<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1999
REGISTRATION NO. 333-74367
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WOMEN FIRST HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 13-3919601
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
12220 EL CAMINO REAL, SUITE 400
SAN DIEGO, CALIFORNIA 92130
(619) 509-1171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID F. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WOMEN FIRST HEALTHCARE, INC.
12220 EL CAMINO REAL, SUITE 400
SAN DIEGO, CALIFORNIA 92130
(619) 509-1171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT N. WOLFE, ESQ. GREGORY C. SMITH, ESQ.
BARRY M. CLARKSON, ESQ. MELANIE D. VINSON, ESQ.
ROBERT E. BURWELL, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
LATHAM & WATKINS 525 UNIVERSITY AVENUE, SUITE 220
701 "B" STREET, SUITE 2100 PALO ALTO, CALIFORNIA 94301
SAN DIEGO, CALIFORNIA 92101 (650) 470-4500
(619) 236-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value...... 5,175,000 $12.00 $62,100,000 $17,264
- ---------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 675,000 shares subject to the Underwriters' option to cover
over-allotments.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 24, 1999
PROSPECTUS
4,500,000 SHARES
WOMENFIRST
WOMEN FIRST HEALTHCARE, INC.
Common Stock
-------------------------
This is an initial public offering of 4,500,000 shares of common stock, par
value $.001 per share, of Women First HealthCare, Inc. We are selling all of the
shares of common stock offered under this prospectus.
No public market currently exists for our shares. It is currently estimated that
the initial public offering price will be between $10.00 and $12.00 per share.
Our common stock has been approved for quotation and trading on the Nasdaq
National Market under the symbol "WFHC."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
--------- ------
<S> <C> <C>
Public offering price................................... $ $
Underwriting discounts and commissions.................. $ $
Proceeds, before expenses............................... $ $
</TABLE>
-------------------------
The underwriters may, under certain circumstances, purchase up to an additional
675,000 shares of common stock from us at the initial public offering price less
the underwriting discount, solely to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on or about , 1999.
Allen & Company Logo NEEDHAM & COMPANY, INC.
The date of this prospectus is , 1999.
<PAGE> 3
EDGAR DESCRIPTION OF INSIDE COVER
The inside front cover includes both text and photographs. The pictures on the
inside front cover include four photographs of midlife women surrounding the
Women First HealthCare symbol. The women are engaged in various activities,
including (describing from the left corner and moving clockwise): (i) engaging
in a conversation with a physician, (ii) riding a bicycle, (iii) smiling at the
camera dressed in casual attire, and (iv) smiling at the camera dressed in
business apparel.
We are a Delaware corporation with executive offices located at 12220 El
Camino Real, Suite 400, San Diego, California 92130, and our telephone number is
(619) 509-1171. We maintain an Internet site at WWW.WOMENFIRST.COM and our
subsidiary, As We Change, LLC, maintains an Internet site at WWW.ASWECHANGE.COM.
The reference to either of our Internet addresses does not constitute
incorporation by reference of the information contained at the sites. In this
prospectus, "Women First HealthCare" and "Women First," refer to Women First
HealthCare, Inc. and its subsidiaries (but not the underwriters listed in this
prospectus), including the businesses acquired by us, unless the context
otherwise requires. "As We Change" refers to As We Change, LLC, our wholly owned
subsidiary, or its predecessor MenoMorphosis, LLC, as the context requires.
Women First HealthCare(TM), Women First(TM), Women First Pharmacy
Services(TM), As We Change(R), Midlife Healthline(TM), A Better Way(TM), RENEWAL
a time for you(TM), IntegraVie(TM), ViAmor(TM), My Generation, My Choice(TM) and
SafeStart(TM) are trademarks of Women First. Pravachol(R) is a registered
trademark of E.R. Squibb & Sons. Ortho-Est(R) and Ortho Tri-Cyclen(R) are
registered trademarks of Johnson & Johnson. Element 38(TM) is a trademark of
Creative Beauty Innovations, Inc. and is used pursuant to a license. This
prospectus also includes references to additional trademarks of Women First and
companies other than Women First.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information you should consider before
investing in our common stock. You should read the entire prospectus carefully,
including the risk factors and consolidated financial statements and notes to
those statements appearing elsewhere in this prospectus. Except as otherwise
indicated, all information in this prospectus assumes that the underwriters will
not exercise their over-allotment option and reflects the automatic conversion
of all outstanding shares of our preferred stock into common stock upon the
consummation of this offering.
WOMEN FIRST HEALTHCARE
Women First HealthCare is a specialty health care company dedicated to
improving the health of midlife women. The U.S. Census Bureau estimates that the
number of midlife women (ages 35-69) will grow from approximately 57 million in
1998 to approximately 67 million in the year 2010. Studies have shown that the
long-term health care needs of women change significantly after menopause. Based
on our market research and our continuing interaction with midlife women, we
believe that the health needs of these women are not being met.
Our mission is to help midlife women make informed choices about their
physical and emotional health and to provide pharmaceutical products, self-care
products, educational programs and support systems to help these women improve
the quality of their lives. We market pharmaceutical products primarily through
our growing dedicated sales force, currently totaling 82 people. This sales
force markets directly to approximately 18,000 OB/GYNs in the United States as
well as the nurse practitioners and physician assistants focused on women's
health. We market our self-care products primarily through direct-to-consumer
marketing programs and the Internet. We recently launched WOMENFIRST.COM, our
website, to provide comprehensive health care and lifestyle information and
online shopping, targeted at the needs of midlife women.
The pharmaceutical products we currently offer are:
- Ortho-Est(R), an oral estrogen product used in hormonal replacement
therapy, that we offer under a distribution agreement,
- Pravachol(R), a leading cholesterol-lowering drug, that we offer under a
co-promotion agreement, and
- Compounded hormonal replacement therapy products that we distribute
through our national home delivery pharmacy, Women First Pharmacy
Services.
The pharmaceutical products we are planning to offer are:
- Ortho Tri-Cyclen(R), a leading oral contraceptive that we plan to
co-promote, and
- an oral combination estrogen and progestin hormonal replacement therapy
product that we plan to co-promote upon product launch, pending FDA
approval.
Our self-care products include RENEWAL a time for you(TM), a program with
Dr. Deepak Chopra, a noted author and physician, offering women practical
approaches to achieve a sense of well-being at midlife. We are also developing a
line of Women First(TM) nutritional products with the Tufts University School of
Nutrition Science and Policy. Additionally, our self-care products include the
IntegraVie(TM) line of skin care products, the ViAmor(TM) vaginal
3
<PAGE> 5
moisturizer, educational products and a broad array of lifestyle, nutritional,
herbal and other products we sell through our national mail-order catalog, As We
Change(R), and our Internet retailer, ASWECHANGE.COM. We also plan to sell the
Women First(TM) self-care products through our Internet site, WOMENFIRST.COM.
INDUSTRY TRENDS AND STRATEGY
We believe that the markets for pharmaceutical and self-care products for
midlife women are changing. By responding to these trends, we believe that we
can become a premier marketer of health care products for midlife women and can
establish Women First as a widely recognized source of pharmaceutical and
self-care products targeted at this group of women.
- The expanding roles of OB/GYNs and the nurse practitioners and physicians
assistants focused on women's health create a market opportunity for us,
which we intend to leverage through our dedicated sales force targeting
these clinicians.
- The development of new products addressing the needs of midlife women and
concurrent industry consolidation and cost containment pressures have
created opportunities for us to license, acquire and co-promote new
products.
- We believe that there is a significant and growing population of midlife
women who are dissatisfied with their health care. Our educational
program is designed to provide women and their clinicians with enhanced
awareness about the conditions affecting midlife women and the treatment
options available, thereby enhancing the likelihood that they will use or
recommend products that address women's needs in midlife.
- We believe that women are seeking an on-line forum where they can find
credible information and purchase products that address their individual
needs. We have designed our Internet site, WOMENFIRST.COM, to provide
this forum.
We are an early stage company with a history of losses. We have had a
limited operating history on which to base an evaluation of our business and
prospects. Early stage companies such as ours frequently encounter problems,
delays and expenses. For a discussion of various factors that may adversely
affect us, see "Risk Factors."
4
<PAGE> 6
THE OFFERING
COMMON STOCK OFFERED BY US...... 4,500,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THIS OFFERING............. 16,574,322 shares
USE OF PROCEEDS................. We expect to use the net proceeds of this
offering for increased sales and marketing
efforts, obtaining rights to additional
products, acquiring companies, working
capital and other general corporate
purposes. We intend to use approximately
$8.0 million to repay principal and interest
on the $7.5 million principal amount of
short-term notes we issued in a private
placement in March 1999. See "How We Intend
to Use the Proceeds from the Offering."
DIVIDEND POLICY................. We intend to retain all future earnings to
fund the development and growth of our
business. Therefore, we do not anticipate
paying cash dividends on our common stock.
See "Dividend Policy."
RISK FACTORS.................... This offering involves a high degree of
risk. See "Risk Factors" beginning on page 7
for a discussion of factors you should
carefully consider before deciding to invest
in shares of our common stock.
The total number of shares offered by us would increase by up to 675,000
shares if the underwriters exercise the option to purchase additional shares of
common stock granted to them in connection with this offering to cover
over-allotments.
The information above is based on the number of shares outstanding as of
April 30, 1999. This information excludes:
- 2,114,235 shares of common stock issuable upon the exercise of options we
have granted under the Women First HealthCare Long-Term Incentive Plan
and the Women First Incentive Stock Plan at a weighted average exercise
price of $1.47 per share,
- 480,372 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $5.46 per share,
- 60,756 shares of common stock issuable upon the exercise of warrants
issued in conjunction with a private placement of short-term notes in
March 1999 (for a discussion of the exercise price of these warrants, see
"Description of Capital Stock -- Warrants"),
- 163,200 shares of common stock issuable upon the exercise of options
available for grant under the Women First HealthCare Long-Term Incentive
Plan, and
- up to 54,900 shares of common stock which we may be required to issue in
April 2000 pursuant to an earn-out based on the 1999 operating results of
As We Change, LLC.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
NOVEMBER 1, 1996 ENDED
(INCEPTION) YEARS ENDED DECEMBER 31, MARCH 31,
THROUGH ------------------------- ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue.................... $ -- $ -- $ 4,834 $ -- $ 4,303
Costs and expenses............. -- 1,766 14,611 750 10,659
---------- ---------- ---------- ---------- -----------
Loss from operations........... -- (1,766) (9,777) (750) (6,356)
Interest income, net........... -- 39 395 119 18
---------- ---------- ---------- ---------- -----------
Net loss....................... $ -- $ (1,727) $ (9,382) $ (631) $ (6,338)
Accretion of beneficial
conversion feature related
to convertible preferred
stock....................... -- -- -- -- (3,362)
---------- ---------- ---------- ---------- -----------
Net loss available to common
stockholders................ $ -- $ (1,727) $ (9,382) $ (631) $ (9,700)
========== ========== ========== ========== ===========
Net loss per share (basic and
diluted).................... $ -- $ (0.23) $ (1.22) $ (0.08) $ (1.26)
========== ========== ========== ========== ===========
Weighted average shares used in
computing net loss per share
(basic and diluted)......... 6,806,353 7,551,484 7,685,993 7,685,993 7,685,993
========== ========== ========== ========== ===========
Pro forma net loss per share
(basic and diluted)......... $ (0.95) $ (0.83)
========== ===========
Pro forma weighted average
shares used in computing net
loss per share (basic and
diluted).................... 9,904,834 11,638,176
========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 9,048 $ 53,933
Working capital........................................... 2,702 47,587
Total assets.............................................. 18,257 63,142
Short-term notes payable.................................. 5,294 5,294
Short-term notes payable to related parties............... 1,929 1,929
Total stockholders' equity................................ 8,146 53,031
</TABLE>
The pro forma net loss per share and pro forma weighted average shares give
effect to the conversion of 1,650,000 and 2,200,000 shares of our Series A
Preferred Stock at December 31, 1998 and March 31, 1999, respectively, and
594,000 shares of our Series B Convertible Preferred Stock issued and deemed to
have been issued at December 31, 1998 and March 31, 1999, into 3,381,831 and
4,388,329 shares of our common stock at December 31, 1998 and March 31, 1999,
respectively, upon the consummation of this offering. Pro forma weighted average
shares were determined based upon the original date of issuance. The Pro Forma
As Adjusted column gives effect to the conversion of all shares of Series A
Preferred Stock and Series B Convertible Preferred Stock into 4,388,329 shares
of our common stock upon the consummation of this offering. The Pro Forma As
Adjusted column also gives effect to this offering of common stock at an assumed
initial public offering price of $11.00 per share and our receipt of $44.9
million in estimated net proceeds.
6
<PAGE> 8
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider the following factors and the other information in this
prospectus carefully before deciding to purchase shares of our common stock.
WE HAVE RECENTLY STARTED OPERATIONS AND HAVE EXPERIENCED LOSSES SINCE OUR
INCEPTION. OUR BUSINESS MUST EXPAND FOR US TO ATTAIN PROFITABILITY.
We are an early stage company with a history of losses. Through December
31, 1998, we have generated only $4.8 million in net revenues. We have incurred
significant losses since we were founded in November 1996, we have an
accumulated deficit of $9.4 million through December 31, 1998, and we expect to
incur losses at least through the end of 2000. We may not successfully complete
the transition to successful operations or profitability. Early stage companies
such as ours frequently encounter problems, delays and expenses. These include,
but are not limited to, unanticipated problems and additional costs related to
marketing, competition and product acquisitions and development. These problems
may be beyond our control, and in any event, could adversely affect our results
of operations. See "Selected Consolidated Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE HAVE A BROAD BUSINESS MODEL THAT WILL REQUIRE THE DEVELOPMENT OF MANY
DIFFERENT AREAS. IF WE FAIL TO IMPLEMENT ANY OF THE KEY ELEMENTS OF OUR BUSINESS
PLAN, OUR BUSINESS MAY NOT SUCCEED.
We have embarked on an ambitious plan to provide products, educational
programs and support systems to women to help them make better decisions
regarding their health care in midlife. There is a limited market awareness of
our company and the products and services we offer. To be successful, we must
continue to develop, coordinate and balance various elements of our business.
Among other things, we must:
- generate market demand for the products we offer, prepare and disseminate
information about midlife women's health care and establish the Women
First(TM) brand,
- convince OB/GYNs and the nurse practitioners and physician assistants
focused on women's health to prescribe and recommend the products we
offer,
- maintain and obtain rights to market and distribute products and
integrate them into our business, and
- augment sales and marketing and manage different distribution channels
for the products we offer.
If we fail to implement any of these key elements of our business plan, our
business may not succeed.
MANY OF OUR PRODUCT AGREEMENTS REQUIRE US TO MAKE MINIMUM PAYMENTS OR MAKE A
MINIMUM NUMBER OF SALES CALLS. IF OUR SALES OF THESE PRODUCTS DO NOT EXCEED THE
COSTS OF THESE MINIMUMS, OUR MARKETING AND DISTRIBUTION OF THESE PRODUCTS WILL
NOT BE PROFITABLE AND OUR RESULTS OF OPERATIONS WILL BE HARMED.
We have acquired the right to market and sell many of the products we offer
through license or co-promotion agreements with third parties. Some of these
agreements require us to make minimum payments or make a minimum number of sales
calls regardless of our actual sales of product covered by the agreement. The
minimum payments we are required to make or
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our costs of making the minimum number of sales calls under these agreements may
exceed our sales of the products to which these minimum payments or minimum
sales calls relate, and, as a result, our marketing and distribution of some or
all of these products may not be profitable. In particular, our distribution
agreement for the Ortho-Est(R) oral estrogen product requires us to make minimum
aggregate payments of $40.1 million to Ortho-McNeil Pharmaceutical, Inc. over
the remaining nine-year period of the contract, regardless of the actual sales
performance of this product. Under this agreement, we are required to make
minimum payments of $6.6 million during 1999. The minimum payments in future
years decrease annually based on a ten-year forecast that was determined at the
time the contract was executed.
Our co-promotion agreement with Ortho-McNeil Pharmaceutical, Inc. relating
to the Ortho Tri-Cyclen(R) oral contraceptive product and a new oral combination
estrogen and progestin hormonal replacement therapy (HRT) product requires us to
make a significant number of sales calls each year during the term of the
agreement, with the number increasing significantly after the launch of the new
HRT product. Ortho-McNeil will not be required to make the minimum payments to
us that are contemplated by the co-promotion agreement with respect to the Ortho
Tri-Cyclen(R) product if we fail to make a specified portion of the required
sales calls for that product or if the growth in Ortho-McNeil's market share for
oral contraceptives among the clinicians we call on does not exceed the growth
in Ortho-McNeil's market share among a control group of clinicians. Ortho-McNeil
also may reduce the payments otherwise required to be paid to us under the
agreement with respect to the new oral HRT product if we do not make a specified
portion of the minimum number of sales calls for that product. The co-promotion
agreement also limits the number of products other than Ortho Tri-Cyclen(R) and
the new HRT product that our sales force may present during the same sales call
as Ortho Tri-Cyclen(R) and the new HRT product.
In addition, the pharmacy management agreement with Health Script, a wholly
owned division of Dura Pharmaceuticals, Inc., requires us to pay a minimum
monthly management fee of $22,800 during the two-year term of the agreement. We
are also obligated to pay future development fees of $625,000 to CHPNC, LLC
prior to September 25, 2000 for the development of the Benefit:Risk Assessment
Model. In June 1999, we entered into a letter agreement with Laboratoires
Fournier S.A. to negotiate in good faith the final terms of, and enter into, a
distribution and license agreement under which we would have the exclusive right
(subject to exceptions) to market, use, distribute and sell the Esclim(TM)
estrogen transdermal system in various dosages in the United States and Puerto
Rico. The definitive agreement would require us to pay Fournier a non-refundable
license fee of $1.45 million payable over a two-year period, with $700,000 of
this fee subject to sales objectives being reached. Our failure to generate
sales exceeding the specified minimum payments or the costs of the minimum sales
calls could have a material adverse effect on our business and could give the
other party the right to terminate or modify the contract. For more information
concerning our agreements containing minimum payment and minimum sales call
obligations, see "Business -- Licensing and Co-Promotion Agreements."
MANY OF OUR PRODUCT AGREEMENTS MAY BE TERMINATED IF WE FAIL TO MAKE MINIMUM
PURCHASES, MAKE A MINIMUM NUMBER OF SALES CALLS OR FOR OTHER REASONS. THIS COULD
FORCE US TO DISCONTINUE SALES OF KEY PRODUCTS AND COULD HARM OUR RESULTS OF
OPERATIONS.
Our contracts relating to the products we offer contain various provisions
that allow the other party to terminate the contract, which, if exercised, could
force us to discontinue sales of the product and could have a material adverse
effect on our business. Our co-promotion agreement with Bristol-Myers Squibb
U.S. Pharmaceuticals Group relating to the cholesterol-lowering drug
Pravachol(R) provides that Bristol-Myers Squibb may terminate the agreement in
the event that Pravachol(R) prescriptions written in the United States by
designated OB/GYNs and the nurse practitioners and physician assistants in their
offices do not exceed specified
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minimum prescription amounts. These specified minimum amounts increase quarterly
in the first year and yearly from year to year thereafter. Bristol-Myers Squibb
may terminate the agreement in the event that prescriptions for Pravachol(R)
written by the clinicians covered by the agreement do not exceed these minimum
amounts for two consecutive quarters or the yearly prescription forecasts for
one year. September 30, 1999 is the end of the first two consecutive quarter
period under the agreement. These minimum amounts require us to achieve a
significant increase over the number of prescriptions for this product currently
written by the clinicians designated by the agreement and substantially exceed
the baseline amounts used for purposes of calculating the performance fee under
the contract. Furthermore, the co-promotion agreement with Bristol-Myers Squibb
contains a provision that allows Bristol-Myers Squibb to terminate the agreement
upon a change of control of Women First. As a result, we could lose our rights
to market and sell Pravachol(R) if we fail to meet our minimum performance
obligations or if we are acquired.
Our co-promotion agreement with Ortho-McNeil Pharmaceutical, Inc. allows
Ortho-McNeil to terminate the contract if we fail to make a specified portion of
the required sales calls for three consecutive quarters. Ortho-McNeil also may
terminate the agreement if there is a change of control of Women First or if
either Edward F. Calesa, the Chairman of the Board, or David F. Hale, our
President and Chief Executive Officer, is no longer associated with Women First
(other than as a result of death or disability). In addition, the co-promotion
agreement covers a new oral hormonal replacement therapy (HRT) product which has
not yet been approved by the FDA. If the new HRT product has not been approved
by the FDA or the product has not been launched prior to October 1, 2000, either
party may terminate the agreement.
Our seven-year agreement with BioFilm for the ViAmor(TM) vaginal
moisturizer and our ten-year agreement with Price Invena ApS for the
SafeStart(TM) umbilical cord clamp/cutter also require us to make specified
minimum purchases. If we do not make the specified minimum purchases of the
ViAmor(TM) product, the agreement provides that BioFilm's exclusive remedy is
termination of the contract and $25,000 in liquidated damages. Under the
agreement for the SafeStart(TM) product, our failure to achieve a certain level
of purchases will result in our exclusive distribution rights becoming
non-exclusive.
In addition, our contract with Ortho-McNeil Pharmaceutical, Inc. relating
to the Ortho-Est(R) oral estrogen product allows Ortho-McNeil to terminate the
contract (1) upon one year's notice so long as Ortho-McNeil provides us with a
one-year supply of the Ortho-Est(R) product and uses reasonable commercial
efforts to transfer the manufacturing and distribution rights to the product to
us or (2) immediately if the cost of FDA revalidation, should it become
necessary, exceeds $3 million. Most of our contracts permit termination by the
other party if we breach our obligations, including our minimum payment
commitments, under the contracts or enter bankruptcy. For more information about
how our product agreements may be terminated, see "Business -- Licensing and
Co-Promotion Agreements."
IF MIDLIFE WOMEN DO NOT USE AND THEIR CLINICIANS DO NOT RECOMMEND THE PRODUCTS
WE OFFER, WE WILL CONTINUE TO EXPERIENCE SIGNIFICANT LOSSES.
The products we license, acquire or co-promote may not achieve market
acceptance. The market acceptance of these products will depend on, among other
factors:
- their advantages over existing competing products,
- their perceived efficacy and safety,
- the actual or perceived side effect profile of hormonal replacement
therapies, and
- the reimbursement policies of the government and third-party payors.
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Our model assumes that our marketing programs and the growth in our target
market will result in increased demand for the products we offer. If our
marketing programs do not succeed in generating a substantial increase in demand
for our products, we will be unable to realize our operating objectives. In
addition, our business model seeks to build on the expanding roles of OB/GYNs
and the nurse practitioners and physician assistants focused on women's health,
and our marketing efforts are concentrated on this group. If the clinicians we
target do not recommend and prescribe the products we offer or if midlife women
do not regularly use these products, we will continue to experience significant
losses and our business will be adversely affected. Moreover, if we fail to
develop the market-wide brand identity for Women First that we are seeking, our
business will be adversely affected.
ANY FAILURE BY US TO OBTAIN RIGHTS TO ADDITIONAL PRODUCTS OR TO ACQUIRE
COMPANIES AND SUCCESSFULLY INTEGRATE THEM WILL LIMIT OUR GROWTH AND MAY HARM OUR
BUSINESS.
We plan to obtain rights to additional products through license,
co-promotion or acquisition agreements and may acquire companies that complement
our business. Our failure to obtain rights to market products or to acquire
products or companies on acceptable terms or to integrate these products or
companies into our organization could harm our business. We may not be able to
identify appropriate licensing, co-promotion or acquisition candidates in the
future. Even if we identify an appropriate candidate, competition for it may be
intense. We may not be able to successfully negotiate the terms of a license,
co-promotion or acquisition agreement on commercially acceptable terms. The
negotiation of agreements to obtain rights to additional products or to acquire
companies could divert our management's time and resources from our existing
business. Moreover, we may be unable to finance an acquisition or integrate a
new product or company into our existing business. If we use shares of our
common stock as consideration for one or more significant acquisitions, our
stockholders could suffer significant dilution of their ownership interests.
OUR QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS,
WHICH COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE SIGNIFICANTLY.
Our quarterly operating results may fluctuate significantly based on
factors such as:
- changes in the acceptance or availability of the products we offer,
- the timing of new product offerings, acquisitions or other significant
events by us or our competitors,
- regulatory approvals and legislative changes affecting the products we
offer or those of our competitors,
- the productivity of our sales force,
- the timing of expenditures for the expansion of our operations, and
- general economic and market conditions and conditions specific to the
health care industry.
Due to our short operating history and the difficulty of predicting demand
for the products we offer, we are unable to accurately forecast our revenues.
For example, we only recently began co-promoting the cholesterol-lowering drug
Prevachol(C) and have not yet begun co-promoting the Ortho Tri-Cyclen(R) oral
contraceptive or Ortho-McNeil Pharmaceutical, Inc.'s new oral combination
hormonal replacement therapy product. Accordingly, we have little basis to
estimate our revenues from co-promoting these products. In addition, we plan to
obtain rights to additional products and fund additional sales and marketing and
general and
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administrative activities, all of which would increase our operating expenses.
Accordingly, we may experience significant, unanticipated quarterly losses.
Because of these factors, our operating results in one or more future quarters
may fail to meet the expectations of securities analysts or investors, which
could have a material adverse effect on our stock price. For a further
discussion of expenditures and other factors that could affect our results of
operations, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
THE HEALTH CARE INDUSTRY AND THE MARKETS FOR THE PRODUCTS WE OFFER ARE VERY
COMPETITIVE. WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST
ESTABLISHED INDUSTRY COMPETITORS WITH SIGNIFICANTLY GREATER FINANCIAL RESOURCES.
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. In addition, competitors may elect to devote substantial
resources to marketing their products to midlife women and may choose to develop
educational and information programs like those we have developed to support
their marketing efforts. Our business, financial condition and results of
operations could be materially and adversely affected by any one or more of such
developments.
The pharmaceutical products we offer face significant competition. The
Ortho-Est(R) oral estrogen product, which has experienced declining sales and
market share and currently represents less than 1% of the market share of
estrogen replacement products sold in the U.S., competes with the Premarin(R)
oral estrogen product and the Prempro(R) and Premphase(R) combination oral
estrogen and progestin products, all of which are marketed by Wyeth-Ayerst
Laboratories, Inc. The Ortho-Est(R) product also competes with several other
estrogen products, including branded and generic products, taken orally and
through transdermal patches and creams, as well as non-hormonal replacement
therapy products marketed by Merck & Co., Inc. and Eli Lilly & Company. The
Ortho Tri-Cyclen(R) product competes with other oral contraceptive products
marketed by Wyeth-Ayerst, Warner-Lambert Company, Organon Inc. and Berlex
Laboratories. Ortho Tri-Cyclen(R) also competes with other forms of
contraception including contraceptive implants, progestin injections,
intrauterine devices, spermicides, diaphragms, cervical caps, female condoms,
emergency contraception and sterilization. The new oral combination hormonal
replacement therapy product covered by our co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc., if approved and launched, will compete
primarily with Prempro(R) and Premphase(R) combination oral estrogen and
progestin products and a combination estrogen and progestin patch manufactured
by Noven Pharmaceuticals, Inc. and marketed by Rhone-Poulenc Rorer. The new oral
HRT product will also compete with oral estrogen and transdermal estrogen
products as well as oral progestin products. The Pravachol(R) brand competes
with other cholesterol-lowering products marketed by Merck, Warner-Lambert
Company/Pfizer, Inc., Novartis Pharmaceuticals Corporation and Bayer
Corporation. In addition, micronized progesterone and other hormonal replacement
therapy products compounded by Women First Pharmacy Services compete with
compounded hormonal replacement therapy products distributed by regional and
national pharmacies. In 1998, Solvay Pharmaceuticals, Inc. received FDA approval
to market an oral capsule containing micronized progesterone developed and
manufactured by Schering Plough Corporation. Products compounded by Women First
Pharmacy Services may also compete with FDA approved pharmaceutical products.
Competition for the self-care products we offer also is significant. The
ViAmor(TM) vaginal moisturizer competes against a number of well-known brands of
vaginal moisturizers and
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lubricants. The IntegraVie(TM) line of skin care products faces competition from
products from other cosmetics and dermatological companies. As We Change, LLC
competes with a number of catalog companies and Internet retailers focusing on
self-care products. Our educational products will compete with products that
have been developed by medical professionals and non-professionals alike. Our
Internet site, WOMENFIRST.COM, competes with other Internet sites focused on
women's health as well as sites focused on health in general. Our failure to
adequately respond to the competitive challenges faced by the products we offer
could have a material adverse effect on our business, financial condition and
results of operations.
IF WE DO NOT SUCCESSFULLY MANAGE ANY GROWTH WE EXPERIENCE, WE MAY EXPERIENCE
INCREASED EXPENSES WITHOUT CORRESPONDING REVENUE INCREASES.
Our business plan will, if implemented, result in rapid expansion of our
operations. This expansion may place a significant strain on our management,
financial and other resources. It also will require us to increase expenditures
before we generate corresponding revenues. Our ability to manage future growth,
should it occur, will depend upon our ability to identify, attract, motivate,
train and retain highly skilled managerial, financial, business development,
sales and marketing and other personnel. Competition for these employees is
intense. Moreover, the addition of products or businesses will require our
management to integrate and manage new operations and an increasing number of
employees and could require us to expand into new areas such as pharmaceutical
development. We may not be able to implement successfully and maintain our
operational and financial systems or otherwise adapt to growth. Any failure to
manage growth, if attained, would have a material adverse effect on our
business.
WE MAY NOT BE ABLE TO OBTAIN REIMBURSEMENT FOR THE PHARMACEUTICAL PRODUCTS WE
OFFER. ANY FAILURE TO OBTAIN REIMBURSEMENT COULD REQUIRE US TO DISCONTINUE SALES
OF A PARTICULAR PRODUCT AND COULD HARM OUR RESULTS OF OPERATIONS.
Our ability to market new and existing pharmaceutical products depends in
part on whether health care payors, including government authorities, private
health insurers, health maintenance organizations and managed care
organizations, will provide sufficient reimbursement for the products we offer.
Third-party payors are increasingly challenging the prices of pharmaceutical
products and demanding data to justify the inclusion of new or existing products
in their formularies. Significant uncertainty exists regarding the reimbursement
status of pharmaceutical products, and we cannot predict whether additional
legislation or regulation affecting third-party coverage and reimbursement will
be enacted in the future, or what effect such legislation or regulation would
have on our business. Reimbursement may not be available for the products we
offer and reimbursement granted may not be maintained. In particular, sales of
the Ortho-Est(R) oral estrogen product may be adversely affected by formularies
that require substitution of generics on prescriptions written for the
Ortho-Est(R) product unless the physician indicates "dispense as written" on the
prescription. Additionally, sales through Women First Pharmacy Services may be
limited by pharmacy benefit management groups that restrict participation in
their networks. Moreover, limits on reimbursement available from third-party
payors may reduce the demand for, or adversely affect the price of, the products
we offer. The unavailability or inadequacy of third-party reimbursement for the
products we offer would have a material adverse effect on our results of
operations.
WE DO NOT CURRENTLY CONDUCT PHARMACEUTICAL RESEARCH AND DEVELOPMENT. THIS MAY
LIMIT THE RANGE OF PRODUCTS WE OFFER.
We do not presently conduct our own pharmaceutical research and development
programs. In addition, we do not presently anticipate conducting our own
discovery research for pharmaceutical products. However, we may obtain rights to
develop and market a product in
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clinical development. If that occurs, we intend to rely on third parties to
perform the development work. We may not be able to obtain arrangements for
development by third parties on commercially reasonable terms, if at all, and
this may limit the range of products we are able to market and distribute.
TECHNOLOGICAL CHANGE COULD RENDER THE PHARMACEUTICAL PRODUCTS WE OFFER OBSOLETE.
The pharmaceutical products that we market and distribute could be rendered
obsolete or uneconomical by the development of new drugs or devices to treat the
conditions that they address. Technological advances affecting costs of
production or marketing also could adversely affect our ability to sell
products. In addition, our own licensing, acquisition, co-promotion or
development of additional products could adversely affect the demand for the
products we currently offer if the new product has the same or similar
indications as one or more of the products we currently offer.
WE ARE DEPENDENT ON SINGLE SOURCES OF SUPPLY FOR ALL OF THE PRODUCTS WE OFFER.
IF ONE OF OUR SUPPLIERS FAILS TO SUPPLY ADEQUATE AMOUNTS OF A PRODUCT WE OFFER,
OUR SALES MAY SUFFER AND WE COULD BE REQUIRED TO ABANDON A PRODUCT LINE.
We are dependent on single sources of supply for all of the products we
offer. With respect to these products, we cannot guarantee that these third
parties will be able to provide adequate supplies of products in a timely
fashion. We also face the risk that one of our suppliers could become insolvent,
declare bankruptcy, lose its production facilities in a disaster, be unable to
comply with applicable government regulations or lose the governmental permits
necessary to manufacture the products it supplies to us. If we are unable to
renew or extend an agreement with a third-party supplier, if an existing
agreement is terminated or if a third-party supplier otherwise cannot meet our
needs for a product, we may not be able to obtain an alternative source of
supply in a timely manner or at all. In these circumstances, we may be unable to
continue to market products as planned and could be required to abandon or
divest ourselves of a product line on terms which would materially adversely
affect us.
WE MAY BE EXPOSED TO PRODUCT AND PROFESSIONAL LIABILITY CLAIMS NOT COVERED BY
INSURANCE THAT WOULD HARM OUR BUSINESS.
We may be exposed to product or professional liability claims. Although we
believe that we currently carry and intend to maintain appropriate product and
professional liability insurance, we cannot guarantee that this insurance will
be sufficient to cover all possible liabilities. A successful suit against us
could have an adverse effect on our business and financial condition if the
amounts involved are material.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, WE MAY NOT BE
ABLE TO CONTINUE TO OPERATE OUR BUSINESS.
We will require significant amounts of additional capital to achieve our
goals. We believe that the net proceeds from the offering, together with
existing cash balances, will be sufficient to meet our working capital, capital
expenditure requirements and minimum purchase commitments through the end of the
year 2000. Our future capital requirements will depend on many factors
including:
- the costs of our sales and marketing activities and our education
programs for clinicians and women,
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- competing product and market developments,
- the costs of acquiring or developing new products,
- the costs of expanding our operations, and
- our ability to generate positive cash flow from our sales.
Additional funding may not be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to curtail significantly or
defer one or more of our marketing or educational programs or to limit or
postpone obtaining new products through license, acquisition or co-promotion
agreements. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our then-current stockholders may be
reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If we raise additional funds
through the issuance of debt securities, these new securities would have certain
rights, preferences and privileges senior to those of the holders of our common
stock, and the terms of these debt securities could impose restrictions on our
operations. For a further discussion of expenditures and other factors that
could affect our need for future capital, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE NET PROCEEDS
OF THE OFFERING AND MAY NOT APPLY THEM EFFECTIVELY.
We expect to use the net proceeds of the offering for increased sales and
marketing efforts, obtaining rights to additional products, acquiring
businesses, working capital and other general corporate purposes. We also intend
to use approximately $8.0 million to repay principal and interest on the $7.5
million principal amount of short-term notes we issued in a private placement in
March 1999. Nevertheless, management will have significant flexibility in
applying the net proceeds of the offering. The failure of our management to
apply these funds effectively would have a material adverse effect on our
business.
OUR INABILITY TO OBTAIN NEW PROPRIETARY RIGHTS OR TO PROTECT AND RETAIN OUR
EXISTING RIGHTS COULD IMPAIR OUR COMPETITIVE POSITION AND ADVERSELY AFFECT OUR
SALES.
We believe that the patents, trademarks, copyrights and other proprietary
rights that we own or license, or that we will own or license in the future,
will continue to be important to our success and competitive position. If we
fail to maintain our existing rights or cannot acquire additional rights in the
future, our competitive position may be harmed. Due to the length of time and
expense associated with bringing new pharmaceutical products to market, there
are benefits associated with acquiring or licensing products that are protected
by existing patents or for which patent protection can be obtained. While some
products we offer, such as the Pravachol(R) cholesterol-lowering drug, the
SafeStart(TM) umbilical cord clamp/cutter and the IntegraVie(TM) line of skin
care products, incorporate patented technology, most of the products we sell are
not protected by patents. We have applied for registration of a number of key
trademarks and intend to introduce new trademarks, service marks and brand
names. We intend to take the actions that we believe are necessary to protect
our proprietary rights, but we may not be successful in doing so on commercially
reasonable terms, if at all. In addition, parties that license their proprietary
rights to us may face challenges to their patents and other proprietary rights
and may not prevail in any litigation regarding those rights. Moreover, our
trademarks and the products we offer may conflict with or infringe upon the
proprietary rights of third parties. If any such conflicts or infringements
should arise, we would have to defend ourselves against such challenges. We also
may have to obtain a license to use those proprietary rights or possibly cease
using those rights altogether. Any of these events could harm our
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business. For more information concerning our existing proprietary rights, see
"Business -- Intellectual Property."
MUCH OF OUR BUSINESS IS SUBJECT TO REGULATION. REGULATORY BODIES COULD IMPAIR OR
ELIMINATE OUR ABILITY TO CONDUCT PORTIONS OF OUR BUSINESS.
Many of our activities are subject to extensive regulation by one or more
federal, state or local agencies. These regulatory bodies have the power to
restrict or eliminate many of our business activities, and to seek civil and
criminal penalties for noncompliance with applicable laws and regulations. For
example, products compounded by Women First Pharmacy Services will be subject to
legislation containing, among other elements, provisions restricting the
advertising of compounded products and strictly limiting the compounding of
pharmaceuticals. The FDA also has proposed a limit of 20% on interstate
shipments of compounded drugs with respect to total prescriptions dispensed and
a 5% limit on interstate shipments of any one compounded pharmaceutical product
by a given pharmacy. Changes in existing laws and regulations could adversely
affect our business. For further discussion of these regulatory matters, see
"Business -- Government Regulation."
OUR FAILURE TO RETAIN THE PRINCIPAL MEMBERS OF OUR MANAGEMENT TEAM OR TO HIRE
ADDITIONAL QUALIFIED EMPLOYEES WOULD ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT
OUR BUSINESS PLAN.
Our success depends upon the retention of the principal members of our
management, technical and marketing staff, particularly Edward F. Calesa, the
Chairman of the Board, and David F. Hale, our President and Chief Executive
Officer. The loss of the services of Mr. Calesa, Mr. Hale or other key members
of our management team might significantly delay or prevent the achievement of
our development and strategic objectives. Our co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc. relating to the Ortho Tri-Cyclen(R) oral
contraceptive and a new oral combination hormonal replacement therapy product
contains a provision that would allow Ortho-McNeil to terminate the agreement if
either Mr. Calesa or Mr. Hale is no longer associated with Women First (except
as a result of their death or disability). We have entered into employment
contracts with Mr. Calesa and Mr. Hale. We are the beneficiary of a life
insurance policy on the life of Mr. Calesa in the amount of $2.0 million. We do
not have life insurance policies on the lives of any other members of our
management team. Our success also depends on our ability to attract additional
qualified employees. Companies in the pharmaceutical and health care industries
compete intensely for qualified personnel. We have agreed not to solicit sales
representatives from Johnson & Johnson or any of its subsidiaries or from any
contractor of Ortho-McNeil Pharmaceutical, Inc. that provides a sales force that
calls on physicians. Our inability to retain our existing personnel or to hire
additional qualified employees would have a material adverse effect on our
company.
OUR MANAGEMENT AND EXISTING STOCKHOLDERS WILL RETAIN SUBSTANTIAL CONTROL OVER
OUR VOTING STOCK AND CAN MAKE DECISIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS
AND OUR STOCK PRICE.
Upon completion of this offering, Edward F. Calesa and his family members
will jointly own 42.9% of our common stock. Johnson & Johnson Development
Corporation, a subsidiary of Johnson & Johnson, will own approximately 11.1% of
our common stock. Johnson & Johnson Development Corporation's percentage
beneficial ownership of our common stock would be greater than 11.1% following
the offering if it purchases the shares reserved for it in this offering. At the
request of Women First, the underwriters in this offering have reserved for sale
to Johnson & Johnson Development Corporation at the initial public offering
price that number of shares of common stock equal to $3,000,000 divided by the
initial public offering price. For more information regarding the shares
reserved for purchase by Johnson & Johnson Development Corporation, see "Certain
Transactions" and "Underwriting." Our present
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directors, executive officers and principal stockholders as a group will
beneficially own approximately 57.0% of the outstanding common stock.
Accordingly, if all or certain of such stockholders were to act together, they
would be able to exercise significant influence over or control the election of
our Board of Directors, the management and policies of Women First and the
outcome of certain corporate transactions or other matters submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets. For a discussion of prior transactions
involving our principal stockholders, see "Certain Transactions."
Management and our existing stockholders, acting together, will be able to
prevent or effect a change in control of Women First and will be able to amend
certain provisions of our certificate of incorporation and bylaws at any time.
The interests of management and our existing stockholders may conflict with the
interests of our other holders of common stock, and this concentration of
ownership may discourage others from initiating potential merger, takeover or
other change in control transactions.
OUR BUSINESS MAY BE INTERRUPTED BY YEAR 2000 PROBLEMS IF OUR VENDORS, CUSTOMERS
OR PAYORS ARE UNABLE TO CONVERT THEIR SYSTEMS OR IF ANY OF OUR INTERNAL SYSTEMS
ARE NOT COMPLIANT.
The Year 2000 issue results from computer programs having been written
using two digits rather than four to define the applicable year. Computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. If any
of our internal systems are affected by a Year 2000 problem, we may experience a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. In addition, we cannot predict
the extent to which the Year 2000 issue will affect our vendors, customers or
payors and other parties that provide us with significant products and services,
or the extent to which we would be vulnerable if these parties fail to resolve
any Year 2000 issues on a timely basis. Any failure on the part of these parties
to achieve Year 2000 compliance on a timely basis could materially adversely
affect us. For example, a system failure on the part of our key suppliers or
customers could result in our failing to receive adequate supplies of products
or our being unable to process sales.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect us. We could be subject to
litigation due to computer systems or product failure, including as a result of
equipment shutdown or failure to properly date business records. We cannot
reasonably estimate at this time the amount of potential liability and lost
revenue that could result from Year 2000 issues. For more information concerning
Year 2000 issues that could affect our business, see "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Year 2000
Compliance."
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE, AND THE PRICE OF OUR
STOCK MAY FLUCTUATE FOR REASONS UNRELATED TO OUR OPERATING PERFORMANCE. A
SIGNIFICANT DECLINE IN THE PRICE OF OUR STOCK COULD LEAD TO A CLASS ACTION
LAWSUIT AGAINST US.
There has been no prior public market for our common stock, and we do not
know whether investor interest in Women First will lead to the development of an
active trading market. We will determine the initial public offering price for
the shares of common stock through our negotiations with the underwriters. You
may not be able to sell your shares at or above the initial public offering
price. The market prices and trading volumes for securities of emerging
companies, like Women First, historically have been highly volatile and have
experienced significant fluctuations both related and unrelated to the operating
performance of those companies. The price of the common stock after the offering
may fluctuate widely,
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depending on many factors, including factors that may cause our quarterly
operating results to fluctuate as well as market expectations and other factors
beyond our control. In the past, following periods of volatility in the market
price of a company's securities, class action litigation has often been
instituted against that company by some of its stockholders. This type of
litigation, if instituted against us, could result in substantial costs and a
diversion of our management's attention and resources, which could materially
and adversely affect our results of operations and financial condition.
SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY IMPAIR OUR STOCK
PRICE.
Sales of substantial numbers of shares of our common stock, or the
perception that such sales could occur, could adversely affect the market price
of our common stock and make it more difficult for us to raise funds through
equity offerings in the future. A substantial number of outstanding shares of
common stock and shares of common stock issuable upon exercise of outstanding
stock options will become available for resale in the public market at
prescribed times. Upon completion of this offering, we will have 16,574,322
shares of common stock outstanding. The 4,500,000 shares sold in the offering
will be freely tradable under the Securities Act of 1933, as amended, unless
held by our "affiliates" as defined in Rule 144 under the Securities Act. Of the
12,074,322 shares of common stock outstanding as of April 30, 1999, 9,698,993
will be eligible for sale under Rule 144 under the Securities Act, subject to
volume and other limitations, upon the expiration of 180-day lock-up agreements
described below. As of April 30, 1999, we had 2,277,435 shares of common stock
reserved for issuance upon the exercise of stock options granted or available
for grant under the Women First HealthCare Long-Term Incentive Plan and the
Women First Incentive Stock Plan and 541,128 shares reserved for issuance upon
exercise of outstanding warrants. Some of our stockholders have rights that
entitle them to register their common stock under the Securities Act at our
expense. In addition, we intend to register the shares of Common Stock reserved
for issuance under the Women First Long-Term Incentive Plan and the Women First
Incentive Stock Plan after this offering.
All of our currently outstanding shares of stock, all shares issuable upon
the conversion or exercise of outstanding shares of preferred stock and warrants
and the shares of stock issuable upon exercise of options held by Women First's
directors and officers are subject to lock-up agreements with the underwriters
pursuant to which the current directors, officers and stockholders of Women
First have agreed not to offer, sell, contract to sell or otherwise dispose of,
or enter into any hedging transactions with respect to, any common stock or
securities convertible into or exchangeable for common stock for a period of 180
days after the date of the underwriting agreement. Allen & Company Incorporated
may in its sole discretion and at any time without notice release all or any
portion of such securities subject to the lock-up agreements. The underwriters
do not presently intend to grant permission to sell any securities subject to
the lock-up agreements.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR COMPANY AT A PREMIUM PRICE.
Provisions of the Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws that we intend to adopt prior to the closing of the
offering may make it difficult for a third party to acquire us and could
discourage a third party from attempting to acquire us at a premium price. These
include provisions classifying our board of directors, prohibiting stockholder
action by written consent and requiring advance notice for nomination of
directors and stockholders' proposals. In addition, Section 203 of the Delaware
General Corporation Law also imposes restrictions on mergers and other business
combinations between us and any holders of 15% or more of our common stock.
Moreover, our new certificate of
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incorporation will allow our board of directors to issue, without further
stockholder approval, preferred stock that could have the effect of delaying,
deferring or preventing a change in control. The issuance of preferred stock
also could adversely affect the voting power of the holders of our common stock,
including the loss of voting control to others. The provisions of our proposed
new certificate of incorporation and bylaws, as well as certain provisions of
Delaware law, may have the effect of discouraging or preventing an acquisition,
or disposition of, our business. Some of our key contracts contain provisions
that would allow the other party to the agreement to terminate the agreement
upon a change of control. These provisions also may diminish the opportunities
for a stockholder to participate in certain tender offers, including tender
offers at prices above the then-current fair market value of our common stock.
See "Description of Capital Stock -- Preferred Stock" and "-- Certificate of
Incorporation, Bylaw and Statutory Provisions Affecting Stockholders" for a more
detailed discussion of these anti-takeover provisions.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things,
- implementing our business strategy,
- obtaining and expanding market acceptance of the products we offer,
- obtaining the rights to market and distribute additional products,
- meeting our minimum purchase requirements under key contracts, and
- competing in the pharmaceutical and self-care products markets for women
in midlife.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "potential," "continue," "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions. These statements are based on our current beliefs, expectations and
assumptions and are subject to a number of risks and uncertainties. Actual
results and events may vary significantly from those discussed in the
forward-looking statements. These forward-looking statements are made as of the
date of this prospectus, and we assume no obligation to update them or to
explain the reasons why actual results may differ. In light of these
assumptions, risks and uncertainties, the forward-looking events discussed in
this prospectus might not occur.
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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We estimate that we will receive net proceeds of approximately $44.9
million from this offering based upon an assumed offering price per share of
$11.00 and the deduction of the underwriting discount and commissions and
estimated offering expenses. We estimate that we will receive net proceeds of
$51.8 million if the underwriters' over-allotment option is exercised in full.
We expect to use the net proceeds of the offering for:
- increased sales and marketing efforts,
- obtaining rights to additional products,
- acquiring companies, and
- working capital and other general corporate purposes.
We also intend to use approximately $8.0 million to repay principal and
interest on the $7.5 million principal amount of short-term notes we issued in a
private placement in March 1999. These notes bear interest at a rate of 9% per
annum and mature on March 1, 2000. Pending these uses, we intend to invest the
net proceeds of this offering in investment-grade, interest bearing securities.
We believe that the net proceeds from this offering, together with existing cash
balances, will be sufficient to meet our working capital, capital expenditure
requirements and minimum purchase commitments through the end of the year 2000.
For more information about our uses of proceeds of this offering, see "Risk
Factors -- Our management will have substantial discretion over the use of the
net proceeds of the offering and may not apply them effectively" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
We presently anticipate that we will retain all of our future earnings to
finance the development and expansion of our business and provide working
capital. Therefore, we do not anticipate paying any cash dividends on our common
stock. We have not paid any dividends on our common stock in the past.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization and cash and cash
equivalents of Women First as of March 31, 1999. The Actual column sets forth
information on an actual basis as of March 31, 1999. The Pro Forma column gives
effect to the conversion of all shares of Series A Preferred Stock and Series B
Convertible Preferred Stock into 4,388,329 shares of common stock upon the
closing of this offering. The Pro Forma As Adjusted column gives further effect
to the issuance of 4,500,000 shares of common stock at an assumed initial public
offering price of $11.00 per share and the receipt of the estimated net proceeds
from this offering of $44.9 million as if it had occurred as of March 31, 1999.
You should read this table in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 9,048 $ 9,048 $ 53,933
Short-term notes payable................................ 5,294 5,294 5,294
Short-term notes payable to related parties............. 1,929 1,929 1,929
Stockholders' equity:
Series A Preferred Stock, $.01 par value; 2,200,000
shares authorized; 2,200,000 shares issued and
outstanding at March 31, 1999...................... 22 -- --
Series B Convertible Preferred Stock, $.01 par value;
690,000 shares authorized; 550,000 shares issued
and outstanding and 44,000 shares to be issued at
March 31, 1999..................................... 6 -- --
Common stock, $.001 par value, 40,000,000 shares
authorized; 8,026,310 shares issued and 7,685,993
shares outstanding at March 31, 1999 (12,414,639
shares issued and 12,074,322 shares outstanding pro
forma; 16,914,639 shares issued and 16,574,322
shares outstanding pro forma as adjusted).......... 8 12 17
Treasury stock.......................................... (100) (100) (100)
Additional paid-in capital.............................. 29,107 29,131 74,011
Deferred compensation................................... (1,814) (1,814) (1,814)
Accumulated deficit..................................... (19,083) (19,083) (19,083)
-------- -------- --------
Total stockholders' equity......................... 8,146 8,146 53,031
-------- -------- --------
Total capitalization.......................... $ 15,369 $ 15,369 $ 60,254
======== ======== ========
</TABLE>
The information regarding our outstanding common stock excludes (1)
2,084,254 shares of common stock issuable upon the exercise of options
outstanding as of March 31, 1999 under the Women First HealthCare Long-Term
Incentive Plan and the Women First Incentive Stock Plan at a weighted average
exercise price of $1.32 per share; (2) 541,128 shares of common stock issuable
upon the exercise of warrants outstanding as of March 31, 1999; (3) 193,181
additional shares of common stock issuable upon the exercise of options
available for issuance under the Women First HealthCare Long-Term Incentive
Plan; (4) up to 54,900 shares of common stock which we may be required to issue
pursuant to an earn-out based on the 1999 operating results of As We Change,
LLC; and (5) up to 675,000 shares issuable to new investors if the underwriters'
over-allotment option is exercised in full.
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<PAGE> 23
DILUTION
The pro forma net tangible book value of Women First as of March 31, 1999
was $4.3 million or $0.36 per share after giving effect to the conversion of all
shares of preferred stock into 4,388,329 shares of common stock upon
consummation of this offering. Pro forma net tangible book value per share
represents the amount of total tangible assets of Women First reduced by the
amount of its total liabilities, divided by the total pro forma number of shares
of common stock outstanding. The pro forma as adjusted net tangible book value
of Women First as of March 31, 1999 would have been $49.2 million, or $2.97 per
share of common stock, after giving effect to the sale of 4,500,000 million
shares of common stock at an assumed initial public offering price of $11.00 per
share (after deducting estimated underwriting discounts and other estimated
expenses of this offering). This represents an immediate increase in pro forma
net tangible book value of $2.61 per share to existing stockholders and an
immediate dilution of $8.03 per share to new investors. The following table
illustrates the per share dilution in pro forma net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
------
Pro forma net tangible book value per share as of March 31,
1999...................................................... $ 0.36
------
Increase per share attributable to new investors............ 2.61
------
Pro forma as adjusted net tangible book value per share
after the offering........................................ 2.97
------
Dilution per share to new investors......................... $ 8.03
------
</TABLE>
The following table summarizes as of March 31, 1999 on a pro forma basis
(after giving effect to the conversion of all outstanding shares of preferred
stock into 4,388,329 shares of common stock upon the consummation of the
offering) the differences in total consideration paid and the average price per
share paid by existing stockholders and new investors, at an assumed initial
public offering price of $11.00 per share, with respect to the number of shares
of common stock purchased from Women First.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 12,074,322 72.9% $25,690,731 34.2% $ 2.13
New investors............................. 4,500,000 27.1 49,500,000 65.8 $11.00
----------- ----- ----------- -----
Total........................... 16,574,322 100.0% $75,190,731 100.0%
----------- ----- ----------- -----
</TABLE>
If the underwriters' over-allotment option is exercised in full, Women
First will issue an additional 675,000 shares to new investors, representing
3.9% of the total of 17,249,322 shares outstanding, and the total consideration
from new investors will be $56,925,000, representing 68.9% of the total of
$82,615,731 consideration paid for all shares outstanding, at an assumed initial
public offering price of $11.00 per share.
The information presented above with respect to existing stockholders
excludes (1) 2,084,254 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 1999 under the Women First HealthCare
Long-Term Incentive Plan and the Women First Incentive Stock Plan at a weighted
average exercise price of $1.32 per share; (2) 541,128 shares of common stock
issuable upon the exercise of outstanding warrants (3) 193,181 shares of common
stock issuable upon the exercise of options available for issuance under the
Women First HealthCare Long-Term Incentive Plan; and (4) up to 54,900 shares of
common stock which we may be required to issue pursuant to an earn-out based on
1999 operating results of As We Change, LLC.
