commence a voluntary case under Title 11 of
the United States Code (the "Bankruptcy Code") or authorize,
by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary
case;
(ii) (A) have filed against it a petition
commencing an involuntary case under the Bankruptcy Code
that shall not have been dismissed within 90 days after the
date on which such petition is filed, or (B) file an answer
or other pleading within such 90-day period admitting or
failing to deny the material allegations of such a petition
or seeking, consenting to or acquiescing in the relief
therein provided, or (C) have entered against it an order
for relief in any involuntary case commenced under the
Bankruptcy Code;
(iii) seek relief as a debtor under any
applicable law, other than the Bankruptcy Code, of any
jurisdiction relating to the liquidation or reorganization
of debtors or to the modification or alteration of the
rights of creditors generally, or consent to or acquiesce in
such relief;
(iv) have entered against it an order by a court
of competent jurisdiction (A) finding it to be bankrupt or
insolvent, (B) ordering or approving its liquidation or
reorganization as a debtor or any modification or alteration
of the rights of its creditors generally or (C) assuming
custody of, or appointing a receiver or other custodian for,
all or a substantial portion of its property; or
(v) make an assignment for the benefit of, or
enter into a composition with, its creditors, or appoint, or
consent to the appointment of, or suffer to exist a receiver
or other custodian for, all or a substantial portion of its
property.
SECTION 7
MISCELLANEOUS
7.1 SURVIVAL. All agreements, representations and
warranties contained herein shall survive the execution and
delivery of this Agreement and of the Notes and Warrants. Each
of the parties may rely on such covenants, representations and
warranties irrespective of any investigation made, or notice or
knowledge held by, it or any other person.
7.2 SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Agreement made by or on behalf of any of the parties
hereto shall bind and inure to the benefit of their respective
permitted successors and assigns; provided, however, that the
obligations of the Authorized Representative hereunder may only
be assigned in connection with the appointment of a substitute
Authorized Representative pursuant to the provisions of this
Agreement.
7.3 NOTICES. All notices or other communication required
or permitted hereunder and under the Notes shall be in writing
and shall be deemed to have been duly given and delivered when
(a) delivered personally, (b) five days after being sent by
certified mail, return receipt requested, (c) one day after being
sent by United States express mail, (d) one day after deposit
with a national overnight courier service providing evidence of
delivery or (e) upon oral acknowledgment of receipt after being
sent by facsimile transmission, in each case delivery charges or
postage prepaid, and addressed to the party to whom such notice
is to be given at the following address (or to the addressee at
such other address as the addressee shall have specified by
notice actually received by the addressor):
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, Massachusetts 02154
Facsimile Number: 781-647-3939
Attention: Vice President, U.S. Operations
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile Number: 617-523-1231
Attention: Martin Carmichael III, P.C.
and
Stephen W. Carr, P.C.
If to the Authorized Representative:
Pear Tree Royalty Company, Inc.
55 Old Bedford Road
Lincoln North
Lincoln, Massachusetts 01773
Facsimile Number: 781-259-1166
Attention: Kathryn Matthews Collings, Esquire
with a copy to:
Richard A. Van Wert
Van Wert & Zimmer, P.C.
1 Militia Drive
Lexington, MA 02173
Facsimile Number: 781-862-1941
If to any Purchaser:
At such Purchaser's address as set forth on the signature
pages hereto or in the note register provided for in the
Notes, with a copy to the Authorized Representative.
7.4 AMENDMENT. This Agreement may not be amended or
modified except by an agreement in writing among the Company, the
Majority of Holders and, with respect only to the rights and
obligations of the Authorized Representative hereunder, the
Authorized Representative.
7.5 INTEGRATION. This Agreement and the other documents
referred to herein or delivered pursuant hereto contain the
entire agreement among the parties with respect to the financing
transactions contemplated hereby and supersede all prior
negotiations, commitments, agreements and understandings among
them with respect thereto. All Exhibits to this Agreement are
hereby incorporated into and made a part of this Agreement.
7.6 INTERPRETATION. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be valid
and effective under applicable law, but if any provision of this
Agreement or the effect thereof shall be invalid under or
prohibited by such law, such provision shall be invalid or denied
effect only to the extent of such invalidity or prohibition,
without prohibiting or invalidating the remainder of such
provision or the remaining provisions of this Agreement or the
enforcement thereof.
