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
March 31, 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 02154
(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 April 30, 1998 was 11,888,404.
Transitional Small Business Disclosure Format (check one):
Yes No X
SELFCARE, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 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. Factors that might cause such a
difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" on page 14 of this Form 10-Q.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997.
b) Consolidated Balance Sheets as of March 31,
1998 and December 31, 1997.
c) Consolidated Statements of Cash Flows for the
three months ended March 31, 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 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 MARCH 31,
1998 1997
<S> <C> <C>
Net product sales $ 23,984,871 $ 8,757,181
Grants and other revenue 605,873 337,426
---------- ----------
Net revenues 24,590,744 9,094,607
Cost of sales 16,566,424 5,036,978
---------- ----------
Gross profit 8,024,320 4,057,629
Operating Expenses:
Research and development 1,563,179 3,075,193
Selling, general and administrative 7,725,248 4,761,458
Noncash compensation charge -- 37,629
---------- ----------
Total operating expenses 9,288,427 7,874,280
---------- ----------
Operating loss (1,264,107) (3,816,651)
---------- ----------
Interest expense, including noncash
interest expense relating to
issuance of convertible notes (3,409,872) (605,432)
Interest income 181,533 142,975
Equity in net income of affiliate 108,000 --
Other income (expense) 1,469,737 (746,368)
---------- ----------
Loss before minority interest and
dividends and accretion on
mandatorily redeemable preferred
stock of a subsidiary (2,914,709) (5,025,476)
Minority interest in subsidiaries'
loss 36,789 159,540
Dividends and accretion on
mandatorily redeemable preferred
stock of a subsidiary (29,083) (28,179)
---------- ----------
Loss before income taxes (2,907,003) (4,894,115)
Provision for income taxes 90,000 --
----------- ----------
Net loss $ (2,997,003) $ (4,894,115)
---------- ----------
Basic and diluted net loss per
common and potential common share $(0.29) $(0.74)
---------- ----------
Basic and diluted weighted average
number of common and potential
common shares outstanding 10,297,174 6,591,261
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,1998 DECEMBER 31,1997
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,122,182 $ 15,669,898
Accounts receivable, net of allowance for
doubtful accounts of $968,000 in 1998
and $1,158,000 in 1997 12,744,828 7,232,755
Inventories (Note 3) 10,233,800 5,344,531
Notes receivable 1,317,613 4,979,232
Prepaid expenses and other current asset 1,995,170 1,452,855
---------- ----------
Total current assets 36,413,593 34,679,271
PROPERTY AND EQUIPMENT, NET 10,137,552 10,508,032
INVESTMENTS IN AFFILIATED COMPANIES 3,513,609 3,405,609
LOAN TO AFFILIATED COMPANY 742,105 742,105
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 74,491,639 43,393,263
OTHER ASSETS 3,557,234 3,035,414
---------- ----------
Total assets $ 128,855,732 $ 95,763,694
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable 16,855,162 20,426,511
Accounts payable 14,226,391 6,079,242
Accrued expenses and other current
liabilities 10,189,423 8,251,021
Current portion of deferred revenue 1,769,907 2,204,159
---------- ----------
Total current liabilities 43,040,883 36,960,933
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion 2,137,393 2,674,971
Notes payable, net of current portion 56,034,587 39,476,074
---------- ----------
Total long-term liabilities 58,171,980 42,151,045
COMMITMENTS AND CONTINGENCIES (Notes 5 through 8 and 11)
MINORITY INTEREST IN SUBSIDIARIES 64,285 70,496
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A
SUBSIDIARY 1,897,110 1,868,027
---------- ----------
SERIES B CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE 8,171,398 9,272,508
Issued -- 8,000 shares, outstanding -- 7,050 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 -11,716,801 and 9,681,389 shares in
1998 and 1997, respectively 11,717 9,681
Additional paid-in capital 92,557,717 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 (73,180,509) (70,183,506)
Cumulative translation adjustment (168,545) 72,271
---------- ----------
Total stockholders' equity 17,510,076 5,440,685
---------- ----------
Total liabilities and stockholders' equity $ 128,855,732 $ 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>
THREE MONTHS ENDED MARCH 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (2,997,003) $ (4,894,115)
Adjustments to reconcile net loss to net
cash used in operating activities:
Dividends and accretion on preferred stock
of a subsidiary 29,083 28,179
Dividends accrued on Series A preferred
stock -- (23,865)
Amortization of original issue discounts on
convertible notes 1,171,685 --
Non-cash income related to treasury stock
received in settlement of lawsuit (1,498,844) --
Compensation expense related to issuance of
common stock options -- 37,629
Amortization of deferred revenue (614,730) (348,801)
Depreciation and amortization 2,053,688 799,823
Equity in net income of affiliate (108,000) --
Minority interest in subsidiaries' loss (36,789) (159,540)
Changes in assets and liabilities:
Accounts receivable (5,554,016) (2,135,526)
Inventories (5,017,676) (265,219)
Prepaid and other current assets (862,934) (442,575)
Accounts payable 8,168,052 1,531,288
Accrued expenses and other current
liabilities 2,047,521 1,072,621
---------- ----------
Net cash used in operating activities (3,219,963) (4,800,101)
---------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (392,320) (2,121,026)
Cash paid for acquisition of Can-Am Care
Corporation (13,600,000) --
Cash paid for purchase of USB '93 Technology
Associates Limited Partnership (360,000) --
Cash paid for investment in Orgenics Ltd. (60,328) --
Cash paid for purchase of Nutritional
Supplement Lines -- (30,983,869)
Increase in other assets (212,196) (239,964)
---------- ----------
Net cash used in investing activities (14,624,844) (33,344,859)
---------- ----------
Cash Flows From Financing Activities:
Cash paid for deferred financing costs (1,874,942) --
Net proceeds from issuance of common stock 540,732 16,242,716
Proceeds from borrowings under notes
payable 38,390,763 30,882,167
Repayments of notes payable (24,617,688) (235,707)
Cash loaned to affiliated company -- (327,120)
---------- ----------
Net cash provided by financing activities 12,438,865 46,562,056
---------- ----------
Foreign Exchange Effect on Cash and Cash
Equivalents (141,774) 608,398
Net Increase (Decrease) in Cash and Cash ---------- ----------
Equivalents (5,547,716) 9,025,494
Cash and Cash Equivalents, beginning of
year 15,669,898 16,458,654
---------- ----------
Cash and Cash Equivalents, end of period $ 10,122,182 $ 25,484,148
========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash paid for -
Interest $ 892,135 $ 413,529
========== ==========
Income taxes $ 258,814 $ 1,000
========== ==========
</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 March 31, 1998, the Company's cash
equivalents consisted of repurchase agreements and money market
funds. The Company follows the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". As of December 31, 1997 and March 31, 1998, all of
the Company's cash equivalents are classified as held to maturity
and carried at amortized cost.
3) Inventory
Inventory is comprised of the following:
March 31, 1998 December 31, 1997
(unaudited)
Raw materials $ 3,388,676 $ 3,006,076
Work in-process 659,045 405,404
Finished goods 6,186,079 1,933,051
-------------- --------------
$ 10,233,800 $ 5,344,531
============== ==============
4) Non recurring, non-cash income and expenses
For the three months ended March 31, 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 (the "Settlement Agreement"). See Note 9
and Legal Proceedings below for more information on the
Settlement Agreement. Also, for the three months ended March 31,
1998, the Company recognized $1.2 million of non-cash interest
expense for the amortization of the original issue discount on
convertible notes.
For the three months ended March 31, 1997, the Company recorded
an unrealized loss of $719,000 related to foreign currency
translation of intercompany balances. Also, for the three months
ended March 31, 1997, the amortization of expenses pertaining to
the grant of certain stock options was $38,000.
5) Series B Preferred Stock
On August 26, 1997, the Company sold to investors in a private
placement an aggregate of 8,000 shares of Series B Redeemable
Convertible Preferred Stock, par value $.001 per share, of the
Company (the "Series B Shares") and warrants (the "Warrants") to
purchase an aggregate of 114,628 shares of Common Stock (the
"Warrant Shares") to Capital Ventures International, C.C.
Investments LDC and Proprietary Convertible Investment Group,
Inc. (the "Series B Preferred Stockholders") for gross proceeds
of $8.0 million. Each Series B Share accrues a premium of 6% per
annum (the "Premium") and is convertible into shares (the
"Conversion Shares") of Common Stock. The actual number of
Conversion Shares issuable upon conversion of a Series B Share is
equal to the aggregate stated value per share (the "Face Value")
(i.e., $1,000 per share), plus any accrued but unpaid Premium
through the date of such conversion, divided by (x) if the
conversion occurs on or before December 31, 1997, a conversion
price of $13.9581 per share (the "Fixed Conversion Price"), (y)
in the case of conversions after December 31, 1997, and before
May 24, 1998, a conversion price equal to the lower of the Fixed
Conversion Price and the average of the five lowest closing bid
prices of the Common Stock during the thirty trading days
preceding such conversion (the "Variable Conversion Price"), and
(z) in the case of conversions after May 24, 1998, a conversion
price equal to the lower of the Fixed Conversion Price and 95% of
the Variable Conversion Price then in effect.
The Series B Preferred Stockholders may elect to convert Series
B Shares at any time on or after the earlier of (i) the filing of
a registration statement (the "Registration Statement")
registering the Conversion Shares and (ii) November 24, 1997.
After August 26, 1998, the Company may require the conversion of
all, but not less than all, of the Series B Shares, provided,
that the closing bid prices of the Common Stock are equal to or
greater than 200% of the Fixed Conversion Price for twenty
consecutive trading days preceding any such conversion. Any
unconverted Series B Shares will automatically convert into
shares of Common Stock on August 26, 2000. As of March 31, 1998,
950 Series B Shares have been converted to 115,552 shares of
Common Stock.
The Series B Shares may also be redeemed under certain
circumstances for cash. A holder of Series B Shares may require
the Company to redeem any or all of such holder's Series B Shares
in the event (each a "Redemption Event") that: (i) the Company
fails to issue the Conversion Shares with respect to any
conversion within a required period of time; (ii) the Common
Stock is suspended from trading on the American Stock Exchange
for an aggregate of ten trading days in any nine month period;
(iii) the Registration Statement has not been declared effective
by February 28, 1998 or cannot be utilized by the holders of the
Series B Shares for an aggregate of more than thirty days
(excluding certain permitted blackout periods) in any twelve
month period; (iv) the Company fails to remove any restrictive
legend on any certificate representing Conversion Shares when
required; (v) the Company provides notice to any holder of Series
B Shares of its intention not to issue Conversion Shares upon
conversion; or (vi) the Company engages in certain corporate
reorganizations. With respect to the Redemption Events described
in clauses (i) through (v) immediately above, the amount payable
upon redemption (the "Redemption Amount") is equal to the product
of (i) the highest closing bid price of the Company's Common
Stock during the period beginning on the redemption date and the
date the Redemption Amount is paid, and (ii) the quotient (the
"Quotient") obtained by dividing (x) the Face Value of the Series
B Shares being redeemed plus any accrued but unpaid Premium by
(y) the conversion price then in effect. With respect to the
Redemption Event set forth in (v) immediately above and for
redemptions at the option of the Company (described below) on
account of certain corporate reorganizations, the Redemption
Amount is the lower of (a) 124% of the Face Value being redeemed
plus any accrued but unpaid Premium and (b) the product of (i)
the fair market value of the consideration payable to the holder
of a share of Common Stock in connection with the corporate
reorganization and (ii) the Quotient.
The Company may also redeem outstanding Series B Shares
(consisting of at least 50% of the then outstanding Series B
Shares) at its option, provided, that the closing bid prices for
any five consecutive trading days is less than $9.00. The
Redemption Amount in such case is equal to 115% of the Face Value
of the Series B Shares plus any accrued but unpaid Premium.
