<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-74367
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 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
<TABLE>
<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) The Registrant paid a filing fee of $13,900 upon the initial filing of this
Registration Statement.
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 MAY 21, 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.
We have applied to have our common stock approved for listing 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
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) is a registered trademark 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.
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and 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 70 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.
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 the Women
First(TM) self-care products through our Internet site, WOMENFIRST.COM.
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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.
We are leveraging this opportunity by developing a dedicated sales force
targeting these clinicians. We will use this platform to promote our
hormonal replacement therapy and cholesterol-lowering pharmaceutical
products, thereby enhancing these clinicians' abilities to retain
patients beyond their child-bearing years into midlife. We also
anticipate using our sales force to promote pharmaceutical products that
address other midlife conditions such as hypertension, osteoporosis,
depression and incontinence.
- The increasing focus on the conditions and diseases that affect midlife
has lead to the development of new products. Concurrently, industry
consolidation and cost containment pressures have resulted in increasing
opportunities for product licensing, acquisition and co-promotion. These
trends have allowed us to obtain rights to market and sell a variety of
pharmaceutical and self-care products that address women's midlife health
needs. We plan to expand the range of products we offer midlife women by
licensing and co-promoting products we can market and sell through our
sales organization and distribution channels. We will also seek to
acquire products that complement the product lines we currently offer.
- There is a significant and growing population of midlife women. Our
research indicates that these women are dissatisfied with their health
care. We believe that as women and their clinicians become more informed,
they will be more likely to use or recommend pharmaceutical or self-care
products that address women's needs in midlife. We are developing a
comprehensive educational program to enhance awareness about the
conditions affecting midlife women and the treatment options that are
available.
- 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 contain
significant educational content as well as online e-commerce for our
consumer products. Because of the significant educational content we have
placed on WOMENFIRST.COM, we believe the site will be an attractive web
link. We have entered into agreements with iVillage, Inc. to develop
educational content on midlife women's health for ivillage.com and to
link the iVillage Internet site with WOMENFIRST.COM and ASWECHANGE.COM.
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.
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<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 15,098 750 10,423
---------- ---------- ---------- ------ -----------
Loss from operations.... -- (1,766) (10,264) (750) (6,120)
Interest income, net.... -- 39 394 119 18
---------- ---------- ---------- ------ -----------
Net loss................ $ -- $ (1,727) $ (9,870) $ (631) $ (6,102)
========== ========== ========== ====== ===========
Net loss per share
(basic and
diluted)............. $ -- $ (0.23) $ (1.28) $ (0.79)
========== ========== ========== ===========
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
========== ========== ========== ===========
Pro forma net loss per
share (basic and
diluted)............. $ (1.00) $ (0.52)
========== ===========
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........................................... 2,602 47,487
Total assets.............................................. 18,257 63,142
Short-term notes payable.................................. 5,368 5,368
Short-term notes payable to related parties............... 1,955 1,955
Total stockholders' equity................................ 7,594 52,479
</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. This
section describes some, but not all, of the risk factors involved in purchasing
our common stock. 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 $11.6 million through December 31, 1998, and we expect to
incur losses in the future. 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. 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.
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 regardless of our actual sales of
product covered by the agreement. The minimum payments we are required to make
under these agreements may exceed our sales
7
<PAGE> 9
of the products to which these minimum payments 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 Corporation 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. 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.
Our failure to generate sales exceeding the specified minimum payments 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 obligations, see
"Business -- Licensing and Co-Promotion Agreements."
MANY OF OUR PRODUCT AGREEMENTS MAY BE TERMINATED IF WE FAIL TO MAKE MINIMUM
PURCHASES 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 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 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 Corporation
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
8
<PAGE> 10
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.
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 or to 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.
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<PAGE> 11
OUR QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS.
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 the introduction of new products,
- the productivity of our sales force,
- regulatory compliance and approvals and legislative changes,
- 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. In
addition, we plan to obtain rights to additional products and fund additional
sales and marketing and general and 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. Failure to meet these
expectations 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 Merek & Co., Inc. and Eli Lilly & Company. 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
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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 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
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<PAGE> 13
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 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.
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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,
- 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
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<PAGE> 15
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 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. 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. 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. Our present directors, executive officers and principal
stockholders as a group will beneficially own approximately
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<PAGE> 16
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.
There has been no prior public market for our common stock. 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
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<PAGE> 17
unrelated to the operating performance of those companies. The price of the
common stock after the offering may fluctuate widely, depending on many factors.
These factors include:
- actual or anticipated variations in our quarterly and annual operating
results,
- differences between our actual financial and operating results and those
expected by investors and securities analysts and changes in securities
analysts' recommendations and projections,
- announcements 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,
- general economic and market conditions and conditions specific to the
health care industry.
We have applied to list the common stock for trading on the Nasdaq National
Market under the symbol "WFHC." We do not know whether investor interest in
Women First will lead to the development of an active trading market. In the
past, following periods of volatility in the market price of a company's
securities, 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 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 after this offering.
All of our currently outstanding shares of stock and shares issuable upon
the conversion or exercise of outstanding securities are subject to lock-up
agreements with the underwriters pursuant to which current stockholders,
optionees and warrant holders 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 shares 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.
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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 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. 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 "-- Delaware Law and Certificate of Incorporation and Bylaw
Provisions" 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.
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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................................ 5,368 5,368 5,368
Short-term notes payable to related parties............. 1,955 1,955 1,955
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.............................. 24,613 24,637 69,517
Deferred compensation................................... (983) (983) (983)
Accumulated deficit..................................... (15,972) (15,972) (15,972)
-------- -------- --------
Total stockholders' equity......................... 7,594 7,594 52,479
-------- -------- --------
Total capitalization.......................... $ 14,917 $ 14,917 $ 59,802
======== ======== ========
</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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DILUTION
The pro forma net tangible book value of Women First as of March 31, 1999
was $3.8 million or $0.31 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 $48.7 million, or $2.94 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 $2.63 per share to existing stockholders and an
immediate dilution of $8.06 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...................................................... $ 0.31
------
Increase per share attributable to new investors............ 2.63
------
Pro forma as adjusted net tangible book value per share
after the offering........................................ 2.94
------
Dilution per share to new investors......................... $ 8.06
------
</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.
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<PAGE> 23
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.................. -- -- 3,136 -- 2,747
Marketing and sales............ -- 791 5,478 318 4,801
General and administrative..... -- 975 5,912 432 2,584
Research and development....... -- -- 572 -- 291
---------- ---------- ---------- ---------- -----------
Total costs and expenses... -- 1,766 15,098 750 10,423
---------- ---------- ---------- ---------- -----------
Loss from operations............. -- (1,766) (10,264) (750) (6,120)
Interest income, net............. -- 39 394 119 18
---------- ---------- ---------- ---------- -----------
Net loss......................... $ -- $ (1,727) $ (9,870) $ (631) $ (6,102)
========== ========== ========== ========== ===========
Net loss per share (basic and
diluted)....................... $ -- $ (0.23) $ (1.28) $ (0.08) $ (0.79)
========== ========== ========== ========== ===========
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)............ $ (1.00) $ (0.52)
========== ===========
Pro forma weighted average shares
used in computing net loss per
share (basic and diluted)...... 9,904,834 11,638,176
========== ===========
</TABLE>
<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 2,602 47,487
Total assets..................... 1,033 776 12,504 18,257 63,142
Short-term notes payable......... -- -- -- 5,368 5,368
Short-term notes payable to
related parties................ -- -- -- 1,955 1,955
Total stockholders' equity....... 1,000 531 7,948 7,594 52,479
</TABLE>
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<PAGE> 24
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.
23
<PAGE> 25
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, Inc. 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 $11.6 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.
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 $9.7 million to $10.4
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
24
<PAGE> 26
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 $287,000 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 $2.7 million, or 63.8% 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 $4.5 million to $4.8 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 $5.4 million to $6.1 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.
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 $13.3 million to $15.1
million for 1998 from $1.8 million for 1997. The increase in costs and expenses
was due primarily to the
25
<PAGE> 27
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 $3.1 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 $572,000 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 $8.5 million to $10.3 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.
Interest Income, net. Interest income increased $355,000 to $394,000 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 $8.2 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. 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 $10.3 million in the year ended December 31, 1998. Due to our short
operating history, our
26
<PAGE> 28
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 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 $2.6 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,
27
<PAGE> 29
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 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
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<PAGE> 30
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.
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. 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 obligated to make significant
minimum purchases in the aggregate under some of our other agreements. For more
information regarding our minimum payment and minimum purchase 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
29
<PAGE> 31
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 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.
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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.
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
Corporation, 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 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,
- the expanding roles of OB/GYNs and the nurse practitioners and physician
assistants focused on women's health, and
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- 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 U.S., 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 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
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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' 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 and cholesterol-lowering pharmaceutical products. We
also anticipate using it to
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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 70 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 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
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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 Ortho-Est(R)
hormonal replacement therapy product, the Pravachol(R) cholesterol-lowering
pharmaceutical product, and compounded hormonal replacement therapy products,
including micronized progesterone, available through Women First Pharmacy
Services.
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 Corporation, 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.
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.
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
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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.
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.
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
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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.
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.
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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. 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"; "-- Many of our
product agreements may be terminated if we fail to make minimum purchases 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 70 sales representatives to market to
these practices, and we anticipate the expansion of this sales force to 100
sales representatives during 1999. 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 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.
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
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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
- 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 an education program entitled "Gateway to Midlife
Health -- A Better Way," to educate OB/GYNs, nurse practitioners and physician
assistants about midlife 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 nurse practitioners and physician
assistants focused on women's
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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 nurse practitioners and physician assistants
focused on women's health in 1999. The Health Advisory Board is 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. 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
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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.
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
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 Corporation, 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 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
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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, 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.
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.
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
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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.
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 pay 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.
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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 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. 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 or for
other reasons. This could force us to discontinue sales of key products and
could harm our results of operations."
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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,
for example, 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.
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 are creating with SF Interactive will be assigned to us
upon payment to SF Interactive.
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. Certain distribution
agreements also include rights to use the manufacturer's trademarks, such as the
Ortho-Est(R) and the 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
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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 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
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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 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.
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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 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.
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<PAGE> 51
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.
50
<PAGE> 52
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
51
<PAGE> 53
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., Collateral Therapeutics, 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
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<PAGE> 54
specializing in investment opportunities in health care companies. From October
1991 to 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
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<PAGE> 55
of Nancy Casey Public Relations. Ms. Casey was a Sales Assistant with Dale
Fitzmorris from 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.
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<PAGE> 56
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 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
55
<PAGE> 57
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 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
Corporation, 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 $5,000 per month. Outside directors of Women
First who are not employees of Women First also are eligible to receive stock
options under the Women First Long-Term Incentive Plan. See "-- Long-Term
Incentive Plan."
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
President and Chief Executive Officer and our four most highly compensated
executive officers other than the President and Chief Executive Officer who were
serving as executive officers at the end of the last completed fiscal year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------ COMPENSATION
OTHER ANNUAL SHARES
NAME AND COMPENSATION UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) 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.
57
<PAGE> 59
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 exercise price per share of each option equalled the fair market value
of the common stock as determined by the board of directors as of the date of
grant in light of the information then available. However, in anticipation of
this offering, Women First retained a third-party appraiser and valuation firm
to assist management in reevaluating the fair market value of Women First's
common stock at various key dates in 1998. As a result of this reevaluation,
Women First determined that the fair market value of its common stock exceeded
the exercise prices of various options granted during 1998 for financial
reporting purposes. Women First has used these revised fair market values for
purposes of calculating the potential realizable values in the table below.
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. 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
SECURITIES TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION 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 $93,984 $573,302 $1,313,523
Jeffrey W. Raser..... 45,750 2.97% $0.84 3/30/08 5,340 32,574 74,632
Robert L. Jones...... 45,750 2.97% $0.84 3/30/08 5,340 32,574 74,632
Anthony P. Maris..... 45,750 2.97% $0.84 3/30/08 5,340 32,574 74,632
</TABLE>
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<PAGE> 60
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information concerning exercises of options to
purchase Women First's common stock in the fiscal year ended December 31, 1998
and unexercised options held as of December 31, 1998 by the Named Executive
Officers. No options were exercised by any of the Named Executive Officers
during fiscal 1998.
Women First calculated the value of unexercised in-the-money options at
December 31, 1998 in the table below by determining the difference between the
fair market value of the securities underlying the options at December 31, 1998
and the exercise price of the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
EXERCISABLE(#)/ EXERCISABLE($)/
NAME UNEXERCISABLE(#) UNEXERCISABLE($)
---- ---------------------- ---------------------
<S> <C> <C>
Edward F. Calesa........................... -- --
David F. Hale.............................. 283,092/522,108 $1,155,015/$2,130,201
Jeffrey W. Raser........................... --/45,750 --/186,660
Robert L. Jones............................ --/45,750 --/186,660
Anthony P. Maris........................... 33,341/12,409 136,031/50,629
</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 and 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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<PAGE> 61
- 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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- 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 2,277,435 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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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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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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<PAGE> 71
(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) 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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<PAGE> 72
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 Corporation, 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. For more information
concerning the Ortho-Est(R) agreement, 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
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<PAGE> 73
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.
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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<PAGE> 74
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 and shares of stock issuable
upon conversion or exercise of outstanding securities 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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<PAGE> 75
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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<PAGE> 76
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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<PAGE> 77
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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<PAGE> 81
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 and its securityholders 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
- specified transfers provided that the transferees enter into lock-up
agreements similar to those described in the previous paragraph.
The underwriters do not presently intend to grant permission to sell any
securities subject to the lock-up agreements.
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 other factors deemed relevant. Women First has filed an
application with the Nasdaq National Market for quotation of its common stock
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
80
<PAGE> 82
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."
81
<PAGE> 83
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 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.
82
<PAGE> 84
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-21
Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)............................ F-22
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-23
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-24
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-25
Notes to Financial Statements............................... F-26
PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Statement of Operations for the year ended
December 31, 1998 (unaudited)............................. F-30
</TABLE>
F-1
<PAGE> 85
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> 86
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.................................. -- 5,367,324
Short-term notes payable to related parties............... -- 1,955,307
----------- ------------ ------------
Total current liabilities.......................... 245,026 4,068,153 10,210,815
Deferred credit............................................. -- 487,593 452,157
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 18,375,193 24,613,159 24,636,711
Deferred compensation..................................... -- (560,003) (982,981) (982,981)
Accumulated deficit....................................... (1,727,434) (9,869,976) (15,971,913) (15,971,913)
----------- ------------ ------------ ------------
Total stockholders' equity......................... 531,044 7,947,917 7,594,231 $ 7,594,231
----------- ------------ ------------ ------------
Total liabilities and stockholders' equity......... $ 776,070 $ 12,503,663 $ 18,257,203
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 87
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................... -- -- 3,135,707 -- 2,747,417
Marketing and sales............. -- 790,703 5,478,056 317,985 4,801,009
General and administrative...... -- 975,244 5,912,066 432,321 2,584,069
Research and development........ -- -- 572,688 -- 290,440
---------- ----------- ------------ ---------- -----------
Total costs and
expenses.............. -- 1,765,947 15,098,517 750,306 10,422,935
---------- ----------- ------------ ---------- -----------
Loss from operations.............. -- (1,765,947) (10,264,321) (750,306) (6,120,244)
Interest income, net.............. -- 38,513 394,345 118,818 18,307
---------- ----------- ------------ ---------- -----------
Net loss.......................... $ -- $(1,727,434) $ (9,869,976) $ (631,488) $(6,101,937)
========== =========== ============ ========== ===========
Net loss per share (basic and
diluted)........................ $ -- $ (0.23) $ (1.28) $ (0.08) $ (0.79)
========== =========== ============ ========== ===========
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> 88
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................. -- -- -- -- -- -- -- 672,442
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) 18,375,193
<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................. -- (672,442) -- --
Amortization of deferred
compensation.................. -- 112,439 -- 112,439
Net loss........................ -- -- (9,869,976) (9,869,976)
----------- --------- ------------ -----------
Balance at December 31, 1998...... -- (560,003) (9,869,976) 7,947,917
</TABLE>
F-5
<PAGE> 89
<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) 18,375,193
Issuance of Series A Preferred
Stock for cash (unaudited).... 550,000 5,500 -- -- -- -- -- 5,280,718
Deferred compensation related to
stock options (unaudited)..... -- -- -- -- -- -- -- 710,034
Amortization of deferred
compensation (unaudited)...... -- -- -- -- -- -- -- --
Discount on Short-Term Notes
Payable related to grant of
common stock warrants
(unaudited)................... -- -- -- -- -- -- -- 174,977
Change in par value of common
stock from $.01 to $.001
(unaudited)................... -- -- -- -- -- (69,174) (3,063) 72,237
Net loss (unaudited)............ -- -- -- -- -- -- -- --
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at March 31, 1999
(unaudited)..................... 2,200,000 $22,000 594,000 $5,940 7,685,993 $ 7,686 $(99,660) $24,613,159
========= ======= ======= ====== ========= ======== ======== ===========
<CAPTION>
TOTAL
SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998...... -- (560,003) (9,869,976) 7,947,917
Issuance of Series A Preferred
Stock for cash (unaudited).... -- -- -- 5,286,218
Deferred compensation related to
stock options (unaudited)..... -- (710,034) -- --
Amortization of deferred
compensation (unaudited)...... -- 287,536 -- 287,536
Discount on Short-Term Notes
Payable related to grant of
common stock warrants
(unaudited)................... -- -- -- 174,977
Change in par value of common
stock from $.01 to $.001
(unaudited)................... -- -- -- --
Net loss (unaudited)............ -- -- (6,101,937) (6,101,937)
----------- --------- ------------ -----------
Balance at March 31, 1999
(unaudited)..................... $ -- $(982,981) $(15,971,913) $ 7,594,231
=========== ========= ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 90
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) $(9,869,976) $ (631,488) $(6,101,937)
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 10,187 287,056
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................. -- 118,652 558,948 36,350 480,833
---------- ----------- ----------- ---------- -----------
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> 91
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> 92
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 would be
recognized in the period of impairment.
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 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.
F-9
<PAGE> 93
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 over the terms of the contract or upon completion of certain
performance requirements of the contracts. 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 to review the operating results of the
business as one operating segment which is a specialty health care company.
F-10
<PAGE> 94
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss 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.
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.
F-11
<PAGE> 95
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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) $(10,665,398)
Net loss per share............................. $ (0.44) $ (1.39)
</TABLE>
F-12
<PAGE> 96
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>
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> 97
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.
As part of the Stock Purchase Agreement, the Company agreed to certain
restrictions including capital expenditure limits, contractual or commitment
limitations, limits on
F-14
<PAGE> 98
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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 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.
F-15
<PAGE> 99
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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>
F-16
<PAGE> 100
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
In February 1999, the shareholders approved an increase in the number of
shares available in the Long Term Incentive Plan to 2,277,435.
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.
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................................. $(9,925,000)
Adjusted pro forma net loss per share....................... $ (1.29)
</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
F-17
<PAGE> 101
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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 $672,442
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 $710,084 during the first quarter of 1999. There are 2,084,254
options outstanding at March 31, 1999.
8. RELATED PARTY
In July 1998, the Company signed an exclusive distribution agreement with
Ortho-McNeil Pharmaceutical Corporation ("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. In connection
with an adjustment related to product purchases in 1998, the Company deferred
$488,000 of a payment received from Ortho which will be amortized to cost of
sales over the next four years. During 1998 and for the first three months of
1999, $2,515,000 and $1,758,000 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.
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.
F-18
<PAGE> 102
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS (CONTINUED)
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>
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.
<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 $8,244,000 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.
F-19
<PAGE> 103
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $175,000 to be amortized over the
life of the short-term notes for these warrants. 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 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.