7.7 GOVERNING LAW; JURISDICTION. This Agreement shall be
deemed to be executed in The Commonwealth of Massachusetts and
shall be governed by and construed and enforced in accordance
with the laws of The Commonwealth of Massachusetts. The parties
hereto consent to the sole and exclusive jurisdiction of the
courts of The Commonwealth of Massachusetts, or the Federal
Courts sitting in, The Commonwealth of Massachusetts in respect
to any action or proceeding arising out of or relating to this
Agreement. Each party hereto irrevocably waives, to the fullest
extent it may effectively do so, the defense of improper venue or
any inconvenient forum to the maintenance of such action or
proceeding.
7.8 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and
all of which together shall constitute one and the same
agreement.
7.9 CAPTIONS. All section and descriptive headings are
inserted for convenience only, and shall not affect any
construction or interpretation hereof.
7.10 REPLACEMENT OF AUTHORIZED REPRESENTATIVE. The holders
of a majority in interest of the Notes outstanding at any time
may remove the then existing Authorized Representative and
designate a new Authorized Representative by written notice to
the Company and the then existing Authorized Representative.
In witness whereof the parties hereto have executed this
Agreement as of the day and year first written above.
THE COMPANY
SELFCARE, INC.
By:__________________________
Its:
THE AUTHORIZED REPRESENTATIVE
PEAR TREE ROYALTY COMPANY, INC.
By:_________________________
Its:
PURCHASER SIGNATURE PAGE
TO SELFCARE, INC. SECURITIES PURCHASE AGREEMENT
By executing this page in the space provided, the
undersigned purchaser hereby agrees (i) that the undersigned is a
"Purchaser" as defined in the Securities Purchase Agreement dated
as of June 26, 1998 among Selfcare, Inc., certain purchasers
named on Exhibit A thereto and Pear Tree Royalty Company, Inc. as
authorized representative of the purchasers (the "Agreement"),
(ii) that the undersigned is a party to the Agreement for all
purposes and (iii) that the undersigned is bound by all terms and
conditions of the Agreement.
EXECUTED this _____ day of ______________, 1998.
_________________________
(print name)
By:______________________
Title:___________________
Address:_________________
_________________
_________________
Facsimile:_______________
EXHIBIT 10.2
FORM OF SUBORDINATED NOTE
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT
("OID"). THE CHIEF FINANCIAL OFFICER OF SELFCARE, INC.,
WHO CAN BE CONTACTED AT SELFCARE, INC., 200 PROSPECT
STREET, WALTHAM, MA 02154, TEL. NO. 781-647-3900, WILL
MAKE AVAILABLE TO THE HOLDER HEREOF UPON REQUEST THE
ISSUE PRICE, THE AMOUNT OF OID, THE ISSUE DATE AND THE
YIELD TO MATURITY.
SELFCARE, INC.
Subordinated Note
No. ___________ $_______________
Issue Date: __________ Principal Amount
Selfcare, Inc., a Delaware corporation (the "Company"),
promises to pay to ___________ (the "Initial Holder") or
registered assigns, the principal amount of $__________ on the
second anniversary of the Issue Date referred to above. Interest
shall accrue from the date hereof at a rate equal to thirteen
percent (13%) per annum and shall be payable quarterly on the
first day of each quarter, beginning with October 1, 1998.
Interest or principal which is not paid when due shall bear
interest, compounded daily, at the rate of eighteen percent
(18%).
This Note is one of a series of subordinated notes issued by
the Company pursuant to a Securities Purchase Agreement dated as
of ___________, 1998 among the Company, the Initial Holder of
this Note and certain others (the "Securities Purchase Agreement"
or "Agreement"). The Notes are referred to collectively herein
as the "Outstanding Notes."
___________________
THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN
THE SECURITIES PURCHASE AGREEMENT AMONG THE REGISTERED OWNER OF
THIS NOTE AND CERTAIN OTHERS. ANY TRANSFEREE OF A HOLDER OF THIS
NOTE SHALL, AS A CONDITION OF SUCH TRANSFER, BE REQUIRED TO
BECOME A PARTY TO SUCH AGREEMENT. THE COMPANY WILL FURNISH A
COPY OF THE AGREEMENT TO THE HOLDER OF THIS NOTE UPON WRITTEN
REQUEST WITHOUT CHARGE.
THE NOTE REPRESENTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND
HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, AND EXCEPT AS SET FORTH IN SUCH AGREEMENT MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER SAID ACT OR (ii) THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
The Company further agrees as follows:
1 Method of Payment; Premium
--------------------------
(a) The Company shall make all payments due pursuant to
this Note by check or wire transfer in money of the United States
that at the time of payment is legal tender for payment of public
and private debts.
(b) Whenever the Company makes a payment of principal under
this Note, it shall at the same time pay a premium (the
"Premium") equal to 5% of the principal amount then being paid.