One-half of the Warrants vested immediately while the remaining
Warrants vest on August 25, 1998; provided, however, that to the
extent any of the Series B Shares are converted prior to such
date, the number of Warrants vesting will be reduced ratably.
The Warrants are exercisable at any time until August 25, 2000.
Both the exercise price and the number of Warrant Shares
issuable under the Warrant are subject to anti-dilution
provisions, as defined.
Upon issuance of the Series B Shares and Warrants, the Company
allocated $310,045 of the proceeds to the Warrants. Also,
pursuant to the conversion terms whereby the Series B Preferred
Stockholders have been granted a discount after May 24, 1998, the
Company has recorded aggregate accretion of $2,049,545, which
represents the maximum guaranteed return available to Series B
Preferred Stockholders. The accretion was charged directly to
the accumulated deficit in 1997. Due to the redemption provision
described above, the Company classified the Series B Shares
outside the stockholders' equity in the accompanying consolidated
balance sheets.
6) Subordinated Revenue Royalty Notes
At closings held in June and July 1997, the Company sold
Subordinated Revenue Royalty Notes (the "Royalty Notes") having
an aggregate issue price of $7,500,000. Each Royalty Note
entitles the registered holder thereof (each, a "Royalty
Noteholder") to payments relating to net revenues of the Company
and certain related entities during each fiscal quarter the Note
is outstanding, which payments are pro rated with respect to the
number of days the Royalty Note is outstanding during such fiscal
quarter (each, a "Royalty Payment"). The Company is obligated to
make Royalty Payments until the total amount of Royalty Payments
equals four times the total issue price of the Royalty Notes (the
"Total Repayment Amount"). In addition, the Company may elect to
prepay the Royalty Notes, as described below.
The quarterly Royalty Payment for each $25,000 of issue price
will equal the greater of (i) 0.005% of net revenues of the
Company and certain related entities during such fiscal quarter
and (ii) $1,300. Until the Total Repayment Amount has been paid,
the Company will pay Royalty Payments as to each Royalty Note as
follows: (i) the first payment will be made on or before the
forty-fifth day after the closing of the fourth full fiscal
quarter during which such Royalty Note is outstanding and will
cover Royalty Payments for such fiscal quarter and the prior
fiscal quarters during which such Royalty Note was outstanding;
provided, however, that the aggregate Royalty Payments to be made
at such time shall not be less than $6,000; and (ii) the Royalty
Payment for each subsequent fiscal quarter will be made on or
before the forty-fifth day after the closing of such fiscal
quarter. Based on the estimated repayment schedule, the Company
imputed an interest rate of 23.3% and recorded interest expense
of $468,000 in the three months ended March 31, 1998.
If the Company elects to prepay the amount due under the
Royalty Notes or if an Event of Default (as defined below) is not
cured within 30 days after notice to the Company, the Company
will pay an amount equal to the greater of (i) 1.5 times the
issue price of the Royalty Notes minus all Royalty Payments made
by the Company prior to the date of payment (but excluding any
amount paid as Late Payment Interest, as defined below) or (ii)
an amount equal to the issue price of the Royalty Notes plus an
annualized internal rate of return on the issue price equal to
30% calculated from the issue date of the Royalty Notes to the
date of payment, minus all Royalty Payments made by the Company
prior to the date of payment (but excluding any amount paid as
Late Payment Interest).
The Royalty Notes will bear interest only in the event of a
late Royalty Payment, an Event of Default or a prepayment. If a
Royalty Payment is not made within 45 days of the end of the
relevant fiscal quarter, the overdue amount will accrue interest
("Late Payment Interest") at the rate of 18% per annum,
compounded daily, accruing from the date such Royalty Payment was
due to the date the Royalty Payment, including accrued interest
thereon, is made. Any such accrued interest will be payable on
demand.
U.S. Boston Capital Corporation ("U.S. Boston Capital") acted
as placement agent for the offering of the Royalty Notes. As
compensation for its services as placement agent, U.S. Boston
Capital received a cash commission of $600,000, which the Company
recorded as deferred financing costs and will amortize over the
estimated 14-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 $5,000. Willard
L. Umphrey, a Director of the Company, is Chairman, President,
Treasurer and a Director of U.S. Boston Capital.
7) Senior Subordinated Convertible Notes
At a closing on October 28, 1997, the Company sold in a private
placement Senior Subordinated Convertible Notes (the "Convertible
Notes") having an aggregate face value of $10,000,000 and
warrants (the "Convertible Notes Warrants") to purchase up to
106,700 shares of Common Stock to two institutional investors for
gross proceeds of $10,000,000.
The principal of the Convertible Notes is payable on October
28, 2002. The unpaid principal of each Convertible Note accrues
interest at the rate of 16% per year payable in cash until the
later of (i) the date of filing of a registration statement (the
"Notes Registration Date") covering the shares of Common Stock
underlying the Convertible Notes and the Convertible Notes
Warrants (the "Registrable Securities"), and (ii) April 25, 1998
(the "Variable Conversion Date"). A registration statement on
Form S-3 covering said shares of Common Stock was filed on
February 3, 1998. Thereafter, interest on the unpaid principal
accrues at the rate of 8% per year payable in cash or, at the
Company's option subject to certain conditions, shares of Common
Stock calculated at a price per share equal to 95% of the Recent
Market Price. The "Recent Market Price" as of any date is the
lowest market price at which shares of Common Stock traded at any
time during the five trading days immediately preceding such
date. During the occurrence of an Event of Default (discussed
below), the outstanding principal amount and accrued but unpaid
interest will accrue interest at a rate of the lower of the
Citibank Prime Rate per year plus 8% and the highest rate
permitted by law.
The holder of each Convertible Note may convert all or a
portion of such Convertible Note into shares of Common Stock
prior to October 28, 2002. Each Convertible Note converts at a
conversion price per share equal to the lesser of: (i) 125% of
the Recent Market Price as of October 27, 1997, as of Variable
Conversion Date or (if later) as of the Notes Registration Date,
whichever is least (the "Ceiling Price"), and (ii) the Recent
Market Price as of the date on which the conversion notice is
sent. Notwithstanding the above, the holder of a Convertible
Note may on any date elect to fix permanently with respect to all
or a portion of the Convertible Note the conversion price per
share in effect on such date, in which event the Convertible Note
(or portion thereof) must be converted within 90 days thereafter.
The Company may block any conversion if the per share conversion
price is less than 60% of the Ceiling Price by offering to redeem
for cash the Convertible Note (or portion thereof) that the
holder thereof would otherwise have converted for a price equal
to the fair market value of the shares of Common Stock that would
have been issued plus accrued interest on the Convertible Note
(or portion thereof) so redeemed.
After October 27, 1999, the Company may elect to redeem the
Convertible Notes, in whole or in part, at 105% of their face
value plus accrued but unpaid interest, provided that the Recent
Market Price has been equal to or greater than the Ceiling Price
for 75 consecutive trading days immediately preceding the date of
the redemption notice and for the 15 trading days commencing on
that date.
Events of Default for purposes of the Notes include: (a) the
Company's failure to make payments due under the Notes; (b) the
Company's failure to maintain the listing of its shares of Common
Stock; (c) the registration statement registering the Registrable
Securities is not declared effective by a certain date; (d) such
registration statement is not available for use by the holders of
Registrable Securities for a certain period of time; (e) the
Company's failure to deliver appropriate stock certificates; (f)
the Company fails to comply with any of its other payment
obligations or other material agreements under the Notes, the
Notes Warrants, or the related agreements (the "Notes
Agreements"); (g) the presence of a material misrepresentation in
the Notes Agreement; (h) the Company defaults under any of its
senior debt such that the holder thereof has a right of
acceleration; (i) the Company sells or otherwise disposes of all
or substantially all of its assets; or (j) the occurrence of
certain events related to bankruptcy.
The Convertible Notes Warrants may be exercised in whole or in
part from time to time until October 28, 2002. The exercise
price per share of each Convertible Notes Warrant equals the
Recent Market Price as of October 27, 1997, the Variable
Conversion Date and (if later) the Notes Registration Date,
whichever is lowest. Notwithstanding the foregoing, the holder
of a Convertible Notes Warrant may elect a cashless exercise of
such Convertible Notes Warrant.
The number of shares of Common Stock issuable upon conversion
of the Convertible Notes and exercise of the Convertible Notes
Warrants, and the conversion price and exercise price,
respectively, thereof, are subject to anti-dilution provisions,
and may be adjusted, among others, upon (i) the issuance of stock
dividends, or the occurrence of stock splits, reclassifications,
recapitalizations, or similar events; (ii) any consolidation,
merger, reorganization or similar fundamental restructuring; or
(iii) the issuance of shares of Common Stock or convertible
securities for consideration below a specified discount below the
market price of the Common Stock.
Shoreline Pacific Institutional Finance, the Institutional
Division of Financial West Group ("Shoreline"), acted as
placement agent for the offering of the Convertible Notes and the
Convertible Notes Warrants. As compensation for its services as
placement agent, Shoreline received a cash commission of
$500,000, representing 5% percent of the gross proceeds of the
offering. In addition, the Company issued four warrants to
purchase up to an aggregate of 31,250 shares of Common Stock with
substantially the same terms as the Convertible Notes Warrants to
certain designees of Shoreline (the "Shoreline Warrants"). The
Company recorded both the commission and the value of the
Shoreline Warrants ($600,000) as deferred financing costs. Such
costs are included as a component of other assets and are being
amortized over the life of the Convertible Notes.
Upon issuance of the Convertible Notes and Convertible Notes
Warrants, the Company allocated $662,657 of the proceeds to the
Convertible Notes Warrants and is amortizing the related original
issuance discount over 180 days, the point at which the Company
selected as the Variable Conversion Date. Also, pursuant to the
conversion terms whereby the Convertible Noteholders were
guaranteed a discount after the 180th day, the Company has
recorded an original issue discount of $1,185,864, which
represented the maximum guaranteed return available to the
Convertible Noteholders on the issuance date. This portion of
the original issuance discount is also being amortized over 180
days. The amortization of the aggregate original issuance
discount was $497,703 in 1997 and $1,057,162 in the three months
ended March 31, 1998. The company will amortize the remaining
$293,656 in April 1998.
8) Acquisition of Can-Am Care Corporation
On February 18, 1998, the Company's subsidiary, Selfcare
Consumer Products, Inc. ("SCPI") acquired Can-Am Care Corporation
("Can-Am"), a leading supplier of diabetes care products, for
approximately $27.9 million, consisting of $13.6 million in cash,
notes in the aggregate principal amount of $2 million (subject to
potential premiums of up to an additional $2 million in the
aggregate based upon increases in the price of the Company's
common stock during the term of the Notes) and approximately 1.1
million shares of the Company's Common Stock. Can-Am sells
insulin syringes, blood lancets, glucose tablets and specialty
skin creams to pharmacies across the United States. Can-Am's
revenues for the fiscal year ended May 31, 1997 were
approximately $25.9 million. Upon the closing of the
acquisition, Mr. Robert Oringer, President of Can-Am, became a
member of the Company's Board of Directors and continued as
President of Can-Am. Of the amounts set forth above, Mr. Oringer
received from the Company 277,083 shares of the Company's Common
Stock and a Non-Negotiable Note, maturing February 18, 2001, in
the principal amount of $500,000, bearing interest at an annual
rate of 6%.