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
We derived the information below from our consolidated financial statements
audited by Ernst & Young LLP, independent auditors, for the period from November
1, 1996 (inception) through December 31, 1996 and for the years ended December
31, 1997 and December 31, 1998. The consolidated statement of operations data
for the three months ended March 31, 1998 and 1999 and the consolidated balance
sheet data as of March 31, 1999 have been derived from our unaudited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair presentation of the
financial data for these periods and as of March 31, 1999. The selected
consolidated financial information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contained in
this prospectus. We accounted for the acquisition of As We Change, LLC using the
purchase method of accounting. Accordingly, our Consolidated Statement of
Operations Data reflect the results of operations for this business since we
acquired it on October 21, 1998. Historical financial statements and pro forma
financial information for As We Change, LLC are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1996 YEARS ENDED THREE MONTHS
(INCEPTION) DECEMBER 31, ENDED MARCH 31,
THROUGH ----------------------- ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue...................... $ -- $ -- $ 4,834 $ -- $ 4,303
Costs and expenses
Cost of sales.................. -- -- 2,648 -- 2,783
Marketing and sales............ -- 791 5,478 318 4,986
General and administrative..... -- 975 5,912 432 2,599
Research and development....... -- -- 573 -- 291
---------- ---------- ---------- ---------- -----------
Total costs and expenses... -- 1,766 14,611 750 10,659
---------- ---------- ---------- ---------- -----------
Loss from operations............. -- (1,766) (9,777) (750) (6,356)
Interest income, net............. -- 39 395 119 18
---------- ---------- ---------- ---------- -----------
Net loss......................... -- (1,727) (9,382) (631) (6,338)
Accretion of beneficial
conversion feature related to
convertible preferred stock.... -- -- -- -- (3,362)
---------- ---------- ---------- ---------- -----------
Net loss available to common
stockholders................... $ -- $ (1,727) $ (9,382) $ (631) (9,700)
========== ========== ========== ========== ===========
Net loss per share (basic and
diluted)....................... $ -- $ (0.23) $ (1.22) $ (0.08) $ (1.26)
========== ========== ========== ========== ===========
Weighted average shares used in
computing net loss per share
(basic and diluted)............ 6,806,353 7,551,484 7,685,993 7,685,993 7,685,993
========== ========== ========== ========== ===========
Pro forma net loss per share
(basic and diluted)............ $ (0.95) $ (0.83)
========== ===========
Pro forma weighted average shares
used in computing net loss per
share (basic and diluted)...... 9,904,834 11,638,176
========== ===========
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
MARCH 31, 1999
AT DECEMBER 31, ------------------------
------------------------------------------- PRO FORMA
1996 1997 1998 ACTUAL AS ADJUSTED
----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 1,000 $ 567 $ 4,438 $ 9,048 $53,933
Working capital.................. 967 394 3,364 2,702 47,587
Total assets..................... 1,033 776 12,504 18,257 63,142
Short-term notes payable......... -- -- -- 5,294 5,294
Short-term notes payable to
related parties................ -- -- -- 1,929 1,929
Total stockholders' equity....... 1,000 531 8,436 8,146 53,031
</TABLE>
The pro forma net loss per share and the pro forma weighted average shares
give effect to the conversion of 1,650,000 and 2,200,000 shares of our Series A
Preferred Stock at December 31, 1998 and March 31, 1999, respectively, and
594,000 shares of our Series B Convertible Preferred Stock issued and deemed to
have been issued at December 31, 1998 and March 31, 1999 into 3,381,831 and
4,388,329 shares of our common stock upon the consummation of this offering. Pro
forma weighted average shares were determined based upon the original date of
issuance. The Pro Forma As Adjusted column gives effect to the conversion of all
shares of Series A Preferred Stock and Series B Convertible Preferred Stock into
4,388,329 shares of our common stock upon the consummation of this offering. The
Pro Forma As Adjusted column also gives effect to this offering of common stock
at an assumed initial public offering price of $11.00 per share and our receipt
of $44.9 million in estimated net proceeds.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Women First's financial condition
and results of operations should be read in conjunction with "Selected
Consolidated Financial Information" and the consolidated financial statements
and notes thereto included elsewhere in this prospectus.
OVERVIEW
Women First HealthCare is a specialty health care company dedicated to
improving the health of midlife women. Our mission is to help midlife women make
informed choices about their physical and emotional health and to provide
pharmaceutical products, self-care products, educational programs and support
systems to help midlife women improve the quality of their lives. We market
these products in the United States through a number of channels including our
dedicated sales force, our direct-to-consumer marketing programs and the
Internet.
RESULTS OF OPERATIONS
We were engaged in development stage operations from November 1, 1996 (the
date of our inception) through December 31, 1997 and did not earn any revenue
during this period. Operations during this period consisted primarily of
formulating a marketing plan, conducting market research, developing strategic
relationships, acquiring equipment, performing administrative functions and
raising capital. In January 1998, we began to implement our plans for growth by
actively recruiting management, staff and sales personnel, consummating
distribution agreements, launching products and implementing previously planned
educational programs and support systems. We began selling and distributing the
Ortho-Est(R) oral estrogen product in July 1998 and acquired As We Change, LLC
on October 21, 1998. As a result, we believe the operating results for the year
ended December 31, 1998 are not comparable to the operating results for the year
ended December 31, 1997.
We have incurred significant losses since we were founded in November 1996.
We had an accumulated deficit of $9.4 million as of December 31, 1998, and we
expect to incur losses at least through the end of 2000. We believe that due to
our limited operating history we are unable to accurately predict our future
results of operations. Accordingly, our operating results should not be relied
upon as an indication of future performance. We review the operating results of
our business as a specialty health care company with one operating segment.
The results of operations include the results of our operations since our
inception and the actual results of operations of As We Change, LLC from its
acquisition date on October 21, 1998 in accordance with the purchase method of
accounting.
During the year ended December 31, 1998 and the quarter ended March 31,
1999, we recorded aggregate deferred compensation of $728,000 and $1.7 million,
respectively, in connection with the grant of stock options at exercise prices
less than the deemed fair value on the grant date. We are amortizing deferred
compensation over the vesting period of the related options which is generally
four years. For more information relating to these grants and related expenses,
see Note 7 of the Notes to Consolidated Financial Statements.
25
<PAGE> 27
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Revenue. For the three months ended March 31, 1999, total net revenue
was $4.3 million, which was derived primarily from sales of the Ortho-Est(R)
oral estrogen pharmaceutical product of $2.4 million and sales from our
subsidiary As We Change, LLC, a national mail-order catalog and Internet
retailer of $1.6 million. We were in the development stage during 1997 and 1996
and recorded no revenue through March 31, 1998.
Costs and Expenses. Costs and expenses increased $9.9 million to $10.7
million for the three months ended March 31, 1999 from $750,000 for the three
months ended March 31, 1998. The increase in costs and expenses was due
primarily to the growth in commercial operations in the three months ended March
31, 1999 compared to limited development stage operations in the three months
ended March 31, 1998. In connection with the grant of certain stock options to
employees and consultants during 1999 and 1998, we recorded $488,000 in
compensation expense for the three months ended March 31, 1999 and $10,000 for
the three months ended March 31, 1998.
Cost of sales was $2.8 million, or 64.7% of net revenue, for the three
months ended March 31, 1999 as compared to none for the same period in 1998.
Cost of sales consists primarily of the amounts we pay for products under supply
agreements.
Marketing and sales expense increased $4.7 million to $5.0 million for the
three months ended March 31, 1999 from $318,000 for the three months ended March
31, 1998 primarily due to increases in the number of employees and the
corresponding increased salary expense resulting from the establishment of a
direct sales organization, the acquisition of As We Change, LLC, costs
associated with the Distinguished Professor Conference, a component of the
clinician education program, held in January 1999, increased travel and business
entertainment expense and increased expenses for market research, product
literature and professional samples.
General and administrative expenses increased $2.2 million to $2.6 million
for the three months ended March 31, 1999 from $432,000 for the three months
ended March 31, 1998 primarily due to increases in the number of employees and
the increased salary and employee benefits expense, increased management
incentive bonus expense, increased professional fees and increased depreciation
and amortization expense from capital expenditures and the purchase of
intangible assets associated with the acquisition of As We Change, LLC.
Research and development expense was $291,000 for the three months ended
March 31, 1999 compared to none in the comparable period in 1998. Research and
development expense consists primarily of salaries and payments for contracted
development programs. During the three months ended March 31, 1999, we commenced
testing of the patient health questionnaire and software product, the
"Benefit:Risk Assessment Model," and capitalized $137,000 associated with the
product. The contract for the "Benefit:Risk Assessment Model" requires us to pay
an additional $313,000 in 1999 and $175,000 in 2000 for the development programs
for the model.
Loss from Operations. For the reasons discussed above, the loss from
operations increased $5.6 million to $6.4 million for the three months ended
March 31, 1999 from $750,000 for the three months ended March 31, 1998.
Interest Income, net. Interest income, net decreased $101,000 to $18,000
for the three months ended March 31, 1999 due primarily to reduced cash balances
in the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998 and the interest expense on short-term notes issued in March
1999.
26
<PAGE> 28
Accretion of beneficial conversion feature related to convertible preferred
stock. A $3.4 million charge for the three months ended March 31, 1999 has been
recognized as an increase of the net loss available to common stockholders equal
to the intrinsic value of the beneficial conversion feature of the Series A
Preferred Stock issued in February 1999. The intrinsic value in these shares of
Series A preferred stock represents the difference between the conversion price
of the Series A preferred stock issued in February 1999 and the fair value of
our common stock at the time of issuance.
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD FROM NOVEMBER 1, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Net Revenue. For 1998, total net revenue was $4.8 million, which was
derived primarily from sales of the Ortho-Est(R) oral estrogen pharmaceutical
product beginning in July 1998 of $3.7 million and sales from our subsidiary As
We Change, LLC, a national mail-order catalog and Internet retailer, beginning
October 21, 1998 of $899,000. We were in the development stage during 1997 and
1996 and recorded no revenue through March 31, 1998.
Costs and Expenses. Costs and expenses increased $12.8 million to $14.6
million for 1998 from $1.8 million for 1997. The increase in costs and expenses
was due primarily to the establishment of commercial operations in 1998 compared
to limited development stage operations in 1997. In connection with the grant of
certain stock options to employees during 1998, we recorded $112,000 in
compensation expense. We did not report costs and expenses during the period
from inception through December 31, 1996.
Cost of sales was $2.6 million for 1998 as compared to none for 1997. We
began to incur expenses related to sales of the Ortho-Est(R) oral estrogen
product in July 1998. We do not manufacture the products we offer. Accordingly,
our cost of sales reflects amounts we pay for products under supply agreements.
Marketing and sales expense increased $4.7 million to $5.5 million for 1998
from $791,000 for 1997 primarily due to increases in the number of employees and
the corresponding increased salary expense resulting from the establishment of a
direct sales organization, increased outside services for market research,
recruiting, consulting and other professional fees, increased travel and
business entertainment, and the acquisition of As We Change, LLC in October
1998.
General and administrative expenses increased $4.9 million to $5.9 million
for 1998 from $975,000 for 1997 primarily due to increases in the number of
employees and the corresponding increased salary expense, the adoption of a
management incentive bonus plan, increased outside services for consulting and
other professional fees, increased occupancy costs due to the establishment of
the corporate office in San Diego, increased travel and business entertainment,
and increased depreciation and amortization expense from increased capital
expenditures and the purchase of intangible assets associated with the
acquisition of As We Change, LLC.
Our research and development expense consists primarily of salaries and
payments for contracted development programs. Research and development expense
was $573,000 for 1998 compared to none in 1997. In 1998, we made payments of
$275,000 for the contracted development of a patient health questionnaire and
software product, the "Benefit:Risk Assessment Model."
Loss from Operations. For the reasons discussed above, loss from operations
increased $8.0 million to $9.8 million for 1998 from $1.8 million for 1997. We
did not report an operating profit or loss for the period from inception through
December 31, 1996.
27
<PAGE> 29
Interest Income, net. Interest income increased $356,000 to $395,000 for
1998 from $39,000 for 1997 primarily due to interest income earned on the
investment of unused cash proceeds from the issuance of Series A Preferred
Stock. We did not earn any interest income during the period from inception
through December 31, 1996.
Income Taxes. We have incurred approximately $7.8 million of net operating
losses in 1998 for both federal and California tax purposes that are available
to be carried forward, subject to certain change of control limitations. The
federal and California tax loss carryforwards will begin to expire in 2018 and
2003, respectively, unless previously utilized. Upon the issuance of shares of
common stock contemplated in the initial public offering, we would be limited to
approximately $6.7 million of net operating loss carryforwards per year for
federal and state tax purposes. We have recognized a valuation allowance for the
deferred tax asset because we are uncertain of our ability to utilize these
losses in the future, and we have determined that it is more likely than not
that we will not generate taxable income sufficient to recover the deferred tax
assets. For 1997, we were an S Corporation for federal and state income taxes.
Accordingly, all losses for 1997 were passed through to the stockholders and we
did not record a provision for taxes.
FACTORS AFFECTING RESULTS OF OPERATIONS
We incurred operating losses of $1.8 million in the year ended December 31,
1997 and $9.8 million in the year ended December 31, 1998. Due to our short
operating history, our revenues have varied and are difficult to forecast on a
quarterly or annual basis. However, many of our expenses are fixed, especially
in the short term. In particular, we are obligated to make significant minimum
payments under some of our agreements, including an annual minimum purchase
($6.6 million for 1999 and decreasing annually for the balance of the contract)
for the Ortho-Est(R) oral estrogen product. In addition, we are an early stage
company and have experienced significant increases in operating expenses
associated with obtaining rights to market and distribute additional products
and the expansion of our sales and marketing and general and administrative
activities, and we expect that these increases will continue in the future. As a
result of this variability in revenues and increased expenses, our results of
operations have varied during our short operating history and we expect that
they will continue to fluctuate significantly in the future. In addition, other
factors may cause fluctuations in our revenues and results of operations,
including the following:
- the success of our sales force in distributing and co-promoting our
current product line and changes in market acceptance of those products,
- our ability to introduce new products through co-promotion or
distribution agreements or otherwise,
- legislative changes that affect our products and the way we market them
and our ability to comply with new or existing regulations,
- the amount and timing of expenditures for the expansion of our
operations,
- changes in the competitive environment that could cause us to change our
pricing or marketing strategy,
- changes in the economic and market environment generally or in the health
care industry.
To the extent our revenues do not increase in line with our expenses, we
may be unable to reduce spending commitments in a timely manner to compensate
for any unexpected revenue shortfall and may experience significant
unanticipated losses. As a result of these factors, our
28
<PAGE> 30
operating results in one or more future periods may fail to meet the
expectations of securities analysts or investors. Failure to meet these
expectations could have a material adverse effect on our stock price.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, our working capital totaled $2.7 million compared to
$3.4 million at December 31, 1998. Cash equivalents were $9.0 million at March
31, 1999 compared to $4.4 million at December 31, 1998.
At December 31, 1998, our working capital totaled $3.4 million compared to
$394,000 and $967,000 at December 31, 1997 and 1996, respectively. Cash and cash
equivalents were $4.4 million at December 31, 1998 compared to $567,000 at
December 31, 1997 and $1.0 million at December 31, 1996.
Our primary source of liquidity has been proceeds from private placements
of our equity securities. In January and May 1998, we entered into agreements to
sell an aggregate of 2,200,000 shares of Series A Preferred Stock (equivalent to
4,026,000 shares of common stock), together with warrants to some of the
investors, at a price of $10.00 per share. We issued 1,050,000 shares of Series
A Preferred Stock (equivalent to 1,921,500 shares of common stock) and warrants
immediately upon signing the January agreement and 50,000 shares of Series A
Preferred Stock (equivalent to 91,500 shares of common stock) and warrants
immediately upon signing the May agreement for net proceeds of $10.0 million and
$453,000, respectively, with the balance of the shares issuable upon the
achievement of certain operational milestones.
In October 1998, we successfully completed the initial milestone events and
issued 550,000 shares of Series A Preferred Stock (equivalent to 1,006,500
shares of common stock) and warrants for additional net proceeds of $5.3
million. During January 1999, we reached the subsequent milestone event, and in
February 1999, we issued an additional 550,000 shares of Series A Preferred
Stock (equivalent to 1,006,500 shares of common stock) and warrants for
additional net proceeds of $5.3 million.
In March 1999, we issued $7.5 million of short-term notes and warrants to
purchase 60,756 shares of common stock in a private placement for net proceeds
of $7.5 million. The notes bear interest at 9% per year, payable quarterly, and
mature on March 1, 2000. We may prepay the notes at any time without penalty.
For a discussion of these warrants, including their exercise price, see
"Description of Capital Stock -- Warrants."
In addition to operating expenses, our primary use of funds has been and
will continue to be to fund capital expenditures, to obtain the rights to market
and distribute products and to acquire companies.
Net cash used in operating activities was $6.6 million for the three months
ended March 31, 1999 and was $387,000 for the same period in 1998. Net cash used
in investing activities was $1.6 million for the three months ended March 31,
1999 and was $409,000 for the same period in 1998, consisting of the deferred
cash payment for the acquisition of As We Change, LLC in 1999 and net capital
expenditures. Net cash provided by financing activities was $12.8 million for
the three months ended March 31, 1999 and was $10.0 million for the same period
in 1998, primarily consisting of the net proceeds from the issuance of equity
securities and, in 1999, the issuance of short-term notes payable.
During the first quarter of 1999, we made net capital expenditures of
$528,000 for computer equipment, development of our Internet site and
acquisition of licenses and other assets including production of the
Benefit:Risk Assessment Model and RENEWAL a time for
29
<PAGE> 31
you(TM), a program that we are developing in conjunction with Dr. Deepak Chopra.
We anticipate making net capital expenditures of approximately $12.3 million for
the full year 1999. As of March 31, 1999, we have made firm commitments of
approximately $500,000 for remaining 1999 capital expenditures primarily for our
Internet site and the Benefit:Risk Assessment Model. We made capital
expenditures of $194,000 during the three months ended March 31, 1998, primarily
for furniture and fixtures and equipment.
Net cash used in operating activities for the years ended December 31, 1998
and 1997 was $9.0 million and $1.5 million, respectively. Net cash used in
investing activities for the years ended December 31, 1998 and 1997 was $2.8
million and $158,000, respectively, consisting of capital expenditures and, in
1998, the acquisition of As We Change, LLC. Net cash provided by financing
activities for the years ended December 31, 1998 and 1997 was $15.7 million and
$1.3 million, respectively, primarily consisting of the net proceeds from the
issuance of equity securities.
During the year ended December 31, 1998, we made capital expenditures of
$749,000 for furniture and fixtures, leasehold improvements, equipment and
licenses. We made capital expenditures of $158,000 during the year ended
December 31, 1997 which consisted primarily of expenditures on computers, other
equipment and licenses.
In October 1998, we acquired all of the outstanding membership interests in
As We Change, LLC. Total acquisition costs were $4.4 million, consisting of $1.8
million cash paid at acquisition date, $1.1 million deferred payment made March
31, 1999, 594,000 shares of Series B Preferred Stock (equivalent to 362,329
shares of common stock) and $107,000 of acquisition related expenses. We issued
a total of 44,000 of these shares (equivalent to 26,835 shares of common stock)
in April 1999 pursuant to an earn-out based on 1998 operating results of As We
Change, LLC. We may be required to issue up to an additional 54,900 shares of
common stock in April 2000 based on the 1999 operating results of As We Change,
LLC.
Our product co-promotion agreements with Bristol-Myers Squibb and
Ortho-McNeil Pharmaceutical, Inc. require us to achieve minimum performance
levels to receive compensation or to prevent contract termination. Because we
only recently signed our co-promotion agreement with respect to the Pravachol(R)
cholesterol-lowering pharmaceutical product, we do not have sufficient
information to quantify the likelihood that we will meet the minimum
prescription levels in 1999. In addition, we have not yet begun co-promoting the
Ortho Tri-Cyclen(R) oral contraceptive or Ortho-McNeil's new oral combination
hormonal replacement therapy product. Accordingly, we cannot estimate our
success in co-promoting these products.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth in our operations and staffing, and anticipate
that this growth will continue for the next several years. Our co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. requires us to expand our field
sales force to at least 100 representatives in 1999 and to further significantly
expand our sales force following FDA approval of the new oral combination
estrogen and progestin hormonal replacement therapy product covered by the
agreement. We expect that our operating expenses will continue to increase as we
obtain rights to market and distribute additional products and to expand our
sales and marketing activities and our educational programs for clinicians and
women.
We also are obligated to make significant minimum payments under certain of
our agreements with our collaborative partners. The minimum purchase commitment
for the Ortho-Est(R) oral estrogen product is $6.6 million for 1999 and
decreases annually over the remaining nine-year term of the contract for an
aggregate commitment of $40.1 million. We are also obligated to make additional
payments of $1.0 million for 1999 and approximately $380,000 thereafter under
other agreements. Additional payments may be necessary under our pharmacy
management and self-care product agreements. In addition, in June 1999, we
entered into a
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letter agreement with Laboratoires Fournier S.A. to negotiate in good faith the
final terms of, and enter into, a distribution and license agreement under which
we would have the exclusive right (subject to exceptions) to market, use,
distribute and sell the Esclim(TM) estrogen transdermal system in various
dosages in the United States and Puerto Rico. The definitive agreement would
require us to pay Fournier a non-refundable license fee of $1.45 million payable
over a two-year period, with $700,000 of this fee subject to sales objectives
being reached. For more information regarding our obligations under our product
agreements, see "Business -- Licensing and Co-Promotion Agreements."
We believe that based on our current performance and present plans, the
proceeds from this offering, together with existing cash balances, will be
sufficient to fund our operations, make planned capital expenditures and meet
our minimum purchase commitments through the end of fiscal 2000. Our ability to
fund our operations, to make planned capital expenditures and to meet our
minimum purchase commitments will depend on our future operating performance,
which is itself dependent on a number of factors, many of which we cannot
control, including prevailing economic conditions, availability of other sources
of liquidity, and financial, business, regulatory and other factors affecting
our business and operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 requires that all components of comprehensive income, including
net income, be reported in financial statements in the period in which they are
recognized. SFAS is effective for fiscal years beginning after December 15,
1997. This statement had no effect on our reported net losses.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 replaces SFAS 14,
Financial Reporting for Segments of a Business Enterprise and changes the way
companies report segment information. SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and has been adopted by us for the year ending
December 31, 1998.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting for the Costs of Start-up
Activities (SOP 98-5). This standard requires companies to expense the cost of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 although earlier
adoption is encouraged. We adopted the provisions of this SOP for the year ended
December 31, 1998. The adoption of SOP 98-5 did not have a material impact on
our results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect us because we currently do not hold any
derivative instruments or conduct any hedging activities.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs having been written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the
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year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. A system failure on the part of our key
suppliers or customers could result in our failing to receive adequate supplies
of products or our being unable to process sales.
Our plan to resolve the Year 2000 issue involves the following phases:
assessment, remediation, and confirmation through testing. To date, we have
completed our preliminary assessment of all internal systems and equipment that
could be significantly affected by the Year 2000. We have completed
approximately half of the remediation phase and commenced activities in the
testing and readiness confirmation phases.
Our assessment indicated that most of our internal management information
systems and other significant equipment will correctly utilize dates beyond
December 31, 1999 ("Year 2000 ready"). The few components of our computing
infrastructure that remain to be upgraded will be addressed during the first
quarter of 1999 and will require minimal, if any, costs. We expect completion of
the testing phase for all significant internal systems by the end of the second
quarter 1999.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
Our electronic transactions with suppliers or customers currently are not
significant. Our electronic transactions with financial institutions have been
assessed, and we expect to confirm their Year 2000 readiness through testing
during the third quarter of 1999.
We have queried our significant suppliers that do not share information
systems with us. To date, we have received assurances from our major vendors
that they are or will be Year 2000 ready prior to December 31, 1999 and we are
not aware of suppliers with a Year 2000 issue that would materially impact our
results of operations, liquidity or capital resources. We have begun questioning
customers and payors to assess their Year 2000 readiness. However, we have no
means of ensuring that our vendors, suppliers, customers or payors will be Year
2000 ready. The inability of suppliers, customers and payors to complete their
Year 2000 resolution process in a timely fashion could have a material adverse
effect on us.
Year 2000 Remediation Costs
We will utilize both internal and, if necessary, external resources to
reprogram or replace, test and implement our internal systems and equipment for
Year 2000 modifications. Expenditures required to make us Year 2000 compliant
will be expensed as incurred and are not expected to be material to our
consolidated financial position or results of operations. Actual costs incurred
to date have not been material.
Contingency Plans
We have developed certain contingency plans to address failure of
remediation activities as applied to internal management information systems and
other significant equipment and the failure of our key suppliers to be Year 2000
ready. We have prioritized our critical suppliers and are developing plans to
provide for the continuance of product availability through accelerated
purchasing if we cannot obtain adequate assurances regarding a specific entity's
ability to become ready for the Year 2000. We also have considered the
implementation of manual order processing and fulfillment systems should the
electronic systems fail.
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Risk to Us
We believe we have an effective program in place to test and confirm Year
2000 readiness in a timely manner. Based on our assessment, we do not believe
that our internal operations are subject to material exposure to Year 2000
issues. As noted above, however, we have not yet completed the final phases of
the Year 2000 program. In the event that our internal systems are not Year 2000
ready, or our suppliers or customers are not Year 2000 ready, we may be
temporarily unable to sell products in our current distribution channels or use
our financial systems to operate finance and accounting functions. As a result,
we may experience a material loss of revenues that would adversely affect our
results of operations. We consider this sort of interruption to be the most
reasonably likely unfavorable result of any failure by us or the third parties
upon whom we rely to become Year 2000 ready.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect us. We could be subject to
litigation due to computer systems or product failure, including as a result of
equipment shutdown or failure to properly date business records. We cannot
reasonably estimate at this time the amount of potential liability and lost
revenue that could result from Year 2000 issues.
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BUSINESS
OVERVIEW
Women First HealthCare, Inc. is a specialty health care company dedicated
to improving the health of midlife women. The U.S. Census Bureau estimates that
the number of midlife women (ages 35-69) will grow from approximately 57 million
in 1998 to approximately 67 million in the year 2010. Every day during this
period, approximately 4,000 to 5,000 women will enter menopause. Studies have
shown that the long-term health care needs of women change significantly after
menopause. Our mission is to help midlife women make informed choices about
their physical and emotional health and to provide pharmaceutical products,
self-care products, educational programs and support systems to help these women
improve the quality of their lives. We market these products in the United
States through a number of channels including our dedicated sales force, our
direct-to-consumer marketing programs and our Internet sites, WOMENFIRST.COM and
ASWECHANGE.COM.
Based on our market research and our continuing interaction with midlife
women, we believe that the health needs of these women are not being met. We
believe that the products, support systems and educational programs we offer
will address many of these unmet needs.
The products we offer fall within two main categories, pharmaceutical
products and self-care products. The pharmaceutical products we offer include
Ortho-Est(R), an oral estrogen product used in hormonal replacement therapy that
we distribute pursuant to an agreement with Ortho-McNeil Pharmaceutical, Inc.,
Pravachol(R), a leading cholesterol-lowering drug that we co-promote with
Bristol-Myers Squibb U.S. Pharmaceuticals Group, and compounded micronized
progesterone and other compounded hormonal replacement therapy products that we
distribute through our national home delivery pharmacy, Women First Pharmacy
Services. We recently entered into a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. under which we agreed to co-promote Ortho Tri-Cyclen(R), a
leading oral contraceptive, and a new oral combination estrogen and progestin
hormonal replacement therapy product that we plan to offer upon product launch,
pending approval by the FDA. We intend to obtain rights to additional
pharmaceutical products through license, acquisition and co-promotion
agreements.
Our self-care products include RENEWAL a time for you(TM), a program with
Dr. Deepak Chopra, a noted author and physician, offering women practical
approaches to achieve a sense of well-being at midlife. We are also developing a
line of Women First(TM) nutritional products with the Tufts University School of
Nutrition Science and Policy. Additionally, our self-care products include the
IntegraVie(TM) line of skin care products, the ViAmor(TM) vaginal moisturizer,
educational products and a broad array of lifestyle, nutritional, herbal and
other products we sell through our national mail-order catalog, As We Change(R),
and our Internet retailer, ASWECHANGE.COM. We also plan to sell Women First(TM)
self-care products through our Internet site, WOMENFIRST.COM.
INDUSTRY TRENDS
We believe that the markets for pharmaceutical and self-care products for
midlife women are changing because of the following trends:
- a significant and expanding population of midlife women as the "baby
boom" generation ages,
- recognition of the dissatisfaction among midlife women about their health
care,
- an increasing awareness of the conditions and diseases that affect
midlife women and the development of new products to address them,
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- the expanding roles of OB/GYNs and the nurse practitioners and physician
assistants focused on women's health, and
- increasing opportunities for product licensing, acquisition, co-promotion
and development by specialty pharmaceutical companies.
A significant and expanding population of midlife women
According to the U.S. Census Bureau, there are approximately 57 million
women in the United States between the ages of 35 and 69. That number is
expected to grow to 67 million women by the year 2010. Every day during this
period, approximately 4,000 to 5,000 women will enter menopause. IMS Health
reports that U.S. pharmaceutical sales were approximately $74.1 billion for
1998, and that approximately 58.0% of prescription drugs are used by women.
Furthermore, Medical Data International, Inc., an independent market research
company, estimates that the market for women's health products in the menopause
category totalled approximately $2.5 billion in 1998 and is expected to increase
by an average of 16.9% each year to approximately $4.6 billion in 2002.
Recognition of the dissatisfaction among midlife women about their health care
We have conducted market research through an independent research company
with 400 women between the ages of 45 and 55 to determine their satisfaction
with current treatment approaches and alternatives. We also have held
discussions with practicing physicians and other specialists in women's health
care. Our research indicates that these women want menopause to be treated as a
condition rather than a disease and are seeking a source of credible and
comprehensive information about midlife health. We also found that midlife women
want choice and individualized solutions that address their changing physical
and emotional requirements. Our research and the research of third parties
further suggests that:
- most women are not proactive in their health care needs in midlife,
- approximately 20-30% of midlife women do not fill their prescriptions for
hormonal replacement therapy (HRT),
- approximately 20% of women discontinue using HRT within nine months of
initiation, and
- most women feel that physicians do not spend sufficient time with them
and approximately 40% switch physicians because of a perceived lack of
time and sympathy on the part of the physician.
Increasing focus on conditions and diseases that affect midlife women and the
development of new products to address them
As women transition through menopause, their bodies begin to reduce the
production of the steroid hormones, estrogen and progesterone. Studies have
shown that with the significant loss of estrogen and progesterone production
after menopause, the long-term health care needs of women change significantly.
Among other things, women experience changes in their cardiovascular, skeletal,
neurologic, urologic and reproductive systems and may experience changes in
their sexual and emotional needs. According to the American Heart Association,
coronary heart disease is the single largest killer of American women. In 1996
in the United States, all cardiovascular diseases combined claimed the lives of
approximately 506,000 women compared to approximately 453,000 men. The American
Heart Association also estimated that approximately 52 million women had
cholesterol levels of 200 mg/dL or higher in 1996. In
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addition, the Association of Professors of Gynecology and Obstetrics estimates
that 25 million women have, or are at a high risk of developing, osteoporosis.
Notwithstanding the high rate of incidence of these conditions among midlife
women, researchers at the National Center on Women and Aging at Brandeis
University found that nearly 60% of the women they surveyed between the ages of
45 and 75 were unaware of significant health risks such as heart disease.
Studies have shown that HRT alleviates the symptoms commonly associated with
menopause and may reduce the risk of cardiovascular disease and osteoporosis. We
expect that the market for HRT will grow as the number of midlife women
increases and the benefits of HRT relative to its side effects become better
understood by women and their clinicians.
The expanding roles of OB/GYNs and nurse practitioners and physician
assistants focused on women's health
We believe women typically seek treatment for the symptoms of menopause
from OB/GYNs. In addition, approximately 54% of midlife women now utilize their
OB/GYN as their primary health care provider. We believe this number will
continue to grow as a result of the enactment of new laws in a number of states,
including California, that require health maintenance organizations to permit
women to see OB/GYNs without a referral from their primary care physicians. In
addition, nurse practitioners and physician assistants are assuming broader
roles in the treatment of midlife women and can now prescribe medications in a
growing number of states. Notwithstanding the large number of women who use
OB/GYNs as primary care physicians, we believe that OB/GYNs typically have not
prescribed pharmaceutical products outside of their traditional practice area,
such as pharmaceutical products that treat high cholesterol, hypertension,
depression and incontinence. As their roles expand, we believe OB/GYNs and the
nurse practitioners and physician assistants focused on women's health will
increasingly prescribe products that address the full range of diseases and
conditions that affect midlife women. We also believe that these clinicians
increasingly will be called upon to recommend nonprescription self-care products
to their patients, such as nutritional supplements and skin-care products.
Increasing opportunities for product licensing, acquisition, co-promotion and
development by specialty pharmaceutical companies
Industry consolidation and cost containment pressures from government and
managed care companies have increased the minimum revenues that an individual
product must generate to justify active marketing and promotion by large
pharmaceutical companies. Large pharmaceutical companies are focusing on current
or new drugs with perceived high-volume sales potential, drugs that address
global market opportunities and drugs that fit within core therapeutic or
marketing priorities. As a result, major pharmaceutical companies increasingly
have sought to divest non-strategic product lines or to license or co-promote
products with specialty pharmaceutical companies with focused sales and
marketing channels.
STRATEGY
We believe that by responding to the current industry trends, we can become
a premier marketer of health care products for midlife women and can establish
Women First as a widely recognized source of pharmaceutical and self-care
products targeted at this group of women. To achieve this goal, we intend to:
- LEVERAGE THE EXPANDING ROLE OF OB/GYNS AS PRIMARY CARE PHYSICIANS. We
believe that the expanding roles of OB/GYNs and the nurse practitioners
and physician assistants focused on women's health create a market
opportunity for us. We intend to leverage this opportunity by providing
an educational platform to increase these clinicians'
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knowledge of the diagnosis and treatment of conditions and diseases
affecting midlife women. In addition, we intend to use this platform to
promote hormonal replacement therapy, oral contraceptive and
cholesterol-lowering pharmaceutical products. We also anticipate using it
to promote pharmaceutical products that address other conditions and
diseases often affecting women later in life, such as hypertension,
osteoporosis, depression and incontinence. Furthermore, we believe that
these clinicians increasingly will be called upon to recommend
nonprescription self-care products to their patients, such as nutritional
supplements and skin-care products.
- ENHANCE SALES THROUGH FOCUSED MARKETING EFFORTS. We intend to reach our
target market of 57 million midlife women through our sales and marketing
program to OB/GYN practices and our direct-to-consumer marketing program.
We employ 82 sales representatives and expect to increase the number to
approximately 100 during 1999. We intend to hire additional sales
representatives as warranted by the growth of our business. Our sales
force markets our products throughout the United States, with an emphasis
on OB/GYNs and the nurse practitioners and physician assistants focused
on women's health. We market our self-care products to midlife women
through a comprehensive direct-to-consumer marketing program that
includes the As We Change(R) catalog and the ASWECHANGE.COM Internet site
and the WOMENFIRST.COM Internet site. We enhance our sales and marketing
efforts through our Midlife Healthline(TM) toll-free telephone service
staffed with nursing professionals, counseling through Women First
Pharmacy Services and our educational products.
- BECOME A PRIMARY SOURCE FOR WOMEN'S HEALTH CARE EDUCATION. We believe
that as women and clinicians become more informed, they will be more
likely to use or recommend pharmaceutical and self-care products that
address women's needs in midlife. Accordingly, we seek to provide
credible and comprehensive information to women and their clinicians. To
help us achieve this goal, we have organized a Health Advisory Board
comprised of a group of pre-eminent clinicians and scientists with
expertise in women's health to develop the content for a
multi-dimensional educational program called Gateway to Midlife
Health -- A Better Way(TM). Through an unrestricted grant from Women
First, the Mount Sinai School of Medicine and the Women's Health Care
Education Foundation has developed and sponsored the clinician education
portion of the program in cooperation with the University of Southern
California School of Medicine. We believe that our educational program
will enhance awareness of Women First(TM) among women and their
clinicians.
- ESTABLISH "WOMENFIRST.COM" AS A COMPREHENSIVE INTERNET SITE FOR MIDLIFE
WOMEN. We believe that midlife women are actively seeking an on-line
forum where they can interact with others with similar health care
concerns, find credible and comprehensive information and purchase
products related to their particular needs. We have desgined the
WOMENFIRST.COM site as an on-line community for midlife women. This
Internet site contains extensive educational information for women and
will contain professional materials for the clinicians who care for them.
We have designed the site to be interactive and to provide access to
members of our Health Advisory Board through question and answer sessions
and information on upcoming educational events across the country. We are
developing chat rooms for women to discuss midlife health issues. We
believe that the WOMENFIRST.COM site is an effective platform to market
the products we offer and, in the future, to promote the products of
other companies that are targeted at midlife women.
- SEEK PRODUCT CO-MARKETING AND PRODUCT ACQUISITION OPPORTUNITIES. We plan
to expand the range of products we offer midlife women by obtaining
rights to market and sell branded pharmaceutical and self-care products
to these women. We will focus on
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products that are not being actively marketed to OB/GYNs or the nurse
practitioners and physician assistants focused on women's health, that
complement the product lines we currently offer or that we can distribute
on an exclusive basis. We continue to engage in discussions with major
pharmaceutical companies to license, acquire or co-promote pharmaceutical
products that have been approved by the FDA or pharmaceutical products in
the late stages of clinical development.
Our business model is relatively new and still evolving. See "Risk
Factors -- We have a broad business model that will require the development of
many different areas. If we fail to implement any of the key elements of our
business plan, our business may not succeed."
PRODUCTS
Pharmaceutical Products and Medical Devices
The pharmaceutical products we currently offer include the Pravachol(R)
cholesterol-lowering pharmaceutical product, the Ortho-Est(R) hormonal
replacement therapy product, and compounded hormonal replacement therapy
products, including micronized progesterone, available through Women First
Pharmacy Services. We recently agreed to co-promote Ortho Tri-Cyclen(R), a
leading oral contraceptive, and a new oral combination estrogen and progestin
hormonal replacement therapy product, which is pending approval by the FDA.
Pravachol(R). Pravachol(R) (pravastatin sodium), an HMG-CoA reductase
inhibitor or "statin," is available in three dosage strengths of 10 mg, 20 mg
and 40 mg. Pravachol(R) has been shown to reduce the risk of a first heart
attack and coronary heart disease, as well as the risk of future heart surgery
to clear blocked arteries, in patients with high cholesterol without clinical
evidence of coronary heart disease. It also has been shown to reduce the risk of
recurrent heart attacks, stroke and mini-stroke as well as the risk of heart
surgery to clear blocked arteries in patients with prior heart attacks and
normal cholesterol (less than 240mg/dL). The Pravachol(R) product has been shown
to reduce these risks by lowering total cholesterol and low density lipoprotein
(LDL), while increasing high density lipoprotein (HDL). We obtained the right to
market the Pravachol(R) product to designated OB/GYNs and the nurse
practitioners and physician assistants associated with OB/GYN practices pursuant
to a co-promotion agreement with Bristol-Myers Squibb.
Frost & Sullivan projects that the U.S. market for cholesterol-lowering
drugs will grow at a compound annual growth rate of approximately 17.9% to $10.7
billion in 2002. According to IMS Health, the U.S. market for statins was
approximately $4.6 billion in 1998, which represented over 90% of the total
market for cholesterol-lowering drugs. IMS Health also reported that the
Pravachol(R) product achieved U.S. sales of approximately $900 million in 1998,
representing a market share of approximately 19%. Although approximately 54% of
women utilize OB/GYNs as their primary care physicians, less than 1% of the
prescriptions for cholesterol-lowering medications were written by OB/GYNs.
Through our relationship with Bristol-Myers Squibb, we plan to address this
significant market opportunity for the Pravachol(R) brand.
Ortho-Est(R). Ortho-Est(R) (estropipate), a soybean-derived estrogen
product, is available on the market in the United States in two strengths,
.625mg and 1.25mg. The Ortho-Est(R) product replenishes declining estrogen
levels in midlife women with estrone, the principal type of estrogen that the
body makes following menopause. We obtained the rights to distribute and sell
the Ortho-Est(R) product pursuant to an exclusive distribution agreement with
Ortho-McNeil Pharmaceutical, Inc., a subsidiary of Johnson & Johnson. Women
First distributes the Ortho-Est(R) product through wholesale and retail
channels. Purchases by two of Women First's customers for the Ortho-Est(R)
product, McKesson HBOC, Inc. and Eckerd Corporation, each comprised more than
10% of Women First's total sales in 1998.
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New HRT Product. We obtained the right to market a new oral combination
estrogen and progestin hormonal replacement therapy (HRT) product to designated
OB/GYNs, primary care physicians and nurse practitioners focused on women's
health care in the United States and Puerto Rico pursuant to a co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. The product is the subject of a
new drug application filing currently under review by the FDA. Physicians
generally prescribe a progestin along with estrogen to reduce the risk of
endometrial cancer in women with an intact uterus.
Esclim(TM). In June 1999, we signed a letter of intent to finalize a
distribution and license agreement with Laboratories Fournier S.A. for the
exclusive right to distribute, promote and sell the Esclim(TM) product line in
the United States and Puerto Rico. Esclim(TM) is an estrogen transdermal patch
system that releases small amounts of estradiol, the main estrogen produced in
the ovaries, through the skin on a continuous basis. Esclim(TM) replenishes
declining levels of estradiol using a patented matrix technology. The product, a
patch that is changed twice a week, is available in a range of dosage strengths
including 25, 37.5, 50, 75 and 100 micrograms. When placed on the skin, the
patch releases estradiol directly into the bloodstream. Esclim(TM), which
received FDA approval in August 1998, is the leading transdermal hormone product
in France and has been launched in a number of European countries and Canada.
Studies have shown that HRT alleviates the symptoms commonly associated
with menopause and may reduce the risk of cardiovascular disease and
osteoporosis. However, some women experience side effects associated with HRT
including bloating, weight gain, breast tenderness, headaches, nausea and
breakthrough bleeding. In addition, women may discontinue using HRT due to a
perceived risk of breast cancer. On balance, the Health Advisory Board believes
that most midlife women would benefit from long-term usage of HRT with
appropriate monitoring. However, according to the National Institutes of Health,
only 15% of midlife women currently use HRT. According to IMS Health,
pharmaceutical sales for HRT were approximately $1.7 billion and the oral
estrogen segment of this market was approximately $1.0 billion in 1998.
According to Medical Data International, Inc., the market for hormonal
replacement therapy products is expected to grow by an average of 14.3% each
year and is expected to reach approximately $2.9 billion in 2002.
Ortho Tri-Cyclen(R). Ortho Tri-Cyclen(R) is an oral contraceptive for the
prevention of pregnancy in women. The product is available in two regimens, a 21
day regimen and a 28 day regimen. Ortho Tri-Cyclen(R) 21 is supplied with 21
pills containing 0.35mg ethinyl estradiol and norgestimate in three
concentrations, 0.180mg, 0.215mg and 0.250mg. Ortho Tri-Cyclen(R) 28 is supplied
with the 21 active pills and seven pills with inert ingredients. We obtained the
right to market Ortho Tri-Cyclen(R) to designated OB/GYNs, primary care
physicians and nurse practitioners focused on women's health care in the United
States and Puerto Rico pursuant to a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. In addition to preventing pregnancy, use of combination
oral contraceptives may provide other benefits to women, including more regular
menstrual cycles, lighter blood flow during menstruation and less frequent
menstrual pain, all of which can occur during the period preceding menopause.
According to IMS Health, oral contraceptive sales were $1.6 billion in 1998.
Micronized Progesterone. Micronized progesterone is a natural progesterone
that is readily absorbed by the body. We compound micronized progesterone and
other hormonal therapy products in capsule, cream and suppository formulations
at Women First Pharmacy Services. Physicians may prescribe a progestin or
natural micronized progesterone for use in conjunction with an estrogen product
in women who have an intact uterus to reduce the risk of endometrial cancer.
According to IMS Health, the retail market for progestins, including
progesterone products, was approximately $212.5 million in 1998. Products which
combine a progestin and estrogen also are available and, according to IMS
Health, pharmaceutical sales for these products represented approximately $438
million in 1998.
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SafeStart(TM). SafeStart(TM) is a device that clamps and cuts the umbilical
cord of newborns. We obtained rights to distribute the product through an
exclusive distributorship agreement with Price Invena ApS of Denmark. We
received FDA clearance to sell the product in the United States in August 1998
and began commercialization in the first quarter of 1999.
Self-Care Products
We offer a variety of self-care products to midlife women through our
subsidiary As We Change, LLC, a national mail order catalog and Internet
retailer directed at midlife women, and through our Internet site,
WOMENFIRST.COM. The As We Change catalog offers women a range of more than 100
products designed to meet their needs at midlife. Our self-care products are
described below.
Nutritional Products. We are working with the Tufts University School of
Nutrition Science and Policy to develop a line of Women First(TM) nutritional
products uniquely formulated to address the specific needs of midlife women. We
anticipate that these products will include a daily nutritional supplement
coupled with specialized nutritional formulations to address specific health
concerns of midlife women. To assist women in their selection of nutritional
supplements, we also are creating a program to individualize nutritional
recommendations to women based on factors such as family history, lifestyle and
physical characteristics. We plan to offer this program to women through their
clinicians as well as through WOMENFIRST.COM.
We entered into a development and license agreement with the Tufts
University in April 1999. All of the products developed in conjunction with
Tufts University will be co-branded with Women First(TM) to carry the name of
the Tufts University School of Nutrition Science and Policy on the product label
to acknowledge Tufts' participation in the formulation of the products. We
believe that the use of the Tufts name will help to differentiate our branded
products in this category. We anticipate that these products will be available
during the fourth quarter of 1999. According to Packaged Facts, the market for
nutritional products is a large and growing market, exceeding $5 billion in
annual sales in the United States in 1998.
RENEWAL a time for you(TM). We have developed this product in conjunction
with Dr. Deepak Chopra based on his research in mind/body connectivity. Dr.
Chopra has sold over 10 million books and numerous audio and video tapes and has
achieved worldwide recognition in his field. We believe the RENEWAL product will
offer women practical approaches to achieve a sense of well-being in midlife.
The product consists of a videotape, audio tape and booklet. Our market research
indicated that women are concerned with emotional, social and psychological
issues at midlife that are not being adequately addressed. We expect to launch
this product in the second quarter of 1999. We intend to collaborate with Dr.
Chopra in the development of additional products.
IntegraVie(TM). The IntegraVie(TM) line of skin care products is our first
product line formulated specifically for midlife skin. The IntegraVie(TM)
products are based on patented technology developed by Cosmederm Technologies,
Inc. for topical formulations of strontium, sold under the trademark element
38(TM). The element 38(TM) compound inhibits skin irritation. It enables the
addition to topical skin care products of highly effective amounts of hydroxy
and lactic acids that reduce the visible signs of aging, with a substantial
reduction of the characteristic skin irritation associated with the use of those
acids. We obtained a non-exclusive license to use this technology from Cosmederm
Technologies, Inc. in December 1998 and an exclusive license to the element
38(TM) trademark from Creative Beauty Innovations, Inc. in January 1999.
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ViAmor(TM). The ViAmor(TM) vaginal moisturizer is a clear, water-soluble
gel that is non-staining, non-irritating, non-toxic and odorless. The product is
designed for use by midlife women, many of whom have vaginal dryness due to the
decline of estrogen levels and, as a result, experience painful sexual
intercourse. We signed a private label agreement in May 1998 with BioFilm, Inc.
that permits us to distribute and sell this vaginal moisturizer.
Exercise Video. The Strong Women Stay Young exercise video is based on the
best-selling book of the same title by Dr. Miriam Nelson, a highly respected
expert on women's health issues. Dr. Nelson's book is based on research
published in December 1994 in the Journal of the American Medical Association
and has sold over 300,000 copies. This research showed that weight-bearing
exercises reduced the incidence of fractures associated with osteoporosis. We
have the exclusive right to develop and distribute the video, which we began
selling in 1998.
Membership Program. Beginning in the third quarter of 1999, we plan to
market a membership program for midlife women. We developed the program in
response to our market research that indicated that women want credible
information about their health care and choice and individualization in product
solutions. For an annual fee, women will receive access to a broad array of
educational and lifestyle products developed by Women First and access to
special programs that we intend to offer periodically on the WOMENFIRST.COM
Internet site. We will include the My Generation, My Choice(TM) subscription
newsletter to provide a credible source of practical, ongoing information on
health care for midlife women. In addition, members will be able to receive
discounts for products purchased through the As We Change(R) catalog. We
anticipate that the membership program will provide us with a vehicle for
building communication and loyalty within our customer base and establish Women
First as a widely recognized source of pharmaceutical and self-care products.
Benefit:Risk Assessment Model. In September 1998, we entered into an
exclusive licensing arrangement with CHPNC, LLC, pursuant to which we have the
exclusive right to manufacture, market and sell the product entitled the
"Benefit:Risk Assessment Model." We will fund the development of this product, a
patient health questionnaire and software program that assesses a woman's risk
for developing heart disease, breast cancer and osteoporosis. This product is
based on Dr. Nananda Col's research that was published in the Journal of the
American Medical Association in April 1997 and that she incorporated in her book
entitled A Woman Doctor's Guide to Hormone Therapy -- How to Choose What's Right
for You.
Some of the products we offer face specific challenges, and our ability to
succeed is dependent on whether we can overcome these challenges. In addition,
we must achieve specified minimum requirements in order to maintain some of our
product agreements. See "Risk Factors -- Many of our product agreements require
us to make minimum payments or make a minimum number of sales calls. If our
sales of these products do not exceed the cost of these minimums, our marketing
and distribution of these products will not be profitable and our results of
operations will be harmed"; "-- Many of our product agreements may be terminated
if we fail to make minimum purchases, make a minimum number of sales calls or
for other reasons. This could force us to discontinue sales of key products and
could harm our results of operations" and "-- If midlife women do not use and
their clinicians do not recommend the products we offer, we will continue to
experience significant losses."
MARKETING AND SALES
Sales Force. In August 1998, there were approximately 29,000 board
certified OB/GYNs in the United States, and the membership of the American
College of Obstetricians and Gynecologists has grown to approximately 37,000
physicians specializing in obstetric/ gynecologic care. We have recruited and
trained a direct field sales force of 82 sales
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representatives to market to these practices, and we anticipate the expansion of
this sales force to 100 sales representatives during 1999. Our co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. requires us to expand our field
sales force to at least 100 representatives in 1999 and to further significantly
expand our sales force following FDA approval of the new oral combination
hormonal replacement therapy (HRT) product. We intend to hire additional sales
representatives as warranted by the growth of our business. To optimize our
sales efforts, we have prioritized OB/GYNs based on the frequency with which
they prescribe hormonal replacement therapy products. We estimate that our
current sales organization can effectively market on a prioritized basis to
approximately 18,000 OB/GYNs and the primary care physicians, nurse
practitioners and physician assistants focused on women's health. We have also
hired a staff to support the field sales force, including customer service
representatives, sales trainers and sales and contract administrators. Our
Pravachol(R) co-promotion agreement provides that Bristol-Myers Squibb will
support our marketing and sales activities through participation in sales force
training, jointly developing marketing strategies and promotional plans and
planning market research. Our co-promotion agreement with Ortho-McNeil also
provides that Ortho-McNeil will support our marketing and sales activities for
the Ortho Tri-Cyclen(R) oral contraceptive and the new oral HRT product covered
by the agreement by providing sales training, supplying product samples and
promotional materials, jointly developing marketing strategies and promotional
plans with us and planning educational programs.
Internet Strategy. We are implementing an "e-commerce" initiative through
our Internet site, WOMENFIRST.COM, which we launched in May 1999. Through this
site, we provide extensive educational information for women and intend to
provide professional materials for the clinicians who care for them. This site
is intended to be interactive and to provide access to members of our Health
Advisory Board through question and answer sessions and information on upcoming
educational events across the country. We are developing chat rooms for women to
discuss midlife health issues with each other. In addition, we have designed the
site to allow women to shop online for our consumer products and to link to the
ASWECHANGE.COM Internet site. Subject to the outcome of current regulatory
proposals that seek to regulate pharmacies, we also intend to provide online
pharmacy services through Women First Pharmacy Services on the WOMENFIRST.COM
Internet site.
Because of the significant educational content we have placed on the
WOMENFIRST.COM Internet site, we believe that the site will be an attractive web
link. We have entered into an agreement with iVillage Inc. to provide
educational information on midlife health issues in a Women First designated
area on ivillage.com and to link the iVillage site to WOMENFIRST.COM. In
addition, iVillage has agreed to host four online events related to midlife
health, including at least one event with Deepak Chopra, M.D. Our subsidiary As
We Change, LLC, also has entered into an agreement with iVillage Inc. under
which iVillage has established links on ivillage.com to the ASWECHANGE.COM
Internet site. There were approximately 2.7 million individual visitors to
ivillage.com in October 1998, the majority of whom were women.
Women First Pharmacy Services. We established Women First Pharmacy Services
to provide a personalized, confidential and convenient way for women to fill
their prescriptions. The pharmacy began operations in December 1998. Women First
Pharmacy Services specializes in women's health and provides a full range of
prescription products as well as compounded hormonal therapy products and other
services. Women First Pharmacy Services enables us to:
- provide individualized hormonal replacement therapy products to midlife
women including micronized progesterone, estrogen and androgens,
- supplement the physician's care with a patient-focused counseling program
to assist women with questions about their medications, and
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- provide follow-up with patients relating to the acceptance of hormonal
replacement therapy and other products.
We market our pharmacy services to physicians, health plans and providers
through our national sales organization and directly to women through our
toll-free number (1-877 2WOMEN1) and direct mail. We also intend to market these
services through the WOMENFIRST.COM Internet site and community outreach
meetings. We entered into a two-year contract with Health Script, a pharmacy
management company, to oversee certain operations of, and provide other services
for, Women First Pharmacy Services.
As We Change. In October 1998, we acquired As We Change, LLC, a national
mail order catalog and Internet retailer directed at midlife women. As We
Change, LLC offers a broad array of self-care products including nutritional,
herbal, beauty, exercise, wellness and personal care products. As We Change, LLC
has generated more than 100,000 orders and currently has an in-house database of
nearly 110,000 customers and catalog requesters. We have launched a number of
products through the As We Change(R) catalog and the ASWECHANGE.COM Internet
site, including the IntegraVie(TM) line of skin care products, the Strong Women
Stay Young video and the ViAmor(TM) vaginal moisturizer. We will continue to
utilize the catalog and Internet site as vehicles to market directly to
consumers and to promote Women First(TM) products to the As We Change(R)
customer base.
EDUCATIONAL AND SUPPORT PROGRAMS
Women First Midlife Healthline(TM). Our market research indicates that
women want more time with their clinicians and other health care providers. In
today's managed care environment, clinicians can only spend a limited amount of
time with each patient. Our Women First Midlife Healthline(TM) is staffed by
trained nursing professionals who can provide help, support, advice and answers
to many of the key questions and issues facing midlife women. The nurses are
trained to counsel women on the treatment options available to them and to
assist patients with the treatments prescribed by their clinicians. In addition,
we anticipate that our Women First Midlife Healthline(TM) toll-free telephone
service will become an important vehicle for communicating to women about the
products and services we offer.
The Women First Clinician Education Program. Our Health Advisory Board has
developed the content for a midlife health education program entitled "Gateway
to Midlife Health -- A Better Way," to educate OB/GYNs, and the primary care
physicians, nurse practitioners and physician assistants focused on women's
health with the goal of improving the diagnosis and treatment of midlife
conditions and diseases. Through an unrestricted grant from Women First, the
Mount Sinai School of Medicine and the Women's Health Care Education Foundation
has developed and sponsored the clinician education portion of the program in
cooperation with the University of Southern California School of Medicine.
Our Health Advisory Board developed a Consensus Report containing its core
beliefs and clinical judgments regarding the health of midlife women that was
mailed to more than 30,000 OB/GYNs and the primary care physicians, nurse
practitioners and physician assistants focused on women's health. In addition,
the Health Advisory Board held a Distinguished Professor Conference in January
1999 that was attended by more than 90 OB/GYNs and nurse practitioners
recognized as leaders in their fields. The conference generated content for a
monograph and videotape that was disseminated to 30,000 clinicians across the
country. This video monograph describes the Health Advisory Board's position on
clinical issues affecting women in midlife. The conference content is being used
to create a slide/lecture program to serve as the basis of a Distinguished
Professor Lecture Series. We expect to hold a number of these conferences with
OB/GYNs and the primary care physicians, nurse practitioners and physician
assistants focused on women's health in 1999. The Health Advisory Board is
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developing "Case & Comment" newsletters to be distributed to clinicians. Each
newsletter will present cases in the management of midlife women's health and
include commentary by experts on the key facets of the case and its management.
The Women First Consumer Education Program. We have developed a booklet
called "A Better Way(TM) to Midlife Health -- Your Personal Guide" that provides
information to women about midlife health issues including menopause. Each
booklet includes a journal section where women can record their symptoms and
personal health data to improve their interaction with their clinician. In
addition, we plan to conduct periodic "A Better Way to Midlife Health" community
meetings that provide a woman-to-woman forum for discussions of key issues
surrounding midlife health and menopause. We plan to extend the reach of the
program into local communities using a peer-to-peer learning/sharing approach
and through the WOMENFIRST.COM Internet site.