2 Prepayment at the Option of the Company.
---------------------------------------
(a) PREMIUM. This Note may be prepaid by the Company in
whole or in part at any time after December 31, 1998 so long as
the Company at the same time pays the Holder of this Note the
Premium with respect to the principal amount then being prepaid.
(b) NOTICE OF PREPAYMENT. Notice of prepayment shall be
mailed at least 30 days but not more than 60 days before the
applicable prepayment date to the Holder of this Note at the
Holder's registered address. This Note may be prepaid only if
all or the same portion of each of the Outstanding Notes is
prepaid on the same prepayment date or the holders of the
Outstanding Notes that are not so prepaid deliver a written
waiver and consent to such prepayment.
(c) EFFECT OF NOTICE OF PREPAYMENT. Once notice of
prepayment in full is given, this Note or, if applicable, the
portion of this Note being prepaid, shall become due and payable
on the prepayment date stated in such notice. Upon the later of
such prepayment date and the date this Note is surrendered to the
Company, this Note or, if applicable, such portion shall be paid,
together with the Premium and accrued interest to the prepayment
date on the amount being prepaid.
(d) DEPOSIT OF FUNDS. Prior to or on the prepayment date
for a prepayment in full, the Company shall segregate and hold in
trust in an account with a Depository Bank an amount of money
sufficient to pay the principal amount, the accrued interest and
the Premium with respect to all of the Outstanding Notes.
3 Subordination.
--------------
To the extent and in the manner hereinafter set forth in
this Section 3, this Note is subordinated to all existing and
future Senior Indebtedness. To the extent provided herein,
Senior Indebtedness must be paid before this Note may be paid.
(a) SUBRORDINATE TO SENIOR INDEBTEDNESS. Notwithstanding
anything herein to the contrary, the Company covenants and
agrees, and the Holder of this Note by such Holder's acceptance
hereof likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Section 3, the
indebtedness represented by this Note, including all interest
payable hereunder, and the payment of the Premium and Default
Payment, if any, in respect of this Note are hereby expressly
made subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness.
(b) PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Upon
any distribution of assets of the Company in the event of:
(i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative
to the Company or to its creditors, as such, or to its
assets, or
(ii) any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or
(iii) any assignment for the benefit of creditors
or any other marshaling of assets and liabilities of the
Company,
then in such event
(A) the holders of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due
or to become due on or in respect of all Senior
Indebtedness, or provision shall be made for such
payment, before the Holder of this Note is entitled to
receive any payment on account of this Note, including,
the Premium and Default Payment, if any, in respect of
this Note; and
(B) any payment or distribution of assets of the
Company of any kind or character, whether in cash,
property or securities, by set-off or otherwise, to
which the Holder would be entitled but for the
provisions of this Section 3, including any such
payment or distribution which may be payable or
deliverable by reason of the payment of any other debt
of the Company being subordinated to the payment of
this Note, shall be paid by the liquidating trustee or
agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly
to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or
trustees under any indenture under which any
instruments evidencing any of such Senior Indebtedness
may have issued, ratably according to the aggregate
amounts remaining unpaid on account of the principal
of, and premium, if any, and interest on, the Senior
Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to or for the
holders of such Senior Indebtedness.
In the event that, notwithstanding the foregoing provisions
of this Section 3, the Holder of this Note shall receive any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable
by reason of the payment of any other Debt of the Company being
subordinated to the payment of this Note, before all Senior
Indebtedness is paid in full or payment thereof provided for, and
if such fact shall then have been made known to the Holder, then
and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other person
making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Section 3 only, the words "CASH, PROPERTY
OR SECURITIES" shall not be deemed to include shares of the
Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is
subordinated, at least to the extent provided in this Section 3
to the payment of all Senior Indebtedness which may at the time
be outstanding; provided, however, that (i) Senior Indebtedness
is assumed by the new corporation, if any, resulting from any
such reorganization or readjustment, and (ii) the rights of the
holders of the Senior Indebtedness are not, without the consent
of such holders, altered by such reorganization or readjustment.
The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer
of all or substantially all of its assets to another person shall
not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the
purposes of this Section 3 if the corporation formed by such
consolidation or into which the Company is merged or the person
which acquires by conveyance or transfer all or substantially all
of the assets of the Company, as the case may be, shall, as a
part of such consolidation, merger, conveyance or transfer,
expressly assume in writing all of the obligations of the Company
under this Note and immediately after giving effect to such
transaction no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing.
(c) ACCERLERATION. In the event that this Note is declared
or becomes due and payable pursuant to Section 4, then and in
such event the Company shall promptly notify holders of Senior
Indebtedness of such acceleration. The Company shall not pay
this Note until 180 days have passed after such acceleration
occurs and may thereafter pay the Notes if this Section 3 permits
the payment at that time.