F-20
<PAGE> 104
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-21
<PAGE> 105
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-22
<PAGE> 106
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-23
<PAGE> 107
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-24
<PAGE> 108
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-25
<PAGE> 109
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-26
<PAGE> 110
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-27
<PAGE> 111
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-28
<PAGE> 112
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-29
<PAGE> 113
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............... 3,135,707 1,131,352 -- 4,267,059
Marketing and sales......... 5,478,056 1,360,357 -- 6,838,413
General and
administrative........... 5,912,066 356,600 398,755 6,668,421
Research and development.... 572,688 -- -- 572,688
------------ ---------- --------- ------------
Total costs and expenses...... 15,098,517 2,848,309 398,755 18,346,581
------------ ---------- --------- ------------
Loss from operations.......... (10,264,321) (401,337) (398,755) (11,065,414)
Interest income............... 394,345 4,670 -- 399,015
------------ ---------- --------- ------------
Net loss...................... $ (9,869,976) $ (396,667) $(398,755) $(10,665,398)
============ ========== ========= ============
Pro forma net loss per share
(basic and diluted)......... $ (1.28) $ (1.08)
============ ============
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-30
<PAGE> 114
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 18
How We Intend to Use the Proceeds from
the Offering........................ 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Information......................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 32
Management............................ 51
Health Advisory Board................. 65
Principal Stockholders................ 69
Certain Transactions.................. 71
Shares Eligible for Future Sale....... 73
Description of Capital Stock.......... 74
Underwriting.......................... 79
Legal Matters......................... 82
Experts............................... 82
Available Information................. 82
Index to Consolidated 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
WOMENFIRST
WOMEN FIRST
HEALTHCARE, INC.
Common Stock
-----------------
PROSPECTUS
-----------------
Allen & Company Logo
NEEDHAM & COMPANY, INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 115
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............................... **
*Accounting Fees and Expenses.......................... **
*Printing Expenses..................................... **
*Blue Sky Fees and Expenses............................ 10,000
*Registrar and Transfer Agent Fees and Expenses........ **
*Miscellaneous......................................... **
----------
*Total....................................... $1,150,000
==========
</TABLE>
- -------------------------
* Estimated.
** To be supplied by amendment.
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> 116
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 placed an additional $10.5 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. 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.
(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 (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.
II-2
<PAGE> 117
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.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1(2) Form of Underwriting Agreement.
3.1(1) Third Amended and Restated Certificate of Incorporation.
3.2(3) Form of Fourth Amended and Restated Certificate of
Incorporation.
3.3(3) Amended and Restated Bylaws.
3.4(2) Form of Second Amended and Restated Bylaws.
4.1(2) Form of Specimen Common Stock Certificate.
5.1(2) 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(3) 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(3) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare, Inc.*
10.7(3) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical
Corporation 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(3) 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.
21.1(1) Subsidiaries.
23.1(3) Consent of Ernst & Young LLP.
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1).
</TABLE>
II-3
<PAGE> 118
<TABLE>
<S> <C>
24.1(1) Powers of Attorney (contained on the signature page of this
Registration Statement).
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.
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-4
<PAGE> 119
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN DIEGO, STATE OF
CALIFORNIA, ON MAY 20, 1999.
WOMEN FIRST HEALTHCARE, INC.
By: /s/ DAVID F. HALE
-----------------------------------
David F. Hale
President and CEO
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint David F. Hale and Debra P.
Crawford, and each of them, with full power of substitution and full power to
act without the other, his or her true and lawful attorney-in-fact and agent to
act for him or her in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file this Registration Statement, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the same as fully, to all intents and purposes, as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
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 May 20, 1999
- --------------------------------------------------- Director
Edward F. Calesa
/s/ DAVID F. HALE President and Chief May 20, 1999
- --------------------------------------------------- Executive Officer
David F. Hale (Principal Executive
Officer)
/s/ DEBRA P. CRAWFORD Vice President and Chief May 20, 1999
- --------------------------------------------------- Financial Officer
Debra P. Crawford (Principal Financial
Officer and Principal
Accounting Officer)
/s/ CHARLOTTE BEERS Director May 20, 1999
- ---------------------------------------------------
Charlotte Beers
/s/ MEREDITH A. BROKAW* Director May 20, 1999
- ---------------------------------------------------
Meredith A. Brokaw
</TABLE>
II-5
<PAGE> 120
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GARY V. PARLIN* Director May 20, 1999
- ---------------------------------------------------
Gary V. Parlin
/s/ RICHARD L. RUBIN* Director May 20, 1999
- ---------------------------------------------------
Richard L. Rubin
/s/ JOHN SIMON* Director May 20, 1999
- ---------------------------------------------------
John Simon
*By: /s/ DAVID F. HALE
---------------------------------------------
David F. Hale
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE NO.
-------- ----------- ------------
<S> <C> <C>
1.1(2) Form of Underwriting Agreement..........................
3.1(1) Third Amended and Restated Certificate of
Incorporation...........................................
3.2(3) Form of Fourth Amended and Restated Certificate of
Incorporation...........................................
3.3(3) Amended and Restated Bylaws.............................
3.4(2) Form of Second Amended and Restated Bylaws..............
4.1(2) Form of Specimen Common Stock Certificate...............
5.1(2) 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(3) 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(3) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare,
Inc.*...................................................
10.7(3) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical
Corporation 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(3) 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.
21.1(1) Subsidiaries............................................
23.1(3) Consent of Ernst & Young LLP............................
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1)...
24.1(1) Powers of Attorney (contained on the signature page of
this Registration Statement)............................
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 3.2
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WOMEN FIRST HEALTHCARE, INC.
Women First HealthCare, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. The Corporation's original Certificate of Incorporation was filed on
___________, 1996 and the Corporation's original name was "Healthy Living for
Women, Inc."
2. That by action taken by unanimous written consent of the Board of
Directors on March ___, 1999 resolutions were duly adopted setting forth a
proposed amendment and restatement of the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and
directing its officers to submit said amendment and restatement to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment and restatement is as follows:
"THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows, subject to the
required consent of the stockholders of the Corporation:
FIRST: The name of the Corporation (hereinafter the "Corporation") is
Women First HealthCare, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the Registered
Agent of the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue shall be forty-five million (45,000,000), divided as
follows: (i) forty million (40,000,000) shares of Common Stock with a par value
of $.001 per share, and (ii) five million (5,000,000) shares of Preferred Stock
with a par value of $.001 per share.
Shares of Preferred Stock may be issued from time to time in one or more
series, each of such series to have such terms as stated in the resolution or
resolutions providing for the establishment of such series adopted by the Board
of Directors of the Corporation as hereinafter provided. Authority is hereby
expressly granted to the Board of Directors of the Corporation to
<PAGE> 2
issue, from time to time, shares of Preferred Stock in one or more series, and,
in connection with the establishment of any such series by resolution or
resolutions, to determine and fix such voting powers, full or limited, or no
voting powers, and such other powers, designations, preferences and relative,
participating, optional, and other special rights, and the qualifications,
limitations, and restrictions thereof, if any, including, without limitation,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated in such resolution or resolutions, all to the
fullest extent permitted by the General Corporation Law of the State of
Delaware. Without limiting the generality of the foregoing, the resolution or
resolutions providing for the establishment of any series of Preferred Stock
may, to the extent permitted by law, provide that such series shall be superior
to, rank equally with or be junior to the Preferred Stock of any other series.
Except as otherwise expressly provided in the resolution or resolutions
providing for the establishment of any series of any series of Preferred Stock,
no vote of the holders of shares of Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Amended and Restated
Certificate of Incorporation.
FIFTH: (1) The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors having that number of
directors set out in the Bylaws of the Corporation as adopted or as set forth
from time to time by a duly adopted amendment thereto by the Board of Directors
or stockholders of the Corporation.
(2) The directors of the Corporation, other than directors
elected by one or more series of Preferred Stock, shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
(other than directors elected by one or more series of Preferred Stock)
constituting the entire Board of Directors. Each director (other than directors
elected by one or more series of Preferred Stock) shall serve for a term ending
on the date of the third annual meeting of stockholders next following the
annual meeting at which such director was elected, provided that directors
initially designated as Class I directors shall serve for a term ending on the
date of the 2000 annual meeting, directors initially designated as Class II
directors shall serve for a term ending on the date of the 2001 annual meeting,
and directors initially designated as Class III directors shall serve for a term
ending on the date of the 2002 annual meeting. Notwithstanding the foregoing,
each director shall hold office until such director's successor shall have been
duly elected and qualified or until such director's earlier death, resignation
or removal. If the number of directors (other than directors elected by one or
more series of Preferred Stock) is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no event will a decrease in the number
of directors shorten the term of any incumbent director. Vacancies on the Board
of Directors resulting from death, resignation, removal or otherwise and newly
created directorships resulting from any increase in the number of directors
(other than directors elected by one or more series of Preferred Stock) may be
filled solely by a majority of the directors then in office (although less than
a quorum) or by a sole remaining director, and each director so elected shall
hold office for a term that shall coincide with the remaining term of the class
to which such director shall have been elected. Whenever the holders of one or
more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the nomination, election,
term of office, filling of vacancies, removal and other features
2
<PAGE> 3
of such directorships shall not be governed by this ARTICLE FIFTH unless
otherwise provided for in the certificate of designation for such classes or
series.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation and for the further
definition of the powers of the Corporation and its directors and stockholders:
(1) The Board of Directors shall have the power to adopt, amend,
alter, rescind or repeal the bylaws of the Corporation. Notwithstanding the
foregoing, the stockholders may adopt, amend, alter, rescind or repeal the
bylaws with, in addition to any other vote required by law, the affirmative vote
of the holders 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.
(2) Elections of directors need not be by written ballot unless
the bylaws of the Corporation so provide.
(3) Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of stockholders
at an annual or special meeting duly noticed and called in accordance with
Delaware Law, and may not be taken by written consent of stockholders without a
meeting.
(4) Special meetings of stockholders may be called by the Board
of Directors, the Chairman of the Board of Directors, the President or the
Secretary of the Corporation and may not be called by any other person;
provided, however, that if and to the extent that any special meeting of
stockholders may be called by any other person or persons specified in any
provisions of the Certificate of Incorporation or any amendment thereto or any
certificate filed under Section 151(g) of the Delaware General Corporation Law,
then such special meeting may also be called by the person or persons, in the
manner, at the times and for the purposes so specified.
EIGHTH:(a) Subject to Article EIGHTH (c), 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 is or was a director
or officer 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, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
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 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
reasonably
3
<PAGE> 4
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) Subject to Article EIGHTH (c), 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 is
or was a director or officer 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, employee benefit plan or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery 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 the Court of Chancery or such other court shall deem proper.
(c) Any indemnification under this Article EIGHTH (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 or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Article EIGHTH (a) or Article EIGHTH (b), as the case may
be. Such determination shall be made (i) 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 (ii) 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 (iii) by the stockholders. To the extent,
however, that a present or former director or officer of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Article EIGHTH (a) or Article EIGHTH (b), or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
(d) Notwithstanding any contrary determination in the specific
case under Article EIGHTH (c), and notwithstanding the absence of any
determination thereunder, any present or former director or Officer of the
Corporation may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Article
EIGHTH (a) and Article EIGHTH (b). The basis of such indemnification by a court
shall be a determination by such court that indemnification of such person is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Article EIGHTH (a) or Article EIGHTH (b), as the case may
be. Neither a contrary determination in the specific case under Article EIGHTH
(c) nor the absence of any determination thereunder shall be a defense to such
application or create a presumption that such person seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Article EIGHTH (d) shall be given to the
Corporation promptly upon the filing
4
<PAGE> 5
of such application. If successful, in whole or in part, such person seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
(e) Expenses incurred by a person who is or was a director or
officer of the Corporation in defending or investigating a threatened or pending
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 such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article EIGHTH.
(f) The indemnification and advancement of expenses provided by
or granted pursuant to this Article EIGHTH shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Article EIGHTH (a) and Article EIGHTH (b) shall be made to the
fullest extent permitted by law. The provisions of this Article EIGHTH shall not
be deemed to preclude the indemnification of any person who is not specified in
Article EIGHTH (a) or Article EIGHTH (b) but whom the Corporation has the power
or obligation to indemnify under the provisions of the GCL, or otherwise.
(g) The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director or officer 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, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article EIGHTH
or Section 145 of the GCL.
(h) For purposes of this Article EIGHTH, 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 or officers, so that any
person who is or was a director or officer 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, employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article EIGHTH with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article EIGHTH, 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 any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such person 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
5
<PAGE> 6
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article EIGHTH. For purposes of any
determination under Article EIGHTH (c), a person shall be deemed to have acted
in good faith in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" is used in this Article EIGHTH (h)
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Article EIGHTH (h) shall not be deemed to be exclusive or to
limit in any way the circumstances in which a person may be deemed to have met
the applicable standard of conduct set forth in Article EIGHTH (a) or (b), as
the case may be.
(i) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article EIGHTH shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director or officer of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(j) Notwithstanding anything contained in this Article EIGHTH to
the contrary, except for proceedings to enforce rights to indemnification (which
shall be governed by Article EIGHTH (d)), the Corporation shall not be obligated
to indemnify any person in connection with a proceeding (or part, thereof)
initiated by such person unless such proceeding (or part thereof) was authorized
or consented to by the Board of Directors of the Corporation.
(k) The Corporation may, to the extent authorized from time to
time by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article EIGHTH to directors and officers of the
Corporation.
NINTH: A director shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this Article shall not eliminate or limit the liability
of a director (i) for any breach of his duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under Section
174 of the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derives an improper personal benefit.
If the General Corporation law of the State of Delaware is
hereafter amended to authorize corporate action further limiting or eliminating
the personal liability of directors, then the liability of the director to the
Corporation shall be limited or eliminated to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article by the stockholders of the
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Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
TENTH: Each reference in this Certificate of Incorporation to any
provision of the Delaware General Corporation Law refers to the specified
provision of the General Corporation Law of the State of Delaware, as the same
now exists or as it may hereafter be amended or superseded.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation; provided, however,
that no amendment, alteration, change or repeal may be made to Article FIFTH or
SEVENTH without the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding voting stock of the corporation,
voting together as a single class."
3. That said Amended and Restated Certificate of Incorporation
has been consented to and authorized by the holders of a majority of the issued
and outstanding stock entitled to vote by written consent given in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware.
4. That said Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the applicable provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Women First HealthCare, Inc. has caused this
Certificate to be signed by David F. Hale, its President and Chief Executive
Officer and ______________, its Secretary, this ___th day of March, 1999.
Women First HealthCare, Inc.
a Delaware corporation
By: ______________________________
Name: David F. Hale
Title: President and Chief Executive
Officer
ATTEST
__________________________
Name: ____________________
Title: Secretary
7
<PAGE> 1
EXHIBIT 3.3
AMENDED AND
RESTATED
BY-LAWS
OF
WOMEN FIRST HEALTHCARE, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
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 and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall, except as otherwise provided in the Certificate
of Incorporation, elect by a plurality vote a Board of Directors and transact
such other business as may properly be brought before the meeting. Written
notice of the Annual Meeting stating the place, date and hour of
<PAGE> 2
the 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.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President, (iii) the Secretary or (iv) any Assistant Secretary, if
there be one, and shall be called by any such officer at the request in writing
of any one or more members of the Board of Directors or upon the affirmative
vote, verified in writing, of the holders of twenty-five (25%) percent of the
outstanding shares of Common Stock. Written notice of a Special Meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and, entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to 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 noticed. 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 entitled to vote at
the meeting.
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Section 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast
at such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Such written consent
shall be deemed effective upon receipt by the Secretary of the Corporation of a
copy of such written consent executed by each stockholder of record by
facsimile, telex, telegram or cable. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation 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 meetings arranged in
alphabetical order, and showing the address of each stockholder and the
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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 of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall consist of such number of directors as is provided in the certificate of
incorporation, or if not so provided, as shall be fixed from time to time by the
Board of Directors. Except as provided in Section 2 of this Article or in the
Certificate of Incorporation, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders, and each director so elected
shall hold office until the next Annual Meeting and until his successor is duly
elected and qualified, or until his earlier resignation or removal. Any director
may resign at any time upon notice to the Corporation. Directors need not be
stockholders.
Section 2. Removal and Vacancies. At any time, the stockholders may
remove any director or the entire Board of Directors and elect directors to fill
the vacancies created by
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such removal, unless otherwise provided by law. A director may be so removed,
with or without cause, at any time.
In the event that a vacancy is created on the Board of Directors at any
time, if not filled by the Board of Directors, the stockholders shall meet or
act by consent as promptly as practicable, and in any event within twenty (20)
days of the occurrence of such vacancy, for the purpose of electing a new
director.
Section 3. Duties and Powers. The business, operations and affairs of
the Corporation shall be managed by the Board of Directors; provided, however,
that the Board of Directors may delegate such management responsibilities to
such officer(s) as they may appoint to the extent permitted by the Certificate
of Incorporation, these By-Laws and the laws of the State of Delaware. All
decisions concerning the affairs, operations and policies of the Corporation
shall be decided by the Board of Directors.
Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Any one or more members of the Board of Directors, or the
stockholders, acting by a majority vote, may call a meeting of the Board of
Directors or require action by consent for the Directors, including a meeting by
written consent, at any time. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than
forty-eight (48) hours before the date of the meeting, by telephone or telegram
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
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Section 5. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act 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. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, 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 the members of the Board of Directors 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 of Directors or
committee. Such written consent shall be deemed effective upon receipt by the
Secretary of the Corporation of a copy of such written consent by facsimile,
telex, telegram or cable executed by each director.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each committee
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to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he 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 absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, 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. Each committee shall keep regular minutes and
report to the Board of Directors when required.
Section 9. Compensation. 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.
Section 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the
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contract or transaction, or solely because his or their votes are counted for
such purpose if (i) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice-Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
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Section 2. Election. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation 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 of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice-President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. Except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
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Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
Section 5. President. The President shall be the Chief Executive Officer
of the Corporation. He shall have such powers and perform such duties as are
prescribed by the Board of Directors. Subject to the control and direction of
the Board of Directors, the President may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. In general,
he shall perform all duties incident to the office of President, as herein
defined, and all such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 6. Vice-Presidents. At the request of the President or in his
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice-President or the Vice-Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform 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. Each
Vice-President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice-President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
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.
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Section 7. Secretary. The Secretary shall attend all meetings of the
stockholders and record all the proceedings thereat in a book or books to be
kept for that purpose; the Secretary shall also perform like duties for the
Board of Directors and for standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such 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 signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall 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. The Treasurer 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 President and the Board of Directors, at
its regular meetings, or when the Board of Directors
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so requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer 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 office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise provided in
these By-Laws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice-President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice-President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer 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 office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
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Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature 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 were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate 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, the
Board of Directors may, in its discretion and as a condition precedent to the
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issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors 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 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, 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, in advance,
a record date, which shall not be more than sixty days 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 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 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on
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its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee 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 States mail. Written notice may also be given
personally or by facsimile, telex, telegram or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, 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 equivalent thereto.
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, and may be paid in cash, in property, or in shares of the capital
stock. 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 Board of
Directors from time
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to time, in its absolute discretion, deems proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. 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". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, 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 is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such
- 16 -
<PAGE> 17
action, suit or proceeding if he acted. in good faith and in a manner he
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 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
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
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, 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 is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery 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
- 17 -
<PAGE> 18
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article VIII (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 has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) 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 (ii) 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 (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to
- 18 -
<PAGE> 19
the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnerships, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 1 or
2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VIII. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
- 19 -
<PAGE> 20
Section 6. Expenses Payable in Advance. Expenses incurred by a director
or officer in defending or investigating a threatened or pending action, suit or
proceeding may 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 such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII but whom the Corporation has the power or obligation
to indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 8. Insurance. The Corporation may 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 a director or officer of the Corporation
serving at the request of the Corporation 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 and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation
- 20 -
<PAGE> 21
would have the power or the obligation to indemnify him against such liability
under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
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, 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 a director or officer of such constituent corporation serving at the request
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article VIII, 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 any 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 Article
VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who
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<PAGE> 22
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.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director, officer,
employee or agent in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Subject to the Certificate of Incorporation, these By-Laws
may be altered, amended or repealed, in whole or in part, or new By-Laws may be
adopted by the stockholders or by the Board of Directors, provided, however,
that notice of such alteration, amendment, repeal or adoption of new By-Laws be
contained in the notice of such meeting of stockholders or Board of Directors as
the case may be. Subject to the Certificate of Incorporation, all such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
- 22 -
<PAGE> 1
EXHIBIT 10.4
WOMEN FIRST HEALTHCARE, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
<PAGE> 2
WOMEN FIRST HEALTHCARE, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
--------------------------------------
The Women First HealthCare Management Incentive Compensation Plan is designed to
offer incentive compensation to key Associates by rewarding the achievement of
corporate goals and specifically measured individual goals that are consistent
with and support overall corporate goals. The Management Incentive Compensation
Plan will create an environment which will focus key Associates on the
achievement of objectives. Since cooperation between departments and Associates
will be required to achieve corporate objectives which will represent a
significant portion of the Compensation Plan, the Plan should help foster
improved teamwork and a more cohesive management team. The Company reserves the
right to revise or discontinue the Plan at any time. Key Associates who may be
eligible to participate in the Plan shall be selected in the sole discretion of
the Company.