In connection with the acquisition, Can-Am entered into a
Supply Agreement with AMG Medical, Inc. ("AMG") whereby Can-Am
agreed, with certain exceptions, to purchase 100% of its
requirements for monolet-compatible lancets from AMG for so long
as Can-Am is in the business of selling monolet compatible
lancets. In addition, Can-Am entered into a Management Services
Agreement with AMG whereby AMG will provide labor, office space,
office related services and insurance to Can-Am for a term of
five years. Under the Management Services Agreement, Can-Am will
pay AMG a fixed fee to cover the costs of office space, tax,
heating, maintenance and insurance costs associated therewith,
office expenses and telephone and computer equipment and access
expenses ("Fixed Fee"); a variable fee to cover the costs of
salaries, overtime pay, bonuses and related compensation of
employees providing services to Can-Am ("Variable Fee"); and the
costs of all direct expenses incurred by AMG, including supply
expenses, postage costs, printing costs, and other miscellaneous
charges and expenses ("Direct Expenses"). During the first year
of the term of the Management Services Agreement, the Fixed Fee
will be $112,800. This fixed Fee will increase by 5% annually
and is subject to change after renegotiation based upon changes
in the scope of services required by Can-Am. The variable Fee is
based on the actual salaries paid by AMG to the AMG employees
providing services to Can-Am and the percentage of their time
such employees devote to providing services to Can-Am. The
Direct Expenses are based on the actual costs AMG incurs.
To fund the cash portion of the purchase price, the Company and
SCPI entered into a $42 million credit agreement with The Chase
Manhattan Bank ("Chase"). The new credit agreement consists of a
$37 million term loan and a $5 million revolving line of credit.
Of the proceeds from this term loan, SCPI used $35.6 million to
finance the cash portion of the Can-Am purchase price and to
refinance the existing bank debt with Fleet National Bank
("Fleet"). SCPI will use the remaining availability under
the new credit facility to fund working capital.
The new credit agreement requires compliance with various
financial and non-financial covenants for both the Company and
SCPI. The primary financial covenants pertain to, among other
things, interest coverage, debt services coverage, leverage, and
earnings before interest, taxes, depreciation and amortization
(EBITDA).
The term loan and revolving line of credit allow SCPI to borrow
funds at varying rates, including options to borrow at an
alternate base rate, as defined, plus a spread from .25% to
1.75%, or the LIBOR rate plus a spread from 1.75% to 3.00%. The
spreads discussed above depend on SCPI's ratio of senior funded
debt to EBITDA.
Borrowings are secured by SCPI's stock, and the assets of SCPI,
Can-Am and the Company and its subsidiaries. Borrowings under
the revolving line of credit are based on certain percentages of
eligible assets, as defined. SCPI is required to pay an annual
fee of .375% for the unused portion of the revolving line of
credit. The revolving line of credit expires on February 18,
2002.
SCPI is required to make quarterly principal payments ranging
from $1.3 million to $1.95 million through December 31, 2003,
with payments of approximately $1.4 million beginning on June 30,
1998. SCPI and the Company must also make mandatory prepayments
on the term loan if they meet certain cash flow thresholds, sell
assets outside of the ordinary course of business, issue or sell
indebtedness or issue stock, as defined in the credit agreement.
9) Agreement with Flambelle Limited and Eastcourt Limited
Trinity Biotech plc ("Trinity") and Eastcourt Limited
("Eastcourt") have filed Schedule 13Ds with the Securities and
Exchange Commission (the "Commission") stating that Enviromed plc
sold the Company's Common Stock held of record by Enviromed to
Flambelle Limited ("Flambelle"), a wholly-owned subsidiary of
Trinity, and Eastcourt, an entity owned 50% each by Enviromed and
Flambelle, on August 28, 1996. On November 1, 1996, Enviromed
announced that it had disposed of its holding of shares of
Eastcourt to Flambelle for consideration of $1.25 million. In
December 1996, Eastcourt filed a Schedule 13D/A and Trinity and
Flambelle filed a joint Schedule 13D with the Commission. On
February 12, 1997 Flambelle and Eastcourt commenced a lawsuit
against the Company in the United States District Court for the
District of Massachusetts, seeking a declaratory judgment that
Flambelle and Eastcourt own the Common Stock held of record by
Enviromed plc and damages for alleged breach of a registration
rights agreement. As of March 6, 1998, the Company entered into a
settlement agreement with Trinity and Flambelle whereby the
parties agreed that Flambelle shall have title to 80% of the
shares of Selfcare stock in dispute, amounting to 622,898 shares
of the Company's Common Stock, and Selfcare shall have title to
20% of said shares, amounting to 155,724 shares of its Common
Stock. Replacement stock certificates have been issued and the
lawsuit has been dismissed with prejudice. Of the original
778,622 disputed shares, 185,094 shares were issued in connection
with the acquisition of certain manufacturing rights. The value
of such shares have been expensed in the Company's historical
financial statements. Accordingly, the Company has recorded the
fair value of the shares recovered as part of this settlement
agreement, $1.5 million, as a component of other income in the
accompanying consolidated statements of operations
10) Purchase of interests in USB '93 Technology Associates
Limited Partnership
On March 31, 1998, the Company finalized an agreement with
of USB `93 Technology Associates Limited Partnership ("the
Partnership"), whereby the Company agreed to purchased the
interests of the Partnership, effective February 25, 1998, for an
aggregate purchase price of $4.9 million, payable in (i) 487,017
shares of the Company's Common Stock and (ii) $360,000 in cash.
At the time of the purchase, the Partnership's assets consisted
primarily of a core immuno-assay technology.
The Company has reduced the value of the intangible asset on
its consolidated balance sheets at March 31, 1998 by $397,000,
representing the amount of unrecognized deferred revenue related
to the Company's sale of the technology to the Partnership in
December 1993. The intangible asset will be amortized over its
estimated useful life of 15 years. As a result of this
transaction, the Company will no longer pay royalties to the
partnership of 1.5% of product sales, which were due pursuant to
a license and development agreement dated December 30, 1993.
The Company paid a solicitation fee of $98,516 to U.S. Boston
Capital Corporation ("U.S. Boston Capital") in connection with
the transaction. Willard L. Umphrey, a Director of the Company,
is Chairman, President, Treasurer and a Director of U.S. Boston
Capital.
11) 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 Company intends to defend this litigation vigorously. A
final ruling against the Company could have a material adverse
impact on sales, operations and financial performance.
12) 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.
13) 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 for the
three months ended March 31, 1998, comprehensive income would be
approximately $241,000 less than reported net income, 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"). 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 $15.5 million, or 170%, to
$24.6 million for the three months ended March 31, 1998 from $9.1
million for the three months ended March 31, 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 $10.5 million in the three months ended March 31,
1998. 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 SCPI acquired Can-Am Care Corporation
("Can-Am"), a leading supplier of diabetes care products.
Approximately $4.0 million of the increase in net revenues is
attributed to net sales of nutritional supplements in the three
months ended March 31, 1998 as compared to the period of February
19 to March 31, 1997. The Company acquired the line of
nutritional supplements on February 19, 1997.
Gross profit. Gross profit increased by $4.0 million or 98% to
$8.0 million for the quarter ended March 31, 1998 from $4.0
million for the quarter ended March 31, 1997. Gross profit as a
percentage of net revenues decreased to 33% for the three months
ended March 31, 1998 from 45% of net revenues for the three
months ended March 31, 1997. The increase in the absolute amount
of gross profit dollars was derived from net sales of the
nutritional supplements and Can-Am's diabetes products. 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. The Company expects that the blended gross
profit will improve as volumes of test strips for the FastTake
system increase.
Research and Development Expense. Research and development
expense decreased by $1.5 million or 49% for the three months
ended March 31, 1998 to $1.6 million from $3.1 million for the
three months ended March 31, 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 months ended March 31, 1998.
Selling, General, and Administrative Expense. Selling, general,
and administrative expense increased $3.0 million or 62% to $7.7
million for the three months ended March 31, 1998 from $4.7
million for the three months ended March 31, 1997. The increase
was primarily attributable to increased spending on marketing of
the nutritional supplements and to the selling, general and
administrative expenses of Can-Am, which was acquired on February
18, 1998. Amortization of goodwill and intangible assets
resulting from the acquisition of the nutritional supplement
lines, Can-Am, and Orgenics, Ltd accounted for $677,000 of the
increase. Selling, general and administrative expense, as a
percentage of net revenues, decreased to 31% of net revenues
during the three months ended March 31, 1998 as compared to 52%
of net revenues for the same period in 1997.
Interest and Other Income (Expense). For the three months ended
March 31, 1998 the Company incurred $3.4 million in interest
expense compared to $600,000 for the three months ended March 31,
1997. For the three months ended March 31, 1998, the Company
recognized $1.2 million of non-cash interest expense for the
amortization of the original issue discount on convertible notes,
predominately related to the Senior Subordinated Convertible
Notes (See Note 7). For the three months ended March 31, 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 (the "Settlement
Agreement"). See Note 9 of the "Notes to Consolidated Financial
Statements" above and Legal Proceedings below for more
information on the Settlement Agreement.
Dividends and accretion on mandatorily redeemable preferred
stock of a subsidiary and Minority Interest. The Company's
subsidiary in Inverness, Scotland accrued $29,000 for the three
months ended March 31, 1998, representing a 6% dividend payable
and accretion on the outstanding cumulative redeemable preference
shares, as compared to $28,000 for the three months ended March 31,
1997. Minority interest in certain of the Company's subsidiaries
was $37,000 for the three months ended March 31, 1998 as compared
to $160,000 for the three months ended March 31, 1997.
Foreign Currency Translation. Fluctuations in foreign currency
did not significantly impact revenue performance measured in U.S.
dollars for the three months ended March 31, 1998. Substantially
all of the Company's foreign sales are paid in the functional
currency of the selling entity. The Company recorded an
unrealized loss of $719,000 for the three months ended March 31,
1997 related to foreign currency translation of intercompany
balances.
Net Loss. For the three months ended March 31, 1998, the
Company had a net loss of $3.0 million or ($0.29) per common and
potential common share compared to a net loss of $4.9 million or
($0.74) per common and potential common share for the three
months ended March 31, 1997. The results for the three-month
periods ending March 31, 1997 and March 31, 1998 included
significant non-recurring, non-cash charges and income as
detailed above.
For the three months ended March 31, 1998, earnings before
interest, taxes, depreciation and amortization ("EBITDA") before
non-recurring, non-cash charges was $175,000 or $0.02 per
common and potential common share compared to a loss of $3.3
million or ($0.50) per common and potential common share for the
three months ended March 31, 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 March 31, 1998, the Company had cash and cash equivalents of
$10.1 million, a $5.5 million decrease from December 31, 1997.
The net cash used in operating activities in the three months
ended March 31, 1998 was $3.2 million due largely to net losses
of $3.0 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 $10.6 million, of which $6.5 million is due to the
acquisition of Can-Am. The remainder of the increase reflects
the Company's increase in sales. Prepaid and other current assets
increased $863,000. Cash was provided for operations in part by
an increase in accounts payable, accrued expenses, and other
current liabilities of $10.2 million. During the three months
ended March 31, 1998, the Company used $392,000 to purchase
property and equipment.
During the three months ended March 31, 1998, the Company
received proceeds of $38.4 million from Chase. The Company
used the majority of the proceeds to finance the cash portion,
$13.6 million, of the Can-Am purchase price and to refinance the
existing bank debt, $22.0 million, with Fleet (See Note 8 of the
"Notes to Consolidated Financial Statements" above). Also, the
Company also paid $1.9 million in deferred financing costs,
primarily related to the purchase of Can-Am. In addition, the
Company also repaid $2.0 of principal on a note payable to
American Home Products.
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.
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
The Company has shipped for commercial sale certain
professional diagnostic products for infectious diseases, its
women's health products produced by third party manufacturers,
FastTake, products sold by Can-Am, blood glucose strips to be
used by A. Menarini Industrie Farmaceutical Riunite S.r.L. and
the Nutritional Supplement Lines. The Company's other 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.