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Holder of this Note
prohibited by the foregoing provisions of this Section 3(c), and
if such facts then shall have been known or thereafter shall have
been made known to the Holder pursuant to the terms hereof, then
and in such event such payment shall be paid over and delivered
forthwith to the Company by or on behalf of the person holding
such payment for the benefit of the holders of Senior
Indebtedness.
The provisions of this Section 3(c) shall not apply to any
payment with respect to which Section 3(b) would be applicable.
(d) DEFAULT ON SENIOR INDEBTEDNESS. The Company shall not
make any payment in respect of this Note, including the Premium
and Default Payment, if any, or otherwise acquire this Note for
cash or property if:
(i) a default on Senior Indebtedness occurs and is
continuing that permits holders of the Senior Indebtedness
to accelerate its maturity; and
(ii) the default is the subject of a judicial
proceeding or the Company receives a notice of default
relating thereto from any person who may give such notice
pursuant to the instrument evidencing or document governing
such Senior Indebtedness.
In such event, the Company may resume payments on this Note
and may acquire this Note if and when:
(A) the default is cured or waived and any such
related acceleration has been rescinded or annulled in
accordance with the terms of such Senior Indebtedness;
or
(B) 180 or more days pass after the receipt by
the Company of the notice described in clause (ii)
above and the default is not then the subject of
judicial proceedings; and
this Section 3 otherwise permits the payment or acquisition at
that time.
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Holder of this Note
prohibited by the foregoing provisions of this Section 3(d), and
if such fact then shall have been known or thereafter shall have
been made known to the Holder, pursuant to the terms hereof, then
and in such event such payment shall be paid over and delivered
forthwith to the Company by or on behalf of the person holding
such payment for the benefit of the holders of Senior
Indebtedness.
The provisions of this Section 3(d) shall not apply to any
payment with respect to which Section 3(b) would be applicable.
(e) PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in
this Section 3 or elsewhere in this Note shall prevent the
Company from making or the Holder from retaining any payments in
respect of this Note, including the Premium and Default Payment,
if any, as the case may be, in respect of this Note at any time
except during the pendency of any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the
Company referred to in Section 4(b) or under the conditions
described in Sections 3(c) or 3(d).
(f) SUBROGATION TO RIGHTS OF HOLDERS ON OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all Senior Indebtedness, the Holders of
Outstanding Notes shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Section 3 to the rights of the holders of such
Senior Indebtedness to receive payments or distributions of cash,
property or securities applicable to the Senior Indebtedness
until the Outstanding Notes, including the Premium and Default
Payment, if any, as the case may be, in respect of the
Outstanding Notes shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which
the Holder of this Note would be entitled except for the
provisions of this Section 3, and no payments pursuant to the
provisions of this Section 3, to the Company or to the holders of
Senior Indebtedness by the Holder of this Note, shall be, as
between the Company, its creditors other than holders of Senior
Indebtedness, the Holder and other holders of Outstanding Notes,
deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
(g) PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The
provisions of this Section 3 are and are intended solely for the
purpose of defining the relative rights of the Holder of this
Note and the holders of other Outstanding Notes, on one hand, and
the holders of Senior Indebtedness, on the other hand. Nothing
contained herein is intended to or shall alter or impair, as
between the Company and the Holder of this Note, the obligation
of the Company, which is unconditional and absolute, to pay to
the Holder of this Note the principal and interest due hereunder,
and the Premium and Default Payment, if any, with respect to this
Note as and when the same shall become due and payable in
accordance with the terms hereof, or is intended to or shall
affect the relative rights of the Holder of this Note and
creditors of the Company, other than the holders of Senior
Indebtedness, nor shall anything herein prevent the Holder of
this Note from exercising all remedies otherwise permitted by
applicable law upon an Event of Default under this Note, subject
to the rights, if any, under this Section 3 of the holders of
Senior Indebtedness in respect of assets of the Company of any
kind or character, whether cash, property or securities, received
upon the exercise of any such remedy.
4 Defaults.
---------
(a) EVENTS OF DEFAULT. "Event of Default", wherever used
herein, shall have the meaning set forth in the Securities
Purchase Agreement.
(b) ACCELERATION OF MATURITY, RESCISSION AND ANNULMENT. If
an Event of Default occurs and is continuing, then in every such
case the authorized representative of the holders of the
Outstanding Notes as designated pursuant to the Securities
Purchase Agreement (the "Authorized Representative") may issue a
notice of default to the Company (each, a "Notice of Default")
setting forth the nature of the Event of Default. If an Event of
Default is not cured within 30 days of the Company's receipt of a
Notice of Default, the principal, accrued interest and Premium
accrued with respect to this Note (the "Default Payment") and all
of the other Outstanding Notes shall become and be immediately
due and payable without any declaration or other act on the part
of the Holder or any other holder of Outstanding Notes.