PURPOSE OF THE PLAN
The Women First HealthCare Management Incentive Compensation Plan (the "Plan")
is designed to:
- Provide an incentive program to achieve overall corporate objectives
and to enhance shareholder value
- Reward those individuals who significantly impact corporate results
- Encourage increased teamwork among all disciplines within the Company
- Incorporate an incentive program in Women First HealthCare overall
compensation program to help attract and retain key Associates
PLAN GOVERNANCE
The overall Plan will be governed by the Compensation Committee of the Board of
Directors. The President and CEO of Women First HealthCare will be responsible
for administration of the Plan. The Compensation Committee of the Board will be
responsible for approving any incentive awards to officers of the Company and
for determining and approving any incentive awards to the President and CEO.
CORPORATE AND INDIVIDUAL PERFORMANCE
Prior to the beginning of the Plan year, the President and CEO will present to
the Board a list of the overall corporate objectives for the coming year, which
are subject to approval by the Board. All participants in the Plan will then
develop a list of key individual objectives which will be approved by the
responsible Vice President and by the President and CEO.
<PAGE> 3
The Plan will call for incentive awards based on the achievement of annual
corporate and individual objectives that have been approved as indicated above.
The relative weight between corporate and individual performance factors will
vary based on levels within the organization. The weighting will be reviewed
annually and be adjusted as necessary or appropriate. The weighting for 1998
will be as follows:
<TABLE>
<CAPTION>
Corporate Individual
--------- ----------
<S> <C> <C>
President and CEO 100%
Vice-President/Executive
Directors 75% 25%
Directors 50% 50%
Managers 50% 50%
</TABLE>
TARGET AWARDS MULTIPLIER
Incentive awards will be determined by applying an "achievement multiplier" to
the base salary of Associates in the Plan. The following target award
multipliers will be used in implementing the Plan:
<TABLE>
<CAPTION>
Position Target Award Multiplier
-------- -----------------------
<S> <C>
President and CEO 50%
Vice-Presidents/Officers 35%
Division Vice Presidents
Executive Directors 25%
Directors 20%
Manager (to be decided) 15%
</TABLE>
The target award multiplier will be used to establish the target cash award at
the beginning of each year. The target award multiplier will be equal to the
actual award multiplier used at year-end in situations where corporate and
individual objectives have been met for the year.
PERFORMANCE MEASUREMENT
The following scale will be used to determine the actual award multiplier based
upon measurement of corporate and individual performance versus objectives.
Separate payment multipliers will be established for both the individual and
the corporate
<PAGE> 4
components of each award. The same payment multiplier for the corporate
component of each participant's annual award shall be used for all Plan
participants in any given year.
<TABLE>
<CAPTION>
PERFORMANCE CATEGORY AWARD MULTIPLIER
<S> <C>
1. Performance for the year met or exceeded objectives or
was excellent in view of prevailing conditions 100% to 125%
2. Performance generally met the year's objectives or was
very acceptable in view of prevailing conditions 75% to 100%
3. Performance for the year met some but not all objectives 25% to 75%
4. Performance for the year was not acceptable in view of
prevailing conditions 0%
</TABLE>
CALCULATION OF AWARD
Example 1 shows a sample cash award calculation under the Women First HealthCare
Management Incentive Compensation Plan. First, a total target award is
calculated by multiplying the Associates base salary by the target award
multiplier. This dollar figure is then divided between its corporate component
and its individual component based on the performance factor mix for that
specific position. This calculation establishes specific dollar target awards
for the performance period for both the individual and corporate components of
the award.
At the end of the performance period, corporate and individual award multipliers
will be established using the criteria described above. The corporate award
multiplier, which is based on overall corporate performance, is used to
calculate actual corporate performance awards for all Plan participants. This is
done by multiplying the target corporate award established for each individual
at the beginning of the performance period by the actual award multiplier. The
individual award multiplier, which is based on an individual's performance
against objectives, is used in the same way to calculate the actual individual
performance award.
EXAMPLE 1: CASH AWARD CALCULATION
<TABLE>
<CAPTION>
Position Executive Director
<S> <C>
Base Salary $120,000
1998 Target Award Multiplier 25%
1998 Target Award $ $ 30,000
Target Award Components (based on Performance Factor Mix):
Target award based on Corporate performance(75%) $ 22,500
Target award based in Individual performance(25%) $ 7,500
</TABLE>
<PAGE> 5
ACTUAL 1998 CASH AWARD CALCULATION:
Assumed Payment Multipliers Based on
Assessment of Corporate and Individual Performance
Corporate multiplier 75% - Performance generally met year's objectives
Individual multiplier 125% - Performance generally exceeded objectives
1998 Cash Award:
Corporate component $16,875 ($22,500 x 75%)
Individual component 9,375 ($7,500 x 125%)
-------
Total 1998 Cash Award $26,250
-------
PAYMENT OF THE AWARD
Annual performance reviews will be completed by January 31 and payment of the
Award will be made during the month of February after review and approval by
the President/CEO and the Compensation Committee of the Board of Directors. In
addition to the required review process, Award payments to the President/CEO
and to the Vice President - Finance will be made after the completion and
issuance of the Company's year-end audited Financial Statement.
<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 10.6
Distribution Agreement
This Distribution Agreement (this "Agreement") made as of the 1st day of
July, 1998 between Ortho-McNeil Pharmaceutical Corporation, a Delaware
corporation ("Ortho"), and Women First HealthCare, Inc., a Delaware corporation
("WFH").
WITNESSETH:
WHEREAS, Ortho, among other business activities, is involved in the
manufacture for sale of pharmaceutical products; and
WHEREAS, WFH, among other activities, is engaged in the marketing and
distribution for sale of pharmaceutical products; and
WHEREAS, WFH has agreed to market and distribute generic estropipate
manufactured by Ortho pursuant to that certain Distribution Agreement dated as
of December 6, 1997 by and between the parties hereto; and
WHEREAS, Ortho and WFH wish to enter into this Agreement for the marketing
and distribution by WFH of certain estropipate products supplied by Ortho or an
Affiliate thereof and labeled under the name Ortho-Est and/or such other label
as may be mutually agreed upon by Ortho and WFH and approved by the FDA.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I - Definitions
As used in this Agreement, the following terms have the meanings specified
or referred to in this Article I:
"Actual Net Sales" shall mean the amount invoiced by WFH for sales of
Products, less estimates which will be adjusted to actual on a periodic basis
of: (i) discounts, including cash discounts, discounts to managed care
organizations, rebates paid, credited, accrued or actually taken (including
government rebates such as Medicaid chargebacks), and retroactive price
reductions or allowances actually allowed or granted from the billed amount,
(ii) credits or allowances actually granted upon claims, rejections or returns
of such sales of Products, and (iii) taxes, duties or other governmental
charges levied on or measured by the billing amount when included in billing,
as adjusted for rebates, chargebacks, and refunds.
<PAGE> 2
"Affiliate" shall mean a person, firm or entity which directly or
indirectly through one or more persons, firms or entities controls, is
controlled by, or is under common control with such person, firm or entity.
"Claims(s)" shall mean claim(s) that a Product delivered to WFH does not
conform to the Specifications or contains defects in design, material or
workmanship.
"Equalization Payment" shall have the meaning set forth in Section
3.1(b)(ii) hereof.
"FDA" shall mean the United States Federal Food and Drug Administration.
"Fiscal Quarter" shall mean a fiscal quarter of WFH.
"Fiscal Year" shall mean a fiscal year of WFH.
"Forecasted Sales" shall mean, with respect to a given period, the amount
of "Net Trade Sales" with respect to the Products for the applicable year as set
forth in the P&L, multiplied by the appropriate fraction for such period (i.e.,
one-twelfth for a month, one-fourth for a quarter, etc.).
"Incremental Sales" shall mean, with respect to a given period, the Actual
Net Sales of all Trade Units sold by WFH during such period, minus the
Forecasted Sales for such period.
"Invoiced Amount" shall mean the amount invoiced by Ortho to WFH for
Products shipped by Ortho to WFH in any given period with respect to such
period.
"Inventory Base Amount" shall mean the amount determined by multiplying
(i) the number of units of Product carried in WFH's inventory by (ii) the
applicable transfer price (as set forth on Exhibit D).
"Inventory Payment" shall mean, with respect to a given period, the amount
determined by multiplying the Prime Rate by *** of the Inventory Base Amount
for such period.
"P&L" shall mean the forecasted Income Statement (including forecasted
Pre-Tax Profits) with respect to the Products as agreed upon by both WFH and
Ortho and attached hereto as Exhibit B.
"Pre-Tax Profit" shall mean, with respect to a given period, the Income
Before Tax with respect to the Products for the applicable year as set forth in
the P&L, multiplied by the appropriate fraction for such period (i.e.,
one-twelfth for a month, one-fourth for a quarter, etc.).
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 3
"Prime Rate" shall mean the prevailing prime rate of interest (as
published in the Wall Street Journal), as determined on the last date of the
applicable Fiscal Month, divided by 12 (to reflect a monthly rate).
"Product" shall mean an estropipate product labeled and packaged under the
name OrthoEst and/or such other label as may be mutually agreed upon by Ortho
and WFH and approved by the FDA, in one of the dosage forms listed in Exhibit C
hereto, plus any additional dosage form for which Ortho subsequently receives
approval from the FDA.
"Rebate Payment" shall have the meaning set forth in Section 3.1(b)(i)
hereof.
"Royalty Payment" shall mean, with respect to a given period, an amount
equal to *** of the Incremental Sales for such period.
"Specifications" shall mean the USP specifications for estropipate in
tablet form and the labeling and packaging specifications as defined in Exhibit
E hereto.
"Territory" shall mean the United States of America (including Puerto
Rico).
"Trade Unit" shall mean a unit of Product to be sold for commercial
purposes and shall not include any sample Products.
"Transfer Price" shall mean with respect to a given year, the applicable
transfer price for the Products as set forth on Exhibit D.
ARTICLE II -- Description of Arrangement
2.1 Ortho hereby appoints WFH as the exclusive distributor of the
Products throughout the Territory and shall sell to WFH WFH's requirements for
Products and WFH shall purchase its requirements for Products, if any, from
Ortho; provided, however, that nothing contained herein shall prevent or
otherwise limit Ortho or any of its customers who purchase generic estropipate
products from Ortho as of the date of this Agreement from performing under any
such arrangements.
2.2 Ortho shall label or arrange for the labeling of Products sold
hereunder upon receipt of camera-ready artwork from WFH to meet the
specifications set forth on Exhibit E hereto; provided that prior to such time.
Ortho may satisfy its obligations under Section 2.1 above by supplying WFH with
its existing inventory of Ortho labeled Product. The parties shall consult
concerning appropriate labeling upon execution of this Agreement. WFH shall not
acquire any rights in or use any trademarks, trade names, service marks, or
other identification owned or used by Ortho or any of its Affiliates in
connection with the Products, except as contemplated by Section 2.8. The
parties also each agree to keep a copy of this Agreement for at least two years
after the final shipment or delivery of such Product labeled by or for WFH from
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
- 3 -
<PAGE> 4
the WFH distribution facility. Further, each party agrees to make such copy
available for inspection at any reasonable hour to any officer or employee of
the Federal Department of Health and Human Services who requests it. Ortho
shall not acquire any rights in or use any trademarks, trade names, service
marks, or other identification owned or used by WFH or any of its Affiliates
in connection with the Products.
2.3 WFH shall provide to Ortho on the first business day of each month a
forecast of its orders for each of the Products for the then-following 12
months, along with requested shipment dates for such Products. Each forecast
shall be binding upon WFH with respect to orders forecasted for the lesser of
(i) the then-following three months, or (ii) the remaining term of this
Agreement (the "Binding Forecast"). No change may be made in the Binding
Forecast for Products or the shipment dates requested therefor without the
prior consent of Ortho. Ortho shall use reasonable efforts to honor any
increase in the amount of Product forecasted for any month, up to 25% of the
amount originally forecasted for such month. In addition, in no event shall WFH
provide less than 90 days' notice of a requested shipment date. All orders for
Product shall be in whole number full batch lots.
2.4 Ortho agrees that it or its manufacturer of Products shall provide a
certificate of conformance to WFH for its review and records with each shipment
of Products to WFH. Ortho shall ship Products ordered by WFH via regular
freight in accordance with the delivery instructions set forth in such order.
All such shipments shall be FOB site of manufacture.
2.5 The terms and conditions of this Agreement shall supersede and
control any inconsistent terms and conditions in any form of order,
acknowledgment or invoice used by the parties.
2.6 Ortho shall use reasonable efforts to administer the current managed
care contracts and any other discount arrangements between Ortho and stated
customers as of the date hereof which relate to the Products until such
contracts or arrangements expire by their terms. WFH shall reimburse Ortho for
rebate amounts and any and all out-of-pocket costs associated or incurred with
respect to the administration of such programs with respect to the Products
within thirty (30) days of receipt of an invoice therefor. Ortho shall promptly
inform WFH of any amendment, modification or supplement to any such contracts
or arrangements and shall consult with WFH prior entering into any amendment,
modification or supplement to any such contracts or arrangements which
materially adversely affects the Products.
2.7 Ortho shall use reasonable efforts to maintain the patient
assistance programs in which Ortho participates as of the date hereof with
respect to the Products until such programs are transferred to WFH, provided
that each party shall use its reasonable best efforts to consummate such
transfer no later than six months from the date hereof; provided that any and
all costs associated or incurred with respect to the administration of such
programs with respect
-4-
<PAGE> 5
to the Products shall be passed on to, and shall be the sole responsibility of,
WFH (including without limitation, with respect to program administration,
Product cost, shipping, etc.).
2.8 Advertising and other promotional materials created by WFH to
promote sales of the Products, and any use of the ORTHO-EST Trademark, will be
submitted to Ortho for its prior written approval which approval shall not be
unreasonably withheld; provided that if no response is sent by Ortho within
thirty (30) days after receipt of such request, approval shall be deemed to
have been given. All promotional costs and expenses and all selling costs and
expenses shall be borne by WFH.
2.9 WFH shall, subject to the terms and conditions of this
Agreement, use commercially reasonable efforts to lawfully promote, distribute
and market the Products so as to optimize sales and distribution of the
Products, and shall do no act or thing to derogate from, diminish, or injure the
market for the Products. WFH shall only be authorized to promote, distribute,
market and sell the Products within the Territory.
2.10 Ortho shall prepare and file at its expense all regulatory
filings and perform any other regulatory compliance necessary to maintain all
licenses, permits and approvals required by any government agency in connection
with the manufacturing of the Products.
ARTICLE III -- Payments
3.1 (a) WFH shall pay for all Products shipped by Ortho to WFH at the
applicable Transfer Price within thirty (30) days of the date of invoice
therefor.
(b) Within (i) ten (10) business days following the end of each month
which is not the final month of the Fiscal Year (i.e. December), and (ii)
within thirty (30) calendar days following the end of the Fiscal Year, WFH
shall prepare and deliver to Ortho (x) a report containing its sales data for
such month on a month and year to date basis (including the number of units of
Product sold and the respective prices therefor and such other information
reasonably necessary to compute the payments contemplated in this Section 3.1),
and (y) a payment reconciliation report, on a month to date and year to date
basis, in substantially the form attached hereto as Exhibit A, which sets forth
the calculation, among other things, regarding the net payments to be made by
Ortho to WFH, or by WFH to Ortho, as the case may be, in connection with the
following:
(i) if, on a year to date basis, the *** (A) ***, with respect to
such period, then *** within ten (10) days after Ortho's receipt of the
such report; and
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
- 5 -
<PAGE> 6
(ii) if, on a year to date basis, the (A) *** for such period,
exceeds (B) the *** for such month, then *** within ten (10) days after the
delivery of such report; provided, however, that *** shall have no obligation
to *** with respect to such period if *** has not delivered *** for ***
for such period.
(c) During the twelve-month period (such period, the "First Contract
Year"; each subsequent twelve-month will be referred to as the "Second Contract
Year; Third Contract Year, etc.; any such 12-month period will be referred to as
a "Contract Year") commencing with the date that Product is first shipped to WFH
by Ortho, WFH will have an aggregate credit limit of ***; provided that ortho
will reassess WFH's credit terms from time to time as it may deem necessary;
and, provided further, that WFH shall prepay the amount that any orders together
with all other outstanding invoices exceed such credit limit.
(d) In the event that WFH fails to make any payment due hereunder in a
timely manner, WFH shall pay interest on such amounts at an annual rate equal
to the prevailing prime rate of interest (as published in the Wall Street
Journal on the due date (or the next day such periodical is published)), plus
600 basis points.
(e) Ortho shall be responsible for any and all rebates, chargebacks,
discounts, returned goods and the like for all Products sold by Ortho and its
Affiliates prior to the date of this Agreement. In the event that WFH issues any
rebates, refunds or customer credits in respect of any Products sold by Ortho
and its Affiliates prior to the date of this Agreement. WFH shall be entitled to
offset any amounts owed to Ortho under this Article III by the full amount of
any such rebates, refunds or customer credits. For purposes of this Section
3.1(e), (i) any non-expired Products shall be deemed to be the responsibility of
the party that invoiced such Product, (ii) any expired Products returned within
two (2) years of the date hereof shall be deemed to be the responsibility of
Ortho, and (iii) any expired Products returned two (2) years or more from the
date hereof shall be deemed to be the responsibility of WFH.
(f) Ortho shall sell to WFH its requirements for samples of Products
during the term of this Agreement, the transfer price of which shall be the
direct manufactured cost as set forth on Exhibit D hereof.
3.2 WFH will make and retain for a period of five years following
the end of each Fiscal Year, true and accurate records, files and books of
account containing all the data reasonably required for the full computation
and verification of the amounts to be paid pursuant to this Article III for
such Fiscal Year. Such books and records shall be in accordance with generally
accepted accounting principles consistently applied. WFH shall permit Ortho, at
Ortho's cost and expense, to inspect WFH's relevant books and records during
regular business hours upon two business days written notice.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-6-
<PAGE> 7
3.4 (a) All payments by WFH shall be made via wire transfer to the
account of Ortho as follows:
[Account Number: ***; ABA Number: ***]
JOM Pharmaceutical Services
c/o Harris Bank/Phone: ***
; or as otherwise provided by notice from Ortho from time to time.
(b) All payments by Ortho shall be made via wire transfer to the account
of WFH as follows:
Account Number: ***, ABA Number: ***
Women First HealthCare, Inc.
c/o Republic National Bank/Phone: ***
or as otherwise provided by notice from WFH from time to time.
ARTICLE IV - Claims for Nonconforming Product
4.1 During the First Contract Year, WFH shall have 45 days (and for
each Contract Year thereafter, 30 days) after receipt of any shipment of
products to examine such products to determine if they conform to the
Specifications and if they are free from defects in design, material and
workmanship, and, on the basis of such examination, to accept or reject such
shipment. All Products shall have a shelf-life of at least two (2) years prior
to the applicable expiration date at the time such Products are first received
and accepted by WFH. Any Claims shall be made by WFH in writing to Ortho,
indicating in detail the nonconforming characteristics of the Products. After
the submission of a Claim by WFH, Ortho shall, at WFH's option, provide WFH with
(i) a refund of the full amount paid by WFH for such Products, (ii) a credit
against future billings equal to the full amount paid by WFH for such Products,
or (iii) replacement for such Products. In no event shall Ortho be required to
accept the return of any Products or provide reimbursement or credit for any
Products to WFH solely because the expiration date for such Products shall have
passed, provided that such Products have been received and accepted by WFH at
least two (2) years prior to the applicable expiration date. Ortho shall pay for
all shipping costs of returning the Products that are the subject of Claims.