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 is seeking damages for lost profits in an amount to be
determined at trial, injunctive relief barring the Company's use
of the name and mark "Selfcare" in connection with its products
and services, destruction of products using the said name or
mark, disgorgement of profits gained from the alleged
infringement, treble damages, restitution, punitive damages and
attorneys fees. The Company intends to defend this litigation
vigorously. The Company has answered the complaint and asserted
various defenses and has filed a counterclaim seeking
cancellation of Medical's federal service mark registrations.
The Company has advised the District Court of its intention to
phase out the use of the mark in connection with its nutritional
supplement products. A hearing was held on Medical's motion for
a preliminary injunction before the District Court on
December 19, 1997. On January 5, 1998, the District Court
entered an order, in the form proposed by the Company, requiring
that, effective six months thereafter, the Company cease using
the mark "Selfcare" on nutritional supplement products or
packaging or distributing nutritional supplement products or
packaging bearing the mark, and that the Company remove from its
packaging the statement that the mark is "registered." The case
is now in the discovery stage of litigation. Although the
Company does not believe that the preliminary injunction will
have a material adverse impact on the Company's sales, operations
and financial performance, a final ruling against the Company on
the merits of the case could have such an impact.
Flambelle Limited and Eastcourt Limited
Trinity Biotech plc ("Trinity") and Eastcourt Limited
("Eastcourt") have filed Schedule 13Ds with the Securities and
Exchange Commission (the "Commission") stating that Enviromed plc
sold the Company's Common Stock held of record by Enviromed to
Flambelle Limited ("Flambelle"), a wholly-owned subsidiary of
Trinity, and Eastcourt, an entity owned 50% each by Enviromed and
Flambelle, on August 28, 1996. On November 1, 1996, Enviromed
announced that it had disposed of its holding of shares of
Eastcourt to Flambelle for consideration of $1.25 million. In
December 1996, Eastcourt filed a Schedule 13D/A and Trinity and
Flambelle filed a joint Schedule 13D with the Commission. On
February 12, 1997 Flambelle and Eastcourt commenced a lawsuit
against the Company in the United States District Court for the
District of Massachusetts, seeking a declaratory judgment that
Flambelle and Eastcourt own the Common Stock held of record by
Enviromed plc and damages for alleged breach of a registration
rights agreement. As of March 6, 1998, the Company entered into a
settlement agreement with Trinity and Flambelle whereby the
parties agreed that Flambelle shall have title to 80% of the
shares of Selfcare stock in dispute, amounting to 622,898 shares
of the Company's Common Stock, and Selfcare shall have title to
20% of said shares, amounting to 155,724 shares of its Common
Stock. Replacement stock certificates have been issued and the
lawsuit has been dismissed with prejudice.
Institut Pasteur et al. v. Cambridge Biotech Corporation
Through its wholly owned Irish subsidiary, Cambridge
Diagnostics Ireland Ltd. ("Cambridge Diagnostics"), the Company
is currently producing diagnostic test kits primarily for
detecting antibodies to HIV, which are associated with Acquired
Immune Deficiency Syndrome ("AIDS"). Selfcare acquired Cambridge
Diagnostics (formerly known as Cambridge Biotech Limited) in
November 1994 from Cambridge Biotech Corporation ("Cambridge
Biotech"), which at that time was operating in Massachusetts
under Chapter 11 of the U.S. Bankruptcy Code. Prior to the
acquisition (the "Cambridge Diagnostics Acquisition"), Cambridge
Biotech licensed from Pasteur Sanofi Diagnostics (formerly known
as Diagnostics Pasteur), certain HIV 1/2 immunoassay technologies
relating to patents and proprietary rights held by Institute
Pasteur (the "Pasteur HIV Technologies"), and required for
production of HIV test kits, including the Selfcare HIV test kits
manufactured by Cambridge Diagnostics. Under the terms of
Cambridge Biotech's license agreements with Pasteur Sanofi
Diagnostics, Cambridge Biotech could not assign or sublicense its
rights with respect to the Pasteur HIV Technologies to Selfcare
or to Cambridge Diagnostics. In order to allow Selfcare and
Cambridge Diagnostics to have access to such technologies,
Selfcare and Cambridge Biotech formed Cambridge Affiliate
Corporation ("Cambridge Affiliate"), 51% owned by Cambridge
Biotech, and 49% owned by Selfcare, and managed by Cambridge
Diagnostics. The establishment of Cambridge Affiliate and the
terms of the arrangements relating thereto were considered and
approved by both U.S. and Irish bankruptcy courts in connection
with the approval of the sale of Cambridge Diagnostics by such
courts. Cambridge Affiliate maintains its own accounts and
records and makes payments of royalties due under the Pasteur
Sanofi Diagnostics licenses to Cambridge Biotech. The licenses
of the Pasteur HIV Technologies to Cambridge Biotech are
nonexclusive and cover diagnostic test kits in finished form
embodying the Pasteur HIV Technologies. The territorial scope of
the licenses is worldwide, with the exception of exclusive rights
which Pasteur Sanofi Diagnostics asserted to have granted in the
Pasteur HIV Technologies to Genetic Systems Corporation ("Genetic
Systems") in the United States, Canada, Mexico, Australia, New
Zealand and India (the "Excluded Countries"). However, the
licenses provide that, to the extent that Pasteur Sanofi
Diagnostics recovers the right to practice the patents underlying
the Pasteur HIV Technologies in the Excluded Countries, Cambridge
Biotech is entitled to non-exclusive rights in such technology in
such countries. In 1990, Pasteur Sanofi Diagnostics acquired
ownership of Genetic Systems, whereupon Cambridge Biotech
commenced selling products incorporating the Pasteur HIV
Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in the United
States Bankruptcy Court of the District of Massachusetts (Western
District) in March 1995 by Institute Pasteur, the minority
stockholder of Pasteur Sanofi Diagnostics and Genetic Systems.
In September 1995, the bankruptcy court ruled in favor of
Cambridge Biotech on this issue, and Institute Pasteur and
Genetic Systems Corporation subsequently filed an appeal to the
United States District Court for the District of Massachusetts.
On July 18, 1997, a hearing was held on the merits of the appeal
to the District court by Institut Pasteur and Genetic Systems
Corporation. The District court affirmed the rulings of the
bankruptcy court, holding that Cambridge Biotech may sell
products incorporating the Pasteur HIV Technologies in the United
States. Institut Pasteur and Genetic Systems Corporation have
filed an appeal to the Federal Circuit Court of Appeals and
Cambridge Biotech has cross appealed to the First Circuit Court
of Appeals. The First Circuit stayed Cambridge Biotech's cross
appeals pending a decision by the Federal Circuit on Cambridge
Biotech's motion filed in the Federal Circuit to have Institut
Pasteur and Genetic Systems Corporation's appeals either
transferred to the First Circuit or dismissed. The Federal
Circuit has denied the motion to transfer and all of the appeals
and cross appeals are now pending in the Federal Circuit.
Institut Pasteur and Genetic Systems have filed their appeal
brief and Cambridge Biotech is in the process of preparing and
filing its brief. To date there has been no decision. If the
bankruptcy court decision were reversed on appeal, the
territories in which Cambridge Affiliate could sell HIV-related
products could be limited but this would not have a material
adverse effect on the Company.
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 Company intends to defend this litigation vigorously. A
final ruling against the Company could have a material adverse
impact on sales, operations and financial performance.
ITEM 2. CHANGES IN SECURITIES
On February 18, 1998, in connection with the acquisition of Can-
Am Care Corporation, the Company issued 1,108,333 shares of its
Common Stock. Of these shares, 284,168 shares are held in escrow
subject to an Escrow Agreement dated February 18, 1998, with the
Company and certain others. The sale of these shares was intended
to comply with Section 4(2) of the Securities Act of 1933
(the "Securities Act").
Pursuant to an agreement on March 31, 1998, the Company purchased all
of the partnership interests in USB `93 Technology Associates Limited
Partnership ("USB '93") for an aggregate purchase price of $4,925,778.
The Purchase Price, in the form of 487,017 shares of Common Stock
(the "Purchase Shares") and $360,000 cash (the "Cash"), was paid
by the Company into a trust (the "Trust") created for the benefit
of the partners of USB '93 (the "Partners"). The Trustee of the
Trust is Willard Lee Umphrey, a director of the Company. The
Trust used the Cash to exercise in full a Warrant, previously
granted to USB '93 by the Company at an exercise price of $1.54
per share to purchase 234,000 shares of Common Stock (the
"Warrant Shares") carrying certain registration rights, which
Warrant USB '93 had transferred into the Trust immediately prior
to the sale of the partnership assets to the Company. The Trust
is obligated to distribute the Warrant Shares to each of the
Partners pursuant to a declaration of Trust dated March 31, 1998.
The Trust is also obligated to hold the Purchase Shares until the
earlier of a "Transaction" (as described below) or December 31,
1998. At any time prior to December 31, 1998, if the Company
engages in a transaction (a "Transaction") that results in a
substantial increase in the value of the Purchase Shares, the
Trust is required to return to the Company a certain portion of
the Purchase Shares before distributing the remaining shares to
the Partners. The sale of the Purchase Shares and Warrant shares
were intended to comply with Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit Number Title
-------------- -----
10.1 Form of Settlement Agreement
dated March 6, 1998 by and
between Selfcare, Inc., Trinity
Biotech PLC, Flambelle Limited
and Eastcourt Limited
10.2 Form of Agreement by and among
USB '93 Technology Associates
Limited Partnership, USB '93
Technology, Inc. the Limited
Partners, the General Partner and
Selfcare, Inc.
27 Financial Data Schedule
b. Reports on Form 8-K:
The Company filed a report on Form 8-K dated February 18,
1998, in connection with the acquisition of Can-Am Care
Corporation.