At any time after such acceleration with respect to this
Note has been made and before a judgment or decree for payment of
the money due has been obtained, the Authorized Representative,
by written notice to the Company, may rescind and annul such
declaration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events
of Default have been cured or waived except nonpayment of the
Default Payment. No such rescission shall affect any subsequent
default or impair any right in connection therewith.
(c) UNCONDITIONAL RIGHT OF HOLDER TO RECEIVE PAYMENT.
Notwithstanding any other provision herein but subject to Section
3, the Holder of this Note shall have the right, which is
absolute and unconditional, to receive payment of principal,
interest, Premium and Default Payment, if any, in respect of this
Note as provided in this Note, and such rights shall not be
impaired without the consent of the Holder.
(d) RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided in the last paragraph of Section 8 with respect to the
replacement or payment of this Note should it become mutilated,
destroyed, lost or stolen, no right or remedy herein conferred
upon or reserved to the Holder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
(e) DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this
Section 4 or by law to the Holder may be exercised from time to
time, and as often as may be deemed expedient by the Holder.
(f) WAIVER OF PAST DEFAULTS. The Authorized Representative
may on behalf of the Holders of all the Outstanding Notes waive
any past default hereunder and its consequences, except a default
(i) in the payment of any principal or interest, or
the Premium or Default Payment, if any, on all Outstanding
Notes; or
(ii) in respect of a covenant or provision hereof which
under Section 11(e) cannot be modified or amended without
the consent of the Holder hereof.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have
been cured, but no such waiver shall extend to any subsequent or
other default or impair any right in connection therewith.
(g) COSTS OF ENFORCEMENT OR COLLECTION. The Company hereby
agrees that it shall pay the reasonable costs of enforcement or
collection, including reasonable attorneys' fees and
disbursements, incurred by the Holder in an Event of Default.
5 Timing of Payment.
------------------
The Company shall promptly make all payments in respect of
this Note as provided herein.
6 Waiver of Certain Provisions.
-----------------------------
The Company may omit in any particular instance to comply
with any term, provision or condition set forth herein, if before
the time for such compliance either the holders of Notes
constituting at least a majority of the then remaining
outstanding principal of the Notes remaining unpaid at that time
or the Authorized Representative shall in writing either waive
such compliance in such instance or generally waive compliance
with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to
the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of
any such term, provision or condition shall remain in full force
and effect. Notwithstanding the immediately preceding sentence,
in addition to the waiver required by such sentence, the written
waiver of the Holder hereof is required to waive compliance by
the Company with any term, provision or condition set forth in
Sections 1, 2 and 3 hereof and in the case of Section 3, that
percentage of the holders of any Senior Indebtedness required to
waive compliance by the Company with any term, provision or
condition set forth in the documents governing such Senior
Indebtedness.
7 Registration of Transfer, Assignment or Exchange.
-------------------------------------------------
The Company shall maintain an office or agency where this
Note may be surrendered for registration of transfer or
assignment or for exchange ("Note Registrar"), and an office or
agency where Notes may be presented for payment or prepayment.
The Note Registrar shall keep a register of the Outstanding Notes
and of their transfer, assignment and exchange ("Note Register").
The Company or the Note Registrar, as applicable, shall not
be required to (i) register the transfer or assignment of this
Note for a period beginning at the opening of business 15 days
before the date of the mailing of a notice of prepayment and
ending at the close of business on the day of such mailing; or
(ii) register the transfer, assignment or exchange of this Note
to the extent called for prepayment. The Company shall not be
required to make any exchange of this Note if, as a result
thereof and in the Company's judgment, the Company would incur
adverse consequences under any applicable income, franchise or
similar tax laws in effect at the time of such exchange.
The transfer or assignment of this Note is subject to
restrictions set forth in the Securities Purchase Agreement, and
no transfer or assignment of this Note shall be made except in
compliance therewith. The Company shall not be required to
register any transfer or assignment of this Note which has not
been approved or otherwise made in accordance with such
Securities Purchase Agreement.
8 Mutilated, Destroyed, and Stolen Note.
--------------------------------------
If this Note shall become mutilated, it may be surrendered
to the Company and the Company shall execute and deliver in
exchange therefor a new note of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company (i) evidence to
its satisfaction of the destruction, loss or theft of this Note
and (ii) such security or indemnity as may be required by the
Company to save it and any agent of the Company harmless, then,
in the absence of notice to the Company that this Note has been
acquired by a bona fide purchaser, the Company shall execute and
deliver, in lieu of such destroyed, lost or stolen Note, a new
note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case this Note shall be mutilated, destroyed, lost or
stolen and shall become or be about to become due and payable or
be about to be prepaid by the Company, the Company in its
discretion may, instead of issuing a new note, pay or prepay this
Note.