Ortho shall bear the risk of loss for such Products, beginning at such time as
they are taken at WFH's premises for return delivery.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-7-
<PAGE> 8
4.2 Any shipment of the Products to WFH for which WFH shall not submit a
Claim within 45 days for the First Contract Year (or 30 days for the subsequent
Contract Year) after delivery shall be deemed accepted. Upon acceptance, WFH
shall release Ortho from all Claims for non-conformity or defects except
Claims for latent defects which are not reasonably detectable at the time of
acceptance.
ARTICLE V - Warranties
5.1 Ortho warrants that any Products to be supplied to WFH hereunder
will, upon shipment, comply in all respects with the Specifications and the
specifications referred to in the Federal Food Drug and Cosmetic Act, and
regulations issued pursuant to that Act, including but not limited to,
regulations concerning current good manufacturing practices and the Quality
System Regulations (as defined by the FDA)(the "QSR's"). The foregoing warranty
shall not apply to any Products that after delivery to WFH (i) has been
tampered with or otherwise altered; (ii) has been subjected to misuse,
negligence or accident; or (iii) has been stored, handled or used in a manner
contrary to FDA or other governmental requirements or Ortho's written
instructions or applicable industry practices or standards. Subject to the
first sentence of this Section 5.1 and except as otherwise expressly provided
herein, ORTHO MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OR ANY OTHER MATTER WITH RESPECT TO THE
PRODUCT WHETHER USED ALONE OR IN COMBINATION WITH ANY OTHER MATERIAL. Ortho
agrees to bear the direct, incremental out-of-pocket costs reasonably incurred
by WFH due to the recall of any Product or seizure of any Product by
appropriate governmental authorities as a result of a wrongful act or omission
by Ortho, including without limitation negligence in manufacture or failure to
comply with applicable regulations concerning good manufacturing practices and
the QSR's. Ortho further represents and warrants that to the best of its
knowledge, (x) the Trademark and the Product do not infringe any patent,
trademark, service mark, trade name, copyright, trade secret or other
proprietary rights (collectively, Intellectual Property") of third parties in
the Territory, and (y) it is the holder of all Intellectual Property necessary
to perform its obligations hereunder. Ortho further agrees to notify WFH within
twenty-four hours of receipt of notice from any source of any and all adverse
reactions reported to Ortho and which were alleged to have been caused by any
Product or similar products, or any other issues related to the design,
materials, or workmanship of the Product or similar products reported to Ortho.
5.2 WFH warrants that it will comply with all laws, regulations and
orders in the United States, respecting sale of the Products. Without limiting
the generality of the foregoing, WFH specifically warrants that as of the
commencement of the First Contract Year and thereafter during the term of this
Agreement it will have in place an effective system for tracking Products in
the event a recall is necessary. WFH further agrees to use its reasonable best
efforts in the event of a recall to notify all Product purchasers of the recall
and to facilitate retrieval of Products recalled. WFH further agrees to notify
Ortho within twenty-four hours of receipt of
- 8 -
<PAGE> 9
notice from any source of any and all adverse reactions reported to WFH alleged
to have been caused by any Product or similar products, or any other issues
related to the design, materials or workmanship of the Product or similar
products reported to WFH. WFH 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 per occurrence.
5.3 Ortho hereby agrees to protect, indemnify, defend and hold
harmless WFH, its officers, directors, shareholders, Affiliates, agents and
employees from and against any and all claims, demands, actions, causes of
action or judgments of any kind, nature and description for injury to or death
of any person or persons whomsoever, together with costs and expenses thereto,
including reasonable attorneys' fees, arising out of any product liability
claims to the extent that Ortho has breached its warranties set forth in
Section 5.1 hereof.
5.4 WFH hereby agrees to protect, indemnify, defend and hold
harmless Ortho, its affiliates, officers, agents and employees from and against
any and all claims, demands, actions, causes of action or judgments of any
kind, nature and description as a result of WFH's breach of any of its
warranties contained herein and for any statement, representation or warranty
made by WFH or any of its agents with respect to a Product or its use that is
not first approved by Ortho in writing or that is not consistent with the
statements, representations or warranties contained in the Product labeling or
package insert.
5.5 Ortho and WFH agree to promptly notify each other of and
cooperate with and assist each other in investigating and answering any
customer and regulatory complaints and inquiries concerning any of the Products
without prejudice as to which party which might be ultimately liable or
responsible therefor. In connection therewith, each party will comply with the
current Ortho-McNeil Complaint Procedures, as may be amended from time to time.
5.6 Except as set forth in Section 5.3 hereof, neither party shall,
in any case, be liable to the other party for special, incidental or
consequential damages arising from breach of warranty, breach of contract,
negligence or any other legal theory. Such damages include, but are not limited
to, loss of profits or revenue, injury to business, cost of capital, cost of
any substitute product, facilities or services, or claims of customers of
either party for such damages.
5.7 The parties agree that WFH shall have no liability whatsoever
for claims in respect of any Products sold by Ortho and its Affiliates prior to
the date of this Agreement, including without limitation, any past or currently
pending or threatened personal injury claims relating to the use of such
products, and Ortho agrees to protect, indemnify, defend and hold harmless WFH,
its officers, directors, shareholders, Affiliates, agents and employees from
and against any and all claims, demands, actions, causes of action or judgments
of any kind, nature and description arising from or relating to such matters.
-9-
<PAGE> 10
5.8 (a) Subject to Section 6.2(a)(vi) hereof, Ortho agrees
that it shall use its reasonable best efforts to correct process revalidation
issues raised by the FDA related to the Products, including any reformulation of
the Products if Ortho in its sole discretion determines such reformulation to be
necessary; provided that Ortho shall be responsible for all costs associated
therewith; and, provided further, that Ortho shall have no obligation with
respect to the taking of such corrective action pursuant to this Section 5.8 or
otherwise in the event that in the reasonable determination of Ortho the
estimated cost of such corrective action would exceed $3,000,000 in the
aggregate; and, provided further, that in the event of any recall or failure to
supply Product which is a result of Ortho's breach of any representation or
warranty set forth in this Agreement, the parties shall agree to use good faith
efforts to renegotiate the payments to be made under Section 3.1 hereof.
(b) Each of the parties hereby agrees and acknowledges that
any failure to supply Products by Ortho to WFH as a result of the process
revalidation issues raised by the FDA related to the Products set forth in
Section 5.8(a) above, shall not be deemed a breach of Ortho's obligation to
supply Product to WFH pursuant to Article 2 hereof or otherwise.
ARTICLE VI -- Term
6.1 The term of this Agreement shall commence on the date hereof and end
on the date ten (10) years after the date hereof, unless sooner terminated as
provided herein. The term of this Agreement shall automatically renew for one
(1) year periods unless either party elects not to so renew the term which
election shall be made by such party giving written notice to the other party
of its election not to renew not less than 180 days prior to the end of the
initial or renewal term. In the event of any renewal of this Agreement, the
data set forth in the Exhibits attached hereto with respect to the year 2007
shall apply to any renewal term, unless otherwise agreed in writing by the
parties. Notwithstanding any provision of this Agreement to the contrary, upon
the expiration of termination of this Agreement, WFH shall have the right to
sell all Products remaining in its inventory in the Territory in a manner
consistent with its past sales practices during the term of this Agreement;
provided that WFH shall pay to Ortho with respect to such Products sold from
its inventory a royalty payment equal to [***] of the most current net trade
sales price multiplied by the inventory on-hand.
6.2 (a) This Agreement may be terminated upon notice:
(i) by Ortho, in the event WFH shall have failed to pay any amount
due under this Agreement when due, and WFH shall have failed to cure such
failure within ten (10) days after receipt of written notice thereof; provided,
however, that the right to so cure such failure within the periods provided
above shall only be available once in any calendar year; or
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
- 10 -
<PAGE> 11
(ii) by either party, in the event the other party have failed to a
material extent to perform or materially breached any term, condition,
representation or warranty herein, and such party shall have failed to cure
such failure or breach within 30 days after notice thereof; provided, however,
that in the event any such failure or breach cannot be cured within such 30
days it shall be sufficient if the party in default shall begin to cure such
violation promptly after receipt of the aforesaid notice and shall complete
such cure as soon as reasonably practicable; and, provided further, that the
right to so cure such failure or breach within the periods provided above shall
only be available once in any calendar year; or
(iii) by either party, in the event the other party makes an assignment
for the benefit of creditors, is the subject of proceedings in voluntary or
involuntary bankruptcy instituted on behalf of or against such party, or has a
receiver or trustee appointed for all or substantially all of its property;
provided that in the case of an involuntary bankruptcy proceeding, such right
to terminate shall only become effective if the other party consents to the
involuntary bankruptcy or such proceeding is not dismissed within ninety (90)
days after the filing thereof; or
(iv) by either party, in the event the other party shall be subject to an
action or proceeding (including without limitation seizure, criminal action,
debarment or administrative or judicial actions seeking any of the foregoing)
by the FDA or other applicable regulatory authority, except with respect to any
issues described in Section 5.8(a) hereof, that might reasonably be expected to
materially and adversely affect such party's ability to fulfill its obligations
under this Agreement;
(v) by Ortho, upon one (1) years' notice; provided that upon WFH's
request, Ortho shall (A) manufacture or have manufactured and provide or cause
to be provided to WFH on substantially similar terms as set forth herein, a
quantity of the Products sufficient to satisfy WFH's estimated sales of the
Product for a one-year period following the effective date of such termination,
and (B) use all reasonable commercial efforts to (i) transfer to WFH the rights
to manufacture and sell the Products in the Territory for the term of this
Agreement, including without limitation the New Drug Application and all other
necessary permits, authorizations and approvals, and (ii) grant to WFH of a
fully paid license to the ORTHO-EST trademark and all other intellectual
property necessary to manufacture and sell the Products in the Territory for
the term of this Agreement, and, provided further, that nothing contained
herein shall limit Ortho from engaging a third party to manufacture the
Products so long as Ortho continues to perform its obligations hereunder;
(vi) by Ortho, in the event that in the reasonable determination of Ortho
(A) the estimated cost of taking the corrective action described in Section 5.8
above would exceed $3,000,000, or (B) it would be impracticable to correct the
process revalidation
-11-
<PAGE> 12
issues raised by the FDA related to the Products described in Section
5.8(a) above without effecting Ortho's ability to supply Products to WFH
in accordance herewith; or
(vii) by either party without cause, at any time after the expiration
of the initial term, by giving 180 days prior written notice to the other
party.
(b) All of the foregoing remedies set forth above in this Section 6.2
shall be alternative and not exclusive and exercise of any one such at any time
shall not preclude or constitute a waiver of a further exercise at another time
or times or the exercise of such other remedy or remedies as are provided
herein or under applicable law. Termination for default or breach hereunder
shall have no effect on performance obligations or amounts to be paid which
have accrued up to the effective date of such termination.
6.3 The provisions of this Agreement set forth in Article V and Article
VIII and any remedies for the breach thereof, shall survive the termination of
this Agreement under the terms hereof.
ARTICLE VII - Force Majeure
7.1 The performance of the obligations of either party hereunder shall be
subject to any delay or non-performance caused by circumstances beyond the
reasonable control of such party, including without limitation, requisition by
any government authority or any other governmental order or regulation, wars,
work stoppages due to strikes, lockouts or other labor disputes, riots,
epidemic, disease, acts of God, civil commotion, fire, earthquake, storm,
failure of public utilities or common carriers, shortage of or inability to
obtain materials, equipment, supplies, utilities, labor or transportation from
normal sources, breakdown of or injury to facilities or equipment used for
production, transportation, receiving, manufacturing, processing, handling or
delivery of Products, technical or other infeasibility of manufacturing any
formulation which has been changed from the specifications therefor as a result
of any governmental action, or any other circumstances whatsoever, whether
similar to the above causes or not; provided, however, that a party excused
from performance under this Section 7.1 shall provide prompt notice of any such
event to the other party, that the duration of such excused performance shall
be limited by the duration of such force majeure event plus ninety (90) days
and the party affected shall use all reasonable efforts to resume performance
under this Agreement as soon as reasonably practicable.
ARTICLE VIII - Miscellaneous
8.1 Expenses. Expenses related to this Agreement and the transactions
contemplated hereby, including without limitation the fees of counsel and
accountants, shall be borne by the party incurring such expenses, except as
expressly provided otherwise in this Agreement.
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<PAGE> 13
8.2 Modifications and Waivers. This Agreement may be modified and rights
hereunder may be waived only by a writing executed and delivered on behalf of
the party against whom such modification or waiver is asserted.
8.3 Governing Law. This Agreement and the transactions contemplated hereby
shall be governed by and construed in accordance with the laws of the State of
New York applicable to agreements made and to be performed entirely within such
State, without regard to the conflicts of laws principles of such State.
8.4 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the validity, inducement, or breach thereof, shall be settled
by arbitration before a single arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") then
pertaining, except where those rules conflict with this provision, in which case
this provision controls. The parties hereby consent to the jurisdiction of the
Federal District Court for the District of Delaware for the enforcement of these
provisions and the entry of judgment on any award rendered hereunder. Should
such court for any reason lack jurisdiction, any court with jurisdiction shall
enforce this clause and enter judgment on any award. The arbitrator shall be an
attorney specializing in business litigation who has at least 15 years of
experience with a law firm of over 25 lawyers or was a judge of a court of
general jurisdiction. The arbitration shall be held in New York. New York and
the arbitrator shall apply the substantive law of New York, except that the
interpretation and enforcement of this arbitration provision shall be governed
by the Federal Arbitration Act. Within 30 days of initiation of arbitration, the
parties shall reach agreement upon and thereafter follow procedures assuring
that the arbitration will be concluded and the award rendered within no more
than six months from selection of the arbitrator. Failing such agreement, the
AAA will design and the parties will follow such procedures. 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. THE ARBITRATOR SHALL NOT AWARD ANY PARTY PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT TO SEEK SUCH DAMAGES.
8.5 Notices. Any notice, request, instruction or other communication to be
given by either party to the other party in connection with this Agreement or
the transactions contemplated hereby shall be in writing and delivered by
messenger, or sent by certified mail (postage prepaid) or telefax, to the
address of such party set forth below or as changed by such party by notice
given hereunder. Any notice hereunder shall be effective upon receipt at the
indicated address. Such notices shall be
provided, if to Ortho, to:
Ortho-McNeil Pharmaceutical Corporation
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<PAGE> 14
U.S. Route #202 South
Raritan, New Jersey 08869
Attention: President
Fax: (908) 707-9757
with a copy (which copy shall not constitute notice) to:
Johnson & Johnson
Office of General Counsel
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: (732) 524-2788
and, if to WFH to:
Women First HealthCare, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Attention: President
Fax: (619) 509-1350
with a copy to:
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attention: Scott N. Wolfe, Esq.
Fax: (619) 696-7410
8.6 Section Headings. The section captions used in this Agreement and the
index are for cross-reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. As used in this Agreement, the
terms "hereof", "herein" and terms of like import shall refer to the entire
agreement, including without limitation all schedules, exhibits and attachments
hereto and thereto.
8.7 Accounting Terms. Each accounting term used herein and not otherwise
defined shall have the respective meaning accorded it under generally accepted
accounting principles, consistently applied on a year-to-year basis.
8.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be deemed to constitute the same Agreement.
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<PAGE> 15
8.9 Integration. Before signing this Agreement the parties had numerous
conversations, including preliminary discussions, formal negotiations and
informal conversations, and generated correspondence and other writings in which
the parties discussed the transactions contemplated hereby and their aspirations
for success. In such conversations and writings, individuals representing the
parties may have expressed their judgments and beliefs concerning the
intentions, capabilities and practices of the parties, and may have forecasted
future events. The parties recognize that such conversations and writings often
involve an effort by both sides to be positive and optimistic about future
prospects. However, it is also recognized that all business transactions contain
an element of risk, as do the transactions contemplated hereby, and that it is
normal business practice to limit the legal obligations of contracting parties
to only those promises and representations which are essential to their
transactions so as to provide certainty as to their respective future rights and
remedies. Accordingly, this Agreement is intended to define the full extent of
the legally enforceable undertakings of the parties hereto, and no promise or
representation, written or oral, which is not set forth explicitly in this
Agreement is intended by either party to be legally binding. Both parties
acknowledge that in deciding to enter into this Agreement and to consummate the
transactions contemplated hereby neither has relied upon any statements or
representations, written or oral, other than those explicitly set forth in this
Agreement.
8.10 Confidentiality; Publicity. All written information marked as
confidential and exchanged between WFH and Ortho while this Agreement is in
effect shall be treated as confidential information unless one of the exceptions
set out below applies. The party receiving such confidential information shall
not, for so long as that information retains its character as confidential
information, use (other than in the performance of its obligations or the
exercise of its rights hereunder) or disclose such information to any third
party (except any Affiliates or those consultants of the receiving party that
have an obligation of confidentiality to the receiving party) without the prior
written approval of the disclosing party. Information will be deemed
nonconfidential at such time as such information either has become public
knowledge through no fault of the party receiving such information, or comes to
such party from a third party under no obligation of confidentiality with
respect to such information or was in the possession of such party prior to the
date of disclosure, or is developed by or on behalf of such party without any
reliance on confidential information received hereunder or is otherwise required
to be disclosed in compliance with an order by a court or other regulatory body
having competent jurisdiction. The obligations of the parties set forth in this
Section shall survive termination of this Agreement until the third anniversary
of the effective date of such termination. Upon termination of this Agreement,
all Confidential Information of a disclosing party that is held by a receiving
party shall be returned to the disclosing party except that one copy of such
Confidential Information shall be retained by counsel for the receiving party to
ensure compliance with this Section. Neither party shall originate any
publicity, news release or public announcement, written or oral, whether to the
public or press, stockholders or otherwise, relating to this Agreement, to any
amendment or performances under the Agreement, without the prior written consent
of the other which consent shall not be unreasonably withheld, except for such
announcements as in the opinion of counsel for
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<PAGE> 16
the party making such announcement is required by law to be made. If a party
decides to make an additional announcement required by law under this
Agreement, it shall give the other party thirty (30) days advance written
notice, or any shorter notice period otherwise required by law, of the text of
the announcement so that the other party shall have an opportunity to comment
upon the announcement.
8.11 WFH Acknowledgment. WFH hereby acknowledges that nothing expressed
or implied in this Agreement shall prevent, prohibit or otherwise restrict the
ability of Ortho or any of Ortho's Affiliates from promoting, selling or
otherwise distributing any other product on a brand name or generic basis or
any other basis that may compete with, or is substantially similar to, any or
all of the Products; provided that in no event shall Ortho or any of its
Affiliates promote, sell or distribute any estropipate product sold as a single
ingredient product in an oral formulation nor shall it enter into any
arrangement with any third party with respect to the promoting, selling or
distributing any estropipate product sold as a single ingredient product in an
oral formulation, except as contemplated in Section 2.1 hereof.
8.12 Assignment. This Agreement, or any of the rights and obligations
created herein, shall not be assigned or transferred, in whole or in part, by
either party hereto without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that Ortho shall
have the right to assign any or all of its rights or obligations under this
Agreement to any Affiliate, or a successor to that part of its business to
which this Agreement relates, without such prior written consent. Nothing
contained in this Section 8.12 shall restrict or limit in any manner Ortho's
ability to have the Products manufactured by a third party; provided that Ortho
remains bound by its obligations hereunder. Any attempted assignment or
transfer of such rights or obligations without such consent, except as provided
herein, shall be void. Subject to the foregoing sentence, this Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative.
ORTHO-MCNEIL PHARMACEUTICAL
CORPORATION
By /s/ PETER T. TATTLE
-------------------------------------
Name: PETER T. TATTLE
Title: CHAIRMAN
WOMEN FIRST HEALTHCARE, INC.