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: March 14, 1998 /s/ Anthony H. Hall
-------------------
Anthony H. Hall,
Chief Financial Officer
and an authorized officer
EXHIBIT 10.1
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Settlement Agreement"), made
as of March 6, 1998 by and between Selfcare, Inc. ("Selfcare"), a
corporation organized under the laws of the State of Delaware,
Trinity Biotech PLC ("Trinity"), a public limited company
incorporated in the Republic of Ireland, Flambelle Limited
("Flambelle"), a private limited company incorporated in the
Republic of Ireland and a wholly-owned subsidiary of Trinity, and
Eastcourt Limited ("Eastcourt"), a private limited company
incorporated in England and Wales and a wholly-owned subsidiary
of Flambelle,
WITNESSETH THAT:
WHEREAS, in 1994 Enviromed PLC ("Enviromed"), a public
limited company incorporated in England and Wales, acquired
certain shares of the common stock of Selfcare represented by
Certificate No. 122, dated April 5, 1994, for 45,656 shares of
the common stock of Selfcare (the "April Shares"), and by
Certificate No. 170, dated December 22, 1994, for 14,238 shares
of the common stock of Selfcare (the "December Shares");
WHEREAS, after a 13-for-1 split of the common stock of
Selfcare that occurred on or about June 13, 1996 (the "13-for-1
Split"), the April Shares and the December Shares (together, the
"Disputed Shares") collectively total 778,622 shares of the
common stock of Selfcare;
WHEREAS, Trinity, Flambelle, and Eastcourt contend that, by
means of transactions occurring on or about August 28, 1996 and
November 1, 1996, Enviromed transferred ownership of the Disputed
Shares to Flambelle and Eastcourt, and that Flambelle and
Eastcourt are the lawful owners of the Disputed Shares;
WHEREAS, Selfcare contends that, as a result of Enviromed's
breach and repudiation of certain agreements pursuant to which
Enviromed acquired the Disputed Shares, equitable title to the
Disputed Shares passed to Selfcare prior to the transfer of any
interest in the Disputed Shares to Flambelle or Eastcourt, and
that Flambelle and Eastcourt have no ownership interest in the
Disputed Shares;
WHEREAS, on or about February 12, 1997 Flambelle and
Eastcourt commenced a lawsuit against Selfcare styled FLAMBELLE
LIMITED AND EASTCOURT LIMITED V. SELFCARE, INC., pending as Civil
Action No. C.A. No. 97-10323-GAO in the United States District
Court for the District of Massachusetts ("Civil Action No. 97-
10323-GAO");
WHEREAS, in Civil Action No. 97-10323-GAO Flambelle and
Eastcourt contend, inter alia, that they are the lawful owners of
the Disputed Shares and seek declaratory and injunctive relief as
well as damages for the alleged breach of a certain registration
rights agreement relating to some or all of the Disputed Shares,
and Selfcare contends, INTER ALIA, that equitable title to the
Disputed Shares has passed to it and that Selfcare has no
liability to Flambelle or Eastcourt; and
WHEREAS, Selfcare, Trinity, Flambelle, and Eastcourt at this
time desire to adjust, settle and compromise all claims and
demands made by Flambelle or Eastcourt in Civil Action No. 97-
10323-GAO or arising out of the matters described in any of the
pleadings therein;
NOW, THEREFORE, in consideration of the mutual promises
contained in this Settlement Agreement, and intending to be
legally bound thereby, Selfcare, Trinity, Flambelle and Eastcourt
(collectively, the "Parties") do hereby mutually agree as
follows:
1. With regard to ownership of the Disputed Shares,
a. Flambelle shall have full legal and equitable title
to 80% of the Disputed Shares, totaling 622,898 shares of the
common stock of Selfcare (the "Flambelle-owned Shares"), and
Selfcare hereby relinquishes all claims to any ownership interest
in the Flambelle-owned Shares;
b. Selfcare shall have full legal and equitable title
to 20% of the Disputed Shares, totaling 155,724 shares of the
common stock of Selfcare (the "Selfcare-owned Shares"), and
Flambelle, Eastcourt, and Trinity hereby relinquish all claims to
any ownership interest in the Selfcare-owned Shares;
c. in order to effect the division of the Disputed
shares referred to in the foregoing Subsections 1.a and 1.b,
i. Flambelle and Eastcourt shall indorse in blank
and deliver to Selfcare Certificate No. 122, representing
ownership of the April Shares, and Certificate No. 170,
representing ownership of the December Shares, which stock
certificates together represent ownership of all the Disputed
Shares; and simultaneously
ii. Selfcare shall deliver to Flambelle a stock
certificate representing ownership by Flambelle of 622,898 shares
of the common stock of Selfcare, which certificate shall contain
no restrictions on the transfer of such shares.
iii. Selfcare acknowledges and agrees that the
above-mentioned 622,898 Flambelle-owned Shares are a portion of
the Disputed Shares and are being retained by Flambelle in
accordance with the terms of this Settlement Agreement and do not
represent any newly-issued shares of Selfcare. Selfcare further
(a) represents and warrants that it knows of no reason why the
622,898 Flambelle-owned shares, when delivered to Flambelle, will
not be freely transferable and (b) agrees that it will give no
stop transfer instruction or otherwise impede or interfere in any
way in the transfer of such shares to any third party by
Flambelle or any nominee of Flambelle.
2. Flambelle and Eastcourt shall dismiss Civil Action No.
97-10323-GAO with prejudice.
3. Each of Trinity, Flambelle and Eastcourt hereby remises,
releases and forever discharges Selfcare, its parent
corporations, subsidiaries, affiliates, predecessors, successors
and assigns, and each of their past and present officers,
directors, stockholders, employees, agents, representatives,
counsel, and attorneys and their respective heirs, executors,
administrators, representatives, successors and assigns, of and
from any and all debts, demands, actions, causes of action,
suits, controversies, proceedings, claims, sums of money,
accounts, reckonings, covenants, contracts, agreements, promises,
judgments, executions, damages, and liabilities whatsoever, in
law and in equity, which against any of them Trinity, Flambelle,
or Eastcourt, their parent corporations, subsidiaries,
affiliates, predecessors, successors or assigns ever had, now
have or hereafter can, shall or may ever have arising out of the
matters described in any of the pleadings in Civil Action No. 97-
10323-GAO.
4. Selfcare hereby remises, releases and forever discharges
each of Trinity, Flambelle, and Eastcourt, their parent
corporations, subsidiaries, affiliates, predecessors, successors
and assigns, and each of their past and present officers,
directors, stockholders, employees, agents, representatives,
counsel, and attorneys and their respective heirs, executors,
administrators, representatives, successors and assigns, of and
from any and all debts, demands, actions, causes of action,
suits, controversies, proceedings, claims, sums of money,
accounts, reckonings, covenants, contracts, agreements, promises,
judgments, executions, damages, and liabilities whatsoever, in
law and in equity, which against any of them Selfcare, its parent
corporations, subsidiaries, affiliates, predecessors, successors
or assigns ever had, now have or hereafter can, shall or may ever
have arising out of the matters described in any of the pleadings
in Civil Action No. 97-10323-GAO.
5. Each of Flambelle, Eastcourt and Trinity warrants and
represents to Selfcare that they have not assigned or transferred
or purported to assign or transfer ownership of any rights,
claims, or interests in or to the Disputed Shares.
6. It is the understanding and intent of each of Selfcare,
Trinity, Flambelle, and Eastcourt that by the execution, delivery
and performance of this Settlement Agreement, Selfcare does not
waive, release, discharge, or prejudice in any manner any of its
claims, demands, causes of action, rights or other interests that
it has or may have against Enviromed, its parent, subsidiary or
affiliated corporations, their predecessors, successors, or
assigns, or their officers, directors, stockholders, employees,
agents, or representatives, in connection with the Disputed
Shares, including without limitation in connection with any
agreements pursuant to which Enviromed acquired the Disputed
Shares or any transactions whereby Enviromed transferred or
purported to transfer ownership of the Disputed Shares, and the
execution, delivery and performance of this Settlement Agreement
by the Parties shall not be construed to waive, release,
discharge, or prejudice in any manner any such claims, demands,
causes of action, rights or other interests of Selfcare.
7. Each Party warrants and represents to the other Parties
that its execution, delivery and performance of this Settlement
Agreement have been duly authorized by all necessary corporate
action and that the person executing this Settlement Agreement on
its behalf is fully authorized to do so. Each Party agrees to
execute any documents reasonably necessary or desirable to
effectuate the purposes of this Settlement Agreement.
8. Each of the Parties acknowledges that each other Party
has entered into this Settlement Agreement in order to settle and
compromise disputed claims and that the execution, delivery and
performance of this Settlement Agreement by the Parties is not an
admission or evidence of any obligations or liabilities
whatsoever of any Party to any other Party or the truth of any of
the allegations made in Civil Action No. 97-10323-GAO.
9. This Settlement Agreement constitutes the complete and
exclusive agreement among the Parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous
agreements and understandings, oral or written, among the Parties
with respect to such subject matter. In entering into this
Settlement Agreement, no Party is relying on any representation,
promise, proposal, warranty, covenant, condition, inducement,
statement of intention, or other statement or communication,
express or implied, made by any other Party except as expressly
set forth in this Settlement Agreement.
10. The Parties acknowledge and agree that this Settlement
Agreement has been drafted and reviewed by counsel for the
Parties and shall not create any presumption, or be construed
against any Party, each Party expressly waiving the doctrine of
CONTRA PROFERENTEM.
11. This Settlement Agreement shall be binding upon and
inure to the benefit of the Parties, their parent, subsidiary and
affiliated corporations, and their predecessors, successors and
assigns, and each of their officers, directors, stockholders,
employees, agents, representatives, counsel, and attorneys and
their respective heirs, executors, administrators,
representatives, successors and assigns.
12. This Settlement Agreement shall be governed by and
construed in accordance with the substantive law of the
Commonwealth of Massachusetts.
13. This Settlement Agreement may be executed in one or
more counterparts, each of which when so executed shall be deemed
to be an original, and all such counterparts together shall
constitute one and the same instrument.
IN WITNESS THEREOF, the Parties have executed this
Settlement Agreement as of the day and year first above written.
SELFCARE, INC.
By:__________________________
Its
Hereunto duly authorized
FLAMBELLE LIMITED
By:__________________________
Its
Hereunto duly authorized
EASTCOURT LIMITED
By:__________________________
Its
Hereunto duly authorized
TRINITY BIOTECH PLC
By:__________________________
Its
Hereunto duly authorized
EXHIBIT 10.2
AGREEMENT
This Agreement (the "Agreement") is as of the ___ day of
___________, 1998, by and among the parties listed below (each, a
"Party;" collectively, the "Parties"):
USB `93 Technology Associates Limited Partnership, a
Massachusetts limited partnership having a principal
address c/o USB `93 Technology, Inc. at 55 Old Bedford
Road, Lincoln North, Lincoln, Massachusetts (the
"Partnership");
USB `93 Technology, Inc., a Massachusetts corporation
having a principal address at 55 Old Bedford Road, Lincoln
North, Lincoln, Massachusetts (the "General Partner");
the persons and/or entities listed on SCHEDULE A hereto
(collectively, the "Limited Partners;" together with the
General Partner, the "Partners") and
Selfcare, Inc., a Delaware corporation having a principal
place of business at 200 Prospect Street, Waltham,
Massachusetts ("Selfcare").
WHEREAS, the organization and affairs of the Partnership
are governed by a Certificate and Agreement of Limited
Partnership, dated as of November 16, 1993 (the "Partnership
Agreement"); and
WHEREAS, each of the Partners owns such interest in the
Partnership as is set forth opposite his or her name on SCHEDULE
B hereto, which interests (each, a "Partnership Interest;"
collectively, the "Partnership Interests") in the aggregate
represent all of the outstanding interests in the Partnership;
and
WHEREAS, Willard L. Umphrey (the "Trustee"), the Partners
and The USB `93 Partners Escrow Trust (the "Trust") have entered
into a Declaration of Trust dated this date (the "Trust
Agreement") in the form attached hereto as EXHIBIT I; and
WHEREAS, the Partnership and Selfcare entered into a
Technology Purchase and Sale Agreement dated as of November 16,
1993 (the "Purchase Agreement") whereby the Partnership acquired
from Selfcare certain assets set forth on SCHEDULE C hereto (the
"Technology"); and
WHEREAS, in connection with the Purchase Agreement,
Selfcare granted to the Partnership a warrant (the "Warrant") to
purchase up to 18,000 shares of Selfcare's common stock (now
234,000 shares after a 13 to 1 stock split); and
WHEREAS, Section 3 of the Warrant sets forth restrictions
as to the transfer of the Warrant, and Selfcare and the
Partnership desire to amend the Warrant for the limited purpose
of allowing the Partnership to transfer the Warrant to the Trust;
and
WHEREAS, subsequent to the transfer of the Warrant to the
Trust, each of the Partners desires to sell, transfer, convey and
assign to Selfcare and Selfcare desires to purchase from each of
the Partners 100% of their respective Partnership Interests in
exchange for cash and shares of Selfcare's common stock, such
cash and shares to be delivered into the Trust; and
WHEREAS, the Parties desire that the Trust, in accordance
with the terms and conditions of the Trust Agreement, hold the
Purchase Shares (as defined below) for the benefit of the
Partners pending a determination whether there is an Early
Premium (as defined below) or a Later Premium (as defined below),
returning the same to Selfcare if required by the terms of this
Agreement, and then distributing the remaining Purchase Shares to
the Partners; and
WHEREAS, subsequent to the transfer of the Partnership
Interests to Selfcare, the Parties desire that the Trust, in
accordance with the terms and conditions of the Trust Agreement,
exercise the Warrant in full for an aggregate exercise price of
$360,000 and distribute to the Partners the shares of Selfcare's
common stock acquired upon such exercise;
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, the Parties hereto agree as follows:
1 AMENDMENT CERTAIN DOCUMENTS AND WAIVER OF CERTAIN
RESTRICTIONS
1.1 Selfcare and the Partnership hereby agree to amend the
Warrant, and the Warrant is hereby amended (without further
action being required), by adding the following sentence at the
end of Section 3 thereof:
"Notwithstanding the foregoing, nothing herein shall
prevent the transfer of this Warrant by LP to The USB
`93 Partners Escrow Trust subject to the terms and
conditions set forth in the Declaration of Trust dated
, 1998."