MANUFACTURING AND LOGISTICS
We do not plan to establish manufacturing capability. We will source the
products we offer through manufacturing agreements with third-party
manufacturers. The third-party manufacturers will be responsible for receipt and
storage of raw materials, production, packaging, labeling and shipping of
finished goods. We currently have arrangements with OMJ Pharmaceuticals, Inc., a
division of Johnson & Johnson, for the supply of the Ortho-Est(R) oral estrogen
product, BioFilm, Inc. for the supply of the ViAmor(TM) vaginal moisturizer and
Price Invena for the supply of the SafeStart(TM) umbilical cord clamp/cutter.
Bristol-Myers Squibb is responsible for the supply of the Pravachol(R) product
in all distribution channels. Ortho-McNeil Pharmaceutical, Inc. is responsible
for the supply of the Ortho Tri-Cyclen(R) product and the new oral hormonal
replacement therapy product in all distribution channels. For more information
about our sources of supply, see "Risk Factors -- We are dependent on single
sources of supply for all of the products we offer. If one of our suppliers
fails to supply adequate amounts of a product we offer, our sales may suffer and
we could be required to abandon a product line."
Initially, we intend to engage independent companies specializing in the
distribution of pharmaceutical and medical products to pharmacies and hospitals
to provide physical distribution and logistics management for the pharmaceutical
and medical device products we distribute. Livingston Healthcare Services, Inc.
currently provides these services.
COMPETITION
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. The pharmaceutical industry is characterized by continuous
product development and technological change. The pharmaceuticals we market and
distribute could be rendered obsolete or uneconomical by pharmaceuticals
developed by competitors, technological advances affecting the cost of
production, or marketing or pricing action by one or more competitors. In
addition, competitors may elect to devote substantial resources to marketing
their products to midlife women and may choose to develop educational and
information programs like those we have developed to support their marketing
efforts. Our business, financial condition and results of operations could be
materially and adversely affected by any one or more of such developments.
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Pharmaceutical Products
The pharmaceutical products we offer face significant competition. The
Ortho-Est(R) oral estrogen product, which represents less than 1% of the U.S.
market for hormonal replacement therapy products (with 1998 U.S. sales of $10
million), competes with the Premarin(R) oral estrogen product and Prempro(R) and
Premphase(R) combination oral estrogen and progestin products, all of which are
produced by Wyeth-Ayerst Laboratories, Inc. The Ortho-Est(R) brand also competes
with several other estrogen replacement products including generics taken orally
and through transdermal patches and creams, as well as non-hormonal replacement
therapy products marketed by Merck & Co., Inc. and Eli Lilly & Company. The
Ortho Tri-Cyclen(R) product competes with other oral contraceptive products
marketed by Wyeth-Ayerst, Warner-Lambert Company, Organon Inc. and Berlex
Laboratories. Ortho Tri-Cyclen(R) also competes with other forms of
contraception including contraceptive implants, progestin injections,
intrauterine devices, spermicides, diaphragms, cervical caps, female condoms,
emergency contraception and sterilization. The new oral combination hormonal
replacement therapy (HRT) product covered by our co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc., if approved and launched, will compete
primarily with Prempro(R) and Premphase(R) combination oral estrogen and
progestin products and a combination estrogen and progestin patch manufactured
by Noven Pharmaceuticals, Inc. and marketed by Rhone-Poulenc Rorer. The new oral
HRT product will also compete with oral estrogen and transdermal estrogen
products as well as oral progestin products. The Pravachol(R) brand competes
with other cholesterol-lowering products marketed by Merck, Warner-Lambert
Company/Pfizer, Inc., Novartis Pharmaceuticals Corporation and Bayer
Corporation. In addition, micronized progesterone and other hormonal replacement
therapy products compounded by Women First Pharmacy Services compete with
compounded hormonal replacement therapy products distributed by regional and
national pharmacies. In 1998, Solvay Pharmaceuticals, Inc. received FDA approval
to market an oral capsule containing micronized progestrone developed and
manufactured by Schering Plough Corporation. Products compounded by Women First
Pharmacy Services may also compete with FDA-approved pharmaceuticals. Each of
these competitors has substantially greater marketing, sales and financial
resources than we do.
Self-Care Products
Competition for the other products we offer also is significant. The
ViAmor(TM) vaginal moisturizer competes against a number of well-known brands of
vaginal moisturizers and lubricants. The IntegraVie(TM) line of skin care
products faces competition from products from leading cosmetics and
dermatological companies. As We Change, LLC competes with a number of catalog
companies and Internet retailers focusing on self-care products. Transitions for
Health(TM) offers a wide range of nutritional and herbal products for midlife
women and Self Care(R), Well & Good(TM), Feel Good(TM), Solutions(R) and
HealthyHome(TM) promote general lifestyle and personal care products.
Our educational products will compete with products that have been
developed by medical professionals and non-professionals alike. Our Internet
site, WOMENFIRST.COM, will compete with other Internet sites focused on women's
health as well as sites focused on health care issues in general.
LICENSING AND CO-PROMOTION AGREEMENTS
Ortho-Est(R). We obtained the rights to distribute and sell the
Ortho-Est(R) product in the United States and Puerto Rico pursuant to an
exclusive distribution agreement dated as of July 1, 1998 with Ortho-McNeil
Pharmaceutical, Inc., a subsidiary of Johnson & Johnson. The agreement requires
us to make minimum aggregate payments of $40.1 million to Ortho-McNeil over the
remaining nine-year term of the agreement, regardless of the actual sales
performance
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of the Ortho-Est(R) product. The minimum payments in future years decrease
annually based on a 10-year forecast that was determined at the time the
contract was executed. We are required to make a minimum payment of $6.6 million
during 1999. If our annual purchases of the Ortho-Est(R) product exceed our
minimum payments, we are entitled to the amount of this excess less specified
royalties and manufacturing costs. Ortho-McNeil may terminate the distribution
agreement (1) upon one year's notice so long as Ortho-McNeil provides us with a
one-year supply of the Ortho-Est(R) product and uses reasonable commercial
efforts to transfer to us the manufacturing and distribution rights to the
product, (2) if the cost of FDA revalidation, should it be necessary, exceeds $3
million, or (3) for other specified reasons.
Pravachol(R). We obtained the right to co-promote the Pravachol(R) product
in the United States to OB/GYNs, primary care physicians designated as OB/GYNs
by Bristol-Myers Squibb U.S. Pharmaceuticals Group, and nurse practitioners and
physician assistants associated with OB/GYN practices, pursuant to a three-year
co-promotional agreement effective March 1, 1999 with Bristol-Myers Squibb.
Under the agreement, we are responsible for the costs incurred by both parties
in approved promotions of the product to the clinicians covered by the agreement
(less a specified credit) and for the training of our sales force relating to
the Pravachol(R) product. Bristol-Myers Squibb is responsible for the
manufacture, shipping, distribution and warehousing of the product as well as
billing and collection services. Bristol-Myers Squibb has agreed to pay
specified costs associated with product samples and education of the clinicians
covered by the agreement.
Bristol-Myers Squibb compensates us with a performance fee paid quarterly
based upon the number of prescriptions written by the clinicians covered by the
agreement above an applicable baseline number. During the first year, the
quarterly baseline amount increases each quarter. During the second and third
years, the baseline amounts increase by a percentage which reflects growth in
prescriptions for pravastatin in the United States over the prior year. Our
compensation is calculated based on a percentage of net sales from prescriptions
in excess of the applicable baseline amount as adjusted to reflect previous
payments. In addition, we are entitled to receive a residual compensation
payment during the 24-month period following the expiration of the agreement as
long as Bristol-Myers Squibb does not terminate the agreement due to our breach
of or failure to perform our obligations under the agreement.
In the event that Pravachol(R) prescriptions written in the United States
by the clinicians covered by the agreement do not exceed specified minimum
prescription amounts that increase quarterly in the first year and yearly from
year to year thereafter, Bristol-Myers Squibb may terminate the agreement. The
minimum amounts require us to achieve a significant increase over the number of
prescriptions for this product currently written by the clinicians covered by
the agreement and substantially exceed the baseline amounts used for purposes of
calculating the performance fee. Bristol-Myers Squibbs' termination rights arise
upon either our failure to meet certain prescription forecasts for two
consecutive quarters or the yearly prescription forecasts for one year.
September 30, 1999 is the end of the first two consecutive quarter period under
the agreement. Moreover, if we experience a change in control, Bristol-Myers
Squibb may terminate the agreement. A change in control includes: (1) the sale
of any securities which transfers over 50% of our assets relating to the product
to any person, (2) any person who is involved in the sale, licensing or
distribution of drug products, nutritional agents and drug products becoming the
beneficial owner of 20% of the combined voting power of Women First, or (3) any
person becoming the beneficial owner of 50% of the combined voting power of
Women First. The agreement may also be terminated for other specified reasons.
Ortho Tri-Cyclen(R) and a New Oral HRT Product. We obtained the right to
co-promote the Ortho Tri-Cyclen(R) product and a new oral combination estrogen
and progestin hormonal replacement therapy (HRT) product in the United States
and Puerto Rico to designated physicians and nurse practitioners in the field of
women's health care pursuant to a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. effective July 1, 1999 and
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continuing through December 31, 2002 unless earlier terminated. We may extend
this agreement for one additional year provided minimum sales goals are met.
The agreement requires Ortho-McNeil to compensate us for sales of Ortho
Tri-Cyclen(R) with a performance fee based on the value of Ortho-McNeil's net
increase in its market share of oral contraceptive products for the
prescriptions written by the clinicians called on by us over the increase, if
any, in Ortho-McNeil's market share for oral contraceptive products for the
prescriptions written by the clinicians who are not called on by us. The
agreement also calls for Women First to receive minimum payments commencing in
2000 if minimum performance goals are met. Ortho-McNeil will not be required to
make the minimum payments contemplated by the agreement with respect to the
Ortho Tri-Cyclen(R) product if we fail to make a specified portion of the
required sales calls for that product or if the growth in Ortho-McNeil's market
share for oral contraceptives among the clinicians called on by us does not
exceed the growth in Ortho-McNeil's market share among a control group of
clinicians. The agreement gives Ortho-McNeil the right, in its sole discretion,
to replace Ortho Tri-Cyclen(R) with another oral contraceptive if Ortho-McNeil
is giving the new oral contraceptive sufficient prominence in its own sales
efforts. The same compensation and minimum performance goals under the agreement
would apply to the new oral contraceptive. Ortho-McNeil will compensate us for
sales of the new oral HRT product upon approval by the FDA, if obtained, and
product launch through a compensation arrangement based on the net sales of the
product from prescriptions written by the clinicians who are called on by us.
Ortho-McNeil also may reduce the payments otherwise required to be paid to us
under the agreement with respect to the new oral HRT product if we do not make a
specified portion of the minimum number of sales calls for that product.
Under the co-promotion agreement, we are responsible for our costs in
promoting the products covered by the agreement and our out-of-pocket expenses
in training our sales force, except for the costs of certain promotional
materials, training materials and expenses and product samples which will be
provided by Ortho-McNeil. Ortho-McNeil is responsible for the manufacture,
labeling, distribution and selling of the products. The agreement prohibits us
from marketing, promoting, selling or distributing any prescription
contraceptive or prescription hormonal replacement therapy product other than
the Ortho Tri-Cyclen(R) and Ortho-Est(R) products and the new oral HRT product
and other than an estrogen patch product (subject to specified restrictions)
during the term of the agreement and the three months following the expiration
of the term. The co-promotion agreement also limits the number of products other
than Ortho Tri-Cyclen(R) and the new HRT product that our sales force may
present during the same sales call as Ortho Tri-Cyclen(R) and the new HRT
product. The agreement expressly permits Ortho McNeil to enter into a
co-promotion agreement with a third party with respect to the new oral HRT
product but not with respect to Ortho Tri-Cyclen(R).
The co-promotion agreement requires us to make a significant number of
sales calls each year, with the number increasing significantly after the launch
of the new HRT product. The agreement also allows Ortho-McNeil to terminate the
agreement in the event at least a specified portion of the minimum sales calls
are not made for three consecutive quarters. The agreement also may be
terminated by either party on a product by product basis if any product covered
by the agreement loses regulatory approval, and either party may terminate the
agreement in its entirety if the new oral HRT product is not approved by the FDA
for sale in the United States or the product has not been launched by October 1,
2000. In addition, the agreement also may be terminated in the event that there
is a change in control of Women First or if Edward F. Calesa or David F. Hale is
no longer associated with Women First (other than as a result of death or
disability). A change in control includes the acquisition by a third party
unaffiliated with Women First of (1) a majority of our stock or the right to
vote a majority of our stock or (2) sufficient stock to elect a majority of our
Board of Directors or (3) the power to designate a majority of our Board of
Directors. The agreement also may be terminated for other specified reasons.
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Esclim(TM). In June 1999, we entered into a letter agreement with
Laboratoires Fournier S.A. to negotiate in good faith the final terms of, and
enter into, a distribution and license agreement under which we would have the
exclusive right (subject to exceptions) to market, use, distribute and sell the
Esclim(TM) estrogen transdermal system in various dosages in the United States
and Puerto Rico. The letter agreement contemplates a definitive agreement with a
term of seven years that could be terminated by Fournier upon a change of
control of Women First or by us if Fournier does not deliver sufficient product
to meet our initial purchase order. The definitive agreement would require us to
pay Fournier a non-refundable license fee of $1.45 million payable over a
two-year period, with $700,000 of this fee subject to sales objectives being
reached. We also would be required to pay Fournier a royalty during the term of
the definitive agreement based upon the net sales of the product in amounts to
be established in the definitive agreement. The letter agreement contemplates
that the definitive agreement would provide that Fournier will be solely
responsible for the manufacture of the product and for quality assurance,
quality control and other aspects of manufacturing the product, except that
after payment of certain license fees, Fournier would transfer to us
responsibility for the New Drug Application filed with the FDA with respect to
the product. We would be solely responsible for U.S. customs clearance, sales,
marketing, advertising, distribution of the product and for handling product
complaints.
The letter agreement provides for a period of 30 days during which the
parties have agreed that they will negotiate only with each other regarding the
licensing and distribution of the Esclim(TM) product. In the event that
following good faith negotiation between the parties the definitive agreement is
not executed by July 21, 1999 (unless extended by Fournier), the letter
agreement will be terminated and we will be required to pay Fournier liquidated
damages of $250,000 plus an amount equal to Fournier's actual direct
manufacturing costs of the product during the 30-day period.
Health Script. In September 1998, we entered into a two-year pharmacy
management agreement with Health Script, a wholly owned division of Dura
Pharmaceuticals, Inc., to oversee certain operations of our subsidiary Women
First Pharmacy Services, Inc. Under the terms of the agreement, Health Script is
responsible for certain pharmacy management and compounding services,
third-party reimbursement, billing and collections. As compensation for its
services, we must pay Health Script a monthly fee ranging from $22,800 to
$288,600 based on the volume of orders in any given month, up to a designated
maximum number of orders, as well as supplemental prescription fees and
compounding fees that apply once certain minimum orders are exceeded. We must
also pay distribution fees and billing and collection fees based on the volume
of orders in any given month.
Dr. Deepak Chopra. In January 1999, we entered into an agreement with
Infinite Possibilities Media LLC for the development of a product entitled
RENEWAL a time for you(TM). Infinite Possibilities has agreed to provide the
services of Dr. Deepak Chopra for the development of this product. In addition,
the agreement provides that during the ten-year agreement term, we will work
with Dr. Chopra and Infinite Possibilities in developing additional products for
midlife women. Under the agreement, we are solely responsible for development
costs and the production and packaging costs of the product, as well as similar
costs under any additional products the parties establish during the term.
Infinite Possibilities has granted us a non-exclusive worldwide license to
utilize trademarks owned or controlled by Infinite Possibilities or Dr. Chopra
that relate to the marketing and sale of the RENEWAL product and any additional
products developed with Dr. Chopra. Further, in consideration of the license
granted, we must pay Infinite Possibilities a percentage of the profits based on
a formula set forth in the agreement with respect to each product. In the event
that we do not sell any product in the United States by December 31, 2000,
Infinite Possibilities may, as its sole remedy, terminate the agreement.
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Benefit:Risk Assessment Model. In September 1998 we entered into a
twelve-year license agreement with CHPNC, LLC to develop a patient health
questionnaire and software program related to hormonal replacement therapy based
upon the book A Woman Doctor's Guide to Hormone Therapy -- How to Choose What's
Right for You. Under the agreement, we are obligated to pay over the first two
years of the agreement a development fee in the amount of $900,000, of which we
paid $275,000 in 1998. The development fee is payable to CHPNC regardless of
whether or not the product is released for sale to the public. In addition,
commencing in the third year of the contract, we must make minimum royalty
payments over the remaining term of the contract, which commence at $100,000 and
which increase by an additional $100,000 for each two-year period thereafter.
This license is subject to becoming non-exclusive in the event of certain
defaults and also contains a non-competition provision which prohibits us from
manufacturing, promoting, publishing or selling any product directly competitive
with the Benefit:Risk Assessment Model.
iVillage. In May 1999, we entered into a one-year agreement with iVillage
Inc. to develop educational content for ivillage.com. The agreement provides
that iVillage will create a Women First area on ivillage.com and that we will
provide articles on midlife health topics for this area. We have agreed to
provide iVillage with two feature articles each month and iVillage will promote
at least one of these articles as a lead editorial in the "Better Health"
section of ivillage.com. In addition, iVillage has agreed to host four online
events on midlife health, including at least one with Dr. Deepak Chopra. We
intend to provide contacts, leads and cross promotion for these online events.
The agreement also stipulates that the Women First area in ivillage.com
will link to WOMENFIRST.COM and that WOMENFIRST.COM will include a prominent
link to the iVillage "Better Health" section of ivillage.com. Further, iVillage
has agreed to integrate Women First throughout the iVillage "Better Health"
section in appropriate categories and areas, including the integration of the
Women First name in the navigation bar of the iVillage "Better Health" section.
We will not provide educational materials to certain competitors of
iVillage, and iVillage will have the right of first refusal to participate in
Internet conferences that we develop. In addition, iVillage has agreed to
exclude certain competitors of ours from advertising within the Women First area
of ivillage.com. We have been granted a right of first refusal to market
products related to midlife health in the Women First area of the ivillage.com
site. There are no financial terms to the agreement.
SafeStart(TM). We obtained the exclusive right to distribute SafeStart(TM),
an umbilical cord clamp/cutter, in the United States and Canada through a
ten-year agreement with Price Invena ApS effective July 15, 1998. Our exclusive
distribution rights expand to Mexico, Central America and South America if we
reach our minimum purchase requirements. We are obligated to purchase $256,000
of the product through December 31, 1999 and $1.3 million per year for the
remainder of the contract, subject in each case to volume discounts. If we do
not purchase the minimum amount, Price Invena may increase the next year's
minimum by the shortfall. If we fail to meet our minimum by more than 50% for
two consecutive years, then Price Invena may make our distribution rights
non-exclusive. The agreement also grants us a right of first refusal with
respect to the distribution in the United States and Canada (and additional
countries where we have obtained distribution rights, if applicable) of any new
products developed by Price Invena.
ViAmor(TM). In May 1998, we signed a seven-year agreement with BioFilm,
Inc. to distribute and sell a private-label formulation of a vaginal moisturizer
which we sell under the name ViAmor(TM). The agreement provides that we must
purchase a minimum of $1 million worth of 35 ml tubes and applicators of the
ViAmor(TM) product each calendar year. In the
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event that we do not meet our yearly minimum purchase requirements, the
agreement provides that BioFilm may exercise its exclusive remedy of termination
and may demand $25,000 in liquidated damages. In addition, in the event the
contract is terminated, we would be required to pay for all outstanding orders
placed under the agreement and the amounts contemplated by our binding
three-month forecasts.
Tufts University. In April 1999, we entered into a development and license
agreement with Tufts University to formulate nutritional or herbal products for
midlife women. The agreement requires Tufts to develop general formulations for
midlife women as well as specific formulations to address the needs of women who
are at risk for particular diseases or conditions. The agreement also provides
that Tufts will create a program to individualize nutritional recommendations to
women and their clinicians. In addition, the agreement also grants us the right
to acknowledge the participation of the Tufts University School of Nutrition
Science and Policy in the development of the products and to use its name in
connection with labeling, promotion, marketing and sale of the nutritional
products. Tufts may revoke our right to use the Tufts name if Tufts determines
that our actions have adversely affected or may adversely affect Tufts'
reputation.
Under the agreement, we are required to pay a fee to Tufts, payable in four
installments over five months, that covers all of Tufts' internal and external
expenses incurred in connection with the project. We are also solely responsible
for the manufacturing, marketing and sale of the products. Further, we must pay
a license fee equal to a certain percentage of net sales of each product
developed under this agreement for fifteen years or the term of the patent, if
any, whichever is greater. The license fee will be reduced if Tufts revokes our
right to use its name without cause or if Tufts develops and licenses
nutritional products that compete with our products.
The minimum payments we are required to make under these and other
agreements may exceed our sales of the products to which these minimum payments
relate, and our failure to achieve specified minimum sales could be a violation
of these agreements. See "Risk Factors -- Many of our product agreements require
us to make minimum payments or make a minimum number of sales calls. If our
sales of these products do not exceed these minimums, our marketing and
distribution of these products will not be profitable and our results of
operations will be harmed," and "-- Many of our product agreements may be
terminated if we fail to make minimum purchases, make a minimum number of sales
calls or for other reasons. This could force us to discontinue sales of key
products and could harm our results of operations."
INTELLECTUAL PROPERTY
We regard the protection of patents, copyrights, trademarks, and other
proprietary rights that we own or license as material to our success and
competitive position. We rely on a combination of laws and contractual
restrictions such as confidentiality agreements to establish and protect our
proprietary rights. Laws and contractual restrictions, however, may not be
sufficient to prevent misappropriation of our technology or deter others from
independently developing products that are substantially equivalent or superior.
Patents. Due to the length of time and expense associated with bringing new
pharmaceutical products to market, we recognize the considerable benefits
associated with acquiring or licensing products that are protected by existing
patents or for which patent protection can be obtained. However, we do not
currently own any issued patents or have any pending patent applications. Some
of the products that we offer incorporate patented technology owned by others,
including the Pravachol(R) product, the IntegraVie(TM) line of skin-care
products and the SafeStart(TM) umbilical cord clamp/cutter, but most of our
products are not protected by patents.
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Copyrights. We have applied for copyright registration for the Women First
HealthCare logo. The copyrights to the product being developed with Dr. Deepak
Chopra, entitled RENEWAL a time for you(TM), will be owned jointly by us and
Infinite Possibilities Media LLC. We will also own all the copyrights in the
Strong Women Stay Young video. Copyrights for the content of the WOMENFIRST.COM
Internet site that we created with SF Interactive will be assigned to us.
Trademarks and Domain Names. Our subsidiary, As We Change, LLC, owns the
registered U.S. trademark As We Change(R). In addition, we have applied for U.S.
trademark registrations for a number of key trademarks, including Women First
HealthCare(TM), Women First(TM) and A Better Way(TM). We have a non-exclusive
worldwide license to use the trademarks owned by Dr. Chopra in connection with
the products that we develop with Infinite Possibilities. Some of our
distribution agreements also include rights to use the manufacturer's
trademarks, such as the Ortho-Est(R), Ortho Tri-Cyclen(R) and Pravachol(R)
tradenames during the term of these agreements. We intend to introduce new
trademarks, service marks and brand names and to maintain registrations on
trademarks that remain valuable to the business. We have no trademark,
registrations or applications pending outside the United States.
We currently hold the Internet domain names "WOMENFIRSTHEALTHCARE.COM" and
"WOMENFIRST.COM," and our subsidiary, As We Change, LLC, holds the Internet
domain name "ASWECHANGE.COM." Under current domain name registration practices,
no one else can obtain an identical domain name, but can obtain a similar name,
or the identical name with a different suffix such as ".net" or ".org" or with a
country designation such as ".jp" for Japan. The relationship between
regulations governing domain names and the laws protecting trademarks and
similar proprietary rights is evolving. Domain names are regulated by Internet
regulatory bodies while trademarks are enforceable under local law. In addition,
the regulation of domain names in the United States and in foreign countries is
subject to change. There are plans to establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. As a result, we may not acquire or be able to maintain our domain
names in all of the countries in which we conduct business, and we could be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our domain names or trademarks.
While we intend to take the actions that we believe are necessary to
protect our proprietary rights, we may not be successful in doing so. In
addition, we may be dependent on the owners of the proprietary rights we license
to protect those rights. In addition, we and our licensors may face challenges
to the validity and enforceability of proprietary rights and may not prevail in
any litigation regarding those rights.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the proprietary rights of others. While we are not currently
involved in any such claims, there can be no assurance against future
infringement claims by third parties. The resolution of any such infringement
claims may result in protracted and costly litigation, regardless of the merits
of such claims. Moreover, it may require us to obtain a license to use those
proprietary rights or possibly to cease using those rights altogether. Any of
these events could have a material adverse effect on our business, financial
condition and results of operations.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, clinical investigation,
packaging, labeling, storage, promotion, distribution and advertising of the
products we offer are subject to extensive regulation by one or more federal
agencies including the FDA, DEA, Environmental Protection Agency, Federal Trade
Commission, Occupational Safety and Health Administration, Consumer Product
Safety Commission, the United States Customs Service, and the United
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States Postal Service. These activities are also regulated by various agencies
of the states and localities in which our products are sold. For both currently
marketed and future products, failure to comply with applicable regulatory
requirements could limit or prevent our ability to market and distribute such
products, and would harm our business.
Pharmaceuticals. All pharmaceutical firms, including manufacturers from
whom we license or for whom we distribute products, are subject to regulation by
the FDA. Any restriction or prohibition applicable to sales of products we
market could materially adversely affect our business.
We market new prescription drug products. New prescription drugs must be
approved by the FDA before they may be marketed, except for those prescription
drugs for which the FDA is not requiring applications because of "grandfather
status" under 1938 legislation, "grandfather status" under 1962 legislation or
for other reasons. The FDA has the authority to revoke existing approvals, or to
review the status of currently exempt pharmaceuticals and require application
and approval, of prescription drugs if new information reveals that they are not
safe or effective. The FDA also regulates the promotion, including advertising,
of prescription drugs.
We market over-the-counter drug products. Over-the-counter drugs are
affected by the establishment of FDA monographs, a regulatory system arising
under 1962 legislation. FDA monographs effectively exempt from FDA approval
over-the-counter drugs that are produced and labeled in accordance with the
standards set forth in FDA regulations. The rulemaking process to establish or
revise an FDA monograph allows a 12-month grace period to make appropriate
formulation or label changes following publication of the final monograph. The
FTC regulates advertising of over-the-counter drug products.
Drug products must be manufactured, packaged, and labeled in accordance
with their approvals and in conformity with standards known as current Good
Manufacturing Practices and other requirements. Drug manufacturing facilities
must be registered with and approved by FDA and must list with the FDA the drug
products they intend to distribute. The manufacturer is subject to inspections
by the FDA and periodic inspections by other regulatory agencies. The FDA has
extensive enforcement powers over the activities of pharmaceutical
manufacturers, including authority to seize and prohibit the sale of unapproved
or non-complying products, and to halt manufacturing operations that are not in
compliance with current Good Manufacturing Practices. Also, the FDA regulates
the distribution of samples of drugs. Both FDA and DEA may impose criminal
penalties arising from non-compliance with applicable regulations.
We do not currently conduct pharmaceutical research and development. If we
obtain rights to develop and market a pharmaceutical product, we will. Prior to
any commercial sale or shipment of a new drug, the FDA generally requires each
of the following steps and possibly others to be conducted: (1) preclinical
testing, including laboratory and usually animal tests; (2) the submission to
the FDA of an Investigational New Drug Application which must become effective
before human clinical trials may commence; (3) adequate and well-controlled
human clinical trials to establish safety and efficacy; (4) the submission to
the FDA of a New Drug Application; and (5) FDA approval of the New Drug
Application. This process generally takes a number of years and may also require
post-marketing testing and surveillance to monitor for adverse effects, which
can involve significant additional expense. In addition, an abbreviated
application process is available for generic drugs. For newer generic drugs,
there can be no assurances that the FDA will approve a particular application.
Medical Devices. We market and obtain approvals for medical device
products. All medical device firms, including manufacturers from whom we license
or whose products we distribute, are subject to regulation by the FDA. The FDA
controls when medical devices may
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enter the market, and can require their withdrawal from the market, restrict
their marketing and recall or seize products.
In addition to obtaining FDA approval or clearance to market a medical
device, each device manufacturing facility must be registered with the FDA.
Facilities and quality systems are subject to regular inspections by the FDA for
compliance with FDA's Quality System Regulations. As is the case with drugs,
failure to comply with applicable regulatory requirements after obtaining
approval may result in the suspension of regulatory approval, as well as civil
and criminal sanctions. Any restriction or prohibition applicable to sales of
products we market could materially adversely affect our business.
Dietary Supplements. The manufacturing and production of dietary
supplements historically has been subject to less intensive regulation than
pharmaceutical products. Under the Dietary Supplement Health & Education Act of
1994, the FDA may exercise authority over the labeling and sales of dietary
supplements. In addition, the United States Postal Service regulates claims with
respect to products sold or marketed through the mail and the FTC regulates
dietary supplement advertising.
The FDA and other federal authorities are reviewing alternative approaches
to assure the safety of vitamins, minerals, herbals and other products sold as
dietary supplements. Increased regulatory oversight could subject us and other
manufacturers and distributors of dietary supplements to increased production
and compliance costs and possibly require capital expenditures. Future
regulation affecting dietary supplements could result in a recall or
discontinuance of certain products.
Pharmacy Regulations. Our business plan includes the operation of a
pharmacy, Women First Pharmacy Services, through which we dispense drug
products, including compounded drug products, to patients who have doctors'
prescriptions. Women First Pharmacy Services is subject to state and federal
regulation, including regulation by state pharmacy boards. These sources of
regulation may restrict or prohibit us from advertising or otherwise promoting
or selling compounded pharmaceuticals. In addition, pharmacies are subject to
regulation by other federal and state agencies with respect to reimbursements
for prescription drug benefits provided to individuals covered primarily by
publicly funded programs.
The 1997 Food and Drug Administration Modernization Act contains provisions
restricting the advertising, promotion, and sale of compounded products. This
new law includes, among other elements, a strict limit on the compounding of
drugs that are essentially copies of FDA-approved drug products, and a proposed
restriction on the amount of compounded drugs that can be shipped in interstate
commerce by a given pharmacy. Based on this legislation, the FDA or a state
Board of Pharmacy could seek to force us to discontinue compounding and selling
the micronized progesterone product and other products compounded by Women First
Pharmacy Services if they are found to be essentially copies of FDA-approved
drugs. Prometrium(R) is an FDA-approved drug containing micronized progesterone
sold by Solvay Pharmaceuticals, Inc. In addition, because of the proposed limit
on interstate shipments of more than 20% of the total amount of drugs dispensed
by a pharmacy or more than 5% of any one compounded pharmaceutical product, we
may need to acquire pharmacy distribution services in other states in order to
maintain or expand our current distribution of micronized progesterone and other
compounded products. Some of the new law's restrictions have been challenged in
litigation to which we are not a party, and the FDA has not yet finalized all of
the rules and regulations implementing the new law. We cannot predict the
eventual resolution of these matters, but they may have a material adverse
effect on our business.
Cosmetics Regulations. We market cosmetic products. The FDA regulates the
labeling on cosmetic products and does not require cosmetics to be approved
before products are released to the marketplace. The FDA does not have the
authority to require manufacturers to register
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their cosmetic establishments, file data on ingredients, or report
cosmetic-related injuries. The FDA maintains a voluntary data collection
program, however, and companies wishing to participate in the program may do so.
The FDA may inspect cosmetics manufacturing facilities, collect samples for
examination, and take action to remove adulterated and misbranded cosmetics from
the market.
EMPLOYEES
As of April 30, 1999, we employed 141 full-time people, of whom 104 were
employed in sales and marketing, three were employed in research and
development, seven were employed in education and program development and 27
were employed in administration. None of our employees are represented by a
labor union, and we consider our relations with our employees to be good. Our
ability to achieve our financial and operational objectives depends in large
part upon the continued service of our senior management and key personnel and
our continuing ability to attract and retain highly qualified managerial
personnel. Competition for such qualified personnel in the pharmaceutical and
health care industry is intense.
FACILITIES
We are headquartered in facilities consisting of approximately 16,800
square feet in San Diego, California, pursuant to a lease expiring in August
2003. As We Change, LLC is headquartered in facilities consisting of
approximately 6,000 square feet in San Diego, California, pursuant to a lease
expiring in July 2000.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SEASONALITY
Catalog sales are typically higher in the fourth calendar quarter due to
larger catalog circulation, merchandising improvements during the year, and some
increase in consumer buying surrounding the holiday season. We anticipate this
trend will continue.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of Women First:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward F. Calesa.................... 57 Chairman of the Board
David F. Hale....................... 50 President, Chief Executive Officer and
Director
Debra P. Crawford................... 41 Vice President, Chief Financial Officer,
Treasurer and Secretary
Susan E. Dube....................... 51 Vice President, Strategic Planning and
Acquisitions
Jeffrey W. Raser.................... 38 Vice President, Professional Sales and
Marketing
Randi C. Crawford................... 30 Vice President, Educational Program
Development
Wendy S. Johnson.................... 47 Vice President, Business Development
Robert L. Jones..................... 54 Vice President, Human Resources and
Administration
Jeanne-Marie Varga.................. 46 Vice President, Regulatory Affairs and
Quality Systems
Lauren J. Essex..................... 37 Vice President, Marketing Self-Care Products
Nancy J. Casey...................... 47 Vice President, Public Relations
Julie G. Martin..................... 43 Vice President, Catalog Operations
Dale F. Steele...................... 52 Vice President, Catalog Operations
Charlotte Beers..................... 61 Director
Meredith A. Brokaw.................. 58 Director
Gary V. Parlin(2)................... 57 Director
Richard L. Rubin(1)(2).............. 70 Director
John Simon(1)....................... 56 Director
</TABLE>
- -------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Edward F. Calesa co-founded Women First in November 1996 and has served as
a Director since that time. Mr. Calesa has served as Chairman of the Board of
Directors since December 1996. Mr. Calesa has an extensive background in
innovative health care marketing. In 1971, he founded and served as Chairman of
the Board of Health Learning Systems Inc. During his tenure at Health Learning
Systems, Mr. Calesa developed working relationships with many academic medical
specialists and medical organizations, including the National Institutes of
Health, National Board of Medical Examiners, Educational Testing Services,
Washington Business Group on Health, and Voluntary Hospitals of America and
numerous pharmaceutical companies. Mr. Calesa sold Health Learning Systems in
December 1988 to WPP Group, plc. From January 1989 to November 1996, Mr. Calesa
served as General Partner of an investment partnership, Calesa Associates. Mr.
Calesa received an M.B.A. in marketing from Fairleigh Dickinson University and a
B.A. in economics from Columbia College.
David F. Hale joined Women First as President and Chief Executive Officer
in January 1998 and has served as a Director since that time. Mr. Hale served
from May 1987 to November 1997 as President and CEO of Gensia Inc., which became
Gensia Sicor Inc., and as Chairman of that company from May 1991 to November
1997. From 1986 to 1987, Mr. Hale was President and CEO of Hybritech, Inc., a
division of Eli Lilly & Company. He joined Hybritech, Inc. in 1982 as Senior
Vice President of Marketing and Business Development, became Executive Vice
President and Chief Operating Officer in 1982 and became President in
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1983. From 1981 to 1982, Mr. Hale was Vice President and General Manager of BBL
Microbiology Systems, a division of Becton, Dickinson and Company, and from 1980
to 1981 he was Vice President, Sales & Marketing. From 1971 to 1980, he held
various marketing management positions with Ortho Pharmaceutical Corporation, a
division of Johnson & Johnson, including Director of Marketing of the Ortho
Dermatological Division and Director of Product Management for Ortho
Pharmaceutical Corporation. Mr. Hale also serves on the Board of Directors of
Gensia Sicor, Dura Pharmaceuticals, Inc. and LMA North America. Mr. Hale
received a B.A. in biology from Jacksonville State University.
Debra P. Crawford joined Women First in July 1998 as Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary and was appointed Secretary
in March 1999. From March 1997 to August 1998, Ms. Crawford was self-employed
and provided financial consulting services in the capacity of acting chief
financial officer or as a corporate development financial consultant. Ms.
Crawford was Chief Financial Officer, Vice President, Finance and
Administration, Treasurer and Secretary of IVAC Medical Systems, Inc. from
January 1995 to December 1996 and Chief Financial Officer, Vice President,
Finance and Administration and Treasurer of IVAC Holdings, Inc. from January
1996 to December 1996. Ms. Crawford served as Vice President, Finance and
Administration, Treasurer and Assistant Secretary of IVAC Corporation from May
1994 to December 1994. From May 1992 to May 1994, Ms. Crawford was Director of
Finance and Manufacturing Controller of Advanced Cardiovascular Systems, Inc.
Ms. Crawford is a CPA and holds a B.S. in business administration with an
emphasis in accounting from San Diego State University.
Susan E. Dube joined Women First in July 1998 as Vice President, Strategic
Planning & Acquisitions. From October 1997 until she joined Women First, Ms.
Dube was Senior Vice President, Strategy & Corporate Development for Imagyn
Medical Technologies, Inc. From January 1996 to September 1997, Ms. Dube served
as Vice President, Marketing and Business Development and Vice President,
Business Development at Imagyn Medical, Inc. From August 1995 to December 1995,
Ms. Dube served as a consultant for LifeScience Economics, Inc. during which
time she consulted for Imagyn Medical, Inc. Ms. Dube also served as President
and Chief Executive Officer of BioInterventions, Inc. from June 1994 to August
1995. From August 1993 to April 1994, she served as an independent consultant to
a number of health care companies. From May 1991 to August 1993, she was
Executive Vice President and Chief Operating Officer of Adeza Biomedical, Inc.
She was employed as Vice President, Ventures at the Brigham and Women's Hospital
from 1985 to 1991. Ms. Dube holds an M.B.A. from Harvard University and a B.A.
in government from Simmons College.
Jeffrey W. Raser joined Women First in March 1998 as Vice President,
Professional Sales and Marketing. From January 1995 until he joined Women First,
Mr. Raser was Director, Business Operations at Roche Laboratories, Inc. Mr.
Raser held a number of positions at Roche Laboratories, including Director of
Customer Marketing from December 1992 to December 1994, Market Segment Manager,
Director of Managed Care and Entitlement Programs from January 1991 to December
1992 and Senior Regional Manager, State Government Affairs from February 1990 to
January 1991. Mr. Raser worked for Lederle Laboratories as Manager, Marketing
Communications from January 1988 to January 1990 and Regional Manager, State
Government Relations from June 1985 to December 1987. Mr. Raser holds a B.A. in
government from Franklin and Marshall College.
Randi C. Crawford co-founded Women First and served as Vice President,
Marketing Research from February 1997 to February 1998. She served as Secretary
of Women First from January 1997 through March 1998. She assumed the role of
Vice President, Educational Program Development in February 1998 and currently
holds this position. From November 1995 until joining Women First, Ms. Crawford
was a research analyst with Calesa Associates specializing in investment
opportunities in health care companies. From October 1991 to
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November 1995, Ms. Crawford worked as a consultant engaging in the creation and
production of children's television programming for Fox Television, Lifetime
Television, DIC Entertainment and Saban Entertainment, Inc. Ms. Crawford
received a B.A. in liberal arts from Villanova University. Ms. Crawford is the
daughter of Mr. Edward F. Calesa and is not related to Debra P. Crawford.
Wendy S. Johnson joined Women First in July 1998 as Vice President,
Business Development. From July 1994 until joining Women First, Ms. Johnson was
Vice President, Corporate Development & Operations at Prizm Pharmaceuticals,
currently Selective Genetics Incorporated. From July 1990 to June 1994, Ms.
Johnson was Vice President, Business Development and Regulatory Affairs with
Cytel Corporation. From June 1988 to June 1990, Ms. Johnson was with Synbiotics
Corporation as Manager, Business Development. She worked for Coralab Research as
International Affairs Administrator from 1986 to 1988. From 1976 to 1986, Ms.
Johnson served as Assistant Director with the Center for Devices and
Radiological Health at the Food and Drug Administration. Ms. Johnson holds an
M.B.A. from Loyola University, an M.S. in clinical microbiology from the
Hahnemann Medical School and a B.S. in microbiology from the University of
Maryland.
Robert L. Jones joined Women First in February 1998 as Vice President,
Human Resources and Administration. From March 1996 until he joined Women First,
Mr. Jones was Vice President, Human Resources and Training with Rally's
Hamburgers, Inc. From June 1995 to March 1996, Mr. Jones was a partner with Dick
Wray and Consultants, Inc. From January 1984 to November 1994, Mr. Jones served
as the Corporate Vice President, Human Resources with Foodmaker, Inc. From 1980
to 1984, Mr. Jones served in a number of positions with General Foods
Corporation including Vice President, Personnel, Theme Restaurant Division from
1980 to 1984 and Personnel Director, Foodservice Products Division from 1982 to
1984. Mr. Jones received an M.A. in personnel administration from Ball State
University and a B.S. in education and speech from Ball State University.
Jeanne-Marie Varga joined Women First in April 1998 as Vice President,
Regulatory Affairs and Quality Systems. Prior to joining Women First, Ms. Varga
served as Vice President, Worldwide Regulatory and Quality with Sanofi
Diagnostics Pasteur, Inc. from March 1992 until May 1997. From April 1987 to
March 1992, Ms. Varga was Director, Quality Assurance and Regulatory Affairs at
Baxter Diagnostics, Inc. From October 1983 to April 1987, she served as Manager,
U.S. Regulatory Affairs with Sorin Biomedica S.p.A. From 1980 to 1983, Ms. Varga
served as Senior Scientific Reviewer with the Center for Devices and
Radiological Health at the Food and Drug Administration. Ms. Varga holds an M.A.
in management and supervision from Central Michigan University and a B.S. in
medical technology from Towson State University.
Lauren J. Essex joined Women First in October 1998 as Vice President,
Marketing Self-Care Products. From November 1996 until joining Women First, Ms.
Essex was Vice President, Marketing with Cosmederm Technologies, Inc. From March
1994 to November 1996, Ms. Essex served as Vice President, Personal Care
Products, Sales and Customer Service with La Costa Products International. From
July 1984 to March 1994, she held a number of brand management positions with
Helene Curtis Industries, Inc., including Brand Manager from April 1991 to March
1994. Ms. Essex holds an M.S. in management from Northwestern University and a
B.A. in psychology and business from University of Rochester.
Nancy J. Casey joined Women First in October 1998 as Vice President,
Catalog Operations and in February 1999 became Vice President, Public Relations.
From August 1995 until October 1998, Ms. Casey was a Co-Chief Executive Officer
of As We Change, LLC and was a co-founder of that company. From June 1985 to
January 1997, Ms. Casey was the owner of Nancy Casey Public Relations. Ms. Casey
was a Sales Assistant with Dale Fitzmorris from
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September 1990 to November 1992. From May 1987 to September 1990, she served as
the Director of Public Relations with WestCom Group. Ms. Casey holds a B.A. in
English from San Diego State University.
Julie G. Martin joined Women First in October 1998 as Vice President,
Catalog Operations. From August 1995 until October 1998, Ms. Martin was a
Co-Chief Executive Officer of As We Change, LLC and was a co-founder of that
company. From May 1993 to August 1996, Ms. Martin served as Director of Health
Promotion with The Center for Women's Medicine. From January 1990 to July 1992,
she served as General Manager with Dale Fitzmorris. From 1983 to January 1990,
Ms. Martin owned and managed two sole proprietorships. Ms. Martin holds an M.S.
in exercise physiology from San Diego State University and a B.A. in liberal
arts and sciences from San Diego State University.
Dale F. Steele joined Women First in October 1998 as Vice President,
Catalog Operations. From August 1995 until October 1998, Ms. Steele was a
Co-Chief Executive Officer of As We Change, LLC and was a co-founder of that
company. From September 1994 to August 1996, Ms. Steele served as Corporate
Secretary and Treasurer at M.W. Steele Group, which she co-founded in 1983. From
January 1989 to August 1994, Ms. Steele was owner of Dale Fitzmorris. From 1983
to 1989 she served as the Chief Financial Officer of M.W. Steele Group.
Charlotte Beers has served as a Director of Women First since May 1999. Ms.
Beers has been the Chairman of J. Walter Thompson Worldwide, one of the nation's
top advertising agencies, since March 1999. From March 1997 to March 1999, Ms.
Beers was a private consultant. Ms. Beers was Chairman and Chief Executive
Officer of the Ogilvy & Mather advertising firm from 1992 to March 1997. Prior
to her appointment at Ogilvy & Mather, Ms. Beers was Chairman and CEO of Tatham
RSCG, another top advertising agency, from 1982 to 1990 and Vice-Chairman of its
parent company, Euro RSCG, from 1991 to 1992. In 1989, she became the first
woman to chair the American Association of Advertising Agencies. Ms. Beers
received a B.A. in mathematics from Baylor University.
Meredith A. Brokaw has served as a Director of Women First since March
1998. Ms. Brokaw is a business consultant and author. She was Founder and
President of Penny Whistle Toys, Inc. from 1978 until February 1997 when it was
sold. Ms. Brokaw has written eight books relating to parenting and children's
activities, which are distributed under the Penny Whistle Series label by Simon
and Schuster. Currently, she is a trustee of The Bank Street College of
Education and is on the Board of Trustees of the Educational Broadcasting
Corporation and Conservation International. Ms. Brokaw is also a Director of the
Gannett Co., Inc. Ms. Brokaw holds a B.A. in English and communications from the
University of South Dakota and received an Honorary Doctor of Laws Degree from
St. John's University.
Gary V. Parlin has served as a Director of Women First since January 1998.
Mr. Parlin retired from Johnson & Johnson in July 1997 after 33 years with that
corporation. At retirement, he was a Company Group Chairman and previously had
worldwide responsibility for the Cilag Pharmaceutical Group and Ortho Biotech.
Mr. Parlin joined Ortho Pharmaceutical Corporation in 1964 and held a number of
sales and marketing positions. In 1997, he was promoted to Vice President, Sales
and Marketing and a became a member of the Ortho Pharmaceutical Corporation
Board of Directors at that time. In 1980, Mr. Parlin was appointed Managing
Director of Ortho-Cilag Limited and in 1983 he was named President of Ortho
Pharmaceuticals, Inc. Mr. Parlin was appointed to the Pharmaceutical/Diagnostics
Group Operating Committee in 1985. Mr. Parlin holds a B.S. in business from
California State University, San Jose.
Richard L. Rubin, Ph.D. has served as a Director of Women First since
November 1996 and held the positions of Vice President from December 1996 to
March 1998, Secretary from
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December 1996 to January 1997, and Treasurer from December 1996 to August 1997.
Mr. Rubin is President of the Dedalus Foundation, Chairman of New Dimensions in
Education and a Professor of Political Science and Public Policy at Swarthmore
College. Since 1968, Dr. Rubin has served as a business and investment
consultant. From 1963 to 1968, Dr. Rubin was the Director of Planning & Research
for United Merchants & Manufacturers, Inc. In 1957 Dr. Rubin was appointed
Chairman and Chief Executive Officer of Dorman Mills where he served until 1962.
Dr. Rubin holds a Ph.D. in political science from Columbia University and a B.A.
in economics from Brown University.
John Simon has served as a Director of Women First since January 1998. Mr.
Simon is a Managing Director of the investment banking firm Allen & Company
Incorporated, where he has been employed for over 20 years. He is on the Board
of Directors of Immune Response Corporation, Neurogen Corporation, Advanced
Technical Products, Inc. and Realty Information Group, Inc. Mr. Simon holds an
M.B.A. and J.D. from Columbia University, a Ph.D. in chemical engineering from
Rice University and a B.S. in chemistry from The College of William & Mary.
CLASSIFIED BOARD OF DIRECTORS
Women First's Amended and Restated Certificate of Incorporation to be
adopted immediately prior to the closing of this offering will provide for a
classified Board of Directors consisting of three classes as nearly equal in
number as possible with the directors in each class serving staggered three-year
terms. As a result, approximately one-third of the Company's Board of Directors
will be elected each year. The terms of the Class I, Class II and Class III
directors will expire initially in 2000, 2001 and 2002, respectively. Meredith
A. Brokaw and Richard L. Rubin will be Class I directors, John Simon and
Charlotte Beers will be Class II directors, and Edward F. Calesa, David F. Hale
and Gary V. Parlin will be Class III directors. At each annual meeting of the
stockholders of Women First, the successors to the class of directors whose term
expires will be elected to hold office for a term expiring at the annual meeting
of stockholders held in the third year following their election.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Women First has established an Audit Committee
and a Compensation Committee.
Audit Committee. The Audit Committee, among other things, recommends
independent certified public accountants, reviews the scope of the audit
examination including fees and staffing, reviews the independence of the
auditors, reviews and approves non-audit services provided by the auditors,
reviews findings and recommendations of auditors and management's response,
reviews the internal audit and control function, and reviews compliance with
Women First's ethical business practices policy. The members of the Audit
Committee are John Simon and Richard L. Rubin.
Compensation Committee. The Compensation Committee determines compensation
for Women First's senior management and administers the Women First Long-Term
Incentive Plan. The members of the Compensation Committee are Gary V. Parlin and
Richard L. Rubin.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Edward F. Calesa, the Chairman of the Board of Women
First, JoAnn Heffernan Heisen, a former Director of Women First, and Gary V.
Parlin, a Director of Women First, served on the Compensation Committee of the
Board of Directors. Mr. Calesa is an employee of Women First and receives an
annual salary of $350,000 per year. He is a party
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<PAGE> 61
to an employment agreement with Women First for a term of four years commencing
on January 8, 1998. See "-- Executive Compensation" and "-- Employment
Agreements." In January 1998, Mr. Calesa entered into an agreement to purchase
75,000 shares of Series A Preferred Stock for $750,000 and his daughter, Janice
Calesa-Sherman, entered into an agreement to purchase an aggregate of 25,000
shares of Series A Preferred Stock for $250,000. Women First issued these shares
of Series A Preferred Stock at closings in January 1998, October 1998 and
February 1999. Mr. Calesa also purchased $340,000 principal amount of short-term
notes and warrants to purchase 2,758 shares of common stock in a private
placement in March 1999. Ms. Calesa-Sherman purchased $110,000 principal amount
of short-term notes and warrants to purchase 892 shares of common stock in a
private placement in March 1999. See "Certain Transactions."
Ms. Heisen is the Vice President, Chief Information Officer and a member of
the executive committee of Johnson & Johnson. Ms. Heisen resigned from the board
of directors of Women First on March 19, 1999. In January 1998, Johnson &
Johnson Development Corporation, a subsidiary of Johnson & Johnson, entered into
an agreement to purchase 900,000 shares of Series A Preferred Stock for $9.0
million. Women First issued these shares of Series A Preferred Stock at closings
in January 1998, October 1998 and February 1999. Johnson & Johnson also
purchased $1.5 million principal amount of short-term notes and warrants to
purchase 12,169 shares of common stock in a private placement in March 1999. In
addition, Women First paid $2.5 million to Ortho-McNeil Pharmaceutical, Inc., a
subsidiary of Johnson & Johnson, during 1998 for the purchase of the
Ortho-Est(R) line of estropipate products. See "Certain Transactions" and
"Business -- Licensing and Co-Promotion Agreements."
Mr. Parlin has a consulting agreement with Women First pursuant to which
Mr. Parlin receives a monthly consulting fee of $5,000. Mr. Parlin purchased
$100,000 principal amount of short-term notes and warrants to purchase 811
shares of common stock in a private placement in March 1999. See "Certain
Transactions."
DIRECTOR COMPENSATION
Women First reimburses directors for their travel expenses incurred in
attending meetings of the Board. Directors currently do not receive any regular
fees for their services as such, although Women First may pay directors' fees in
the future if it believes the payment of such fees is necessary or appropriate
to attract and retain high-quality directors. Mr. Gary V. Parlin, a director of
Women First, currently has a consulting arrangement with Women First pursuant to
which Mr. Parlin receives fees of $5,000 per month. Outside directors of Women
First who are not employees of Women First also are eligible to receive stock
options under the Women First Long-Term Incentive Plan. See "-- Long-Term
Incentive Plan."
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EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
President and Chief Executive Officer and our four most highly compensated
executive officers other than the President and Chief Executive Officer who were
serving as executive officers at the end of the last completed fiscal year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------ COMPENSATION
OTHER ANNUAL SHARES
NAME AND COMPENSATION UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#)
------------------ ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward F. Calesa................. 1998 $252,308 $ -- $ -- --
Chairman of the
Board
David F. Hale.................... 1998 340,577(1) 75,000 -- 805,200
President and CEO
Jeffrey W. Raser................. 1998 131,423(2) -- -- 45,750
Vice President, Professional
Sales and Marketing
Robert L. Jones.................. 1998 116,827(3) -- 31,362(4) 45,750
Vice President,
Human Resources
and Administration
Anthony P. Maris(5).............. 1998 175,192 -- -- 45,750
Former Vice
President, Finance and
Secretary
</TABLE>
- -------------------------
(1) Mr. Hale joined Women First on January 14, 1998. The amount shown in the
salary column reflects amounts actually paid to Mr. Hale during 1998.
(2) Mr. Raser joined Women First on March 27, 1998. The amount shown in the
salary column reflects amounts actually paid to Mr. Raser during 1998.
(3) Mr. Jones joined Women First on February 23, 1998. The amount shown in the
salary column reflects amounts actually paid to Mr. Jones during 1998.
(4) Includes relocation expenses and related tax gross-ups paid to Mr. Jones of
$31,362 in 1998.
(5) Mr. Maris resigned as Vice President, Finance and Secretary on February 10,
1999. He currently provides part-time consulting services to Women First.
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OPTION GRANTS AND EXERCISES
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998 to
the Named Executive Officers. No grants of SARs were made during the fiscal year
ended December 31, 1998 to the Named Executive Officers.
The potential realizable values in the table below are based on an
assumption that the price of our common stock will appreciate at the annual rate
shown (compounded annually) from the date of grant until the end of the option
term. Women First has used the assumed public offering price in lieu of the fair
market value on the date of grant in making the potential realizable value
calculations in the table below. These values do not take into account amounts
required to be paid as income taxes under the Internal Revenue Code and any
applicable state laws or option provisions providing for termination of an
option following termination of employment, non-transferability or vesting.
Potential realizable values are calculated based on the requirements promulgated
by the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth of the shares of our common stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTION EMPLOYEES IN PRICE EXPIRATION -----------------------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) DATE 0%($) 5%($) 10%($)
---- ---------- -------------- -------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward F. Calesa...... -- -- -- -- -- -- --
David F. Hale......... 805,200 52.20% $0.84 3/30/08 $8,180,832 $13,751,206 $22,296,793
Jeffrey W. Raser...... 45,750 2.97% $0.84 3/30/08 464,820 781,319 1,266,863
Robert L. Jones....... 45,750 2.97% $0.84 3/30/08 464,820 781,319 1,266,863
Anthony P. Maris...... 45,750 2.97% $0.84 3/30/08 464,820 781,319 1,266,863
</TABLE>
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<PAGE> 64
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information concerning exercises of options to
purchase Women First's common stock in the fiscal year ended December 31, 1998
and unexercised options held as of December 31, 1998 by the Named Executive
Officers. No options were exercised by any of the Named Executive Officers
during fiscal 1998.