By /s/ DAVID F. HALE
-------------------------------------
Name: DAVID F. HALE
Title: PRESIDENT & CEO
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<PAGE> 18
Exhibit A
Ortho-Est
Payment Reconciliation - Trade Product
1. No Reconciliation Payment Due
<TABLE>
<CAPTION>
Actual Trade Units Shipped Transfer Price Total
-------------------------- -------------- ---------
<S> <C> <C> <C>
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Total invoiced product $ ***
Total forecasted IBT (36,637 divided by 12) $ ***
Total Invoiced Product over IBT forecast $ ***
Actual Net Sales $ ***
Forecasted Net Sales $ ***
Actual Incremental Sales (Assumes
no incremental sales) $ --
Royalty payment of 15% on incremental sales $ --
Actual Manufacturing Cost $
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Actual Manufacturing Cost
due to OMP $ ***
---------
Equalization Payment Due (Rebate
Payment Due) $ ***
=========
2. Equalization Payment Due
Actual Trade Units Shipped Transfer Price Total
-------------------------- -------------- ---------
<S> <C> <C> <C>
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Total invoiced product $ ***
Total forecasted IBT (36,637 divided by 12) $ ***
Total forecasted IBT over total invoiced
product $ ***
Actual Net Sales $ ***
Forecasted Net Sales $ ***
---------
Actual Incremental Sales (Assumes no
incremental sales) $ ***
Royalty payment of 15% on incremental sales $ ***
Actual Manufacturing Cost
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Actual Manufacturing Cost due to OMP $ ***
---------
Equalization Payment Due (Rebate
Payment Due) $ ***
=========
3. Rebate Payment Due
Actual Trade Units Shipped Transfer Price Total
-------------------------- -------------- ---------
<S> <C> <C> <C>
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Total invoiced product $ ***
Total forecasted IBT (36,637 divided by 12) $ ***
Total forecasted IBT over total invoiced
product $ ***
Actual Net Sales $ ***
Forecasted Net Sales $ ***
---------
Actual Incremental Sales $ ***
Royalty payment of 15% on incremental sales $ ***
Actual Manufacturing Cost
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Actual Manufacturing Cost due to OMP $ ***
---------
Equalization Payment Due/(Rebate
Payment Due) $ ***
=========
</TABLE>
- --------------
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 19
EXHIBIT B
Ortho-Est(R)
Income Statement
(Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Trade Sales *** *** *** *** *** *** *** *** *** *** ***
Cost of Goods Sold *** *** *** *** *** *** *** *** *** *** ***
Gross Profit *** *** *** *** *** *** *** *** *** *** ***
Operating Expenses:
Marketing *** *** *** *** *** *** *** *** *** *** ***
Total Operating Expenses *** *** *** *** *** *** *** *** *** *** ***
Income Before Tax $7,425 $6,637 $5,426 $4,305 $4,188 $4,039 $3,854 $3,631 $3,864 $4,111 $47,479
Provisions for Taxes *** *** *** *** *** *** *** *** *** *** ***
Net Income *** *** *** *** *** *** *** *** *** *** ***
Gross Profit % *** *** *** *** *** *** *** *** *** *** ***
Marketing % *** *** *** *** *** *** *** *** *** *** ***
Operating Expense % *** *** *** *** *** *** *** *** *** *** ***
Operating Expense with R&D % *** *** *** *** *** *** *** *** *** *** ***
Net Income % *** *** *** *** *** *** *** *** *** *** ***
</TABLE>
- ------------
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 20
EXHIBIT C
Products-Ortho-Est (Estropipate)
Dosage
Trade Product:
.625 mg Bottles of 100 tablets
1.250 mg Bottles of 100 tablets
Sample Product:
.625 mg Bottles of 30 tablets
1.250 mg Bottles of 30 tablets
<PAGE> 21
EXHIBIT D
TRANSFER PRICES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TRADE 100's 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
.625 mg $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ ***
- ------------------------------------------------------------------------------------------------------
1.25 mg $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ ***
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SAMPLE 30's 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
.625 mg $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ ***
- ------------------------------------------------------------------------------------------------------
1.25 mg $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ *** $ ***
- ------------------------------------------------------------------------------------------------------
</TABLE>
*** Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 22
EXHIBIT E
Exhibit E contains the labeling specifications for the Ortho-Est
product, both the 0.75mg and the 1.5 mg tablets. The product is distributed by
Ortho Pharmaceutical Corporation, Raritan, New Jersey 08869. The text of both
labels is identical, with the exception of the milligram distinction. The labels
contain the following text:
o Dispense in child-resistant container. Store below 30(Degree)C
88(Degree F). Dispense in a tight, light-resistant container as
delineated in the USP.
o PHARMACIST'S NOTE: Include one patient package insert with each
prescription dispensed.
o CAUTION: Federal law prohibits dispensing without prescription.
o Each tablet contains: Estropipate 0.75/1.5 mg calculated as sodium
estrone sulfate .0625/1.25 mg.
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
This Amendment No. 1 to Distribution Agreement (this "Amendment") is
made as of November 25, 1998 between Ortho-McNeil Pharmaceutical Corporation, a
Delaware corporation ("Ortho"), and Women First HealthCare, Inc., a Delaware
corporation ("WFHC"). In consideration of the mutual covenants contained
herein, the parties hereto agree to amend the Distribution Agreement dated July
1, 1998 by and between Ortho and WFHC (the "Distribution Agreement") as
follows:
1. Definitions. "Article I - Definitions," of the Distribution Agreement
is hereby amended by:
(a) deleting the definitions labeled "Inventory Base Amount" and
"Inventory Payment" in their entirety;
(b) deleting the phrase ***" from the definition of "Royalty
Payment" in such Article I and by replacing the same with the phrase ***"; and
(c) inserting the following new definition of "Actual Manufacturing
Costs" in Article I in its proper alphabetical order:
"Actual Manufacturing Costs" shall mean, with respect to a given
period, the actual number of Trade Units purchased during such period
multiplied by the applicable manufacturing costs per unit set forth
on Exhibit F attached hereto."
2. Payments. Section 3.1 of the Distribution Agreement is hereby amended
by deleting the phrase "Inventory Payment" at each instance where such phrase
appears in Section 3.1 and by replacing the same with the phrase "Actual
Manufacturing Costs".
3. Term. Section 6.1 is hereby amended by deleting the phrase ***" from
the second (2nd) to last line of such section and by replacing the same with the
phrase ***.
4. 1998 Year-to-Date. Notwithstanding any other provision of the
Distribution Agreement to the contrary, the parties hereby amend the
Distribution Agreement as follows: (i) when computing the Invoiced Amount paid
by WFHC on a year-to-date basis for 1998, an amount equal to *** shall be
added to the Invoiced Amount (representing the actual Trade Units shipped by
Ortho between January 1, 1998 and June 30, 1998 multiplied by the applicable
Transfer Price); and (ii) when computing the Actual Net Sales of WFHC on a
year-to-date basis for 1998, an amount equal to *** shall be added to Actual
Net Sales (representing the actual net sales by Ortho between January 1, 1998
and June 30, 1998). By way of illustration and not limitation, the parties agree
that the year-to-date payment reconciliation under Section 3.1(b) of the
Distribution Agreement for the month of August 1998 is attached hereto as
Exhibit G.
5. Exhibit A. Exhibit A to the Distribution Agreement is hereby deleted
in its entirety and is replaced by the new Exhibit A attached hereto.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 2
6. Binding Effect. After the date of this Amendment, each reference to
the Agreement shall mean and refer to this Agreement as amended hereby. Except
as provided in this Amendment No. 1, the Distribution Agreement and all related
documents shall remain in full force and effect and are ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be executed by their duly authorized representative.
ORTHO-MCNEIL PHARMACEUTICAL
CORPORATION
By: /S/
-------------------------------------
Name:
Title:
WOMEN FIRST HEALTHCARE, INC.
By: /s/ DAVID F. HALE
-------------------------------------
Name: David F. Hale
Title: President & CEO
2
<PAGE> 3
Exhibit A
Ortho-Est
Payment Reconciliation - Trade Product
1. No Reconciliation Payment Due
<TABLE>
<CAPTION>
Actual Trade Units Shipped Transfer Price Total
-------------------------- -------------- ---------
<S> <C> <C> <C>
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Total invoiced product $ ***
Total forecasted IBT (36,637 divided by 12) $ ***
Total Invoiced Product over IBT forecast $ ***
Actual Net Sales $ ***
Forecasted Net Sales $ ***
Actual Incremental Sales (Assumes
no incremental sales) $ --
Royalty payment of 15% on incremental sales $ --
Actual Manufacturing Cost $
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Actual Manufacturing Cost
due to OMP $ ***
---------
Equalization Payment Due (Rebate
Payment Due) $ ***
=========
2. Equalization Payment Due
Actual Trade Units Shipped Transfer Price Total
-------------------------- -------------- ---------
<S> <C> <C> <C>
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Total invoiced product $ ***
Total forecasted IBT (36,637 divided by 12) $ ***
Total forecasted IBT over total invoiced
product $ ***
Actual Net Sales $ ***
Forecasted Net Sales $ ***
---------
Actual Incremental Sales (Assumes no
incremental sales) $ ***
Royalty payment of 15% on incremental sales $ ***
Actual Manufacturing Cost
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Actual Manufacturing Cost due to OMP $ ***
---------
Equalization Payment Due (Rebate
Payment Due) $ ***
=========
3. Rebate Payment Due
Actual Trade Units Shipped Transfer Price Total
-------------------------- -------------- ---------
<S> <C> <C> <C>
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Total invoiced product $ ***
Total forecasted IBT (36,637 divided by 12) $ ***
Total forecasted IBT over total invoiced
product $ ***
Actual Net Sales $ ***
Forecasted Net Sales $ ***
---------
Actual Incremental Sales $ ***
Royalty payment of 15% on incremental sales $ ***
Actual Manufacturing Cost
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
---------
Actual Manufacturing Cost due to OMP $ ***
---------
Equalization Payment Due/(Rebate
Payment Due) $ ***
=========
</TABLE>
- --------------
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 4
Exhibit F
Ortho-Est
Standard Cost
<TABLE>
<CAPTION>
Trade 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.625 mg *** *** *** *** *** *** *** *** *** ***
- -------------------------------------------------------------------------------------------
1.25 mg *** *** *** *** *** *** *** *** *** ***
- -------------------------------------------------------------------------------------------
</TABLE>
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 5
EXHIBIT G
-----------------
JULY 1, 1998 DISTRIBUTION AGREEMENT BETWEEN ORTHO-McNEIL
AND WOMEN FIRST HEALTHCARE, INC.
ORTHO-EST
PAYMENT RECONCILIATION - TRADE PRODUCT
AUGUST 1998
<TABLE>
<CAPTION>
Actual Trade Units Shipped Transfer Price Total
- -------------------------- -------------- -----------
<S> <C> <C>
Jan - June:
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
July:
.625 MG *** $ *** $ ***
1.25 MG *** $ *** $ ***
August:
.625 MG - $ *** $ -
1.25 MG *** $ *** $ ***
-----------
Total Invoiced Product $ ***
Total forecasted IBT
$ *** X 8 months $ ***
-------- -----------
12
TOTAL FORECASTED IBT OVER TOTAL INVOICED PRODUCT $ ***
Actual Net Sales $ ***
Jan - June actual Ortho-McNeil $ ***
July $ ***
August $ ***
Forecasted Net Sales
$ *** X 8 months $ ***
-------- -----------
12
Actual Incremental Sales $ ***
ROYALTY PAYMENT OF 15% ON INCREMENTAL SALES $ ***
ACTUAL MANUFACTURING COSTS $ ***
July $ ***
August $ ***
PAYMENT DUE WOMEN FIRST HEALTHCARE, INC.
EQUALIZATION PAYMENT DUE/(REBATE PAYMENT DUE) $ (1,977,928)
((***) + *** + ***)
</TABLE>
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<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 10.9
PHARMACY MANAGEMENT AGREEMENT
WOMEN FIRST PHARMACY SERVICES, INC., a Delaware corporation (the
"Company") and HEALTH SCRIPT, a wholly owned division of Dura Pharmaceuticals,
Inc., a Delaware corporation ("Manager"), agree as follows:
1. RECITALS.
(a) WHEREAS, the Company desires to provide mail order pharmacy
services to its customers through a pharmacy to be located at 9 Inverness Drive
East, Englewood, Colorado 80112 (the "Pharmacy"); and
(b) WHEREAS, Manager owns and is experienced in operating and
managing retail and mail order pharmacies; and
(c) WHEREAS, the Company desires to engage Manager, and Manager
desires to be engaged by the Company, to manage the Pharmacy on behalf of the
Company on the terms and conditions set forth in this Pharmacy Management
Agreement (this "Agreement").
2. DUTIES OF MANAGER.
(a) Pharmacy Personnel. With the exception of the
Pharmacist-in-Charge, who shall be employed or leased by the Company at its
election, Manager shall employ sufficient qualified Pharmacy personnel to
operate the Pharmacy in a professional, efficient and productive manner, and in
accordance with the performance standards set forth in Attachment "A" hereto.
All such personnel shall be employees or independent contractors of Manager and
shall be subject to the personnel policies and benefits of Manager, but shall
also follow the applicable rules and regulations of the Company, including
general oversight and direction by the Pharmacist-in-Charge. Manager shall also
make available a "back up" pharmacist who shall be on-site at such times as the
Company's Pharmacist-in-Charge is off-duty or unavailable.
(b) Products and Pharmaceuticals. Manager shall purchase at its
expense all materials, including pharmaceuticals, relating to Compounded
Products. "Compounded Products" shall mean compounded hormone products
containing estrogen, progesterone and/or androgen, in combinations of one to
three of such compounds, in no more than three strengths, in capsule and/or
suppository form. Manager shall arrange for the arms' length purchase by the
Company from manufacturers or distributors of all other necessary products and
pharmaceuticals required for the efficient operation of the Pharmacy. Manager
shall use its commercially reasonable efforts to arrange for the purchase of
such products and pharmaceuticals at the best possible price available given the
Company's needs and demands. The Company shall be solely responsible for the
purchase price and applicable sales taxes and delivery charges for such products
and pharmaceuticals, but the cost of arranging for such purchases shall be borne
by Manager as part of the services provided hereunder. The payment terms for
such purchases shall be not less favorable to the Company than net thirty (30)
days, without the prior written approval of the Company. The Company shall have
the right, upon prior written notice to Manager, to arrange directly for its
<PAGE> 2
purchases of such products and pharmaceuticals and to enter into contracts
directly with manufacturers and distributors of any such products and
pharmaceuticals, subject to Manager's prior approval of the quantities delivered
and stored at the Pharmacy from time to time, such approval not to be
unreasonably withheld or delayed.
(c) Patient and Order Entry Support.
(i) Manager shall provide at Manager's expense (other than "800"
line usage charges) pharmacy counseling and general patient support to all of
the Company's customers in substantially the same fashion and level of service
as that provided to customers of the Health Script pharmacy. Manager shall
assist the Company in establishing a sufficient number of dedicated "800" lines
to respond to all calls in a timely manner. Manager shall provide such pharmacy
support from 7:00 a.m. to 8:00 p.m. MST, Monday through Friday, with after hours
availability either through on-call service, voice mail or answering service.
The Company shall provide general customer support by telephone to its
customers. At the Company's request, the parties agree to negotiate in good
faith an appropriate increase in the monthly management fee and other
appropriate modifications to this Agreement if the Company desires that these
customer support services be provided by Manager.
(ii) At the Company's reasonable request, the parties agree to
negotiate in good faith an appropriate increase in the monthly management fee
and other appropriate modifications to this Agreement in the event the Company
desires Manager to provide telephonic order entry services for the Company's
customers.
(d) Pharmacy Services. Pharmacy services shall include without
limitation prescription verification, prescription preparation, compounding
services for Compounded Products, product shipping services, quality control and
those other services listed on Attachment F hereto. Manager shall insure that
all such services, as well as all other services provided pursuant to this
Agreement are provided in a manner which insures full compliance with all local,
state and federal laws and regulations and is otherwise consistent with the
standards of operation generally followed by high quality pharmacies within the
industry.
(e) Data Processing. Manager shall make available to the Company
its HBS and Dezine computer systems. These systems shall remain the property of
Manager at all times during the Term or any renewals thereof. The Company shall
be responsible for purchasing its own site license for the computer software,
which one-time fee license shall not exceed $6,000, and shall purchase certain
additional equipment described under Section 2(k) below, but all other costs of
using, operating and maintaining the computer systems shall be borne by Manager.
Manager shall provide programming and support to maintain the systems for the
Company comparable to Manager's, at no additional charge to the Company. Subject
to the Company's payment of any required site license fees to third parties, if
and as Manager implements any additional software application modules for its
own use that would assist in the efficient operation of the Pharmacy, it will
make such software applications available under this Section 2(e) at no
additional charge to the Company.
2
<PAGE> 3
(f) Billing and Collection Service. For an additional fee
specified in Section 3(f), Manager shall provide all billing and collection
services on behalf of the Company, including, without limitation, insurance plan
adjudication, processing reimbursements and other necessary interfacing with
private and governmental third party payors for the products shipped to the
Company's customers by Manager, in accordance with the Company's "business
rules" and billing and collection procedures established pursuant to Section
3(d). Either party may, upon prior written notice to the other party as
specified below in this Section 2(f), elect to terminate the billing and
collection services provided by Manager under this Agreement, and in such event,
the billing and collection fee specified in Section 3(f) no longer shall be
payable. If Manager desires to terminate the billing and collection services it
provides hereunder, Manager may do so upon not less than 180 days' prior written
notice of such termination to the Company. If the Company desires to terminate
the billing and collection services provided by Manager hereunder, then (i) the
Company may terminate such services upon not less than 90 days' prior written
notice of such termination and the payment to Manager of a termination fee equal
to [***] if the orders from the Company's customers are less than or equal to
[***] orders per month, and (ii) the Company may terminate such services upon
not less than 180 days' prior written notice of such termination, if the orders
from the Company's customers are greater than [***] orders per month.
(g) Reporting Capabilities. Manager shall be responsible for
reporting patient and billing information to the Company on a daily basis in
accordance with Manager's standard format and reporting schedules. Manager shall
arrange for the installation of all necessary telephone and data communications
lines required to adequately fulfill this requirement. The Company shall be
responsible for the out-of-pocket costs of such telephone and data communication
lines. The parties will negotiate in good faith appropriate compensation to
Manager for the preparation of any additional reports and billing information
which the Company may reasonably require.
(h) Supplies. Manager shall provide, at its expense, all supplies
necessary for the standard efficient operation of the Pharmacy, including but
not limited to forms, internal documents and paper products. Special programs
run by the Company shall not be included.
(i) Waste Disposal. Manager shall provide all hazardous, chemical
and infectious or bio-hazardous waste disposal from the Pharmacy. The Company
shall pay for all required charges, fees, taxes or other expenses payable to
third parties in connection with such disposal.
(j) Site Planning. Manager shall assist the Company in site
planning design and construction of the Pharmacy. Manager acknowledges and
agrees that, to the best of its knowledge, the subleased space for the Pharmacy
shall be sufficient and suitable to properly commence the delivery of the
services outlined in this Agreement.
(k) Additional Equipment. Manager shall arrange for the purchase
(or at, the Company's sole election, the lease) by the Company of the additional
equipment listed on Attachment "B" hereto. Manager shall not arrange for the
purchase of any other equipment by the Company necessary for the operation of
the Pharmacy without the Company's prior written
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
3
<PAGE> 4
approval, not to be unreasonably withheld or delayed. Manager acknowledges and
agrees that the equipment listed on Attachment "B" is, to the best knowledge of
Manager, all of the equipment which the Company must purchase in order for the
Company and Manager to properly commence delivery of the services outlined in
this Agreement. Such equipment shall be charged to the Company and shall remain
the property of the Company at all times during the Term or any renewals
thereof. All equipment necessary for Manager to perform compounding services
shall be provided by Manager at its expense.
(l) Equipment Maintenance. Manager shall also furnish and oversee
at its expense all equipment maintenance, repairs, maintenance contracts and
other expenses reasonably determined to be necessary by the Company and Manager
for the proper operation of the Pharmacy.
(m) Other. Manager shall perform such other functions and provide
such other services as shall be required to operate the Pharmacy in an efficient
and cost effective manner, as well as such other functions and services as shall
be mutually agreed upon by the parties.