Upon the issuance of any new note under this Section, the
Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses
of any agent) connected therewith.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies
with respect to the replacement or payment of this Note if this
Note shall be mutilated, destroyed, lost or stolen.
9 Persons Deemed Owners.
----------------------
Prior to due presentment of this Note for registration of
transfer or assignment, the Company may treat the Person in whose
name this Note is registered as the owner of such Note for the
purpose of receiving payment of the Premium and Default Payment,
if any, in respect of this Note and for all other purposes.
10 Definitions.
------------
For the purposes of this Note, the terms defined in this
Section have the meanings assigned to them in this Section.
"Authorized Representative" has the meaning specified in
Section 4(b).
"Company" means Selfcare, Inc, a Delaware corporation.
"Debt" means (i) all obligations of the Company for borrowed
money, including, without limitation, the obligation evidenced by
this Note, (ii) all obligations of the Company evidenced by
bonds, debentures, notes or other similar instruments, other than
any account payable or other obligation incurred in the ordinary
course of business in connection with the obtaining of materials
or services, (iii) all obligations of the kind set forth in (i)
and (ii) above, of others secured by a lien on any asset of the
Company, whether or not such obligation is assumed by the
Company, (iv) all obligations of the Company pursuant to
capitalized leases, and (v) all obligations of the kind set forth
in (i), (ii) or (iv) above of others for the payment of which the
Company is responsible or liable as obligor or guarantor, and all
of the Company's liabilities or obligations with respect thereto.
"Default Payment" has the meaning specified in Section 4(b).
"Depository Bank" means a commercial bank having a combined
capital and surplus of at least $100,000,000.
"Event of Default" has the meaning specified in Section
4(a).
"Holder" means the Person listed on the first page hereof as
the Initial Holder while this Note is registered in the Note
Register in such Person's name or any transferee of this Note
properly registered in the Note Register in accordance with
Section 7 and the Securities Purchase Agreement.
"Initial Holder" means the Person listed on the first page
hereof as the Initial Holder.
"Issue Date" means the date on which this Note was
originally issued or deemed issued as set forth on the face of
this Note.
"Issue Price" means, in connection with the original
issuance of this Note, the amount set forth on the face of this
Note, and means, in connection with the original issuance of any
other Outstanding Notes, the amount as set forth on the faces
thereof.
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 8.
"Notice of Default" has the meaning specified in Section
4(b).
"Outstanding Notes" means, as of the date of determination,
any of the subordinated notes issued by the Company pursuant to
the Securities Purchase Agreement, except any such Notes for
whose prepayment money in the necessary amount has theretofore
been set aside and segregated in trust by the Company for holders
of such Notes as set forth in Section 2(d) hereof, provided that,
if such Notes are to be prepaid, notice of such prepayment has
been duly given.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or
political subdivision thereof.
"Premium" has the meaning set forth in Section 2(a).
"Securities Purchase Agreement" means the Securities
Purchase Agreement dated as of ___________, 1998 among the
Company, the Initial Holder of this Note and certain others.
"Senior Indebtedness" means the principal of (and premium,
if any) and interest on (including interest accruing after the
filing of a petition initiating any proceeding pursuant to any
bankruptcy law, but only to the extent allowed or permitted to
the holder of such Debt against the bankruptcy or any other
insolvency estate of the Company in such proceeding) and other
amounts due on or in connection with any Debt incurred, assumed
or guaranteed by the Company, whether outstanding on the date
hereof or thereafter incurred, assumed or guaranteed and all
renewals, extensions and refundings of any such Debt; provided,
however, that the following will not constitute Senior
Indebtedness: (a) any Debt as to which, in the instrument
creating the same or evidencing the same or pursuant to which the
same is outstanding, it is expressly provided that such Debt
shall be subordinated to any other Debt of the Company, unless
such instrument expressly provides that such Debt shall be senior
in right of payment to the Outstanding Notes; (b) any Debt of the
Company that, by its terms, states that such Debt shall not be
senior in right of payment to the Outstanding Notes; (c) Debt of
the Company in respect of the Outstanding Notes; (d) Debt in
respect of the Subordinated Revenue Royalty Notes issued during
1997 by the Company, which Debt shall be pari passu with the Debt
of the Company in respect of the Outstanding Notes; (e) any Debt
of the Company to any affiliate or subsidiary of the Company; (f)
any trade payables; and (g) any Debt incurred in violation of
this Note or the Securities Purchase Agreement.