Women First calculated the value of unexercised in-the-money options at
December 31, 1998 in the table below by determining the difference between the
assumed initial public offering price of $11.00 and the exercise price of the
options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
EXERCISABLE(#)/ EXERCISABLE($)/
NAME UNEXERCISABLE(#) UNEXERCISABLE($)
---- ---------------------- ---------------------
<S> <C> <C>
Edward F. Calesa........................... -- --
David F. Hale.............................. 283,092/522,108 $2,876,215/$5,304,617
Jeffrey W. Raser........................... --/ 45,750 --/ 464,820
Robert L. Jones............................ --/ 45,750 --/ 464,820
Anthony P. Maris........................... 33,341/ 12,409 338,745/ 126,075
</TABLE>
EMPLOYMENT AGREEMENTS
Women First has employment agreements with Edward F. Calesa, David F. Hale,
Dale F. Steele, Julie G. Martin and Nancy J. Casey.
Edward F. Calesa entered into an employment agreement with Women First for
a term of four years commencing on January 8, 1998. Pursuant to this agreement,
Mr. Calesa is entitled to receive a base annual salary of $150,000, which was
increased by the Compensation Committee of the Board of Directors on July 16,
1998 to $350,000 per year, effective July 1, 1998. At the time of this salary
increase, the Compensation Committee determined that Mr. Calesa was eligible to
receive a special bonus allocation. Pursuant to the agreement, Women First may
immediately terminate the employment agreement for cause or upon the permanent
disability of Mr. Calesa. If Women First terminates the employment agreement for
the permanent disability of Mr. Calesa or if Mr. Calesa terminates for "good
reason," (i.e., a material diminution in Mr. Calesa's duties and
responsibilities), Mr. Calesa will be entitled to receive a severance payment
equal to his base salary for the shorter of one year or the remainder of the
term of the agreement. The agreement also contains a non-competition provision
and other terms and conditions customary to executive employment agreements. See
"Risk Factors -- Our failure to retain the principal members of our management
team or to hire additional qualified employees would adversely affect our
ability to implement our business plan."
David F. Hale entered into an employment agreement with Women First for a
term of five years commencing January 14, 1998. Under the employment agreement,
Mr. Hale is eligible to receive the following cash compensation:
- a base annual salary of $350,000, which is subject to increase upon
annual review by the Compensation Committee of the Board of Directors,
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- a bonus for each fiscal quarter of $25,000 based upon Mr. Hale's and
Women First's performance, and
- an annual bonus in addition to his quarterly bonus based upon his
participation in the Women First HealthCare Management Incentive
Compensation Plan.
Under the employment agreement, Women First agreed to grant Mr. Hale
options to purchase up to 576,450 shares of Women First's common stock at an
exercise price of $0.84 per share. Such options vested 25% upon grant and will
vest 25% per year in equal daily installments over a three-year period.
Furthermore, the employment agreement provides that Mr. Hale has the right and
option to purchase up to an additional 228,750 shares of our common stock, at an
exercise price of $0.84 per share, which will vest over a four-year period in
equal daily installments.
Women First may terminate the agreement with or without cause or in the
event Mr. Hale becomes permanently disabled. If Women First terminates the
agreement for cause, Mr. Hale would be entitled to receive any unpaid portion of
his base salary, any bonus earned but not paid and any insurance benefits. The
employment agreement defines cause as: (1) a willful act by Mr. Hale that
constitutes misconduct or fraud that is injurious to Women First, (2) conviction
of a felony, or (3) an uncured breach of the employment agreement. Mr. Hale,
however, would forfeit any unvested stock rights and stock options upon a
termination for cause. The vested portion of Mr. Hale's stock rights and stock
options may be exercised for a period of one year from termination. If Women
First terminates Mr. Hale without cause or if Mr. Hale terminates for "good
reason," Women First must make a severance payment to Mr. Hale equal to:
- the amount of Mr. Hale's base salary for the longer of 15 months or the
remainder of what would have been the terms of the agreement,
- the quarterly bonus for what would have been the remainder of the term,
- the annual bonus for what would have been the remainder of the term in
the amount equal to the average of the prior annual bonuses (subject to
conditions), and
- life and disability insurance benefits pursuant to any insurance
purchased by Women First for Mr. Hale's benefit.
The employment agreement defines "good reason" as (1) a termination of Mr.
Hale within 90 days after a relocation of his office more than 50 miles from the
San Diego area; (2) the demotion of Mr. Hale or a material reduction in his
authority or responsibility; (3) a reduction in Mr. Hale's total compensation as
an employee of Women First, other than pursuant to a company-wide reduction of
employee compensation; (4) Women First's failure to increase Mr. Hale's total
compensation commensurate with increases in total compensation received by a
majority of the executive-level employees of Women First with duties and
responsibilities substantially comparable to those of Mr. Hale; or (5) Women
First's failure to pay Mr. Hale a bonus commensurate with bonuses (if any)
received by a majority of executive-level employees of Women First with duties
and responsibilities substantially comparable to those of Mr. Hale. Moreover,
Mr. Hale's stock options and other stock rights will immediately vest and become
exercisable in full and may be exercised for one year from termination upon a
termination without cause.
If Mr. Hale's employment is terminated by reason of his death, Mr. Hale's
estate will be entitled to receive:
- the amount of his base salary for one year,
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<PAGE> 66
- the quarterly bonus applicable to the calendar quarter in which his death
occurs and each of the three calendar quarters following such quarter,
- the full prior year's bonus under the Women First HealthCare Management
Incentive Compensation Plan, and
- life insurance benefits pursuant to any life insurance purchased by the
Women First for Mr. Hale's benefit.
The agreement also contains confidentiality and non-compete provisions and
other terms and conditions customary to executive employment agreements. See
"Risk Factors -- Our failure to retain the principal members of our management
team or to hire additional qualified employees would adversely affect our
ability to implement our business plan."
Dale F. Steele, Julie G. Martin and Nancy J. Casey each entered into an
employment agreement with MenoMorphosis, LLC, the predecessor of As We Change,
LLC, for a term of three years commencing on October 21, 1998. Ms. Steele, Ms.
Martin and Ms. Casey entered into such employment agreements in connection with
Women First's acquisition of MenoMorphosis. Under the employment agreements, Ms.
Steele, Ms. Martin and Ms. Casey are each entitled to receive an annual base
salary of $125,000 until December 31, 1999 and then $140,000 per year until the
end of the term. In addition, the agreements provide for the grant to each of
them of employee stock options to purchase 21,350 shares of Women First common
stock at a purchase price of $0.84 per share and entitle Ms. Steele, Ms. Martin
and Ms. Casey to receive all other benefits offered to officers under Women
First's standard company benefits practices and plans. The stock options will
vest over four years with one-fourth of the options becoming exercisable on the
first anniversary of the agreement and the balance of the options vesting
ratably over the next three years on a daily basis. As We Change may terminate
any of the agreements at any time with or without "cause" or in the event Ms.
Steele, Ms. Martin or Ms. Casey, as the case may be, becomes "permanently
disabled". The employment agreement defines "permanently disabled" as (1) one
day after an aggregate 120 days in a 12-month period or (2) one day after a
consecutive 90 day period during which Ms. Steele, Ms. Casey or Ms. Martin is
unable to perform her respective duties. Under the employment agreement, "cause"
is defined as:
- repeated and habitual failure to perform the employee's duties or
obligations,
- engaging in any act that has a substantial and adverse effect on
MenoMorphosis or Women First's interests,
- personal dishonesty, willful misconduct or breach of fiduciary involving
personal benefit,
- the failure in any material respect to perform designated duties and
responsibilities, as determined by Women First's Chief Executive Officer
and Board of Directors,
- willful violation of any law, rule or regulation which materially
adversely affects the employee's ability to discharge her duties or which
has a substantial and adverse effect on MenoMorphosis or Women First's
interest,
- any material breach of the employment agreement, or
- conduct authorizing termination under California Labor Code Section 2924.
If As We Change terminates Ms. Steele's, Ms. Martin's or Ms. Casey's employment
without cause, Ms. Steele, Ms. Martin or Ms. Casey, as the case may be, will be
entitled to receive the unpaid portion of her base salary and other benefits
accrued and earned under her agreement, payable as if her employment had not
been terminated.
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401(K) PLAN
Women First maintains a savings plan qualified under Section 401(a) and
401(k) of the Internal Revenue Code. Generally, all employees of Women First who
are at least 21 years of age are eligible to participate in the 401(k) Plan.
Women First may make discretionary matching contributions of up to 4% of a
participant's compensation to the 401(k) Plan, but Women First does not
currently make any discretionary profit sharing contributions under the 401(k)
Plan.
LONG-TERM INCENTIVE PLAN
Women First has adopted the Women First HealthCare Long-Term Incentive Plan
(the "Plan"). The Plan is intended to assist Women First in attracting and
retaining key employees, directors, and independent consultants of Women First
and its subsidiaries ("Eligible Persons") of outstanding ability and to promote
the identification of their interests with those of the stockholders of Women
First. The Plan permits the award of non-qualified and incentive stock options,
restricted stock, stock appreciation rights, dividend equivalents, stock
payments or performance awards covering 2,249,985 authorized but unissued shares
or treasury shares of common stock, subject to adjustment to reflect events such
as stock dividends, stock splits, recapitalizations, mergers, reorganizations or
consolidations of or by Women First. In no event may the number of awards issued
under the Plan during any 12-month period exceed 15% of Women First's total
outstanding shares of common stock, including shares of common stock issuable
upon conversion of convertible securities. Further, in no event may the number
of awards issued under the Plan to an Eligible Person (as defined in the Plan)
during any 12-month period exceed the initial grant to such Eligible Person plus
awards covering 152,500 shares.
The Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the terms and conditions of the Plan, the Committee has
the authority to select the persons to whom grants are to be made, to designate
the number of shares of common stock to be covered by such grants, to determine
the exercise price of options, and to make all other determinations and to take
all other actions necessary or advisable for the administration of the Plan.
Under the Plan, outside directors are eligible to receive initial one-time
grants of nonqualified stock options for a specified number of shares upon their
appointment to the Board and grants of additional nonqualified stock options
upon the conclusion of each regular annual meeting of Women First's stockholders
for so long as they remain on the Board. The Company's Board of Directors has
the discretion to determine the amount to be granted upon appointment and
annually. Notwithstanding the foregoing, total grants to directors under the
Plan may not exceed 15% of the maximum number of shares available for grant
under the Plan (subject to adjustment). As of April 30, 1999, Women First had
granted options to purchase an aggregate of 88,145 shares of common stock to
outside directors under the Plan.
Under the Plan, the Committee is required to make an appropriate and
proportionate adjustment in the number and kind of shares and the price per
share upon the occurrence of any merger, reorganization, recapitalization or
consolidation of Women First, sale of all or substantially all of Women First's
assets, or a reclassification, stock dividend, stock split, reverse stock split
or other distribution with respect to the shares of common stock underlying
awards under the Plan. In addition, all options, restricted stock, stock
appreciation rights and performance awards become fully vested and exercisable
upon the death or total and permanent disability of the participant or upon a
change-in-control of Women First.
The exercise price of any nonqualified stock option granted under the Plan
may not be less than 85% of the fair market value of the common stock on the
date of grant, and the exercise price of any incentive stock option may not be
less than 100% of the fair market value of the
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<PAGE> 68
common stock on the date of grant. The Plan permits the payment of the option
exercise price to be made in cash, cash equivalents or notes acceptable to the
Committee, by arrangement with a broker acceptable to the Committee to deliver
all or part of the proceeds, as applicable, upon the sale of shares underlying
the stock option, by the delivery of previously held shares of common stock
valued at their fair market value on the date of exercise, or by any combination
of the foregoing. The Committee may modify, accelerate the exercisability of,
extend or assume outstanding options or may accept the cancellation of
outstanding options in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. Under
the Plan, options must vest at a rate of at least 20% per year over five years
from the date of grant. The Committee may permit the holder of any award under
the Plan to satisfy his or her tax withholding obligations by having Women First
withhold all or a portion of any common stock that otherwise would be issued to
such holder, valued at fair market value.
The Plan may be amended in whole or in part or otherwise modified,
suspended or terminated by the Committee, subject to stockholder approval, if
such approval is then required by law, regulation or rule. Options granted under
the Plan are not transferable otherwise than by will, by the laws of descent and
distribution or pursuant to a qualified domestic relations order (as defined in
the Internal Revenue Code of 1986, as amended), and may be exercised during the
optionee's lifetime only by the optionee or, in the event of the optionee's
legal disability, by the optionee's legal representative.
Under the Plan, the Committee also may approve grants to eligible persons
of restricted stock, stock appreciation rights, dividend equivalents, stock
payments or performance awards, subject to the terms and conditions set forth in
the Plan.
As of April 30, 1999, the Committee has granted currently outstanding
options to purchase 2,086,785 shares of common stock under the Plan, at exercise
prices ranging from $0.84 to $11.39. Such options generally vest incrementally
over four years and expire ten years from the date of grant.
INCENTIVE STOCK PLAN
The Women First, Inc. Incentive Stock Plan (the "Incentive Plan") was
adopted by the Board of Directors on May 7, 1997, and approved by the
stockholders of Women First on May 7, 1997, for the benefit of Women First's
employees, directors and consultants. As of April 30, 1999, there were 27,450
shares of common stock subject to incentive stock options outstanding under the
Incentive Plan. All outstanding options under the Incentive Plan have fully
vested. No additional awards will be made under the Incentive Plan because it
was replaced by the Women First Long-Term Incentive Plan on March 31, 1998.
The Incentive Plan is administered by the Board of Directors, although it
may be administered by a committee thereof. The Board or the committee may
interpret the Incentive Plan and, subject to its provisions, may prescribe,
amend and rescind rules and make all other determinations necessary or desirable
for the administration of the Incentive Plan. To the extent an award granted
under the Incentive Plan has not been exercised, the award will terminate
immediately prior to the consummation of a dissolution or liquidation of Women
First. In the event of a merger of Women First with or into another corporation,
or the sale of substantially all of the assets of Women First, the Incentive
Plan requires outstanding options to be assumed or an equivalent option or right
substituted by the successor corporation or a parent or subsidiary of the
successor corporation.
The terms of the Incentive Plan provide that the Board or the committee, as
the case may be, may amend, suspend or terminate the Incentive Plan at any time;
provided, however, that
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certain amendments require approval of the stockholders of Women First. Further,
neither the Board nor the committee may take any action that adversely affects
any rights under outstanding awards without the holder's consent.
MANAGEMENT INCENTIVE COMPENSATION PLAN
Women First has adopted the Women First HealthCare Management Incentive
Compensation Plan (the "MICP") to offer incentive compensation to key employees
by rewarding the achievement of corporate goals and specifically measured
individual goals. The MICP is governed by the Compensation Committee of the
Board of Directors and administered by the President and Chief Executive Officer
of Women First. The Compensation Committee, however, is responsible for
approving any incentive awards to officers of Women First and for determining
and approving any incentive awards to the President and Chief Executive Officer.
Awards under the MICP are based upon the achievement of both individual and
corporate objectives. Prior to the beginning of each plan year, the President
and Chief Executive Officer presents to the Board of Directors the overall
corporate objectives for the coming year, which are subject to the approval of
the Board. All participants in the MICP also develop a list of key individual
objectives, which are submitted for approval by the responsible Vice President
and by the President and Chief Executive Officer. Awards under the MICP are
based upon performance and are calculated under a formula which incorporates
three variables. First, the target award for each participant under the MICP is
based on a specified percentage of the participant's base salary, ranging in
five categories from 50% of salary for the Chief Executive Officer to 20% for
director-level employees. Second, the target award is then split into two sub-
awards corresponding to the participant's individual and corporate objectives,
with the specific weighting to be reviewed annually and revised as appropriate.
The percentage split of the target award ranges from 50% - 50% for the
individual and corporate objectives for director-level employees, to 100% (no
split) of the target award for the Chief Executive Officer based solely upon the
corporate objectives. Third, each component of the award is paid out after
applying performance multipliers, resulting in possible increases or decreases,
based upon the participant's actual level of achievement with respect to the
established performance goals. The performance multipliers range from zero for
unacceptable performance in view of prevailing conditions, to 100% - 125% if the
participant's performance for the year met or exceeded the objectives or was
excellent in view of prevailing conditions. Awards payable to the President and
Chief Executive Officer and to the Vice President, Finance, are subject to the
completion and issuance of Women First's year-end audited financial statements.
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<PAGE> 70
HEALTH ADVISORY BOARD
Women First HealthCare has assembled a distinguished Health Advisory Board
to guide Women First in the development of educational programming and product
selection. The Health Advisory Board has developed a Consensus Report outlining
the Corporate Philosophy and General Principles which form the basis of our
Gateway to Midlife Health -- A Better Way(TM) program. The Health Advisory Board
hopes to influence and redirect the delivery of health care for midlife women
through such recommendations and educational programs. The Health Advisory Board
includes the following nationally recognized experts:
Nathan Kase, M.D. -- Chair
Sarah L. Berga, M.D.
Trudy L. Bush, Ph.D., M.H.S.
Christine K. Cassel, M.D.
Deepak Chopra, M.D.
Judith V. Jordan, Ph.D.
Daniel R. Mishell, Jr., M.D.
Irwin H. Rosenberg, M.D.
Leon Speroff, M.D.
Nathan Kase, M.D. is an internationally recognized expert in the field of
obstetrics, gynecology and reproductive science. He is currently Professor of
Obstetrics, Gynecology and Reproductive Science and Dean Emeritus of the Mount
Sinai School of Medicine. From 1985 to 1997, Dr. Kase was Dean of the Mount
Sinai School of Medicine. In 1989, he was elected President of the Associated
Medical Schools of New York and served until 1991. Dr. Kase's major clinical and
research achievements are focused in reproductive endocrinology. He has authored
over 100 scientific articles and co-authored two textbooks in his field,
Clinical Gynecologic Endocrinology and Infertility and Principles and Practice
of Clinical Gynecology. Dr. Kase received his residency training in obstetrics
and gynecology at the Mount Sinai School of Medicine. Dr. Kase subsequently
joined the faculty of the Yale University School of Medicine, serving for nearly
twenty years, where he rose from instructor to Professor and Chairman of the
Department of Obstetrics and Gynecology. In 1981, he returned to Mount Sinai as
Professor and Chairman of the Department of Obstetrics, Gynecology and
Reproductive Science.
Trudy L. Bush, Ph.D., M.H.S. is a recognized leader in the field of
epidemiology related to women's health care issues. She is Professor of
Epidemiology and Preventive Medicine at the University of Maryland at Baltimore,
and Adjunct Professor of Epidemiology and Gynecology and Obstetrics at The Johns
Hopkins University. Dr. Bush has written and lectured extensively on women's
health issues, including hormonal replacement therapy and heart disease, breast
and ovarian cancers and osteoporosis and aging. She has numerous publications,
and is an author of the report The Postmenopausal Estrogen/Progestin
Interventions (PEPI) Trial. Dr. Bush received her B.S., M.A. and Ph.D. degrees
from Pennsylvania State University and her M.H.S. in Epidemiology from The John
Hopkins University. She is the recipient of the Clinical Achievement Award in
Women's Health, sponsored by The Society for Advancement of Women's Health
Research. She also is a Fellow of the American College of Epidemiology and a
Fellow of the Epidemiology Council of the American Heart Association.
Sarah L. Berga, M.D. is an author and a leader in the field of obstetrics
and gynecology. Dr. Berga is currently Associate Professor in the Departments of
Obstetrics, Gynecology, and Reproductive Sciences and Psychiatry at the
University of Pittsburgh School of Medicine. Her practice is located at
Magee-Womens Hospital, where she directs the Center for Complex Menopause and
the Clinical Research Center. She is a recognized authority on stress and
reproductive function. She also has conducted many clinical research studies
related to
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hormonal replacement therapy and menopause and is a co-investigator with the
Women's Health Initiative, the largest randomized prospective trial of hormonal
replacement therapy in menopause initiated and funded by the National Institutes
of Health. She has authored over 75 scientific publications and is
Editor-in-Chief of Current Problems in Obstetrics, Gynecology, and Fertility.
Dr. Berga received her medical degree from the University of Virginia and
completed her residency in Obstetrics and Gynecology through Harvard Medical
School at Massachusetts General Hospital in Boston. She completed her
subspecialty fellowship in reproductive endocrinology at the University of
California, San Diego School of Medicine.
Christine K. Cassel, M.D. is a recognized leader in the field of aging. She
is the Chairman of the Department of Geriatrics and Adult Development of Mount
Sinai Medical Center and Professor of Geriatrics and Medicine. Before joining
Mount Sinai, she held the position of Chief of General Internal Medicine at the
University of Chicago, where she was Professor of Medicine and Public Policy
Studies, Chief of the Section of General Internal Medicine, Director of the
Center for Health Policy Research, and Director of the Robert Wood Johnson
Clinical Scholars Program at the University of Chicago. Dr. Cassel completed her
M.D. at the University of Massachusetts in 1976. She completed a Fellowship in
bioethics at the University of California at San Francisco in 1979, and a
Fellowship in Geriatrics at the University of Oregon and the Portland Oregon
Veterans Medical Center in 1981. She was the first woman President of the
American College of Physicians, the largest medical specialty group in the
United States. She is also the first woman Chairman of the American Board of
Internal Medicine, a member of the Institute of Medicine of the National Academy
of Sciences, and is an advisor to numerous federal agencies and national health
care organizations. She is Editor-in-Chief of Geriatric Medicine, a leading
textbook in the field.
Deepak Chopra, M.D. is widely credited with combining modern medicine with
the wisdom of ancient cultures. Dr. Chopra has authored 25 books with total
sales over ten million copies, and over 30 audio, video and CD-ROM programs. He
has produced a number of television and video programs with the Public
Broadcasting System. In 1995, Dr. Chopra established The Chopra Center for Well
Being in La Jolla, California, where he serves as Educational Director. The
Center offers a wide variety of individual and group programs in mind/body
medicine and personal development, integrating the best of Western medicine and
natural healing traditions to provide a fresh approach to modern health needs.
In 1992, he served on the National Institutes of Heath Ad Hoc Panel on
Alternative Medicine. Formerly Chief of Staff at the Boston Regional Medical
Center, Dr. Chopra also taught at Tufts University and Boston University Schools
of Medicine and built a successful endocrinology practice in Boston.
Judith V. Jordan, Ph.D. is a recognized leader in the field of women's
health. She is the Director of Training at the Stone Center at Wellesley College
in Massachusetts. She is also the founding Scholar of the Jean Baker Miller
Institute. She is an Attending Psychologist at McLean Hospital and Assistant
Professor of Psychology at Harvard Medical School. Dr. Jordan is a recipient of
the Massachusetts Psychology Association's Career Achievement Award for
Outstanding Contributions to the Advancement of Psychology as a Science and a
Profession. Dr. Jordan founded the Women's Studies Program and Women's Treatment
Program at McLean Hospital in Boston and served as its first Director. She works
as a psychotherapist, supervisor, teacher, and consultant and has co-authored
Women's Growth in Connection and edited Women's Growth in Diversity.
Daniel R. Mishell Jr., M.D. is a prominent physician in the field of
obstetrics and gynecology. Dr. Mishell is the Lyle G. McNeile Professor and
Chairman of the Department of Obstetrics and Gynecology at the University of
Southern California School of Medicine, Los Angeles, and Chief of Professional
Services at the Women and Children's Hospital, Los Angeles County and USC
Medical Center. Dr. Mishell is certified by the American Board of
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Obstetrics and Gynecology. He was President of this Board from 1986 to 1990 and
Chairman from 1990 to 1994. He is a member of numerous medical societies
including the Society for Gynecologic Investigation, of which he was President
in 1988, the American College of Obstetrics and Gynecologists, the American
Federation for Clinical Research and the Endocrine Society. Dr. Mishell is the
Editor-in-Chief of Contraception and the Yearbook of Obstetrics and Gynecology
and Women's Health. He is the associate editor of The Journal of Reproductive
Medicine and serves on the editorial boards of other medical journals. He is a
consulting senior scientist for the Population Council's International Committee
for Contraceptive Research. He received the Distinguished Scientist Award from
the Society for Gynecologic Investigation in 1994. Dr. Mishell has authored over
248 scientific papers published in peer reviewed journals and has written 149
textbook chapters including Menopause: Physiology and Pharmacology,
Comprehensive Gynecology, and Management of Common Problems in Obstetrics and
Gynecology, and has edited 33 textbooks including Menopause, Physiology and
Menopause, Comprehensive Gynecology and Management of Common Problems in
Obstetrics and Gynecology. He received his B.A. and his M.D. from Stanford
University.
Irwin H. Rosenberg, M.D. is an internationally recognized leader in
nutrition science who has made important and unique contributions to our
understanding of nutrition metabolism in health and disease. Dr. Rosenberg
serves as Professor of Physiology, Medicine and Nutrition, at Tufts University
School of Medicine and School of Nutrition, as well as Dean for Nutrition
Sciences and Director, Jean Mayer USDA Human Nutrition Research Center on Aging
at Tufts. Prior to joining Tufts, Dr. Rosenberg held faculty positions at
Harvard Medical School and the University of Chicago. He has been a recipient of
numerous awards including the Josiah Macy Faculty Award and the Grace Goldsmith
Award. He was elected to the National Institute of Medicine in 1994, and
received the Bristol-Myers Squibb/Mead Johnson Award for Distinguished
Achievement in Nutrition Research.
Leon Speroff, M.D. is an internationally recognized expert in obstetrics
and gynecology, and hormonal therapy. He is Professor of Obstetrics and
Gynecology, Director of the Women's Health Research Unit, School of Medicine,
Oregon Health Sciences University, Portland, Oregon. He is a Diplomat of the
American Board of Obstetrics and Gynecology and holds a subspecialty
certification in the Division of Reproductive Endocrinology, American Board of
Obstetrics and Gynecology. Dr. Speroff is Editor-in-Chief of Seminars in
Reproductive Endocrinology and OB/GYN Clinical Alert and serves on the editorial
boards of Contemporary OB/GYN, The Endocrinologist, and Primary Care Update for
OB/GYNS. He has authored Clinical Gynecologic Endocrinology and Infertility, A
Clinical Guide for the Care of Older Women, A Clinical Guide for Contraception,
and Clinical Gynecologic Endocrinology and Infertility: Self-Assessment and
Study Guide. He received his B.A. from Denison University and his M.D. degree
from Case Western Reserve University School of Medicine.
CONSULTANTS TO HEALTH ADVISORY BOARD
Women First HealthCare has contracted with a number of distinguished
experts in selected disciplines to provide guidance and counsel to Women First
and its Health Advisory Board. The panel of experts includes:
Claus Christiansen, M.D., Ph.D.
Bruce S. McEwen, Ph.D.
Miriam E. Nelson, Ph.D.
Lawrence G. Smith, M.D.
Nanette Kass Wenger, M.D.
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Claus Christiansen, M.D., Ph.D. is an internationally recognized expert in
the field of osteoporosis, publishing more than 600 scientific articles on the
subject of calcium metabolism. He currently serves as scientific consultant and
member of the Board of the Center for Clinical Basic Research in Balkrup,
Denmark. Dr. Christiansen received his medical degree from the University of
Copenhagen.
Bruce Sherman McEwen, Ph.D. is an expert in the field of neuroendocrinology
and, in particular, the role of estrogen action in the brain. He is currently
Professor and Head of the Harold and Margaret Milliken Hatch Laboratory of
Neuroendocrinology and Faculty Chair, Science Outreach Program at Rockefeller
University. Dr. McEwen has authored over 600 articles in publications and
textbooks, focusing on the effect of adrenal steroids in the brain, the effects
of estrogen on the brain, and stress and its effects on neurological health. He
received his Ph.D. in cell biology from Rockefeller University.
Miriam E. Nelson, Ph.D. is an expert in the field of exercise physiology.
She is author of the national bestseller Strong Women Stay Young and Strong
Women Stay Slim. She is Associate Chief of the Human Physiology Laboratory at
the Jean Mayer USDA Human Nutrition Research Center on Aging, and Assistant
Professor of Nutrition at Tufts University. She earned a Ph.D. in nutrition from
Tufts University, and is a Certified Nutrition Specialist of the American
College of Nutrition.
Lawrence G. Smith, Ph.D. is prominent in the field of clinical decision
making. He is Vice Chairman, Department of Medicine, at Mount Sinai School of
Medicine, which he has held since 1994. Dr. Smith was appointed Horace W.
Goldsmith Professor of Medicine by the Mount Sinai School of Medicine in 1994,
and is Department Director, Internal Medicine Clerkship and Internal Medicine
Subinternship. He received his B.S. degree in physics from Fordham University,
and his M.D. from New York University. He received his post-doctoral training in
internal medicine at Strong Memorial Hospital in Rochester.
Nanette Kass Wenger, M.D. is a leader in the field of cardiology. She is
Professor of Medicine (Cardiology) at Emory University School of Medicine, Chief
of Cardiology and Director of Cardiac Clinics at Grady Memorial Hospital, and a
consultant to the Emory Heart Center. In 1972, Dr. Kass Wenger was named Atlanta
Woman of the Year in Medicine, and in 1976, she was cited in Time magazine's
"Women of the Year" issue for her accomplishments in Cardiac Rehabilitation,
International Medical Teaching. In 1998, she received the Physician of the Year
award from the American Heart Association. Dr. Kass Wenger received her M.D.
from Harvard Medical School.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 30, 1999 regarding
the beneficial ownership of Women First common stock by (a) each person known to
the Board of Directors to own beneficially 5% or more of Women First's common
stock; (b) each director of Women First; (c) the Named Executive Officers; and
(d) all directors and executive officers of Women First as a group. Information
with respect to beneficial ownership has been furnished by each director,
officer or 5% or more stockholder, as the case may be. The address for all
executive officers and directors is c/o Women First HealthCare, Inc., 12220 El
Camino Real, Suite 400, San Diego, California 92130.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
Percentage ownership calculations before the offering are based on 12,074,322
shares of common stock outstanding and give effect to the automatic conversion
of Series A Preferred Stock and Series B Convertible Preferred Stock upon
consummation of this offering. Percentage ownership calculations after the
offering are based on 16,574,322 shares of common stock outstanding, giving
effect to the issuance of a total of 4,500,000 shares sold in the offering and
the automatic conversion of Series A Preferred Stock and Series B Convertible
Preferred Stock upon consummation of this offering.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
SHARES --------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED(1) OFFERING OFFERING
---- ------------ ----------- -----------
<S> <C> <C> <C>
Edward F. Calesa................................ 5,283,324 43.8% 31.9%
David F. Hale(2)................................ 455,757 3.6 2.7
Jeffrey W. Raser................................ 14,405 * *
Robert L. Jones................................. 15,407 * *
Anthony P. Maris................................ 45,750 * *
Charlotte Beers................................. -- -- --
Meredith A. Brokaw.............................. 5,042 * *
Gary V. Parlin.................................. 23,910 * *
Richard L. Rubin................................ 183,000 1.5 1.1
John Simon(3)................................... -- -- --
Johnson & Johnson Development Corporation(4).... 1,852,873 15.1 11.1
Randi C. Crawford(5)............................ 1,062,047 8.8 6.4
Jeff E. Calesa(6)............................... 763,121 6.3 4.6
Executive officers and directors as a group
(18 persons)(7)............................... 7,081,162 55.9 41.3
</TABLE>
- -------------------------
* Less than 1%
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(1) The following table indicates those people whose total number of
beneficially owned shares include shares subject to options exercisable
within 60 days of April 30, 1999:
<TABLE>
<CAPTION>
SHARES SUBJECT
TO OPTIONS
--------------
<S> <C>
Edward F. Calesa............................................ --
David F. Hale............................................... 437,457
Jeffrey W. Raser............................................ 14,405
Robert L. Jones............................................. 15,407
Anthony P. Maris............................................ 45,750
Meredith A. Brokaw.......................................... 5,042
Gary V. Parlin.............................................. 23,910
Randi C. Crawford........................................... 27,450
</TABLE>
(2) Includes 18,300 shares held by the David F. & Linda C. Hale Trust, of which
Mr. Hale is a trustee.
(3) Excludes 320,250 shares and 274,499 shares subject to currently exercisable
warrants held by Allen & Company Incorporated and certain of its other
officers and affiliates. Mr. Simon is a Managing Director of Allen & Company
Incorporated, but disclaims beneficial ownership of the shares and warrants
held by Allen & Company Incorporated.
(4) Excludes up to shares that Johnson & Johnson Development
Corporation may purchase in this offering. At the request of Women First,
the underwriters in this offering have reserved for Johnson & Johnson
Development Corporation the number of shares equal to $3,000,000 divided by
the initial public offering price. See "Certain Transactions" and
"Underwriting." The address for Johnson & Johnson Development Corporation is
One Johnson & Johnson Plaza, New Brunswick, NJ 08932. Includes 205,873
shares subject to currently exercisable warrants.
(5) Ms. Crawford is Edward F. Calesa's daughter and Jeff E. Calesa's sister.
(6) Jeff E. Calesa is Edward F. Calesa's son and Randi C. Crawford's brother.
Mr. Calesa's address is c/o Women First HealthCare, Inc., 12220 El Camino
Real, Suite 400, San Diego, CA 92130.
(7) See note (1). Includes 24,179 shares each held by Nancy J. Casey, Julie G.
Martin and Dale F. Steele. Also includes 14,091 shares subject to options
exercisable within 60 days of the date of this table held by Jeanne-Marie
Varga.
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CERTAIN TRANSACTIONS
In January 1998, Women First received commitments from various accredited
individual and institutional investors to purchase an aggregate of 2,100,000
shares of its Series A Preferred Stock for total consideration of $21.0 million.
Women First issued 1,050,000 shares of Series A Preferred Stock (equivalent to
1,921,500 shares of common stock) on January 8, 1998 for $10.5 million. The
investors committed an additional $10.5 million as consideration for the
issuance of the balance of the shares of Series A Preferred Stock upon Women
First's satisfaction of certain milestones. In May 1998, an additional
accredited institutional investor committed to purchase 100,000 shares of Series
A Preferred Stock (equivalent to 183,000 shares of common stock) for $1.0
million. Women First issued 50,000 shares (equivalent to 91,500 shares of common
stock) to that investor in May 1998, with the balance subject to the milestones.
In October 1998, Women First satisfied the first set of milestones and issued
550,000 shares of Series A Preferred Stock (equivalent to 1,006,500 shares of
common stock) for total proceeds of $5.5 million. In January 1999, Women First
satisfied the second set of milestones (as amended) and in February issued
550,000 shares of Series A Preferred Stock (equivalent to 1,006,500 shares of
common stock) for total proceeds of $5.5 million.
In the Series A Preferred Stock private placement, Edward F. Calesa, Women
First's Chairman of the Board, purchased 75,000 shares of Series A Preferred
Stock (equivalent to 137,250 shares of common stock) for $750,000, Janice
Calesa-Sherman, Mr. Calesa's daughter, purchased 25,000 shares of Series A
Preferred Stock (equivalent to 45,750 shares of common stock) for $250,000, a
trust of which David F. Hale, Women First's President and Chief Executive
Officer, is a trustee, purchased 10,000 shares of Series A Preferred Stock
(equivalent to 18,300 shares of common stock) for $100,000, Johnson & Johnson
Development Corporation purchased 900,000 shares of Series A Preferred Stock
(equivalent to 1,647,000 shares of common stock) for $9.0 million, and Allen &
Company Incorporated purchased 100,000 shares of Series A Preferred Stock
(equivalent to 183,000 shares of common stock) for $1.0 million. Women First
also issued warrants to purchase 205,873 shares of common stock, with an
exercise price of $5.46 per share, to Johnson & Johnson Development Corporation
in connection with the private placement. Allen & Company Incorporated received
warrants to purchase an aggregate of 274,499 shares of common stock with an
exercise price of $5.46 per share, and other customary fees and expenses, as
consideration for serving as the placement agent for the private placement. Upon
completion of this offering, Johnson & Johnson Development Corporation, a
subsidiary of Johnson & Johnson, will beneficially own approximately 11.1% of
Women First's outstanding common stock. John Simon, a Director of Women First,
is a managing director with Allen & Company Incorporated.
In July 1998, Women First entered into a 10-year agreement with
Ortho-McNeil Pharmaceutical, Inc., a subsidiary of Johnson & Johnson, for the
purchase and sale of the Ortho-Est(R) line of estropipate products. This
agreement calls for minimum payments for the remaining nine-year term of the
contract, regardless of the actual sales performance of the pharmaceutical
product. These minimum purchases are based on a 10-year forecast determined at
the time the contract was executed. In 1998, Women First paid $2.5 million to
Ortho-McNeil pursuant to the Ortho-Est(R) agreement. In May 1999, Women First
entered into a co-promotion agreement with Ortho-McNeil pursuant to which we
agreed to co-promote Ortho Tri-Cyclen(R), a leading oral contraceptive, and a
new oral hormonal replacement therapy product, which is pending approval by the
FDA. The agreement runs through December 31, 2002 and may be extended by Women
First for one additional year if specified sales goals are met. The agreement
requires Ortho-McNeil to compensate us for sales of the Ortho Tri-Cyclen(R)
product with a performance fee based on the value of Ortho-McNeil's net increase
in its market share of oral contraceptive products for the prescriptions written
by the clinicians called on by Women First over the increase, if any, in
Ortho-McNeil's market share for oral contraceptive products for the
prescriptions written by the clinicians who are not called on by
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Women First. The agreement also calls for Women First to receive minimum
payments specified in the agreement commencing in 2000 if minimum performance
goals are met. Ortho-McNeil will compensate us for sales of the new oral HRT
product upon approval by the FDA, if obtained, and product launch through a
compensation arrangement based on the net sales of the new oral HRT product from
prescriptions written by the clinicians who are called on by Women First. For
more information concerning Women First's agreements with Ortho-McNeil, see
"Business -- Licensing and Co-Promotion Agreements."
Johnson & Johnson Development Corporation purchased in March 1999 $1.5
million principal amount of short-term notes and warrants to purchase 12,169
shares of common stock for $1.5 million. Mr. Calesa purchased $340,000 principal
amount of the short-term notes and warrants to purchase 2,758 shares of common
stock for $340,000. Janice Calesa-Sherman, Mr. Calesa's daughter, purchased
$110,000 principal amount of the short-term notes and warrants to purchase 892
shares of common stock for $110,000. These short-term notes bear interest at a
rate of 9% per annum, payable quarterly. All principal and unpaid interest is
due and payable on March 1, 2000. The notes may be prepaid by Women First
without penalty.
At the request of Women First, the underwriters for this offering have
reserved for sale, at the initial public offering price, a portion of the shares
in this offering for Johnson & Johnson Development Corporation. Johnson &
Johnson Development Corporation has expressed an interest in purchasing
$3,000,000 of common stock in this offering at the initial public offering
price. See "Underwriting."
Gary V. Parlin, a Director of Women First, has a consulting arrangement
with Women First pursuant to which Mr. Parlin receives a monthly consulting fee
of $5,000. Mr. Parlin purchased $100,000 principal amount of the short-term
notes and warrants to purchase 811 shares of common stock for $100,000.
Pursuant to the Purchase Agreement and Agreement Among Members relating to
MenoMorphosis, LLC, the predecessor of As We Change, LLC, Julie G. Martin, Nancy
J. Casey and Dale F. Steele, each a Vice President of Women First, may be
entitled to receive an aggregate of 23,187 shares of common stock in April 2000
pursuant to an earn-out provision in the purchase agreement.
Women First has entered into employment agreements with Edward F. Calesa,
Chairman of the Board, David F. Hale, President and Chief Executive Officer, and
each of Dale F. Steele, Julie G. Martin and Nancy J. Casey, each a Vice
President, have entered into employment agreements with the predecessor to Women
First's wholly owned subsidiary As We Change, LLC. See "Management -- Employment
Agreements."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Women First will have 16,574,322 issued
and outstanding shares of common stock (assuming no exercise of the
underwriters' over-allotment option and reflecting the automatic conversion of
all shares of Series A Preferred Stock and Series B Convertible Preferred Stock
upon consummation of the offering). The 4,500,000 shares sold in the offering
will be freely tradeable without restriction under the Securities Act, except
for any such shares held at any time by an "affiliate" of Women First, as such
term is defined under Rule 144 under the Securities Act. Of the 12,074,322
shares of common stock outstanding as of April 30, 1999, 9,698,993 will be
eligible for sale under Rule 144 under the Securities Act, subject to certain
volume and other limitations upon the expiration of lock-up agreements. All of
the currently outstanding shares of common stock, all shares of stock issuable
upon conversion or exercise of outstanding shares of preferred stock and
warrants and shares of stock issuable upon exercise of options held by Women
First's directors and officers are subject to lock-up agreements between the
underwriters and the current directors, officers and stockholders of Women First
covering the 180-day period commencing on the date of the underwriting
agreement. Allen & Company Incorporated may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to the
lock-up agreements.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares for at least one year, including an affiliate, is
entitled to sell on the open market in brokers' transactions, within any
three-month period, a number of restricted shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly trading volume during the four calendar weeks preceding the sale.
Sales under Rule 144 are subject to certain manner of sale limitations, notice
requirements and the availability of current public information about Women
First. Rule 144(k) provides that a person who is not an affiliate and who has
beneficially owned shares for at least two years is entitled to sell such shares
at any time under Rule 144 without regard to the limitations described above. Of
the 12,074,322 shares outstanding as of April 30, 1999, affiliates hold
9,001,879 shares. Of the shares owned by non-affiliates, 303,963 shares have
been held by such non-affiliates in excess of two years.
Any employee, officer, director, advisor or consultant to Women First who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after Women First becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.
As of April 30, 1999, there were outstanding stock options to purchase an
aggregate of 2,114,235 shares of common stock, of which 641,299 are presently
exercisable or exercisable within 60 days. All outstanding stock options are
held by executive officers, outside directors or employees of and consultants to
Women First.
Before this offering, there has been no public market for the common stock.
Women First is unable to estimate the number of shares that may be sold in the
future by its existing stockholders or the effect, if any, that sales of stock
by such stockholders will have on the market price of the common stock
prevailing from time to time. Sales of substantial amounts of common stock by
existing stockholders could adversely affect prevailing market prices.
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DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the offering, the authorized capital stock of
Women First will consist of 40,000,000 shares of common stock, $.001 par value
per share, and 5,000,000 shares of preferred stock, $.001 par value per share.
The following description of the capital stock of Women First does not purport
to be complete and is subject to the provisions of the Fourth Amended and
Restated Certificate of Incorporation and the Second Amended and Restated Bylaws
to be adopted prior to the consummation of the offering. Forms of the new
certificate of incorporation and bylaws are included as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
As of April 30, 1999, Women First had 7,685,993 shares of common stock
outstanding held of record by 12 stockholders. Upon the consummation of this
offering, all outstanding shares of preferred stock will be automatically
converted into common stock, resulting in an increase of 4,388,329 in the number
of outstanding shares of common stock and an increase of 39 in the number of
record holders of Women First common stock. The holders of Women First common
stock are entitled to one vote for each share on all matters voted on by
stockholders, and the holders of such shares possess all voting power, except as
otherwise required by law or provided in any resolution adopted by the board of
directors of Women First regarding any series of preferred stock. Subject to any
preferential or other rights of any outstanding series of Women First preferred
stock that may be designated by the board of directors, the holders of Women
First common stock will be entitled to such dividends as may be declared from
time to time by the board of directors from available funds, and upon
liquidation will be entitled to receive pro rata all assets of Women First
available for distribution to such holders. The common stock has no preemptive,
redemption or conversion rights. The outstanding shares of common stock are, and
the shares offered by Women First in the offering, when issued and paid for,
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of preferred stock that Women First may
designate and issue in the future.
PREFERRED STOCK
Upon the consummation of this offering, each currently outstanding share of
preferred stock will be converted into common stock, and these shares of
preferred stock will be automatically retired. After the automatic conversion of
the outstanding preferred stock, the board of directors will be authorized to
provide for the issuance of shares of preferred stock, in one or more series,
and to determine, regarding any series, the terms and rights of such series,
including the following: (1) the designation of such series; (2) the rate, time
of, conditions to and preferences regarding, dividends, and whether such
dividends are cumulative; (3) the voting rights, if any, of shares of such
series; (4) the price, timing and conditions regarding the redemption of shares
of such series and whether a sinking fund should be established for such series;
(5) the rights and preferences of shares of such series in the event of
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of Women First; and (6) the right, if any, to convert or exchange shares of such
series into or for stock or securities of any other series or class.
Women First believes that the availability of the preferred stock will
provide Women First with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. Having such authorized shares available for issuance will allow Women
First to issue shares of preferred stock without the expense and
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delay of a special stockholders' meeting. The authorized shares of preferred
stock, as well as shares of Women First common stock, will be available for
issuance without further action by Women First's stockholders, unless action is
required by applicable law, the rules of any stock exchange on which Women First
securities may be listed, any then-existing contractual restrictions or unless
Women First is restricted by the terms of any then-outstanding preferred stock.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of Women First. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of the common stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the common stock. Women First currently has no plans to issue any
additional shares of preferred stock.
WARRANTS
Women First has issued two classes of warrants to purchase an aggregate of
541,128 shares of common stock, subject to certain adjustments.
Series A Preferred Stock Financings. Women First issued warrants to
purchase an aggregate of 480,372 shares of common stock to Johnson & Johnson
Development Corporation and Allen & Company Incorporated in connection with
Women First's Series A Preferred Stock financing. Each of the warrants currently
entitles the holder to purchase shares of Women First's common stock (subject to
adjustment) at a purchase price per share equal to the Series A Conversion Price
(currently $5.46 per share, subject to adjustment) in effect at the time of
exercise. These warrants expire on January 8, 2005. These warrants grant the
holders certain registration rights under the Securities Act for the shares of
common stock issuable upon exercise of the warrants.
Short-Term Note Financing Warrants. Women First issued warrants to purchase
an aggregate of 60,756 shares of common stock to the purchasers of short-term
notes in a private placement in March 1999. The warrants will become
exercisable, at the option of the holder, after the first to occur of (1) 180
days following the completion of Women First's initial public offering or (2)
the first anniversary of the issuance of the warrant. Thereafter, the warrants
will continue to be exercisable for a period of five years from the date of
issuance. The exercise price for the warrants will equal (1) the price per share
to the public in Women First's initial public offering less 15%; (2) the price
per share of common stock (or implied price per share of common stock), before
any discounts or commissions, in the next private placement of Women First's
common stock or securities convertible into common stock which results in gross
proceeds to Women First of at least $1,000,000, if Women First does not complete
an initial public offering prior to the completion of the next such private
placement; or (3) $6.00 per share, if an initial public offering or private
placement has not been completed prior to the first anniversary of the date of
issuance. These warrants grant the holders certain registration rights under the
Securities Act for the shares of common stock issuable upon exercise of the
warrants.
CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
The following is a description of provisions of the Delaware General
Corporation Law (DGCL) and the new certificate of incorporation and bylaws to be
adopted upon the consummation of this offering. This summary does not purport to
be complete and is qualified in its entirety by reference to the DGCL and the
new certificate of incorporation and bylaws.
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Women First is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.
Provisions of the certificate of incorporation and the bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the policies formulated by the board of directors
and the business strategies and policies of Women First as determined by the
board of directors. In addition, these provisions are intended to ensure that
the board of directors will have sufficient time to act in what the board of
directors believes to be in the best interests of Women First and its
stockholders. These provisions also are designed to reduce the vulnerability of
Women First to an unsolicited proposal for a takeover of Women First that does
not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of Women First
at less than fair value. The provisions are also intended to discourage certain
tactics that may be used in proxy fights that could result in less long-term
value to Women First's stockholders.
Classified Board of Directors. The certificate of incorporation provides
for the board of directors to be divided into three classes of directors, with
each class as nearly equal in number as possible, serving staggered three-year
terms. As a result, approximately one-third of the board of directors will be
elected each year. The directors in Class I will be Meredith A. Brokaw and
Richard L. Rubin, whose terms will expire at the 2000 annual meeting of
stockholders. The directors in Class II will be John Simon and Charlotte Beers,
whose terms will expire at the 2001 annual meeting of stockholders. The
directors in Class III will be Edward F. Calesa, David F. Hale and Gary V.
Parlin, whose terms will expire at the 2002 annual meeting of stockholders. The
classified board provision will help to increase the likelihood of continuity
and stability in the policies formulated by the board of directors and the
business strategies and policies of Women First as determined by the board of
directors. The classified board provision could have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of Women First. In addition, the classified board provision could delay
stockholders who do not like the policies of the board of directors from
removing a majority of the board of directors for two years.
No Stockholder Action by Written Consent; Special Meetings. The certificate
of incorporation provides that stockholder action can only be taken at an annual
or special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The certificate of incorporation also provides
that special meetings of stockholders may be called only by the board of
directors, its chairman, the president or the secretary of Women First.
Stockholders are not permitted to call a special meeting of stockholders or to
require that the board of directors call a special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of Women First. The
stockholder notice procedure provides that only persons who are nominated by, or
at the direction of, the board of directors, or by a stockholder who has given
timely written notice to the secretary of Women First prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
Women First. The stockholder notice procedure also provides that at an annual
meeting only such business may be
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conducted as has been brought before the meeting by, or at the direction of, the
board of directors or by a stockholder who has given timely written notice to
the secretary of Women First of such stockholder's intention to bring such
business before such meeting. Under the stockholder notice procedure, if a
stockholder desires to submit a proposal or nominate persons for election as
directors at an annual meeting, the stockholder must submit written notice to
the secretary not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or if the date of the annual
meeting is not within 30 days before or after such anniversary date, then, to be
timely, notice must be submitted not more than 90 days prior to the annual
meeting and not less than the later of (1) 60 days prior to the annual meeting
and (2) the tenth day after notice of the meeting was mailed or public
announcement of the date of such meeting is first made). In addition, under the
stockholder notice procedure, a stockholder's notice to Women First proposing to
nominate a person for election as a director or relating to the conduct of
business other than the nomination of directors must contain certain specified
information. If the chairman of a stockholders' meeting determines that business
was not properly brought before the meeting in accordance with the stockholder
notice procedure, the business may not be discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The certificate of
incorporation provides that the board of directors will consist of the number of
directors set forth in the bylaws. The board of directors currently consists of
seven directors. Further, the certificate of incorporation authorizes the board
of directors to fill newly created directorships (other than directorships that
are to be filled by holders of preferred stock). Accordingly, this provision
could prevent a stockholder from obtaining majority representation on the board
of directors by permitting the board of directors to enlarge the size of the
board of directors and fill the new directorships with its own nominees. A
director so elected by the board of directors holds office until the next
election of the class for which such director has been chosen and until his or
her successor is elected and qualified.
Indemnification. Women First has included in its certificate of
incorporation and bylaws provisions that (1) eliminate, to the extent permitted
by the DGCL, the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty and (2) indemnify its directors
and officers to the fullest extent permitted by the DGCL, including
circumstances in which indemnification is otherwise discretionary. Women First
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers. Women First also intends to enter into
indemnification agreements with certain officers and directors upon consummation
of the offering.
Bylaws. The certificate of incorporation provides that the bylaws are
subject to adoption, amendment, alteration, repeal or rescission either by (1)
the board of directors or (2) the affirmative vote of the holders of not less
than 66 2/3% of the total voting power of all outstanding securities voting as a
single class. This provision will make it more difficult for stockholders to
make changes in the bylaws by allowing the holders of a minority of the voting
securities to prevent the holders of a majority of voting securities from
amending the bylaws.
Some of the provisions of the certificate of incorporation and bylaws and
the DGCL could discourage or prevent an acquisition of Women First.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Women First common stock is
BankBoston, N.A.
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LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Officers and directors of Women First are covered by certain provisions of
the DGCL, the certificate of incorporation, the bylaws, individual
indemnification agreements with Women First and insurance policies which serve
to limit, and, in certain instances, to indemnify them against, certain
liabilities which they may incur in such capacities. These various provisions
are described below.
Elimination of Liability in Certain Circumstances. In June 1986, Delaware
enacted legislation which authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. This duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all significant information
reasonably available to them. Absent the limitations now authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their duty of care. Although the statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The certificate of
incorporation limits the liability of directors in their capacity as directors
but not in their capacity as officers to Women First or its stockholders to the
fullest extent permitted by such legislation. Specifically, the directors of
Women First will not be personally liable for monetary damages for breach of a
director's fiduciary duty as director, except for liability: (1) for any breach
of the director's duty of loyalty to Women First or its stockholders; (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) for unlawful payments of dividends or unlawful
share repurchases or redemptions as provided in Section 174 of the DGCL; or (4)
for any transaction from which the director derived an improper personal
benefit.
Indemnification and Insurance. As a Delaware corporation, Women First has
the power, under specified circumstances generally requiring the director or
officer to act in good faith and in a manner he or she reasonably believes to be
in or not opposed to Women First's best interests, to indemnify its directors
and officers in connection with actions, suits or proceedings brought against
them by a third party or in the name of Women First by reason of the fact that
they were or are such directors or officers, against expenses, judgments, fines
and amounts paid in settlement in connection with any such action, suit or
proceeding. The certificate of incorporation generally provides for mandatory
indemnification of Women First's directors and officers to the full extent
provided by Delaware corporate law. In addition, Women First has entered into
indemnification agreements with its directors and officers which generally
provide for mandatory indemnification under circumstances for which
indemnification would otherwise be discretionary under Delaware law.
Women First intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer of Women First, or is or was serving
at the request of Women First as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not Women First would have the power or obligation to indemnify him
or her against such liability under the provisions of the bylaws.
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UNDERWRITING
The underwriters named below, through their representatives Allen & Company
Incorporated and Needham & Company, Inc., have severally agreed, subject to the
terms and conditions set forth in the underwriting agreement among Women First
and the underwriters, to purchase from Women First the aggregate number of
shares of common stock indicated below opposite their respective names at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Allen & Company Incorporated................................
Needham & Company, Inc. ....................................
---------
Total............................................. 4,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to approval of
certain legal matters by counsel and to various other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
underwriting agreement, all such shares of common stock (other than shares of
common stock covered by the over-allotment option described below) must be
purchased.
Women First has granted an option to the underwriters, exercisable during
the 30-day period after the date of this prospectus, to purchase up to a maximum
of 675,000 additional shares of common stock to cover over-allotments, if any,
at the same price per share as the initial 4,500,000 shares to be purchased by
the underwriters. If the underwriters exercise this option, each of the
underwriters will be severally committed, subject to certain conditions, to
purchase these additional shares in approximately the same proportion as set
forth in the above table. The underwriters may purchase these shares only to
cover over-allotments made in connection with the initial public offering.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Women First. These amounts are
shown assuming both no exercise and full exercise of the underwriters
over-allotment option.
<TABLE>
<CAPTION>
PAID BY WOMEN FIRST
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
The underwriters' representatives have advised Women First that the
underwriters propose to offer the common stock to the public on the terms set
forth on the cover page of this prospectus. The underwriters may allow selected
dealers a concession of not more than $ per share, and these dealers may
reallow a concession of not more than $ per share to certain other dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the underwriters' representatives. The common stock is offered
subject to receipt and acceptance by the underwriters, and to various other
conditions, including the right to reject orders in whole or in part.
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The underwriting agreement provides that Women First will indemnify the
underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the underwriters may be required
to make in respect of such liabilities.
The underwriters' representatives have advised Women First that the
underwriters do not expect to confirm sales to any accounts over which they
exercise discretionary authority.
Women First, the holders of its capital stock and warrants, and its
directors and officers holding options to purchase common stock have agreed that
they will not, for a period of 180 days from the date of the underwriting
agreement, without the prior written consent of Allen & Company Incorporated:
- directly or indirectly issue, offer to sell, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of Women First common stock
or any securities convertible into or exchangeable or exercisable for
Women First common stock,
- enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of Women First common stock, whether any such
swap transaction is to be settled by delivery of common stock or other
securities, in cash or otherwise, or
- exercise their rights, as applicable, to require Women First to register
common stock.
The restrictions described in the previous paragraph do not apply to:
- transactions by any person other than Women First relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering or certain securities acquired in
the offering, or
- specified transfers and specified issuances by Women First of common
stock and options, provided that the recipients enter into lock-up
agreements similar to those described in the previous paragraph.