3. DUTIES OF THE COMPANY.
(a) Pharmacist-in-Charge. The Company shall, in consultation with
Manager, hire or lease a qualified Pharmacist-in-Charge (the
"Pharmacist-in-Charge"). Such person shall be an employee or leased employee of
the Company throughout the Term of this Agreement and any renewals thereof. At
such time as the Company hires a Pharmacist-in-Charge, the Company shall
determine the amount and character of the Pharmacist-in-Charge's compensation
and will be responsible for compensating him or her for all services rendered in
connection with this Agreement. If at any time during the Term or any renewals
thereafter, the Company desires to lease the Pharmacist-in-Charge or the
services of other pharmacy personnel for special projects not otherwise provided
under this Agreement, Manager will lease such personnel to the Company pursuant
to the Employee Lease Agreement in the form attached hereto as Attachment "C"
(as amended from time to time, the "Employee Lease"), which will be executed
concurrently with this Agreement.
(b) Space. The Company shall provide, at its expense, reasonably
sufficient space for the operation of the Pharmacy, which shall be sub-leased
from Manager pursuant to the Sublease Agreement attached hereto as Attachment
"D" (as amended from time to time, the "Sublease Agreement"), which will be
executed concurrently with this Agreement. The parties acknowledge and agree
that the monthly rent to be paid by the Company under the Sublease Agreement is
intended to be all-inclusive, including without limitation, all fees and charges
for "operating expenses" (as defined under the Master Lease) and other charges
payable by the Manager to lessor under the Master Lease. In the event the
Company becomes liable under the Master Lease as a result of Section 9 of the
Sublease Agreement for any amounts in excess of the Company's monthly rent under
the Sublease Agreement, Manager shall indemnify and hold harmless the Company
from and against any and all such excess amounts. Any construction or leasehold
improvements to the Pharmacy shall be subject to the Company's prior written
approval. Manager shall be responsible for all costs associated with the
planning and oversight of
4
<PAGE> 5
construction and leasehold improvements; however, the actual cost of
construction, as well as the cost of all leasehold improvements reasonably
determined by the Company and Manager to be necessary for the proper operation
of the Pharmacy, shall be the sole responsibility of the Company. If the leased
space for the Pharmacy is expanded, the Sublease Agreement shall be amended to
reflect such additional space. In addition, Manager shall provide, at its
expense, sufficient additional storage space as may be reasonably required from
time to time to efficiently operate the Pharmacy. In the event the Master Lease
is terminated due to the fault of Manager, the Manager agrees to reimburse the
Company for its subtenant improvements (as defined in the Sublease Agreement)
and all other damages incurred as a result of such termination. A
reorganization, merger or transfer of stock of the Company will not constitute
an assignment of the Sublease Agreement. Each party hereby consents to the
assignment of the Sublease Agreement to the purchaser of all or substantially
all of the other party's assets, provided all liabilities and obligations of the
assigning party under the Sublease Agreement are assumed by such purchaser.
(c) [Intentionally omitted].
(d) Charges, Billing and Collection. The Company shall establish
the overall charge structure for the Pharmacy services and will provide to the
Manager the Company's "business rules" and billing and collection procedures
with respect to taking, processing, fulfilling and collecting payment for
customer orders, including timely updates to such business rules from time to
time.
(e) Hours of Operation. The Pharmacy shall be operated Monday
through Friday (except for legal holidays), on an as needed basis, with hours to
be expanded as the Company's customer demands increase. Manager will provide, on
behalf of the Company, 24 hour a day, seven day a week pharmacy emergency
services, either through on call service, voice mail or answering service.
(f) Optional Billing and Collection Fee. In exchange for
Manager's billing and collection services provided under Section 2(f) above, the
Company shall pay to Manager a fee per order equal to the greater of (i) [***]
or (ii) [***] of "Billed Revenue" (as defined below), during the [***] of this
Agreement and [***] thereafter, [***] "Billed Revenue" shall be defined as the
sales price of the product shipped by Manager on behalf of the Company in
accordance with the Company's "business rules" and billing and collection
procedures under Section 3(d). The Company shall remit all amounts owed within
thirty (30) days of receipt of the monthly invoice from Manager.
4. MANAGEMENT AND SERVICES FEES.
(a) Monthly Management Fee. As compensation for the management
and other services rendered pursuant to this Agreement, the Company shall pay to
Manager a monthly fee based on volume as set forth on Attachment E, commencing
upon the filing of the Company's application for a Pharmacy license with the
State of Colorado, but subject to a credit of [***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
5
<PAGE> 6
[***] per month for the first three months during which a management fee is
payable under this Section 4(a). The Company will remit all amounts owed within
thirty (30) days of receipt of an invoice from Manager.
(b) Compounding Fee. As compensation for the compounding services
rendered and compounding materials provided pursuant to this Agreement, the
Company shall pay to Manager a monthly fee equal to the product of [***] times
the number of units compounded during such month, but only to the extent such
amount exceeds [***].
(c) Distribution Costs. Manager shall charge the Company a
monthly distribution fee equal to its actual cost of packaging materials used
and third-party shipping charges incurred for shipments of products to the
Company's customers, plus [***]. This payment shall cover Manager's cost of
distributing all products and pharmaceuticals to the Company's customers,
including packaging, labeling and shipping the products. The Company shall remit
all amounts owed within thirty (30) days of receipt of an invoice from Manager.
(d) Annual Fee Increase. On each anniversary date of this
Agreement, Manager may increase its fees by a percentage equal to the percentage
increase, if any, in the United States Department of Labor Consumer Price Index
for all urban consumers (U.S. City Average) published by the Bureau of Labor
Statistics ("CPI") for the preceding twelve months. Manager shall give immediate
written notice to the Company of any such increase.
(e) Changes in Services or Facilities. In the event that (i) the
Company's primary services materially change or (ii) the Company requires
additional services that materially affect the operating expenses of the
Pharmacy or (iii) the Company exceeds the order volumes set forth on Attachment
"E" hereto, one party shall notify the other party in writing of such event and
Manager and the Company agree to renegotiate, in good faith, the terms of this
Agreement, including the fees to be paid for such services, in order to
alleviate the impact of such changes, or, in the case of clause (iii) above, to
reflect the cost savings resulting from the economics of scale attributable to
such increased volumes. Any such changes in services or terms shall be in
writing and signed by the parties. If the parties have negotiated in good faith
but cannot agree to revised terms within a period of thirty (30) days of the
date on which one party received the written notice described hereinabove, this
Agreement shall be terminated upon ninety (90) days written notice from either
party.
(f) Right to Accounting; Audit Policies. The Company will be
entitled to an accounting from Manager at any time and from time to time upon
written request from the Company to Manager. For the purposes of this Agreement,
"accounting" means a complete and accurate statement with worksheets and
original source documentation of all funds, transactions, writings, documents,
statements, ledgers, reports and other information reasonably requested by the
Company relating to any matter arising out of this Agreement. Manager agrees and
acknowledges that the services provided hereunder may be audited by the Company
or its agents,
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
6
<PAGE> 7
for both accuracy and quality, pursuant to the Company's normal internal audit
policies. All audits shall occur on-site during normal business hours.
5. CONSULTATION. The Company and Manager will meet and confer in good
faith at the end of each calendar quarter during the term of this Agreement to
discuss any concerns either of them may have with any of the provisions,
conditions or the implementation of this Agreement and to suggest appropriate
changes in operational procedures to address such concerns.
6. TERM. The term of this Agreement (the "Term") shall be for two (2)
years commencing on the 30th day of September, 1998, and ending on the 29th day
of September, 2000. Either party may elect to extend this Agreement for up to
three (3) additional one (1) year terms, and such additional one (1) year terms
as would run through the end of the Manager's Master Lease in the event such
lease is extended. In the event a party desires to extend, such party shall
provide written notice of its election to extend this Agreement not less than
180 days prior to the then-current expiration date, or such shorter notice
period as the parties may mutually agree, and this Agreement shall be extended
unless the other party responds to the extending party with written notice of
its unwillingness to extend this Agreement within ten (10) business days of
receipt of such notice of extension. Notwithstanding any provision of this
Agreement to the contrary, the Company's obligations under this Agreement shall
be subject in all respects to prior approval by the Women First HealthCare, Inc.
Board of Directors and by the holders of two-thirds of the outstanding shares of
Series A Preferred Stock of Women First HealthCare, Inc. If this condition is
not satisfied or waived by the Company within 45 days of the execution of this
Agreement, this Agreement shall be null and void and neither party shall have
any obligations to the other hereunder. The Company will notify Manager in
writing when and if the requisite approvals have been obtained.
7. TERMINATION. This Agreement may be terminated with cause in the event
of a breach of any of the material terms of this Agreement, or failure of
Manager to comply with the performance standards set forth in Attachment A, if
such breach is not corrected within thirty (30) days from the date of the
breaching party's receipt of written notice of the breach by the nonbreaching
party. In addition, this Agreement may be terminated by the Company upon written
notice to Manager in the event that (i) the Company does not receive a license
for the Pharmacy from the State of Colorado or such license is suspended or
revoked, or (ii) the Employee Lease (Attachment "C") or the Sublease Agreement
(Attachment "D") is terminated for any reason other than as a result of the
breach thereof by the Company, or (iii) in the event the approvals referred to
in Section 6 are not received.
8. PROHIBITION AGAINST RECRUITMENT OF EMPLOYEES. During the Term of
Agreement and any renewal period thereof, and for a period of twelve (12) months
following its expiration or termination for whatever reason, neither the Company
nor Manager will hire (or contract with as an independent contractor) any
individual who is or was an employee of the other party who works at the
Company, the Manager or in the Pharmacy during the Term of this Agreement or any
renewal period thereof, without the prior written consent of the other party. In
addition, neither the Company nor Manager will discuss the possibility of or
make any job offer to any person who is or was an employee of the other party
during the Term of this Agreement, or any renewal period thereof, without the
other party's prior written consent. Each party acknowledges and agrees that
7
<PAGE> 8
these restrictions are reasonable and necessary to protect the other party's
legitimate interest. Any consent required hereunder shall not be unreasonably
withheld or delayed.
9. RESTRICTIVE COVENANTS.
(a) The Company and Manager acknowledge that each may have access
to certain confidential information, proprietary data and trade secrets of the
other, including, but not limited to: fee structures; processes; financial
statements; contract proposals or bidding information; business plans; training
and operations methods and manuals; and management systems, policies or
procedures, and related forms and manuals (collectively, the "Proprietary
Information") and that such Proprietary Information constitutes valuable,
special and unique property of each party. The parties agree that any product
formulations, or product preparation or compounding procedures or techniques,
which are not generally known within the pharmacy industry and which are
developed by the Company or Manager in connection with the sale of products to
the Company's customers under this Agreement, shall be the Proprietary
Information of the Company.
(b) During the term of this Agreement and for three (3) years
thereafter (herein, the "Noncompete Period"), Manager will not (i) use for
itself or others or disclose any of the Company's Proprietary Information,
directly or indirectly, to any person or corporation, association or other
entity for any reason or purpose whatsoever (except Manager may use in its
business any compounding procedures and techniques which constitute the
Company's Proprietary Information), except as otherwise permitted by the
Company; or (ii) disrupt or attempt to disrupt any past, present or reasonably
foreseeable future relationship, contractual or otherwise between the Company,
on the one hand, and any patient, customer, person or business with whom the
Company contracts in connection with its business, on the other hand.
(c) During the Noncompete Period, the Company will not (i) use
for itself or others or disclose any of Manager's Proprietary Information,
directly or indirectly, to any person or corporation, association or other
entity for any reason or purpose whatsoever except as otherwise permitted by
Manager, or (ii) disrupt or attempt to disrupt any past, present or reasonably
foreseeable future relationship, contractual or otherwise between Manager, on
the one hand, and any patient, customer, person or business with whom Manager
contracts in connection with its business, on the other hand.
(d) In the event of a breach of this Section 9, each party
recognizes that monetary damages shall be inadequate to compensate the
nonbreaching party and the nonbreaching party shall be entitled, without the
posting of a bond, to any injunction restraining such breach, with the costs,
including attorneys fees, of securing such injunction to be borne by the
breaching party. Nothing contained herein shall be construed as prohibiting the
nonbreaching party from pursuing any other remedy available to it for such
breach or threatened breach.
(e) Both parties hereto hereby acknowledge the necessity of
protection against the competition of the other party and that the nature and
scope of such protection has been carefully considered by the parties. The
period and scope of this Section 9 are expressly represented and
8
<PAGE> 9
agreed to be fair, reasonable and necessary. The consideration provided for
herein is deemed to be sufficient and adequate to compensate each party for
agreeing to the restrictions contained in this Section 9. If, however, any court
determines that the foregoing restrictions are not reasonable, such restrictions
shall be modified, rewritten or interpreted to include as much of their nature
and scope as will render them enforceable.
(f) Proprietary Information shall not include any information
which, at the time of disclosure, (i) is generally known by the public or
generally known within the respective parties' industries, (ii) was in the
recipient's possession free of any obligation of confidentiality at the time of
the disclosing party's communication thereof to the recipient, (iii) was
communicated to the recipient free of any obligation of confidentiality
subsequent to the time of the disclosing party's communication thereof, (iv) was
communicated to the recipient by a third party free of any obligation of
confidentiality, (v) was developed by employees or contractors of the recipient
independently of, and without reference to, any of the Proprietary Information
and such development is documented in a reasonably detailed written record, or
(vi) is subject to disclosure pursuant to any order, decree, subpoena or other
validly issued judicial or administrative process (provided that the recipient
shall notify the disclosing party promptly so that the disclosing party may seek
to obtain a protective order or other appropriate relief from disclosure).
(g) Each party shall explicitly inform each employee or
independent contractor of such party who will have access to any Proprietary
Information of the confidential nature of such information. Each party shall
cause each such employee or independent contractor who will have access to any
Proprietary Information to sign a confidentiality agreement with respect to all
Proprietary Information equivalent to this Section 9. Each party shall
immediately report to the other any knowledge which such party has with respect
to any attempt by any person to duplicate, use or disclose Proprietary
Information in violation of this Agreement.
10. MANNER OF PERFORMANCE. Manager shall act at all times as an
independent contractor and shall not act as, or be considered, an agent,
employee, partner, joint venture or otherwise an affiliate of the Company,
except as specifically provided in this Agreement. The Company shall not
withhold any taxes on behalf of Manager or any person employed by Manager or
independently contracted by Manager. No employee of Manager shall have any claim
under this Agreement or otherwise against the Company for wages, vacation pay,
sick leave, unemployment insurance, worker's compensation, retirement benefits
or employee benefits of any kind.
11. INSURANCE. Each party shall obtain and maintain throughout the term
of this Agreement minimum insurance coverage as follows:
- - Worker's Compensation: Statutory Amount
- - Employer's Liability: $1,000,000
- - Comprehensive General
Liability and Property Damage: $1,000,000
- - Professional Liability: $1,000,000/$3,000,000
Each party shall name the other party as an additional insured under such
policies.
9
<PAGE> 10
12. LICENSING AND REGULATORY REQUIREMENTS. The Pharmacy shall be
licensed under the Company's name and shall obtain its own Medicare and Medicaid
provider numbers. Subject to the Company's prior review and approval of
applications and other filings, Manager will prepare and file on behalf of the
Company and otherwise assist the Company in obtaining and maintaining such
licenses, certifications and permits as are required by local, state and federal
laws and regulations in connection with the operation of the mail order Pharmacy
throughout the United States. Manager will render Pharmacy services and, if the
Pharmacist-in-Charge is leased by the Company from Manager, Manager will cause
the Pharmacist-in-Charge to render his or her services, at all times in
compliance with all applicable statutes, regulations, rules and directives of
federal, state and other governmental authorities having jurisdiction over
Manager and the Company and in compliance with the policies and regulations of
the Company and all currently accepted and approved practices of providing
pharmacy services. Manager represents and warrants that, subject to the
Company's receipt of the proper licenses and filing of proper applications and
other filings (which Manager will prepare and file in accordance with this
Section 12), to Manager's best knowledge as of the date hereof, the transactions
contemplated by this Agreement will be in compliance with all applicable local,
state and federal laws and regulations.
13. CONFIDENTIALITY OF PATIENT RECORDS. All customer lists, including
the identities, lists and descriptions of patients and referral sources, and
other patient medical records (collectively, "Patient Records") will be
maintained as confidential and will be disclosed only in accordance with the
Company's policies and all applicable state and federal laws. All Patient
Records shall belong exclusively to the Company and the release, removal or
transfer of such records shall be governed by its established policies and
procedures. In handling such Patient Records, both parties agree to comply with
all applicable state and federal laws and with any requirements or limitations
described in the written consent for release. Each party hereto agrees to take
all reasonable precautions against any unauthorized disclosure of the Patient
Records and to protect the patients' rights to confidentiality. The Company
shall maintain such medical records of the patients in accordance with the time
periods established by state record retention laws and regulations. Manager
shall advise the Company from time to time as to these required time periods.
Upon termination or expiration of this Agreement for any reason, Manager shall
promptly deliver to the Company all Patient Records and shall not retain any
copies or extracts (whether in paper format, electronic or otherwise) of any
such records.
14. NON-DISCRIMINATION. Neither Manager nor the Company will
discriminate against any patient or applicant for employment on the basis of
race, color, gender, sexual orientation, age, religion, national origin or
handicap in providing services under this Agreement.
15. INDEMNIFICATION. Each party agrees to indemnify and hold harmless
the other party and its officers, directors, affiliates, employees and agents
against and from all damages arising from the illegal, negligent, or intentional
acts or omissions of the indemnitor or the indemnitor's agents, employees,
affiliates, board members, or medical staff, including acts with respect to the
disposal of hazardous, chemical and infectious or bio-hazardous wastes. In the
event that any claim is made which may result in the right of indemnity
hereunder, the party against whom the claim is made (the "Defendant") shall
promptly give written notice to the other party and give such other party the
opportunity to defend the claim with counsel reasonably satisfactory to the
10
<PAGE> 11
Defendant, and such other party shall pay all costs of such defense (including
reasonable attorney fees), whether or not the claim is successful. Failure to
give prompt written notice shall not relieve an indemnitor of its obligations
under this Section 15 unless such failure materially prejudices indemnitor's
defense of such claim. Indemnitor will not settle any such claim or action
without the prior written consent of Defendant, not to be unreasonably withheld
or delayed. The provisions of this Section 15 shall survive any termination or
expiration of this Agreement.
16. AUTHORITY. Subject to Sections 6 and 12, the Company and Manager
each warrant that the execution and performance of this Agreement by it has been
authorized by all applicable laws and regulations and all necessary corporate or
partnership action, and that this agreement constitutes the valid and binding
obligation of it in accordance with its terms.
17. AMENDMENTS. Any amendments to this Agreement will be effective only
if contained in writing and signed by the Company and Manager.
18. NOTICES. All notices permitted or required by this Agreement will be
deemed given when in writing and delivered personally or by nationally
recognized overnight courier (e.g. Federal Express), or three (3) days after
such written notice is deposited in the United States mail, postage prepaid,
return receipt requested, addressed to the other party at the address set forth
in this Agreement and such other address as the parties from time to time may
designate in writing. Notices shall be directed to:
Manager:
HEALTH SCRIPT
Attention: General Manager
9 Inverness Drive East
Englewood, Colorado 80112
With a copy to:
Dura Pharmaceuticals, Inc.
Attention: Office of General Counsel
7475 Lusk Boulevard
San Diego, CA 92121
The Company:
Women First Pharmacy Services, Inc.
12220 El Camino Real, Suite 400
San Diego, CA 92130
Attn: President and Chief Executive Officer
With a copy to:
Latham & Watkins
701 "B" Street, Suite 2100
11
<PAGE> 12
San Diego, CA 92101
Attn: Scott N. Wolfe, Esq.
19. ASSIGNABILITY. Neither the Company nor Manager may assign this
Agreement without prior written consent of the other party, which consent shall
not be unreasonably withheld or delayed. A reorganization, merger or transfer of
stock will not constitute an assignment. Each party consents to the assignment
of this Agreement to the purchaser of all or substantially all of the other
party's assets, provided all liabilities and obligations of the assigning party
under this Agreement are assumed by such purchaser.