1.2 The signatories to this Agreement who are Partners of the
Partnership acknowledge that there are restrictions on the
transfer of their Partnership Interests contained in the
Partnership Agreement. Each of the Partners now agrees to, and
hereby does, waive any and all restrictions on the transfer of
the Partnership Interests ("Restrictions") by each of them to
Selfcare (but to no other transferee), whether such Restrictions
are imposed by the Partnership Agreement or otherwise. To the
extent necessary, the Partnership Agreement is hereby amended
(without further action being required) to permit transfer of the
Partnership Interests by the Partners to Selfcare pursuant to
this Agreement free of any and all Restrictions.
2 TRANSFER OF WARRANT
Subject to the terms and conditions set forth herein, in
the Warrant and in the Trust Agreement, on the Closing Date
(as defined below), the Partnership hereby agrees and
covenants to transfer, assign, convey and deliver into the
Trust all of its right, title and interest in the Warrant.
3 SALE AND PURCHASE OF PARTNERSHIP INTERESTS
3.1 Subject to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined below), subsequent to
the transfer of the Warrant from the Partnership to the Trust,
each of the Partners severally agrees and covenants to sell,
convey, transfer, assign and deliver to Selfcare, and Selfcare
hereby agrees and covenants to purchase and shall acquire from
each Partner, all right, title and interest in and to each
Partner's respective Partnership Interest, for an aggregate
purchase price of $4,925,778 (the "Purchase Price"), payable in
(i) 487,017 shares of Selfcare common stock, $.001 par value (the
"Purchase Shares") and (ii) $360,000 in cash (the "Cash").
3.2 On the Closing Date (as defined below), Selfcare shall
deliver into the Trust the Cash and Purchase Shares, and the
delivery into the Trust of such Cash and Purchase Shares shall
represent payment in full of the Purchase Price. Subject to the
terms herein, the Trust shall use the Cash to exercise the
Warrant as set forth below, and the Trust shall hold the Purchase
Shares for the benefit of the Partners subject to the adjustments
set forth below.
4 EXERCISE OF WARRANT BY TRUST
4.1 Subject to the terms and conditions set forth in this
Agreement and the Warrant, on the Closing Date (as defined
below), the Trust shall exercise the Warrant by delivering to
Selfcare (1) a fully executed subscription to purchase 234,000
shares of Selfcare's common stock, $.001 par value, substantially
in the form attached to said Warrant (the "Subscription Form")
and (2) $360,000 (the "Exercise Price"), payable as set forth
below. In exchange, Selfcare will deliver into the Trust on the
Closing Date a certificate registered in the name of the Trust
for 234,000 shares of Selfcare's common stock, $.001 par value
(the "Warrant Shares").
4.2 Subsequent to the exercise of the Warrant as described
above, the Trust shall distribute the Warrant Shares to the
Partners in accordance with the Trust Agreement.
5 RIGHTS AND OBLIGATIONS OF HOLDERS OF WARRANT SHARES
The Parties hereby acknowledge that the Partners, as
holders of the Warrant Shares after the Trust's
distribution of such Warrant Shares to the Partners, shall
have all such rights and obligations with respect to the
Warrant Shares as are set forth in the Warrant, including,
without limitation, the registration rights described in
Section 5 the Warrant.
6 CLOSING
6.1 The closing hereunder (the "Closing") shall take place at
the offices of Selfcare, 200 Prospect Street, Waltham,
Massachusetts, at 10 A.M., Boston time, on April 30, 1998
(the "Closing Date"), or at such other time and place as
is mutually agreed upon by Selfcare and the General
Partner.
6.2 At the Closing:
(a) The Partnership shall deliver to the Trust the
Warrant, accompanied by such instruments of transfer
as are necessary to effect the transfer of all right,
title and interest in the Warrant to the Trust.
(b) The Partnership shall deliver to Selfcare any books,
papers, ledgers, documents and records relating to the
Technology.
(c) Each of the Partners shall deliver to Selfcare: (1)
any required instruments of transfer in form and
substance reasonably satisfactory to Selfcare, which
instruments shall vest in Selfcare good and marketable
title to such Partner's Partnership Interest free and
clear of all liens and encumbrances and (2) any
consents of third parties necessary to effectuate the
transfer of such Partner's Partnership Interest to
Selfcare.
(d) Selfcare shall deliver to the Trust: (1) a certificate
or certificates registered in the name of the Trust
for 487,017 shares of the common stock of Selfcare,
$.001 par value (representing the Purchase Shares) and
(2) $360,000 (representing the Cash) by wire transfer,
or in the form of a check made payable to the Trust.
(e) The Trust shall deliver to Selfcare: (1) an executed
Subscription Form to exercise the Warrant in full and
(2) $360,000 in cash, by wire transfer, or in the form
of a check made payable to Selfcare (representing the
Exercise Price of the Warrant).
(f) Selfcare shall deliver to the Trust a certificate or
certificates registered in the name of the Trust for
an aggregate of 234,000 shares of the common stock of
Selfcare, $.001 par value (representing the Warrant
Shares).
6.3 All other documents and papers to which the parties are
entitled under this Agreement and any required authorizations
shall also be delivered at the Closing, or at such other time as
is mutually agreed upon by the parties.
7 CERTAIN CONTRACTS
Upon consummation of the purchase and sale of the
Partnership Interests as described above:
(a) all contracts, agreements, understandings and other
arrangements between the Partnership and any of the
Partners, including without limitation any consulting
agreements, employment agreements and severance
arrangements, shall terminate, and shall not be
binding upon any of the Parties hereto and
(b) all contracts, agreements, understandings and other
arrangements between the Partnership and Selfcare,
with the exception of this Agreement, shall terminate,
and shall not be binding upon any of the Parties
hereto.
8 PARTNERSHIP ASSETS AND LIABILITIES
8.1 On or prior to the Closing Date, the Partnership shall
distribute, sell and/or transfer all of the assets owned by the
Partnership other than the Technology, so that on the Closing
Date the Partnership shall own no assets except the Technology.
8.2 Selfcare shall not, by virtue of this Agreement, or
otherwise, assume or agree to pay, perform, or discharge any, and
the Partners shall retain and pay and discharge, or cause the
Partnership to pay and discharge, all liabilities and obligations
of the Partners and the Partnership whatsoever, direct or
indirect, determined or contingent, and whether or not disclosed
herein, including without limitation the Partnership Liabilities
and all of the liabilities and obligations of the Partners for
federal and state income taxes relating to their respective
Partnership Interests accruing prior to the Closing Date or as a
result of the sale of such Partnership Interests to Selfcare.
8.3 Notwithstanding the foregoing, the Partners shall pay and
satisfy, or cause the Partnership to pay and satisfy, the
following at or before the Closing Date:
(a) All sales, use and transfer taxes, costs and expenses,
if any, payable in connection with the transfer and
delivery of the Partnership Interests.
(b) All personal property taxes, if any, attributable to
taxable periods beginning before the Closing Date,
even if not due until after the Closing Date, with
respect to the assets owned or held by the Partnership
on the Closing Date or any other assets owned or held
by the Partnership during such taxable periods. For
purposes of determining the portion of personal
property taxes attributable to periods before the
Closing Date, such taxes shall be prorated on a daily
basis.
(c) All outstanding security interests in the Technology
will be discharged.
9 ADJUSTMENT TO PURCHASE SHARES
The aggregate number of Purchase Shares transferred by
Selfcare to and held by the Trust pursuant to this
Agreement and the Trust Agreement shall be adjusted as
follows:
9.1 If by June 30, 1998 (and provided the closing of such
"Transaction" (as defined below) occurs no later than August 31,
1998) Selfcare enters into a definitive purchase and sale
agreement to sell all or a substantial portion of its assets
representing more than fifty-one percent (51%) of the value of
all assets of Selfcare as of the date of the Transaction, or to
sell the stock of Selfcare or a subsidiary or spin-off of
Selfcare where the sale of such subsidiary or spin-off represents
the sale of more than fifty-one percent (51%) of the assets of
Selfcare as of the date of the Transaction, in a transaction or
series of related transactions (a "Transaction") in which the
holders of the Purchase Shares (the "Holders") will retain or
receive with respect to the Purchase Shares (i) cash, (ii)
securities of Selfcare or a subsidiary or spin-off of Selfcare
and/or (iii) securities of the acquirer (together with (i) and
(ii), the "Early Consideration"), and the value of such Early
Consideration, determined upon the closing of such Transaction,
exceeds $5,935,520, then, upon the closing of such Transaction,
the Purchase Shares will be subject to adjustment described
below, which adjustment will be made, at Selfcare's election,
simultaneously with or immediately prior to the consummation of
the Transaction:
(a) For purposes of this Section, "Per Share Price" shall
mean the average of the closing prices of Selfcare
common stock for the five (5) trading days immediately
preceding the closing date of the Transaction that
triggers the adjustment described herein. "Early
Premium" shall mean the amount by which the Early
Consideration exceeds $5,935,520.
(b) The Trust shall deliver back to the Company on the
closing date of the Transaction a number of Purchase
Shares determined by dividing the Early Premium by the
Per Share Price.
9.2 If no Transaction occurred as provided in Subsection 9.1
above, and if by October 31, 1998 (and provided the closing of
such Transaction occurs no later than December 31, 1998) Selfcare
enters into a definitive purchase and sale agreement relating to
a Transaction in which the Holders would retain or receive with
respect to the Purchase Shares (i) cash, (ii) securities of
Selfcare or a subsidiary or spin-off of Selfcare and/or (iii)
securities of the acquirer (together with (i) and (ii), the "Late
Consideration"), and the value of such Late Consideration,
determined upon the closing of such Transaction, exceeds
$6,848,677, then, upon the closing of such Transaction, the
Purchase Shares will be subject to adjustment as described below,
which adjustment will be made, at Selfcare's election,
simultaneously with or immediately prior to the consummation of
the Transaction:
(a) For purposes of this Section, "Late Premium" shall
mean the amount by which the Late Consideration
exceeds $6,848,677.
(b) The Trust shall deliver back to the Company on the
closing date of the Transaction a number of Purchase
Shares determined by dividing the Late Premium by the
Per Share Price.
9.3 The intent of this Section is to limit the gain realized by
the Holders of the Purchase Shares to 30% if a Transaction
described in Subsection 9.1 occurs and to 50% if a Transaction
described in Subsection 9.3 occurs, so that in either such case
the Trustee shall return the amount of the Early or Late Premium
(in the form of Purchase Shares) to Selfcare as provided above.
9.4 The Trust shall not distribute or transfer any Purchase
Shares until the earlier of December 31, 1998 or the consummation
of a Transaction, unless Selfcare shall not have entered into a
definitive purchase and sale agreement by October 31, 1998 which
envisions a Transaction scheduled to close not later than
December 31, 1998, in which event the Trust may distribute or
transfer Purchase Shares, subject to the provisions of Section
15.5, on or after November 1, 1998 free of any restrictions
imposed by this Section 9.
10 REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
PARTNERSHIP AND EACH OF THE PARTNERS
The Partnership and each of the Partners, severally and
jointly, represent, warrant, covenant and agree as to the
following, and acknowledge that such representations,
warranties, covenants and agreements shall survive the
Closing (in each instance the representation, warranty,
covenant and agreement is made by the Partnership and each
Partner unless otherwise indicated):
10.1 The Partnership is a limited partnership organized pursuant
to the Massachusetts Revised Uniform Limited Partnership Act with
powers adequate for executing and delivering, and performing its
obligations under this Agreement.