Allen & Company Incorporated may in its sole discretion and at any time
without notice release all or any portion of such securities subject to the
lock-up agreements. The underwriters do not presently intend to grant permission
to sell any securities subject to the lock-up agreements.
At the request of Women First, the underwriters have reserved for sale, at
the initial public offering price, up to % of the shares of common stock in
this offering for Women First's directors, officers, employees, stockholders and
business associates. Of these shares, the underwriters have reserved a portion
for Johnson & Johnson Development Corporation, a significant stockholder of
Women First. Johnson & Johnson Development Corporation has expressed an interest
in purchasing $3,000,000 of common stock in this offering at the initial public
offering price. For information regarding Johnson & Johnson Development
Corporation's existing relationship with Women First, see "Certain Transactions"
and "Principal Stockholders." Purchases of the reserved shares would reduce the
number of shares available for sale to the general public. The underwriters will
offer any reserved shares which are not so purchased to the general public on
the same terms as the other shares.
Prior to this offering, there has been no public market for the common
stock of Women First. Consequently, the initial public offering price for the
common stock will be negotiated between Women First and the representatives of
the underwriters. Among the factors to be considered in determining the initial
public offering price of the common stock will be prevailing market and economic
conditions, market valuations of other companies engaged in activities similar
to Women First, estimates of the business potential and prospects of Women
First, the present state of Women First's business operations, Women First's
management and
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other factors deemed relevant. Women First's common stock has been approved for
quotation and trading on the Nasdaq National Market under the symbol "WFHC."
However, we cannot assure you that an active or orderly trading market will
develop for the common stock or that the common stock will trade in the public
markets subsequent to the offering at or above the initial public offering
price.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock during and after the offering. Specifically, the underwriters may
over-allot or otherwise create a short position in the common stock for their
own account by selling more shares of common stock than have been sold to them
by Women First. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the offering are reclaimed if shares of common
stock previously distributed in the offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the common stock to the extent that it discourages resales
of the common stock. No representation is made as to the magnitude or effect of
any such stabilization or other transactions. Such transactions may be effected
on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
John Simon, a Managing Director of Allen & Company Incorporated, is a
Director of Women First. Allen & Company Incorporated has provided investment
banking services to Women First in the past and has received customary
compensation for these services. See "Certain Transactions."
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for Women First by Latham & Watkins, San Diego, California. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements of Women First HealthCare, Inc. at December 31, 1997 and 1998 and for
the period from November 1, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the financial statements of As We
Change as of December 31, 1996 and 1997 and for the period from February 14,
1996 (inception) to December 31, 1996 and for the year ended December 31, 1997
as set forth in their reports. The financial statements are included in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
Women First has filed with the Securities and Exchange Commission in
Washington, D.C., a registration statement on Form S-1 under the Securities Act
with respect to the shares of common stock offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information with respect
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to Women First and the shares offered by this prospectus, reference is made to
the registration statement, including the exhibits and schedules filed
therewith. Statements contained in this prospectus regarding the contents of any
contract or any other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the registration statement, as applicable, each
such statement being qualified in all respects by such reference. Copies of the
registration statement (of which this prospectus is a part), together with such
exhibits and schedules, may be obtained upon payment of the fee prescribed by
the Commission or may be examined without charge at the office of the
Commission.
After consummation of the offering, Women First will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will be required to file annual and quarterly
reports, proxy statements and other information with the Commission. The
registration statement, including the exhibits thereto, as well as such reports
and other information filed by Women First with the Commission, can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission also maintains a site on the World
Wide Web at http://www.sec.gov that contains reports and other information
regarding registrants that file electronically with the Commission.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WOMEN FIRST HEALTHCARE, INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and at March 31, 1999 (unaudited)......................... F-3
Consolidated Statements of Operations for the period from
November 1, 1996 (inception) through December 31, 1996 and
the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................... F-4
Consolidated Statements of Stockholders' Equity for the
period from November 1, 1996 (inception) through December
31, 1996 and the years ended December 31, 1997 and 1998,
and the three months ended March 31, 1999 (unaudited)..... F-5
Consolidated Statements of Cash Flows for the period from
November 1, 1996 (inception) through December 31, 1996 and
the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................... F-7
Notes to Consolidated Financial Statements.................. F-8
AS WE CHANGE
Report of Independent Auditors.............................. F-22
Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)............................ F-23
Statements of Operations for the period from February 14,
1996 (inception) through December 31, 1996 and the year
ended December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................... F-24
Statements of Members' Equity for the period from February
14, 1996 (inception) through December 31, 1996 and the
year ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)............................ F-25
Statements of Cash Flows for the period from February 14,
1996 (inception) through December 31, 1996 and the year
ended December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................... F-26
Notes to Financial Statements............................... F-27
PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Statement of Operations for the year ended
December 31, 1998 (unaudited)............................. F-31
</TABLE>
F-1
<PAGE> 89
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Women First HealthCare, Inc.
We have audited the accompanying consolidated balance sheets of Women First
HealthCare, Inc. as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from November 1, 1996 (inception) through December 31, 1996 and for the years
ended December 31, 1997 and 1998. These financial statements are the
responsibility of Women First's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Women First HealthCare, Inc. at December 31, 1997 and 1998, and the consolidated
results of their operations and their cash flows for the period from November 1,
1996 (inception) through December 31, 1996 and for the years ended December 31,
1997 and 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
San Diego, California
March 11, 1999
F-2
<PAGE> 90
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
(See Note 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 567,300 $ 4,438,445 $ 9,048,021
Accounts receivable, net.................................. -- 1,114,283 888,577
Inventory................................................. -- 1,205,597 1,866,861
Receivable from related party............................. -- 124,570 500,086
Prepaid expenses and other current assets................. 71,251 548,999 509,598
----------- ------------ ------------
Total current assets............................... 638,551 7,431,894 12,813,143
Property and equipment, net................................. 65,609 690,912 771,293
Intangible assets, net...................................... -- 3,922,847 3,803,218
Other assets................................................ 71,910 458,010 869,549
----------- ------------ ------------
Total assets....................................... $ 776,070 $ 12,503,663 $ 18,257,203
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 126,374 $ 1,473,674 $ 1,142,719
Accrued salaries and employee benefits.................... -- 1,307,167 1,001,781
Deferred business acquisition payment..................... -- 1,059,897 --
Other accrued liabilities................................. 118,652 227,415 743,684
Short-term notes payable.................................. -- -- 5,294,291
Short-term notes payable to related parties............... -- -- 1,928,700
----------- ------------ ------------
Total current liabilities.......................... 245,026 4,068,153 10,111,175
Commitments
Stockholders' equity:
Series A convertible preferred stock, $.01 par value;
2,200,000 shares authorized; 1,650,000 and 2,200,000
shares issued and outstanding at December 31, 1998 and
March 31, 1999 (unaudited), respectively; (no shares
issued and outstanding pro forma); preference in
liquidation of $17,440,000 at December 31, 1998 and
$23,360,000 at March 31, 1999........................... -- 16,500 22,000 $ --
Series B convertible preferred stock, $.01 par value;
690,000 shares authorized; 398,540 and 550,000 shares
issued and outstanding and 195,460 and 44,000 shares to
be issued at December 31, 1998 and March 31, 1999
(unaudited), respectively; (no shares issued and
outstanding pro forma); preference in liquidation of
$3,010,000 at December 31, 1998 and $3,069,000 at March
31, 1999................................................ -- 5,940 5,940 --
Common stock, $.01 par value at December 31, 1997 and
December 31, 1998 and $.001 par value at March 31, 1999,
40,000,000 shares authorized; 8,026,310 shares issued
and 7,685,993 shares outstanding at December 31, 1997,
1998 and March 31, 1999 (unaudited), (12,414,639 shares
issued and 12,074,322 shares outstanding pro forma)..... 76,860 76,860 7,686 12,074
Treasury stock............................................ (96,597) (96,597) (99,660) (99,660)
Additional paid-in capital................................ 2,278,215 18,430,788 29,106,840 29,130,392
Deferred compensation..................................... -- (615,598) (1,814,466) (1,814,466)
Accumulated deficit....................................... (1,727,434) (9,382,383) (19,082,312) (19,082,312)
----------- ------------ ------------ ------------
Total stockholders' equity......................... 531,044 8,435,510 8,146,028 $ 8,146,028
----------- ------------ ------------ ------------
Total liabilities and stockholders' equity......... $ 776,070 $ 12,503,663 $ 18,257,203
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 91
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
(INCEPTION) THREE MONTHS ENDED
THROUGH YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue........................ $ -- $ -- $ 4,834,196 $ -- $ 4,302,691
Costs and expenses:
Cost of sales (including
purchases from related party
of $2,027,889 and $1,793,274
for the year ended December
31, 1998 and three months
ended March 31, 1999)......... -- -- 2,648,114 -- 2,782,853
Marketing and sales.............. -- 790,703 5,478,056 317,985 4,985,739
General and administrative....... -- 975,244 5,912,066 432,321 2,599,085
Research and development......... -- -- 572,688 -- 291,540
---------- ----------- ----------- ---------- -----------
Total costs and
expenses............... -- 1,765,947 14,610,924 750,306 10,659,217
---------- ----------- ----------- ---------- -----------
Loss from operations............... -- (1,765,947) (9,776,728) (750,306) (6,356,526)
Interest income, net............... -- 38,513 394,345 118,818 18,307
---------- ----------- ----------- ---------- -----------
Net loss........................... $ -- (1,727,434) (9,382,383) (631,488) (6,338,219)
Accretion of beneficial conversion
feature related to convertible
preferred stock.................. -- -- -- -- (3,361,710)
---------- ----------- ----------- ---------- -----------
Net loss available to common
stockholders..................... -- $(1,727,434) $(9,382,383) $ (631,488) $(9,699,929)
========== =========== =========== ========== ===========
Net loss per share (basic and
diluted)......................... $ -- $ (0.23) $ (1.22) $ (0.08) $ (1.26)
========== =========== =========== ========== ===========
Weighted average shares used in
computing net loss per share
(basic and diluted).............. 6,806,353 7,551,484 7,685,993 7,685,993 7,685,993
========== =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 92
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- TREASURY PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
--------- ------- ------- ------ --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash and subscription
receivable.................... -- $ -- -- $ -- 6,806,353 $ 68,063 $ -- $ 1,931,937
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at December 31, 1996...... -- -- -- -- 6,806,353 68,063 -- 1,931,937
Issuance of common stock for
cash.......................... -- -- -- -- 1,219,957 12,200 -- 346,278
Purchase of treasury stock for
cash.......................... -- -- -- -- (340,317) (3,403) (96,597) --
Payment received on subscription
receivable.................... -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at December 31, 1997...... -- -- -- -- 7,685,993 76,860 (96,597) 2,278,215
Effect of change in tax status
from S Corporation to C
Corporation................... -- -- -- -- -- -- -- (1,727,434)
Issuance of Series A preferred
stock for cash................ 1,650,000 16,500 -- -- -- -- -- 15,725,657
Issuance of Series B preferred
stock in conjunction with
acquisition of subsidiary..... -- -- 398,540 3,985 -- -- -- 956,976
Shares to be issued of Series B
preferred stock in conjunction
with acquisition of
subsidiary.................... -- -- 195,460 1,955 -- -- -- 469,337
Deferred compensation related to
stock options................. -- -- -- -- -- -- -- 728,037
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at December 31, 1998...... 1,650,000 16,500 594,000 5,940 7,685,993 76,860 (96,597) 18,430,788
<CAPTION>
TOTAL
SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Issuance of common stock for
cash and subscription
receivable.................... $(1,000,000) $ -- $ -- $ 1,000,000
----------- ----------- ------------ -----------
Balance at December 31, 1996...... (1,000,000) -- -- 1,000,000
Issuance of common stock for
cash.......................... -- -- -- 358,478
Purchase of treasury stock for
cash.......................... -- -- -- (100,000)
Payment received on subscription
receivable.................... 1,000,000 -- -- 1,000,000
Net loss........................ -- -- (1,727,434) (1,727,434)
----------- ----------- ------------ -----------
Balance at December 31, 1997...... -- -- (1,727,434) 531,044
Effect of change in tax status
from S Corporation to C
Corporation................... -- -- 1,727,434 --
Issuance of Series A preferred
stock for cash................ -- -- -- 15,742,157
Issuance of Series B preferred
stock in conjunction with
acquisition of subsidiary..... -- -- -- 960,961
Shares to be issued of Series B
preferred stock in conjunction
with acquisition of
subsidiary.................... -- -- -- 471,292
Deferred compensation related to
stock options................. -- (728,037) -- --
Amortization of deferred
compensation.................. -- 112,439 -- 112,439
Net loss........................ -- -- (9,382,383) (9,382,383)
----------- ----------- ------------ -----------
Balance at December 31, 1998...... -- (615,598) (9,382,383) 8,435,510
</TABLE>
F-5
<PAGE> 93
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- TREASURY PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
--------- ------- ------- ------ --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998...... 1,650,000 16,500 594,000 5,940 7,685,993 76,860 (96,597) 18,430,788
Issuance of Series A Preferred
Stock for cash (unaudited).... 550,000 5,500 -- -- -- -- -- 5,280,718
Deferred compensation related to
stock options (unaudited)..... -- -- -- -- -- -- -- 1,686,770
Amortization of deferred
compensation (unaudited)...... -- -- -- -- -- -- -- --
Discount on notes payable
related to grant of common
stock warrants (unaudited).... -- -- -- -- -- -- -- 274,617
Change in par value of common
stock from $.01 to $.001
(unaudited)................... -- -- -- -- -- (69,174) (3,063) 72,237
Net loss (unaudited)............ -- -- -- -- -- -- -- --
Accretion of beneficial conversion
feature related to convertible
preferred stock (unaudited)..... -- -- -- -- -- -- -- 3,361,710
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at March 31, 1999
(unaudited)..................... 2,200,000 $22,000 594,000 $5,940 7,685,993 $ 7,686 $(99,660) $29,106,840
========= ======= ======= ====== ========= ======== ======== ===========
<CAPTION>
TOTAL
SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998...... -- (615,598) (9,382,383) 8,435,510
Issuance of Series A Preferred
Stock for cash (unaudited).... -- -- -- 5,286,218
Deferred compensation related to
stock options (unaudited)..... -- (1,686,770) -- --
Amortization of deferred
compensation (unaudited)...... -- 487,902 -- 487,902
Discount on notes payable
related to grant of common
stock warrants (unaudited).... -- -- -- 274,617
Change in par value of common
stock from $.01 to $.001
(unaudited)................... -- -- -- --
Net loss (unaudited)............ -- -- (6,338,219) (6,338,219)
Accretion of beneficial conversion
feature related to convertible
preferred stock (unaudited)..... -- -- (3,361,710) --
----------- ----------- ------------ -----------
Balance at March 31, 1999
(unaudited)..................... $ -- $(1,814,466) $(19,082,312) $ 8,146,028
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 94
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996 (INCEPTION) YEARS ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $ -- $(1,727,434) $(9,382,383) $ (631,488) $(6,338,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... -- 16,275 161,898 11,595 36,525
Amortization of intangibles................. -- 4,652 79,751 -- 119,629
Amortization of deferred compensation....... -- -- 112,439 10,187 487,902
Amortization of warrants issued with debt... -- -- -- -- 7,608
Changes in operating assets and liabilities,
net of effect of acquisition:
Accounts receivable....................... -- -- (1,113,718) -- 225,706
Inventory................................. -- -- (1,013,306) -- (661,264)
Receivable from related party............. -- -- (124,570) -- (375,516)
Prepaid expenses and other current
assets................................. -- (71,251) (230,513) 66,405 39,401
Accounts payable.......................... -- 126,374 1,135,189 119,705 (330,955)
Accrued salaries and employee benefits.... -- -- 1,262,782 -- (305,386)
Other accrued liabilities................. -- 118,652 71,355 36,350 516,269
---------- ----------- ----------- ---------- -----------
Net cash used in operating activities......... -- (1,532,732) (9,041,076) (387,246) (6,578,300)
INVESTING ACTIVITIES
Purchases of property and equipment........... -- (81,884) (697,068) (194,452) (151,013)
Proceeds from the sale of property and
equipment................................... -- -- -- -- 35,000
Deposit on facilities......................... -- -- (335,000) (214,948) --
Acquisition of subsidiary, net of cash
acquired.................................... -- -- (1,745,802) -- (1,059,897)
Acquisition of licenses and other assets,
net......................................... -- (76,562) (52,066) -- (412,432)
---------- ----------- ----------- ---------- -----------
Net cash used in investing activities......... -- (158,446) (2,829,936) (409,400) (1,588,342)
FINANCING ACTIVITIES
Issuance of Series A preferred stock.......... -- -- 15,742,157 9,989,257 5,286,218
Issuance of common stock...................... 1,000,000 358,478 -- -- --
Issuance of short-term notes payable to
related parties............................. -- -- -- -- 2,000,000
Issuance of short-term notes payable.......... -- -- -- -- 5,490,000
Payment received on subscription receivable... -- 1,000,000 -- -- --
Purchase of treasury stock.................... -- (100,000) -- -- --
---------- ----------- ----------- ---------- -----------
Net cash provided by financing activities..... 1,000,000 1,258,478 15,742,157 9,989,257 12,776,218
---------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 1,000,000 (432,700) 3,871,145 9,192,611 4,609,576
Cash and cash equivalents at beginning of the
period...................................... -- 1,000,000 567,300 567,300 4,438,445
---------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of the
period...................................... $1,000,000 $ 567,300 $ 4,438,445 $9,759,911 $ 9,048,021
========== =========== =========== ========== ===========
Supplemental schedule of non cash investing
and financing activities:
Issuance of Series B preferred stock in
conjunction with acquisition of
subsidiary.................................. $ -- $ -- $ 1,432,253 $ -- $ --
</TABLE>
See accompanying notes.
F-7
<PAGE> 95
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 AND PERTAINING TO MARCH 31, 1999
AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Women First HealthCare, Inc. is a specialty health care company dedicated
to improving the health of midlife women. Offices are located in California and
New Jersey. Women First HealthCare, Inc., originally incorporated under the name
Healthy Living for Women, Inc., was incorporated in Delaware on November 1,
1996. Primary operations did not begin until 1997. As We Change, a national
mail-order catalog and Internet retailer, and Women First Pharmacy Services,
Inc., a home delivery pharmacy, are wholly owned subsidiaries of Women First
HealthCare, Inc. As used herein, the "Company" collectively refers to the
consolidated entity of Women First HealthCare, Inc. and its subsidiaries.
Principles of Consolidation
The consolidated financial statements presented herein include the
financial statements of Women First HealthCare, Inc. and the actual results of
As We Change from its purchase acquisition date on October 21, 1998 (note 2) and
the results of Women First Pharmacy Services, Inc. since its incorporation in
September 1998. All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid financial instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents totaling $4,016,000 at December 31, 1998 consisted primarily of
commercial paper and money market accounts at major financial institutions.
Concentration of Credit Risk
The Company sells its pharmaceutical products primarily to established
distributors and large retailers in the pharmaceutical industry. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral generally is not required. Self-care products and video cassettes are
typically sold to individuals for cash or payment by major credit card. Credit
losses have historically been minimal. The Company is also dependent on single
sources of supply for products it offers for sale and would need to obtain
alternative sources if the supplier cannot meet the Company's needs.
F-8
<PAGE> 96
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is stated at the lower of cost or market and is determined on a
first-in, first-out basis. Inventory of the exercise video product includes
capitalized production costs which are expensed on a per unit basis as the
videos are sold. The Company periodically reviews inventory for the timely
identification and measurement of obsolete, slow-moving, or otherwise impaired
inventory. The Company accrues for net losses on firm uncancellable purchase
commitments for inventory. No losses have been recorded to date.
Long-lived assets
Property and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets, ranging from three to ten years, using the
straight-line method. Leasehold improvements are stated at cost and amortized
over the shorter of the estimated useful lives of the assets or the lease term.
Costs incurred in connection with the development or purchase of certain
licenses are capitalized and amortized over the estimated useful life of the
license, generally five to ten years.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment loss would be measured and recognized if the sum
of the expected future undiscounted cash flows is less than the carrying amount
of the asset. If the carrying amount of the asset is determined to be impaired,
an impairment loss to write-down the carrying value of the asset to fair value
would be recognized in the period of impairment. The Company determines fair
value by using quoted market prices when available. When the market price is not
available an estimated fair value will be determined through other valuation
techniques.
Stock Options
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), establishes the use of the fair value
based method of accounting for stock-based compensation arrangements, under
which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. SFAS 123 also permits companies to
elect to continue using the implicit value accounting method specified in
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation related to option grants to employees. The Company has elected to
retain the implicit value based method for such grants, and has disclosed the
pro forma effect of using the fair value based method to account for its
stock-based compensation. All stock-based compensation related to option grants
to non-employees is valued using the fair value method and expensed in the
period of service.
Revenue Recognition
The Company records sales for its pharmaceutical and self-care products at
time of shipment. Adjustments to its pharmaceutical product sales are made for
estimated sales discounts it offers due to wholesaler chargebacks,
Medicaid-sponsored payor allowance
F-9
<PAGE> 97
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
discounts, and early payment discounts. Adjustments to self-care product sales
include an estimate of returns and allowances. The Company provides for returns
at the time of sale based on estimated merchandise returns.
The Company will accept for credit or exchange pharmaceutical products that
have become unusable due to passage of the expiration date, drug recall, or
discontinuance by the Company. For self-care products, the Company will issue a
full refund for returned products within 60 days of delivery. The Company has
not experienced significant returns of its product.
Contract and other revenue under the Company's development agreements are
recognized when realized and earned or upon completion of certain performance
requirements of the contracts, or when received if amounts are non-refundable
and there are no future performance obligations. In 1998, the Company recognized
$150,000 of contract revenue which is included in net revenue in the
accompanying Statement of Operations.
Catalog Costs
Catalog production expenses are capitalized as incurred and amortized over
the period the catalog generates revenue, generally four months. Catalog
production expenses of $258,000 were recorded in marketing and sales expense in
the accompanying Statement of Operations in 1998.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company provides for income taxes under the asset and liability method
of Statement of Financial Accounting Standards No. 109. Deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amount of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Comprehensive Income
Under Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income," the reporting and display of comprehensive income and its
components is required in the financial statements. For the periods presented in
the accompanying financial statements, the Company has no items for which
comprehensive loss would differ from the reported net loss.
Segment Reporting
Under Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information," companies are required
to report descriptive and financial information about their operating segments.
The Company's management approach is
F-10
<PAGE> 98
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to review the operating results of the business as one operating segment which
is a specialty health care company.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net loss per share, which would include
additional potential common shares issued related to outstanding options,
warrants and conversion of preferred stock, if dilutive, is unchanged from basic
loss per share due to the Company's net losses making the effect of these common
share equivalents anti-dilutive. Excluded from the determination of net loss per
share are 5,748,975 and 7,013,711 potentially dilutive common shares at December
31, 1998 and March 31, 1999, respectively.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 98, the Company determined that there were no nominal issuances of
common stock required to be included in the calculation of basic or diluted loss
per share.
Pro Forma Conversion of Convertible Preferred Stock to Common Stock (Unaudited)
In the event of an initial public offering by the Company with gross
proceeds of at least $20.0 million and certain other criteria as described in
note 7, the Series A Preferred Stock and Series B Convertible Preferred Stock
would convert into Common Stock at a ratio of 1.83 to one for the Series A
Preferred Stock and .61 to one for the Series B Convertible Preferred Stock. The
unaudited pro forma stockholders' equity set forth in the accompanying balance
sheet assumes the conversion of preferred stock into common stock as of March
31, 1999 as if the conversion had occurred on that date.
Initial Public Offering
In order to provide financing to increase its sales and marketing efforts
and for other purposes, the Company has decided to raise equity through an
initial public offering. The Company has filed a registration statement with the
Securities and Exchange Commission.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable, accrued
salaries and employee benefits and other accrued liabilities are considered to
be representative of their respective fair values because of the short-term
nature of these financial instruments.
Interim Financial Data
The financial statements for the three months ended March 31, 1998 and 1999
are unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
F-11
<PAGE> 99
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The results of operations for the interim period ended March 31, 1999 are
not necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1999.
2. ACQUISITION OF AS WE CHANGE
On October 21, 1998, the Company acquired all of the outstanding membership
interests in MenoMorphosis, LLC dba As We Change. The acquisition of As We
Change was accounted for as a purchase by the Company. The operations of As We
Change are included in the Company's consolidated financial statements from the
date of acquisition.
A summary of the As We Change acquisition costs and allocation to the
assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition costs:
Cash paid at acquisition date............................. $1,800,000
Deferred payment due March 1999........................... 1,059,897
Issuance of Series B Preferred Stock...................... 1,432,253
Acquisition related expenses.............................. 107,153
----------
$4,399,303
==========
Allocated to assets and liabilities as follows:
Tangible assets acquired.................................. $ 722,037
Tangible liabilities assumed.............................. (325,332)
Intangible assets acquired (note 6)....................... 4,002,598
----------
$4,399,303
==========
</TABLE>
The Series B Preferred Stock was valued at the estimated fair value as
determined by an independent valuation. The acquisition agreement provided for
the shareholders of the preferred stock to be able to defer the receipt of
certain shares of the stock until January 1999. In addition, the agreement
provided for additional shares of Series B Preferred Stock to be issued based
upon 1998 and 1999 operating results, of which 44,000 shares were earned based
on 1998 As We Change net revenue and operating loss. The Company may be required
to issue up to an additional 90,000 shares of Series B Preferred Stock, or
54,900 shares of common stock if a public offering has been effected, based on
1999 As We Change net revenue and operating results. The value of any additional
shares issued will be accounted for in 1999 and would increase goodwill.
The following unaudited pro forma data reflect the combined results of
operations of the Company and As We Change, subject to certain purchase
accounting adjustments, as if the acquisition had occurred at the beginning of
the period:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net product sales.............................. $ 2,679,830 $ 7,281,168
Net loss....................................... $(3,331,930) $(10,177,805)
Net loss per share............................. $ (0.44) $ (1.32)
</TABLE>
F-12
<PAGE> 100
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Trade receivables................................. $1,292,033 $1,316,080
Allowance for doubtful accounts................... (40,000) (77,376)
Allowance for cash discounts, returns and
rebates......................................... (137,750) (350,127)
---------- ----------
$1,114,283 $ 888,577
========== ==========
</TABLE>
The Company charged $220,383 and $299,174 for doubtful accounts, cash
discounts, returns and rebates for the periods ending December 31, 1998 and
March 31, 1999, respectively. Deductions of $42,633 and $49,421 for writeoffs
and discounts taken were made during the respective periods.
4. INVENTORY
Inventory consists of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Pharmaceutical products........................... $ 415,815 $1,094,882
Self-care products................................ 589,138 576,187
Video cassettes................................... 200,644 195,792
---------- ----------
Total Inventory......................... $1,205,597 $1,866,861
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures................... $ 1,802 $409,602 $ 490,600
Office equipment......................... 80,082 379,129 360,071
Leasehold improvements................... -- 122,762 122,762
-------- -------- ---------
81,884 911,493 973,433
Accumulated depreciation................. (16,275) (220,581) (202,140)
-------- -------- ---------
$ 65,609 $690,912 $ 771,293
======== ======== =========
</TABLE>
F-13
<PAGE> 101
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTANGIBLE ASSETS
Intangible asset balances and estimated lives consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trademark.............................. 15 years $1,500,000 $1,500,000
Assembled workforce.................... 10 years 170,000 170,000
Customer list.......................... 3 years 580,000 580,000
Non-compete agreements................. 4 years 280,000 280,000
Goodwill............................... 15 years 1,472,598 1,472,598
-------- ---------- ----------
4,002,598 4,002,598
Accumulated amortization............... (79,751) (199,380)
---------- ----------
$3,922,847 $3,803,218
========== ==========
</TABLE>
The intangible assets resulted from the 1998 acquisition of As We Change as
discussed in note 2.
7. STOCKHOLDERS' EQUITY
Common Stock
In May 1997, the Board of Directors authorized a 5,000 for 1 stock split of
the Company's common stock and changed the par value from $1.00 per share to
$.01 per share. In December 1997, the Board of Directors authorized a 1.85965947
for 1 stock split of the Company's common stock. In June 1998, the Board of
Directors approved a 3 for 1 stock split of the Company's common stock. In March
1999, the Board of Directors approved a .61 for 1 stock split of the Company's
common stock. All share amounts in accompanying consolidated financial
statements have been restated to reflect the effects of these changes as if they
had occurred as of the inception of the Company on November 1, 1996. Also in
March 1999, the Board of Directors authorized a change in the Company's par
value of common stock from $.01 per share to $.001 per share. In 1997, the
Company acquired treasury stock from a terminated employee. No gain or loss was
recorded with respect to this transaction.
Series A Preferred Stock
In January and May 1998, the Company entered into an agreement to sell
2,200,000 shares of its Series A Preferred Stock at $10 per share. In January
1998, the Company issued 1,050,000 shares for net proceeds of $9,989,000. In May
1998, the Company issued an additional 50,000 shares for net proceeds of
$453,000. The Company had the contractual right to issue the remaining shares at
$10 per share upon the attainment of certain operational milestones.
In October 1998, the Company attained the initial set of milestones and
issued 550,000 shares of Series A Preferred Stock for net proceeds of
$5,300,000. In January 1999, the subsequent milestone event was reached and in
February 1999 the Company issued an additional 550,000 shares of Series A
Preferred Stock for net proceeds of $5,300,000.
The Company has recorded a $3.4 million charge to equity for the intrinsic
value of the beneficial conversion feature related to the February 1999 issuance
of Series A Preferred Stock.
F-14
<PAGE> 102
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The $3.4 million charge has been recognized as an increase of the net loss
available to common stockholders.
As part of the Stock Purchase Agreement, the Company agreed to certain
restrictions including capital expenditure limits, contractual or commitment
limitations, limits on acquisition activity, and restrictions on dividends to
common stockholders. The preferred stockholders are also allowed to elect two
persons to the Company's Board of Directors. The agreement and terms of the
Preferred Stock include certain anti-dilution provisions, rights of first
refusal, and demand and piggyback registration rights, upon certain ownership
changes in the Preferred Stock and Common Stock. The Stockholders' Agreement
includes "tag-along rights," which provide that if a stockholder or group of
stockholders owning common stock representing 20% or more of the total amount of
the Company's common stock proposes to transfer these shares of common stock
(other than pursuant to a public sale), the selling stockholders must notify all
Series A preferred stockholders of the proposed transfer. Each Series A
preferred stockholder then would be entitled to participate in the contemplated
transfer on a pro rata basis. The Stockholders' Agreement also provides for
"drag along rights," which provide that if one or more common stockholders
propose to sell greater than 50 percent of the Company's outstanding common
stock to a third party, the common stockholders may require the Company's
stockholders to sell a pro rata portion of their shares to the same third party
for the same consideration. Each share of Series A Preferred Stock has voting
rights equal to the number of Common Shares to be issued upon conversion.
The Series A Preferred Stock will automatically convert to Common Stock,
currently at a conversion rate of 1.83 shares of common for each share of
preferred, upon a public offering with gross proceeds of at least $20.0 million
and a minimum per share price to the public of $9.50. The restrictions, board
representation rights, anti-dilution provisions and other rights associated with
the Series A Preferred Stock, other than the registration rights, would
terminate upon such an offering and the automatic conversion of the Series A
Preferred Stock. In the event the Company does not complete a qualified public
offering or does not have cumulative 1998 and 1999 revenues of $40.2 million and
does not have aggregate losses of less than $12.2 million the conversion rate is
subject to adjustment, whereby the conversion price is reduced by 43%.
Upon liquidation of the Company and after payment of liabilities, the
Series A Preferred Stock is entitled to a liquidation preference of $10 per
share plus 8% per annum.
In connection with the issuance of the Series A Preferred Stock, the
Company issued certain warrants to purchase an aggregate of 480,372 shares of
Common Stock at $5.46 per share, subject to certain adjustments. The warrants
expire on January 8, 2005. The holders of the warrants are entitled to the same
registration rights with respect to the shares of Common Stock issuable upon
exercise of the warrants as have been granted to the holders of the Series A
Preferred Stock.
Series B Convertible Preferred Stock
In October 1998, the Company amended its certificate of incorporation to
authorize the issuance of up to 690,000 shares of Series B Preferred Stock. Each
share of Series B Preferred
F-15
<PAGE> 103
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Stock is currently convertible at the option of the stockholder at any time
after the date of issuance into .61 of one share of Common Stock.
Each share of Series B Preferred Stock shall automatically be converted
into Common Stock at the Series B Conversion rate of .61 shares of Common Stock
for each share of Series B Preferred Stock, subject to certain adjustments, upon
the consummation of a public offering of Common Stock with gross proceeds to the
Company of greater than $15.0 million. Each share of Series B Preferred Stock
has voting rights equal to the number of shares to be issued upon conversion.
Upon liquidation of the Company and after payment of liabilities and
liquidation preferences to Series A Preferred stockholders, the Series B
Preferred Stock is entitled to a liquidation preference of $5 per share plus 8%
per annum.
As of December 31, 1998, the Company had issued 398,540 shares of Series B
Preferred Stock in conjunction with the acquisition of As We Change and had
195,460 shares to be issued. The shares to be issued relate to those
stockholders who elected to receive Series B Preferred Stock in 1999, and for
the shares of stock to be issued related to the 1998 earn-out criteria.
Preferred Stock Authorized
The Company has authorized the issuance of 3,190,000 shares of Preferred
Stock of which 2,200,000 have been designated Series A Preferred Stock and
690,000 have been designated Series B Convertible Preferred Stock. A total of
300,000 shares of Preferred Stock are undesignated.
Stock Options
In March 1998, the Board of Directors approved a Long Term Incentive Plan
under which 1,830,000 shares of Common Stock were reserved for issuance upon
exercise of options granted by the Company. The Long Term Incentive Plan
provides for the grant of incentive and nonstatutory stock options to employees,
directors, and independent consultants of the Company. The exercise price of
incentive stock options must be at least equal to the fair market value on the
date of grant, and the exercise price of nonstatutory stock options may be no
less than 85% of the fair market value on the date of grant. The maximum term of
all options granted is ten years.
F-16
<PAGE> 104
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted............................................ 629,586 $ .29
Cancelled.......................................... (306,285) $ .29
--------- ------
Outstanding at December 31, 1997..................... 323,301 $ .29
Granted............................................ 1,805,552 $ .84
Cancelled.......................................... (300,837) $ .30
--------- ------
Outstanding at December 31, 1998..................... 1,828,016 $ .83
Granted............................................ 287,637 $ 4.39
Cancelled.......................................... (31,399) $ .84
--------- ------
Outstanding at March 31, 1999........................ 2,084,254 $ 1.32
========= ======
</TABLE>
In February 1999, the shareholders approved an increase in the number of
shares available in the Long Term Incentive Plan to 2,249,985.
A summary of options outstanding at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OF
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE OPTIONS EXERCISABLE
--------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$.29 27,450 8.33 $.29 27,450 $.29
$.84 1,800,566 9.38 $.84 332,787 $.84
--------- ---- ---- ------- ----
1,828,016 9.36 $.83 360,237 $.80
</TABLE>
A summary of options outstanding at March 31, 1999, is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OF
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE OPTIONS EXERCISABLE
--------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$0.29 27,450 8.09 $0.29 27,450 $0.29
$0.84 1,827,755 9.15 $0.84 516,235 $0.84
$4.81 112,346 9.90 $4.81 -- --
$5.77 116,703 9.94 $5.77 -- --
--------- ---- ----- ------- -----
2,084,254 9.22 $0.74 543,685 $0.81
</TABLE>
Included in the options outstanding at December 31, 1998 and March 31, 1999
are 27,450 options granted under a predecessor plan. No additional options are
available to be granted under the predecessor plan.
Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using the "Minimum
Value" method for options pricing with the following assumptions for 1998:
risk-free interest rates of 4.25%; dividend yield of 0%; and a weighted-average
expected life of the options of five years.
F-17
<PAGE> 105
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of the adjusted pro forma disclosures, the estimated fair
value of the options are amortized to expense over the vesting period. The
weighted-average fair value of options granted during 1998 was $.51. The
Company's adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Adjusted pro forma net loss................................. $(9,437,407)
Adjusted pro forma net loss per share....................... $ (1.23)
</TABLE>
The adjusted pro forma net loss and net loss per share for 1997 were not
materially different than actual 1997 amounts.
Deferred Compensation
Through December 31, 1998, the Company recorded deferred compensation for
the difference between the exercise price of stock options granted and the
deemed fair value for financial statement presentation purposes of the Company's
common stock at the date of grant. The deferred compensation will be amortized
over the vesting period of the related options which is generally four years.
Gross deferred compensation recorded during the year ended December 31, 1998
totaled $728,037 and related amortization expense totaled $112,439 in 1998. From
January 1, 1999 through March 31, 1999, the Company granted options to purchase
287,637 shares at exercise prices of $0.84 to $5.77. The Company has recorded
deferred compensation of $1,686,770 during the first quarter of 1999.
8. RELATED PARTY
In July 1998, the Company signed an exclusive distribution agreement with
Ortho-McNeil Pharmaceutical, Inc. ("Ortho") a subsidiary of Johnson & Johnson, a
principal stockholder of the Company, whereby the Company would market and
distribute throughout the U.S. and Puerto Rico certain pharmaceutical products
to be manufactured by Ortho over a period of ten years with annual renewals
available after that period. The Company makes both fixed and contingent
payments to Ortho for products purchased. In addition, the Company may be
required to make monthly adjustment payments to or may receive payments from
Ortho based on progress toward projected annual purchases. During 1998 and for
the first three months of 1999, $2,028,000 and $1,793,000 was charged to cost of
sales and $170,000 and $152,000 was charged to marketing and sales for
professional samples in the accompanying Statement of Operations for products
purchased from Ortho. The agreement requires minimum payments of $6.6 million,
$5.4 million, $4.3 million, $4.2 million, and $4.0 million during 1999, 2000,
2001, 2002 and 2003, respectively, and $15.6 million thereafter. Ortho may
terminate the agreement on one year's notice so long as Ortho provides the
Company with a one-year supply of product and uses reasonable commercial efforts
to transfer to the Company the manufacturing and distribution rights to the
product or upon other specific events.
F-18
<PAGE> 106
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY (CONTINUED)
Executive officers, directors and principal stockholders purchased an
aggregate of 985,000 shares of Series A Preferred Stock for $9,850,000.
On March 18, 1999, the Company issued to executive officers, directors, or
principal stockholders of the Company an aggregate of $2,000,000 principal
amount of short-term notes and warrants to purchase 16,224 shares of common
stock. See note 11.
9. COMMITMENTS
In September 1998, the Company entered into an agreement whereby the
Company is funding the development of a patient health questionnaire and
software product. The Company recorded $275,000 of research and development
expenses related to this agreement in 1998. The Company is obligated to pay an
additional $625,000 for funding of this research and development over the next
two years. A royalty payment based on future revenues from products utilizing
the scientific research and development was established with minimum annual
royalty payments over the next twelve years, which commence at $100,000 and
increase by an additional $100,000 for each two-year period thereafter.
Leases
The Company leases certain office space and equipment under operating
leases. Lease expense was $131,000 and $476,000 under these leases in 1997 and
1998, respectively.
Minimum future annual obligations for operating leases for years ending
after December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................... $ 624,000
2000................................................... 603,000
2001................................................... 544,000
2002................................................... 496,000
Thereafter............................................. 274,000
----------
Total minimum lease payments................. $2,541,000
==========
</TABLE>
F-19
<PAGE> 107
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Significant components of the Company's deferred tax assets are shown
below. A valuation allowance of $3,613,000 has been recognized to offset the
deferred tax assets as realization of such assets is uncertain and management
has determined that it is more likely than not that the Company will not
generate taxable income sufficient to recover the deferred tax assets.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
---- -----------
<S> <C> <C>
Deferred income tax assets
Net operating losses................................ $ -- $ 3,380,000
Amortization and depreciation....................... -- 152,000
Other............................................... -- 81,000
---- -----------
3,613,000
Valuation allowance................................... -- (3,613,000)
---- -----------
$ -- $ --
==== ===========
</TABLE>
Prior to January 1998, the Company had elected to be taxed as an S
corporation for federal and state tax purposes. As such, the losses incurred
during that time passed through to the stockholders on their personal tax
returns and no provision for taxes was recorded by the Company. In January 1998,
the Company elected to be taxed as a C corporation. The Company has incurred
approximately $7,800,000 of net operating losses for 1998 for both federal and
California tax purposes that are available to be carried forward. The federal
and California tax loss carryforwards will begin to expire in 2018 and 2003,
respectively, unless previously utilized. Based on the historical losses
incurred to date and the uncertainty of future profitability, a valuation
allowance of the deferred asset has been recognized by the Company. Pursuant to
Section 382 of the Internal Revenue Code, annual use of the Company's net
operating loss carryforwards may be limited if cumulative changes in ownership
of more than 50% occur during any three year period. Upon the issuance of shares
of common stock contemplated in the initial public offering, the Company would
be limited to approximately $6,700,000 of net operating loss carryforwards per
year for federal and state tax purposes.
11. SUBSEQUENT EVENTS
In March 1999, the Company issued $7.5 million of short-term notes and
warrants to purchase 60,756 shares of common stock in a private placement. The
warrants are exercisable for a period of five years with an exercise price of
the initial public offering price less 15% or the per share price of the next
private placement of in excess of $1,000,000 if a public offering should not
occur prior to the completion of the next private placement or $6.00 per share
if an initial public offering or private placement has not been completed prior
to the first anniversary of the date of issuance. The Company will record a
charge to interest expense of approximately $275,000 to be amortized over the
life of the short-term notes for these warrants. The charge was determined using
the Black-Scholes method using an assumed initial public offering price of
$11.00 per share. The notes are unsecured, bear interest at 9% per annum payable
quarterly and mature on March 1, 2000. The notes may be prepaid at any time
without penalty.
Effective March 1, 1999, the Company obtained the right to co-promote the
cholesterol-lowering drug Pravachol(R) to OB/GYNs, primary care physicians
designated as OB/GYNs by Bristol Myers Squibb, and nurse practitioners and
physician assistants associated with
F-20
<PAGE> 108
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
OB/GYN practices pursuant to a co-promotion agreement with Bristol-Myers Squibb
U.S. Pharmaceuticals Group. Under the agreement, Bristol-Myers Squibb has agreed
to pay specified costs associated with product samples and physician education.
In addition, as compensation for services rendered the Company will receive a
percentage of net sales in excess of a baseline as set forth in the agreement.
The term of the contract is for a period of three years from March 1, 1999
through March 1, 2002. Bristol-Myers Squibb may terminate the agreement early
upon failure of the Company to meet certain minimums.
On May 27, 1999, the Company entered into a co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc., a related party, pursuant to which the
Company has agreed to co-promote Ortho Tri-Cylen(R), a leading oral
contraceptive, and a new oral combination estrogen and progestin hormonal
replacement therapy (HRT) product, which is pending approval by the FDA.
Ortho-McNeil will compensate the Company for sales of the Ortho Tri-Cylen(R)
product with a performance fee based on certain increases in market share. The
Company will also receive minimum payments specified in the agreement commencing
in 2000 if minimum performance goals are met. Ortho-McNeil will compensate the
Company for sales of the new oral HRT product if the product is approved by the
FDA through a compensation arrangement based on certain net sales of the product
as set forth in the agreement. The agreement runs through December 31, 2002 and
may be extended by the Company for one additional year if minimum sales goals
are met.
F-21
<PAGE> 109
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Advisory Board and Members
As We Change
We have audited the accompanying balance sheets of As We Change as of
December 31, 1996 and 1997, and the related statements of operations, member's
equity, and cash flows for the period from February 14, 1996 (inception) to
December 31, 1996 and for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of As We Change at December 31,
1996 and 1997 and the results of its operations and its cash flows for the
period from February 14, 1996 (inception) to December 31, 1996 and for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
August 31, 1998
F-22
<PAGE> 110
AS WE CHANGE
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
--------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 254,692 $ 143,558 $ 210,810
Prepaid catalog expenses.................. 73,369 86,544 218,724
Merchandise inventories................... 52,034 122,016 169,144
Other current assets...................... 12,255 46,095 535
--------- ----------- -----------
Total current assets........................ 392,350 398,213 599,213
Furniture, equipment and leasehold
improvements:
Furniture and equipment................... 11,154 157,506 161,959
Leasehold improvements.................... -- 17,593 17,593
--------- ----------- -----------
11,154 175,099 179,552
Accumulated depreciation and
amortization........................... (554) (22,269) (55,503)
--------- ----------- -----------
10,600 152,830 124,049
Deposits and other assets................... 7,833 20,992 70,345
--------- ----------- -----------
Total assets................................ $ 410,783 $ 572,035 $ 793,607
========= =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 53,994 $ 271,633 $ 336,521
Accrued liabilities....................... 15,249 50,491 55,141
Capital lease obligation -- current
portion................................ -- 16,597 18,571
--------- ----------- -----------
Total current liabilities................... 69,243 338,721 410,233
Capital lease obligation, net of current
portion................................... -- 30,764 15,040
Commitments
Members' equity:
Members' units, net of offering costs..... 705,000 1,692,000 2,225,826
Accumulated deficit....................... (363,460) (1,489,450) (1,857,492)
--------- ----------- -----------
Total members' equity....................... 341,540 202,550 368,334
--------- ----------- -----------
Total liabilities and members' equity....... $ 410,783 $ 572,035 $ 793,607
========= =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 111
AS WE CHANGE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 1997 1998
-------------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................ $ 234,964 $ 2,679,830 $ 1,614,951 $2,270,386
Cost of goods sold............... 154,225 1,500,188 1,104,509 1,049,708
--------- ----------- ----------- ----------
Gross profit..................... 80,739 1,179,642 510,442 1,220,678
Selling, general and
administrative expenses........ 444,241 2,307,773 1,700,947 1,593,053
--------- ----------- ----------- ----------
Loss from operations............. (363,502) (1,128,131) (1,190,505) (372,375)
Interest income, net............. 42 2,141 2,026 4,333
--------- ----------- ----------- ----------
Net loss......................... $(363,460) $(1,125,990) $(1,188,479) $ (368,042)
========= =========== =========== ==========
</TABLE>
See accompanying notes.
F-24
<PAGE> 112
AS WE CHANGE
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
MEMBERS' UNITS TOTAL
------------------- ACCUMULATED MEMBERS'
NUMBER AMOUNT DEFICIT EQUITY
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of units..................... 31 $ 705,000 $ -- $ 705,000
Owner manager units................... 69 -- -- --
Net loss.............................. -- -- (363,460) (363,460)
--- ---------- ----------- -----------
Balance at December 31, 1996............ 100 705,000 (363,460) 341,540
Issuance of units, net of offering
costs.............................. 33 987,000 -- 987,000
Reduction of owner manager units...... (33) -- -- --
Net loss.............................. -- -- (1,125,990) (1,125,990)
--- ---------- ----------- -----------
Balance at December 31, 1997............ 100 1,692,000 (1,489,450) 202,550
Issuance of units (unaudited)......... 16 533,826 -- 533,826
Reduction of owner manager units
(unaudited)........................ (16) -- -- --
Net loss (unaudited).................. -- -- (368,042) (368,042)
--- ---------- ----------- -----------
Balance at September 30, 1998
(unaudited)........................... 100 $2,225,826 $(1,857,492) $ 368,334
=== ========== =========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 113
AS WE CHANGE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
-------------- ------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................ $(363,460) $(1,125,990) $(1,188,479) $(368,042)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 2,313 23,633 5,121 33,234
Changes in operating assets and
liabilities:
Prepaid catalog costs.......... (73,369) (13,175) (32,172) (132,180)
Merchandise inventories........ (52,034) (69,982) (146,892) (47,128)
Other current assets........... (12,255) (33,840) 11,702 45,560
Deposits and other............. -- (15,077) (79,272) (49,353)
Accounts payable............... 53,994 217,639 534,346 64,888
Accrued liabilities............ 15,249 35,242 26,544 4,650
--------- ----------- ----------- ---------
Net cash used in operating
activities........................ (429,562) (981,550) (869,102) (448,371)
INVESTING ACTIVITIES
Purchases of furniture
and equipment..................... (11,154) (108,945) (95,959) (4,453)
Organization costs.................. (9,592) -- -- --
--------- ----------- ----------- ---------
Net cash used in investing
activities........................ (20,746) (108,945) (95,959) (4,453)
FINANCING ACTIVITIES
Proceeds from issuance of members'
units, net of offering costs...... 705,000 987,000 987,000 533,826
Payments on capital lease
obligation........................ -- (7,639) -- (13,750)
--------- ----------- ----------- ---------
Net cash provided by financing
activities........................ 705,000 979,361 987,000 520,076
--------- ----------- ----------- ---------
Net increase (decrease) in cash and
cash equivalents.................. 254,692 (111,134) 21,939 67,252
Cash and cash equivalents at
beginning of period............... -- 254,692 254,692 143,558
--------- ----------- ----------- ---------
Cash and cash equivalents at end of
period............................ $ 254,692 $ 143,558 $ 276,631 $ 210,810
========= =========== =========== =========
SUPPLEMENTAL INFORMATION
Equipment financed under capital
lease obligation.................. $ -- $ 55,000 $ --
========= =========== =========== =========
</TABLE>
See accompanying notes.
F-26
<PAGE> 114
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
MenoMorphosis, LLC dba As We Change (the "Company") is a California limited
liability company that was formed on February 14, 1996 (inception) and shall
continue until December 31, 2020 or until dissolution in accordance with the
terms of its Limited Liability Company Operating Agreement (the Agreement). The
Company is a national mail-order catalog and Internet retailer geared toward
midlife women. The Company's primary market is the United States.
Interim Financial Information
The financial statements at September 30, 1998 and for the nine-month
periods ended September 30, 1997 and 1998 are unaudited, but include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position and
operating results and cash flows. Results of interim periods are not necessarily
indicative of results for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
related disclosures at the date of the financial statements, and the amounts of
revenues and expenses reported during the period. Actual results could differ
from those estimates.
Revenue Recognition
The Company records revenue at the time of shipment. The Company provides
for returns at the time of sale based upon projected merchandise returns.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when acquired to be cash equivalents.
Prepaid Catalog Expenses
Catalog expenses are capitalized as incurred and amortized over the period
the catalog generates revenue which generally does not exceed four months.
Catalog production expenses of $254,526, $1,329,564, $955,780, and $841,302 were
recorded in the years ended December 31, 1996 and 1997, and the nine months
ended September 30, 1997 and 1998, respectively.
F-27
<PAGE> 115
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Merchandise Inventories
Merchandise inventories consist of products purchased for resale and are
stated at the lower of average cost or market value. Cost is determined on an
average cost basis, which approximates first-in, first-out.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are stated at cost and depreciated over their
estimated useful lives (3 to 5 years) using the straight-line method. Leasehold
improvements are amortized over the term of the lease or their estimated useful
life, whichever is shorter.
Profits, Losses, Distributions and Income Taxes
Profits and losses of the Company and cash distributions are allocated to
the members in accordance with the Agreement. Under federal and California law,
income or loss of limited liability companies is passed through to the separate
tax returns of the members. Accordingly, no provision (benefit) for taxes based
on income or loss is shown in the accompanying financial statements.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This standard is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income or loss will be materially different than net
income or loss.
2. COMMITMENTS
The Company leases its office and warehouse under an operating lease which
expires on July 31, 2000. Under the lease, the Company pays taxes, insurance and
maintenance expenses related to the premises. Rent expense totaled $4,750,
$24,372, $17,299, and $19,634 for the period from February 14, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997 and the nine months
ended September 30, 1997 and 1998, respectively.
During 1997, the Company leased certain equipment under a capital lease
obligation. Cost and accumulated depreciation of equipment under capital leases
were $55,000 and $5,900, respectively, at December 31, 1997.
F-28
<PAGE> 116
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
2. COMMITMENTS (CONTINUED)
Future minimum lease payments under operating and capital leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
1998............................................ $ 48,228 $21,925
1999............................................ 50,063 21,925
2000............................................ 30,777 12,790
-------- -------
Total minimum lease payments.......... $129,068 56,640
========
Less amount representing interest............... 9,279
-------
Present value of minimum lease payments......... 47,361
Less current portion............................ 16,597
-------
Noncurrent portion.............................. $30,764
=======
</TABLE>
3. MEMBERS' EQUITY
The Company has two classes of members' units, founders units and units. A
total of 1,000 units are authorized. There were 28 owner manager units issued
and outstanding at December 31, 1996 and 1997. Proceeds received from issuance
of founders units amounted to $700,000. The Agreement provides that the initial
capitalization of the Company will be limited to 100 units and that the number
of units owned by owner managers will be reduced by the number of units issued
in subsequent financings.
Each holder of the founders units is entitled to a cumulative preferred
return of 20% of their capital contribution per year. On or before August 1,
1999, the Company may offer to buy back founders units, and the holders of such
units will be given their choice of the following two options: (1) having their
founders units bought back for the original purchase price plus the preferred
return, in which case the holder of the founders units would surrender one-half
of such units and retain one-half of the founders units which would thereafter
have no priority return and would be equal in all respects to other units; or
(2) the holder of the founders units would be paid the preferred return and the
founders units would no longer be founders units but be equal to other units in
all respects thereafter.
When the holders of the founders units have received their cumulative
preferred return, the next distributions shall be paid to unit holders until
they receive the same cumulative percentage return. After the holders of both
classes of units have received the same cumulative percentage return, subsequent
distributions will be made on a pro rata basis.
In connection with the issuance of units in March 1997, a warrant was
granted to purchase .98 units at $30,435 per unit. The warrant expires in March
2002.
F-29
<PAGE> 117
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
4. SUBSEQUENT EVENT (UNAUDITED)
On October 21, 1998, all outstanding membership interests were acquired by
Women First HealthCare, Inc. for $1,800,000 due upon sale and $1,059,897 due
March 1999, and certain shares of Women First HealthCare, Inc. Series B
Preferred Stock. Additional shares of the Series B Preferred Stock would be
issued based upon the achievement of 1998 and 1999 operating results. All
cumulative preferred return rights were terminated upon the sale.
F-30
<PAGE> 118
WOMEN FIRST HEALTHCARE COMBINED WITH AS WE CHANGE
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
On October 21, 1998, Women First HealthCare, Inc. acquired all of the
outstanding membership interests in As We Change. The acquisition of As We
Change was accounted for as a purchase by Women First HealthCare, Inc. The
operations of As We Change are included in Women First HealthCare, Inc.
consolidated financial statements from the date of acquisition.
The unaudited pro forma statements of operations for the period ending
December 31, 1998 reflects the combined results of operations of Women First
HealthCare, Inc. and As We Change, subject to certain purchase accounting
adjustments, as if the acquisition had occurred at the beginning of the period.
<TABLE>
<CAPTION>
CONSOLIDATED
WOMEN FIRST
HEALTHCARE, INC. AS WE CHANGE
FOR THE YEAR JANUARY 1,
ENDED 1998 THROUGH TOTAL
DECEMBER 31, OCTOBER 20, PRO FORMA COMBINED
1998(2) 1998 ADJUSTMENTS(1) RESULTS
---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenue................... $ 4,834,196 $2,446,972 $ -- $ 7,281,168
Cost and expenses:
Cost of sales............... 2,648,114 1,131,352 -- 3,779,466
Marketing and sales......... 5,478,056 1,360,357 -- 6,838,413
General and
administrative........... 5,912,066 356,600 398,755 6,667,421
Research and development.... 572,688 -- -- 572,688
------------ ---------- --------- ------------
Total costs and expenses...... 14,610,924 2,848,309 398,755 17,857,988
------------ ---------- --------- ------------
Loss from operations.......... (9,776,728) (401,337) (398,755) (10,576,820)
Interest income............... 394,345 4,670 -- 399,015
------------ ---------- --------- ------------
Net loss...................... $ (9,382,383) $ (396,667) $(398,755) $(10,177,805)
============ ========== ========= ============
Pro forma net loss per share
(basic and diluted)......... $ (1.22) $ (1.03)
============ ============
Pro forma weighted average
shares used in computing net
loss per share (basic and
diluted)(3)................. 7,685,993 9,904,834
============ ============
</TABLE>
- -------------------------
(1) Includes the pro forma amortization of intangible assets for the acquisition
of As We Change.