20. ENTIRE AGREEMENT. This agreement constitutes the entire management
agreement between the Company and Manager and each agrees that no inducements,
representations or warranties exist except as set forth in this Agreement.
21. SEVERABILITY. In the event any part of this Agreement is declared
invalid, such invalidity will not affect the validity of the remainder.
22. LEGISLATIVE CHANGES AFFECTING TERMS OF AGREEMENT. In the event law,
rules, regulations or governmental policies related to reimbursement of the
items and services provided hereunder from any payment source are introduced or
changed so as to materially adversely affect either party to this Agreement, the
parties agree in good faith to renegotiate the terms of this Agreement.
Furthermore, in the event that any part of this Agreement is determined to
violate federal or state statutes, rules or regulations, Manager and the Company
agree to renegotiate the terms of this Agreement in good faith in order to
comply with such statute, rule or regulation. If this Agreement cannot be
amended to permit the Company or Manager to comply with applicable law and
continue on the same economic terms and service standards, this Agreement may be
terminated by either party by giving the other party written notice of
termination at least thirty (30) days prior to the effective date of such
termination.
23. NO PRESUMPTION AGAINST DRAFTING PARTY. The parties acknowledge that
this Agreement and the provisions contained herein are, and were, the product of
the parties equally, and that it shall not be construed or interpreted for or
against any party hereto because said party drafted, or caused its legal
representative to draft, any portion of its provisions.
24. RELEASE OF INFORMATION. Subject to applicable law, any release to
the public of information with respect to the matters set forth herein will be
made only in the form and manner approved by Manager and the Company.
25. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement.
26. GOVERNING LAW. This Agreement will be construed in accordance with
the laws of the State of Colorado.
27. CAPTIONS. The captions used in this Agreement are for convenience
only and shall not affect the meaning, construction or interpretation of any
term, provision or condition of this Agreement.
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<PAGE> 13
28. Arbitration. Any claim or controversy arising out of or relating to
the execution, interpretation, performance and enforceability of this Agreement,
the Employee Lease or the Sublease Agreement, that cannot be resolved by mutual
agreement of the parties shall be submitted to arbitration. The arbitration
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association in San Diego, California, who shall have the
powers to hear motions, control discovery, conduct hearings and otherwise do all
that is necessary to resolve the matter. The arbitration award shall be final
and binding, and judgment on the award may be entered in any court having
jurisdiction thereof. It is expressly understood that the parties have chosen
arbitration to avoid the time, burdens, costs and publicity of a court
proceeding, and the arbitrator is expected to handle all aspects of the matter,
including discovery and any hearings, in such a way as to minimize the expense,
time, burden and publicity of the process, while assuring a fair and just
result. In particular, the parties expect that the arbitrator will limit
discovery by controlling the amount of discovery that may be taken (e.g., the
number of depositions or interrogatories) and by restricting the scope of
discovery to only those matters clearly relevant to the dispute. It is further
understood that any award of punitive damages by the arbitrator would be
inconsistent with the commercial purposes of this Agreement, the Employee Lease
or the Sublease Agreement and the status of the parties with respect to one
another, and therefore, neither the arbitrator nor any other tribunal is
authorized or empowered to award punitive damages in any proceeding based upon
the Agreement, the Employee Lease or the Sublease Agreement or the dealings
hereby and thereby. Each party shall bear its own attorneys' fees and expenses
in connection with any claim or cause of action brought under this Agreement or
the other agreements and any resolution of disputes under this Section 28. The
provisions of this Section 28 shall survive the termination or expiration of
this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 14
IN WITNESS WHEREOF, the parties have set forth their signatures below:
THE COMPANY
Date: September 30, 1998 By: David F. Hale
------------------ ---------------------------------------
Signature: /s/ DAVID F. HALE
--------------------------------
Title: President
-------------------------------------
HEALTH SCRIPT
Date: September 30, 1998 By:
------------------ ---------------------------------------
Signature: /s/
--------------------------------
Title: General Manager
-------------------------------------
14
<PAGE> 15
ATTACHMENT A
PERFORMANCE STANDARDS
All orders for the Company will be processed and shipped with the same
efficiency and expediency as Health Script Pharmacy, provided that all materials
are and remain readily available from manufacturers. In the event that any
item(s) becomes unavailable, Health Script on behalf of the Company will make
every effort to procure the items(s) from an alternative source. Notwithstanding
the foregoing, Manager will process and ship at least 90% per month of all
orders not requiring pharmacist intervention (i.e., contacting a patient or
prescriber) approved in accordance with the Company's "business rules" within 48
hours of receipt, except that orders received on Thursday shall ship not later
than Saturday and orders received on Friday shall ship not later than Monday.
Manager will "date-stamp" each order when and as received by Manager. The
Company and Manager will agree on a monthly reporting procedure with respect to
Manager's order fulfillment performance in light of the 90% processing and
shipping standard.
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<PAGE> 16
ATTACHMENT B
ANCILLARY EQUIPMENT
<TABLE>
<CAPTION>
Price/Unit Quantity Total $
<S> <C> <C> <C>
INITIAL PHARMACY SETUP PROVIDED BY
HEALTH SCRIPT
Shipping station $ 5,000 1 $ 5,000
Hood 3,000 1 3,000
Capsule machines 750 1 750
-------
TOTAL SETUP PROVIDED BY HS $ 8,750
=======
INITIAL PHARMACY SETUP PROVIDED BY
WFPS
HBS Site License $ 5,500 1 $ 5,500
Compaq Server 15,000 1 15,000
Computers 2,000 3 6,000
Fax machine 1,000 1 1,000
Line printers 500 2 1,000
Laser printers 2,000 2 4,000
Pharmacy utensils and supplies 3,250 1 3,250
Compound area buildout (add 225 sq ft) 5,000 1 5,000
Six month buildout - new space (required only when the 25,000 1 25,000
-------
Company achieves business volumes in excess of 20,000
orders per month)
TOTAL SETUP PROVIDED BY WFPS $65,750
=======
</TABLE>
<PAGE> 17
ATTACHMENT C
FORM OF EMPLOYEE LEASE AGREEMENT
<PAGE> 18
EMPLOYEE LEASE AGREEMENT
THIS EMPLOYEE LEASE AGREEMENT (this "Agreement") is made this 30th day
of September, 1998 between WOMEN FIRST PHARMACY SERVICES, INC, a Delaware
corporation (the "Company") and HEALTH SCRIPT a division of Dura
Pharmaceuticals, Inc., a Delaware corporation ("HS").
WHEREAS, HS and the Company are parties to a Pharmacy Management
Agreement of even date herewith (the "Management Agreement"), pursuant to which
HS will act as a contract manager of a mail order pharmacy to be owned by the
Company, in exchange for, among other things, a monthly management fee; and
WHEREAS, HS desires to provide to the Company, when and to the extent
requested by the Company, contract human resource services, including the
services of one or more leased employees, hereinafter called an "HS Employee,"
or collectively, the "HS Employees," and the Company desires to contract with HS
for said services; and
WHEREAS, the execution and delivery of this Agreement by HS is a
condition to the Company's execution and delivery of the Management Agreement;
then, in consideration of the promises of the parties contained in this
Agreement, the parties agree as follows:
1. THE SERVICES, RIGHTS AND DUTIES OF HS.
(a) HS shall provide contract human resource services to the Company
for the Pharmacist-in-Charge and for the services of other
pharmacy personnel for special projects not otherwise provided
under the Management Agreement, for the job titles set forth in
Exhibit A to this Agreement in exchange for valuable
consideration as set forth in Section 3 below. The HS Employees
provided to the Company hereunder shall have such licenses,
certifications, education, training, skills and experience as
are (i) reasonably necessary to perform their respective duties
and responsibilities in a professional, competent and efficient
manner, and (ii) reasonably comparable to those of other
individuals performing substantially similar jobs elsewhere in
the pharmacy industry. HS shall provide the human resource
services hereunder when and to the extent requested in writing
from time to time by the Company, immediately upon written
request in the case of a Pharmacist-in-Charge and upon
reasonable prior written notice in the case of all other job
titles listed on Exhibit A.
(b) HS after consultation with and participation from the Company,
shall have all rights of an employer including a right of
direction and control over HS Employees and management of
safety, risk and hazard control at the work site or sites
affecting its employees as required by law and shall have
authority to hire, discipline, reassign and terminate HS
Employees. At the reasonable request of the Company after
consultation with HS, HS shall
<PAGE> 19
reassign and replace any HS Employee provided under this
Agreement which the Company reasonably determines does not meet
the criteria set forth in Section 1(a) above or which is failing
to perform his or her duties and responsibilities in a
professional, competent and efficient manner.
(c) HS shall be solely responsible for payroll functions and payment
of all taxes, wages, insurance and benefits for HS Employees
covered by this Agreement.
(d) HS shall secure and maintain coverage for Worker's Compensation
for HS Employees covered under this Agreement. HS shall prepare
the required documents pertaining to reporting claims under
Workers' Compensation, and shall assist injured employees in
obtaining medical and rehabilitation benefits. HS shall be
responsible for any and all Worker's Compensation claims which
arise during the term of this Agreement.
(e) HS shall indemnify and hold the Company, its shareholders,
officers, directors, employees, associates and representatives,
harmless from and against any and all losses, liabilities,
claim, damages, injuries, costs and expenses, of whatever nature
(including reasonable attorneys' fees and costs), arising from
an act or omission of HS or any HS Employee or agent, where said
act or omission was engaged in without the prior consent of the
Company. This Section 1(e) shall survive the termination or
expiration of this Agreement.
(f) In the event law, rules, regulations or governmental policies
related to the items and services provided hereunder are
introduced or changed so as to materially adversely affect
either party to this Agreement, the parties agree in good faith
to renegotiate the terms of this Agreement. Furthermore, in the
event that any part of this Agreement is determined to violate
federal or state statutes, rules or regulations, HS and the
Company agree to renegotiate the terms of this Agreement in good
faith in order to comply with such statute, rule or regulation.
If this Agreement cannot be amended to permit the Company or HS
to comply with applicable law and continue on the same economic
terms and service standards, this Agreement may be terminated by
either party by giving the other party written notice of
termination at least thirty (30) days prior to the effective
date of such termination.
2. RIGHTS AND DUTIES OF THE COMPANY.
(a) HS shall determine, according to the Management Agreement, the
general work procedures to be followed at the work site by HS
Employees covered under this Agreement regarding performance of
their duties on behalf of the Company. The Company agrees to
comply with all applicable federal, state and local laws
affecting HS employees, and HS will, within twenty-four (24)
hours, notify the Company of any alleged violation.
2
<PAGE> 20
(b) The Company shall indemnify and hold HS, its employees,
shareholders, officers, directors and sales agents harmless from
and against any and all losses, liabilities, claims, demands,
damages, injuries, costs and expenses, of whatever nature
(including reasonable attorneys' fees and costs), arising as a
result of the acts or omissions of the Company or its agents.
Such agents shall not include HS or the HS Employees. This
Section 2(b) shall survive termination or expiration of this
Agreement.
(c) The Company agrees that it shall obtain and pay the
out-of-pocket costs of any required federal, state, county or
municipal licenses or permits required in connection with the
operation of its business or its utilization of the services of
any of the HS Employees. Subject to the prior review and
approval of the Company, HS will prepare and file on behalf of
the Company all applications and other filings for any required
Federal, State, County or Municipal licenses or permits required
in connection with the operation of the Pharmacy or its
utilization of the services of the HS Employees or any of its
personnel in the State of Colorado.
3. FEES.
(a) For services rendered under this Agreement, HS shall be entitled
to a fee as specified on Exhibit "A" hereto, entitled "Fee
Schedule." The fees are payable as specified below. The fees are
guaranteed until the first anniversary of the Commencement Date
of this Agreement set forth in Exhibit "A" hereto. On such date
and on each anniversary thereafter, HS may increase its fees by
a percentage equal to the percentage increase, if any, in the
United States Department of Labor Consumer Price Index for all
urban consumers (U.S. City Average) published by the Bureau of
Labor Statistics ("CPI") for the preceding twelve months.
(b) A late payment charge of two percent (2%) will be added to all
accounts not paid when due. Payment is due according to payment
policies stated below. An unpaid balance will also be subject to
a periodic charge of one and one-half percent (1 1/2%) per
calendar month until paid. HS reserves the right to suspend
services to the Company upon seven (7) days' prior written
notice of such suspension until full payment has been made on
any past due accounts.
(c) If for any reason whatsoever payment is not timely submitted to
HS for its services in accordance with the Agreement, it will be
considered a material breach of this Agreement and HS shall have
the right to immediately terminate this Agreement and enforce
its rights hereunder upon twenty (20) days' prior written notice
of termination, if such payment is not paid in full during such
20-day period.
3
<PAGE> 21
4. PAYMENT POLICIES.
(a) The Company shall make payment in cash, cashiers check, wire
transfer or funds on deposit, within thirty (30) days of the
receipt of HS's invoice. HS will generate invoices on a monthly
basis.
5. TERM OF AGREEMENT.
The term of this Agreement shall be two (2) years from the Commencement
Date as shown on Exhibit "A" attached hereto (hereafter referred to as "the
initial term"). Following the completion of the initial term, this Agreement
shall continue year to year until the Management Agreement is terminated or this
Agreement is terminated by mutual agreement of the parties. This Agreement shall
terminate automatically upon the termination of the Management Agreement.
Termination of this Agreement shall not affect any liabilities or obligations of
a party hereunder which have accrued prior to the termination date.
Notwithstanding any provision of this Agreement to the contrary, the Company's
obligations under this Agreement shall be subject in all respects to the
approval by the Women First HealthCare, Inc. Board of Directors and by the
holders of two-thirds of the outstanding shares of Series A Preferred Stock of
Women First HealthCare, Inc. If this condition is not satisfied or waived by the
Company within 45 days of the execution of this Agreement, this Agreement shall
be null and void and neither party shall have any obligations to the other
hereunder.
5. MISCELLANEOUS.
(a) The Company shall make payment in cash, cashiers check, wire
transfer or funds on deposit, within thirty (30) days of the
receipt of HS's invoice. HS will generate invoices on a monthly
basis.
(b) Assignability. This Agreement shall not be assigned by the
Company or HS without prior written consent of the other party,
which consent will not be unreasonably withheld or delayed. Any
attempt to assign any mutual rights, duties or obligations which
arise under this Agreement without such consent shall be void. A
reorganization, merger or transfer of stock will not constitute
an assignment. Each party consents to the assignment of this
Agreement to the purchaser of all or substantially all of such
party's assets, provided that all liabilities and obligations of
the assigning party are assumed in full by the purchaser.
(c) Severability. If any provision of this Agreement (or any portion
thereof) shall be held to be invalid, illegal or unenforceable,
the validity, legality or enforceability of the remainder of
this Agreement shall not in any way be affected or impaired
thereby.
(d) Governing Law. The validity of this Agreement and of any of its
terms or provisions, as well as the rights and duties of the
parties to this Agreement shall be governed by the laws of the
State of Colorado.
(e) Waiver. The failure by either HS or the Company to insist upon
strict performance of any of the provisions contained herein
shall in no way constitute a waiver of any of its rights as set
forth herein, at law or equity, or a waiver by either HS or the
Company of any other provision or
4
<PAGE> 22
subsequent default by the other in the performance of or
compliance with any of the terms and conditions set forth
herein.
(f) Headings. The headings in this Agreement are intended for
convenience or reference and shall not affect its
interpretation.
(g) Notices. Any notices (including notices of address changes)
under this Agreement must be in writing and must be delivered in
person or by nationally-recognized overnight courier (e.g.,
Federal Express) or by mail, postage prepaid, return receipt
requested, to the parties at the addresses set forth below:
HS: HEALTH SCRIPT
Attention: General Manager
9 Inverness Drive East
Englewood, Colorado 80112
With a copy to: Dura Pharmaceuticals, Inc.
Attention: Office of General Counsel
7475 Lusk Boulevard
San Diego, CA 92121
THE COMPANY: WOMEN FIRST PHARMACY SERVICES, INC.
12220 El Camino Real, Suite 400
San Diego, CA 92130
With a copy to: Latham & Watkins
701 "B" Street, Suite 2100
San Diego, CA 92101
Attn: Scott N. Wolfe, Esq.
(h) Arbitration. Any dispute, claim or controversy arising under or
out of this Agreement or the interpretation thereof shall be
resolved by binding arbitration in the manner set forth in
Section 28 of the Management Agreement.
5
<PAGE> 23
ATTACHMENT D
FORM OF SUBLEASE AGREEMENT
18
<PAGE> 24
SUBLEASE AGREEMENT
THIS AGREEMENT made this 30th day of September, 1998 between WOMEN FIRST
PHARMACY SERVICES, INC., a Delaware corporation ("Subtenant"), and HEALTH SCRIPT
a division of DURA PHARMACEUTICALS, INC., a Delaware corporation
("Sub-landlord").
RECITALS
WHEREAS, Inverness Venturers, a Colorado general partnership
("Landlord"), and Sub-landlord, as Lessee, entered into that certain Lease
Agreement, dated November 10, 1994 (the "Master Lease"). By the terms of the
Master Lease, the real property described in Section 1 of this Sublease, and in
Section 2.1 of the Master Lease is leased to Sublandlord for a term ending on
January 31, 2001, subject to earlier termination as provided in the Master
Lease. A copy of the Master Lease is attached to this Sublease as Exhibit "A"
and incorporated herein by this reference.
WHEREAS, Sub-landlord desires to sublease to Subtenant a portion of the
real property currently leased by Sub-landlord under the terms of the Master
Lease, and Subtenant desires to lease that property from Sub-landlord.
WHEREAS, The parties intend that, as a condition precedent to their
respective obligations hereunder, the Landlord shall first consent to this
Sublease by executing a written consent to this Sublease.
NOW THEREFORE, in consideration of the Subleased Premises (as defined
herein) and mutual covenants contained herein, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged,
Sub-landlord and Subtenant agree as follows:
1. LEASING AND DESCRIPTION OF PROPERTY. Subject to the terms, conditions
and covenants set forth in this Sublease and the Master Lease, Sub-landlord
hereby leases to Subtenant, and Subtenant hereby leases from Sub-landlord,
approximately 225 square feet of the premises as set forth in the Master Lease,
as shown on the floor plan of the building attached hereto as Exhibit "B" (the
"Subleased Premises"). Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Master Lease.
2. TERM; OPTIONS TO EXTEND. This Sublease shall commence on the 30th day
of September, 1998 (the "Sublease Commencement Date"). The term of this Sublease
shall end on the 29th day of September, 2000. The term of this Sublease may be
extended for a one (1) year period upon written notice thereof delivered by
Subtenant to Sub-landlord no later than ninety (90) days prior to the expiration
of the term. Termination of this Agreement is automatic upon the termination of
the Pharmacy Management Agreement between Subtenant and Sub-landlord dated the
30th day of September, 1998. Notwithstanding any provision of this Sublease to
the contrary, Subtenant's obligations under this Sublease shall be subject in
all respects to the approval by the Women First HealthCare, Inc. Board of
Directors and by the holders of two-thirds of the outstanding shares of Series A
Preferred Stock of Women First HealthCare, Inc. If this condition is not
1
<PAGE> 25
satisfied or waived by Subtenant within 45 days of the execution of this
Sublease, this Sublease shall be null and void and neither party shall have any
obligations to the other hereunder.
3. PAYMENTS TO SUB-LANDLORD.
(a) Rent. Subtenant shall pay to Sub-landlord as annual base rent
("Base Rent") for the Subleased Premises of Twenty-Two U.S.
Dollars ($22.00) per square foot of subleased space, payable in
equal monthly increments. Base Rent shall commence once
Subtenant receives its pharmacy license from the Colorado State
Board of Pharmacy, and Base Rent shall be payable in advance
beginning on this date and on the first day of each calendar
month thereafter during the Sublease term. Base Rent shall
include those services and utilities described in Section 3 of
the Master Lease, for which Sub-landlord shall be responsible.
(b) Prorations. Base Rent due for any partial month shall be
pro-rated.
4. USE OF SUBLEASED PREMISES. Subtenant shall use the Subleased Premises
for only those uses permitted under the Master Lease.