10.2 The Partnership is and has always been characterized as a
partnership for federal and state income tax purposes.
10.3 The General Partner is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth
of Massachusetts with corporate powers adequate for executing and
delivering, and performing its obligations under, this Agreement,
and is duly empowered to act on behalf of the Partnership.
10.4 The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action on
the part of General Partner acting on behalf of the Partnership.
10.5 The only asset owned by the Partnership as of the Closing
Date shall be the Technology.
10.6 SCHEDULE C hereto accurately and completely lists of all of
the assets of the Partnership as of the Closing Date (the
"Partnership Assets") and all of the liabilities and obligations
of the Partnership with respect to third parties, including the
Partners (the "Partnership Liabilities"), as of the Closing Date.
The Partnership does not possess any asset, nor has the
Partnership incurred any liability or obligation with respect to
a third party, other than those assets, liabilities and
obligations set forth on SCHEDULE C.
10.7 Each Partner has the interest in the Partnership that is set
forth opposite such Partner's name on SCHEDULE B hereto (each
Partner is only representing that such Partner's interest in the
Partnership is as set forth opposite such Partner's name).
10.8 The Partnership, on the Closing Date, will have good and
clear record title to the Partnership Assets, which shall consist
solely of the Technology, and on the Closing Date such
Partnership Assets (the Technology) will be free and clear of all
liens, mortgages, encumbrances, security interests and claims of
any kind, other than the rights of Selfcare under the Technology
License and Development Agreement dated December 29, 1993.
10.9 On the Closing Date there will be no agreements, contracts
or understandings pursuant to which any party, other than
Selfcare, has any claim, right or interest whatsoever in and to
the Partnership Assets.
10.10 On the Closing Date there will be no pending or
threatened actions, suits, claims, arbitrations, proceedings,
investigations or any other proceedings under any contracts or
agreements or otherwise, by or against the Partnership.
10.11 With respect to the Partnership Assets, the Partnership
is not in default with respect to any order, injunction or decree
of any court, arbitrator or governmental body or agency or
instrumentality thereof.
10.12 The Partners, as of the Closing Date, will have paid
and discharged, or will have caused the Partnership to pay and
discharge, all liabilities and obligations of the Partnership
whatsoever, direct or indirect, determined or contingent, and
whether or not disclosed herein, including without limitation the
Partnership Liabilities. The Partners will retain and pay and
discharge any other liabilities and obligations of the Partners,
including without limitation liabilities and obligations for
federal and state income taxes relating to their respective
Partnership Interests accruing prior to the Closing or as a
result of the sale of such Partnership Interests to Selfcare.
10.13 This Agreement has been duly executed and delivered by
each Partner and by the General Partner acting on behalf of the
Partnership and is a legal, valid and binding obligation of each
Partner and the Partnership, enforceable against each Partner and
the Partnership in accordance with its terms. No further action
is necessary to make this Agreement valid, binding and
enforceable upon each Partner and the Partnership. Each Partner
is only representing, warranting, covenanting and agreeing as to
that Partner's execution and delivery of this Agreement as its
validity and enforceability against that Partner.
10.14 The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, do not and will not result in any breach or default
under, conflict with, or contravention of any provision of the
Partnership Agreement or the partnership agreement of any Partner
that is a partnership, any provision of the charter or by-laws of
any Partner that is a corporation, or any statute, mortgage,
option, lease, agreement, document, instrument or indenture to
which the Partnership or any Partner is a party or by which the
Partnership or any Partner is bound. Each Partner is only
representing, warranting, covenanting and agreeing as to whether
the execution, delivery and performance of this Agreement will
result in any breach or default under any agreement, charter, by-
law, statute, mortgage, option, lease, agreement, document,
instrument or indenture to which that Partner is a party or by
which that Partner is bound.
10.15 The Partnership and each Partner hereby agree and
covenant to promptly take all actions necessary and incidental to
the successful consummation of this Agreement, including the
execution of all necessary documents. The Partnership and each
Partner further agree and covenant not to enter into any
agreement, make any commitment, take any action or fail to take
any action that would contravene any material provision of this
Agreement.
11 ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PARTNERS
Each of the Partners represents, warrants, covenants and
agrees as to such Partner's own Partnership Interest, such
Partner's ability to enter into this Agreement, and such
Partner's investment decision, and acknowledges that such
representations, warranties, covenants and agreements shall
survive the Closing:
11.1 Each of the Partners has good and marketable title to such
Partner's respective Partnership Interest, which is to be
transferred to Selfcare by such Partner pursuant to this
Agreement, free and clear of any and all covenants, conditions,
restrictions, liens, charges, encumbrances, options and adverse
claims or rights whatsoever. Upon consummation of the purchase
contemplated hereby, Selfcare will acquire from such Partner good
and marketable title to such Partner's Partnership Interest, free
and clear of all covenants, conditions, restrictions, liens,
charges, encumbrances, options and adverse claims or rights
whatsoever.
11.2 Each of the Partners has the full right, power, capacity and
authority to enter into this Agreement and to transfer, convey
and sell to Selfcare at the Closing such Partner's respective
Partnership Interest.
11.3 Each of the Partners which is a corporation is validly
subsisting under the laws of the jurisdiction of its
incorporation, has the corporate power and authority and is
qualified to own and dispose of its Partnership Interest and no
act or proceeding has been taken by or against any such Partner
in connection with the dissolution, liquidation, winding up,
bankruptcy or reorganization of such Partner. The execution and
delivery of this Agreement and such other agreements and
instruments and the completion of the transactions contemplated
by this Agreement and such other agreements and instruments have
been duly authorized by all necessary corporate action on the
part of each Partner which is a corporation and its shareholders.
11.4 No Partner is a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition, injunction,
decree or award of any governmental agencies that would prevent
the execution or delivery of this Agreement by any Partner or the
transfer, conveyance and sale of such Partner's Partnership
Interest pursuant to the terms hereof.
11.5 With respect to the acquisition of the Purchase Shares and
the Warrant Shares by the each of the Partners:
(a) Each of the Partners understands that the Purchase
Shares and Warrant Shares (collectively, the "Shares") have
not been and (in the case of the Purchase Shares) will not
be registered under the United States Securities Act of
1933, as amended (the "Securities Act"), or qualified under
the securities or "Blue Sky" laws of any jurisdiction.
Except as set forth in the Warrant, Selfcare is not nor
will it be under any obligation to register the Shares
under the securities Act or the "Blue Sky" laws of any
jurisdiction, and such Shares will constitute "restricted
securities" within the meaning of Rule 144 promulgated
under the Securities Act. As such the Shares must be held
indefinitely unless they are subsequently registered under
the Securities Act or unless an exemption from the
registration requirements thereof is available. The
limited registration rights with respect to the Warrant
Shares set forth in the Warrant shall survive the Closing.
(b) Each of the Partners represents that such Partner is
acquiring such Shares for such Partner's own accounts for
investment and not for, with a view to or in connection
with any resale or distribution thereof, other than to
another Partner.
(c) Each of the Partners represents that such Partner will
not sell or otherwise dispose of any Shares without
registration under the Securities Act and qualification
under the "Blue Sky" laws of the appropriate jurisdiction,
unless an exemption from registration and qualification
thereunder is available
(d) Each of the Partners further acknowledges (x) that
such Partner is aware (i) of the restrictions on resale of
such Shares under the Securities Act and the General Rules
and Regulations thereunder (including, without limitation,
Rule 144 thereunder) and (ii) that any routine sales of the
Shares made in reliance upon such Rule 144 can only be made
after complying with the one-year holding period described
in such Rule and then only in limited amounts (unless the
two-year holding period under Rule 144(k) shall have been
satisfied) in accordance with the terms and conditions of
such Rule and (y) that, in order to make sales of the
Shares under such Rule 144, it is necessary that there be
available adequate current public information about
Selfcare at the time of any such sale.
(e) Each of the Partners further represents that (i) such
Partner is an "accredited investor" within the meaning of
Rule 501 (or any successor thereto) promulgated under the
Securities Act and (ii) by reason of the business and
financial experience of such Partner, and the business and
financial experience of those persons retained by such
Partner to advise such Partner with respect to such
Partner's investment in the Shares to be received by such
Partner pursuant to this Agreement, each of the Partners,
together with such advisors, has such knowledge,
sophistication and experience in business and financial
matters as to be capable of evaluating the merits and risks
of the prospective investment, and is able to bear the
economic risk of such investment and is able to afford a
complete loss of such investment. Each of the Partners
acknowledges that such Partner has been granted the
opportunity to ask questions of, and receive answers from,
representatives of Selfcare concerning Selfcare and the
Shares and to obtain any additional information which such
Partner deems necessary to verify the accuracy of the
answers received from such representatives.
(f) Each certificate for the Shares to be delivered
pursuant to this Agreement will be imprinted with a
legend in substantially the following form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR THE
SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE
TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE
UNLESS (1) A REGISTRATION STATEMENT FOR THE SHARES
UNDER THE ACT IS IN EFFECT OR (2) THE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION, TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
(g) In connection with the transfer prior to the
expiration of the two-year holding period set forth in
Rule 144(k) of any Shares, other than to a Partner, the
Partner wishing to make such transfer shall deliver written
notice to Selfcare describing in reasonable detail the
transfer or proposed transfer, together with an opinion, in
form and substance reasonably satisfactory to Selfcare and
its counsel, of counsel which (to Selfcare's reasonable
satisfaction) is knowledgeable in securities law matters,
to the effect that such transfer of Shares may be effected
without registration of such shares under the Securities
Act and under any applicable state securities laws.
12 REPRESENTATIONS AND WARRANTIES OF SELFCARE
Selfcare hereby represents and warrants the following,
acknowledges that such representations, warranties,
covenants and agreements shall survive the Closing:
12.1 Selfcare is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Delaware,
with full power and authority, corporate and otherwise, to own
its properties and to conduct its business as heretofore and
presently being conducted in the manner and in the places where
such properties are owned or such business has heretofore been
and presently is conducted by it, and has the power to execute
and perform this Agreement.
12.2 Selfcare has, and will continue to have through the Closing
Date, by appropriate vote of its Board of Directors, full power
to execute, deliver and perform this Agreement, including,
without limitation, full power to issue the Shares.
12.3 The execution of this Agreement, constitutes the valid,
binding, and enforceable agreement of Selfcare.
12.4 The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, do
not and will not result in any breach or default under, conflict
with, or contravention of any provision of any mortgage, option,
lease, agreement, document, instrument or indenture to which
Selfcare is a party or by which Selfcare is bound.
12.5 Selfcare hereby agrees and covenants to promptly take all
actions necessary and incidental to the successful consummation
of this Agreement, including the execution of all necessary
documents. Selfcare further agrees and covenants not to enter
into any agreement, make any commitment, take any action or fail
to take any action that would contravene any material provision
of this Agreement.
13 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTNERSHIP
AND THE PARTNERS
The obligations of the Partnership and each of the Partners
to close this transaction shall be subject to the following
conditions precedent:
13.1 All documents required to be delivered by Selfcare hereunder
shall have been delivered to the Partnership and the Partners and
shall be satisfactory to the Partnership and each of the
Partners.
13.2 The representations and warranties of Selfcare shall be true
and accurate as if made on the Closing Date and the Partnership
and the Partners shall not have discovered any material
misstatement or omission in the representations and warranties of
Selfcare.
13.3 No action or proceeding shall be pending or threatened
before any court or governmental body seeking to restrain or
prohibit or obtain damages in respect of this Agreement or the
consummation of the transaction contemplated hereby.