(2) The consolidated statement of operations of Women First HealthCare, Inc.
includes the operations of As We Change subsequent to October 20, 1998.
(3) The pro forma net loss per share and the pro forma weighted average shares
give effect to the conversion of 1,650,000 shares of Series A Convertible
Preferred Stock and 594,000 shares of Series B Convertible Preferred Stock
issued and deemed to have been issued at December 31, 1998 into 3,351,831
shares of common stock upon the consummation of the offering. Pro forma
weighted average shares were determined based upon the original date of
issuance.
F-31
<PAGE> 119
EDGAR DESCRIPTION OF BACK COVER
The back cover includes pictures of midlife women surrounding the Women First
HealthCare symbol. The seven women are engaged in various activities, including
(describing from the left corner and moving clockwise): (i) composing a letter
at the kitchen table, (ii) talking on the telephone, (iii) smiling at the
camera, (iv) meditating on a beach watching the ocean, (v) holding a basket of
flowers, and (vi) walking briskly.
<PAGE> 120
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Cautionary Note on Forward-Looking
Statements.......................... 19
How We Intend to Use the Proceeds from
the Offering........................ 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Consolidated Financial
Information......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 34
Management............................ 55
Health Advisory Board................. 69
Principal Stockholders................ 73
Certain Transactions.................. 75
Shares Eligible for Future Sale....... 77
Description of Capital Stock.......... 78
Underwriting.......................... 83
Legal Matters......................... 85
Experts............................... 85
Available Information................. 85
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,500,000 SHARES
WOMENFIRST
WOMEN FIRST
HEALTHCARE, INC.
Common Stock
-----------------
PROSPECTUS
-----------------
Allen & Company Logo
NEEDHAM & COMPANY, INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by Women First in connection with the distribution
of the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee................ $ 17,078
NASD Filing Fee....................................... 5,500
Nasdaq National Market Listing Fee.................... 95,000
*Legal Fees and Expenses............................... 365,000
*Accounting Fees and Expenses.......................... 360,000
*Printing Expenses..................................... 275,000
*Blue Sky Fees and Expenses............................ 10,000
*Registrar and Transfer Agent Fees and Expenses........ 15,000
*Miscellaneous......................................... 7,422
----------
*Total....................................... $1,150,000
==========
</TABLE>
- -------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Women First's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, as it may be amended from time to time, no
director of Women First shall be liable to Women First or its stockholders for
monetary damages resulting from a breach of fiduciary duty as a director, except
for (i) liability resulting from a breach of the director's duty of loyalty to
Women First and its stockholders, (ii) acts or omissions which are not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) unlawful payment of dividends or unlawful stock repurchases or redemptions
as provided in Section 174 of the Delaware General Corporation Law of (iv) a
transaction from which the director derived an improper personal benefit. While
the Certificate of Incorporation provides directors, officers, employees and
agents with protection from awards for monetary damages for breaches of their
duty of care, it does not eliminate such duty. Accordingly, the Certificate of
Incorporation will have no effect on the availability of equitable remedies such
as an injunction or rescission based on a breach of such person's duty of care.
Women First's Certificate of Incorporation and the Bylaws also provide
mandatory indemnification for the benefit of directors, officers, employees and
agents of Women First to the fullest extent permitted by Delaware law, as
amended from time to time, including most circumstances under which
indemnification otherwise would be discretionary. In addition, Women First has
entered into individual indemnification agreements with each of its directors
and officers providing indemnification benefits. Such indemnification rights
include reimbursement for expenses incurred by such person in advance of the
final disposition of a proceeding in accordance with the applicable provisions
of Delaware law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling Women First pursuant to the foregoing provisions, Women First has
been informed that in the opinion of the Securities and Exchange omission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. Women First also will provide directors'
and officers' liability insurance coverage for its directors and officers.
II-1
<PAGE> 122
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since 1996, Women First has issued and sold unregistered securities as
follows:
(1) In January 1998, Women First received commitments from various
accredited individual and institutional investors to purchase an
aggregate of 2,100,000 shares of its Series A Preferred Stock for total
consideration of $21.0 million. Women First issued 1,050,000 shares of
Series A Preferred Stock on January 8, 1998 for $10.5 million. The
investors, other than Johnson & Johnson Development Corporation and one
other investor, placed an additional $5.25 million into an escrow
account to be released as consideration for the issuance of the balance
of the shares of Series A Preferred Stock upon Women First's
satisfaction of certain milestones. In May 1998, an additional
accredited institutional investor committed to purchase 100,000 shares
of Series A Preferred Stock for $1.0 million. Women First issued 50,000
shares to that investor in May 1998 for $500,000, with the balance
subject to the milestones and escrow procedure. In October 1998, Women
First satisfied the first set of milestones and issued 550,000 shares
of Series A Preferred Stock for total proceeds of $5.5 million, which
was released from escrow and paid directly by the two investors that
did not place funds into escrow. In January 1999, Women First satisfied
the second set of milestones and issued 550,000 shares of Series A
Preferred Stock for total proceeds of $5.5 million, which was released
from escrow and paid directly by the two investors that did not place
funds into escrow.
(2) Women First issued warrants to purchase an aggregate of 480,372 shares
of common stock, with an exercise price of $5.46 per share, to Allen &
Company Incorporated and to Johnson & Johnson Development Corporation
in connection with Women First's private placement of Series A
Preferred Stock.
(3) In October 1998, Women First issued an aggregate of 550,000 shares of
Series B Convertible Preferred Stock to the holders of the membership
interests in MenoMorphosis, LLC in connection with Women First's
acquisition of MenoMorphosis. In April 1999, Women First issued an
additional 44,000 shares of Series B Convertible Preferred Stock to the
former holders of the membership interests in MenoMorphosis, LLC
pursuant to an earn-out provision in the acquisition agreement.
(4) As of April 30, 1999, Women First has granted currently outstanding
stock options to employees, officers, directors and consultants to
purchase an aggregate of 2,114,235 shares of common stock. For options
to purchase 27,450 shares of common stock, the exercise price is $0.29
per share; for options to purchase 1,824,873 shares of common stock,
the exercise price is $0.84; for options to purchase 112,346 shares of
common stock, the exercise price is $4.81; for options to purchase
121,735 shares of common stock, the exercise price is $5.77; and for
the balance of the options, the exercise price is $11.39.
(5) In March 1999, Women First issued warrants to purchase an aggregate of
60,756 shares of common stock to the purchasers of $7.5 million of
short-term notes in a private placement. The exercise price for the
warrants equals: (a) the price per share to the public in Women First's
initial public offering less 15%; (b) the price per share of common
stock (or implied price per share of common stock), before any
discounts or commissions, in the next private placement of Women
First's common stock or securities convertible into common stock that
results in gross proceeds to Women First of at least $1,000,000, if
Women First does not complete an initial public offering prior to the
completion of the next such private placement; or
II-2
<PAGE> 123
(c) $6.00 per share, if an initial public offering or private placement
has not been completed prior to the anniversary of the date of
issuance. The notes bear interest at 9% per year, payable quarterly,
and mature on March 1, 2000.
The sales of the securities listed in paragraphs (1) - (3) and (5) above
were made in reliance upon Section 4(2) and Regulation D of the Securities Act,
which provide exemptions for transactions not involving a public offering. The
purchasers of securities described above represented that they acquired them for
their own account and not with a view to any distribution thereof to the public.
Women First made inquiries of purchasers of securities in these transactions and
obtained representations from such purchasers to establish that such issuances
qualified for an exemption from the registration requirements. The certificates
evidencing the securities bear legends stating that the shares are not to be
offered, sold or transferred other than pursuant to an effective registration
statement under the Securities Act, or an exemption from such registration
requirements. The issuances of the options described in paragraph (4) above were
exempt from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that the stock options were issued pursuant
to the terms and conditions provided by Rule 701. Women First did not retain
underwriters in connection with the issuance of any of Women First's currently
outstanding securities.
II-3
<PAGE> 124
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1(3) Form of Underwriting Agreement.
3.1(1) Third Amended and Restated Certificate of Incorporation.
3.2(1) Form of Fourth Amended and Restated Certificate of
Incorporation.
3.3(1) Amended and Restated Bylaws.
3.4(3) Form of Second Amended and Restated Bylaws.
4.1(3) Form of Specimen Common Stock Certificate.
5.1(3) Opinion of Latham & Watkins.
10.1(1) Employment Agreement dated January 8, 1998 by and between
Women First HealthCare, Inc. and Edward F. Calesa.
10.2(1) Employment Agreement dated January 14, 1998 by and between
Women First HealthCare, Inc. and David F. Hale.
10.3(1) Long-Term Incentive Plan.
10.4(1) Management Incentive Compensation Plan.
10.5(1) Lease Agreement dated April 3, 1998 by and between Women
First HealthCare, Inc. and Prentiss Properties Acquisition
Partners, L.P.
10.6(1) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare, Inc.*
10.7(1) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical, Inc.
and Women First HealthCare, Inc.*
10.8(1) Agreement effective as of March 1, 1999 between
Bristol-Myers Squibb and Women First HealthCare, Inc.*
10.9(1) Agreement dated September 30, 1998 between Women First
Pharmacy Services, Inc. and Health Script.*
10.10(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Julie G. Martin.
10.11(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Dale F. Steele.
10.12(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Nancy J. Casey.
10.13(3) Co-Promotion Agreement dated as of May 27, 1999 between
Ortho-McNeil Pharmaceutical, Inc. and Women First
HealthCare, Inc.*
10.14(3) Letter Agreement dated as of June 21, 1999 between Women
First HealthCare, Inc. and Laboratoires Fournier S.A.
21.1(1) Subsidiaries.
23.1(3) Consent of Ernst & Young LLP.
23.2(3) Consent of Latham & Watkins (included in Exhibit 5.1).
24.1(1) Powers of Attorney.
27.1(1) Financial Data Schedule.
</TABLE>
- -------------------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Filed herewith.
* Women First is seeking confidential treatment with respect to portions of
this exhibit.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required to permit prompt delivery
to each purchase.
II-4
<PAGE> 125
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 126
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
DIEGO, STATE OF CALIFORNIA, ON JUNE 22, 1999.
WOMEN FIRST HEALTHCARE, INC.
By: /s/ DAVID F. HALE
-----------------------------------
David F. Hale
President and CEO
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY EACH OF THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD F. CALESA* Chairman of the Board and June 22, 1999
- --------------------------------------------------- Director
Edward F. Calesa
/s/ DAVID F. HALE President and Chief June 22, 1999
- --------------------------------------------------- Executive Officer
David F. Hale (Principal Executive
Officer)
/s/ DEBRA P. CRAWFORD Vice President and Chief June 22, 1999
- --------------------------------------------------- Financial Officer
Debra P. Crawford (Principal Financial
Officer and Principal
Accounting Officer)
/s/ CHARLOTTE BEERS* Director June 22, 1999
- ---------------------------------------------------
Charlotte Beers
/s/ MEREDITH A. BROKAW* Director June 22, 1999
- ---------------------------------------------------
Meredith A. Brokaw
/s/ GARY V. PARLIN* Director June 22, 1999
- ---------------------------------------------------
Gary V. Parlin
/s/ RICHARD L. RUBIN* Director June 22, 1999
- ---------------------------------------------------
Richard L. Rubin
/s/ JOHN SIMON* Director June 22, 1999
- ---------------------------------------------------
John Simon
*By: /s/ DAVID F. HALE
---------------------------------------------
David F. Hale
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<S> <C> <C>
1.1(3) Form of Underwriting Agreement
3.1(1) Third Amended and Restated Certificate of Incorporation
3.2(1) Form of Fourth Amended and Restated Certificate of
Incorporation
3.3(1) Amended and Restated Bylaws
3.4(3) Form of Second Amended and Restated Bylaws
4.1(3) Form of Specimen Common Stock Certificate
5.1(3) Opinion of Latham & Watkins
10.1(1) Employment Agreement dated January 8, 1998 by and
between Women First HealthCare, Inc. and Edward F.
Calesa
10.2(1) Employment Agreement dated January 14, 1998 by and
between Women First HealthCare, Inc. and David F. Hale
10.3(1) Long-Term Incentive Plan
10.4(1) Management Incentive Compensation Plan
10.5(1) Lease Agreement dated as of April 3, 1998 by and between
Women First HealthCare, Inc. and Prentiss Properties
Acquisition Partners, L.P.
10.6(1) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare,
Inc.*
10.7(1) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical,
Inc. and Women First HealthCare, Inc.*
10.8(1) Agreement effective as of March 1, 1999 between
Bristol-Myers Squibb and Women First HealthCare, Inc.*
10.9(1) Agreement dated September 30, 1998 between Women First
Pharmacy Services, Inc. and Health Script*
10.10(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Julie G. Martin
10.11(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Dale F. Steele
10.12(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Nancy J. Casey
10.13(3) Co-Promotion Agreement dated as of May 27, 1999 between
Ortho-McNeil Pharmaceutical, Inc. and Women First
HealthCare, Inc.*
10.14(3) Letter Agreement dated as of June 21, 1999 between Women
First HealthCare, Inc. and Laboratoires Fournier S.A.
21.1(1) Subsidiaries
23.1(3) Consent of Ernst & Young LLP
23.2(3) Consent of Latham & Watkins (included in Exhibit 5.1)
24.1(1) Powers of Attorney.
27.1(1) Financial Data Schedule
</TABLE>
- -------------------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Filed herewith.
* Women First is seeking confidential treatment with respect to portions of
this exhibit.
<PAGE> 1
EXHIBIT 1.1
4,500,000 Shares of Common Stock
Women First HealthCare, Inc.
UNDERWRITING AGREEMENT
June [ ], 1999
Allen & Company Incorporated
Needham & Company, Inc.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, NY 10022
Ladies and Gentlemen:
Women First HealthCare, Inc., a corporation organized and existing
under the laws of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, that the Company issue and sell to the underwriters
named in Schedule I hereto (the "Underwriters"), acting severally and not
jointly, an aggregate of 4,500,000 shares (the "Firm Shares") of its common
stock, par value $0.001 per share (the "Common Stock"), and, for the sole
purpose of covering over-allotments in connection with the sale of the Firm
Shares, at the option of the Underwriters, up to an additional 675,000 shares
(the "Additional Shares") of Common Stock. The Firm Shares and any Additional
Shares purchased by the Underwriters are referred to herein as the "Shares." The
Shares are more fully described in the Registration Statement referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a
<PAGE> 2
registration statement, and may have filed an amendment or amendments thereto,
on Form S-1 (No. 333-74367), for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). Such registration statement,
including the prospectus, financial statements and schedules, exhibits and all
other documents filed as a part thereof, as amended at the time of effectiveness
of the registration statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A
or Rule 434 of the Rules and Regulations of the Commission under the Act (the
"Regulations"), is herein called the "Registration Statement." Any registration
statement filed pursuant to Rule 462(b) of the Regulations is herein called the
"462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The prospectus,
in the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations or filed as part of the Registration Statement at the time of
effectiveness if no Rule 424(b) or Rule 434 filing is required, is herein called
the "Prospectus." The term "preliminary prospectus" as used herein means a
preliminary prospectus as described in Rule 430 of the Regulations. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment, supplement or term sheet with
respect to any of the foregoing shall be deemed to include the copy such
documents filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR"). Neither the Commission nor the Blue Sky
or securities authority of any state or other jurisdiction has issued a stop
order suspending the effectiveness of the Registration Statement, preventing or
suspending the use of any preliminary prospectus, the Prospectus, the
Registration Statement or any amendment or supplement or term sheet thereto,
refusing to permit the effectiveness of the Registration Statement or suspending
the registration or qualification of the Shares, nor has any of such authorities
instituted or threatened to institute nor, to the Company's knowledge,
contemplated instituting, any proceedings with respect to a stop order.
(b) At the respective time of the effectiveness of the Registration
Statement or any
2
<PAGE> 3
462(b) Registration Statement or the effectiveness of any post-effective
amendment to the Registration Statement, when the Prospectus is first filed with
the Commission pursuant to Rule 424(b) or Rule 434 of the Regulations, when any
supplement to or amendment of the Prospectus is filed with the Commission and at
the Closing Date and the Additional Closing Date, if any (as hereinafter
respectively defined), the Registration Statement and the Prospectus and any
amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and do not or will not contain an untrue statement of a material fact and do not
or will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein (i) in the case of the
Registration Statement, not misleading and (ii) in the case of the Prospectus,
in light of the circumstances under which they were made, not misleading. When
any related preliminary prospectus was first filed with the Commission (whether
filed as part of the registration statement for the registration of the Shares
or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when
any amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. In addition, each preliminary
prospectus and the Prospectus delivered to the Underwriters for use in
connection with this offering was identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T. No representation and warranty is made in this
subsection (b), however, with respect to any information contained in or omitted
from the Registration Statement or the Prospectus or any related preliminary
prospectus or any amendment thereof or supplement thereto in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of any Underwriter through you as herein stated expressly for use in
connection with the
3
<PAGE> 4
preparation thereof. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially different,"
as such term is used in Rule 434, from the Prospectus included in the
Registration Statement at the time it became effective.
(c) Ernst & Young LLP, who have certified the financial statements
and supporting schedules included in the Registration Statement, are independent
public accountants as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, (A) there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company and its subsidiaries,
individually or in the aggregate, including but not limited to relationships
with customers and suppliers of the Company; (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company and
its subsidiaries individually or in the aggregate; (C) there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock; and (D) since the date of the latest balance
sheet presented in the Registration Statement and the Prospectus, neither the
Company nor any of its subsidiaries has incurred or undertaken any liabilities
or obligations, direct or contingent, which are material to the Company and its
subsidiaries, individually or in the aggregate, except for liabilities or
obligations which are reflected in the Registration Statement and the
Prospectus.
(e) This Agreement and the transactions contemplated herein have
been duly and validly authorized by all necessary corporate action, and this
Agreement has been duly and validly executed and delivered by the Company.
Assuming due authorization, execution and delivery by the Representatives, this
Agreement constitutes a valid and binding obligation of
4
<PAGE> 5
the Company, enforceable in accordance with its terms, except as enforceability
(i) may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance or other similar laws relating to
or affecting the rights of creditors generally, (ii) is subject to general
principles of equity and similar principles, including, without limitation,
concepts of materiality, reasonableness, unconscionability, good faith and fair
dealing, and the possible unavailability of specific performance, injunctive
relief or other equitable remedies, regardless of whether considered in a
proceeding in equity or at law.
(f) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not (i)
conflict with or result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, any material debenture, note, contract,
indenture, mortgage, deed of trust, lease, joint venture or other material
agreement, instrument, franchise, license or permit to which the Company or any
of its subsidiaries is a party or by which any of their respective properties or
assets may be bound or (ii) violate or conflict with any provision of the
certificate of incorporation or by-laws of the Company, or any of its
subsidiaries, or any material judgment, writ, decree, order, law, statute, rule
or regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any of its subsidiaries or any of
their respective properties, assets or operations. No consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any public, governmental or regulatory agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets is necessary or required for the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, including the issuance, sale and delivery of
the Shares to be issued, sold and delivered by the Company
5
<PAGE> 6
hereunder, except the registration under the Act of the Shares and such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws or such as may be required by the National Association of
Securities Dealers in connection with the purchase and distribution of the
Shares by the Underwriters.
(g) All of the outstanding shares of capital stock of the Company
are duly and validly authorized and issued, fully paid and nonassessable, and
none of such shares was issued in violation of or is now subject to any
preemptive rights, co-sale rights, registration rights, rights of first refusal
or similar rights. All of the outstanding shares of capital stock and all other
outstanding securities of the Company have been issued in compliance in all
material respects with applicable Federal and state laws. The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued, delivered and sold in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances or claims, will not
have been issued in violation of or be subject to any preemptive rights, co-sale
rights, registration rights, rights of first refusal or similar rights and no
holder of Shares will be subject to personal liability by reason of being such a
holder. The authorized, issued and outstanding capital stock of the Company as
of March 31, 1999 was as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization", and, after giving effect to the
offering will be as set forth in the column entitled "Pro Forma, As Adjusted"
and the number of authorized, issued and outstanding options and other rights is
set forth in the footnotes under such caption as of the date set forth therein.
Since that date, none of the Company or its subsidiaries have issued any
securities other than (i) Common Stock of the Company pursuant to the exercise
of previously granted and privately granted options pursuant to the Women First
HealthCare Long-Term Incentive Plan (the "Plan"), and (ii) options granted in
the ordinary course of business pursuant to the Plan, none of which are
currently exercisable. The authorized capital stock of the Company, including
the Common
6
<PAGE> 7
Stock, the Firm Shares and the Additional Shares, conforms to the descriptions
thereof contained in the Registration Statement and the Prospectus and such
descriptions conform to the rights set forth in the instruments defining the
same. Except as disclosed in the Registration Statement and the Prospectus,
there are no outstanding shares of capital stock, options, warrants or other
securities or other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any securities of the Company or
any of its subsidiaries. The outstanding stock options relating to the Common
Stock have been duly authorized and validly issued and each of the Plan and
stock options granted by the Company conform to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(h) Each of the Company and each of its subsidiaries has been duly
organized and is validly existing as a corporation or limited liability company,
as the case may be, in good standing under the laws of its jurisdiction of
incorporation. Each of the Company and its subsidiaries is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business makes such qualification necessary as set
forth on Exhibit 1(h) hereto (collectively, the "Material Jurisdictions"),
except for those failures to be so qualified or in good standing which could not
in the aggregate have a material adverse effect on the business, prospects,
results of operations or financial condition of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect"). All of the
outstanding capital stock or membership interests, as the case may be, of each
of the Company's subsidiaries has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Company free and clear of any
liens, mortgages, pledges, charges, security interests, claims, encumbrances or
other defects in title whatsoever and none of the outstanding shares of capital
stock or membership interests, as the case may be, of any of the Company's
subsidiaries was issued in violation of the preemptive rights, co-sale rights,
registration rights, rights of first refusal or similar rights of any security
holder of any such subsidiary or other party. Except as described in the
Prospectus, the Company has
7
<PAGE> 8
no agreements, commitments, or understandings with respect to acquiring or
selling the business, stock or material assets, except those assets acquired in
the ordinary course of business, of the Company, its subsidiaries or any other
person or entity. The only subsidiaries of the Company are the subsidiaries
listed on Exhibit 21.1 to the Registration Statement, and none of the Company or
its subsidiaries owns capital stock or any other interest in any other
corporation or entity other than such subsidiaries.
(i) Each of the Company and its subsidiaries has all requisite power
and authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits (collectively, "Governmental
Licenses") of and from all appropriate Federal, state, local or foreign public,
regulatory or governmental agencies and bodies, to own, lease and operate its
properties and conduct its business as now being conducted, or as proposed to be
conducted, and as described in the Registration Statement and the Prospectus,
except for such Government Licenses which if not held by the Company or one of
its subsidiaries would not have a Material Adverse Effect. Each such
Governmental License is valid and in full force and effect, the Company and its
subsidiaries are in material compliance with the terms and conditions of all
such Governmental Licenses, and no such Governmental License contains a
materially burdensome restriction not disclosed in the Registration Statement
and the Prospectus, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or modification of
any such Governmental Licenses, the revocation or modification of which would
have a Material Adverse Effect.
(j) Neither the Company nor any of its subsidiaries is in violation
of any provision of its charter or by-laws, as the case may be, or in breach of
any of the terms or provisions of or in default (or would be in default with
notice or lapse of time, or both) under any debenture, note, contract,
indenture, mortgage, deed of trust, lease, joint venture or other agreement,
instrument, franchise, license or permit to which the Company or any of its
subsidiaries is a party or by which any of their respective properties, assets
or operations may be bound, which default or defaults
8
<PAGE> 9
could have a Material Adverse Effect or in violation of any judgment, writ,
decree, order, law, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties, assets or
operations, the violation of which could have, individually or in the aggregate,
a Material Adverse Effect.
(k) Each of the Company and each of its subsidiaries is in
compliance with the requirements of the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") and have submitted to the Food and Drug Administration all
reports and listing information for products required to be submitted under the
FDC Act; all products that the Company or any of its subsidiaries market are the
subject of all approvals required under the FDC Act and are manufactured in
compliance with the applicable Good Manufacturing Practice regulations; all drug
samples that are provided by the Company or its subsidiaries are provided in
compliance with the FDC Act; and each of the Company and its subsidiaries have
promoted its products in compliance with the FDC Act, except, in each case,
where the failure to comply would not have a Material Adverse Effect. The
Company has promoted all products subject to the jurisdiction of the Federal
Trade Commission (the "FTC") in material compliance with the requirements of the
FTC. The Company's pharmacy subsidiary possesses all licenses required under
state laws and regulations, complies with all applicable state pharmacy
requirements, and complies with all requirements under the FDC Act applicable to
compounding pharmacies, except where the failure to comply would not have a
Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is no litigation,
action, suit, proceeding, inquiry or governmental proceeding or investigation to
which the Company or any of its subsidiaries is a party or to which any property
of the Company or any of its subsidiaries is subject or which is pending or
threatened, or, to the best knowledge of the Company, contemplated against the
Company or any of its subsidiaries.
(m) Neither the Company nor any of its directors, officers or
affiliates (as defined in the
9
<PAGE> 10
Regulations) has taken or will take, directly or indirectly, any action designed
to cause or result in, or which constitutes or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock in violation of Regulation M under the 1934 Act.
(n) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company and its
subsidiaries and MenoMorphosis LLC as of the dates indicated and the results of
their operations, stockholders' equity and cash flows for the periods specified;
said financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis through
the periods involved, except as may be expressly stated in the related notes
thereto; the supporting schedules included in the Registration Statement present
fairly the information required to be stated therein; and the selected
consolidated financial data, the summary consolidated financial information and
the capitalization information included in the Registration Statement and the
Prospectus present fairly in accordance with GAAP the information shown therein
and have been compiled on a basis consistent with that of the financial
statements included in the Registration Statement and the Prospectus. The pro
forma stockholders' equity and the pro forma data which reflect the combined
results of operations of the Company and MenoMorphosis LLC included in the
Registration Statement and the Prospectus present fairly, in all material
respects, the information shown therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described therein, and
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. No financial statements are required to be
included in the Registration Statement that have not been so included.
(o) All material Federal, state and local tax returns required to be
filed by the Company
10
<PAGE> 11
and its subsidiaries have been filed and all such returns are true, complete,
and correct in all material respects. All material taxes that are due or claimed
to be due from the Company and its subsidiaries have been paid other than those
(i) currently payable without penalty or interest or (ii) being contested in
good faith and by appropriate proceedings and for which adequate reserves have
been established in accordance with GAAP. Except as disclosed in the
Registration Statement and the Prospectus, there is no material tax deficiency
that has been, to the best knowledge of the Company proposed to be, asserted
against the Company or any of its subsidiaries.
(p) Each of the Company and its subsidiaries maintains insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for its respective business, including,
without limitation, insurance coverage for real and personal property owned or
leased by them against theft, damage, destruction, acts of vandalism; products
liability insurance; professional liability insurance for Women First Pharmacy
Services, Inc.'s pharmacy operations; and all other material risks customarily
insured against, all of which insurance is in full force and effect. Neither the
Company nor any of its subsidiaries has any reason to believe that it will not
be able to renew existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its respective business. The officers and directors of the Company are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary for officers and
directors liability insurance of a public company and as would cover claims
which could be made in connection with the issuance of the Shares; and the
Company has no reason to believe that it will not be able to renew its existing
directors and officers liability insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to cover its officers and directors.
(q) Each of the Company and its subsid iaries has good and
marketable title to all personal property and assets owned by it, free and clear
of all
11
<PAGE> 12
mortgages, pledges, security interests, claims, restrictions, liens,
encumbrances and defects except as do not, individually or in the aggregate,
materially affect the value of such property and do not interfere in any
material respect with the use made or proposed to be made of such property by
the Company or its sub sidiaries, as the case may be. Any real property and
buildings held under lease by the Company or any of its subsidiaries are held
under valid, existing and enforce able leases in full force and effect with such
excep tions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company or its
subsidiaries, as the case may be, and neither the Company nor any of its
subsidiaries has any notice of any claims of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any such
leases.
(r) Each of the Company and its subsid iaries owns or possesses
legal and valid rights to use all patents, inventions, copyrights, software,
databases, know-how, Internet domain names, trade se crets and other unpatented
and/or unpatentable propri etary or confidential information, systems or proce
dures, trademarks, service marks, trade names, rights of publicity pertaining to
the name, likeness, voice, signatures, and/or biographical information of real
persons and other intellectual property (collectively, "Intellectual Property")
necessary to carry on the business as currently conducted, and as proposed to be
conducted and described in the Prospectus, free and clear of all liens, claims
and encumbrances (except for those that could not have a Material Adverse
Effect). Neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of (i) any claim, action or demand of any person in the
United States or elsewhere or any proceeding in the United States or elsewhere,
pending or threatened, that (A) challenges the ownership of the Company or any
of its subsidiaries in or its right to use any Intellectual Property or (B)
alleges that any product or service of the Company or any of its subsidiaries
infringes or mis appropriates the Intellectual Property rights of others or
constitutes unfair competition or (ii) any facts or circumstances that would
render any Intellectual Prop erty owned or used by the Company or any
Intellectual Property license agreement to which the Company or any
12
<PAGE> 13
of its subsidiaries is a party, invalid or inadequate to protect the interest of
the Company or any of its subsidiaries therein or thereunder, subject, with
respect to (i) or (ii), to such exceptions, individually or in the aggregate, as
could not have a Material Adverse Effect. The Company has taken all reasonable
steps to protect, maintain and safeguard its rights in all Intellectual Property
owned or used by the Company or its subsidiaries and to maintain the secrecy of
all such Intellectual Property as to which improper or unauthorized disclosure
would impair its value or validity, including the execution of appropriate
nondisclosure and confidentiality agreements.
(s) No relationship, direct or indirect, exists between or among the
Company or any of its affiliates, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries,
on the other hand, that is required by the Act to be described in the
Registration Statement and the Prospectus that is not so described. Except as
disclosed in the Registration Statement and the Prospectus, there are no
outstanding loans, advances, or guarantees or indebtedness by the Company to or
for the benefit of any of the executive officers or directors of the Company or
any of the members of the families of any of them.
(t) The Shares have been duly approved for quotation and trading on
the Nasdaq National Market, subject to official notice of issuance.
(u) No holder of securities of the Company has any rights to the
registration of securities of the Company because of the filing of the
Registration Statement or otherwise in connection with the sale of the Shares
contemplated hereby.
(v) The Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and after giving effect to the sale of the Shares and the
application of the net proceeds therefrom as described in the Prospectus will
not be an investment company subject to registration under the Investment
Company Act.
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<PAGE> 14
(w) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or any subsidiary's principal suppliers, manufacturers,
customers or contractors that are likely, individually or in the aggregate, to
have a Material Adverse Effect.
(x) Each of the Company and each of its subsidiaries (i) is in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its respective business and (iii) is in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
environmental laws, failure to receive required permits, licenses or other
approvals, or failure to comply with the terms and conditions of such permits,
licenses or approvals will not in the aggregate have a Material Adverse Effect.
(y) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required. The
descriptions of contracts in the Registration Statement and the Prospectus are
accurate and complete in all material respects; all contracts described in the
Registration Statement and the Prospectus are valid, binding and enforceable and
are in full force and effect, and neither the Company nor any of its
subsidiaries or, to the Company's best knowledge, any other party is in material
breach of or default under any provisions of such contracts. Neither the Company
nor any of its subsidiaries has experienced a material adverse change in its
business relationships with its material suppliers, including without
limitation, Ortho-McNeil Pharmaceutical, Inc., Bristol-Meyers-Squibb U.S.
Pharmaceuticals Group, Price Ivena ApS, Cosmederm Technologies, Inc. and
BioFilm, Inc.
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<PAGE> 15
(z) Each employee benefit plan, within the meaning of Section 3(3)
of the Employee Retirement Income Securities Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by the Company or any of its
subsidiaries for employees or former employees of the Company or any of its
subsidiaries has been maintained in compliance in all material respects with its
respective terms and the requirements of any applicable statutes, order, rules
and regulations, including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). No prohibited transaction, within the
meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with
respect to any such plan, excluding transactions effected pursuant to a
statutory or administrative exemption. For each such plan that is subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA, (i) no
"accumulated funding deficiency", as defined in Section 412 of the Code, has
been incurred, whether or not waived, and (ii) the fair market value of the
assets of each such plan (excluding for these purposes accrued but unpaid
contributions) exceeded the present value of all benefits accrued under such
plan determined using reasonable actuarial assumptions. The description of the
Company's Plan and the options or other rights granted thereunder set forth in
the Registration Statement and the Prospectus accurately and fairly describe, in
all material respects, the information required to be shown with respect to such
Plan, options and rights.
(aa) The Company and each of its subsidiaries maintain a system of
internal accounting controls that are sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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<PAGE> 16
(ab) The statistical and market-related data included in the
Registration Statement and the Prospectus are derived from sources which the
Company reasonably and in good faith believes as of the date hereof to be
accurate, reasonable and reliable and such data agrees with the sources from
which they were derived.
(ac) Neither the Company nor its subsidiaries has at any time during
the last five (5) years in any jurisdiction (i) made any unlawful contribution
to any candidate for office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States.
Any certificate signed by any director or officer of the Company or
any of its subsidiaries delivered to the Representatives or to Skadden, Arps,
Slate Meagher & Flom LLP, 525 University, Suite 220, Palo Alto, CA 94546
("Underwriters' Counsel") at or in connection with the Closing shall be deemed a
representation and warranty by the Company to each Underwriter as the matters
covered thereby.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $[ ], the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the offices of Latham & Watkins, 701 B Street,
Suite 2100, San Diego, CA 92101 ("Company Counsel"), or at such other place as
shall be agreed upon by you and the Company, at 7:00 A.M. on the third or fourth
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<PAGE> 17
Business Day (as permitted under Rule 15c6-1 under the Exchange Act) (unless
postponed in accordance with the provisions of Section 9 hereof) following the
date of the effectiveness of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A of the Regulations, the third or fourth business
day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such other
time not later than ten Business Days (as hereinafter defined) after such date
as shall be agreed upon by you and the Company (such time and date of payment
and delivery being herein called the "Closing Date"). It is understood that each
Underwriter has authorized you for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Firm Shares and the
Additional Shares, if any, which it has agreed to purchase. As used herein, the
term "Business Day" means any day other than a day on which banks are permitted
or required to be closed in California. Payment shall be made to the Company by
wire transfer in same day funds, against delivery to you at the offices of
Company Counsel or such other location as may be mutually acceptable, for the
respective accounts of the Underwriters of certificates for the Shares to be
purchased by them. Certificates for the Shares shall be registered in such name
or names and in such authorized denominations as you may request in writing at
least two full Business Days prior to the Closing Date. The Company will permit
you to examine and package such certificates for delivery at least one full
Business Day prior to the Closing Date.
(c) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants to the Underwriters the
option to purchase, severally and not jointly, up to 675,000 Additional Shares
at the same purchase price per share to be paid by the Underwriters to the
Company for the Firm Shares as set forth in this Section 2, for the purpose of
covering over-allotments, if any, in the sale of Firm Shares by the
Underwriters. This option may be exercised at any time, or from time to time, in
whole or in part, on or before the thirtieth day following the date of the
Prospectus, by written notice by you to the Company.
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<PAGE> 18
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing Date");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full Business Day after the date on
which the option shall have been exercised nor later than the eighth full
Business Day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be registered in
such name or names and in such authorized denominations as you may request in
writing at least two full Business Days prior to the Additional Closing Date.
The Company will permit you to examine and package such certificates for
delivery at least one full Business Day prior to the Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter shall be
the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to the total number of Firm Shares subject, however,
to such adjustments to eliminate any fractional shares as you in your sole
discretion shall make.
Payment of the purchase price for the Additional Shares shall be made
to the Company by wire transfer in same day funds to such account as specified
by the Company to the Representatives in writing at least two full Business Days
prior to the Additional Closing Date against delivery to you at the offices of
Company Counsel, or such other location as may be mutually acceptable, of the
certificates for the Additional Shares to you for the respective accounts of the
Underwriters.
3. Offering. Upon your delivery of the Firm Shares, the Underwriters
propose to offer the Shares for sale to the public upon the terms set forth in
the Prospectus.
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<PAGE> 19
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to and in compliance
with Rule 424(b) or Rule 434 within the prescribed time period and will provide
evidence satisfactory to you of such timely filing. If, with your consent, the
Company elects to rely on Rule 434, the Company will prepare and file a term
sheet that complies with the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or any order preventing or suspending the use
of any preliminary prospectus, or of the initiation, or the threatening, of any
proceedings with respect to any of the foregoing, (v) of the receipt of any
comments from the Commission, and (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for that purpose. If the Commission shall propose or enter a stop order at any
time, the Company will make every reasonable effort to prevent the issuance of
any such stop order and, if issued, to obtain the lifting of such order as soon
as possible. The Company will not file any amendment to the Registration
Statement, make any filing under Rule 462(b) of the Regulations, or file any
amendment of or supplement to the Prospectus (including the prospectus
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<PAGE> 20
required to be filed pursuant to Rule 424(b)or Rule 434 of the Regulations)
before or after the effective date of the Registration Statement to which you
shall reasonably object in writing after being timely furnished in advance a
copy thereof.
(b) The Company will comply with the Act and the Regulations so as
to permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If at any time when a prospectus relating to
the Shares is required to be delivered under the Act any event shall have
occurred or a condition shall exist as a result of which the Prospectus as then
amended or supplemented would, in the judgment of the Underwriters' Counsel or
the Company, include an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it shall be necessary at any time to amend or supplement the
Prospectus or Registration Statement to comply with the Act or the Regulations,
the Company will notify you promptly and prepare and file with the Commission an
appropriate amendment or supplement (in form and substance satisfactory to you)
which will correct such statement or omission and will use its best efforts to
have any amendment to the Registration Statement declared effective as soon as
possible and the Company will furnish to the Underwriters such number of copies
of such amendment or supplement as the Underwriters may reasonably request.
(c) The Company will promptly deliver to you one signed copy of the
Registration Statement, including exhibits and all amendments thereto, and
signed copies of all consents, and will maintain in the Company's files signed
copies of such documents for at least five years after the date of filing, and
the Company will promptly deliver to each of the Underwriters, without charge,
during the period when the Prospectus is required to be delivered under the Act,
such number of copies of any preliminary prospectus, the Prospectus, the
Registration Statement, and all amendments of and supplements to such documents,
if any, as you may reasonably request, and the Company hereby consents to the
use of such copies for purposes permitted by the Act. The copies of the
Registration
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<PAGE> 21
Statement and Prospectus and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating to
the offering or sale of the Shares of such jurisdictions, domestic or foreign,
as you may designate and to maintain such qualification in effect for so long as
required for the distribution thereof; except that in no event shall the Company
be obligated in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction where it is
not so qualified or subject.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement (in form complying with the provisions
of Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the date of the Prospectus,
each of the Company and its subsidiaries will not, without the prior written
consent of Allen & Company Incorporated, (which consent may be withheld at the
sole discretion of Allen & Company Incorporated), directly or indirectly (i)
issue, offer to sell, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of the Company's Common Stock or any securities convertible into or exchangeable
or exercisable for such Common Stock or any other securities of the Company or
its subsidiaries, whether now owned or hereafter acquired by such person or with
respect to which such person has or hereafter acquires the power of disposition;
or
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<PAGE> 22
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock or convertible into or exchangeable for Common
Stock whether any such swap transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise; provided that none of the
foregoing shall apply to (A) the issuance of Shares to be sold hereunder; (B)
the issuance of Common Stock upon conversion of the Series A Preferred Stock and
Series B Convertible Preferred Stock on the Closing Date; (C) the issuance of
Common Stock upon the exercise of any option or warrant outstanding on the date
hereof and disclosed in the Prospectus; (D) the grant of options to purchase
shares of Common Stock in the ordinary course of business pursuant to the Women
First HealthCare Long-Term Incentive Plan described in the Prospectus; or (E)
the issuance of up to 500,000 shares of Common Stock in connection with
acquisitions by the Company, to the extent the recipients of shares in
connection with the transactions set forth in (B), (C), and (E)agree in writing
not to offer to sell, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock during such 180 day period (or, in the
case of shares purchased in this offering by directors and employees of the
Company not otherwise subject to the provisions of Rule 144(c) of the Act, a 90
day period following the offering) without the prior written consent of Allen &
Company Incorporated.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange. The Company, during the period when the
Prospectuses are required to be delivered under the Act, will file all documents
required to be filed with the Commission pursuant to the 1934 Act within the
time periods required by the 1934 Act and the rules and regulations of the
Commission thereunder.
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<PAGE> 23
(h) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus and file with the
Commission such reports and report such use of proceeds as may be required
pursuant to Rule 463 of the Regulations.
(i) The Company will use its best efforts to cause the Shares to
remain approved for quotation and trading on the Nasdaq National Market.
(j) The Company will use its best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by
the Company prior to or after the Closing Date or any Additional Closing Date,
as the case may be, and to satisfy all conditions precedent to the delivery of
the Shares.
5. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
financial statements and exhibits thereto), any preliminary prospectus, the
Prospectus and any amendments or supplements thereto (including, without
limitation, fees and expenses of the Company's accountants and counsel), the
underwriting documents (including this Agreement and the Agreement Among
Underwriters) and all other documents related to the public offering of the
Shares (including those supplied to the Underwriters in quantities as
hereinabove stated), (ii) the issuance, transfer and delivery of the Shares to
the Underwriters, including any transfer or other taxes or duties payable
thereon, (iii) the qualification of the Shares under state or foreign securities
or Blue Sky laws, including the costs of printing and mailing a preliminary and
final "Blue Sky Survey" and any supplements thereto and the filing fees and the
fees the Underwriters' Counsel and such counsel's disbursements in relation
thereto, (iv) quotation of the Shares on the Nasdaq National Market, (v) filing
fees of the Commission and the National Association of Securities Dealers, Inc.
and the fees and disbursements of the
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<PAGE> 24
Underwriters' Counsel in connection with the review by the NASD of the terms of
the sale of the Shares; (vi) the transportation and other expenses incurred by
the Company in connection with presentations to prospective purchasers of the
Shares (vii) the cost of preparing, printing, and delivering certificates
representing the Shares and (viii) the fees and expenses of any transfer agent
or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to (i) the accuracy of the representations
and warranties of the Company herein contained, as of the date hereof and as of
the Closing Date (for purposes of this Section 6 "Closing Date" shall refer to
the Closing Date for the Firm Shares and any Additional Closing Date, if
different, for the Additional Shares), (ii) the absence from any certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 of any misstatement or omission, (iii) the
performance by the Company of its covenants and other obligations hereunder, and
(iv) the following additional conditions:
(a) The Registration Statement, including any Rule 462(b)
Registration Statement, shall have become effective and all necessary approvals
of the Nasdaq National Market shall have been received not later than 5:30 P.M.,
New York time, on the date of this Agreement, or at such later time and date as
shall have been consented to in writing by you; if the Company shall have
elected to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus
shall have been filed with the Commission in a timely fashion in accordance with
Section 4(a) hereof; and at or prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereof shall have been issued and no proceedings therefor shall have
been initiated or threatened by the Commission or any state securities authority
and any request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of the Underwriters'
Counsel.
(b) At the Closing Date you shall have received the opinion of
Latham & Watkins, counsel for the
24
<PAGE> 25
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) Each of the Company and Women First Pharmacy
Services, Inc. has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware. As We
Change, LLC has been duly formed as a limited liability company and
is validly existing and in good standing under the laws of the State
of Delaware. Based solely on certificates from public officials,
such counsel shall confirm that each of the Company and each of its
subsidiaries is qualified to do business and in good standing as a
foreign corporation in the Material Jurisdictions. All of the issued
and outstanding shares of capital stock of Women First Pharmacy
Services, Inc. and all of the membership interest in As We Change,
LLC have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record by the Company, and, to the best
of such Counsel's knowledge, are free from any lien, mortgage,
pledge, security interest, claim, encumbrances or, except as
described in the Prospectus, and, to the best of such Counsel's
knowledge, were not issued in violation of preemptive rights,
co-sale rights, or rights of first offer of any security holder of
any such subsidiary or other party.
(ii) Each of the Company and Women First Pharmacy
Services, Inc. has all requisite corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus. As We
Change, LLC has all requisite power and authority to own, lease and
operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus.
(iii) The authorized, issued and outstanding capital
stock, of the Company is set forth in the Registration Statement and
the
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<PAGE> 26
Prospectus under the caption "CAPITALIZATION." Since the date of the
table set forth in under such caption, none of the Company or its
subsidiaries have issued any securities other than (i) Common Stock
of the Company pursuant to the exercise of previously outstanding
and privately granted options pursuant to the Women First HealthCare
Long-Term Incentive Plan (the "Plan"), and (ii) to the best of such
counsel's knowledge options granted in the ordinary course of
business pursuant to the Plan, none of which are currently
exercisable. All of the outstanding shares of capital stock of the
Company are duly and validly authorized and issued, are fully paid
and nonassessable and to the best of such counsel's knowledge were
not issued in violation of or subject to any preemptive right,
co-sale right or right of first offer. The Shares to be issued and
sold by the Company pursuant to the Agreement have been duly
authorized and, when issued to and paid for by you and the other
Underwriters in accordance with the terms of the Agreement, will be
validly issued, fully paid and non-assessable and, to the best of
such counsel's knowledge, and assuming you have purchased the Shares
without notice of any adverse claims, and that you have not created
any liens with respect to the Shares, free and clear of all liens,
encumbrances or claims, and, to the best of such counsel's
knowledge, will not have been issued in violation of or be subject
to any preemptive rights, co-sale rights or rights of first offer.
The description of the Common Stock contained in the Prospectus is
complete and accurate in all material respects.
(iv) The Agreement has been duly authorized, executed
and delivered by the Company.
(v) To the best of such counsel's knowledge, based
solely on docket searches in the Material Jurisdictions and
certificates from officers of the Company, there are no actions,
suits, proceedings or investigations pending or threatened against
the Company or
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<PAGE> 27
any of its subsidiaries before or by any court, governmental agency
or arbitrator.
(vi) The execution, delivery and performance by the
Company of its obligations under, and the issuance and sale of the
Shares by the Company pursuant to, the Agreement will not (i) to the
best of such counsel's knowledge, breach or result in a default
under, cause the time for performance of any obligation to be
accelerated under, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the assets of the Company
pursuant to the terms of any document filed as an exhibit to the
Registration Statement; (ii) violate the Certificate of
Incorporation or Bylaws of the Company or any of its subsidiaries;
(iii) breach or otherwise violate any existing obligation of the
Company or any of its subsidiaries under any court or administrative
order, judgment or decree of which such counsel have knowledge; or
(iv) violate applicable provisions of the General Corporation Law of
the State of Delaware or any statute or regulation of the State of
California or of the United States known to such counsel to be
applicable to the Company (other than federal or state securities
laws, which are specifically addressed elsewhere herein). To the
best of such counsel's knowledge, no consent, approval,
authorization or order of or any filing with, any court or
governmental agency or body is required for the consummation of the
issuance and sale of the Shares by the Company pursuant to the
Agreement, except such as have been obtained under the Act an the
Regulations and such as may be required under state securities or
Blue Sky laws (as to which we express no opinion) or by the bylaws
and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares.
(vii) The Company is not, and upon consummation of the
transactions contemplated hereby and the application of the net
proceeds
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of the offering of the Shares as described in the Prospectus will
not be, subject to registration as an "investment company" or an
entity "controlled" by an "investment company" under the Investment
Company Act of 1940, as amended.
(viii) The Registration Statement and the Prospectus
comply as to form in all material respects with the requirements for
registration statements on Form S-1 under the Act and the
Regulations; it being understood, however, that such counsel need
not express any opinion with respect to the financial statements,
schedules another financial and statistical data derived therefrom
and included in, or omitted from, the Registration Statement or the
Prospectus. In passing upon the compliance as to form of the
Registration Statement and the Prospectus, such counsel may assume
that the statements made therein are correct and complete.
(ix) The Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued under the Act and no proceedings therefor have been
initiated or threatened by the Commission; and any required filing
of the Prospectus pursuant to Rule 424(b) under the Act has been
made in accordance with rule 424(b) and 430A under the Act.
(x) Except as described in the Registration Statement or
the Prospectus to the best of such counsel's knowledge, there is no
commitment or arrangement to issue, and there are no outstanding
options, warrants or other rights calling for the issuance of, any
shares of capital stock of the Company or any security or other
instrument that by its terms is convertible into, exercisable for,
or exchangeable for capital stock of the Company or any of its
subsidiaries. The outstanding
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<PAGE> 29
stock options relating to the Common Stock have been duly
authorized.
(xi) The statements set forth in the Registration
Statement and the Prospectus under the captions "Shares Eligible for
Future Sale"; "Description of Capital Stock"; "Business - Licensing
and Co-Promotion Agreements"; "Management - Long-Term Incentive
Plan"; and in Item 15 of Part II of the Registration Statement
insofar as such statements constitute a summary of legal matters,
documents or proceedings, are accurate in all material respects.
(xii) The form of certificate used to evidence the
Shares is in due and proper form and complies with all statutory
requirements under the laws of the State of Delaware.
(xiii) To the best of such counsel's knowledge, there
are no contracts or other documents required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
thereto other than those described or filed as required.
(xvi) To the best of such counsel's knowledge, all
holders of securities of the Company having rights to the
registration of shares of Common Stock because of the filing of the
Registration Statement by the Company have waived such rights or
such rights have expired
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by the reason of lapse of time following notification of the
Company's intent to file the Registration Statement.
In rendering such opinion, Latham & Watkins may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinions, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters'
Counsel, familiar with the applicable laws; (B) as to facts material to the
opinions, statements and assumptions expressed in their opinion, to the extent
they deem proper, on written statements and representations of officers and
other representatives of the Company and others and upon such certificates and
assurances from public officials as they deem necessary, provided that copies of
any such statements or certificates shall be delivered to and deemed acceptable
by Underwriters' Counsel. The opinions of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying thereon.
(c) At the Closing Date you shall have received the opinion of Fox,
Bennett & Turner, special regulatory counsel for the Company, dated the Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required and such other matters as are customary and appropriate.
In addition, the opinions of each of Latham & Watkins and Fox, Bennett
& Turner set forth in (b) and (c) above shall also contain a statement that, as
applicable, such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives, at which the contents of
the Registration Statement and the Prospectus and related matters were discussed
and, although such counsel is not passing upon, and does not assume any
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<PAGE> 31
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus and has not made any
independent check or verification thereof during the course of such
participation, no facts came to such counsel's attention that caused them to
believe that the Registration Statement, at the time it became effective and as
of the date hereof contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date and as
of the date hereof contained or contains an untrue statement of a material fact
or omitted or omits to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; it being understood that such counsel need not express any belief
with respect to the financial statements, schedules and other financial and
statistical data derived therefrom included in, or omitted from, the
Registration Statement or the Prospectus.
(d) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and the Underwriters
shall have received from said Underwriters' Counsel and from the Underwriters'
regulatory counsel, Hyman, Phelps & McNamara, P.C., a favorable opinion, dated
as of the Closing Date in customary form and covering such matters as you may
reasonably request, and the Company shall have furnished to Underwriters'
Counsel such documents as they request for the purpose of enabling them to pass
upon such matters. In giving such opinion Underwriters' Counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of California, the Federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Underwriters' Counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and its
subsidiaries and certificates of public officials.
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<PAGE> 32
(e) At the Closing Date you shall have received a certificate of
each of the Chief Executive Officer and Chief Financial Officer of the Company,
dated the Closing Date to the effect that (i) the conditions set forth in
subsection (a) of this Section 6 have been satisfied, (ii) as of the date hereof
and as of the Closing Date, the representations and warranties of the Company
set forth in Section 1 hereof are accurate, (iii) as of the Closing Date, the
obligations of the Company to be performed hereunder on or prior thereto have
been duly performed, and (iv) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and there has
not been any material adverse change, or any development involving a material
adverse change, in the business prospects, properties, operations, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries taken as a whole, except in each case as described in or
contemplated by the Prospectus.
(f) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter from Ernst & Young LLP, independent public
accountants for the Company and MenoMorphosis LLC, dated, respectively, as of
the date of this Agreement and as of the Closing Date addressed to the
Underwriters and in form and substance satisfactory to you, stating that, among
other things: (i) they are independent certified public accountants with respect
to the Company within the meaning of the Act and the Regulations and stating
that the information provided in response to Item 10 of the Registration
Statement is correct insofar as it relates to them; (ii) in their opinion, the
financial statements and schedules of the Company and MenoMorphosis LLC included
in the Registration Statement and the Prospectus and covered by their opinion
therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim consolidated
financial
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<PAGE> 33
statements of the Company and its subsidiaries, a reading of the minutes of
meetings and consents of the stockholders and boards of directors of the Company
and its subsidiaries and the committees of such boards subsequent to December
31, 1998, inquiries of officers and other employees of the Company and its
subsidiaries who have responsibility for financial and accounting matters of the
Company and its subsidiaries with respect to transactions and events subsequent
to December 31, 1998, a review of interim financial information in accordance
with the standards established by the American Institute of Certified Public
Accountants in Statement of Auditing Standards No. 71, Interim Financial
Information with respect to the three-month period ended March 31, 1999 and
other specified procedures and inquiries to a date not more than five days prior
to the date of such letter, nothing has come to their attention that would cause
them to believe that: (A) the unaudited consolidated financial statements of the
Company presented in the Registration Statement and the Prospectus do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and, if applicable, the Exchange Act and the applicable published
rules and regulations of the Commission thereunder or that such unaudited
consolidated financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements included
in the Registration Statement and the Prospectus; (B) with respect to the period
subsequent to March 31, 1999, there were, as of the date of the most recently
available monthly consolidated financial statements of the Company and its
subsidiaries, if any, and as of a specified date not more than five days prior
to the date of such letter, any changes in the capital stock or long-term
indebtedness of the Company or any decrease in the net current assets or
stockholders' equity of the Company, in each case as compared with the amounts
shown in the most recent balance sheet presented in the Registration Statement
and the Prospectus, except for changes or decreases which the Registration
Statement and the Prospectus disclose have occurred or may occur or which are
set forth in such letter or (C) during the period from April 1, 1999 to the date
of the most recent available monthly consolidated financial statements of the
Company and its subsidiaries, if any, and to a
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<PAGE> 34
specified date not more than five days prior to the date of such letter, there
was any decrease, as compared with the corresponding period in the prior fiscal
year, in total revenues, or increase in total net losses, except for decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur or which are set forth in such letter; and (iv) they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company and its subsidiaries or
from schedules furnished by the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by you set forth in such letter, and found them to be in agreement.
(g) Prior to the Closing Date, the Company shall have furnished to
you such further information, certificates and documents as you or Underwriters'
Counsel may reasonably request.