5. QUIET ENJOYMENT. Sub-landlord covenants that Subtenant shall be
entitled to quiet enjoyment of the Subleased Premises, provided that Subtenant
complies with the terms of this Sublease.
6. CONSTRUCTION OF IMPROVEMENTS.
(a) Subtenant Improvements. Sub-landlord shall construct Subtenant
Improvements and make installations in, on or about the
Subleased Premises in accordance with plans and specifications
approved by Subtenant, Sub-landlord and Landlord. The work
described in the preceding sentences and the resulting
installations are referred to in this Sublease as the "Subtenant
Improvements".
(b) Cost of Subtenant Improvements. Sub-landlord, at Subtenant's
sole cost and expense, shall provide all Subtenant Improvements
necessary for Subtenant's business operation within and at the
Subleased Premises.
7. CONDITION OF SUBLEASED PREMISES.
(a) Compliance with Laws. To Sub-landlord's actual knowledge
(without any duty of Sub-landlord to investigate), the
construction, the current and proposed uses, and the operation
of the premises subject to the Master Lease and this Sublease
are in full compliance with applicable building and seismic
codes, environmental, zoning and land use laws, and other
applicable local, state and federal laws, regulations and
ordinances. Sub-landlord has not received written notice of any
non-compliance with the above requirements and, to
Sub-landlord's actual knowledge (without any duty of
Sub-landlord to investigate), is not aware of any situation
which, with the passage of time, would result in a notice of
such non-compliance being given with respect to the
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<PAGE> 26
construction, current and proposed uses, or operation of the
premises subject to the Master Lease and this Sublease.
(b) Hazardous Substances. Subtenant shall have no liability or
responsibility for toxic or hazardous materials or substances in
existence on the Subleased Premises prior to Subtenant's
occupancy of the Subleased Premises or to the extent the same
result from Sub-landlord's acts or omissions, or which occur on
any portion of Sub-landlord's leased property not occupied by
Subtenant, unless caused by Subtenant, its agents, employees,
invitees or guests. Subtenant covenants and agrees not to
suffer, permit, use, introduce or maintain in, on, under or
about any portion of the Subleased Premises, any asbestos,
polychlorinated biphenyl, or any other hazardous or toxic
materials, wastes and substances which are defined, determined
or identified as such (including petroleum products if they are
defined, determined or identified as such) in any federal, state
or local laws, rules or regulations (whether now existing or
hereafter enacted or promulgated) or any judicial or
administrative orders or judgments, except for such materials,
wastes or substances as are customarily used in connection with
Subtenant's use of the Subleased Premises in accordance with
this Sublease, and Subtenant agrees that such materials, wastes
and substances will only be used, stored, transported and
disposed of in compliance with all applicable environmental
laws. Subtenant agrees that it will maintain Material Safety
Data Sheets for the Subleased Premises in accordance with
applicable law and will furnish copies thereof to Sub-landlord,
Landlord (or to any lender to Landlord) upon reasonable request
therefor from time to time. Subtenant shall indemnify, defend
and hold harmless Sub-landlord and its lenders from and against
any loss, cost, damage, liability, expense, suit, action or
order arising in connection with any breach by Subtenant of any
of the covenants and agreements set forth in the preceding
sentence.
Sub-landlord represents and warrants that, to its actual knowledge, without duty
to investigate:
(i) Sub-landlord has conducted its operations at the Subleased
Premises so as not to suffer, permit, use, introduce or maintain in, on, under
or about any portion of the Subleased Premises, any asbestos, polychlorinated
biphenyl's, or any other hazardous or toxic materials, wastes and substances
which are defined, determined or identified as such (including petroleum
products if they are defined, determined or identified as such) in any federal,
state or local laws, rules or regulations (whether now existing or hereafter
enacted or promulgated) or any judicial or administrative orders or judgments,
except for such materials, wastes or substances as were and are customarily used
in connection with Sub-landlord's use of the Subleased Premises in accordance
with the Master Lease; and
(ii) Such materials, wastes and substances have only been (and
prior to the commencement of this Sublease will only be) used, stored,
transported and disposed of in compliance with all applicable environment laws.
(a) Subtenant's Inspections and Acceptance. Subtenant shall perform
and shall solely rely upon its own inspections of the Subleased
Premises and shall fully satisfy itself as to the condition of
the Subleased Premises and all parts thereof prior to
3
<PAGE> 27
acceptance of possession of the Subleased Premises. Except as
expressly provided in this Sublease, Sub-landlord makes no
representation or warranty regarding the condition of the
Subleased Premises or the common areas or the fitness of the
Subleased Premises for Subtenant's intended use.
(b) Sub-landlord's Actual Knowledge. For purposes of this Sublease,
Sub-landlord's actual knowledge shall be deemed to be the actual
knowledge, without duty to investigate, of Michael T. Borer,
General Manager of Sub-landlord.
8. APPLICABILITY OF MASTER LEASE. This Sublease is subject and
subordinate to the terms and conditions of the Master Lease.
9. ASSUMPTION; INCORPORATION OF MASTER LEASE PROVISIONS AS SUBSTANTIVE
PARTS OF THIS SUBLEASE.
(a) Assumption. Except as otherwise expressly provided in this
Sublease, Subtenant hereby expressly assumes and agrees to
perform and comply with all the obligations required to be kept
or performed by the Sub-landlord under the provisions of the
Master Lease to the extent that they are applicable to the
Subleased Premises. In the event of any default (as event of
default is defined in Section 15 of the Master Lease which is
incorporated herein) by Subtenant under this Sublease, or under
any of the obligations assumed by Subtenant under the Master
Lease, Sub-landlord shall have the same rights and remedies
against Subtenant as those available to the Landlord under the
Master Lease. The foregoing notwithstanding, Subtenant shall not
assume the obligations of Sub-landlord under the following
Master Lease provisions: Sections 1-5, 7, 10-13 and 26-29;
provided, however, that nothing herein shall be deemed to
relieve Subtenant from complying with the covenants of these
sections.
(b) Use of Master Lease Provisions To Define Sub-landlord/ Subtenant
Rights and Obligations. To the extent this Sublease refers to or
incorporates specific provisions of the Master Lease in order to
define rights or obligations of Sub-landlord and Subtenant
between Sub-landlord and Subtenant under this Sublease (e.g., as
in Section 9.a., above), such references shall be deemed to
refer to and incorporate the Master Lease provision referenced
but with all appropriate defined terms revised to include
Sublease defined terms (e.g., the terms Lessor, Lessee and
Premises shall be deemed to refer to Sub-landlord, Subtenant and
Subleased Premises, as appropriate).
(c) Incorporation of Certain Master Lease Provisions. In addition to
other Master Lease provisions specifically referenced elsewhere
in this Sublease, the following provisions of the Master lease
are specifically incorporated herein by reference, and shall
define the rights and obligations of Sub-landlord and Subtenant
with respect to each other and the subject matters addressed
therein: Sections 6, 9, 14-19 and 21-25.
(d) Subtenant shall be required to perform alterations, additions or
improvements to the Sublease Premises in order to comply with
laws, ordinances, regulations
4
<PAGE> 28
or orders only to the extent that such compliance is required
due to Subtenant's particular use of the Sublease Premises.
10. OBLIGATIONS OF SUB-LANDLORD.
(a) Continuation of Master Lease. Sub-landlord will maintain the
Master Lease during the entire term of this Sublease, and will
not perform any act, or omit to perform any act not assumed by
Subtenant hereunder, which would result in a default under the
Master Lease (subject, however, to any earlier termination of
the Master Lease not resulting from the fault of Sub-landlord).
Sub-landlord agrees not to terminate the Master Lease or to
modify the Master Lease in a manner, which would materially,
adversely affect Subtenant's rights hereunder without the prior
written consent of Subtenant. Any modification made without that
consent shall, at Subtenant's election, be null and void and
shall have no effect on the rights of Subtenant under this
Sublease. Sub-landlord shall promptly deliver to Subtenant any
notice of default received from Landlord pursuant to the Master
Lease.
(b) Discontinuation of Master Lease. If the Master Lease is
terminated due to the fault of the Sub-landlord, the
Sub-landlord agrees to reimburse the Subtenant for its Subtenant
Improvements.
(c) Services and Utilities. Sub-landlord shall contract and pay for
all water, gas, heat, light, power, waste removal, sewer and
other utilities and services supplies to the Subleased Premises,
together with any taxes thereon.
11. INDEMNIFICATION.
(a) Sub-landlord's Obligation. Sub-landlord shall indemnify, defend
and hold harmless Subtenant and its officers, directors, agents,
and employees from and against any claims, damages, costs,
expense (including an amount equal to reasonable attorneys' fees
and costs), or liabilities arising out of or in any way
connected with Sub-landlord's performance under this Sublease
including, without limitation, claims, damages, costs, expenses,
or liabilities for loss or damage to any property, or for death
or injury to any person or persons in proportion to and to the
extent that such claims, damages, costs, expenses, or
liabilities arise from the negligence or willful acts or
omissions of Sub-landlord, its officers, directors, agents,
employees, or invitees.
(b) Subtenant's Obligation. Subtenant shall indemnify, defend and
hold harmless Sub-landlord and its officers, agents, and
employees from and against any claims, damages, costs, expenses
(including an amount equal to reasonable attorneys' fees and
costs), or liabilities arising of out or connected with
Subtenant's performance under this Sublease including, without
limitation, claims, damages, costs, expenses, or liabilities for
loss or damage to any property or for death or injury to any
person or persons in proportion to and to the extent that such
claims, damages, costs, expenses, or liabilities arise from the
negligence or willful acts or omissions of Subtenant, its
officers, directors, agents, employees, or invitees.
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<PAGE> 29
12. INSURANCE. Notwithstanding the continuing obligation of the parties
to maintain insurance coverage as required by Section 12 of the Master Lease
with a single limit of not less than $1,000,000:
(a) Subtenant shall maintain insurance as follows (the following
requirements are supplementary to the Master Lease
requirements):
(i) Comprehensive or Commercial Form General Liability
Insurance (contractual liability included), on an
occurrence form, with minimum limits as follows:
<TABLE>
<S> <C>
Each Occurrence $1,000,000
Products/Completed Operations Aggregate $1,000,000
Personal and Advertising Injury $1,000,000
General Aggregate $5,000,000
</TABLE>
(ii) Property Insurance, Fire and Extended Coverage Form in an
amount sufficient to reimburse Subtenant for all of its
equipment, trade fixtures, inventory, fixtures and other
personal property located on or in the Subleased Premises
including all leasehold improvements hereinafter
constructed or installed.
The insurance and the coverage referred to under Subsection (a)(i) and (a)(ii)
of this Section 12 shall be endorsed to include Landlord and Sub-landlord as
additional insured, and shall include cross-liability endorsements. Prior to the
Sublease Commencement Date, Subtenant shall furnish Sub-landlord with
Certificates of Insurance evidencing compliance with all requirements for
insurance under this Sublease. Such Certificates shall further provide for
thirty (30) days advance written notice to Sub-landlord of any modification,
change or cancellation of any of the above insurance coverage.
The coverage required herein shall not in any way limit the liability of
Subtenant, or its officers, directors, agents, or employees.
13. WAIVER OF SUBROGATION. Subtenant and Sub-landlord each hereby
release and relieve the other, and waive their entire right of recovery against
the other, for losses or damages arising out of or incident to the risks insured
against (or required to be insured against) under this Sublease and the Master
Lease, or insured against under any policy held by the releasing party and then
in effect, which losses or damages occur in, on or about the Subleased Premises,
and whether due to the negligence of Subtenant or Sub-landlord or their agents,
employees, contractors or invitees.
Each of Sub-landlord and Subtenant shall cause each insurance policy obtained by
it to provide that the insurance company waives all right of recovery by way of
subrogation against either party in connection with any damage covered by any
policy. If any insurance policy cannot be obtained with a waiver of subrogation,
or is obtainable only by the payment of an additional premium charge, the party
undertaking to obtain the insurance shall notify the other party of this fact.
The other party shall have a period of ten (10) business days within which to
agree to pay the additional premium if such a policy is obtainable at additional
premium charged,
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<PAGE> 30
the other party is relieved of the obligation to obtain a waiver of subrogation
rights with respect to the particular insurance involved.
14. ASSIGNMENT AND SUBLETTING. Subtenant shall have no right to assign
or transfer its interest in this Sublease or any part thereof, or to sublet,
transfer or convey, in any manner, the Sublease Premises or any part thereof,
without the prior written consent of both Sub-landlord and Landlord.
Sub-landlord's consent shall not be unreasonably withheld. If Subtenant attempts
to assign or transfer its interest in this Sublease or any part thereof, or
attempts to sublet, transfer or convey the Sublease Premises or any part thereof
without first obtaining such written consents, then any such attempted
assignment, transfer, sublet or conveyance shall be null and void and of no
force or effect. Notwithstanding the foregoing, Subtenant shall have the right
to assign, sublease or transfer its interest in this Sublease to a wholly owned
subsidiary of Subtenant without Sub-landlord's written consent, provided
Subtenant obtains the written consent of Landlord for such assignment, sublease
or transfer in accordance with the Master Lease or a letter from Landlord
waiving the requirement of Landlord's consent for such assignment, sublease or
transfer.
15. REPAIR AND MAINTENANCE. Except as set forth in Subsection 15a.
hereto, Sub-landlord shall be solely responsible for the obligations set forth
in Section 8 of the Master Lease.
(a) Negligent Acts or Omissions of Subtenant. Notwithstanding the
foregoing, Subtenant will promptly pay to Sub-landlord the
reasonable costs of any repairs or maintenance required as a
result of negligent acts or omissions or willful conduct of
Subtenant or its officers, directors, agents, employees, or
invitees.
16. ALTERATIONS, MECHANICS' LIENS.
(a) Alterations. Subtenant shall have no right to make structural
alterations, improvements or additions to the Subleased
Premises. Subtenant shall have the right to make non-structural
alterations, improvements, additions or Utility Installations to
the Subleased Premises not exceeding two thousand dollars
($2,000.00) without the prior written consent of Sub-landlord.
All other alterations, additions, improvements and Utility
Installations shall require the prior written consent of
Sub-landlord and Landlord. Sub-landlord's consent shall not be
unreasonably withheld. Notwithstanding the foregoing, all
proposed alterations shall be subjected to satisfaction of the
requirements of the Master Lease.
(b) Condition at Termination. Upon termination of this Sublease,
Subtenant shall remove any fixtures, machinery and equipment
installed in the Subleased Premises by Subtenant unless mutually
agreed otherwise. Subtenant shall repair, at its sole cost, any
damage to the Subleased Premises caused by such removal. Upon
termination of this Sublease, Subtenant shall return the
Subleased Premises in the same condition as when delivered to
Subtenant, excepting reasonable wear and tear and alterations,
additions, improvements and Utility Installations approved in
writing by Sub-landlord and Landlord and removal of which
Landlord has not required. To the extent the Master Lease
requirements pertaining to surrender contain obligations
respecting the Subleased Premises in addition to those set forth
in this Section 16.b., the Subtenant
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<PAGE> 31
shall perform all such additional obligations prior to
surrender. Sub-landlord shall have the same rights as lessor
under the Master Lease Section 16 in connection with the
Subleased Premises and Subtenant's surrender of same, and shall
have the right to exercise such rights as against Subtenant.
(c) Mechanics' Liens. Each party shall keep the Subleased Premises
free from any liens arising out of any work performed by,
materials furnished to, or obligations incurred by, each such
party, respectively.
17. ATTORNEYS' FEES. If any action or other proceeding arising out of
this Sublease is commenced by either party to this Sublease concerning the
Subleased Premises, then as between Sub-landlord and Subtenant, the prevailing
party shall be entitled to receive from the other party, in addition to any
other relief that may be granted, the reasonable attorneys' fees, costs, and
expenses incurred in the action or other proceeding by the prevailing party.
18. NOTICES. All notices and demands of any kind which any party may be
required or desires to serve upon the other parties under the terms of this
Sublease shall be in writing, and shall be served upon the other parties at the
addresses set forth beside their names set forth below. These addresses may be
changed by a written notice given in accordance with this Section.
To Sub-landlord: Health Script
9 Inverness Drive East
Englewood, CO 80112
Attn: General Manager
Facsimile number: (303) 799-6121
with a copy to: Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attn: Office of the General Counsel
Facsimile number: (619) 657-0981
To Subtenant: Women First Pharmacy Services, Inc.
12220 El Camino Real, Suite 400
San Diego, California 92130
Attn: President
Facsimile number: (619) 509-1353
with a copy to: Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attn: Scott N. Wolfe, Esq.
Facsimile number: (619) 696-7419
8
<PAGE> 32
Notices may be sent only by the following means: personal delivery; United
States mail, registered or certified, return receipt requested; or telephonic
facsimile process.
Notices shall be effective only upon actual receipt by the party to whom notice
is given or refusal to accept delivery. No notice shall be effective except as
delivered in a manner prescribed in this section. It is intended that the party
sending a notice shall bear the risk of non-delivery or late delivery.
19. BINDING EFFECT. This Sublease shall be binding upon and inure to the
benefit of the permitted successors and assigns of Sub-landlord and Subtenant.
20. ENTIRE AGREEMENT. This Sublease, together with the exhibits hereto
and incorporated herein, sets forth the entire agreement relating to the
occupancy of the Subleased Premises by Subtenant. No waiver of any provision of
this sublease or of any breach or default hereunder shall be held or waivers of
any other provision or any other breach or default. No agreement or
understanding pursuant to or contemplated by this Sublease and no consent to,
change in or modification of, any provision of this Sublease shall be effective
unless contained in a writing which is signed by the party against whom
enforcement is sought.
21. TIME OF ESSENCE. Time is of the essence of this Sublease.
22. LANDLORD'S CONSENT. This Sublease shall not become effective until
Landlord has given its written consent to this Sublease.
23. LENDER'S CONSENT. If any security documents which cover the
subleased premises provide the lender with consent rights with respect to this
Sublease and, despite the use of reasonable efforts, such lender withholds its
consent to such Sublease then, at the written election of Sub-landlord, this
Sublease shall automatically terminate without further liability or obligation
on the part of Sub-landlord or Subtenant, except for those provisions which by
their terms survive the termination of the Sublease.
24. COUNTERPARTS. This Sublease may be executed in oe or more
counterparts, all of which will be considered one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
9
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Sublease as the date
first set forth above.
THE COMPANY
By:
-----------------------------------------------------
Signature:
-----------------------------------------------------
Title:
-----------------------------------------------------
HEALTH SCRIPT
By:
-----------------------------------------------------
Signature:
-----------------------------------------------------
Title:
-----------------------------------------------------
10
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Sublease as the date
first set forth above.
THE COMPANY
By: DAVID F. HALE
-----------------------------------------------------
Signature: /s/ David F. Hale
-----------------------------------------------------
Title: President & CEO
-----------------------------------------------------
HEALTH SCRIPT
By:
-----------------------------------------------------
Signature:
-----------------------------------------------------
Title:
-----------------------------------------------------
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<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Sublease as the date
first set forth above.
THE COMPANY
By:
-----------------------------------------------------
Signature:
-----------------------------------------------------
Title:
-----------------------------------------------------
HEALTH SCRIPT
By: MICHAEL BOSCH
-----------------------------------------------------
Signature: /s/ Michael Bosch
-----------------------------------------------------
Title: General Manager
-----------------------------------------------------
12
<PAGE> 36
EXHIBIT A
MASTER LEASE
<PAGE> 37
ATTACHMENT E
CALCULATION OF PHARMACY MANAGEMENT FEE
PHARMACY MANAGEMENT FEE
<TABLE>
<CAPTION>
Minimum Maximum Monthly Fee and Per Rx Fee(*)
<S> <C> <C> <C> <C> <C>
Orders per month ***
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
Orders per month
</TABLE>
(*) Per RX assessed on all orders dispensed.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
15
<PAGE> 1
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. 1 to the Registration
Statement (Form S-1 No. 333-74367) and related Prospectus of Women First
HealthCare, Inc. for the registration of 4,500,000 shares of its common stock.
/s/ Ernst & Young LLP
San Diego, California
May 19, 1999