11 Miscellaneous.
--------------
(a) HOLDER TO BE BOUND; COMPANY'S SUCCESSORS AND ASSIGNS.
By acceptance of this Note, the Holder agrees to be bound by the
terms hereof. All covenants and agreements in this Note by the
Company shall bind its legal representatives, successors and
assigns, whether so expressed or not.
(b) SEVERARABILITY. If any provision of this Note shall be
determined to be invalid, illegal or otherwise unenforceable by
any court of competent jurisdiction, the validity, legality and
enforceability of the other provisions of this Note shall not be
affected thereby. Any invalid, illegal or unenforceable
provision of this Note shall be severable, and after any such
severance, all other provisions hereof shall remain in full force
and effect.
(c) BENEFITS OF THIS NOTE. Nothing in this Note, express
or implied, shall give to any Person, other than the Holder, the
Company and their legal representatives, successors and assigns
hereunder, any benefit or any legal or equitable right, remedy or
claim under this Note.
(d) NOTICES. Any notice, consent, approval, demand or
other communication in connection with this Note shall be deemed
to be given if given in accordance with the provisions of the
Securities Purchase Agreement. Where this Note provides for
notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such
notice.
(e) AMENDMENTS. This Note may only be amended in writing
with the written consent of the Company and either (i) the
holders of Notes constituting at least a majority of the then
outstanding principal amount of the Notes at that time or (ii)
the Authorized Representative. Notwithstanding the immediately
preceding sentence, in addition to the consent required by such
sentence, the written consent of the Holder hereof is required to
amend the Premium, the Default Payment or the provisions of
Sections 1, 2 and 3 hereof.
(f) GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts without regard to its principles of conflicts of
laws.
(g) The Holder agrees that the fair market value of this
Note shall be the amount specified by the Company pursuant to the
Securities Purchase Agreement and covenants to treat such amount
as the issue price of this Note for all tax purposes, including
the filing of all tax returns and reports.
SELFCARE, INC.
By:________________________
Name:
Title:
EXHIBIT 10.3
FORM OF WARRANT
SELFCARE, INC.
COMMON STOCK PURCHASE WARRANT
No. of Shares: Date: , 1998
The Transferability of this Warrant is
Restricted as Provided in Article 3
For good and valuable consideration, the receipt of which is
hereby acknowledged, SELFCARE, INC., a Delaware corporation (the
"Company") hereby grants the right to purchase, until the fifth
anniversary of the date hereof, up to _____ fully paid and
non-assessable shares (the "Warrant Shares") of the Company's
Common Stock, $.001 par value ("Common Stock").
This Warrant is exercisable at a price of $______ per share
of Common Stock issuable hereunder (the "Exercise Price") payable
in cash or by certified or official bank check in Boston Clearing
House funds. Upon the undersigned's surrender of this Warrant
with the annexed Subscription Form duly executed, together with
payment of the Exercise Price for the shares of Common Stock
being purchased, at the Company's principal executive offices
(currently located at 200 Prospect Street, Waltham, Massachusetts
02154) the undersigned shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased.
1. Exercise of Warrant.
--------------------
The purchase rights represented by this Warrant are
exercisable at the option of the undersigned, in whole or in part
(but not as to fractional shares of the Common Stock), during any
period in which this Warrant may be exercised as set forth above.
In the case of the purchase of less than all the shares of Common
Stock purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and
deliver a new Warrant of like tenor for the balance of the shares
of Common Stock purchasable hereunder.
2. Issuance of Stock Certificates.
-------------------------------
The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the
undersigned including, without limitation, any tax which may be
payable in respect thereof, and such certificates shall (subject
to the provisions of Article 3 hereof) be issued in the name of,
or in such names as may be directed by, the undersigned;
provided, however, that the Company shall not be required to pay
any tax which may be due with respect to any transfer involved in
the issuance and delivery of any such certificate in a name other
than that of the undersigned, and the Company shall not be
required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
3. Restriction on Transfer of Warrant.
-----------------------------------
The undersigned as holder of this Warrant, by its acceptance
hereof, covenants and agrees that this Warrant is being acquired
as an investment and not with a view to the distribution thereof,
and that the Warrant will not be sold, transferred, assigned,
hypothecated or otherwise disposed of except to U.S. Boston
Capital Corporation of Lincoln, Massachusetts or except as
permitted by the Securities Purchase Agreement pursuant to which
this Warrant was issued.
4. Replacement of Warrant.
-----------------------
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to the Company, and
reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new
Warrant of like tenor, in lieu of this warrant.