(h) At the Closing Date, the Shares shall have been approved for
quotation and trading on the Nasdaq National Market, subject to official notice
of issuance.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 shall not be in all material respects
satisfactory in form and substance to you and to Underwriters' Counsel, all
obligations of the Underwriters hereunder may be canceled by you at, or at any
time prior to, the Closing Date, and the obligations of the Underwriters to
purchase the Additional Shares may be canceled by you at, or at any time prior
to, the Additional Closing Date. Notice of such cancellation shall be given to
the Company in writing, or by
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<PAGE> 35
telephone, facsimile, telex or telegraph, confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim or inquiry whatsoever, and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or any
of them may become subject under the Act, the Exchange Act, the common law,
state law or otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of, relate to or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, or arise out
of, relate to or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus or in any supplement thereto or amendment thereof or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case to the extent but only to the extent that (A) any such loss,
liability, claim, damage or expense arises out of, relates to or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company relating to any Underwriter through you
expressly for use therein, or (B) if the Company sustains the burden of proving
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in any preliminary prospectus
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<PAGE> 36
(which untrue statement or alleged untrue statement or omission or alleged
omission was corrected in the Prospectus or in any supplement thereto or
amendment thereof), to the extent that (i) the Company previously furnished
copies of the Prospectus and any supplements thereto or amendments thereof on a
timely basis to the Underwriters, and (ii) a prospectus relating to such Shares
was required to be delivered by the Underwriters to the purchaser of such Shares
under the Act, and any such loss, liability, claim, damage or expense resulted
from the fact that there was not sent or given to the purchaser in question, at
or prior to the written confirmation of the sale of such Shares to such person,
a copy of the Prospectus and any supplements thereto or amendments thereof. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act, the common law, state law or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of, relate to or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus or in any supplement thereto or
amendment thereof or the omission or alleged omission to state therein a
material fact necessary in order to make the
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<PAGE> 37
statements therein, in light of the circumstances under which they were made,
not misleading; in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of, relates to or is
based upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company relating to any Underwriter through you
expressly for use therein; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company
acknowledges that the last paragraph on the cover page of the Prospectus and the
statements set forth in the fourth, fifth, seventh, ninth and eleventh
paragraphs and the third sentence of the tenth paragraph under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the Registration
Statement or in any amendment thereof, any related preliminary prospectus or the
Prospectus or in any amendment thereof or supplement thereto, as the case may
be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement of such action
(but the failure so to notify an indemnifying party shall not relieve it from
any liability which it may have under this Section 7). In case any such action
is brought against any indemnified party, and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own
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<PAGE> 38
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties;
provided that, unless the indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or in addition to those available to one or all of the other indemnified
parties, the indemnifying party shall not, in respect of the legal expenses of
any indemnified party in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all such indemnified
parties and all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Allen & Company Incorporated, in the
case of parties indemnified pursuant to Section 7(a), and by the Company, in the
case of parties indemnified pursuant to Section 7(b). Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
8. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including
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<PAGE> 39
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company, any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares or,
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and (y) the underwriting discounts and commissions
received by the Underwriters, respectively, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company and
of the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter be liable or
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<PAGE> 40
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 8. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties,
notify each party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection
40
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(b) below) exceed in the aggregate 10% of the number of Firm Shares or
Additional Shares, as the case may be, the Firm Shares or Additional Shares to
which the default relates shall be purchased by the non-defaulting Underwriters
in proportion to the respective proportions which the numbers of Firm Shares set
forth opposite their respective names in Schedule I hereto bear to the aggregate
number of Firm Shares set forth opposite the names of the non-defaulting
Underwriters.
(b) In the event that such default relates to more than 10% of the
total number of Firm Shares or Additional Shares, as the case may be, you may in
your discretion arrange for yourself or for another party or parties (including
any non-defaulting Underwriter or Underwriters who so agree) to purchase such
Firm Shares or Additional Shares, as the case may be, to which such default
relates on the terms contained herein. In the event that within 5 calendar days
after such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company(except in each case as provided in Section
5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability, if
any, to the other Underwriters and the Company for damages occasioned by its or
their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
such default relates are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date, as
the case may be, for a period not exceeding five Business Days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters'
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<PAGE> 42
Counsel, may thereby be made necessary or advisable. The term "Underwriter" as
used in this Agreement shall include any party substituted under this Section 9
with like effect as if it had originally been a party to this Agreement with
respect to such Firm Shares and Additional Shares, as the case may be.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5
hereof, the indemnity agreements contained in Section 7 hereof and the
contribution agreements contained in Section 8 hereof, and in certificates of
officers of the Company provided pursuant hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person thereof or by or on behalf of the
Company or any of its officers and directors or any controlling person thereof
and shall survive delivery of and payment for the Shares to and by the
Underwriters. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8, 10 and 11(d) hereof shall survive the termination
of this Agreement, including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon the later of (i)
such time as you and the Company shall have received notification of the
effectiveness of the Registration Statement and (ii) the execution of this
Agreement. Until this Agreement becomes effective as aforesaid, it may be
terminated by the Company by notifying you or by you notifying the Company.
Notwithstanding the foregoing, the provisions of this Section 11 and of Sections
1, 5, 7, 8 and 10 hereof shall at all times be in full force and effect.
(b) You shall have the right to terminate this Agreement at any
time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be (i) if any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
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future materially disrupt, the market for the Company's securities or securities
in general; (ii) if trading on the New York or American Stock Exchanges or the
Nasdaq National Market (collectively the "Exchanges") shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required, on any of the
Exchanges by the authorities of such Exchanges or by order of the Commission or
any other governmental authority having jurisdiction; or (iii) if a banking
moratorium has been declared by a state or federal authority or if any new
restriction materially adversely affecting the distribution of the Firm Shares
or the Additional Shares, as the case may be, shall have become effective; or
(iv)(A) if the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a declaration
of a national emergency or war by the United States or (B) if there shall have
been such change in political, financial or economic conditions, if the effect
of any such event in (A) or (B) as in your judgment makes it impracticable or
inadvisable to proceed with the offering, sale and delivery of the Firm Shares
or the Additional Shares, as the case may be, on the terms contemplated by the
Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be
by telephone, facsimile, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein,
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shall be in writing and, if sent to any Underwriter, shall be mailed, delivered,
sent by facsimile, telex or telegraph and confirmed in writing by letter, to
such Underwriter c/o Allen & Company Incorporated, 711 Fifth Avenue, New York,
NY 10022, Attention: John Simon, fax no. (212) 339-2295, with a copy to Gregory
C. Smith, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Avenue,
Suite 220, Palo Alto, California, 94301, fax no. (650) 470-4570; if sent to the
Company shall be mailed, delivered, or sent by facsimile, telex or telegraph and
confirmed in a letter to the Company, Women First HealthCare, Inc., 12220 El
Camino Real, Suite 400, San Diego, CA 92130, Attention: David F. Hale, fax no.
(619)509-3888, with a copy to Scott N. Wolfe, Esq., Latham & Watkins, 701 "B"
Street, Suite 2100, San Diego, California, 92101, fax no. (619) 696-7419.
13. Parties. This Agreement shall insure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision contained herein.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
15. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an orig inal and all of which together shall constitute one
and the same instrument.
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
44
<PAGE> 45
Very truly yours,
WOMEN FIRST HEALTHCARE, INC.
By:
-------------------------------
Name:
Title:
Accepted as of the date first above written
ALLEN & COMPANY INCORPORATED
NEEDHAM & COMPANY, INC.
By: ALLEN & COMPANY INCORPORATED
By:
-------------------------------
Name:
Title:
On behalf of themselves and the other Underwriters named in Schedule I hereto.
45
<PAGE> 46
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Name of Underwriter Shares to be Purchased
- -------------------------------------------------------------------------
<S> <C>
Allen & Company Incorporated.......
Needham & Company, Inc.............
Total.......... __________
</TABLE>
46
<PAGE> 1
EXHIBIT 3.4
SECOND AMENDED AND RESTATED
BY-LAWS
OF
WOMEN FIRST HEALTHCARE, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. OFFICES...........................................................................1
Section 1. Registered Offices..............................................................1
Section 2. Other Offices...................................................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS........................................................1
Section 1. Place of Meetings...............................................................1
Section 2. Annual Meeting of Stockholders..................................................1
Section 3. Quorum and Adjournment Meetings.................................................1
Section 4. Voting..........................................................................2
Section 5. Proxies.........................................................................2
Section 6. Special Meetings................................................................2
Section 7. Notice of Stockholder Meetings..................................................2
Section 8. Notice of Stockholder Business and Nominations..................................3
Section 9. Maintenance and Inspection of Stockholder List..................................3
ARTICLE III. DIRECTORS.......................................................................4
Section 1. Number of Directors.............................................................4
Section 2. Vacancies.......................................................................4
Section 3. Powers..........................................................................4
Section 4. Place of Directors' Meetings....................................................5
Section 5. Regular Meetings................................................................5
Section 6. Special Meetings................................................................5
Section 7. Quorum..........................................................................5
Section 8. Action Without Meeting..........................................................5
Section 9. Telephonic Meetings.............................................................6
Section 10. Committees of Directors........................................................6
Section 11. Minutes of Committee Meetings..................................................6
Section 12. Cooperation of Directors.......................................................6
ARTICLE IV. OFFICERS........................................................................7
Section 1. Officers........................................................................7
Section 2. Election of Officers............................................................7
Section 3. Subordinate Officers............................................................7
Section 4. Compensation of Officers........................................................7
Section 5. Term of Office; Removal and Vacancies...........................................7
Section 6. Chairman of the Board...........................................................7
Section 7. President.......................................................................8
Section 8. Vice Presidents.................................................................8
Section 9. Secretary.......................................................................8
Section 10. Assistant Secretary............................................................8
Section 11. Treasurer......................................................................9
Section 12. Assistant Treasurer............................................................9
ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................................9
ARTICLE VI. CERTIFICATES OF STOCK..........................................................11
Section 1. Certificates...................................................................11
Section 2. Signatures on Certificates.....................................................12
Section 3. Statement of Stock Rights, Preferences, Privileges.............................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4. Lost Certificates............................................................12
Section 5. Transfers of Stock...........................................................12
Section 6. Fixing Record Date...........................................................12
Section 7. Registered Stockholder.......................................................13
ARTICLE VII. GENERAL PROVISIONS............................................................13
Section 1. Dividends....................................................................13
Section 2. Payment of Dividends; Directors' Duties......................................13
Section 3. Checks.......................................................................13
Section 4. Fiscal Year..................................................................13
Section 5. Corporate Seal...............................................................14
Section 6. Manner of Giving Notice......................................................14
Section 7. Waiver of Notice.............................................................14
ARTICLE VIII. AMENDMENTS...................................................................14
Section 1. Amendment by Directors or Stockholders.......................................14
</TABLE>
ii
<PAGE> 4
SECOND AMENDED AND RESTATED BY-LAWS
OF
WOMEN FIRST HEALTHCARE, INC.
ARTICLE I.
OFFICES
Section 1. Registered Offices. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within or outside the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meeting of Stockholders. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
Section 3. Quorum and Adjourned Meetings. A majority of the stock issued
and outstanding and entitled to vote at any meeting of stockholders, the holders
of which are present in person or represented by proxy, shall constitute a
quorum for the transaction of business except as otherwise provided by law, by
the Certificate of Incorporation, or by these Bylaws. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave less
than a quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, a majority of the voting stock represented in
person or by proxy may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such meeting.
Section 4. Voting. When a quorum is present at any meeting, in all
matters other than the election of directors, the vote of the holders of a
majority of the stock having voting
<PAGE> 5
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Certificate of Incorporation, or these Bylaws, or any rule,
regulation or statutory provision applicable to the corporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors.
Section 5. Proxies. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him or her by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless said instrument provides for a longer
period. All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Each stockholder shall have one vote for each share of stock having voting
power, registered in his or her name on the books of the corporation on the
record date set by the Board of Directors as provided in Article V, Section 6
hereof.
Section 6. Special Meetings. Special meetings of the stockholders, for
any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board or the
President and shall be called by the President or the Secretary at the request
in writing of a majority of the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 7. Notice of Stockholder Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 8. Notice of Stockholder Business and Nominations.
(a) Nominations of persons for election to the Board of Directors
of the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(b) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(a) of this Bylaw, the stockholder
2
<PAGE> 6
must have given timely notice thereof in writing to the Secretary of the
corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the corporation not later
than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is not within 30 days before or after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which notice of the meeting was mailed or
public announcement of the date of such meeting is first made by the
corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14A-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (A)
the name and address of such stockholder, as they appear on the corporation's
books, and of such beneficial owner and (B) the class and number of shares of
the corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
Section 9. Maintenance and Inspection of Stockholder List. The officer
who has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
3
<PAGE> 7
ARTICLE III.
DIRECTORS
Section 1. Number of Directors. The number of directors which shall
constitute the whole Board shall be not less than three (3) nor more than
fifteen (15); the exact number of directors to be determined from time to time
solely by resolution adopted by the affirmative vote of a majority of the
directors. The directors need not be stockholders. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his or her
successor is elected and qualified; provided, however, that unless otherwise
restricted by the Certificate of Incorporation or Bylaws, any director or the
entire Board of Directors may be removed, either with or without cause, from the
Board of Directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote at such meeting.
Section 2. Vacancies. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled (other than directors elected by
one or more series of Preferred Stock) solely by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Each director so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. Powers. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 4. Place of Directors' Meetings. The directors may hold their
meetings and have one or more offices, and keep the books of the corporation
outside of the State of Delaware.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on forty-eight
hours' notice to each
4
<PAGE> 8
director, either personally or by mail, telecopier, or other means of electronic
transmission at the address of such director on the books and records of the
corporation; special meetings shall be called by the Chairman or the Secretary
in like manner and on like notice on the written request of two directors unless
the Board consists of only one director, in which case special meetings shall be
called by the Chairman or Secretary in like manner or on like notice on the
written request of the sole director.
Section 7. Quorum. At all meetings of the Board of Directors a majority
of the then authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present at such meeting may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
If only one director is authorized, such sole director shall constitute a
quorum.
Section 8. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 9. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
Section 10. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets,
5
<PAGE> 9
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 11. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 12. Cooperation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
ARTICLE IV.
OFFICERS
Section 1. Officers. The officers of this corporation shall be chosen by
the Board of Directors and shall include a President, a Secretary, and a
Treasurer. The corporation may also have at the discretion of the Board of
Directors such other officers as are desired, including a Chairman of the Board,
one or more Vice Presidents, one or more Assistant Secretaries and Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 hereof. In the event there are two or more Vice
Presidents, then one or more may be designated as Executive Vice President,
Senior Vice President, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of
their rank. Any number of offices may be held by the same person unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. Election of Officers. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers of
the corporation.
Section 3. Subordinate Officers. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. Compensation of Officers. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors.
Section 5. Term of Office; Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the
6
<PAGE> 10
affirmative vote of a majority of the Board of Directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
Section 6. Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the Board of Directors or prescribed by
these Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article IV.
Section 7. President. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He or she shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He or she shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of the President and Chief Executive Officer of
corporations, and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
Section 8. Vice Presidents. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
Section 9. Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He or she shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or these Bylaws. He or she
shall keep in safe custody the seal of the corporation, and when authorized by
the Board, affix the same to any instrument requiring it, and when so affixed it
shall be attested by his or her signature or by the signature of an Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature.
Section 10. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary
7
<PAGE> 11
and shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 11. Treasurer. The Treasurer shall be the Chief Financial
Officer of the corporation and shall, subject to the control of the Board of
Directors, have the custody of the corporate funds and securities and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the corporation and shall deposit all moneys, and other valuable effects in the
name and to the credit of the corporation, in such depositories as may be
designated by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of all
his or her transactions as Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, he or she shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his or her office and for the restoration to the corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the corporation.
Section 12. Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to
8
<PAGE> 12
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
(b) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by
a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal, administrative
or investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he or she is
entitled to be indemnified by the corporation as authorized in this Article V.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification provided by this Article V shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of
9
<PAGE> 13
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of this
Article V.
(h) For the purposes of this Article V, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
ARTICLE VI.
CERTIFICATES OF STOCK
Section 1. Certificates. Every holder of stock of the corporation shall
be entitled to have a certificate signed by, or in the name of the corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer of the corporation, certifying the number of
shares represented by the certificate owned by such stockholder in the
corporation.
10
<PAGE> 14
Section 2. Signatures on Certificates. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he or she were such officer, transfer agent, or registrar at
the date of issue.
Section 3. Statement of Stock Rights, Preferences, Privileges. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfers of Stock. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of
11
<PAGE> 15
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 7. Registered Stockholder. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Payment of Dividends; Directors' Duties. Before payment of
any dividend there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
Section 3. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. Manner of Giving Notice. Whenever, under the provisions of
the statutes or of the Certificate of Incorporation or of these Bylaws, or any
rule, regulation or statutory provision applicable to the corporation, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given (unless otherwise
provided) in writing, by mail, addressed to such director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United
12
<PAGE> 16
States mail. Notice to directors may also be given by telecopier or other means
of electronic transmission at the address of such director on the books and
records of the corporation.
Section 7. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, or any rule, regulation or statutory provision applicable to
the corporation, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed to be equivalent thereto.
ARTICLE VIII.
AMENDMENTS
Section 1. Amendment by Directors or Stockholders. These Bylaws may be
altered, amended or repealed or new Bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, or by the affirmative vote of not less than 66
2/3% of the total voting power of all outstanding securities of the Corporation
then entitled to vote generally in the election of directors, voting together as
a single class, at any regular meeting of the stockholders or the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
13
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
_______________ ______________
INCORPORATED UNDER THE SEE REVERSE FOR CERTAIN
LAWS OF DELAWARE DEFINITIONS AND RESTRICTIONS
[LOGO]
THIS CERTIFICATE IS TRANSFERABLE IN THE
CITY OF BOSTON, MA OR NEW YORK, NY CUSIP 978150 10 0
THIS CERTIFIES THAT:
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
------------ WOMEN FIRST HEALTHCARE, INC. ------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ DEBRA P. CRAWFORD /s/ DAVID F. HALE
- ---------------------- -------------------------
VICE PRESIDENT AND [CORPORATE SEAL] PRESIDENT AND
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
BANKBOSTON, N.A. TRANSFER AGENT
AND REGISTRAR
/s/ [SIGNATURE ILLEGIBLE]
-------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
WOMEN FIRST HEALTHCARE, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with
right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT-______________________CUSTODIAN_________________________
(CUST) (MINOR)
under Uniform Gifts to Minors
Act __________________________
(STATE)
Additional abbreviations may also be used though not in the above [illegible].
FOR VALUE RECEIVED,______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ____________________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED:_________________ X _____________________________________________________
X _____________________________________________________
NOTICE: THE SIGNATURE(S) TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE. IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED: __________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
June 24, 1999
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Re: Registration Statement on Form S-1, File No. 333-74367;
5,175,000 Shares of Common Stock, Par Value $.001 Per Share
Ladies and Gentlemen:
In connection with the registration by Women First HealthCare,
Inc., a Delaware corporation (the "Company"), of 5,175,000 shares of common
stock of the Company, par value $.001 per share (the "Shares"), under the
Securities Act of 1933, as amended (the "Act"), on a Registration Statement on
Form S-1 filed with the Securities and Exchange Commission (the "Commission") on
March 12, 1999 (File No. 333-74367), as amended by Amendment No. 1 filed with
the Commission on May 24, 1999, Amendment No. 2 filed with the Commission on
June 2, 1999, Amendment No. 3 filed with the Commission on June 7, 1999 and
Amendment No. 4 filed with the Commission on June 24, 1999 (collectively, the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Shares, and for the purposes of this opinion, have assumed such proceedings
will be timely completed in the manner presently proposed. In addition, we have
made such legal and factual examinations and inquiries, including an examination
of originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
<PAGE> 2
Women First HealthCare, Inc.
June 24, 1999
Page 2
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, including
statutory and reported decisional law thereunder, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of any other laws.
Subject to the foregoing, it is our opinion that the Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
[*] Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.13
CO-PROMOTION AGREEMENT
BETWEEN
WOMEN FIRST HEALTHCARE
AND
ORTHO-MCNEIL PHARMACEUTICAL, INC.
<PAGE> 2
TABLE OF CONTENTS
CO-PROMOTION AGREEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1-DEFINITIONS .............................................................
1.1 "AFFILIATE".............................................................2
1.2 "COMBINATION HRT MARKET"................................................3
13 "CONFIDENTIAL INFORMATION" ............................................3
1.4 "CONTRACEPTIVE PRODUCT".................................................3
1.5 "CONTROLLED"............................................................3
1.6 "CO-PROMOTE", "CO-PROMOTION" .......................................3
1.7 "DETAIL (OR "DETAILS" AND "DETAILING")..................................3
1.8 "EFFECTIVE DATE" .......................................................3
1.9 "EXECUTIVE COMMITTEE" ................................................4
1.10 "EXTENDED TERM" .......................................................4
1.11 "FDA" .................................................................4
1.12 "HRT HIGH PRESCRIBERS"..................................................4
1.13 "HRT PRODUCT" ........................................................4
1.14 "INDEMNIFIABLE CLAIM" .................................................4
1.15 "INFORMATION" .........................................................4
1.16 "INITIAL [*] PHYSICIANS"................................................5
1.17 "INITIAL TERM" .........................................................5
1.18 "JOINT MARKETING COMMITTEE" OR "JMC"....................................5
1.19 "LAUNCH DATE" .........................................................5
1.20 "MARKETING PLAN"........................................................5
1.21 "NATIONAL HOME DELIVERY PHARMACY BUSINESS"..............................6
1.22 "NET SALES".............................................................6
1.23 "NET SALES PRICE".......................................................6
1.24 "NEW PHYSICIANS"........................................................6
1.25 "ORAL CONTRACEPTIVES"...................................................7
1.26 [*].....................................................................7
1.27 "ORTHO'S ORAL CONTRACEPTIVES"...........................................7
1.28 "[*]"...................................................................7
1.29 "ORTHO SALES FORCE".....................................................7
1.30 "ORTHO-TRI-CYCLEN"......................................................7
1.31 "[*] LAUNCH YEAR".......................................................7
1.32 "PRESCRIBING PHYSICIANS"................................................7
1.33 "[*]"...................................................................7
1.34 "PRIMARY PRESENTATION"..................................................8
1.35 "PRODUCTS"..............................................................8
1.36 "SALES MESSAGE".........................................................8
1.37 "TERM"..................................................................8
1.38 "TERRITORY".............................................................8
1.39 "TOTAL ORAL CONTRACEPTIVE MARKET".......................................8
1.40 "TOTAL WFHC [*] PRESCRIPTIONS"..........................................8
1.41 "TRADEMARKS" .........................................................8
1.42 "WFHC CALLED ON PHYSICIANS".............................................8
1.43 "WFHC SALES FORCE"......................................................9
</TABLE>
[*] Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 2-GRANTS AND RESTRICTIONS .....................................................
2.1 GRANT...................................................................9
2.2 RETAINED RIGHTS.........................................................9
2.3 NON-COMPETITION.........................................................9
ARTICLE 3-STRATEGY/COORDINATION OF ACTIVITIES
3.1 STRATEGY...............................................................11
3.2 COMMITTEES.............................................................12
3.3 JOINT MARKETING COMMITTEE..............................................12
3.4 EXECUTIVE COMMITTEE....................................................13
ARTICLE 4-PROMOTION AND DETAILING
4.1 CO-PROMOTION...........................................................15
4.2 CO-PROMOTION PRODUCTS..................................................15
4.3 WFHC's DETAILS.........................................................15
4.4 EXPANSION OF CO-PROMOTION SALES FORCE..................................17
4.5 EXPANSION OF SALE FORCE OUTSIDE OF CO-PROMOTION........................17
4.6 SALES FORCE............................................................17
4.7 DETAILS IN EXTENDED TERM...............................................18
4.8 DETAIL REPORTS.........................................................18
4.9 CO-PROMOTION AUDIT OF PERFORMANCE......................................18
4.10 EDUCATION PROGRAM......................................................19
ARTICLE 5-ROLES AND OBLIGATIONS OF THE PARTIES REGARDING
THE PRODUCT
5.1 ORTHO's ROLES AND OBLIGATIONS..........................................20
5.2 WFHC's ROLES AND OBLIGATIONS...........................................22
ARTICLE 6-COMPENSATION
6.1 [*] COMPENSATION 2000..................................................24
6.2 [*] COMPENSATION AFTER 2000............................................25
6.3 FORECASTED MONTHLY PAYMENTS............................................26
6.4 COMPENSATION FOR ORTHO TRI-CYCLEN/[*]..................................27
6.5 QUARTERLY PAYMENTS.....................................................32
6.6 MINIMUM PAYMENTS.......................................................33
6.7 PENALTIES..............................................................34
6.8 ORTHO-EST DISTRIBUTION AGREEMENT.......................................35
</TABLE>
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 7-ACCOUNTING REPORTS
7.1 QUARTERLY REPORTS......................................................35
7.2 AUDIT..................................................................35
7.3 OBJECTIONS.............................................................36
7.4 OVERDUE PAYMENT........................................................36
ARTICLE 8-SAMPLING PROGRAM
8.1 SAMPLES................................................................36
8.2 COMPLIANCE WITH LAW....................................................36
ARTICLE 9-REPRESENTATION, WARRANTIES AND COVENANTS
9.1 FDA APPROVAL...........................................................37
9.2 LABELING...............................................................37
9.3 MANUFACTURE............................................................37
9.4 YEAR 2000..............................................................37
9.5 WFHC SALES FORCE.......................................................38
ARTICLE 10-INDEMNIFICATION
10.1 ORTHO AND WFHC.........................................................38
10.2 ORTHO..................................................................38
10.3 PROCEDURE..............................................................39
10.4 INSURANCE..............................................................40
ARTICLE 11-CONFIDENTIALITY
11.1 CONFIDENTIAL INFORMATION...............................................41
11.2 SURVIVAL...............................................................42
11.3 PRIOR NOTICE...........................................................42
ARTICLE 12-TRADEDRESS AND PACKAGING
12.1 TRADEMARK..............................................................43
ARTICLE 13-TERM-TERMINATION
13.1 INITIAL TERM...........................................................43
13.2 EXTENDED TERM..........................................................43
13.3 PERFORMANCE GOALS WFHC ACHIEVES........................................43
13.4 OPTION TO TERMINATE....................................................43
13.5 TERMINATION FOR EVENT OF DEFAULT.......................................45
13.6 EFFECT OF TERMINATION..................................................47
ARTICLE 14-INTELLECTUAL PROPERTY RIGHTS
14.1 RIGHTS.................................................................47
14.2 INFRINGEMENT...........................................................48
</TABLE>
iii.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 15-DISPUTE RESOLUTION
15.1 INITIAL RESOLUTION.....................................................48
15.2 ARBITRATION............................................................48
ARTICLE 16-MISCELLANEOUS
16.1 INDEPENDENT CONTRACTOR.................................................49
16.2 NOTICE.................................................................49
16.3 FORCE MAJEURE..........................................................51
16.4 ASSIGNMENT.............................................................51
16.5 MODIFICATION...........................................................52
16.6 WAIVERS................................................................52
16.7 GOVERNING LAW..........................................................52
16.8 PUBLIC DISCLOSURE......................................................52
16.9 SOLICITATION...........................................................53
16.10 PERFORMANCE BY AFFILIATES..............................................53
16.11 ENTIRE AGREEMENT.......................................................53
16.12 LIMITATION OF LIABILITY................................................53
16.13 BINDING AGREEMENT......................................................54
16.14 SEVERABILITY...........................................................54
16.15 CAPTIONS...............................................................54
16.16 SURVIVAL...............................................................54
16.17 COUNTERPARTS...........................................................55
16.18 REMEDIES NOT EXCLUSIVE.................................................55
</TABLE>
APPENDIX A- ARBITRATION PROCEEDINGS
APPENDIX B EDUCATION PROGRAM
APPENDIX C SAMPLE CALCULATIONS
iv.
<PAGE> 6
CO-PROMOTION AGREEMENT
THIS CO-PROMOTION AGREEMENT (the "Agreement") is made as of May 27,
1999, by and between ORTHO-MCNEIL PHARMACEUTICAL, INC., a Delaware corporation
("ORTHO"), and WOMEN FIRST HEALTHCARE, INC., a Delaware corporation ("WFHC").
ORTHO and WFHC may be referred to herein individually as a "Party" and
collectively as the "Parties." Terms not otherwise defined herein shall have the
meanings set forth in Article 1.
RECITALS
WHEREAS, ORTHO has the exclusive right to develop, promote and market
[*], ORTHO TRI-CYCLEN(R), AND [*](hereinafter defined and collectively referred
to as the "Products") within the Territory (hereinafter defined);
WHEREAS, ORTHO has developed a strategy for the promotion and marketing
of ORTHO TRI-CYCLEN to all physician specialties and is developing a strategy
for the promotion and marketing of [*] and [*] as a replacement for ORTHO
TRI-CYCLEN;
WHEREAS, ORTHO believes that it may more efficiently and successfully
market and promote each of these Products in the Territory by jointly promoting
the Products in the Territory with another pharmaceutical marketer of women's
health care products;
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
1
<PAGE> 7
WHEREAS, WFHC has experience in promoting women's health care
pharmaceutical products to Prescribing Physicians (hereinafter defined) and the
financial, scientific and human resources available to Co-Promote (hereinafter
defined) and Detail (hereinafter defined) the Products to Prescribing
Physicians; and
WHEREAS, ORTHO and WFHC wish to cooperate in the Co-Promotion of the
Products to Prescribing Physicians in order to maximize the sales of the
Products.
NOW, THEREFORE, in consideration of the covenants and promises contained
in this Agreement, ORTHO and WFHC agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "AFFILIATE" means, with respect to a Party, a trust, business, joint
venture, partnership, corporation, association or any other entity that,
directly or indirectly, through one or more intermediaries, controls or is
controlled by, is owned by or under common ownership with a Party. For purposes
of this definition, the term "controls" (including its correlative meanings and
the terms "owned by" and "under common ownership with") means the direct or
indirect
2
<PAGE> 8
ownership of more than fifty percent (50%) of the outstanding voting securities
of a corporation or other entity or comparable equity interest in any other type
of entity.
1.2 "COMBINATION HRT MARKET" means all fixed dose combination HRT
Products (oral and patch) and all estrogen prescriptions written with
concomitant progestin therapy.
1.3 "CONFIDENTIAL INFORMATION" means any Information (whether in oral,
written, graphic or electronic form) that is not generally ascertainable from
public or published information and that is, by its nature, Information that
would give an entity in the business of the disclosing party a competitive
advantage over another such entity not in possession of such Information,
regardless of whether such Information was provided pursuant to this Agreement,
by request of the other Party, or in any other manner.
1.4 "CONTRACEPTIVE PRODUCT" means any prescription pharmaceutical
product useful in preventing conception in a human female.
1.5 "CONTROLLED" means, with respect to any Information, patent,
Trademark or other intellectual property right, ownership thereof or the ability
of a person to grant to another person access, an assignment, a license, or a
sublicense thereto without violating the rights of a third party.
1.6 "CO-PROMOTE", "CO-PROMOTION" mean the promotion of a Product through
ORTHO's and WFHC's respective sales forces in the Territory under a single
Trademark.
1.7 "DETAIL" (OR "DETAILS" AND "DETAILING") means, with respect to the
Products, the activity undertaken by a sales representative during a
face-to-face sales call on physicians or other health care professionals with
prescribing authority to provide information on the use, safety, effectiveness,
contraindications, side effects, warnings and other relevant characteristics of
the Product, in a fair and balanced manner consistent with the requirements of
the Food, Drug and Cosmetic Act, including, but not limited to, the regulations
of 21 CFR Part 202, and using, as necessary or desirable, labeling or
promotional materials, in an effort to increase physician
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<PAGE> 9
prescribing preferences of the Product, but excluding [*].
1.8 "EFFECTIVE DATE" means the date first written above.
1.9 "EXECUTIVE COMMITTEE" the president of ORTHO and a Vice President of
Sales and Marketing for ORTHO and Mr. David Hale (currently president of WFHC)
and Mr. Edward Calesa (currently chairman of WFHC), with the responsibilities as
described in Article 3.
1.10 "EXTENDED TERM" means the period beginning on January 1, 2003 and
ending December 31, 2003.
1.11 "FDA" means the United States Food and Drug Administration and any
successor agency thereto.
1.12 "HRT HIGH PRESCRIBERS" are those physicians in the top [*] deciles
of HRT high volume prescribers as determined by IMS data.
1.13 "HRT PRODUCT" means any prescription estrogen or estrogen and
progestin combination product useful as hormone replacement therapy in a human
female.
1.14 "INDEMNIFIABLE CLAIM" means any claim, suit, judgment, liability or
associated expense (including reasonable outside attorney fees) referred to in
Sections 10.1 and 10.2.
1.15 "INFORMATION" means all technical data, knowledge, reports,
financial data, trade secrets, consumer data, names and classes of customers,
research activities and plans, clinical studies, costs of production, prices,
marketing plans and strategies, inventions, disclosures, processes, systems,
methods, techniques, formulations, drawings, formulae, patents, patent
applications, trademarks, regulatory filings, materials, devices, and other
know-how presently owned by or developed by, or on behalf of, either party
during the Term which relates in whole
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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<PAGE> 10
or in part to (a) the Product and/or the preparation, marketing, Detail, sale or
use of the Product, or (b) the businesses of either of the Parties and/or their
Affiliates.
1.16 "INITIAL [*] PHYSICIANS" means those Prescribing Physicians
Detailed by WFHC during the first or partial calendar year following the Launch
Date of [*].
1.17 "INITIAL TERM" means the period beginning on the Effective Date
and, unless earlier terminated as provided herein, ending December 31, 2002.
1.18 "JOINT MARKETING COMMITTEE" OR "JMC" means the working group, as
described in Section 3.3, that is responsible for managing the day-to-day
administrative and operational activities related to the Co-Promotion of the
Products.
1.19 "LAUNCH DATE" means the date on which ORTHO and WFHC first begin to
Co-Promote a Product in commercial quantity for commercial sale to any
unaffiliated third party in the Territory.
1.20 "MARKETING PLAN" means the detailed plan prepared and reviewed by
the JMC (and approved by the Executive Committee) that describes the budget,
market assessment, critical issues relating to the promotion of the Products,
strategic drivers, operating strategies, tactics strategy and activity intended
to promote and support sales of the Product in the Territory to Prescribing
Physicians, including but not limited to reach and frequency of calls,
advertising, development and dissemination of literature and brochures,
exhibition materials, medical education, reprinting, promotional aids and
mailing, samples, clinical experience programs, post-marketing surveillance
studies, and major national and regional symposia. Each Product that is to be
Co-Promoted will have its own Marketing Plan.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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<PAGE> 11
1.21 "NATIONAL HOME DELIVERY PHARMACY BUSINESS" means a business, joint
venture, partnership, corporation, association or any other entity that
dispenses prescription drugs and non-prescription over-the-counter products
direct to purchasers and is owned by or an Affiliate of WFHC.
1.22 "NET SALES" shall mean, with respect to any Product, the amount
invoiced by ORTHO or its sublicensees for sales of Products to a third party in
the Territory, less estimates which will be adjusted to actual on a periodic
basis of: (i) discounts, including cash discounts, discounts to managed care or
similar organizations or government organizations, rebates paid, credit, accrued
or actually taken, including government rebates such as Medicaid chargebacks or
rebates, and retroactive price reductions or allowances actually allowed or
granted from the billed amount, and commercially reasonable and customary fees
paid to distributors (other than to a distributor that is an Affiliate of
ORTHO), (ii) credits or allowances actually granted upon claims, rejections or
returns of such sales of Products, including recalls, regardless of ORTHO
requesting such recalls and (iii) taxes, duties or other governmental charges
levied on or measured by the billing amount when included in billing, as
adjusted for rebates, charge-backs, and refunds
1.23 "NET SALES PRICE" has the various meanings recited in Sections
6.2-6.5, including but not limited to the values of N, O and the corrected
values determined at year end as recited in Sections 6.3 and 6.5 and in each
case is the Net Sales Price for Products sold.
1.24 "NEW PHYSICIANS" are those Prescribing Physicians Detailed by the
WFHC Sales Force pursuant to the Marketing Plan who were not previously Detailed
by the WFHC Sales Force during the first full or partial year in which it
Detailed [*] and prior to Sales Force expansion, if any, as permitted under
Section 4.4. For the purpose of this definition and the
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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<PAGE> 12
calculation in Section 6.2 in which it is used, a New Physician will always
remain a New Physician for the Term.
1.25 "ORAL CONTRACEPTIVES" means all prescription oral pharmaceutical
products useful in preventing conception in a human female.
1.26 "[*]" means ORTHO's [*] brand, in all dosage forms and package
configurations.
1.27 "ORTHO's ORAL CONTRACEPTIVES" means all the oral contraceptive
products sold by ORTHO or its contractors.
1.28 "[*]" means ORTHO's [*] brand, in all dosage forms and package
configurations.
1.29 "ORTHO SALES FORCE" means the sales force of ORTHO Detailing the
Products.
1.30 "ORTHO-TRI-CYCLEN" means ORTHO's ORTHO TRI-CYCLEN(R) brand in all
dosage forms and package configurations.
1.31 "[*] LAUNCH YEAR" is the year in time (365 days) beginning on
the date [*] is first launched for commercial sale.
1.32 "PRESCRIBING PHYSICIANS" means those physicians and nurse
practitioners in the field of women's health care, including, but not limited
to, OB/GYN physicians and primary care physicians with prescribing authority in
the Territory who appear on a target list to be determined as recited in Section
4.3.
1.33 [*]
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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1.34 "PRIMARY PRESENTATION" means a Detail during which a sales
representative delivers the Sales Message.
1.35 "PRODUCTS" means the products [*], ORTHO TRI-CYCLEN, and [*], or
any other ORTHO Oral Contraceptive Detailed in [*] by ORTHO, either individually
or collectively.
1.36 "SALES MESSAGE" means the sales presentation on a given Product in
which at least the core message providing the main features and benefits of the
Product is conveyed, which core message is the message that is agreed upon by
the JMC for each sales representative to use when making a sales presentation to
a Prescribing Physician.
1.37 "TERM" means the Initial Term and any Extended Term.
1.38 "TERRITORY" shall mean the United States of America, the District
of Columbia and Puerto Rico.
1.39 "TOTAL ORAL CONTRACEPTIVE MARKET" means the market which is
composed of all Oral Contraceptives which are prescribed by a physician or nurse
practitioner in the Territory.
1.40 "TOTAL WFHC [*] PRESCRIPTIONS" shall having the meaning recited
in Section 6.1.
1.41 "TRADEMARKS" shall mean all trademarks, trade names, brand names,
logos and designs, whether registered or not, used during the Term in connection
with the identification, promotion, marketing or sale of the Product.
1.42 "WFHC CALLED-ON PHYSICIANS" means those Initial [*] Physicians
and nurse practitioners identified in the WFHC called-on list by name and
Medical Education Number (ME number) to be Detailed by WFHC.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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1.43 "WFHC SALES FORCE" means the sales force of WFHC Detailing the
Products.
ARTICLE 2
GRANTS AND RESTRICTIONS
2.1 GRANT. Subject to the terms and conditions of this Agreement,
including but not limited to the rights reserved to ORTHO herein, ORTHO grants
to WFHC the right to Co-Promote and Detail the Products in the Territory to
Prescribing Physicians.
2.2 RETAINED RIGHTS.
(a) In addition to those rights that ORTHO retains under Section
4.1 and 4.2 with respect to Co-Promoting and Detailing the Products to
Prescribing Physicians, ORTHO retains all rights to the Products not expressly
granted herein.
(b) Except as specifically provided herein, nothing in this
Agreement shall be construed or implied as a grant, assignment or transfer to
either Party of a license or other right of any kind under any patent, Trademark
or other intellectual property right owned or Controlled by the other Party.
ORTHO, as the originator of the Products, will retain full and sole control and
ownership over the Products and all existing and future patents, Trademarks,
regulatory approvals and other rights connected with the Products.
2.3 NON-COMPETITION.
(a) WFHC shall not market, promote, distribute or sell any
Contraceptive Product or HRT Product indicated and approved for human
consumption in the Territory, other than ORTHO-EST(R) and the Products during
the Term and for a period three months thereafter; provided, however, that WFHC
may promote an estrogen patch product
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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<PAGE> 15
in either the second or third position, if such promotion occurs prior to the
Launch Date of [*]. After the Launch Date of [*], WFHC may promote such estrogen
patch product or another product which is other than a Contraceptive Product or
HRT Product through the WFHC Sales Force in the third call position during a
Detail if such product(s) is defined in the call plan for its sales
representatives and such call plan is not changed more than 4 times per year.
WFHC may, however, promote such estrogen patch product through a sales force
that is independent from the WFHC Sales Force at any time and in any position it
so desires. Notwithstanding the foregoing, the three month period after the Term
shall not exist if the Term is shortened as a result of termination under
Section 13.4 (a) (i), (ii) and (iv), and (b) (i) and (ii) and Section 13.5 in
the event of termination by WFHC as a result of ORTHO's breach.
(b) During the Term, ORTHO may enter into a co-promotion
agreement with a third party with respect to [*] in the Territory.
(c) During the Term, WFHC agrees not to solicit sales
representatives from any Johnson & Johnson Company or from any contractor of
ORTHO that is providing sales force calls on physicians.
(d) Notwithstanding the foregoing, WFHC may dispense but not
otherwise promote in violation of Section 2.3(a) above any prescription
pharmaceutical products through its National Home Delivery Pharmacy Business.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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ARTICLE 3
STRATEGY/COORDINATION OF ACTIVITIES
3.1 STRATEGY.
(a) The Parties agree that the most efficient strategy to achieve
the objectives of their cooperation is through the Co-Promotion of the Products,
using a centrally coordinated marketing approach, a single Trademark, and
packaging and promotional literature as set forth in the Marketing Plan.
(b) Upon reasonable consultation with WFHC, the Joint Marketing
Committee, and the Executive Committee, ORTHO shall have sole discretion in
determining the marketing strategy for the Products in the Territory, including
but not limited to the budget for promoting the Products, Product positioning,
education programs, Sales Message and Phase IV studies. In addition, ORTHO shall
be responsible for the preparation of Marketing Plans for each Product. The
Marketing Plan for ORTHO TRI-CYCLEN shall be prepared by ORTHO after the
Effective Date, reviewed with the JMC prior to July 1, 1999 and updated from
time to time as needed. The Marketing Plan for [*] shall be prepared by ORTHO
after the Effective Date and reviewed with the JMC prior to the Launch Date of
[*].
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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<PAGE> 17
3.2 COMMITTEES. For the purpose of implementing and coordinating the
Parties' promotional activities in the Territory and the related expenditures,
the Parties shall establish a Joint Marketing Committee and an Executive
Committee within thirty (30) days of the Effective Date. Each Party shall bear
its own costs and expenses associated with its participation in the JMC and
Executive Committee.
3.3 JOINT MARKETING COMMITTEE.
(a) Formation. The JMC shall consist of 2-4 members from each
Party, with the members being representatives from the Parties' respective sales
and marketing departments. ORTHO shall select one of its members to serve as
chairperson of the JMC. Either Party may appoint, substitute or replace members
of the JMC upon prior written notice to the other Party.
(b) Decision Making. All decisions of the JMC should be made by a
majority vote of the members. In the event the JMC cannot reach a mutual
decision and is deadlocked on any matter to be decided by the JMC, the
chairperson shall have the right to cast the deciding vote and render a decision
on the matter. Either Party, however, may appeal any decision to the Executive
Committee.
(c) Function. The JMC shall be responsible, among other things,
for:
(i) reviewing and commenting on the Marketing Plan;
(ii) implementing and supporting the Marketing Plan and
managing the day-to-day administrative and operational activities related to the
Co-Promotion of the Product;
(iii) coordinating the activities of each Party with
respect to the Co-Promotion of the Products in the Territory;
(iv) selecting vendors;
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(v) reviewing and, as appropriate, recommending
modifications to, on an annual basis, the Prescribing Physicians (in accordance
with Section 4.3(e)), the number of Details, and call frequency goals relative
to prescription activity.
(d) Meetings. The JMC shall operate consistent with the following
procedures, which both Parties can, by mutual agreement, modify from
time-to-time:
(i) The chairperson shall be responsible for providing
the leadership for the JMC and for the timing, agenda and minutes of each
meeting;
(ii) The location of the JMC meetings will alternate
between ORTHO's facilities and WFHC's facilities or an acceptable off-site
location as agreed to by the Parties;
(iii) The JMC will meet no fewer than four (4) times
each calendar year, unless otherwise agreed by the JMC;
(iv) Minutes of each JMC meeting will be prepared and
summarized within four weeks after each meeting and shall not be official until
the chairperson has agreed to them; and
(v) Non-members of the JMC may attend the JMC meetings,
provided reasonable prior notice is given to and approved by the JMC's
chairperson.
3.4 EXECUTIVE COMMITTEE.
(a) Formation. The Executive Committee shall consist of four (4)
members, two (2) members of which are from each of ORTHO and WFHC. Each member
shall be an executive sponsor of the Product. ORTHO shall select one of its
members to serve as chairperson of the Executive Committee. ORTHO may substitute
or replace its members on the Executive Committee upon prior written notice to
WFHC. Any replacement or substitute member shall be a
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<PAGE> 19
person having a functionally equivalent position within that Party to that of
the person replaced or substituted. WFHC may not substitute its members that are
recited in Section 1.9, except in the case of the death or disability of the
designated members, provided such are replaced with individuals in functionally
equivalent position at WFHC, or unless agreed to in advance in writing by ORTHO.
(b) Function. The Executive Committee is responsible for:
(i) providing the leadership required to ensure the
optimal performance of the JMC;
(ii) reviewing and commenting on the Marketing Plan; and
(iii) addressing and deciding all matters referred to it
by the JMC.
(c) Meetings. During the first year of the Term, the Executive
Committee shall meet at least quarterly. Thereafter, meetings will be held as
the Parties may agree. The location of Executive Committee meetings will
alternate between each Party's offices or an off-site location as agreed to by
the Parties.
(d) Decision Making. All decisions of the Executive Committee
shall be made by a majority vote of the members. If a majority of the Executive
Committee cannot reach a decision on a given matter, the chairperson shall have
the right to cast the deciding vote and render a decision on the matter. Other
than as provided above, ORTHO retains ultimate authority with respect to all
strategic matters involving or relating to the Products.
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ARTICLE 4
PROMOTION AND DETAILING
4.1 CO-PROMOTION. ORTHO and WFHC agree to deploy their respective Sales
Forces in an effort to Co-Promote and Detail the Products in accordance with the
terms and conditions of this Agreement and the Marketing Plan then in effect. In
conducting such Co-Promotion and Detailing, ORTHO and WFHC shall comply with all
applicable laws and use reasonable commercial efforts consistent with accepted
pharmaceutical industry business practices (including, but not limited to, the
relevant American Medical Association Guidelines). No Party shall be required to
undertake any activity under this Agreement which it believes, in good faith,
may violate any applicable law.
4.2 CO-PROMOTION PRODUCTS. Initially, the Parties will Co-Promote ORTHO
TRI-CYCLEN in the Territory. Co-Promotion will begin on or about July 1, 1999
preceded by the appropriate training of the WFHC Sales Force. ORTHO may replace
ORTHO TRI-CYCLEN with [*] or some other Oral Contraceptive as the Product being
Co-Promoted, provided, such other ORTHO Oral Contraceptive is being promoted by
ORTHO [*]. In addition to the aforementioned Products, the Parties agree to
Co-Promote [*] when it is launched by ORTHO. WFHC must Co-Promote each such
Product designated.
4.3 WFHC's DETAILS. During the Term, WFHC shall deploy WFHC's Sales
Force to Detail and Co-Promote the Products to Prescribing Physicians in the
Territory as follows:
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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(a) WFHC will commit at least 100 sales representatives in 1999
and at least [*] sales representatives in each of 2000, 2001 and 2002 to
Co-Promote Products. The [*] added sales representatives for 2000 shall be hired
by [*], and trained and located in their sales territory as of the launch
meeting of [*], provided ORTHO provides notice no later than [*] that it will
hold a launch meeting in [*] for [*]. The [*] date will shift forward in time to
a date which in 60 days after notice given to WFHC by ORTHO of a launch meeting,
if notice is not given by [*].
(b) The number of Details for 1999 shall be [*] and the number of
Details for each of 2000-2002, assuming [*] representatives shall be [*].
(c) On each Detail, WFHC agrees to make a Primary Presentation
for each of the Products it is Co-Promoting at the time of the Detail. Moreover,
WFHC agrees to present [*] on any single call with the Products, being Detailed
in a [*]. In addition, the Products will represent at least [*] percent of the
time spent by WFHC sales representatives during each Detail.
(d) WFHC agrees to Detail, in 1999, [*] Prescribing Physicians
with a minimum average frequency of [*] times for 1999 and [*] Prescribing
Physicians in each of 2000-2002 with a minimum average frequency of [*] times
per year, unless otherwise agreed in the Marketing Plan or WFHC expands its
Sales Force as permitted in Section 4.4.
(e) The Prescribing Physicians that the WFHC Sales Force Details
hereunder will be determined by WFHC and provided to ORTHO prior to the
Effective Date, provided, however, that if the Prescribing Physicians determined
by WFHC differ by more than [*] from the top deciles of HRT High Prescriibers as
determined by IMS data then WFHC must alter its list of
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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Prescribing Physicians so that the WFHC list does not vary by more than [*]
from the IMS data. Once this list is set, it can not be changed without prior
written approval of ORTHO, provided, however, WFHC may add to the list if WFHC
expands its Sales Force as recited in Section 4.4 with the proviso any expansion
must still comply with the [*] rule recited in this Section 4.3 (e).
4.4 EXPANSION OF CO-PROMOTION SALES FORCE. WFHC has the right at its
sole option to expand the WFHC Sales Force to [*] sales representatives as of
February 1, 2001 or February 1, 2002, provided WFHC provides ORTHO with 90 days
prior written notice. No expansion of the WFHC Sales Force beyond [*] sales
representatives is permitted without prior written approval by ORTHO. Moreover,
WFHC may only expand if such expansion is in place as of February 1, of the year
of expansion (eg., mid-year expansion is not permitted.) In the event of any
expansion under this Section 4.4, WFHC's sales representatives shall be hired,
trained, and in the territory wherein they will be Co-Promoting Product as of
the date of expansion; eg., February 1, 2001 or February 1, 2002.
4.5 EXPANSION OF SALE FORCE OUTSIDE OF CO-PROMOTION. If WFHC expands its
complete sales force beyond the number of representatives included in this
Co-Promotion, WFHC will maintain the agreed upon reach and frequency, without
geographical distortion. As used herein, "geographical distortion" means that
the geographic area that was covered before the expansion will receive equal or
greater coverage after the expansion.
4.6 SALES FORCE. All Detailing required under Section 4.3 shall be (a)
done by regular, full-time members of WFHC's Sales Force, (b) of a quality
equivalent to that provided by WFHC to product lines, it is currently promoting
and (c) directed exclusively to the total coverage of Prescribing Physicians
targeted in the Marketing Plan. WFHC shall be solely responsible for the
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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<PAGE> 23
cost and expense of fulfilling its Detailing obligations including, but not
limited to salaries, travel, materials, training (except as expressly provided
for under 5.1(e) and (f)) and compensation under Section 4.3. WFHC agrees that
their current WFHC Sales Force as of the Effective Date has an average
healthcare sales experience of at least 5 years and that all of their sales
representatives hired after the Effective Date will have at least two years of
experience in selling pharmaceutical products or devices in the field of women's
health care, or, alternatively, three years of experience in detailing
pharmaceutical products, in general.
4.7 DETAILS IN EXTENDED TERM. The nature and extent of WFHC obligation
to Detail the Product to Prescribing Physicians during any, extension beyond
December 31, 2002 shall be consistent with WFHC's obligations in 2002.
4.8 DETAIL REPORTS. WHFC, 30 days after each month, will provide to
ORTHO on disk a record of their Detailing activity by physician and "rollable"
to their territory, district and regional configuration. As soon as it is in
place at WFHC, WFHC will provide such information as electronic tapes instead of
on disk. This file will provide information on all calls to physicians,
including the detail position of products presented by WFHC and samples that
were left. A territory, zip code file of the WFHC alignment should be provided
as a base and updated as each wave of WFHC expansion is completed.
4.9 CO-PROMOTION AUDIT OF PERFORMANCE.
(a) ORTHO shall have the right to review and audit WFHC's call
reporting records during regular business hours to confirm satisfaction of the
obligations set out in this Article IV where there is a substantial difference
between WFHC's call reporting records and the records of the IMS auditing
service or other pharmaceutical industry call reporting service utilized
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<PAGE> 24
by ORTHO hereunder. If, after such review, the Parties are unable to agree as to
the results of ORTHO's audit, ORTHO may demand a verification of any
certification by audit of WFHC's call reporting system to be conducted by a
mutually agreed upon auditor.
(b) In addition, ORTHO representatives may attend local and
national sales meetings and training meetings of WFHC. Moreover, ORTHO
representatives may "ride" with WFHC sales representatives to monitor their
performance. Futhermore, ORTHO may audit WFHC's Detailing performance using Fast
Tape or some other commercially available service or product.
4.10 EDUCATION PROGRAM.
(a) A Continuing Medical Education (CME) Provider will be
selected by WFHC to develop an educational program (the "Program"). The CME
Provider will be responsible for all aspects relating to the development and
implementation of the Program including the location, venue, participants and
timing of all speaker programs, mailings, seminars, monographs, videotape
reports, lectures and lecture series kits, newsletters and similar program and
material and materials. Any content of materials that are a component of
continuing medical education under the Program, shall be the responsibility of
the CME Provider and not WFHC or ORTHO. The content of such Program will be the
sole responsibility of the CME Provider in consultation with the medical
faculties of the Health Advisory Board of WFHC and Medical Advisory Board which
is established by the CME Provider.
(b) ORTHO shall be responsible to co-support an educational grant
to fund the development and implementation of the Program. The Parties have
agreed on the overall strategy for the Program, but shall finalize the specific
details of the Program including the tactical
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<PAGE> 25
components and the corresponding budget within 30 days after signing of this
Agreement, which shall be added to this Agreement as Exhibit B.
(c) The Program will be developed in accordance with ACCME
guidelines. The ownership of the Program will belong either to the independent
education company(s) or the sponsoring institutions.
(d) It is agreed and understood that this Program will not be the
only educational program being funded by ORTHO in the field of women's
healthcare.
ARTICLE 5
ROLES AND OBLIGATIONS OF THE PARTIES
REGARDING THE PRODUCT
5.1 ORTHO's ROLES AND OBLIGATIONS.
(a) Product. As between the Parties, ORTHO shall have the sole
right and responsibility to manufacture, label, distribute and sell the Product
and to establish and modify the terms and conditions with respect to the sale of
the Product, including, without limitation, the price at which the Product will
be sold, any discount applicable to payments or receivables, and the like. All
sales of Products will be booked by ORTHO.
(b) Medical Inquiries. ORTHO shall respond to all medical
questions or inquiries relating to the Products directed to each Party's
respective sales force, unless such question or inquiry can be answered by
reference to the FDA approved labeling and package insert. ORTHO shall designate
a medical liaison to whom WFHC shall instruct the WFHC Sales Forces to direct
medical questions or inquiries relating to the Product
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(c) Governmental Contact. WFHC shall notify ORTHO's regulatory
affairs department upon being contacted by the FDA or any state drug regulatory
agency or any comparable governmental agency in the Territory with respect to
any regulatory purpose pertaining to the use of the Product by Prescribing
Physicians. ORTHO shall also be responsible for maintaining the registration of
the Product, obtaining and maintaining the authorization and/or ability to
market the Product in the Territory, and for initiating and/or responding to all
contacts with the FDA and other regulatory agencies in the Territory relating to
the Products. ORTHO shall retain responsibility for communicating with all
government agencies and satisfying all requirements regarding maintenance of
approvals to market the Product in the United States; provided, however, that
WFHC may respond to any agency's inquiry regarding the Product if and only if
(a) in the reasonable opinion of WFHC's counsel, such response is necessary to
comply with the requirements of any law, governmental order or regulation, and
(b) WFHC has requested the agency to direct the inquiry to ORTHO instead of
WFHC, and such agency has refused such request; but in any such event, unless in
the considered opinion of WFHC's counsel there is a legal prohibition against
doing so, WFHC shall immediately notify ORTHO of such agency's inquiry and of
WFHC's intention to make such response. ORTHO shall be permitted to accompany
WFHC to any meeting with such agency, take part in any such communications and
receive copies of all such communications.