13.4 As of the Closing Date, the Partnership and each of the
Partners shall have received from Selfcare a certificate of the
Clerk of the Selfcare attesting to the adoption of votes by its
Board of Directors and if necessary, its stockholders,
authorizing the execution, delivery and consummation of this
Agreement.
14 CONDITIONS PRECEDENT TO SELFCARE'S OBLIGATIONS
The obligations of the Selfcare under this Agreement shall
be subject to the following conditions precedent:
14.1 All documents and papers required to be delivered by the
Partnership and each of the Partners hereunder shall have been
delivered to Selfcare and shall be satisfactory to Selfcare.
14.2 No action or proceeding shall be pending or threatened
before any court or governmental body seeking to restrain or
prohibit or obtain damages in respect of this Agreement or the
consummation of the transaction contemplated hereby.
14.3 The representations and warranties of the Partnership and
each of the Partners shall be true and correct as if made on the
Closing Date and Selfcare shall not have discovered any material
misstatement or omission in the stipulations, representations and
warranties of the Partnership and each of the Partners.
14.4 As of Closing Date, Selfcare shall have received from the
Partnership a certificate of the General Partner attesting to the
adoption of votes by its Board of Directors and, if necessary,
its stockholders, authorizing the execution, delivery and
consummation of this Agreement on behalf of the Partnership.
14.5 As of Closing Date, Selfcare shall have received from each
Limited Partner that is a corporation a certificate attesting to
the adoption of votes by its Board of Directors and, if
necessary, its stockholders, authorizing the execution, delivery
and consummation of this Agreement on behalf of such Limited
Partner.
15 CLAIMS AND INDEMNIFICATION
15.1 Selfcare hereby covenants and agrees to indemnify and hold
harmless the Partners and their heirs, successors and assigns
against any and all claims, losses, expenses (including
reasonable attorneys' fees), obligations, damages, costs and
liabilities suffered or incurred by the same which arise out of,
result from or are related to any breach or failure of the
Selfcare to perform or comply with any of its warranties,
representations, commitments or obligations hereunder.
15.2 Each Partner hereby covenants and agrees to indemnify and
hold harmless Selfcare and its heirs, successors and assigns
against any and all claims, losses, expenses (including
reasonable attorneys' fees), obligations, damages, costs and
liabilities suffered or incurred by the same which arise out of,
result from or are related to any breach or failure of the
Partnership or any Partner to perform or comply with any of their
warranties, representations, commitments or obligations
hereunder, but, with respect to each of the Limited Partners, in
no event for an amount more than that Limited Partner's
proportionate share of the Cash (as defined in Section 3.1) plus
the value of the Purchase Shares received by (or for the benefit
of) that Limited Partner less that Limited Partner's
proportionate share of any Early Premium or Late Premium
delivered to Selfcare pursuant to Section 9.
15.3 Each Partner further covenants and agrees to indemnify and
hold harmless Selfcare and its heirs, successors and assigns
against any and all liabilities of the Partnership of any nature,
including without limitations the Partnership Liabilities, and
any and all liabilities of the Partners that arose in connection
with the conduct and activities of the Partnership prior to the
Closing Date, and any and all costs, liabilities, claims, losses
or damages arising from any failure of the Partnership or the
Partners to discharge or pay any such liability or obligation of
the Partnership or the Partners, but, with respect to each of the
Limited Partners, in no event for an amount more than that
Limited Partner's proportionate share of the Cash (as defined in
Section 3.1) plus the value of the Purchase Shares received by
(or for the benefit of) that Limited Partner less that Limited
Partner's proportionate share of any Early Premium or Late
Premium delivered to Selfcare pursuant to Section 9.
15.4 The Parties and the Trust shall be notified promptly in
writing of any claims which may arise hereunder after the Closing
Date.
15.5 Any claims by Selfcare which may arise hereunder shall be
made first against the Purchase Shares transferred by Selfcare
and held by the Trust pursuant to this Agreement. If any such
claim has been made while the Trust is holding the Purchase
Shares, the Trust shall retain until such claim is resolved,
notwithstanding any other provisions in this Agreement, that
number of Purchase Shares or cash or other liquid assets having a
value equal to the amount of such claim, based on the average of
the Selfcare closing price for the five (5) trading days
immediately preceding the date of the relevant Claim Notice.
16 CONFIDENTIAL INFORMATION
The Partnership and the Partners shall maintain the
confidential and proprietary status of any Confidential
Information with regard to the Partnership Assets and keep
such Confidential Information within its possession or
under its control sufficient to prevent any activity with
respect to the Confidential Information that is not
specifically authorized by this Agreement; PROVIDED,
HOWEVER, that such restrictions shall not apply to any
Confidential Information which is (a) independently
developed by the receiving party outside the scope of this
Agreement, (b) in the public domain at the time receipt or
thereafter becomes part of the public domain through no
fault of the receiving party, (c) received without an
obligation of confidentiality from a third party having the
right to disclose such information, (d) released from the
restrictions of this Section by the express written consent
of Selfcare, or (e) required by law, statute, rule or court
order to be disclosed. The obligations set forth in this
Section shall survive for a period of five (5) years from
the termination or expiration of this Agreement. For
purposes of this Section, the Technology is deemed to be
Confidential Information.
17 MISCELLANEOUS
17.1 This Agreement shall be binding upon and inure to the
benefit of the Parties hereto, and their successors and assigns
provided, however, that this Agreement shall not be assignable or
transferable by any of the Parties hereto. This Agreement may be
amended only by the written agreement of all the Parties hereto.
This Agreement and any additional agreement between the Parties
delivered or concurrent herewith, or pursuant hereto, constitute
the entire agreement of the Parties with respect to the subject
matter hereof and thereof and supersede any and all written or
oral communications of the Parties.
17.2 Any notice or communication given pursuant hereto by one of
the Parties hereto to another Party hereto shall be in writing
and hand delivered or mailed by registered or certified mail,
postage prepaid (notices shall be deemed received three calendar
days after they have been so mailed), as follows:
If to the Partnership, as follows:
USB `93 Technology Associates Limited Partnership
55 Old Bedford Road
Lincoln North
Lincoln, MA 01773
ATTN: USB `93 Technology, Inc.
with a copy to:
Van Wert & Zimmer
One Militia Drive
Lexington, MA 02173
ATTN: Richard A. Van Wert, Esq.
If to any Limited Partner, to the address set forth
next to such Limited Partner's name on Schedule A
hereto.
If to Selfcare, as follows:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
ATTN: PRESIDENT
with a copy to:
Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
ATTN: John D. Patterson, Jr., Esq.
Any Party to this Agreement may change the address or
addressee to which notices are to be hand delivered or
mailed by giving notice thereof in accordance with the
provisions of this Section.
17.3 The Partnership and each of the Partners represent to
Selfcare, and Selfcare represents and warrants to the Partnership
and each of the Partners that each has done nothing to create any
liability for the payment of any commission or compensation in
the nature of a finder's fee or other similar payment to any
broker or other person on account of the transactions
contemplated by this Agreement, except as set forth in this
Section 17.3. Accordingly, the Partnership and each of the
Partners hereby indemnify Selfcare and agree to hold Selfcare
harmless and Selfcare hereby indemnifies the Partnership and each
of the Partners and agrees to hold the Partnership and each of
the Partners harmless of and from any such liabilities,
(including reasonable attorneys' fees, costs and expenses)
concerning which (i) the Partnership or any of the Partners or
(2) Selfcare, respectively, is held responsible, but only if such
liability arises from activity of the other party which is the
basis in part or whole for such liability. Selfcare has agreed
to pay to U.S. Boston Capital Corporation a solicitation fee of
$98,516 in connection with the transactions envisioned by this
Agreement.
17.4 All representations, warranties and agreements made herein
by the Parties shall survive the Closing and any investigations
made by or on behalf of the Parties.
17.5 No waiver of any breach hereunder shall be valid unless in
writing. No such waiver shall constitute a waiver of any other
breach, whether or not similar.
17.6 If any provision of this Agreement or portion thereof as
applied to any Party or circumstance shall be adjudged by a court
to be invalid or unenforceable, the same shall in no way affect
any other provision of this Agreement, the application of such
provision in any other circumstances, or the validity or
enforceability of this Agreement.
17.7 This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
17.8 If at any time any Party shall consider or be advised that
any further assignments, conveyances, assurances or instruments
are necessary or desirable to carry out the provisions hereof and
the transactions contemplated hereby, the Parties and the proper
officers and directors of the parties shall execute and deliver
any and all proper deeds, assignments, assurances and instruments
and do all things necessary or proper to carry out fully the
provisions hereof.
17.9 The Schedules which are attached hereto are made a part
hereof as fully and effectually as if the terms contained therein
were set forth hereinabove.
[INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties have caused this Agreement
to be executed by their duly authorized representatives as an
instrument under seal as of the date first above written. This
Agreement may be executed in counterpart.
THE PARTNERSHIP:
US `93 TECHNOLOGY ASSOCIATES
LIMITED PARTNERSHIP
By: US `93 Technology, Inc.
By:__________________________
Its:
THE GENERAL PARTNER:
US `93 TECHNOLOGY, INC.
By:__________________________
Its:
THE LIMITED PARTNERS:
___________________________
Jennifer K. Coplon
___________________________
Charles T. Cosimo
___________________________
Edwina O. Cosimo
___________________________
William K. Durr
___________________________
Edward F. Eagan
___________________________
Kenton T. Eldridge
___________________________
Hannelore G. Eldridge
___________________________
Carolyn S. Ellis
___________________________
Frank E. Ferguson
___________________________
Mitzi Y. Ferguson
___________________________
Arthur Fertman
___________________________
E. Haffner Fournier
___________________________
Ralph B. Freidin
___________________________
T. Lawrence Gasse
___________________________
Charles P. Giersch
___________________________
Stuart C. Hartz
___________________________
John R. Hero
___________________________
Stephen S. Hilzenrath
___________________________
Judith W. Hirst
___________________________
George Howell
___________________________
Michael B. Kaufman
___________________________
Roy E. Kent
___________________________
Alice W. Kent
___________________________
Thomas C. King
___________________________
Ming C. Lash
___________________________
Martin P. Lele
___________________________
Robert Lotz
___________________________
Stephen Bryson Lang Trust
By: Robert Lotz, Trustee
___________________________
Joy Elizabeth Lang Trust
By: Robert Lotz, Trustee
___________________________
Richard Mastromatteo
___________________________
Sue Beth Mazer
___________________________
Edward H. McCall
___________________________
Anne H. Ridley
___________________________
Eric Rose
___________________________
Alan D. Schreiber
___________________________
Pamela L. Schreiber
___________________________
Barbara Sherman
___________________________
Donald Sherman
___________________________
Alan R. Stone
___________________________
Dorairaju Thavaseelan
___________________________
Willard L. Umphrey
___________________________
Anne M. Umphrey
___________________________
Margaret Wegman
SELFCARE:
SELFCARE, INC.
By:___________________________
Its:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 10,122,182
<SECURITIES> 0
<RECEIVABLES> 13,712,828
<ALLOWANCES> 968,000
<INVENTORY> 10,233,800
<CURRENT-ASSETS> 36,413,593
<PP&E> 15,474,153
<DEPRECIATION> 5,336,601
<TOTAL-ASSETS> 128,855,732
<CURRENT-LIABILITIES> 43,040,883
<BONDS> 56,034,587
1,897,110
8,171,398
<COMMON> 11,717
<OTHER-SE> 17,498,359
<TOTAL-LIABILITY-AND-EQUITY> 128,855,732
<SALES> 23,984,871
<TOTAL-REVENUES> 24,590,744
<CGS> 16,566,424
<TOTAL-COSTS> 9,288,427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,409,872
<INCOME-PRETAX> (2,907,003)
<INCOME-TAX> 90,000
<INCOME-CONTINUING> (2,997,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,997,003)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