5. Adjustments in Exercise Price.
------------------------------
In the event the Company: (i) pays a dividend in Common
Stock or makes a distribution in Common Stock, (ii) subdivides
its outstanding Common Stock into a greater number of shares,
(iii) combines its outstanding Common Stock into a smaller number
of shares or (iv) increases or decreases the number of shares of
Common Stock outstanding by reclassification of its Common Stock
(including a recapitalization in connection with a consolidation
or merger in which the Company is the continuing corporation),
then (1) the Exercise Price on the record date of such division
or distribution or the effective date of such action shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately after such event, and (2) the number of shares of
Common Stock for which this Warrant may be exercised immediately
before such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the Exercise Price
immediately before such event and the denominator of which is the
Exercise Price immediately after such event, such that the
aggregate Exercise Price for all shares of Common stock issuable
pursuant to this Warrant immediately after such event shall equal
the aggregate Exercise Price for all shares of Common Stock
issuable pursuant to this Warrant immediately before such event.
6. Reservation and Listing of Shares.
----------------------------------
The Company shall at all times reserve and keep available
out of its authorized Common Stock shares of Common Stock solely
for the purpose of issuance upon the exercise of this Warrant.
The Company covenants and agrees that, upon exercise of this
Warrant and payment of the Exercise Price therefor, all shares of
Common stock issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable. If applicable, as
long as this Warrant shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable
upon the exercise of this Warrant to be listed (subject to
official notice of issuance) on all securities exchanges on which
the Common Stock is then listed. This Warrant and the Warrant
Shares are subject to dilution by the issuance of additional
securities by the Company.
7. Notices to Warrant Holder.
--------------------------
Nothing contained in this Warrant shall be construed as
conferring upon the holder hereof the right to vote the Warrant
Shares prior to their issuance or any other rights as a
stockholder of the Company.
8. Notices.
--------
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified
mail, return receipt requested:
(a) If to the registered holder of this Warrant, to
the address of such holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth on the
first page of this Warrant or such other address previously
given to the holder or holders.
9. Successors.
-----------
All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties
hereto and their respective heirs, executors, administrators,
distributees, successors and assigns.
10. Headings.
---------
The Article and Section headings in this Warrant are
inserted for purposes of convenience only and shall have no
substantive effect.
11. Law Governing.
--------------
This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of The Commonwealth of
Massachusetts without giving effect to the conflict of laws
provisions thereof.
12. Legend.
-------
(a) THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFER AS
SET FORTH IN THE SECURITIES PURCHASE AGREEMENT AMONG THE
REGISTERED OWNER OF THIS WARRANT AND CERTAIN OTHERS. ANY
TRANSFEREE OF A HOLDER OF THIS WARRANT SHALL, AS A CONDITION OF
SUCH TRANSFER, BE REQUIRED TO BECOME A PARTY TO SUCH AGREEMENT.
THE COMPANY WILL FURNISH A COPY OF THE AGREEMENT TO THE HOLDER OF
THIS WARRANT UPON REQUEST WITHOUT CHARGE.
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED, AND EXCEPT AS SET FORTH IN SUCH AGREEMENT MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
SAID ACT OR (ii) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
(b) The Company may include or cause to be included on the
stock certificates evidencing the Warrant Shares the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE ACT OR CERTAIN STATE SECURITIES LAWS. THE
SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND
SUCH STATE LAWS AS MAY BE APPLICABLE, OR DELIVERY TO THE COMPANY
OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
SELFCARE, INC.
By:_____________________
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise this Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase ______ shares of Common Stock covered by this
Warrant according to the conditions hereof and herewith makes
payment of the Exercise Price of such shares in full.
Signature
Address
Dated:________, 199_
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,883,741
<SECURITIES> 0
<RECEIVABLES> 14,555,252
<ALLOWANCES> 989,000
<INVENTORY> 10,452,927
<CURRENT-ASSETS> 36,483,546
<PP&E> 15,892,493
<DEPRECIATION> 6,129,199
<TOTAL-ASSETS> 131,431,777
<CURRENT-LIABILITIES> 42,630,458
<BONDS> 54,928,080
1,926,006
7,179,848
<COMMON> 12,750
<OTHER-SE> 21,996,398
<TOTAL-LIABILITY-AND-EQUITY> 131,431,777
<SALES> 53,253,730
<TOTAL-REVENUES> 55,319,361
<CGS> 37,301,981
<TOTAL-COSTS> 19,757,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,612,874
<INCOME-PRETAX> (5,046,614)
<INCOME-TAX> 136,312
<INCOME-CONTINUING> (5,182,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,182,926)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