(d) Regulatory Disputes/Lawsuits. ORTHO shall retain exclusive
authority and responsibility for handling, in any manner it deems appropriate,
any disputes or lawsuits with any regulatory agency regarding the regulatory
status of the Product.
21
<PAGE> 27
(e) Promotional Materials. ORTHO shall provide WFHC with all
required sales and promotional materials in accordance with the Marketing Plan
then in effect. ORTHO shall provide WFHC with prompt notice of, and copies of,
any changes in the label or labeling, or in the advertising, sales or
promotional and training materials relating to the Products, or of any
significant programs that may affect the marketing, sale or distribution of the
Products to Prescribing Physicians.
(f) Sales Training. ORTHO shall provide WFHC with training
materials in sufficient quantity to allow WFHC to effectively train its sales
force in the appropriate methods for Detailing the Products. ORTHO shall also
provide training support during the launch phase of each Product and
approximately once every six months during the Term (one trainer for 1-2 days),
at ORTHO's expense and at WFHC's facility or a mutually agreed to site, to
WFHC's Sales Force or trainers, as provided in Section 5.2(b).
(g) Adverse Reaction Reporting. ORTHO shall retain exclusive
authority and responsibility for the handling of any adverse drug experience (as
defined in 21 CFR 314.80) reported to ORTHO involving the Product, including the
filing with the FDA of any such reports that it receives directly from third
parties or WFHC. ORTHO shall provide WFHC's Regulatory Department with copies of
the periodic adverse drug experience reports, submitted to the FDA pursuant to
21 CFR 314.80(c)(2), at about the time of submission to the FDA. ORTHO shall
promptly notify WFHC of any adverse drug experience report or series of adverse
drug experiences that may affect the labeling of the Product or the use thereof
in the Field.
5.2 WFHC's ROLES AND OBLIGATIONS.
22
<PAGE> 28
(a) Promotion. WFHC shall, consistent with customary
pharmaceutical business practices and all applicable laws, rules and
regulations, train, deploy, motivate (through appropriate incentives), and
direct the WFHC Sales Force to Co-Promote and Detail the Products to Prescribing
Physicians using promotional and sales materials supplied by ORTHO in accordance
with the Marketing Plan or as otherwise decided by the Executive Committee and
implemented by the JMC. WFHC may supplement the ORTHO promotional and sales
materials with its own, only if approved in writing by ORTHO in advance.
Moreover, any information including but not limited to information communicated
via the Internet and Scientific Publications mentioning the Product(s) (i) by
name, (ii) by describing the Products or (iii) via an internet link to the
Products, which WFHC intends to publish, disclose or otherwise distribute must
be approved in writing in advance by ORTHO.
(b) Training. As soon as practicable after the Effective Date,
WFHC shall have members of its sales training department meet with ORTHO as
required to acquire knowledge about the Products, the Marketing Plan and the
marketing strategies for the Product to facilitate training of its
representatives. ORTHO and WFHC shall have the right to participate in each
other's respective national sales meetings during the Co-Promotion Term. All
out-of-pocket expenses incurred by either Party relating to any training
provided by ORTHO or for attending WFHC's national sales meeting or the joint
launch program shall be borne by the Party incurring the same, including without
limitation, travel and lodging expenses. WFHC shall use the training materials
supplied by ORTHO in training its Sales Force.
23
<PAGE> 29
(c) Orders. WFHC is not authorized to solicit or accept sales
orders for the Product. If, for any reason, WFHC should receive sales orders for
the Product, WFHC shall promptly forward such orders to ORTHO as soon as
practicable.
ARTICLE 6
COMPENSATION
Examples of the calculations using the formulas in this Article 6 will
be prepared by ORTHO and attached as Exhibit C within 30 days of the Effective
Date.
6.1 [*] COMPENSATION 2000. WFHC will be compensated by ORTHO for its
Co-Promotion of [*] for the year 2000 as recited herein. Forty-five days after
the end of each calendar quarter, ORTHO will determine the total number of
prescriptions written for [*] to Initial [*] Physicians during the preceding
calendar quarter by WFHC Called on Physicians using data from the IMS auditing
service ("Total WFHC [*] Prescriptions or "P" "). The [*] Net Sales Price ("N")
will be the forecasted net price per prescription as used in ORTHO's annual
business plan forecast. This Net Sales Price N may be adjusted in periodic
business plan adjustments during the year.
The following formula will be used to calculate the [*]
[*] (T)(1) owed to WFHC for the preceding quarter.
[*]
wherein
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
24
<PAGE> 30
T(1) equals the total [*] due to WFHC for the quarter;
P equals the total [*] Prescriptions written by Initial
[*] Physicians Detailed by the WFHC Sales Force as
defined above;
N equals the [*] Net Sales Price as defined above; and
R equals the [*] which is
<TABLE>
<S> <C>
---------------------------------------------------------------
Time Period After Launch [*] Rate
of [*]
---------------------------------------------------------------
[*] Launch Year 1 [*]
---------------------------------------------------------------
[*] Launch Year 2 [*]
---------------------------------------------------------------
[*] Launch Year 3 [*]
---------------------------------------------------------------
[*] Launch Year 4* [*]
---------------------------------------------------------------
</TABLE>
* Assuming there is an Extended Term
6.2 [*] COMPENSATION AFTER 2000. In the case wherein WFHC has not
increased the WFHC Sales Force beyond the [*] sales representative it is
required to employ in 2000, then the formula used in Section 6.1 will be used to
calculate compensation for WFHC for [*] Co-Promotion. However, if WFHC
increases the WFHC Sales Force as is permitted hereunder, the WFHC will be
compensated by receiving a total payment C calculated according to the formula:
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
25
<PAGE> 31
[*]
wherein
T(2) is the [*] due on incremental sales generated by
prescriptions written by New Physicians and calculated by the
following formula:
[*]
wherein
A is the total prescriptions for [*] written by the New
Physicians for the current calendar quarter;
B is the total prescriptions for [*] written by the New
Physicians in the last full calendar quarter just prior to WFHC
increasing its WFHC Sales Force;
N equals the [*] Net Sales Price per prescription as used
in ORTHO's business plan in the quarter for which compensation is
being calculated.
6.3 FORECASTED MONTHLY PAYMENTS. In order to provide WFHC with more
frequent payments than quarterly payments, ORTHO will forecast the [*]
payments T(1) and T(2) for each quarter at the beginning of each year and then
make monthly payments at the end of each month based on the forcasted quarterly
values for T(1) and T(2). At the end of each quarter when T(1) and T(2) are
calculated the past three monthly payments will be reconciled with the actual
compensation due and based on the reconciliation, either a credit will be taken
against future forecasted monthly payments or an equalizing payment will be made
to WFHC. ORTHO may adjust its monthly forecasted payment based on changes made
to its business plan forecast. At
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
26
<PAGE> 32
the time that ORTHO makes its' quarterly compensation payment (T(1) and T(2))
for the fourth quarter, ORTHO will also calculate the Net Sales Price as
recorded in ORTHO's financial records (records which may either be subject to
ORTHO's independent audit or provide support for records subject to ORTHO's
independent audit) for the past year. This Net Sales Price will be calculated by
dividing Net Sales for [*] as reported by ORTHO by units of [*] shipped for
sale. The Net Sales Price per unit will then be converted to Net Sales Price per
prescription using the prescription to cycle ratio provided by IMS for that
year. If the Net Sales Price recorded by ORTHO for the year is greater than the
per unit Net Sales Price forecasted for the year, ORTHO will pay to WFHC an
equalization payment that will adjust the compensation payments (T(1) and T(2))
for the year by the impact of the increase in Net Sales Price on the year. If
actual Net Sales Price is lower than the forecasted Net Sales Price, ORTHO will
credit against the compensation payments (T(1) and T(2)) to WFHC an amount that
will reduce such payments by the impact of the decrease in Net Sales Price on
the year.
6.4 COMPENSATION FOR ORTHO TRI-CYCLEN/[*]. ORTHO will compensate WFHC
for the Co-Promotion of ORTHO TRI-CYCLEN or any Oral Contraceptive substituted
therefore hereunder according to the procedure recited herein. (It is understood
that, if another ORTHO Oral Contraceptive is substituted, reference to ORTHO
TRI-CYCLEN in the formulas will be replaced with the new ORTHO Oral
Contraceptive.)
(a) Compensation to WFHC. For each calendar quarter compensation
to WFHC (Z) will be calculated according to the following formula:
Z=(N(1)-M(1))-(N(2)-M(2))X(F)X(W)X([*])
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
27
<PAGE> 33
wherein W is [*] for that portion of the calculation wherein
(N(1)-M(1))-(N(2)-M(2)) <= [*] and [*] for any increment over
[*].
If Z is a negative number no compensation will be paid to
WFHC.
(b) The Calculation of the Value for F. The value of F will be
calculated each year as follows:
On or about December 1, of each calendar year beginning December
1, 1999 ORTHO will calculate the value (V) of the Total Oral
Contraceptive Market for the following year. (This valuation will
be the same valuation as used by ORTHO internally to forecast
sales for the following year).
The value (V) will be calculated as follows:
V = E x O
wherein
V is the value of the Total Oral Contraceptive Market;
E is the number of prescriptions forecasted by ORTHO to be
written for the Total Oral Contraceptive Market in the following
year; and
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
28
<PAGE> 34
O is the ORTHO Net Sales Price per prescription which is used in
the Net Sales forecasted in ORTHO's business plan for the sale of
ORTHO Oral Contraceptives in the following year
The value (V) of the Total Oral Contraceptive Market will then be segmented
using the prescriptions written by Prescribing Physicians Detailed by WFHC
(V(1)). Specifically, V(1) is calculated as follows:
D(1)
V(1)= V(----)
R
wherein
V(1) is the Segmented Value of the Total Oral Contraceptive Market attributed to
WFHC; D(1) is the prescriptions written in the past 3 full calendar quarters* in
the Total Oral Contraceptive Market by those Prescribing Physicians Detailed by
WFHC; and
R is the total prescriptions written in the past three full calendar quarters*
in the Total Oral Contraceptive Market by all physicians.
*In December 1999 when calculating the value V(1) for 2000, the past three full
calendar quarters will be the past five months to correspond to a July 1, 1999
Co-Promotion Launch.
Then, the Share Point Value (S(1)) for WFHC for the following year is calculated
as follows:
V(1)
S(1)= ---
100
Then, the Net Share Value (F) for WFHC for the following year is calculated as
follows:
F= S(1)(1-G)
29
<PAGE> 35
wherein
G is the Cost of Goods Sold for ORTHO's Oral Contraceptives for the past three
calendar quarters expressed as a percent of Net Sales of ORTHO's Oral
Contraceptives.
FOR 1999 ONLY, the Net Share Value (F) will be calculated after the Effective
Date by ORTHO and communicated to WFHC. It will be calculated using the formulas
above, with the following modifications.
E is the number of prescriptions that was forecasted by ORTHO in its 1999
business plan to be written for the Total Oral Contraceptive Market in 1999 and
O is the ORTHO Net Sales Price per prescription which is used in the Net Sales
forecasted in ORTHO's business plan for 1999 for the sale of ORTHO Oral
Contraceptives in 1999
D(1) is the prescriptions written in the 3rd and 4th calendar quarters of 1998
and 1st quarter of 1999 in the Total Oral Contraceptive Market by those
Prescribing Physicians to be Detailed by WFHC in 1999; and
R is the total prescriptions written in the 3rd and 4th calendar quarters of
1998 and 1st quarter of 1999 in the Total Oral Contraceptive Market by all
physicians.
G is the Cost of Goods Sold for ORTHO's Oral Contraceptives in the 3rd and 4th
calendar quarters of 1998 and 1st quarter of 1999 expressed as a percent of Net
Sales of ORTHO's Oral Contraceptives
(c) Market Share Calculations. After July 1, 1999 but before the
end of the first calendar quarter during which the Co-Promotion of ORTHO
TRI-CYCLEN begins, ORTHO agrees to calculate the Base Market Share of ORTHO's
Oral Contraceptive Market for each of
30
<PAGE> 36
WFHC and ORTHO, based on the Prescribing Physicians that only the ORTHO Sales
Force will be Detailing and the Prescribing Physicians the WFHC Sales Force will
be Detailing, for ORTHO TRI-CYCLEN during the Term. The Base Market Share for
WFHC M(1) will be calculated according to the following formula:
K(1)
M(1)= ---
J(1)
wherein
K(1) is the number of prescriptions written for ORTHO Oral Contraceptives by the
Prescribing Physicians (who will be Detailed by the WFHC Sales Force during the
Co-Promotion of ORTHO-TRI-CYCLEN) during the 12 months prior to the start of the
Co-Promotion of ORTHO TRI-CYCLEN; and
J(1) is the prescriptions written by the Prescribing Physicians (who will be
Detailed by WFHC Sales Force during the Co-Promotion of ORTHO TRI-CYCLEN) who
wrote prescriptions for all Oral Contraceptives during the 12 months prior to
the start of the Co-Promotion of ORTHO TRI-CYCLEN.
The Base Market Share for ORTHO (M(2)) will be calculated according to the
following formula:
K(2)
M(2)= ---
J(2)
wherein
K2 is the prescriptions written for ORTHO Oral Contraceptives by the Prescribing
Physicians (who will be Detailed by only ORTHO Sales Force during the
Co-Promotion of ORTHO Tri-Cyclen) during the 12 months prior to the start of the
Co-Promotion of ORTHO Tri-Cyclen; and
J(2) is the prescriptions written by the Prescribing Physicians (who will be
Detailed only by ORTHO Sales Force during the Co-Promotion of ORTHO Tri-Cyclen)
who wrote prescriptions for all Oral contraceptives during the 12 months prior
to the start of Co-Promotion of ORTHO Tri-Cyclen.
31
<PAGE> 37
Thereafter, 30 days after the end of each calendar quarter in which ORTHO
Tri-Cyclen is being Co-Promoted during the Term, each of WFHC's and ORTHO's
Current Market Shares (N(1) and N(2), respectively) will be calculated as
follows:
L(1)
N(1)= ---
Q(1)
wherein
N(1) is WFHC's Current Market Share;
L(1) is the number of prescriptions written for ORTHO Oral Contraceptives by
Prescribing Physicians Detailed by the WFHC Sales Force during each preceding
calendar quarter back till the date the Co-Promotion of ORTHO Tri-Cyclen began
(hereinafter the "Cumulative Quarters"); and
Q(1) is the number of prescriptions written for all Oral Contraceptives by
Prescribing Physicians Detailed by the WFHC Sales Force during the Cumulative
Quarters.
L(2)
N(2)= ---
Q(2)
wherein
N(2) is ORTHO's Current Market Share
L(2) is the number of prescriptions written for ORTHO Oral Contraceptives by
Prescribing Physicians Detailed only by the ORTHO Sales Force during the
Cumulative Quarters; and
Q(2) is the number of prescriptions written for all Oral Contraceptives by
Prescribing Physicians Detailed only by the ORTHO Sales Force during the
Cumulative Quarters.
6.5 QUARTERLY PAYMENTS. The value of Z will be calculated within
forty-five (45) days of the end of each quarter and paid to WFHC minus any
minimum payments made during that past quarter. At the time ORTHO makes its
quarterly compensation payment Z for the fourth quarter, ORTHO will calculate
the Net Sale price as recorded in ORTHO's financial records (which may either be
subject to ORTHO's independent audit or provide support for records subject to
32
<PAGE> 38
ORTHO's independent audit) for the past year. This Net Sales Price will be
calculated by dividing Net Sales for [*] as reported by ORTHO by units of [*]
shipped for sale. The Net Sales Price per unit will then be converted to Net
Sales Price per prescription using the prescription to cycle ratio provided by
IMS for that year. If the Net Sales Price recorded by ORTHO for the year is
greater than the per unit Net Sales Price forecasted for the year, ORTHO will
pay to WFHC an equalization payment that will adjust the actual total
compensation Z for the year by the impact of the increase in Net Sales Price on
the year. If the actual Net Sales Price is lower than the forecasted Net Sales
Price, ORTHO will credit against the compensation payment Z to WFHC an amount
that will reduce such payment by the impact of the decrease of Net Sales Price
on the year. Further, at the time ORTHO makes its quarterly compensation payment
Z for the fourth quarter, ORTHO will also calculate the value of V for the
preceding year based on actual IMS data for that year. If the value of V is
higher than forecasted for the year, an equalization payment will be made to
increase the total payment of Z for the year for the impact of the increase in
the market. If the value of V is lower than forecasted for the year, ORTHO will
credit its next compensation payment by an amount that will reduce the total
compensation Z.
6.6 MINIMUM PAYMENTS. ORTHO will make the following minimum payments to
WFHC in consideration for WFHC Co-Promoting ORTHO-TRI-CYCLEN/[*] or other ORTHO
Oral Contraceptive:
<TABLE>
<CAPTION>
YEAR MINIMUM PAYMENT
---- ---------------
<S> <C>
2000 $[*]
2001 $[*]
2002 $[*]
</TABLE>
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
33
<PAGE> 39
These minimum payments will be made in monthly payments at the end of each month
beginning January 2000. Notwithstanding the foregoing, if at the end of any
quarter the value of Z is < 0, a credit for the immediate past quarter monthly
minimum payments, if any, will be taken against the next quarter's payment of Z
and future minimum payments Moreover, minimum payments will not be resumed until
after the value of Z is positive. If as a result of not making minimum payments
it turns out they should have been paid, based on the calculation for Z for that
quarter such minimums will be due and payable with the quarterly payment of Z
and minimum payments will be resumed..
6.7 PENALTIES.
(a) [*]. If WFHC fails to make [*] of its obligated Primary
Presentations for [*] during any given calendar quarter, the penalty shall be a
percent deduction from total compensation due for that quarter for [*] according
to the following table:
<TABLE>
<CAPTION>
NUMBER OF PRESENTATIONS FOR PERCENT PENALTY ON COMPENSATION FOR
[*] [*]
--------------------------- -----------------------------------
<S> <C>
More than [*] No Penalty
[*] [*] Penalty
[*] [*] Penalty
[*] [*] Penalty
</TABLE>
(b) ORTHO-TRI-CYCLEN/[*] If WFHC fails to make at least [*] of
its Primary Presentations for ORTHO-TRI-CYCLEN/[*] or other ORTHO Oral
Contraceptive during any given calendar quarter, the minimum payments paid for
that quarter shall be refunded to ORTHO by crediting those minimum amounts
against future minimum
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
34
<PAGE> 40
payments due and compensation payments Z. Moreover, minimum payments will not be
resumed until after the Primary Presentations for such oral contraceptive
Product for a calendar quarter is [*] or more. If as a result of not making
minimum payments it turns out they should have been paid, based on the fact that
the Primary Presentations made for that quarter turn out to be [*] or greater,
such minimums will be due and payable with the quarterly payment of Z and
minimum payments will be resumed.
6.8 ORTHO-EST DISTRIBUTION AGREEMENT. If WFHC fails to make timely
payments due under the Distribution Agreement between ORTHO and WFHC in
connection with ORTHO-EST, ORTHO may deduct such overdue amounts from any
payments owed to WFHC hereunder.
ARTICLE 7
ACCOUNTING REPORTS
7.1 QUARTERLY REPORTS. Within forty-five (45) days after the last day of
each calendar quarter, ORTHO will submit to WFHC an accounting report of
compensation owed by ORTHO to WFHC for the past calendar quarter together with
the appropriate payment.
7.2 AUDIT. The Parties shall keep accurate records of all data used for
the purpose of making the reports provided for in Section 7.1 which shall
contain sufficient detail to permit a determination of the accuracy of the
reports. Either Party, by and through its authorized third party
representatives, shall have the right, at its own expense and upon reasonable
notice, to audit all of the relevant books and records of the other Party that
are directly related to the promotion, Detailing and/or sale of the Product in
order to determine the accuracy of the quarterly reports and to verify the
computation of amounts due and owing, subject to the following, unless for good
cause shown:
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
35
<PAGE> 41
(a) Such audit will be limited to the period of three (3) years
following termination or expiration of this Agreement (or such longer period as
such records may be required to be available by law or regulation);
(b) No period of time shall be audited more than once; and
(c) No audit shall be requested more than once in any twelve
(12) month period.
7.3 OBJECTIONS. All reports and all information contained therein
provided to a Party pursuant to this Article 7 shall be deemed conclusive and
binding upon such Party unless written objection shall be lodged with the other
Party within one (1) year from the date of such report, except that objections
discoverable only upon audit shall be reserved for a period of three (3) months
after completion of an audit in which the facts giving rise to the objection are
discovered, regardless of when the audit is performed.
7.4 OVERDUE PAYMENT. In the event any payment due hereunder is not made
when due, the payment shall accrue interest (beginning on the date such payment
is due) calculated at the rate of one percent (1.0%) per month and such payment
when made shall be accompanied by all interest so accrued.
36
<PAGE> 42
ARTICLE 8
SAMPLING PROGRAM
8.1 SAMPLES. ORTHO shall provide WFHC with samples, in amounts
consistent with the amounts it provides to the ORTHO Sales Force promoting
Products at no cost, according to the Marketing Plan, which will recite how many
samples will be distributed, when and where.
8.2 COMPLIANCE WITH LAW. All activities in connection with the
distribution of samples shall be conducted in a manner which conforms to (a) the
Marketing Plan and (b) the Prescription Drug Marketing Act of 1987, as may be
amended from time to time, and applicable state laws and regulations. Each Party
shall be responsible for compliance with the Prescription Drug Marketing Act of
1987, as may be amended from time to time.
ARTICLE 9
REPRESENTATION, WARRANTIES AND COVENANTS
9.1 FDA APPROVAL. ORTHO represents and warrants to WFHC that the data
submitted to the FDA in support of the approval of the Product in the Territory
is complete and accurate in all material respects.
9.2 LABELING. ORTHO covenants that the Product labeling and the related
sales, advertising, promotional and training materials provided to WFHC by ORTHO
(except for any such materials provided at the request or specification of WFHC,
with respect to which WFHC
37
<PAGE> 43
provides the same covenant) shall conform to the FDA approved labeling for the
Product and will comply with all applicable laws and regulations.
9.3 MANUFACTURE. ORTHO covenants that it shall manufacture the Product
in accordance with the provisions of the Federal Food, Drug and Cosmetic Act and
the FDA's Current Good Manufacturing Practices and regulations promulgated
thereunder, relating to the manufacture of pharmaceutical products.
9.4 YEAR 2000. Each Party represents and warrants to the other that, to
the best of its knowledge, no Year 2000 Problem, as defined below, exists or
will exist during the Term with respect to any computer system, software or
equipment that is owned, leased or licensed by such Party or its Affiliates,
that will materially interfere with such Party's ability to perform under this
Agreement. If such a Year 2000 Problem does exist, the affected Party will use
reasonable efforts to correct it. A "Year 2000 Problem" means a date-handling
problem relating to the Year 2000 date change that would cause a computer
system, software or equipment to fail to correctly perform, process and handle
date-related data for the dates within and between the 20th and 21st centuries
and all other centuries.
9.5 WFHC SALES FORCE. WFHC covenants that it shall deploy the WFHC Sales
Force to Co-Promote the Product.
ARTICLE 10
INDEMNIFICATION
10.1 ORTHO AND WFHC. ORTHO and WFHC shall each indemnify and hold
harmless the other Party and their officers, directors, agents, employees and
Affiliates against and
38
<PAGE> 44
from any and all claims, suits, judgments, expenses (including reasonable
attorney fees), losses, liabilities and damages (collectively, "Claims") which
the other Party may incur or suffer which arise out of or are based upon (i) the
material default by such Party in the performance of any obligation of or
agreement made by such Party in this Agreement or the material breach of any
warranty, representation, or agreement made by such Party in this Agreement,
(ii) the acts or omissions to act of the agents, servants or employees of such
Party related to their obligations under or actions taken pursuant to this
Agreement, including, without limitation, acts or omissions to act which are:
(a) intentional misconduct or negligent acts or omissions to act or (b) outside
of the scope of the permissible conduct of such agents, servants or employees as
required in view of the terms of this Agreement, FDA approval of the Product, or
any rules or regulations of the FDA or any other governmental agency, authority
or entity, including, but not limited to, making claims for the Product beyond
the approved labeling, failing to provide the approved package insert as may be
required with the Product or recommending use in non-indicated patients; and
(iii) any and all actions, suits, proceedings, demands, assessments, judgments,
reasonable costs and legal and other expenses incident to any of the foregoing.
10.2 ORTHO. ORTHO further agrees to defend, indemnify and hold harmless
WFHC, its officers, directors, agents, employees and Affiliates, from and
against (i) all claims, monetary judgments, assessed damages and reasonable
attorney fees incurred by or assessed against WFHC for activities prior to any
termination of this Agreement on account of any claim that the manufacture, use
or sale of the Product in the Territory infringes the patent, trademark or other
intellectual property right of any third party, or (ii) any Claims on account of
personal injuries (including death) or product liability claims or other loss or
damage to third parties resulting from
39
<PAGE> 45
or relating to the manufacture, labeling, sale or use of the Product, unless and
to the extent such loss or damage was primarily due to the negligence,
recklessness or willful misconduct of WFHC (whether committed by affirmative act
or by omission).
10.3 PROCEDURE. The Party seeking indemnification (the "Indemnified
Party") shall inform the other Party promptly of any such Indemnifiable Claim
which is brought against it and shall, to the extent such Indemnifiable Claim is
brought by a third party, at the other Party's request, cooperate fully with the
other Party in defending such Indemnifiable Claim. The Indemnified Party, at its
expense, shall have the right to advise and consult on and participate in any
related suit or proceeding, subject to the ultimate control of the Indemnifying
Party. The other Party ("Indemnifying Party") shall have full control over the
suit or proceedings, including the right to settle, through counsel of its
choice who is reasonably acceptable to the Indemnified Party; provided, however,
the Indemnifying Party will not, absent the consent of the Indemnified Party
(which consent will not be unreasonably withheld), consent to the entry of any
judgement or enter into any settlement that (1) provides for any relief other
than the payment of monetary damages for which the Indemnifying Party shall be
solely liable and (2) where the claimant or plaintiff does not release the
Indemnified Party from all liability in respect thereof. If the Indemnifying
Party declines to accept control of the defense of such claim or action, the
Indemnified Party may retain counsel at the expense of the Indemnifying Party
and control the defense of the claim or action, provided that the claim or
action may not be settled by the Indemnified Party without the approval of the
Indemnifying Party, which settlement shall not be unreasonably withheld or
delayed. If the Indemnifying Party elects to assume the defense of any claim or
action, such party shall not settle the same without the consent of the
Indemnified Party if such settlement
40
<PAGE> 46
would impose any monetary or other material obligation or burden on the
Indemnified Party or require the Indemnified Party to submit to a temporary
restraining order or an injunction or otherwise limit the Indemnified Party's
rights under this Agreement. Any payment made by the Indemnifying Party to
settle any such claim or action shall be at its own cost and expense.
10.4 INSURANCE. WFHC agrees to maintain (a) workers' compensation
insurance for all of its employees, the limits of which shall be statutory, and
(b) commercial general liability and automobile insurance with limits of not
less than $5,000,000 and $1,000,000, per occurrence, respectively.
ARTICLE 11
CONFIDENTIALITY
11.1 CONFIDENTIAL INFORMATION. Except to the extent expressly authorized
by this Agreement or otherwise agreed to by the Parties in writing, the Parties
agree that, during the Term and for five (5) years thereafter, the receiving
party shall keep strictly confidential and shall not publish or otherwise
disclose or use in any way or for any purpose other than as provided for in this
Agreement any Confidential Information furnished to it by the other Party
pursuant to this Agreement, except to the extent that the receiving party can
establish by competent evidence that such Confidential Information:
(a) is already lawfully known to the recipient at the time of
disclosure as documented by recipient; or
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(b) is or becomes generally available to the public other than
through any act or omission of the recipient in breach of this Agreement; or
(c) is acquired by the recipient from a third party having, to
recipient's best knowledge, the lawful right to disclose same; or
(d) is required by law to be disclosed; or
(e) is required to be disclosed in order to exercise rights
granted or retained pursuant to this Agreement, provided that any such
disclosure will be subject to use and disclosure restrictions similar to those
provided herein. Each Party shall use the same efforts to keep secret and
prevent the disclosure of such Confidential Information to parties, other than
its agents, officers, employees and representatives authorized to receive such
Confidential Information and who are bound by use and disclosure restrictions
similar to those provided herein, as it would use with respect to is own
confidential and proprietary information. Confidential Information shall remain
the sole and absolute property of the disclosing party, subject to the rights
granted herein.
11.2 SURVIVAL. In the event this Agreement is terminated for any reason
by either Party, or expires, as provided herein, each Party agrees to return to
the other, and thereafter refrain from using, all Confidential Information given
to it by the other Party, provided that each party may retain one copy of such
information in its law department files solely for evidentiary purposes. All
provisions of this Section shall survive the expiration or termination of this
Agreement.
11.3 PRIOR NOTICE. If a receiving party is required by law or rules or
regulations of any governmental agency or authority or any stock exchange to
disclose Confidential Information of the disclosing party, the receiving party
shall, prior to making any such disclosure, give the
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disclosing party sufficient advance written notice to permit the disclosing
party to seek a protective order or other similar protection with respect to
such Confidential Information, and thereafter shall disclose only the minimum
information which, in the opinion of its counsel, is required to be disclosed in
order to comply with the legal requirements imposed on such party, whether or
not a protective order or other similar protection is obtained, and to the
extent possible, only under conditions of confidentiality.
ARTICLE 12
TRADEDRESS AND PACKAGING
12.1 TRADEMARK. Only ORTHO's Trademark and logo will appear on any
Product and packaging. Both ORTHO's and WFHC's Trademarks and logos will appear
on all jointly used printed promotional materials. Neither Party shall acquire
any rights in the other Party's name or logo on account of the use thereof
pursuant to this Agreement. Neither Party shall use the other Party's trademark
or logo on any promotional, educational and/or training materials without the
consent of the other Party.
ARTICLE 13
TERM-TERMINATION
13.1 INITIAL TERM. This Agreement shall remain in effect during the
Initial Term, unless earlier terminated by either Party in accordance with
Section 13.3 or Section 13.4.
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13.2 EXTENDED TERM. Subject to the Parties' rights to terminate this
Agreement as provided below, WFHC shall have the option to extend the Initial
Term for an additional year until December 31, 2003, provided WFHC has provided
ORTHO notice of its intent to extend the term on or before October 1, 2002 and
has achieved the performance goals recited in Section 13.3.
13.3 PERFORMANCE GOALS WFHC ACHIEVES.
(a) A market share of [*] in the audience (the prescribing
physicians that WFHC's Sales Force was Detailing during the past 3 months) of
[*] share of the Combination HRT Market during the third calendar quarter of
2002 or total [*] prescriptions reach [*] over the twelve rolling months ending
October 1, 2002, and
(b) WFHC Called-on Physicians segment is [*] market share points
higher for [*] than the physician segment called-by the ORTHO Sales Force but
not the WFHC Sales Force and
(c) (N1-M1)-(N2-M2)> [*] over the twelve rolling months ending
October 1, 2002.
13.4 OPTION TO TERMINATE.
(a) Notwithstanding any provision herein to the contrary, ORTHO
shall have the right, at its sole option, to terminate this Agreement as
follows:
(i) upon not less than thirty (30) days' advance written
notice to WFHC in the event there is a change of control of WFHC (a "change of
control" shall be deemed to have occurred if any third party that is not an
Affiliate of WFHC (A) acquires a majority of the shares of WFHC or a right to
control the voting of a majority of WFHC shares, (B) acquire sufficient shares
or the right to control the votes of sufficient shares to enable such third
party to
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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elect a majority of WFHC's Board of Directors, or (C) acquires the power through
share ownership or otherwise to designate a majority of WFHC's Board of
Directors); or
(ii) on a Product-by-Product basis, immediately if ORTHO
fails to obtain or loses applicable regulatory or marketing approval for any of
the Products in the Territory provided that any provision of this Agreement
relating to such terminated Products shall also be terminated ; or
(iii) upon 30 days advanced written notice if either or
both of Mr. David Hale or Mr. Edward Calesa are no longer associated with WFHC
(other than as a result of death or disability); or
(iv) upon 30 days written notice if the Launch Date for
[*] does not occur or it is not approved for marketing by the FDA on or before
October 1, 2000 or the Product loses applicable regulatory or marketing
approval; or
(b) Notwithstanding any provision herein to the contrary, WFHC
shall have the right, at its sole option, to terminate this Agreement as
follows:
(i) upon 30 days written notice, if the Launch Date for
[*] does not occur or it is not approved for marketing by the FDA on or before
October 1, 2000 or the Product loses applicable regulatory or marketing
approval; or
(ii) on a Product-by-Product basis, immediately if ORTHO
fails to obtain or loses applicable regulatory or marketing approval for any of
the Products in the Territory provided that any provision of this Agreement
relating to such terminated Products shall also be terminated; or
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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13.5 TERMINATION FOR EVENT OF DEFAULT. Notwithstanding Section 13.1,
either Party may, in addition to exercising any other available legal or
equitable rights or remedies, terminate this Agreement, effective immediately
upon the expiration of any applicable cure period, upon the occurrence of an
Event of Default (as defined below) with respect to the other Party. The term
"Event of Default" with respect to a Party means the occurrence of any of the
following events:
(a) Except as provided in Section 13.4(b) below, the failure of a
Party to comply with or perform any material non-monetary provision of this
Agreement, and such failure remains uncured for sixty (60) days following
written notice of such failure (if such default is cured within the cure period,
such written notice shall be null and void), provided that, if the defaulting
party can establish to the reasonable satisfaction of the other party that it is
diligently and actively pursuing a cure at the expiration of the cure period,
and that the default is reasonably capable of being cured, then the cure period
shall be extended for so long as a cure is being diligently and actively
pursued, not to exceed 120 days in the aggregate. For purposes of this Section
13.4(a), a breach of a "material, non-monetary provision" shall include, but not
be limited to, a failure by WFHC to make at least [*] of its obligated Primary
Presentations for three or more consecutive quarters, provided, however, ORTHO
provided notice to WFHC within sixty (60) days after each of the first and
second consecutive quarter of its intent to terminate under this provision if
performance is not improved.
(b) The failure of a Party to comply with or perform any material
monetary provision of this Agreement, and such failure remains uncured for
thirty (30) days following
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
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written notice of such failure (if such default is cured within such period,
such written notice shall be null and void).
(c) A Party (i) becomes generally unable to pay its debts as they
mature, (ii) is the subject of a voluntary or involuntary petition in bankruptcy
or of any other proceeding under bankruptcy, insolvency or similar laws which,
if involuntary, is not dismissed within sixty (60) days of the date filed, (iii)
makes an assignment for the benefit of creditors, (iv) is named in, or its
property is subject to, a suit for the appointment of a receiver which is not
dismissed within sixty (60) days of the date filed, or (v) is dissolved or
liquidated.
13.6 EFFECT OF TERMINATION.
(a) Upon termination or expiration of this Agreement, neither
WFHC nor its Affiliates shall thereafter have any further rights to market,
Detail, promote or sell the Product, except as otherwise specifically provided
herein.
(b) Termination or expiration of this Agreement shall not operate
to release any Party from any obligation or liability incurred under the terms
of this Agreement prior to or upon termination or expiration of this Agreement,
including the payment of any amounts due but unpaid by one Party to the other,
or from any obligations provided for in this Agreement which survive termination
of this Agreement.
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ARTICLE 14
INTELLECTUAL PROPERTY RIGHTS
14.1 RIGHTS. WFHC acknowledges that ORTHO and/or its Affiliates owns and
retains all proprietary and property interests and rights in (a) all Trademarks,
patents, copyrights or other property rights regarding the Product, including,
but not limited to, all regulatory filings and approvals relating to the
Product, and (b) all supporting sales and promotional material. WFHC also
acknowledges that no right or license is granted to WFHC hereunder with respect
to (a) and (b) above, except for the right to use such materials in the
Detailing and promotion of the Product in accordance with the terms of this
Agreement.
14.2 INFRINGEMENT. WFHC shall advise ORTHO promptly upon its becoming
aware of any infringement by a third party of any patent or Trademark related to
the Product. ORTHO may take such commercially reasonable action as may be
required to restrain or otherwise prevent such infringement. WFHC shall
cooperate fully with and as requested by ORTHO, at ORTHO's expense, in ORTHO's
attempt to restrain such infringement.
ARTICLE 15
DISPUTE RESOLUTION
15.1 INITIAL RESOLUTION. In the case of any disputes between the Parties
arising from this Agreement, and in case this Agreement does not provide a
solution for how to resolve such disputes, the Parties shall discuss and
negotiate in good faith a solution acceptable to both Parties
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and in the spirit of this Agreement. If after negotiating in good faith pursuant
to the foregoing sentence, the Parties fail to reach agreement, then the
President of ORTHO and the President of WFHC shall discuss in good faith an
appropriate resolution to the dispute. If these executives fail, after good
faith discussions, to reach an amicable agreement, then either Party may upon
written notice to the other submit to binding arbitration pursuant to Section
15.2.
15.2 ARBITRATION. Any claim, dispute or controversy arising out of or in
connection with or relating to this Agreement, (including, without limitation,
disputes with respect to the rights and obligations of the Parties following
termination) not settled by the procedures set forth in Section 15.1 above or
the breach or alleged breach of a material provision of this Agreement shall be
adjudicated by arbitration in accordance with the Arbitration Proceedings as set
forth in Appendix A attached hereto.
ARTICLE 16
MISCELLANEOUS
16.1 INDEPENDENT CONTRACTOR. The cooperation between the Parties as set
forth in this Agreement will not constitute, nor be construed as constituting, a
partnership or a relationship of agent and principal. Neither Party shall, under
any circumstance, act as, or represent itself to be, a partner, agent or a
representative of the other. Neither Party shall have any responsibility for the
firing, compensation, or employee benefits of the other Party's employees. No
employee or representative of either Party shall have any authority to bind or
obligate the other Party to this Agreement for any sum or in any manner
whatsoever, or to create or impose a contractual or other
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liability on the other Party without said Party's prior authorized written
approval. For all purposes, and notwithstanding any other provision of this
Agreement to the contrary, the legal relationship of the Parties under this
Agreement shall be that of independent contractors.
16.2 NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given when personally delivered,
telecommunicated (with confirmation), delivered by overnight courier or mailed
prepaid first class registered or certified mail and addressed to the Party for
whom it is intended at its record address, and such notice shall be effective
upon receipt, if delivered personally, telecommunicated, or by overnight
courier, or shall be effective five (5) days after it is deposited in the mail,
if mailed. The record addresses and facsimile number of the Parties are set
forth below:
If to WFHC: Women First HealthCare, Inc.
12220 El Camino Real
Suite 400
San Diego, CA. 92130
Attn: President
Facsimile No.: (619) 509-3888
Phone No.: (619) 509-1171
If to ORTHO: Ortho-McNeil Pharmaceutical, Inc.
U.S. Route #202 South
Raritan, NJ 08869-0602
Attn: President
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Facsimile No.: (908) 707-9757
with a copy: Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Attn: Office of General Counsel
Facsimile No.: (732) 524-2788
Any Party, at any time, may change its previous record address or facsimile
number by giving written notice of the change to the other Party as herein
provided.
16.3 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting Party; provided,
however, that the Party claiming force majeure has exerted all reasonable
efforts to avoid such force majeure and has given prompt notice to the other
Party of any such force majeure. The Party giving such notice shall be excused
from such of its obligations hereunder as it is disabled from performing for so
long as it is so disabled; provided, however, that Party commences and continues
to take reasonable and diligent actions to cure or remedy such force majeure. In
the event of any such force majeure event, the Parties shall meet promptly to
determine an equitable solution to the effects of any such event. Force majeure
shall not include a Party's failure to perform any obligation under this
Agreement as a result of any Year 2000
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Problem or any failure to meet its Detail commitment. The term of this Agreement
shall not be extended by any force majeure event.
16.4 ASSIGNMENT. This Agreement shall not be assigned by either Party
without the written consent of the other Party, except that this Agreement may
be assigned in whole or in part to any Affiliate of a Party, provided that (i)
the assigning Party remains obligated for its Affiliate's performance of this
Agreement, and (ii) the assigning Party provides prior written notice to the
other Party of the anticipated assignment. Either Party may assign this
Agreement to any party succeeding (by sale, merger, reverse merger or otherwise)
to substantially all of the business and operations of such Party subject to the
other Party's right to terminate this Agreement pursuant to Article 13.
16.5 MODIFICATION. No modification or amendment hereof shall be valid or
binding upon the Parties hereto unless made in writing and duly executed on
behalf of both of the Parties.
16.6 WAIVERS. Failure of a Party to insist upon the strict performance
of any provision hereof or to exercise any right or remedy shall not be deemed a
waiver of any right or remedy with respect to any existing or subsequent breach
or default.
16.7 GOVERNING LAW. This Agreement shall be construed and the legal
relations between the Parties hereto determined in accordance with the laws of
the State of New York without regard to what laws might otherwise govern under
applicable principles of conflict or choice of law.
16.8 PUBLIC DISCLOSURE. Neither Party shall originate any publicity,
news release or public announcements, written or oral, whether to the public or
press, stockholders or otherwise, relating to this Agreement, including its
existence, the subject matter to which it relates,
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performance under it or any of its terms, to any amendment hereto or
performances hereunder without the prior written consent of the other Party,
save only such announcements that are required by law to be made or that are
otherwise agreed by the Parties. Such announcements shall be brief and factual.
If a Party decides to make an announcement required by law, it will give the
other Party at least ten (10) business days advance notice, where possible, of
the text of the announcement so that the other Party will have an opportunity to
comment upon the announcement. To the extent that the receiving Party reasonably
requests that any information in the materials proposed to be disclosed or
deleted, the disclosing Party shall request confidential treatment of such
information pursuant to Rule 406 of the Securities Act of 1933 or Rule 24b-2 of
the Securities Exchange Act of 1934 as amended, as applicable (or any other
applicable regulation relating to the confidential treatment of information) so
that there be omitted from the materials that are publicly filed any information
that the receiving Party reasonably requests to be deleted, unless in the
opinion of the disclosing Party's legal counsel such Confidential Information is
legally required to be fully disclosed.
16.9 SOLICITATION. During the Term, neither Party shall solicit for
employment any employees of the other Party that have been involved in the
promotion, marketing and sale of the Product. The Parties agree that the term
"solicit" shall not include general solicitations of employment not specifically
directed towards a Party's employees, newspaper or other periodical
advertisements, or general searches conducted by professional recruiting firms.
16.10 PERFORMANCE BY AFFILIATES. Any Party hereto may satisfy any of its
obligation hereunder through any of its Affiliates; provided, however, that each
Party guarantees the performance at all times of any of such Party's obligations
so delegated pursuant to this Section.
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16.11 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties relating to the subject matter covered herein and supersedes
all prior oral or written agreements. No covenants, promises, agreements,
warranties, representations, conditions or understandings, either oral or
written, between the Parties other than as set forth herein.
16.12 LIMITATION OF LIABILITY. Except with respect to the Parties'
respective indemnification obligations for third party claims pursuant to
Sections 10.1 and 10.2, the Parties expressly agree that, with respect to any
claim by either ORTHO or WFHC against the other arising out of any breach of
this Agreement, the liability of the breaching Party to the non-breaching party
for such breach shall be limited under this Agreement or otherwise at law or
equity to direct money damages only, and in no event shall a Party be liable to
the other for indirect, incidental, punitive, exemplary or consequential
damages, even if advised of the possibility of the same.
16.13 BINDING AGREEMENT. This Agreement shall be binding upon, and shall
inure to the benefit of, the respective successors and permitted assigns of the
Parties hereto.
16.14 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable, such invalid or unenforceable provision shall not
affect the validity of the remaining provisions. If any of the terms or
provisions of this Agreement are in conflict with any applicable statute or rule
of law, then such terms or provisions shall be deemed inoperative to the extent
that they may conflict therewith and shall be deemed to be modified to conform
with such statute or rule of law unless such modification would render such
provision inconsistent with the intent of the Parties.
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16.15 CAPTIONS. All captions herein are for convenience only and shall
not be interpreted as having any substantive meaning.
16.16 SURVIVAL. The provisions of Articles 7, 10, 11 and 15 and the
definitions of Article 1 of this Agreement shall survive the termination or
expiration of this Agreement for a period of five (5) years after such
termination or expiration. The provisions of this Agreement that do not survive
termination or expiration hereof (as the case may be) shall, nonetheless, be
controlling on, and shall be used in construing and interpreting, the rights and
obligations of the Parties hereto with regard to any dispute, controversy or
claim that may arise in connection with this Agreement.
16.17 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, and may be executed by facsimile. All counterparts shall
collectively constitute one and the same agreement.
16.18 REMEDIES NOT EXCLUSIVE. Except as specifically provided herein,
the remedies under this Agreement shall be cumulative and not alternative, and
the election of one remedy for a breach shall not preclude pursuit of other
remedies.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the day and year first above written.
ORTHO-MCNEIL
PHARMACEUTICAL, INC. WOMEN FIRST HEALTHCARE, INC.
By: /s/ By: /s/
------------------------------ --------------------------------
President President
------------------------------ --------------------------------
Date Date
------------------------------ --------------------------------
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APPENDIX A
Arbitration Proceedings
1.1 (a) Any dispute, controversy or claim arising out of or related to
this agreement, or the interpretation, application, breach, termination or
validity thereof, including any claim of inducement by fraud or otherwise,
shall, before submission to arbitration, first be mediated through non-binding
mediation in accordance with the Model Procedures for the Mediation of Business
Disputes promulgated by the Center for Public Resources ("CPR") then in effect,
except where those rules conflict with these provisions, in which case these
provisions control. The mediation shall be conducted in New York, New York and
shall be attended by a senior executive with authority to resolve the dispute
from each of the operating companies that are Parties.
(b) The mediator shall be an attorney specializing in business
litigation who has at least 15 years of experience as a lawyer with a law firm
of over 25 lawyers or was a judge of a court of general jurisdiction and who
shall be appointed from the list of neutrals maintained by CPR.
(c) The Parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an agreement, the mediator
shall be selected from a list generated by CPR with each Party having the right
to exercise challenges for cause and two peremptory challenges within three
business days of receiving the CPR list.
(d) The mediator shall confer with the Parties to design
procedures to conclude the mediation within no more than forty-five (45) days
after initiation. Unless agreed upon by the Parties in writing, under no
circumstances shall the commencement of arbitration
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under Section 1.2 hereof be delayed more than forty-five (45) days by the
mediation process specified herein.
(e) Each Party agrees to toll all applicable statutes of
limitation during the mediation process and not to use the period or pendancy of
the mediation to disadvantage the other Party procedurally or otherwise. All
negotiations pursuant to this clause will be confidential and shall be treated
as compromise and settlement negotiations for the purposes of the Federal Rules
of Evidence and all other evidentiary purposes.
(f) Each Party has the right to pursue provisional relief from
any court, such as attachment, preliminary injunction, replevin, etc., to avoid
irreparable harm, maintain the status quo, or preserve the subject matter of the
arbitration, even though mediation has not been commenced or completed.
1.2 (a) Following the mediation procedures set forth in Section 1.1, Any
dispute, claim or controversy arising from or related in any way to this
Agreement or the interpretation, application, breach, termination or validity
thereof, including any claim of inducement of this Agreement by fraud or
otherwise, will be submitted for resolution to arbitration pursuant to the
commercial arbitration rules then pertaining of the Center for Public Resources
("CPR"), except where those rules conflict with these provisions, in which case
these provisions control. The arbitration will be held in New York, New York.
(b) The panel shall consist of three arbitrators chosen from the
CPR Panels of Distinguished Neutrals each of whom is a lawyer specializing in
business litigation with at least 15 years experience with a law firm of over 25
lawyers or was a judge of a court of general jurisdiction.
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(c) The Parties agree to cooperate (1) to obtain selection of the
arbitrators within thirty (30) days of initiation of the arbitration, (2) to
meet with the arbitrators within thirty (30) days of selection and (3) to agree
at that meeting or before upon procedures for discovery and as to the conduct of
the hearing which will result in the hearing being concluded within no more than
nine (9) months after selection of the arbitrators and in the award being
rendered within sixty (60) days of the conclusion of the hearings, or of any
post-hearing briefing, which briefing will be completed by both Parties with
twenty (20) days after the conclusion of the hearings. In the event no such
agreement is reached, the CPR will select arbitrators, allowing appropriate
strikes for reasons of conflict or other cause and three peremptory challenges
for each side. The arbitrators shall set a date for the hearing, commit to the
rendering of the award within sixty (60) days of the conclusion of the evidence
at the hearing, or of any post-hearing briefing (which briefing will be
completed by both sides in no more than twenty (20) days after the conclusion of
the hearings), and provide for discovery according to these time limits, giving
recognition to the understanding of the Parties hereto that they contemplate
reasonable discovery, including document demands and depositions, but that such
discovery be limited so that the time limits specified herein may be met without
undue difficulty. In no event will the arbitrators allow either side to obtain
more than a total of forty (40) hours of deposition testimony from all
witnesses, including both fact and expert witnesses. In the event multiple
hearing days are required, they will be scheduled consecutively to the greatest
extent possible.
(d) The arbitrators shall render their award following the
substantive law of New Jersey. The arbitrators shall render an opinion setting
forth findings of fact and conclusions
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of law with the reasons therefor stated. A transcript of the evidence adduced
at the hearing shall be made and shall, upon request, be made available to
either Party.
e) To the extent possible, the arbitration hearings and award
will be maintained in confidence.
f) Any United States District Court having jurisdiction of the
matter may enter judgment upon any award. In the event the panel's award exceeds
Five Million Dollars (5,000,000) in monetary damages or includes or consists of
equitable relief, then the court shall vacate, modify or correct any award where
the arbitrators' findings of fact are clearly erroneous, and/or where the
arbitrators' conclusions of law are erroneous; in other words, it will undertake
the same review as if it were a federal appellate court reviewing a district
court's findings of fact and conclusions of law rendered after a bench trial. An
award for less than Five Million Dollars (5,000,000) in damages and not
including equitable relief may be vacated, modified or corrected only upon the
grounds specified in the Federal Arbitration Act. The Parties consent to the
jurisdiction of the District Court for the enforcement of these provisions, the
entry of judgment on any award, and the vacatur, modification and correction of
any award as above specified.
(g) Each Party has the right before or during the arbitration to
seek and obtain from the appropriate court provisional remedies such as
attachment, preliminary injunction, replevin, etc. to avoid irreparable harm,
maintain the status quo, or preserve the subject matter of the arbitration.
(h) Each Party hereto waives its right to trial of any issue by
jury.
(i) Each Party hereto waives any claim to punitive, exemplary and
consequential damages from the other.
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APPENDIX B
Education Program
(to be added after the Effective Date)
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APPENDIX C
Sample Calculations
62
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EXHIBIT 10.14
LETTER AGREEMENT
This Agreement, dated as of June 21, 1999, by and between WOMEN FIRST
HEALTHCARE, INC., a Delaware corporation ("WFHC"), and LABORATOIRES FOURNIER
S.A., a French corporation ("Fournier").
1. Distribution and License Agreement. WFHC and Fournier agree to
negotiate in good faith the final terms of and enter into a Distribution and
License Agreement (the "Definitive Agreement") under which Fournier will grant
to WFHC an exclusive right (subject to certain exceptions) to market, use,
distribute and sell Product (as defined below) in the United States (including
its territories and possessions and Puerto Rico) (the "Territory") for a period
of seven years. "Product" means the Esclim(TM) estrogen transdermal system
consisting of a twice weekly patch in various strengths as currently approved by
the United States Food and Drug Administration ("FDA"), together with any new
dosages and a seven-day Esclim(TM) patch (if approved by the FDA), but excluding
any combination transdermal system. Under the Definitive Agreement, Fournier
will grant an exclusive license to WFHC to use the trademark Esclim(TM) in
connection with the Product in the Territory. The Definitive Agreement will
contain representations, warranties, covenants and indemnities of WFHC and
Fournier customary in a transaction of this type. The Definitive Agreement may
be terminated (among other reasons) upon a "change of control" of the other
party; by Fournier if WFHC does not raise $15 million by December 31, 1999; or
by WFHC if Product meeting its initial purchase order is not delivered as
provided therein.
2. Fees and Royalties Payable by WFHC. The Definitive Agreement will
provide that WFHC will pay Fournier a non-refundable license fee of $1.45
million payable over a two-year period and, in the case of $700,000 of such fee,
subject to certain sales objectives
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being reached. In addition, the Definitive Agreement will provide that WFHC will
pay Fournier a royalty quarterly during the term of the Definitive Agreement
based upon the net sales of Product in amounts to be established in the
Definitive Agreement.
3. Responsibilities of the Parties. The Definitive Agreement will
provide that Fournier will be solely responsible for the manufacture of the
Product and for quality assurance, quality control and other aspects of
manufacturing the Product, except that after payment of certain license fees,
Fournier will transfer to WFHC responsibility for the New Drug Application
("NDA") filed with the FDA with respect to the Product. WFHC will be solely
responsible for U.S. Customs clearance, sales, marketing, advertising,
distribution of the Product and for handling Product complaints and certain
other regulatory matters in the Territory.
4. Exclusive Dealing. WFHC and Fournier agree that for a period of 30
days from the date of this Letter Agreement, they will each negotiate only with
the other party regarding a distribution and license arrangement for the Product
in the Territory, and neither party will directly or indirectly solicit,
encourage, assist, initiate discussions with or enter into any agreement with a
third party regarding the distribution or license of the Product (or any similar
product) in the United States.
5. Publicity. Fournier understands and agrees that the terms of this
Letter Agreement may be disclosed by WFHC in a registration statement filed with
the Securities and Exchange Commission relating to WFHC's initial public
offering and, if so required, the Letter Agreement may be filed as an exhibit to
the registration statement. Any other public disclosure, press release or other
public statement regarding this Letter Agreement must be agreed to in advance by
both parties.
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6. Liquidated Damages. In consideration of Fournier's agreements
contained herein, and in the event that following good faith negotiation between
the parties the Definitive Agreement is not entered into within 30 days of the
date of this Letter Agreement (unless extended by Fournier), as liquidated
damages and in lieu of any other costs or claims, WFHC will pay to Fournier
$250,000 plus an amount equal to actual direct manufacturing costs of the
Product incurred by Fournier (or its designee) from the date of the execution of
this Letter Agreement in anticipation of a Definitive Agreement. In such event,
the parties' obligations under this Letter Agreement will be terminated.
7. Binding Effect. This Letter Agreement sets forth legally binding
obligations upon the parties and is intended by the parties to obligate them to
negotiate in good faith the final terms of a Definitive Agreement. In addition,
the parties intend that the provisions relating to exclusive dealing, publicity
and liquidated damages are fully binding upon the parties. The parties
understand that time is of the essence and agree to use their best efforts to
execute the Definitive Agreement within thirty days.
8. Applicable Law; Arbitration. This Letter Agreement shall be governed
by and construed in accordance with the laws of the state of New York, without
regard to such state's conflicts of laws principles. Any disputes arising under
this Letter Agreement which cannot be resolved by the parties shall be finally
resolved by binding arbitration in New York, New York under the Rules of the
American Arbitration Association in an arbitration conducted by one arbitrator
appointed and acting in accordance with such rules.
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IN WITNESS WHEREOF, the parties have executed this Letter Agreement as
of the date first set above.
LABORATOIRES FOURNIER S.A. WOMEN FIRST HEALTHCARE, INC.,
a French corporation a Delaware corporation
By: /s/_____________________________ By: /s/_____________________________
Title:_____________________________ Title:______________________________
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Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" and to the use of our report
dated March 11, 1999 with respect to the consolidated financial statements of
Women First HealthCare, Inc. and our report dated August 31, 1998 with respect
to the financial statements of As We Change, in Amendment No. 4 to the
Registration Statement (Form S-1 No. 333-74367) and related Prospectus of Women
First HealthCare, Inc. for the Registration of up to 5,175,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
June 21, 1999
